SEPARATE ACCOUNT I OF WASHINGTON NATIONAL INSURANCE CO
N14EL24, 1995-09-22
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  As filed with the Securities and Exchange Commission on September 22, 1995

                                                             File No. 33-_______

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM N-14

             REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

|_| Pre-Effective Amendment No. ___         |_| Post-Effective Amendment No. ___

                        (Check appropriate box or boxes.)


                Exact Name of Registrant as Specified in Charter:

SEPARATE ACCOUNT I
OF WASHINGTON NATIONAL                                     SCUDDER VARIABLE LIFE
INSURANCE COMPANY                                                INVESTMENT FUND

                  Address and Telephone Number (with Area Code)
                         of Principal Executive Offices:

300 Tower Parkway                                        Two International Place
Lincolnshire, Illinois  60069-3665             Boston, Massachusetts  02110-4103
(708) 793-3000                                                    (617) 295-2567

                     Name and Address of Agent for Service:

Craig R. Edwards, Esquire                                    Thomas F. McDonough
Washington National Insurance Company             Scudder, Stevens & Clark, Inc.
300 Tower Parkway                                        Two International Place
Lincolnshire, Illinois  60069-3665             Boston, Massachusetts  02110-4103

                         Copy of all communications to:

Frederick R. Bellamy, Esquire                          Caroline Pearson, Esquire
Sutherland, Asbill & Brennan                              Dechert Price & Rhoads
1275 Pennsylvania Avenue, N.W.                      Ten Post Office Square South
Washington, D.C.  20004-2404                   Boston, Massachusetts  02109-4603

Approximate Date of Proposed Public Offering:
As soon as possible after effectiveness of this registration statement

Calculation of Registration Fee under the Securities Act of 1933:
The  Registrants  hereby  register  an  indefinite  amount  of their  respective
securities  under the  Securities  Act of 1933  pursuant to Rule 24f-2 under the
Investment Company Act of 1940. No additional registration fee is required to be
filed herewith because, pursuant to Rule 24f-2, an indefinite amount of units of
interest  in variable  annuity  contracts  previously  have been  registered  by
Separate Account I of Washington  National  Insurance Company (File No. 2-81129)
and an indefinite number of shares of beneficial  interest  previously have been
registered by Scudder Variable Life Investment Fund (File No. 2-96461).

     It is proposed that this filing will become effective on October 22, 1995,
pursuant to Rule 488 under the Securities Act of 1933.


<PAGE>

<TABLE>
<CAPTION>


                              CROSS REFERENCE SHEET
            Pursuant To Rule 481(a) Under the Securities Act Of 1933

<C>                                          <C>
Item of Form N-14                             Location in the Prospectus
-----------------                             --------------------------

1. Beginning of Registration Statement and    Cross Reference Sheet; Notice of Special Meeting of
   Outside Front Cover Page of Prospectus     Separate Account Voters

2. Beginning and Outside Back Cover Page of   Table of Contents
   Prospectus

3. Fee Table, Synopsis Information, and Risk  Synopsis; Principal Risk Factors; Comparison of Fees
   Factors                                    and Expenses

4. Information About the Transactions         The Proposed Transactions

5. Information About the Registrant           Information on the Separate Account and the Fund;
                                              Availability of Certain Other Information; Prospectus
                                              dated May 1, 1995, for Scudder Variable Life
                                              Investment Fund

6. Information About the Company Being        Information on the Separate Account and the Fund;
   Acquired                                   Availability of Certain Other Information; Prospectus
                                              dated May 1, 1995, for Separate Account I of
                                              Washington National Insurance Company

7. Voting Information                         Notice of Special Meeting of Separate Account Voters;
                                              General Information Regarding Proxy Solicitation;
                                              Voting of the Fund's Shares
                        
8. Interest of Certain Persons and Experts    (Not Applicable)

9. Additional Information Required for        (Not Applicable)
   Reoffering by Persons Deemed to be
   Underwriters
</TABLE>
<PAGE>

<TABLE>

<CAPTION>

<C>                                          <C>
Item of Form N-14                             Location in the Prospectus
-----------------                             --------------------------

10. Cover Page                                Outside Cover Page

11. Table of Contents                         Table of Contents

12. Additional Information about the          Statement of Additional Information dated May 1,
    Registrant                                1995, for Scudder Variable Life Investment Fund

13. Additional Information about the          Statement of Additional Information dated May 1, 
    Company Being Acquired                    1995, for Separate Account I of Washington National
                                              Insurance Company

14. Financial Statements                      Pro Forma Financial Statements; Statement of Additional
                                              Information  dated May 1, 1995,  for Separate  Account I of Washington  National
                                              Insurance Company;  Semi-Annual Report dated June 30, 1995, for Separate Account
                                              I of Washington  National  Insurance  Company;  Annual Report dated December 31,
                                              1994, for Scudder Variable Life Investment Fund;  Semi-Annual  Report dated June
                                              30, 1995, for Scudder Variable Life Investment Fund
</TABLE>
<PAGE>

                                     PART A

             INFORMATION REQUIRED IN THE PROXY STATEMENT/PROSPECTUS

<PAGE>



           Separate Account I of Washington National Insurance Company
                                300 Tower Parkway
                        Lincolnshire, Illinois 60069-3665

                                                          ____________ ___, 1995



Dear WN PLAN Variable Annuity Contract Owner:


     Washington National Insurance Company is pleased to announce improvements
planned for your WN PLAN variable annuity contract. Since these improvements
must be voted on and approved by the contract owners, a proxy statement and
proxy card are enclosed. It is very important that you sign and return the proxy
card in the enclosed envelope.

     Two improvements are proposed. First, Washington National plans a change in
the investment manager for the assets supporting your variable annuity. Under
the proposed plan, your contract values would be invested in mutual fund
portfolios managed by Scudder, Stevens & Clark, Inc. These mutual fund
portfolios have investment objectives and policies that are similar to those of
the Sub-Accounts of Separate Account I. Scudder, Stevens & Clark is one of the
most experienced investment counsel firms in the United States. It was
established in 1919 and today provides investment counsel for many individuals
and institutions, including insurance companies, colleges, industrial
corporations, and financial and banking organizations. Directly or through
affiliates, Scudder, Stevens & Clark provides investment advice to over 50
mutual fund portfolios.

     The second proposed improvement is to make available a fourth investment
option, which would also be a mutual fund portfolio managed by Scudder, Stevens
& Clark.

     These proposed improvements are described in the enclosed proxy statement.
Please read it carefully, then sign and return the proxy card. A postage paid
envelope is enclosed for your convenience. YOUR VOTE IS IMPORTANT. Thank you.


                                             Sincerely,



                                             James E. Dresmal
                                             Chairman of the Board of Directors


<PAGE>



                               SEPARATE ACCOUNT I
                                       OF
                      WASHINGTON NATIONAL INSURANCE COMPANY

NOTICE OF SPECIAL MEETING OF SEPARATE ACCOUNT VOTERS to be held ___________ __,
1995

     A Special Meeting of persons (the "Separate Account Voters") entitled to
vote in respect of Separate Account I of Washington National Insurance Company
(the "Separate Account") will be held at the Home Office of Washington National
Insurance Company ("Washington National") at 300 Tower Parkway in Lincolnshire,
Illinois, at __:___ __.m. Central Time, on _______day, ____________ __, 1995,
for the following purposes:

1.   To approve an Asset Transfer Agreement and Plan of Reorganization ("the
     Agreement") and a set of transactions (the "Transactions") whereby the
     Separate Account (presently a management investment company comprised of
     three divisions or "Sub-Accounts" investing directly in securities and
     other instruments) will be reconstituted as a unit investment trust (the
     "Continuing Separate Account") comprised of the same three Sub-Accounts,
     each of which will invest all of its assets in a corresponding investment
     portfolio (an "Eligible Portfolio") of Scudder Variable Life Investment
     Fund (the "Fund"), which will serve as the underlying investment vehicle
     for and the continuation of the Sub-Accounts' investment portfolios. If the
     Transactions are approved by the Separate Account Voters, then, immediately
     following the restructuring of the Separate Account, the Separate Account
     Voters will have beneficial interests in the same number of units in each
     Sub-Account of the Continuing Separate Account as they owned in that
     Sub-Account of the Separate Account immediately prior to the Transactions.

2.   To transact such other business as may properly come before the Special
     Meeting or any adjournment thereof.



<PAGE>



The proposed  Transactions are discussed in detail in the remainder of the Proxy
Statement/Prospectus dated ____________ ___, 1995, that accompanies this Notice.

     The close of business on _____________ ___, 1995, is the record time for
the determination of the number of votes entitled to be cast at the Special
Meeting and the determination of the Separate Account Voters entitled to notice
of, and to vote at, the Special Meeting and any adjournments thereof.

                                    BY ORDER OF THE BOARD OF DIRECTORS
                                    OF THE SEPARATE ACCOUNT

Lincolnshire, Illinois
_____________ ___, 1995             ____________________________________________
                                    Craig R. Edwards, Secretary
                                    Separate Account I of Washington National
                                    Insurance Company


                                     - ii -

<PAGE>



                  Proxy Statement of                     _____________ ___, 1995

                  SEPARATE ACCOUNT I
                         OF
        WASHINGTON NATIONAL INSURANCE COMPANY



                  Prospectus of                              and
      SCUDDER VARIABLE LIFE INVESTMENT FUND    SEPARATE ACCOUNT I OF WASHINGTON
                                                   NATIONAL INSURANCE COMPANY
                Two International Place                300 Tower Parkway
           Boston, Massachusetts 02110-4103    Lincolnshire, Illinois 60069-3665
                   (617) 295-1000                       (708) 793-3000
                                        
     The variable component of your WN Plan deferred annuity contract (the
"Contract") is invested in Separate Account I of Washington National Insurance
Company (the "Separate Account"), which is a management investment company
comprised of three Sub-Accounts (i.e., the Bond Sub-Account, the Short-Term
Portfolio Sub-Account, and the Stock Sub-Account). If the Transactions are
approved, the Separate Account will be converted into a unit investment trust
(the "Continuing Separate Account") comprised of the same three Sub-Accounts.
Upon completion of the Transactions, the Bond Sub-Account, the Short-Term
Portfolio Sub-Account, and the Stock Sub-Account of the Continuing Separate
Account will each invest all of its assets exclusively in shares of the Bond
Portfolio, the Money Market Portfolio, and the Growth and Income Portfolio,
respectively, of Scudder Variable Life Investment Fund (the "Fund"). Only these
three Portfolios of the Fund (the "Eligible Portfolios") will be available under
the Contracts immediately following the Transactions. Shortly thereafter,
however, Washington National Insurance Company intends to make available a
fourth Sub-Account of the Continuing Separate Account, which Sub-Account will
invest all of its assets in the Capital Growth Portfolio of the Fund.

--------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND 
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS 
A CRIMINAL OFFENSE.
--------------------------------------------------------------------------------
                                     - 1 -

<PAGE>




     Each Sub-Account of the Separate Account and its corresponding Portfolio of
the Fund have similar investment objectives:

o    The investment objective of the Bond Sub-Account of the Separate Account is
     to obtain as high a level of current income as possible while preserving
     capital. The Bond Portfolio of the Fund pursues a policy of investing for a
     high level of income consistent with a high quality portfolio of debt
     securities.

o    The investment objective of the Short-Term Portfolio Sub-Account of the
     Separate Account is to obtain a moderate level of current income,
     consistent with liquidity and preservation of capital. The Money Market
     Portfolio of the Fund seeks to maintain the stability of capital and,
     consistent therewith, to maintain the liquidity of capital and to provide
     current income.

o    The investment objective of the Stock Sub-Account of the Separate Account
     is to achieve long-term capital growth through capital appreciation and
     income. The Growth and Income Portfolio of the Fund seeks long-term growth
     of capital, current income and growth of income.

     This combination Proxy Statement and Prospectus concisely sets forth
information about the Transactions and the proposed future operation of the
Continuing Separate Account which the persons entitled to vote in respect of the
Separate Account (the "Separate Account Voters") should know before casting
their votes. This Proxy Statement/Prospectus should be retained for future
reference.

     A Statement of Additional Information dated _____________ ___, 1995,
relating to matters covered in this Proxy Statement/Prospectus has been filed
with the Securities and Exchange Commission and is incorporated herein by
reference. That Statement is available upon oral or written request and without
charge. The Separate Account will also furnish, without charge, a copy of its
Annual Report dated December 31, 1994, and its Semi-Annual Report dated June 30,
1995, to a Separate Account Voter upon request. Such a request (for the


                                      - 2 -

<PAGE>



Statement and/or the Annual Report and Semi-Annual Report) should be directed to
Washington National Insurance Company, Life and Annuity Administration, 300
Tower Parkway, Lincolnshire, Illinois 60069-3665 (telephone 800-933-5432). Other
inquiries about the Separate Account should be directed to Washington National
Insurance Company at the same address or telephone number.

                                      - 3 -

<PAGE>

<TABLE>
<CAPTION>


                                            Proxy Statement/Prospectus

                                                 TABLE OF CONTENTS
                                                                                                               Page
<S>                                                                                                            <C>
GENERAL INFORMATION REGARDING PROXY SOLICITATION................................................................  5

SYNOPSIS .......................................................................................................  7

PRINCIPAL RISK FACTORS..........................................................................................  8

THE PROPOSED TRANSACTIONS.......................................................................................  9
         DESCRIPTION OF THE TRANSACTIONS........................................................................  9
         COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES....................................................... 11
         COMPARISON OF FEES AND EXPENSES........................................................................ 18
         REASONS FOR THE TRANSACTIONS........................................................................... 26
         ACTUAL AND PRO FORMA CAPITALIZATION.................................................................... 28
         COMPARATIVE PERFORMANCE................................................................................ 29

INFORMATION ON THE SEPARATE ACCOUNT AND THE FUND................................................................ 31
         MANAGEMENT OF THE SEPARATE ACCOUNT AND THE FUND........................................................ 32
         ORGANIZATION AND OPERATION OF THE FUND................................................................. 34
                  Characteristics of the Fund's Shares.......................................................... 34
                  Dividends, Distributions, and Taxes........................................................... 36
                  Voting of the Fund's Shares................................................................... 37
                  Certain Ownership Interests................................................................... 38
         DIVISIONS OF THE SEPARATE ACCOUNT AND THE FUND......................................................... 40
                  Sub-Accounts of the Separate Account.......................................................... 40
                  Portfolios of the Fund........................................................................ 41
         SALE OF THE CONTRACTS AND FUND SHARES.................................................................. 42
         DEDUCTIONS, CHARGES, FEES, AND EXPENSES................................................................ 43
                  Deductions and Charges Under the Contracts.................................................... 43
                  Fees and Expenses of the Fund................................................................. 46
         SUPPLEMENTARY FINANCIAL INFORMATION.................................................................... 48
                  Condensed Financial Information for the Separate Account...................................... 48
                  Financial Highlights for the Fund............................................................. 49

AVAILABILITY OF CERTAIN OTHER INFORMATION....................................................................... 50

OTHER MATTERS................................................................................................... 51

FORM OF PROXY

APPENDIX A --       FORM OF ASSET TRANSFER AGREEMENT AND PLAN OF REORGANIZATION

APPENDIX B --       PROSPECTUS DATED MAY 1, 1995, FOR SEPARATE ACCOUNT I OF
                    WASHINGTON NATIONAL INSURANCE COMPANY

APPENDIX C --       PROSPECTUS DATED MAY 1, 1995, FOR SCUDDER VARIABLE LIFE INVESTMENT
                    FUND
</TABLE>

                                      - 4 -

<PAGE>



                GENERAL INFORMATION REGARDING PROXY SOLICITATION

     This Proxy Statement/Prospectus is furnished in connection with the
solicitation by the Board of Directors of Separate Account I of Washington
National Insurance Company (the "Separate Account") of proxies for use at a
Special Meeting of persons (the "Separate Account Voters") entitled to vote in
respect of the group and individual deferred variable annuity contracts (the
"Contracts") issued by Washington National Insurance Company ("Washington
National") and funded by the Separate Account, as discussed in the foregoing
notice.

     If the enclosed proxy is executed and returned, it may nevertheless be
revoked at any time before its exercise by written notice to Washington National
or by vote in person at the Special  Meeting.  A later-dated  proxy  received by
Washington  National  will  revoke a prior  proxy.  The  expenses  of the  proxy
solicitation,  which will be by mail but may also be by telephone, telegraph, or
personal interview conducted by personnel of Washington  National,  will be paid
by Washington National. Such expenses are expected to be approximately
$_____________________.

     The rules governing the Separate Account provide that the number of votes
which may be cast with respect to a Contract before Annuity Payments begin will
be determined by the number of units credited to the owners of Contracts
("Contract Owners"). After Annuity Payments begin, the number of votes which an
Annuitant may cast is based on the reserve credited to the Contract and held in
the Separate Account under the variable annuity Settlement Option in effect,
divided by the Accumulation Unit value for the particular Sub-Account.

     As of _____________ ___, 1995, there were __________ votes entitled to be
cast at the Special Meeting, including __________ votes in respect of the Bond
Sub-Account, __________ votes in respect of the Short-Term Portfolio
Sub-Account, and __________ votes in respect of the Stock Sub-Account.


                                      - 5 -

<PAGE>



     Before Annuity Payments begin, Contract Owners have the right to vote at
the Special Meeting. After Annuity Payments begin under a Contract, the
Annuitant has the right to vote at the Special Meeting. Participants under a
group Contract may have the right to instruct Contract Owners as to votes
attributable to their respective interests in the Separate Account.

     All proxies executed and returned to Washington National will be voted in
accordance with instructions marked thereon. If instructions are not marked
thereon, proxies for each Separate Account Voter will be voted FOR the proposals
to be voted on at the Special Meeting.                         

     Approval of the Asset Transfer Agreement and Plan of Reorganization (the
"Agreement") and the set of related transactions (the "Transactions") requires,
with respect to each of the three Sub-Accounts, the affirmative vote of the
lesser of (a) 67% of the votes cast at the Special Meeting, if more than 50% of
the total eligible votes are present in person or by proxy, or (b) more than 50%
of the total eligible votes. The Transactions must be approved by the requisite
vote of the Separate Account Voters of each Sub-Account as a prerequisite to its
implementation.

     By virtue of Washington National's beneficial ownership of more than 25% of
the voting securities of each Sub-Account of the Separate Account (i.e., __.__%
of the Bond Sub-Account, __.__% of the Short-Term Portfolio Sub-Account, and
__.__% of the Stock Sub-Account as of ____________ ___, 1995), Washington
National and its parent company, Washington National Corporation ("WNC"), may
each be deemed to control the Separate Account. In making this statement,
neither Washington National nor WNC nor the Separate Account acknowledges the
existence of such control. Indeed, Washington National will vote those units of
beneficial interest in any Sub-Account which are attributable to Contracts owned
by Washington National, or for which no timely voting instructions are received
by Washington National, in the same proportion as the units for which timely
voting instructions are received under other Contracts. Washington National, an
Illinois corporation, is a wholly-owned subsidiary of WNC, a Delaware
corporation, both of which are located at 300 Tower Parkway, Lincolnshire,
Illinois 60069-3665.

                                      - 6 -

<PAGE>

     If a sufficient number of votes is not represented at the Special Meeting
to approve the Transactions, the Special Meeting may be adjourned for the
purpose of further proxy solicitation, or for any other purpose. Unless
otherwise instructed, proxies will be voted in favor of any adjournment. At any
subsequent reconvening of the meeting, proxies will (unless previously revoked)
be voted in the same manner as they would have been voted at the original
meeting.

                                    SYNOPSIS

     The Board of Directors of the Separate Account has authorized the
reorganization of the Separate Account from a management investment company into
a unit investment trust, which shall be comprised of the same three Sub-Accounts
that currently comprise the Separate Account. All of the assets of the Bond
Sub-Account, Short-Term Portfolio Sub-Account, and Stock Sub-Account of the
Separate Account will be invested in the Bond Portfolio, Money Market Portfolio,
and Growth and Income Portfolio, respectively, of the Fund. The Fund is a
management investment company (commonly known as a "mutual fund") that is not
affiliated with the Separate Account or Washington National and that is advised
by Scudder, Stevens & Clark, Inc. ("Scudder"). The current investment objectives
and policies of the Bond Sub-Account, Short-Term Portfolio Sub-Account, and
Stock Sub-Account of the Separate Account are similar to the investment
objectives and policies of the Bond Portfolio, Money Market Portfolio, and
Growth and Income Portfolio, respectively, of the Fund.

     Washington National will assume all costs and expenses associated with
effecting the Transactions that might otherwise be borne by the Separate
Account; the Fund bears its own costs and expenses in this regard. The charges
provided for in the Contracts will not increase as a result of the Transactions,
and in certain cases may be reduced. Contingent deferred sales charges,
financial accounting service charges, and annuity rate guarantee deductions
under the Contracts will remain unchanged. There will be no change in the value
of your Contract and no change in your benefits under the Contract. Exchange
rights, redemption procedures, and other features of the Contracts will not be
affected by the Transactions. Washington National believes that no tax liability

                                      - 7 -

<PAGE>

will arise from the Transactions for owners of Contracts ("Contract Owners").



                             PRINCIPAL RISK FACTORS

     The principal risk factors involved in investing in the Continuing Separate
Account and the Fund will be substantially similar to the principal risk factors
currently associated with investing in the Separate Account. Those risk factors
are that the investments made by the Fund's investment adviser may not
appreciate in value or will, in fact, lose value. Specifically, the investments
are subject to three general types of investment risks: financial risk, which
refers to the ability of the issuer of a security to pay principal and interest
when due or to maintain or increase dividends; market risk, which refers to the
degree to which the price of a security will react to changes in conditions in
the securities markets and to changes in the overall level of interest rates;
and current income volatility, which refers to the degree to which and the
timing by which changes in the overall level of interest rates or, in the case
of certain derivative instruments, other underlying economic variables or
indices affect the current income from an investment.

     In addition, by investing in the Continuing Separate Account and the Fund,
Contract Owners will become exposed to certain additional risk factors that are
not currently associated with investing in the Separate Account. For example,
one or more Eligible Portfolios may fail to qualify as a regulated investment
company in any particular year and may thereby incur Federal income tax
liability. This would adversely affect the investment performance of the
disqualified Portfolios and therefore the investment performance of the
corresponding Sub-Accounts of the Continuing Separate Account. Also, the Fund's
shares of beneficial interest currently are, and will continue to be, owned by
separate accounts of other insurance companies ("Participating Insurance
Companies") to fund variable annuity contracts and variable life insurance
policies. While it is conceivable that, in the future, it may be disadvantageous
to the Continuing Separate Account to be invested in the Fund simultaneously


                                      - 8 -

<PAGE>
with such other separate accounts, Washington National and the Fund do not
currently see any such disadvantages.



                            THE PROPOSED TRANSACTIONS

                        DESCRIPTION OF THE TRANSACTIONS

     The Transactions involve the transfer of the net assets of each Sub-Account
of the Separate Account to a corresponding Portfolio of the Fund in exchange for
shares of beneficial interest in that Portfolio. If the Transactions are
approved by the Separate Account Voters, the Separate Account will no longer
hold securities and other instruments directly but rather will hold similar
investments indirectly through the intermediate vehicle of the Fund. Those
investments will be managed by Scudder instead of Washington National, the
current investment manager of the Separate Account, and instead of NBD Bank, the
current sub-adviser for the Stock Sub-Account.

     At present, the Separate Account is a diversified management investment
company, as such companies are defined in the Investment Company Act of 1940, as
amended (the "1940 Act"). It is supervised by a Board of Directors having a
majority of members who are not "interested persons" (i.e., who are drawn from
outside) of Washington National, and each Sub-Account thereof invests in
securities and other instruments in accordance with objectives outlined in a
prospectus. (See the Separate Account's prospectus, dated May 1, 1995, which
accompanies this Proxy Statement/Prospectus as Appendix B and is incorporated
herein by reference.) If the Transactions are approved by the Separate Account
Voters, the Separate Account would be restructured as a unit investment trust
(the "Continuing Separate Account") that will continue to be subdivided into
three Sub-Accounts, each now corresponding to, and investing solely in shares of
beneficial interest in, a particular Portfolio of the Fund. (See the Fund's
prospectus, dated May 1, 1995, which accompanies this Proxy
Statement/Prospectus as Appendix C and is incorporated herein by reference.) The
value of a unit in each Sub-Account of the Continuing Separate Account will be


                                      - 9 -

<PAGE>



based on the net asset value per share of the corresponding Portfolio of the
Fund. The total value of the Accumulation Units a Contract Owner has in each
Sub-Account of the Separate Account immediately prior to the Transactions is no
different than the total value of the Accumulation Units the same Contract
Owner will have in that Sub-Account of the Continuing Separate Account
immediately after the Transactions.

     Currently, the persons participating in the variable annuity portion of the
Contracts look to the investment performance of the securities and other
instruments held in the three Sub-Accounts of the Separate Account. After the
Transactions are consummated, the Continuing Separate Account will have the same
three Sub-Accounts, but such persons will look to the investment experience of
the Fund's Portfolios corresponding to the chosen Sub-Accounts of the Continuing
Separate Account. By offering Contract Owners the chance to choose among three
of the Fund's Portfolios, the Continuing Separate Account will take a passive
role with respect to the selection of the type or types of investments that will
underlie a Contract Owner's variable annuity.

     At the time of the Transactions, all of the investment assets of each
Sub-Account of the Separate Account, together with any related liabilities, are
expected to be transferred to the corresponding Portfolio of the Fund in
exchange for a number of shares of beneficial interest in that Portfolio having
a net asset value equal to that of the transferred assets and liabilities. Some
of the assets of the Sub-Accounts may be liquidated prior to the Transactions to
facilitate the transfer, but Washington National will pay any related brokerage
commissions.

     Washington National, as the legal owner of the Fund's shares to be held in
the Continuing Separate Account, will not realize taxable income as a result of
any gain on the sale of those shares or as a result of distributions made by the
Fund to Washington National, as described above, to the extent that such gains
or distributions are reflected in variable annuity contract reserves. Washington
National does not believe that it will recognize gain or loss in connection with
the Transactions, but if it does, Washington National will not make any charge


                                     - 10 -

<PAGE>
to the Continuing Separate Account or Contract Owners for federal income taxes
resulting from recognition of any such gain.

     More information on the Transactions is contained in a document entitled
"Asset Transfer Agreement and Plan of Reorganization," which has been approved
and adopted by the Board of Directors of the Separate Account and entered into
by Washington National (in its capacity as the insurance company of which the
Separate Account is a part under state insurance law), the Separate Account, and
the Fund. This document is attached to this Proxy Statement/Prospectus as
Appendix A. Approval of the Transactions by the Separate Account Voters is a
prerequisite to their implementation.

     The Transactions may be postponed from time to time or cancelled for any
reason with the consent of the parties thereto. Washington National will pay all
of the costs of the Transactions that might otherwise be borne by the Separate
Account; the Fund bears all of its own expenses in this regard.

COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES

     In the opinion of Washington National and the Board of Directors of the
Separate Account, the investment objectives, policies, and restrictions of the
Bond Portfolio, the Money Market Portfolio, and the Growth and Income Portfolio
of the Fund are not materially different from the investment objectives,
policies, and restrictions which have guided the Bond Sub-Account, the
Short-Term Portfolio Sub-Account, and the Stock Sub-Account, respectively, of
the Separate Account, with the following exception: Currently, the Separate
Account's policies are to invest directly in individual securities selected by
Washington National, its investment manager, and by NBD Bank, its sub-adviser
for the Stock Sub-Account. Specifically, it is currently a fundamental
investment policy that no Sub-Account of the Separate Account may have more than
5% of its assets invested in any one investment company, have a total of more
than 10% of its assets invested in investment company securities, or own more
than 3% of the outstanding voting securities of any one investment company.
Approval of the Transactions by the Separate Account Voters will be an approval


                                     - 11 -

<PAGE>
of a change in the investment  objectives,  policies,  and  restrictions  of the
Sub-Accounts of the Separate Account to require  investment  entirely and solely
in specific mutual fund portfolios.

     In addition to this material difference, there are several other
differences between the investment objectives, policies, and restrictions of the
Sub-Accounts of the Separate Account and the investment objectives, policies,
and restrictions of the corresponding Portfolios of the Fund. Noteworthy among
these differences are the following:

o    Bond Sub-Account compared to Bond Portfolio

     --   The Bond Sub-Account invests at least 85% of its assets in U.S.
          Government and other debt securities within the four highest bond
          rating categories. The Bond Portfolio invests at least 65% of its
          assets in U.S. Government and other debt securities, up to 20% of
          which may be in below-investment grade bonds.

     --   The Bond Sub-Account may invest up to 10% of its assets in real
          estate. The Bond Portfolio may not invest in real estate.

     --   The Bond Sub-Account may not invest in restricted or foreign
          securities and may not purchase put or call options or combinations
          thereof. The Bond Portfolio may invest in foreign securities
          (including up to 20% of its assets in non-U.S. dollar-denominated
          foreign debt securities) and may use forward contracts and other
          derivative instruments in managing its investment portfolio.

o    Short-Term Portfolio Sub-Account compared to Money Market Portfolio



                                     - 12 -

<PAGE>

     --   The Short-Term Portfolio Sub-Account does not maintain a stable net
          asset value. The Money Market Portfolio seeks to maintain a stable net
          asset value at $1.00 per share.


     --   Instruments purchased by the Short-Term Portfolio Sub-Account must
          have a maturity date of sixty (60) days or less, and portfolio
          maturity may vary. Instruments purchased by the Money Market Portfolio
          may have remaining maturities of 397 calendar days or less and must
          maintain an average portfolio maturity of ninety (90) days or less.
          Unlike the Short-Term Portfolio Sub-Account, the Money Market
          Portfolio is subject to the credit and quality limitations of Rule
          2a-7 under the 1940 Act.

o    Stock Sub-Account compared to Growth and Income Portfolio

     --   The Stock Sub-Account may invest up to 10% of its assets in real
          estate. The Growth and Income Portfolio may not invest in real estate.

     --   The Stock Sub-Account may invest in debt securities in the form of
          investment-grade debt obligations and securities convertible into
          common stock, and may invest in debt instruments for temporary
          purposes. The Growth and Income Portfolio may invest in debt
          securities in the form of securities convertible into common stock,
          and may invest for temporary defensive purposes a portion of its
          assets in cash and cash equivalents.

     --   The Stock Sub-Account may not invest in restricted or foreign
          securities and may not purchase put or call options or combinations
          thereof. The Growth and Income Portfolio may invest in foreign
          securities (including up to 25% of its assets in non-U.S.
          dollar-denominated securities of foreign issuers) and may use forward
          contracts and other derivative instruments in managing its investment
          portfolio.

                                     - 13 -

<PAGE>

     Certain investment policies and restrictions of the Separate Account and
certain investment restrictions of the Fund are fundamental and therefore may
not be changed with respect to a Sub-Account or Portfolio, respectively, without
the approval of a majority of the outstanding voting securities of that
Sub-Account or Portfolio. For this purpose, a majority of the outstanding voting
securities means the lesser of (A) 67% of the voting securities present at a
meeting of the security holders of the Sub-Account or Portfolio, if the holders
of more than 50% of the outstanding voting securities thereof are present or
represented by proxy, or (B) more than 50% of the outstanding voting securities
of the Sub-Account or Portfolio. The following table compares the fundamental
policies and restrictions of the Separate Account to the fundamental
restrictions of the Fund:

<TABLE>
<CAPTION>

<C>                                                          <C>
                  The Separate Account                                          The Fund 
 --------------------------------------------------------------------------------------------------------------- 
 The assets of the Bond and Stock  Sub-Accounts  will be     (No comparable fundamental investment restriction)  
 kept fully  invested,  except  that cash may be kept on 
 hand  for  the  following   purposes:   (1)  to  handle 
 redemptions;  (2)  pending  reinvestment;   (3)  during 
 periods   warranting   a  more   defensive   investment 
 position,  a larger  proportion  of the  assets  of the 
 appropriate  Sub-Account may be temporarily  maintained 
 in cash of may be  placed in money  market  instruments 
 or   short-term   fixed  income   securities;   or  (4) 
 temporarily,   to   take  a   defensive   position   if 
 warranted by market  conditions.  

 With  respect to 75% of the value of its total  assets,      With  respect  to 75% of the value of the  assets of a 
 the  Separate  Account  will not invest more than 5% of      Portfolio,   the  Fund  may  not,  on  behalf  of  any 
 the  value of the  assets  in the  securities  of,  nor      Portfolio,  invest  more  than 5% of the  value of the 
 acquire  more  than  10%  of  the  outstanding   voting      Portfolio's  total  assets  in the  securities  of any 
 securities  of,  any one  issuer  except  those  of the      one issuer,  except U.S. Government  securities,  and, 
 United    States    Government,    its   agencies   and      with  respect  to  100%  of the  value  of  the  total 
 instrumentalities.   25%  of  the  Separate   Account's      assets  of a  Portfolio,  the Fund may not,  on behalf 
 assets  may be  invested  in the  securities  of one or      of any  Portfolio,  invest  more than 25% of the value 
 more issuers without regard for those limitations.           of the  Portfolio's  total assets in the securities of 
                                                              any one  issuer,  except U.S.  Government  securities. 
                                                              The  Fund  may  not,  on  behalf  of  any   Portfolio, 
                                                              purchase  the   securities   of  any  issuer  if  such 
                                                              purchase  would  cause  more  than  10% of the  voting 
                                                              securities of such issuer to be held by a Portfolio.  
</TABLE>


                                     - 14 -

<PAGE>
<TABLE>
<CAPTION>

<C>                                                          <C>

                  The Separate Account                                          The Fund 
 --------------------------------------------------------------------------------------------------------------- 
 The  Separate  Account  reserves the right to invest up      The  Fund  may  not,  on  behalf  of  any   Portfolio, 
 to  10%  of the  total  assets  of  each  of  the  Sub-      purchase  and sell real  estate  (though it may invest 
 Accounts,  other  than the  Short-Term  Portfolio  Sub-      in securities  of companies  which deal in real estate 
 Account,  in interests in real  estate.  Purchases  and      and in other  permitted  investments  secured  by real 
 sales may be made by the  Sub-Accounts,  other than the      estate).  
 Short-Term Portfolio  Sub-Account,  of securities which 
 invest   or  deal  in  oil,   gas  or   other   mineral 
 exploration  or  development  programs  or real  estate 
 and real estate trusts.   

 Loans will not be made except  through the  acquisition      The Fund may not,  on  behalf of any  Portfolio,  make 
 of a  portion  of  an  issue  of  publicly  distributed      loans  to other  persons,  except  loans of  portfolio 
 bonds,  debentures,  or other evidences of indebtedness      securities  and loans to the extent that the  purchase 
 of  a  type  customarily   purchased  by  institutional      of   debt   obligations   in   accordance   with   its 
 investors  and  except  that money  market  instruments      investment  objectives  and  policies  and  the  entry 
 including  repurchase  agreements  may be acquired  and      into  repurchase   agreements  may  be  deemed  to  be 
 held as  permitted  in  accordance  with  the  Separate      loans.   The   Fund  may  not,   on   behalf   of  any 
 Account's    investment    objectives   and   policies.      Portfolio,   enter  into   repurchase   agreements  or 
 Investments in repurchase  agreements  maturing in more      purchase  any  securities  if,  as a  result  thereof, 
 than  seven  days and in  interests  in  non-marketable      more  than  10% of the  total  assets  of a  Portfolio 
 real  estate  or any  other  illiquid  asset  will  not      (taken at market  value)  would be, in the  aggregate, 
 exceed 10% of the total assets of any  Sub-Account.          subject  to  repurchase  agreements  maturing  in more 
                                                              than   seven   days   and   invested   in   restricted 
                                                              securities  or   securities   which  are  not  readily 
                                                              marketable.  

 No  investment  will be made in the  securities  of any      (No comparable fundamental investment restriction)  
 issuer for the  purpose  of  exercising  management  or 
 control.
  
 Investments  will not be made in  restricted or foreign      (No comparable fundamental investment restriction)  
 securities,   except  that  the  Short-Term   Portfolio 
 Sub-Account   may  acquire   certificates   of  deposit 
 issued by U.S.  branches  of foreign  banks and foreign 
 branches of U.S.  banks,  and  commercial  paper issued 
 by  foreign   corporations,   assuming  proper  rating, 
 provided  that no more  than 25% of the  assets  of the 
 Sub-Account  will  be  so  invested  at  the  time  the 
 investment is made.   

 No   securities   owned  or  held  will  be  mortgaged,      The  Fund  may  not,  on  behalf  of  any   Portfolio, 
 pledged,  hypothecated,  or in any  manner  transferred      pledge,  mortgage,  or hypothecate its assets,  except 
 as security for indebtedness.                                that,   to  secure   borrowings   permitted  by  these 
                                                              investment  restrictions,  it  may  pledge  securities 
                                                              having  a  market  value  at the  time of  pledge  not 
                                                              exceeding  15% of the  value  of a  Portfolio's  total 
                                                              assets and except in  connection  with the  writing of 
                                                              covered  call  options  and the  purchase  and sale of 
                                                              futures contracts and options  on futures contracts.  
</TABLE>


                                     - 15 -

<PAGE>
<TABLE>
<CAPTION>
<C>                                                          <C>

                  The Separate Account                                          The Fund 
 --------------------------------------------------------------------------------------------------------------- 
 Senior securities will not be issued.                   The Fund may not, on behalf of any Portfolio, issue   
                                                         senior securities, except as appropriate to evidence   
                                                         indebtedness which a Portfolio is permitted to incur   
                                                         pursuant to these investment restrictions and except  
                                                         for  shares of various additional series which may  
                                                         be  established by the Trustees.  

 Investments will not be concentrated in any             (No comparable fundamental investment restriction)  
 geographical area of the United States (such as   
 northeastern states, mid-western states, etc.).   

 No more than 25% of the total assets of any Sub-        The Fund may not, on behalf of any Portfolio,  
 Account will be invested in any one industry other      purchase  securities if such purchase would cause  
 than obligations of the U.S. Government, its  agencies  more than 25%  in the aggregate of the market value  
 and instrumentalities, or bank certificates  of         of the total assets  of a Portfolio at the time of  
 deposit, bankers' acceptances, or instruments  secured  such purchase to be  invested in the securities of  
 by these money market instruments.                      one or more issuers having  their principal business  
                                                         activities in the same industry,  provided that there  
                                                         is no limitation in respect to  investments in  
                                                         obligations issued or guaranteed by the  U.S.  
                                                         Government or its agencies or instrumentalities  (for  
                                                         the purpose of this restriction, telephone companies   
                                                         are considered to be a separate industry from gas  
                                                         and  electric public utilities, and wholly-owned  
                                                         finance  companies are considered to be in the  
                                                         industry of their  parents if their activities are  
                                                         primarily related to  financing the activities of the  
                                                         parents).  

 The Separate Account may borrow money for  temporary    The Fund may not, on behalf of any Portfolio, borrow   
 or emergency purposes up to an amount  equal to 5% of   money except from banks as a temporary measure for   
 the value of the Separate Account at  the time of       extraordinary or emergency purposes (each Portfolio  
 borrowing.  All borrowings will be  unsecured.          is  required to maintain asset coverage (including   
                                                         borrowings) of 300% for all borrowings) and no   
                                                         purchases of securities for a Portfolio will be made   
                                                         while borrowings of that Portfolio exceed 5% of the   
                                                         Portfolio's assets (the payment of interests on   
                                                         borrowings by a Portfolio will reduce that  
                                                         Portfolio's  income).  (In addition, the Board of  
                                                         Trustees has  adopted a policy whereby each Portfolio  
                                                         of the Fund  may borrow up to 10% of its total  
                                                         assets; provided,  however, that each Portfolio may  
                                                         borrow up to 25% of  its total assets for  
                                                         extraordinary or emergency purposes,  including the  
                                                         facilitation of redemptions.)  

 Securities of other issuers will not be underwritten,   The Fund may not, on behalf of any Portfolio, act as   
 nor will the Separate Account purchase the  securities  underwriter of the securities issued by others,  
 of other issuers that might later be  deemed to be      except to  the extent that the purchase of securities  
 underwritten by the Separate  Account.                  in accordance  with its investment objective and  
                                                         policies directly from  the issuer thereof and the  
                                                         later disposition thereof may  be deemed to be  
                                                         underwriting.  
</TABLE>
                                     - 16 -

<PAGE>
<TABLE>
<CAPTION>
<C>                                                          <C>

                 The Separate Account                                          The Fund 
 --------------------------------------------------------------------------------------------------------------- 
 No purchase will be made of commodities or  commodity   The Fund may not, on behalf of any Portfolio,  
 contracts.                                              purchase  and sell commodities or commodities  
                                                         contracts, except  debt securities futures contracts  
                                                         and securities index  futures contracts and options  
                                                         thereon.  

 Short sales, purchases on margin, or purchases of  put  The Fund may not, on behalf of any Portfolio,  
 or call options or combinations thereof will not  be    purchase  securities on margin or make short sales  
 made.                                                   unless, by  virtue of its ownership of other  
                                                         securities, it has the  right to obtain securities  
                                                         equivalent in kind and amount  to the securities sold  
                                                         and, if the right is conditional, the  sale is made  
                                                         on the same conditions.  The Fund may  not, on behalf  
                                                         of any Portfolio, purchase or sell any put  or call  
                                                         options or any combination thereof, except that  the  
                                                         Fund may purchase and sell options on futures   
                                                         contracts on debt securities, options on securities   
                                                         indexes and securities index futures contracts and  
                                                         write  covered call option contracts on securities  
                                                         owned by a  Portfolio, and may also purchase call  
                                                         options for the  purpose of terminating its  
                                                         outstanding obligations with  respect to securities  
                                                         upon which covered call option  contracts have been  
                                                         written (i.e., "closing purchase  transactions").  
 
 Investments may be made in the securities of one  or    (Although the Fund has no comparable fundamental   
 more investment companies; but no Sub-Account  may      investment restriction, Section 12(d)(1)(A) of the  
 have more than 5% of its assets invested in  any one    1940  Act imposes essentially these same limitations  
 investment company, have a total of more  than 10% of   on each  Portfolio.)  
 its assets invested in investment  company securities,  
 not own more than 3% of the  total outstanding voting  
 securities of any one  investment company.   
 
 (Although the Separate Account has no comparable        The  Fund  may  not,  on  behalf  of  any   Portfolio, 
 fundamental investment policy or restriction,  Section  participate  on a joint or a joint and  several  basis 
 17(d) of the 1940 Act imposes essentially  these same   in any  trading  account  in  securities,  but may for 
 limitations on each Sub-Account with  respect to        the purpose of possibly  achieving  better net results 
 participation on a joint or a joint and  several basis  on   portfolio   transactions   or   lower   brokerage 
 in a trading account in securities.   However, when     commission  rates join with other  investment  company 
 Washington National believes it is  in the best         and  client   accounts   managed  by  Scudder  or  its 
 interest of the Separate Account,  transactions for     affiliates  in  the  purchase  or  sale  of  portfolio 
 the Separate Account may be  executed together with     securities.  
 purchases or sales of the  same security for  
 Washington National's fixed  account or for other  
 accounts served by Washington  National.)   
</TABLE>

                                     - 17 -

<PAGE>
<TABLE>
<CAPTION>
<C>                                                          <C>

                   The Separate Account                                          The Fund 
 --------------------------------------------------------------------------------------------------------------- 
 (No comparable fundamental investment policy or         The Fund may not, on behalf of any Portfolio,  
 restriction)                                            purchase  or retain securities of an issuer any of  
                                                         whose officers,  directors, trustees or security  
                                                         holders is an officer or  Trustee of the Fund or a  
                                                         member, officer, director or  trustee of the  
                                                         investment adviser of the Fund if one or  more of  
                                                         such individuals owns beneficially more than   
                                                         one-half of one percent (1/2 of 1%) of the shares or   
                                                         securities or both (taken at market value) of such  
                                                         issuer  and such individuals owning more than  
                                                         one-half of one  percent (1/2 of 1%) of such shares  
                                                         or securities  together own beneficially more than 5%  
                                                         of such shares  or securities or both.  
</TABLE>

If the Transactions are approved by the Separate Account Voters, Contract Owners
will lose the protections of certain  fundamental  policies and  restrictions of
the Separate  Account (and become subject to additional  investment risk) to the
extent that the  corresponding  policies and restrictions of the Fund either are
not fundamental  (i.e., may be changed without the approval of a majority of the
outstanding  voting  securities) or impose less severe limitations than those of
the Separate Account.

     A more complete description of the investment objectives, policies, and
restrictions of the Separate Account and the Fund is contained in their
prospectuses dated May 1, 1995, which accompany this Proxy Statement/Prospectus
as Appendices B and C, respectively.

COMPARISON OF FEES AND EXPENSES

         The overall costs to Contract Owners after the  Transactions  generally
are not expected to be materially greater than they were before the Transactions
and may be lower.  The Fund  offers  and sells its shares to  insurance  company
separate  accounts at each  Portfolio's  net asset value per share without sales
charge.

                                     - 18 -

<PAGE>

     Currently, four charges are imposed under the Contracts against Separate
Account assets -- a 0.80% annuity rate guarantee deduction, a 0.35% financial
accounting service charge, a 0.50% investment management fee, and a 0.20% charge
for other expenses (these charges are the specified annual percentages of each
Sub-Account's average daily net assets). The charges for the annuity rate
guarantees and financial accounting services are guaranteed not to increase.
After the Transactions, the 0.80% annuity rate guarantee deduction and the 0.35%
financial accounting service charge (and the annual $30 contract maintenance
charge) will continue to be charged against the assets of the Separate Account,
but the 0.50% investment management fee and the 0.20% charge for other expenses
will no longer be imposed against the assets of the Separate Account. Instead,
Scudder, which is the investment adviser of the Fund, charges each of the
Portfolios of the Fund a fee, which accrues daily, for its investment advisory
services. Unlike the common level of the investment management fee currently
incurred by all three Sub-Accounts of the Separate Account, the level of the
Fund's investment advisory fee differs from one Portfolio to another (for 1994,
0.475% annually of the average daily net assets for the Bond Portfolio, 0.370%
annually of the average daily net assets for the Money Market Portfolio, and
0.475%1 annually of the average daily net assets for the Growth and Income
Portfolio). In addition, the Fund pays certain of its operating expenses and
also makes payments to Scudder and to Scudder Investor Services, Inc. and
Scudder Fund Accounting Corporation, both wholly-owned subsidiaries of Scudder,
for clerical, accounting, and certain other services they may provide to the
Fund. In 1994, these expenses and payments were 0.105% annually of the average
daily net assets for the Bond Portfolio, 0.190% annually of the average daily
net assets for the Money Market Portfolio, and 0.750% annually of the average
daily net assets for the Growth and Income Portfolio.

         In  total,  the  sum  ("Total  Portfolio  Operating  Expenses")  of the
investment  advisory fee and these payments  deducted in 1994 from the assets of
each Eligible Portfolio of the Fund (0.58% for the Bond Portfolio, 0.56% for the

------------------

1./ In 1994, however, Scudder voluntarily did not impose any of its
investment advisory fee on the Growth and Income Portfolio. 

                                     - 19 -

<PAGE>

Money Market Portfolio, and 0.75%2 for the Growth and Income Portfolio)
compares favorably (in the case of the Bond Portfolio and the Money Market
Portfolio) or is comparable (in the case of the Growth and Income Portfolio) to
the 0.70% sum of the investment management fee and the charge for other expenses
currently imposed against the assets of each Sub-Account of the Separate
Account. In other words, the level of the charges currently imposed against the
assets of all three Sub-Accounts of the Separate Account for investment
management and other expenses exceeds the 1994 level of Total Portfolio
Operating Expenses for the Bond Portfolio and Money Market Portfolio of the Fund
and is not substantially greater than the 1994 level of Total Portfolio
Operating Expenses for the Growth and Income Portfolio of the Fund.

     The Growth and Income Portfolio of the Fund commenced operations on May 2,
1994. For the calendar year ended December 31, 1994, if the Growth and Income
Portfolio had borne the full burden of its expenses, Total Portfolio Operating
Expenses would have been 1.61% of its average net assets. In part, this was due
to certain start-up expenses of the Growth and Income Portfolio and due to the
small amount of assets invested in the Growth and Income Portfolio in its first
partial year of operations. Consequently, there was a relatively small amount of
assets over which expenses could be spread in 1994.

     The size of the Growth and Income Portfolio has already increased
considerably in 1995, primarily as a result of further investments by
Participating Insurance Companies. The size of the Growth and Income Portfolio
will increase further if the Transactions are approved. As a result, expenses
incurred in respect of the Growth and Income Portfolio are expected to be
substantially lower as a percentage of its average net assets in 1995 and
thereafter. Scudder has no obligation to extend its current waiver of its
investment advisory and administrative fees beyond April 30, 1996. Nevertheless,
certain Participating Insurance Companies (including Washington National if the
Transactions are consummated) have agreed to contribute to the capital of the

-------------------------
2./  Until April 30, 1996, Scudder has agreed to waive part or all of its fees
for the Growth and Income Portfolio to the extent that the Portfolio's Total
Portfolio Operating Expenses will be maintained at 0.75% of average net assets.
Had the full amount of the fees been imposed, Total Portfolio Operating Expenses
in 1994 would have been 1.61% of average net assets of the Growth and Income 
Portfolio.

                                     - 20 -

<PAGE>

Fund to the extent that the Total Portfolio Operating Expenses of any Eligible
Portfolio exceed 0.75% of the average daily net assets of that Portfolio for any
year of the Fund. In other words, the relatively high rate of expenses initially
incurred in respect of the Growth and Income Portfolio is not expected to
continue and, in any case, is not being borne by the Portfolio.


     The following comparative fee tables for the year ended December 31, 1994,
illustrate, for each Sub-Account of the Separate Account: the current charges
and deductions under the Contract; the fees and expenses of the corresponding
Portfolio of the Fund; and the charges and deductions under the Contract
(including the fees and expenses of the Fund) restated as if the Transactions
had been consummated at the beginning of 1994:


                                     - 21 -

<PAGE>
<TABLE>
<CAPTION>



                                        BOND SUB-ACCOUNT and BOND PORTFOLIO
                                        ----------------------------------- 

<C>                                                     <C>                   <C>                 <C>
COMPARATIVE FEE TABLE                                             The                                   Continuing
(for the year ended December 31, 1994)                     Separate Account       The Fund (A)       Separate Account
                                                           ----------------       ------------       ----------------
                                                               (current)           (current)           (pro forma)

Contract Owner Transactions Expenses

  Sales Load Imposed on Purchases                        $        ---          $       ---         $        ---

  Maximum Contingent Deferred Sales Load (as a
    percentage of Accumulated Value withdrawn)                    6%                   ---                  6%

  Transfer Fee                                           $        ---          $       ---         $        ---


Annual Contract Fee                                      $30 per Contract      $       ---         $30 per Contract


Separate Account Annual Expenses
(as a percentage of average account value)

  Management Fee                                                  0.50 %               ---                  ---
   
  Annuity Rate Guarantees                                         0.80 %               ---                  0.80 %

  Financial Accounting Fees                                       0.35 %               ---                  0.35 %

  Other Expenses (net charged to account) (B)                     0.20 %               ---                  ---
                                                                 -------             -------              -------

Total Separate Account Annual Expenses                            1.85 %               ---                  1.15 %


Scudder Variable Life Investment Fund
Annual Expenses
(as a percentage of average net assets)

  Management Fee                                                  ---                 0.475%               0.475%

  Other Expenses (after Reimbursement) (C)                        ---                 0.105%               0.095%
                                                                 -------             -------              -------

Total Portfolio Operating Expenses                                ---                 0.58 %               0.57 %
                                                                 -------             -------              -------

Total Separate Account and Portfolio Expense                      1.85 %              0.58 %               1.72 %
                                                                 =======             =======              =======
----------------------------
</TABLE>

(A) The  amounts  for the Fund  itself do not  reflect  the  contract  or policy
charges,  including  sales  load,  and  the  separate  account  charges  of  any
Participating Insurance Company.

(B) The  amounts  for  "Other  Expenses"  are the  amounts  charged  to the Bond
Sub-Account of the Separate Account during 1994.

(C) The  amounts  for  "Other  Expenses"  are the  amounts  charged  to the Bond
Portfolio of the Fund during 1994.  Participating  Insurance Companies investing
in the Bond Portfolio of the Fund have agreed to reimburse the Bond Portfolio to
the extent  that its Total  Portfolio  Operating  Expenses  exceed  0.75% of its
average net assets in a calendar  year.  If the  Transactions  are  consummated,
Washington  National  will  have  a  similar  reimbursement  obligation  in  its
agreements governing its participation in the Fund.

                                     - 22 -

<PAGE>
<TABLE>
<CAPTION>



                            SHORT-TERM PORTFOLIO SUB-ACCOUNT and MONEY MARKET PORTFOLIO
                            ----------------------------------------------------------- 

<C>                                                      <C>                  <C>                <C>

COMPARATIVE FEE TABLE                                             The                                   Continuing
(for the year ended December 31, 1994)                     Separate Account       The Fund (A)       Separate Account
                                                           ----------------       ------------       ----------------
                                                               (current)           (current)           (pro forma)

Contract Owner Transactions Expenses

  Sales Load Imposed on Purchases                        $        ---          $       ---         $        ---

  Maximum Contingent Deferred Sales Load (as a
    percentage of Accumulated Value withdrawn)                    6%                   ---                  6%

  Transfer Fee                                           $        ---          $       ---         $        ---


Annual Contract Fee                                      $30 per Contract      $       ---         $30 per Contract


Separate Account Annual Expenses
(as a percentage of average account value)

  Management Fee                                                 0.50 %               ---                  ---
   
  Annuity Rate Guarantees                                        0.80 %               ---                 0.80 %

  Financial Accounting Fees                                      0.35 %               ---                 0.35 %

  Other Expenses (net charged to account) (B)                    0.20 %               ---                  ---
                                                                 ------             -------              -------

Total Separate Account Annual Expenses                           1.85 %               ---                 1.15 %


Scudder Variable Life Investment Fund
Annual Expenses
(as a percentage of average net assets)

  Management Fee                                                  ---                0.37 %               0.37 %

  Other Expenses (after Reimbursement) (C)                        ---                0.19 %               0.19 %

                                                                ------             -------              -------

Total Portfolio Operating Expenses                                ---                0.56 %               0.56 %

                                                                ------             -------              -------

Total Separate Account and Portfolio Expense                     1.85 %              0.56 %               1.71 %
                                                                 ======              ======               ======
</TABLE>

-------------------
(A) The  amounts  for the Fund  itself do not  reflect  the  contract  or policy
charges,  including  sales  load,  and  the  separate  account  charges  of  any
Participating Insurance Company.

(B) The amounts for "Other  Expenses" are the amounts  charged to the Short-Term
Portfolio Sub-Account of the Separate Account during 1994.

(C) The amounts for "Other Expenses" are the amounts charged to the Money Market
Portfolio of the Fund during 1994.  Participating  Insurance Companies investing
in the Money Market  Portfolio  of the Fund have agreed to  reimburse  the Money
Market  Portfolio  to the extent  that its Total  Portfolio  Operating  Expenses
exceed 0.75% of its average net assets in a calendar  year. If the  Transactions
are  consummated,   Washington  National  will  have  a  similar   reimbursement
obligation in its agreements governing its participation in the Fund.

                                                     - 23 -

<PAGE>
<TABLE>
<CAPTION>



                                 STOCK SUB-ACCOUNT and GROWTH AND INCOME PORTFOLIO

<C>                                                    <C>                     <C>                <C>

COMPARATIVE FEE TABLE                                             The                                   Continuing
(for the year ended December 31, 1994)                     Separate Account       The Fund (A)       Separate Account
                                                           ----------------       ------------       ----------------
                                                               (current)           (current)           (pro forma)

Contract Owner Transactions Expenses

  Sales Load Imposed on Purchases                        $        ---          $       ---         $        ---

  Maximum Contingent Deferred Sales Load (as a
    percentage of Accumulated Value withdrawn)                    6%                   ---                  6%

  Transfer Fee                                           $        ---          $       ---         $        ---


Annual Contract Fee                                      $30 per Contract      $       ---         $30 per Contract


Separate Account Annual Expenses
(as a percentage of average account value)

  Management Fee                                                 0.50 %               ---                  ---

  Annuity Rate Guarantees                                        0.80 %               ---                  0.80 %

  Financial Accounting Fees                                      0.35 %               ---                  0.35 %

  Other Expenses (net charged to account) (B)                    0.20 %               ---                  ---
                                                                --------            --------              --------      

Total Separate Account Annual Expenses                           1.85 %               ---                  1.15 %


Scudder Variable Life Investment Fund
Annual Expenses
(as a percentage of average net assets) (E)

  Management Fee                                                  ---                0.00 %               0.36 %

  Other Expenses (after Reimbursement) (C)                        ---                0.75 %               0.39 %
                                                               --------            --------              --------      

Total Portfolio Operating Expenses (D)                            ---                0.75 %               0.75 %
                                                               --------            --------              --------      

Total Separate Account and Portfolio Expense                     1.85 %              0.75 %               1.90 %
                                                                 ======              ======               ======

</TABLE>

-------------------
(A) The  amounts  for the Fund  itself do not  reflect  the  contract  or policy
charges,  including  sales  load,  and  the  separate  account  charges  of  any
Participating Insurance Company.

(B) The  amounts  for  "Other  Expenses"  are the  amounts  charged to the Stock
Sub-Account of the Separate Account during 1994.

(C) The amounts for "Other  Expenses" are the amounts  charged to the Growth and
Income  Portfolio  f the Fund during  1994.  Participating  Insurance  Companies
investing  in the  Growth  and  Income  Portfolio  of the Fund  have  agreed  to
reimburse the Growth and Income Portfolio to the extent that its Total Portfolio
Operating Expenses exceed 0.75% of its average net assets in a calendar year. If
the  Transactions  are  consummated,  Washington  National  will  have a similar
reimbursement  obligation in its agreements  governing its  participation in the
Fund.

(D)  Scudder  has  agreed to waive  part or all of its fees for the  Growth  and
Income Portfolio to the extent that the Growth and Income  Portfolio's  expenses
will be maintained at 0.75%.

(E) The Growth and Income  Portfolio  commenced  operations on May 2, 1994.  All
percentages have been annualized.

                                     - 24 -

<PAGE>



                                     EXAMPLE

     A. You would pay the following expenses on a $1,000 investment in your
Contract, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>

          1.   If you surrender your Contract at the end of the applicable time period:*

                                                The Separate Account                  Continuing Separate Account
                                                --------------------                  ---------------------------
                                                     (current)                                (pro forma)
<S>                                    <C>       <C>      <C>       <C>          <C>       <C>      <C>      <C>

                                        1 year   3 years  5 years   10 years      1 year   3 years   5 years  10 years
                                       --------  -------- --------  --------      ------   -------   -------  -------- 
BOND SUB-ACCOUNT                         $ 73      $113     $156      $225         $ 72     $110      $152      $227

SHORT-TERM PORTFOLIO
SUB-ACCOUNT                              $ 73      $113     $156      $225         $ 72     $110      $151      $226

STOCK SUB-ACCOUNT                        $ 73      $113     $156      $225         $ 74     $116      $162      $249

</TABLE>

* These expense  amounts also apply if you annuitize your Contract under certain
settlement options during the first five (5) Contract Years.
<TABLE>
<CAPTION>

          2.   If you do not surrender your Contract:

                                                The Separate Account                  Continuing Separate Account
                                               --------------------                  ---------------------------
                                                     (current)                                (pro forma)
<S>                                    <C>       <C>      <C>       <C>          <C>       <C>      <C>      <C>
                                        1 year   3 years  5 years   10 years      1 year   3 years   5 years  10 years
                                       --------  -------- --------  --------      ------   -------   -------  -------- 
BOND SUB-ACCOUNT                         $ 19      $ 60     $104      $225         $ 18     $ 56      $100      $227

SHORT-TERM PORTFOLIO
SUB-ACCOUNT                              $ 19      $ 60     $104      $225         $ 18     $ 56      $ 99      $226

STOCK SUB-ACCOUNT                        $ 19      $ 60     $104      $225         $ 20     $ 62      $109      $249

</TABLE>
<TABLE>
<CAPTION>


         B.  A separate account would pay the following expenses on a $1,000 investment in the Fund,
assuming a 5% annual return on assets:**

                                                      The Fund                                  The Fund
                                                      --------                                 ---------
                                                     (current)                                (pro forma)
<S>                                    <C>       <C>      <C>       <C>          <C>       <C>      <C>      <C>
                                        1 year   3 years  5 years   10 years      1 year   3 years   5 years  10 years
                                       --------  -------- --------  --------      ------   -------   -------  -------- 
BOND PORTFOLIO                            $ 6      $ 18     $ 32      $ 73          $ 6     $ 18      $ 32      $ 71

MONEY MARKET PORTFOLIO                    $ 6      $ 18     $ 31      $ 70          $ 6     $ 18      $ 31      $ 70

GROWTH AND INCOME
PORTFOLIO                                 $ 8      $ 24     $ 42      $ 93          $ 8     $ 24      $ 42      $ 93
</TABLE>

** These  expense  amounts  do not  reflect  the  contract  or  policy  charges,
including  sales load,  and the separate  account  charges of any  Participating
Insurance Company.

--------------------------------------------------------------------------------
        THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
         FUTURE EXPENSES, AND THE ACTUAL EXPENSES PAID MAY BE GREATER OR
                             LESS THAN THOSE SHOWN.
--------------------------------------------------------------------------------

                                     - 25 -
<PAGE>




REASONS FOR THE TRANSACTIONS

     If the Transactions are approved by the Separate Account Voters, each
Sub-Account of the Continuing Separate Account will invest its assets indirectly
through a corresponding Portfolio of the Fund rather than directly, as the
Separate Account currently does.

     The Transactions should benefit Contract Owners by enabling them to
participate in investment portfolios with investment objectives, policies and
restrictions similar to the current investment objectives, policies, and
restrictions of the Sub-Accounts of the Separate Account, but with a larger
asset base than that currently held by each of the Sub-Accounts of the Separate
Account. It is anticipated that the larger asset base will increase investment
opportunities for and broaden diversification of the funding medium for the
Contracts. It may also result in economies of scale with respect to operating
expenses.

     Various legal and practical difficulties make it infeasible to use the
Separate Account, as it is currently structured, as the funding vehicle for
insurance products other than variable annuity contracts issued by Washington
National. The Fund, however, currently is and will continue to be used for
variable annuity contracts and variable life insurance policies issued by
several Participating Insurance Companies. Therefore, more assets currently are
available to be invested in the Fund than are available to be invested in the
current Separate Account alone. Washington National and the Board of Directors
of the Separate Account believe that this will result in economies of scale
(particularly in view of the declining assets of the Separate Account under the
current circumstances in which no new Contracts are being sold).

     In addition, Contract Owners may benefit from the breadth and depth of
investment advisory expertise of Scudder, the investment adviser for the
Portfolios of the Fund. As manager of Portfolios significantly larger than each
Sub-Account of the Separate Account, Scudder may be able to expend larger
resources cost-effectively to attain higher performance for these Portfolios
although there is no guarantee that higher performance will be achieved.

                                     - 26 -

<PAGE>




     Using the Fund as a multiple-option investment vehicle for the Continuing
Separate Account would facilitate the addition of new investment options, if the
Board of Directors of Washington National should choose to do so in the future.
It would be administratively simpler and less costly to add (and maintain) new
investment options in the form of new unmanaged Sub-Accounts of the Continuing
Separate Account (structured as a unit investment trust) investing in additional
Portfolios of the Fund than to add new investment options in the form of new
managed Sub-Accounts of the Separate Account (structured as a management
investment company). Indeed, if the Transactions take place, then Washington
National intends to make a fourth investment option available to Contract Owners
in the form of a new Sub-Account investing in the Capital Growth Portfolio of
the Fund.

     In summary, Washington National and the Board of Directors of the Separate
Account expect the Transactions to result in economies and efficiencies which
will benefit Contract Owners.

     Because the Portfolios used by the Contracts will also be used by variable
life insurance policy owners (as well as variable annuity contract owners),
there is a possibility of a conflict of interest between these two types of
contract owners. Pursuant to an Order of the Securities and Exchange Commission
under the 1940 Act, these potential conflicts are addressed by providing that
the Fund will be managed by a Board of Trustees which has a majority of members
who are not "interested persons" of the Fund. The Board of Trustees will monitor
for conflicts of interest, such as would occur if life insurance policy owners
voted their proxies for a different result than annuity contract owners. In the
event a material, irreconcilable conflict is determined to exist, the
Participating Insurance Companies will undertake to resolve it, going so far as
withdrawing and reinvesting assets allocable to one or more of the separate
accounts utilizing the Fund as a funding vehicle, or putting the question of
such segregation of assets to a vote of all affected Contract Owners and other
beneficial owners of shares. No charge or penalty would be levied against funds
withdrawn under those circumstances, and the Board of Trustees of the Fund would
act only in the interest of Contract Owners and other beneficial owners of
shares.


                                     - 27 -

<PAGE>



     Washington National and the Board of Directors of the Separate Account
believe that the interests of Contract Owners immediately following the
Transactions will not materially differ from their interests immediately prior
to the Transactions. Contract Owners will still have an interest in a diverse
portfolio of investments with respect to each Sub-Account of the Continuing
Separate Account. The value of Contract Owners' interests will not be changed by
the Transactions. In the opinion of Washington National, the Transactions are
not expected to have any direct or indirect adverse tax consequences for
Contract Owners. Furthermore, the overall level of fees and expenses borne,
directly or indirectly, by Contract Owners should not be materially greater
immediately after the Transactions than immediately before it (and should be
lower for the Bond Sub-Account and the Short-Term Portfolio Sub-Account).
Nevertheless, as described below, there are some legal differences between
investing directly (as the Separate Account currently does) and investing
indirectly through the Fund (as the Continuing Separate Account will do if the
Transactions are approved by the Separate Account Voters and implemented as
planned).

ACTUAL AND PRO FORMA CAPITALIZATION

     The following table shows the actual capitalization of the Sub-Accounts of
the Separate Account and the Eligible Portfolios of the Fund on June 30, 1995,
as well as the pro forma capitalization of the Eligible Portfolios on that date
after giving effect to the Transactions:


                                     - 28 -


<PAGE>

<TABLE>
<CAPTION>

<S>                                                             <C>               <C>              <C> 

CAPITALIZATION 
--------------                                                                      
(as of June 30, 1995)                                            The Separate             
                                                                    Account        The Fund         The Fund
                                                                 ------------      --------        ----------
                                                                   (actual)        (actual)       (pro forma)
BOND SUB-ACCOUNT and
BOND PORTFOLIO
--------------------
Net Assets                                                       $12,322,881    $145,619,667     $157,942,548
Net Asset Value per Unit or Share                                    $2.38           $6.93           $6.93
Units or Shares Outstanding                                        5,172,649      21,008,272       23,786,466

SHORT-TERM PORTFOLIO
SUB-ACCOUNT and
MONEY MARKET PORTFOLIO
----------------------
Net Assets                                                       $ 1,706,097     $83,948,559     $ 85,654,656
Net Asset Value per Unit or Share                                    $1.74           $1.00           $1.00
Units or Shares Outstanding                                          982,975      83,948,559       85,654,656

STOCK SUB-ACCOUNT and
GROWTH AND INCOME PORTFOLIO
---------------------------
Net Assets                                                       $ 29,728,467     $37,426,050     $ 67,154,517
Net Asset Value per Unit or Share                                    $3.06           $7.09           $7.09
Units or Shares Outstanding                                         9,713,617       5,281,521        9,474,535

</TABLE>


COMPARATIVE PERFORMANCE

     The following tables show the actual and pro forma historical performance
of the Sub-Accounts of the Separate Account, for periods ending June 30, 1995,
using various measures appropriate for the Portfolio of the Fund in which each
Sub-Account of the Continuing Separate Account will solely invest if the
Transactions are approved. The pro forma performance figures (shown in the right
column) are derived from the actual performance of each of the Eligible
Portfolios (shown in the center column), as adjusted to reflect the annuity rate
guarantee charge and financial accounting service charge of the Continuing
Separate Account and the contingent deferred sales charge (unless otherwise
noted) and contract maintenance charge under the Contracts. In other words, the
pro forma performance figures show how the Transactions might have affected
historical performance if they had been consummated at an earlier time. Although
past performance is no guarantee of future results, Separate Account Voters may
wish to compare this pro forma performance of the Continuing Separate Account
with the actual performance of the Separate Account (shown in the left column of
performance figures):


                                     - 29 -

<PAGE>
<TABLE>
<CAPTION>
<S>                                                         <C>                  <C>            <C>  

YIELD AND EFFECTIVE YIELD
--------------------------                                          The                            Continuing
(for periods ended June 30, 1995)                            Separate Account     The Fund     Separate Account
                                                             ----------------     --------     ----------------
                                                                 (actual)         (actual)        (pro forma)
SHORT-TERM PORTFOLIO
SUB-ACCOUNT and
MONEY MARKET PORTFOLIO
----------------------
Yield (7-day period)                                              4.18%            5.55%            4.37%
Effective Yield (7-day period)                                    4.27%            5.58%            4.40%

AVERAGE ANNUAL TOTAL RETURN
Standard Format*  
---------------------------                                        The                           Continuing
(for periods ended June 30, 1995)                            Separate Account     The Fund     Separate Account
                                                             ----------------     --------     ----------------

                                                                 (actual)         (actual)       (pro forma)
BOND SUB-ACCOUNT and
BOND PORTFOLIO
---------------------
One Year                                                          4.81%          11.42%             4.90%
Five Years                                                        5.61%           9.44%             7.50%
Ten Years (A)                                                     7.61%           8.78%             7.60%

STOCK SUB-ACCOUNT and
GROWTH AND INCOME PORTFOLIO
---------------------------
One Year                                                         20.12%          19.93%            13.46%
Life of Portfolio (B)                                            15.73%          17.94%             9.58%

*    After deduction of 6% contingent deferred sales charge (assuming a complete redemption at the end of the period).



AVERAGE ANNUAL TOTAL RETURN
---------------------------
Non-Standard Format**                                               The                           Continuing
(for periods ended June 30, 1995)                            Separate Account     The Fund     Separate Account
                                                             ----------------     --------     ----------------

                                                                 (actual)         (actual)        (pro forma)
BOND SUB-ACCOUNT and
BOND PORTFOLIO
--------------------
One Year                                                             10.15%           11.42%           10.24%
Five Years                                                            6.43%            9.44%            8.26%
Ten Years (A)                                                         7.61%            8.78%            7.60%

STOCK SUB-ACCOUNT and
GROWTH AND INCOME PORTFOLIO
---------------------------
One Year                                                             25.37%           19.93%           18.74%
Life of Portfolio (B)                                                20.12%           17.94%           14.04%

**   Assuming contingent deferred sales charge percentage of 0%.

</TABLE>
----------------------------
(A)  As the Bond Portfolio commenced operations on July 16, 1985, its peformance
     figures are computed  from that date,  which  results in a f slightly  less
     than ten full years.

(B) The Growth and Income Portfolio commenced operations on May 2, 1994.

--------------------------------------------------------------------------------
                   PAST PERFORMANCE IS NO GUARANTEE OF FUTURE
                                    RESULTS.
--------------------------------------------------------------------------------



                                     - 30 -

<PAGE>



                INFORMATION ON THE SEPARATE ACCOUNT AND THE FUND

     The Separate  Account was  established  on November 5, 1982, as a "separate
account" under the insurance laws of the State of Illinois.  Although Washington
National owns the assets of the Separate  Account,  each  Sub-Account's  income,
gains and losses,  realized or unrealized,  are credited to or charged  against,
the assets held in the Sub-Account from which they have arisen without regard to
Washington  National's  other income,  gains or losses.  The Separate Account is
registered  with the  Securities and Exchange  Commission  (the "SEC") under the
1940 Act as a diversified  open-end  management  investment company -- a type of
separate  account  known as a  "managed  account."  (SEC  registration  does not
involve supervision of the management or the investment practices or policies of
the  registered  investment  company.) The Separate  Account offers its units of
beneficial  interest  exclusively  to the Contract  Owners,  who have  purchased
certain  variable  annuity  contracts  (which  are no longer  being  sold)  from
Washington  National,  and to Washington  National and its parent company.  As a
"series" type of investment company, the Separate Account issues distinct series
of  units,  each of which  represents  an  interest  in a  separate  diversified
portfolio or "pool" of investments  (a  "Sub-Account").  Additional  information
about the Separate  Account is contained  in the Separate  Account's  prospectus
(which  accompanies  this  Proxy  Statement/Prospectus  as  Appendix  B  and  is
incorporated  herein by reference)  and in the Separate  Account's  statement of
additional information referred to in the Separate Account's prospectus.

The Fund was organized in the Commonwealth of Massachusetts on March 15, 1985,
as a "Massachusetts business trust." The Fund is registered with the SEC as a
diversified, open-end management investment company -- a type of company, in
this case, commonly known as a "mutual fund." The Fund offers its shares of
beneficial interest exclusively to variable annuity and variable life insurance
separate accounts of insurance companies. As a "series" type of investment
company, the Fund issues distinct series of shares, each of which represents an
interest in a separate diversified portfolio or "pool" of investments (a
"Portfolio"). Each of the Fund's Portfolios resembles a separate mutual fund
issuing a separate series of shares. Additional information about the Fund is
contained in the Fund's prospectus (which accompanies this Proxy Statement/

                                     - 31 -

<PAGE>



Prospectus as Appendix C and is incorporated herein by reference) and in the
Fund's statement of additional information referred to in the Fund's prospectus.

MANAGEMENT OF THE SEPARATE ACCOUNT AND THE FUND

     The  Separate  Account  is  managed  by a Board  of  Directors.  Washington
National acts as investment manager for the Separate Account under an investment
management agreement between the Separate Account and Washington  National.  NBD
Bank  acts  as  investment   sub-adviser  for  the  Stock  Sub-Account  under  a
sub-investment  advisory agreement between NBD Bank and Washington National. For
a  complete   discussion   of  the  Separate   Account's   investment   advisory
arrangements,  see the Separate  Account's  prospectus  dated May 1, 1995, which
accompanies this Proxy Statement/Prospectus as Appendix B. It has been announced
that NBD Bancorp,  Inc., a Delaware  corporation  and bank holding company which
controls NBD Bank,  has agreed to merge with First Chicago  Corporation,  also a
Delaware  corporation  and bank holding  company.  First  Chicago  Corporation's
shareholders  reportedly are expected to own 50.1% of the merged  entity,  First
Chicago NBD Corp.

     The Fund is managed by a Board of Trustees. Scudder serves as investment
adviser for all of the Portfolios currently offered by the Fund. For a complete
discussion of the Fund's investment advisory arrangements, see the Fund's
prospectus dated May 1, 1995, which accompanies this Proxy Statement/Prospectus
as Appendix C.

     Washington National currently serves as the investment manager for the
Separate Account, and NBD Bank currently serves as sub-adviser for the Stock
Sub-Account. At such time as the Transactions take effect, these investment
management relationships will be ended, as the Sub-Accounts of the Continuing
Separate Account will then invest only in shares of corresponding Portfolios of
the Fund. Because each Sub-Account of the Continuing Separate Account will
invest in only one Portfolio, the Continuing Separate Account itself will have

                                     - 32 -

<PAGE>
no discretion in investment decisions and no need for investment management or
advice.

     Pursuant to an Investment Advisory Agreement dated November 14, 1986,
Scudder serves as investment adviser for the Bond Portfolio and the Money Market
Portfolio of the Fund. Pursuant to an Investment Advisory Agreement dated May 1,
1994, Scudder serves as investment adviser for the Growth and Income Portfolio
of the Fund. Scudder is a Delaware corporation which is not affiliated with
Washington National. It is located at Two International Place, Boston,
Massachusetts 02110-4103. Scudder is a registered investment adviser under the
Investment Advisers Act of 1940, as amended. Scudder provides investment counsel
to many individuals and institutions, including insurance companies, colleges,
industrial corporations, and financial and banking organizations. Directly or
through affiliates, Scudder provides investment advice to over 50 mutual fund
portfolios.

     The Fund's Investment Advisory Agreement terminates automatically in the
event of assignment or, with respect to any Portfolio, upon sixty (60) days'
notice given by the Fund's Board of Trustees, or by Scudder as the case may be,
or by majority vote (as defined in the 1940 Act) of the Fund's shares.
Otherwise, the Investment Advisory Agreement will continue in force with respect
to any Portfolio so long as its continuance is approved at least annually by a
majority of the noninterested members of the Fund's Board of Trustees, and by
(i) a majority vote (as defined in the 1940 Act) of the Fund's shareholders or
(ii) a majority of the Fund's Board of Trustees.

     In general, Scudder performs the same investment advisory services for the
Fund as Washington National currently does for the Separate Account (as
supplemented by the sub-advisory services of NBD Bank with respect to the Stock
Sub-Account). Scudder has day-to-day responsibility for making investment
decisions and placing investment orders for all of the Fund's Portfolios.
Scudder is also responsible for seeing to it that purchases and sales of
Portfolio investments are made in a manner consistent with the current
investment objectives and policies of each Portfolio. Scudder is responsible for


                                     - 33 -

<PAGE>
the execution of securities transactions for all Portfolios. Scudder furnishes
to the Fund and its Board of Trustees such statistical information and reports
as Scudder may deem appropriate or as may be requested by the Fund.

     The Fund's primary consideration in placing Portfolio securities
transactions with broker-dealers for execution is and will be to obtain and
maintain the availability of execution at the most favorable prices and in the
most effective manner possible. Scudder will attempt to achieve this result by
selecting broker-dealers to execute Portfolio transactions on behalf of the Fund
and other clients of Scudder on the basis of their professional capability, the
value and quality of their brokerage services, and the level of their brokerage
commissions. In some instances the availability of research or other services is
also considered in the selection of broker-dealers. In addition, Scudder may
consider sales of variable life insurance policies and variable annuity
contracts, for which the Fund is an investment option, as a factor in the
selection of broker-dealers to execute portfolio transactions.

ORGANIZATION AND OPERATION OF THE FUND

     Characteristics of the Fund's Shares

     The Fund's shares of beneficial interest are divided into six separate
series. The Fund's Board of Trustees is authorized to establish additional
Portfolios and to issue additional series of shares without the consent of
shareholders or Contract Owners. The Board of Trustees also may, by majority
vote, decide at any time to discontinue any Portfolio, subject to compliance
with any requirements for governmental approvals or exemptions or approval by
owners of annuity contracts or life insurance policies. The Fund intends to
exercise this right to discontinue a Portfolio only where, in its sole
discretion, it determines that there has been minimal interest in the Portfolio
to be eliminated. If the Transactions are approved by the Separate Account
Voters, Contract Owners using (through a Sub-Account of the Continuing Separate

                                         - 34 -

<PAGE>
Account) any Portfolio to be eliminated will be given at least thirty (30) days'
notice to make a transfer to another Sub-Account investing in another investment
option. (There is no charge for transfers.)

     The Fund's Board of Trustees has approved the adoption of a multiclass plan
pursuant to which an additional class of shares of each Portfolio of the Fund
would be created, although it is currently anticipated that the Money Market
Portfolio would not participate in the plan. Further, it is expected that
certain shareholders in the Fund's Portfolios, including the Bond Sub-Account
and the Stock Sub-Account of the Separate Account investing in the Bond
Portfolio and the Growth and Income Portfolio, respectively, will be issued
shares of a newly created class of shares, which will have the same rights and
privileges as shares which are currently issued by the Fund.

     Each issued and outstanding share of a Portfolio is entitled to participate
equally in dividends and distributions from such Portfolio and in the net assets
of such Portfolio (i.e., the assets remaining aftersatisfaction of outstanding
liabilities) upon a liquidation or dissolution. For these purposes, and for
purposes of determining the purchase and redemption prices of shares, any assets
which are not clearly allocable to a particular Portfolio or Portfolios will be
allocated in the manner determined by the Fund's Board of Trustees. Accrued
liabilities which are not allocable to one or more Portfolios will generally be
allocated among the Portfolios in proportion to their relative net assets before
adjustment for such unallocated liability. In the unlikely event that any
Portfolio incurred liabilities in excess of its assets, the other Portfolios
could be liable for such excess. Similarly, and equally unlikely, each
Sub-Account of the Continuing Separate Account could perhaps be liable for
claims arising out of another Sub-Account's operations, in some circumstances.

     The Fund's authorized capital consists of an unlimited number of shares of
beneficial interest of no par value. The Trustees are authorized to divide the
shares into separate series. Shares entitle their holders to one vote per share;
however, separate votes will be taken by each series on matters affecting an
individual series. Shares have noncumulative voting rights and no preemptive or
subscription rights. The Fund is not required to hold shareholder meetings



                                     - 35 -

<PAGE>
annually, although shareholder meetings may be called for purposes such as
electing or removing Trustees, changing fundamental policies or approving an
investment management contract. In the event that shareholders of the Fund wish
to communicate with other shareholders concerning the removal of any Trustee of
the Fund, such shareholders shall be assisted in communicating with other
shareholders for the purpose of obtaining signatures to request a meeting of
shareholders, all in the manner provided for in Section 16(c) of the 1940 Act as
if Section 16(c) were applicable.

     Pursuant to certain decisions of the Supreme Judicial Court of
Massachusetts, shareholders of a Massachusetts business trust may, under certain
circumstances, be held personally liable as partners for the obligations of such
a trust. Even if, however, the Fund were held to be a partnership, the
possibility of its shareholders incurring financial loss for that reason appears
remote because the Fund's Declaration of Trust includes an express disclaimer of
shareholder liability for obligations of the Fund and notice of such disclaimer
is normally given in each agreement, obligation or instrument entered into or
executed by the Fund or its Trustees, and because the Declaration of Trust
provides for indemnification out of the Fund's property for any Shareholder held
personally liable for the obligations of the Fund.

     Dividends, Distributions, and Taxes

     Each Portfolio qualifies and intends to continue qualifying as a "regulated
investment company" under certain provisions of the Internal Revenue Code of
1986, as amended (the "Code"). Under those provisions, each Portfolio generally
will not be subject to federal income or excise tax on the part of its ordinary
income and net realized capital gains which it distributes to shareholders.
Accordingly, each Portfolio intends to distribute all of such income to the
insurance company separate accounts which own its shares, thereby generally
avoiding any federal income or excise tax liability. Such distributions to
Washington National in respect of the Sub-Accounts of the Continuing Separate
Account will be reinvested in additional full and fractional shares of the
Portfolio to which they relate. Shares of each Portfolio which are purchased


                                     - 36 -

<PAGE>
with reinvested distributions paid by such Portfolio will be held in the
corresponding Sub-Account of the Continuing Separate Account, and will be
appropriately credited to the investment performance of that Sub-Account for the
benefit of Contract Owners.

     To qualify for treatment as a regulated investment company, each Portfolio
must, among other things, derive in each taxable year at least 90% of its gross
income from certain categories of income, including dividends, interest, and
gains from the sale or other disposition of "securities"; derive less than 30%
of its gross income (without deduction for losses) in each taxable year from the
sale or other disposition of "securities" and certain other assets held for less
than three months; diversify its portfolio assets; and distribute substantially
all of its earnings to shareholders. Each Portfolio of the Fund will be treated
as a separate entity for federal income tax purposes. Therefore, the investments
and results of the Portfolios will not be aggregated for purposes of determining
whether they meet the foregoing requirements.

     Although the Fund intends to operate in such a way that it will have no
federal income tax liability, if any such liability is nevertheless incurred,
the investment performance of the Fund would be adversely affected, to the
detriment of Contract Owners. This risk does not currently exist for Contract
Owners, since the Separate Account, unlike the Fund, need not qualify as a
regulated investment company. Indeed, the Separate Account is not treated for
tax purposes as an entity separate from Washington National, which is taxed as
an insurance company under different provisions of the Code.

     Voting of the Fund's Shares

     The current voting procedures with respect to the Separate Account are set
forth under "General Information Regarding Proxy Solicitation," above.




                                     - 37 -

<PAGE>
     Each share of all series of the Fund's shares of beneficial interest is
entitled to one vote, and the votes of all series are cast on an aggregate basis
except on matters where the interests of the Portfolios differ. Where the
interests of the Portfolios differ, the voting is on a Portfolio-by-Portfolio
basis. Approval or disapproval by the shareholders in one Portfolio on such a
matter would not generally be a prerequisite of approval or disapproval by
shareholders in another Portfolio; and shareholders in a Portfolio not affected
by a matter generally would not be entitled to vote on that matter. Examples of
matters which would require a Portfolio-by-Portfolio vote are changes in a
fundamental investment policy of a particular Portfolio and approval of an
investment advisory agreement.

     If the Transactions are approved by the Separate Account Voters, Washington
National will offer Contract Owners the opportunity to instruct Washington
National as to how the Fund's shares allocable to their Contracts and held by
Washington National in the Continuing Separate Account will be voted with
respect to the same kinds of matters as to which Contract Owners are currently
entitled to vote. The number of shares held in each Sub-Account of the
Continuing Separate Account deemed attributable to each Contract Owner for this
purpose will be determined by dividing the total value of the Contract's
Accumulation Units (or, after Annuity Payments commence, the amount of Contract
reserves) allocable to that Sub-Account by the net asset value of one share of
the corresponding Portfolio of the Fund as of the record date. Fractional votes
will be counted. Shares of the Fund in any Sub-Account which are not
attributable to the Contracts or for which no timely instructions are timely
received by Washington National will be voted in the same proportion as the
shares for which voting instructions are timely received under the Contracts.
Thus, although voting instructions will be reflected somewhat differently after
the Transactions than before, Washington National believes that this will not
result in any significant diminution of Contract Owners' voting privileges.

     Notwithstanding the foregoing, it is anticipated that the Transactions will
result in dilution of the voting influence which Contract Owners have with
respect to the funding medium for their Contracts. This dilution is attributable
to the fact that other separate accounts have voting interests in the Fund, and

                                     - 38 -

<PAGE>
shares of the Fund which are held in separate accounts of insurance companies
other than Washington National will be voted in accordance with instructions of
the owners of policies or contracts issued by such other companies.

     Certain Ownership Interests

     As of ____________, ___, 1995, Washington National owned of record and
beneficially __.__%, __.__%, and __.__% of the Bond Sub-Account, the Short-Term
Portfolio Sub-Account, and the Stock Sub-Account, respectively, of the Separate
Account. Its ownership interests will not be affected by the Transactions. As of
____________ ___, 1995, all directors and officers of the Separate Account,
as a group, owned less than one percent of the equity securities of each
Sub-Account. Based on the ____________ ___, 1995, relative sizes of the Separate
Account and the Fund, Washington National would become both the record and
beneficial owner of __.__%, __.__%, and __.__% of the Bond Portfolio, the Money
Market Portfolio, and the Growth and Income Portfolio, respectively, of the
Fund.

     As of ____________ ___, 1995, the following persons owned of record or
beneficially five percent or more of the outstanding shares in one or more
Portfolios of the Fund: Mutual of America Life Insurance Company of New York
(666 Fifth Avenue, New York, NY 10103) and its subsidiary American Life
Insurance Company (666 Fifth Avenue, New York, NY 10103) (collectively, the
"Mutual of America group"), American Skandia Life Assurance Corporation (1
Corporation Drive, Shelton, CT 06484) ("American Skandia"), and Charter National
Life Insurance Company (8301 Maryland Avenue, St. Louis, MO 63105) and its
subsidiary Intramerica Life Insurance Company (1 Blue Hills Plaza, Pearl River,
NY 10965) (collectively, the "Charter National group") owned of record and
beneficially __.__%, __.__%, and __.__%, respectively, of the Bond Portfolio.
The Charter National Group and The Union Central Life Insurance Company (1876
Waycross Road, Cincinnati, OH 45240) ("Union Central") owned of record and
beneficially __.__% and __.__%, respectively, of the Money Market Portfolio. The
Charter National group owned of record and beneficially __.__% of the Growth and


                                     - 39 -

<PAGE>
Income Portfolio. The Charter National group, the Mutual of America group,
Union Central, and Aetna Life Insurance and Annuity Company (151 Farmington
Avenue, Hartford, CT 06156) ("Aetna Life") owned of record and beneficially
__.__%, __.__%, __.__%, and __.__%, respectively, of the Fund's total
outstanding shares. As of ____________ ___, 1995, all trustees and officers of
the Fund, as a group, owned less than one percent of the equity securities of
each Eligible Portfolio and less than one percent of the Fund's total
outstanding shares. Based on the ____________ ___, 1995, relative sizes of the
Separate Account and the Fund, upon consummation of the Transactions: the Mutual
of America group, American Skandia, and the Charter National group would own of
record and beneficially __.__%, __.__%, and __.__%, respectively, of the Bond
Portfolio of the Fund; the Charter National group and Union Central would own of
record and beneficially __.__% and __.__%, respectively, of the Money Market
Portfolio of the Fund; the Mutual of America group and the Charter National
group would own of record and beneficially __.__% and __.__%, respectively of
the Growth and Income Portfolio of the Fund; and the Charter National group, the
Mutual of America group, Union Central, and Aetna Life would own of record and
beneficially __.__%, __.__%, __.__%, and __.__%, respectively, of the Fund's
total outstanding shares.


DIVISIONS OF THE SEPARATE ACCOUNT AND THE FUND

     Sub-Accounts of the Separate Account

     The Separate Account is comprised of three Sub-Accounts. The investment
objectives of the Sub-Accounts stated below are not fundamental policies and may
be changed without the approval of the Contract Owners. There is no assurance
that the investment objectives will be achieved. The following is a summary of
each Sub-Account's investment objectives and practices:

     Bond Sub-Account objective -- To obtain as high a level of current income
as possible while preserving capital. Investments will be made primarily in
fixed-income securities. It is anticipated that 85% of the assets will be
invested in (1) securities issued or guaranteed by the United States Government


                                     - 40 -

<PAGE>
or its agencies and (2) publicly traded, investment grade nonconvertible
corporate debt securities issued by United States corporations which bear one of
the four highest bond ratings of either Moody's Investors Service, Inc. or
Standard & Poor's Corporation.

     Short-Term Portfolio Sub-Account objective -- To obtain a moderate level of
current income, consistent with liquidity and preservation of capital. We will
pursue this investment objective by investing in high quality money market
instruments such as: obligations of the U.S. Government, its agencies, and
instrumentalities; certificates of deposit; bankers' acceptances; commercial
paper; corporate bonds, notes and other debt instruments; variable amount demand
master notes; repurchase agreements; reverse repurchase agreements; and
when-issued and delayed delivery securities. The assets will consist entirely of
cash and investments having a maturity date of sixty (60) days or less from the
date of purchase.

     Stock Sub-Account objective -- To achieve long-term capital growth through
capital appreciation and income. The assets of the Stock Sub-Account are
expected to be invested primarily in equity-type investments, including common
stocks and securities convertible into common stocks, which investments may be
maintained in both rising and declining markets.

     For a complete  discussion of each  Sub-Account's  investment  policies and
restrictions,  see the Separate  Account's  prospectus  dated May 1, 1995, which
accompanies this Proxy Statement/Prospectus as Appendix B.

     Portfolios of the Fund

     At present the Fund is comprised of six Portfolios (only three of which
will be available to Contract Owners through the Continuing Separate Account),
but existing Portfolios may be discontinued and additional Portfolios may be
established by the Fund's Board of Trustees in the future. The investment
objectives and policies of each Portfolio may, unless otherwise specifically
stated, be changed by the Fund's Board of Trustees without a vote of the



                                     - 41 -

<PAGE>
Shareholders. The following is a summary of the investment objectives and
policies of the Portfolios:

     Bond Portfolio objective -- The Bond Portfolio pursues a policy of
investing for a high level of income consistent with a high quality portfolio of
debt securities. Under normal circumstances, the Portfolio invests at least 65%
of its assets in bonds, including those of the U.S. Government and its agencies,
and those of corporations and other notes and bonds paying high current income.
It will attempt to moderate the effect of market price fluctuation relative to
that of a long-term bond by investing in securities with varying maturities and
by entering into futures contracts on debt securities and related options for
hedging purposes.

     Money Market Portfolio objective -- The Money Market Portfolio seeks to
maintain the stability of capital and, consistent therewith, to maintain the
liquidity of capital and to provide current income. The Portfolio seeks to
maintain a constant net asset value of $1.00 per share, although there can be no
assurance that this will be achieved. The Portfolio uses the amortized cost
method of securities valuation.

     Growth and Income Portfolio objective -- The Growth and Income Portfolio
seeks long-term growth of capital, current income and growth of income. In
pursuing these three objectives, the Portfolio invests primarily in common
stocks, preferred stocks, and securities convertible into common stocks of
companies which offer the prospect for growth of earnings while paying higher
than average current dividends. Over time, continued growth of earnings tends to
lead to higher dividends and enhancement of capital value. The Portfolio
allocates its investments among different industries and companies, and changes
its portfolio securities for investment considerations and not for trading
purposes.

     For a complete  discussion  of each  Portfolio's  investment  policies  and
restrictions,  see the Fund's  prospectus dated May 1, 1995,  which  accompanies
this Proxy Statement/Prospectus as Appendix C.



                                     - 42 -

<PAGE>

SALE OF THE CONTRACTS AND FUND SHARES

     The Contracts were sold by Washington National's life insurance agents, who
were licensed to sell variable annuities and were registered representatives of
Washington National Equity Company ("WNEC"), formerly a wholly-owned subsidiary
of WNC. Until March 31, 1990, WNEC was registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), was a member of
the National Association of Securities Dealers, Inc. ("NASD"), and was the
principal underwriter of the Separate Account. Although no sales load is imposed
on Purchase Payments at the time they are received, a contingent deferred sales
charge of 6% of the amount withdrawn is charged in connection with certain
withdrawals. The Contracts could also have been sold by registered
representatives of other NASD member broker-dealers who were authorized to sell
variable annuity contracts. The commissions paid to dealers did not exceed 6% of
Purchase Payments. The Contracts are no longer being sold; however, additional
Purchase Payments will continue to be accepted in accordance with contractual
provisions. Washington National currently does not intend to issue new Contracts
following the consummation of the Transactions.


     Shares of beneficial interest in each Portfolio of the Fund are offered
continuously to the separate accounts of Participating Insurance Companies by
Scudder Investor Services, Inc. (the "Distributor"), a wholly-owned subsidiary
of Scudder. The Distributor is registered as a broker-dealer under the 1934 Act,
is a member of the NASD, and is the principal underwriter of the Fund. The
Distributor accepts orders for shares at their net asset value, as no sales
commission or load is charged.


 

                                     - 43 -

<PAGE>
DEDUCTIONS, CHARGES, FEES, AND EXPENSES

     Deductions and Charges Under the Contracts

     If the Transactions are approved by the Separate Account Voters and
implemented, certain Separate Account annual expenses will not be incurred
directly by the Continuing Separate Account but, in effect, will be replaced by
the Fund's fees and expenses (discussed under "Fees and Expenses of the Fund,"
below). Other deductions and charges under the Contracts will continue to apply
to the Continuing Separate Account. Specifically, the Separate Account's
investment management charge and charge for other expenses will be discontinued,
although the Contracts' contingent deferred sales charge, contract maintenance
charge, annuity rate guarantee deductions, and financial accounting service
charge will continue to apply.

     Contingent Deferred Sales Charge. Washington National does not make any
deduction for sales charges when Purchase Payments are received. The full amount
is invested and credited to the Contracts, although sales expenses for items
such as commissions, preparation of sales literature, and other promotional
activities were incurred in connection with their sale. Washington National
does, however, assess a contingent deferred sales charge in connection with
certain withdrawals. This charge is made at the rate of 6% of the amount
withdrawn and is deducted from the amount withdrawn. The contingent deferred
sales charge is made only when a withdrawal, partial or full (including applying
the Accumulated Value to a Paid-Up Annuity in certain circumstances), is made
from the Contract and is designed to recover those sales expenses. The charge
does not apply to Purchase Payments made six years or more prior to the
withdrawal, and it will never exceed 6% of Purchase Payments. Because the
proceeds received from such charge are not sufficient to pay such expenses,
Washington National pays the excess out of its general funds, which include
proceeds derived from the annuity rate guarantee deductions.




                                     - 44 -

<PAGE>

     Contract Maintenance Charge. On each Contract or Certificate Anniversary,
or on the date of full withdrawal or election of a Settlement Option if that
date is not the Contract or Certificate Anniversary, Washington National deducts
from the Accumulated Value of the Contract a charge for establishing and
maintaining records. The annual charge is currently $30 for each Contract and
Certificate. The charge is made pro-rata from the Accumulated Value of each
Sub-Account and the Fixed Account under the Contract, and the number of
Accumulated Units credited will be reduced accordingly. This charge is not
guaranteed, may be changed in the future and may be deducted more frequently
than annually. Washington National currently waives this charge if, on the last
day of the Contract Year, the Contract has an Accumulated Value of $20,000 or
more, or if $1,000 or more in Purchase Payments were made during the Contract
Year.

     Investment Management Charge. Prior to the Transactions, an investment
management charge is made each business day against the assets of the Separate
Account at an annual rate of 0.50%, and in some Contracts was guaranteed.
Washington National has contracted with NBD Bank to act as Sub-Advisor for and
to manage the investments of the Stock Sub-Account, for which Washington
National pays NBD Bank a fee of 0.40% of the average net assets of the Stock
Sub-Account. After the Transactions, an investment advisory charge will no
longer be made against the assets of the Continuing Separate Account. Instead,
an investment advisory fee will be reflected in the net asset value of the
shares of each Portfolio of the Fund. The level of the investment advisory fee
depends on the particular Portfolio. This investment advisory fee may be
modified if approved by the Board of Trustees of the Fund and by Contract Owners
and others with an interest in the Fund.

     Annuity Rate Guarantee Deductions. Both before and after annuity payments
begin, a charge is made each business day against the assets of the Separate
Account under the Contracts at an annual rate of 0.80% for annuity rate
guarantees. In this respect, the Contract Owner in the Continuing Separate
Account will not be in a different situation after the Transactions than before.
As has been the case prior to the Transactions, the contingent deferred sales
charge (described in "Contingent Deferred Sales Charge," above) may not be

                                     - 45 -

<PAGE>
adequate to pay all the distribution costs. Any shortfall will be borne by
Washington National from its general assets, including profits derived from the
annuity rate guarantee deduction.

     Financial Accounting Service Charge. Washington National provides financial
accounting services to the Separate Account under an Administrative Services
Agreement between the Separate Account and Washington National. Such services
include preparation and maintenance of all accounting, bookkeeping, financial
and other statements for the conduct of the business and operations of the
Separate Account. For providing these services, a charge is made each business
day against the assets of the Separate Account and paid to Washington National
at an annual rate of 0.35%. The charge is designed to cover the actual expenses
incurred in providing these services, and Washington National does not expect to
profit from the charge. The amount of the charge is guaranteed not to be
increased, but may be imposed on a more or less frequent basis.

     Other Expenses of the Separate Account. The Separate Account currently pays
all taxes, interest, brokerage fees and commissions, fees and expenses of legal
counsel and independent auditors, custodian fees and expenses, expenses
associated with meetings of the Contract Owners, expenses incurred in the
preparation, printing and distribution of reports and prospectuses by the
Separate Account to its current Contract Owners, fees of and expenses incurred
by directors of the Separate Account who are not Washington National's
directors, officers or employees, fees and expenses associated with the
approval, qualification or registration of the Contracts, extraordinary expenses
if permitted by applicable laws and regulations, and all other fees and expenses
incurred by or on behalf of the Separate Account which are not borne by
Washington National under the advisory agreement or an administrative services
agreement or by the underwriter under a distribution agreement. These expenses
will be allocated among Sub-Accounts as the Board of Directors deems is
appropriate, which is generally in proportion to the net assets of the
Sub-Accounts. During 1994, charges were made against the assets of each
Sub-Account of the Separate Account at an annual rate of 0.20%.


                                     - 46 -

<PAGE>
     Premium Taxes. Various states and municipalities impose a premium tax of up
to 3.5% upon Purchase Payments received by insurance companies. At present,
Washington National pays those taxes but reserves the right to deduct premium
taxes from Purchase Payments or to charge them against the Contracts or
Certificates to which they are attributable in the future.

     Fees and Expenses of the Fund

     Investment Advisory Fees. Just as the Separate Account (prior to the
Transactions) is responsible for payment of an investment management charge, the
Fund is responsible for payment of an investment advisory fee. For its services,
Scudder charges a fee which is accrued daily against the assets of each
Portfolio. The investment advisory fee charged to each Eligible Portfolio,
stated as an annual percentage of the average daily value of the net assets, is:

Bond Portfolio                         0.475%
Money Market Portfolio                 0.370%
Growth and Income Portfolio            0.475%3


     The amount of the investment advisory fee paid to Scudder (as outlined
above)  is  less  for  each  of  the  three   available   Portfolios   than  the
0.50%-per-year   investment  management  charge  currently  paid  by  all  three
Sub-Accounts of the Separate Account to Washington National.

     Other Expenses of the Fund. The Fund pays certain of its expenses and also
makes payments to Scudder and to Scudder Investor Services, Inc. and Scudder
Fund Accounting Corporation for clerical, accounting, and certain other services

---------------
3.  Scudder voluntarily did not impose any of its investment advisory fee on
the Growth and Income Portfolio in 1994.

                                     - 47 -

<PAGE>

they provide to the Fund. In 1994, these expenses and payments, stated as an
annual percentage of the daily value of each Eligible Portfolio's net assets,
were:

Bond Portfolio                         0.105%
Money Market Portfolio                 0.190%
Growth and Income Portfolio            0.750%


     Under the investment advisory agreements between the Fund, on behalf of its
Portfolios, and Scudder, the Fund is responsible for all its other expenses,
including clerical salaries; fees and expenses incurred in connection with
membership in investment company organizations; brokers' commissions; legal,
auditing and accounting expenses; taxes and governmental fees; the charges of
custodians, transfer agents and other agents; any other expenses, including
clerical expenses, of issue, sale, underwriting, distribution, redemption or
repurchase of shares; the expenses of and fees for registering or qualifying
securities for sale; the fees and expenses of the Trustees of the Fund who are
not affiliated with Scudder; the cost of preparing and distributing reports and
notices to shareholders. The Fund is also responsible for its expenses incurred
in connection with litigation, proceedings and claims and the legal obligation
it may have to indemnify its officers and Trustees with respect thereto. Such
expenses are calculated daily and will be reflected in the value of the Fund's
assets and, thus, in the net asset value of Portfolio shares held by the
Sub-Accounts of the Continuing Separate Account. Any such expenses which are not
clearly allocable to a particular Portfolio or Portfolios will be allocated
among the Portfolios in the manner determined by the Fund's Board of Trustees.


                                     - 48 -

<PAGE>
SUPPLEMENTARY FINANCIAL INFORMATION

     Condensed Financial Information for the Separate Account

     As a supplement to the ten fiscal years of condensed financial information
for each Sub-Account contained in the Separate Account's prospectus dated May 1,
1995 (accompanying this Proxy Statement/Prospectus as Appendix B), the following
corresponding data are presented for the six months ended June 30, 1995:

<TABLE>
<CAPTION>

SEPARATE ACCOUNT I OF WASHINGTON  NATIONAL  INSURANCE  COMPANY
--------------------------------------------------------------
Selected Data per Accumulation  Unit  Outstanding  throughout the Period (for the six months ended
June 30, 1995) (unaudited)
                                                                                           Short-Term
                              Sub-Account:                                     Bond        Portfolio        Stock
                                                                             -------       ----------       ----- 
<S>                                                                          <C>           <C>              <C>
Per accumulation unit data:
  Investment income                                                           $ 0.09         $ 0.05          $ 0.04

  Expenses                                                                    ( 0.02)        ( 0.01)         ( 0.02)
                                                                              -------        -------         -------  
NET INVESTMENT INCOME                                                           0.07           0.04            0.02

  Net realized and unrealized gain (loss) on investments                        0.15           ---             0.50
                                                                              -------        -------         -------  
  Net increase (decrease) in accumulation unit value                            0.22           0.04            0.52

  Accumulation unit value at beginning of period                                2.16           1.70            2.54

ACCUMULATION UNIT VALUE AT END OF PERIOD                                      $ 2.38         $ 1.74          $ 3.06
                                                                              ======         ======          ======
Ratios:
  Ratio of expenses to average net assets                                       1.78%          1.84%           1.87%

  Ratio of net investment income to average assets                              5.75           4.18            1.11

  Portfolio turnover rate                                                        ---           ---             3.31

Number of accumulation units outstanding at end of period
  (000's omitted)                                                               5,173          983           9,714
</TABLE>

--------------------
See notes to financial  statements in the Separate Account's  Semi-Annual Report
dated June 30, 1995.



                                     - 49 -

<PAGE>
     Financial Highlights for the Fund

     As a supplement to the complete fiscal years of financial highlights for
each Eligible Portfolio contained in the Fund's prospectus dated May 1, 1995
(accompanying this Proxy Statement/Prospectus as Appendix C), the following
corresponding data are presented for the six months ended June 30, 1995:
<TABLE>
<CAPTION>

SCUDDER  VARIABLE  LIFE  INVESTMENT  FUND
-----------------------------------------
Selected  Data per Share  Outstanding throughout the Period 
(for the six months ended June 30, 1995) (unaudited)

                                                                                              Money        Growth and
                               Portfolio:                                      Bond           Market          Income
                                                                               ----           ------       -----------
<S>                                                                          <C>             <C>           <C>
Per Share Data (A)

Net asset value, beginning of period                                          $ 6.48         $ 1.000        $ 6.26

Income from investment operations:

  Net investment income                                                          .21            .028           .12

  Net realized and unrealized gain (loss) on investment transactions             .45             ---           .84
                                                                             -------         --------      -------
Total from investment operations                                                 .66            .028           .96
                                                                             -------         --------      -------
Less distributions from:
  Net investment income                                                       (  .21)         ( .028)       (  .09)

  Net realized gains on investment transactions                                   ---           ---         (  .04)
                                                                             --------         --------      -------
Total distributions                                                           (  .21)         ( .028)       (  .13)

Net asset value, end of period                                                $ 6.93         $ 1.000        $ 7.09
                                                                             =======         =======        ======
Total Return (%) (B)                                                           10.40           2.83          15.46
Ratios and Supplemental Data
Net assets, end of period ($ millions)                                           146             84             37

Ratio of operating expenses, net to average net assets (%)(C)                    .56            .50            .75

Ratio of net investment income to average assets (%) (C)                        6.45           5.63           3.50

Portfolio turnover rate (%) (C)                                               157.99           ---           27.36
-------------
<FN>
(A)  Per share amounts have been calculated using the monthly-average-shares-
     outstanding-during-the-period method.
(B)  Not annualized
(C)  Annualized

See notes to financial statements in the Fund's Semi-Annual Report dated June
30, 1995.
</FN>
</TABLE>


                                     - 50 -

<PAGE>

                    AVAILABILITY OF CERTAIN OTHER INFORMATION

     The Separate Account and the Fund are subject to various reporting and
filing requirements pursuant to statutes administered by the SEC. The balance of
this registration statement, of which this Proxy Statement/Prospectus forms a
part, as well as reports, proxy statements, and other information filed with the
SEC by the Separate Account or the Fund, can be inspected and copied at the
public reference facilities maintained by the Commission at: 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549; 7 World Trade Center, Suite 1300, New
York, New York 10048; and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can be obtained from the SEC at prescribed rates
by writing to the Public Reference Branch, Office of Consumer Affairs and
Information Services, Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549.

     The Board of Directors of the Separate Account unanimously recommends a
vote FOR the Transactions.

                                  OTHER MATTERS

     The Board of Directors of the Separate Account knows of no other matters
which are likely to be brought before the Special Meeting. In the event any
other matters do properly come before the Special Meeting, however, the persons
named in the enclosed proxy will vote the proxies in accordance with their best
judgment.

                                     - 51 -

<PAGE>



                                  FORM OF PROXY
           SEPARATE ACCOUNT I OF WASHINGTON NATIONAL INSURANCE COMPANY


      SPECIAL MEETING OF SEPARATE ACCOUNT VOTERS -- _____________ ___, 1995

     The undersigned Separate Account Voter hereby appoints James E. Dresmal and
Craig R. Edwards, and each of them severally, as proxies with full power of
substitution, to represent the undersigned, and to cast the number of votes
which the undersigned is entitled to cast in respect of Separate Account I of
Washington National Insurance Company (the "Separate Account"), at the Special
Meeting of Separate Account Voters to be held at the office of the Separate
Account at 300 Tower Parkway in Lincolnshire, Illinois, at __:___ __.m., Central
Time, on _______day, _____________ ___, 1995, and at any adjournments thereof,
as follows:

<TABLE>
<CAPTION>
<S>      <C>                                                                      <C>        <C>              <C>
                                                                                   For         Against         Abstain
                                                                                   ---         -------         -------
1.       To approve the Transactions restructuring the Separate
         Account as a unit investment trust investing in certain
         Portfolios offered by Scudder Variable Life Investment Fund.              |_|           |_|             |_|

2.       To transact such other business as may properly come
         before the meeting.                                                       |_|           |_|             |_|

</TABLE>

<PAGE>

This proxy will be voted as specified.  IF NO  SPECIFICATION IS MADE, THIS PROXY
WILL BE VOTED "FOR" PROPOSALS 1 and 2.

Date:  _____________ ___, 1995     _____________________________________________
                                    Signature - Please sign exactly as your
                                    name appears below.

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE SEPARATE ACCOUNT. IT IS
IMPORTANT THAT YOUR VARIABLE ANNUITY INTEREST BE REPRESENTED. PLEASE FILL IN,
DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.

<PAGE>



                                   APPENDIX A

           FORM OF ASSET TRANSFER AGREEMENT AND PLAN OF REORGANIZATION


<PAGE>

                            ASSET TRANSFER AGREEMENT
                                       and
                             PLAN OF REORGANIZATION
                                       for
                               Separate Account I
                                       of
                      Washington National Insurance Company

     This Asset Transfer Agreement and Plan of Reorganization (the "Agreement"),
entered into as of the _____ day of ___________, 1995, by and among Washington
National Insurance Company ("Washington National"), a stock life insurance
company organized and existing under the laws of the State of Illinois, Separate
Account I of Washington National Insurance Company (the "Separate Account"), a
separate account established and existing under the insurance laws of the State
of Illinois, and Scudder Variable Life Investment Fund (the "Fund"), a
"Massachusetts business trust" organized and existing under the laws of the
Commonwealth of Massachusetts, on behalf of each of its Bond Portfolio, Money
Market Portfolio, and Growth and Income Portfolio; WITNESSETH that,

     WHEREAS, the Separate Account is currently comprised of three investment
divisions ("Sub-Accounts"), is registered with the Securities and Exchange
Commission (the "Commission") as an open-end, diversified management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and is the funding vehicle for certain variable annuity contracts (the
"Contracts") issued by Washington National; and

     WHEREAS, the Board of Directors of the Separate Account has approved a set
of transactions (the "Transactions") reorganizing the Separate Account into an

<PAGE>

unmanaged separate account (the "Continuing Separate Account"), which shall be
registered with the Commission as a unit investment trust under the 1940 Act;
and

     WHEREAS, the Fund is a series-type mutual fund which is currently comprised
of six (6) investment portfolios ("Portfolios"), and is registered with the
Commission as an open-end, diversified management investment company under the
1940 Act; and

     WHEREAS, each Sub-Account of the Continuing Separate Account will invest
solely in a series of the Fund's shares of beneficial interest corresponding to
a particular Portfolio of the Fund; and

     WHEREAS, the Board of Directors of the Separate Account has further
determined that the registration statement of the Separate Account shall be
amended, to the extent required by law, to reflect the Transactions contemplated
by this Agreement; and

     WHEREAS, the Fund does and, to the extent permitted by the 1940 Act, may
continue to serve as an investment vehicle for variable life insurance policies
and variable annuity contracts issued by unaffiliated insurance companies; and
                  
     WHEREAS, the Board of Directors of Washington National and the Board of
Trustees of the Fund have each considered and approved the actions contemplated
by this Agreement; and

     WHEREAS, this Agreement is conditioned upon approval of the Transactions
described herein by vote of a majority of the outstanding voting securities of
the Separate Account, as defined in the 1940 Act and rules thereunder, at a


                                       2
<PAGE>

meeting of the owners of the Contracts (the "Contract Owners") and other persons
entitled to vote in respect of the Separate Account (collectively, the "Separate
Account Voters"), called for that purpose, or any adjournments thereof;

     NOW THEREFORE, in consideration of the mutual promises made herein, the
parties hereto agree as follows:

                             ARTICLE I: CLOSING DATE

     SECTION 1.01. The Transactions contemplated by this Agreement shall be
effective on such date as may be mutually agreed upon by all parties to this
Agreement (the "Closing Date"). The time on the Closing Date as of which the
Transactions are consummated is referred to hereinafter as the "Effective Time."

     SECTION 1.02. The parties agree to use their best efforts to obtain all
regulatory and Separate Account Voter approvals and perform all other acts
necessary or desirable to complete the Transactions as of the Closing Date.

                            ARTICLE II: TRANSACTIONS

     SECTION 2.01. As of the Effective Time, Washington National, on behalf of
the Separate Account, will sell, assign, and transfer all cash except for a
minimal amount needed to keep bank accounts open, all securities and other
investments held or in transit, all accounts receivable for sold investments,
and all dividends and interest receivable (collectively, "portfolio assets") of
the Bond Sub-Account, the Short-Term Portfolio Sub-Account, and the Stock
Sub-Account of the Separate Account to the Fund to be held as the property of


                                       3
<PAGE>

the Fund's Bond Portfolio, Money Market Portfolio, and Growth and Income
Portfolio, respectively.

     SECTION 2.02. In exchange for the portfolio assets of the Bond Sub-Account,
the Short-Term Portfolio Sub-Account, and the Stock Sub-Account of the Separate
Account, the Fund will issue to Washington National, on behalf of each such
Sub-Account of the Continuing Separate Account, shares of beneficial interest in
the series corresponding to the Fund's Bond Portfolio, Money Market Portfolio,
and Growth and Income Portfolio, respectively, and will assume any unsatisfied
liability incurred by the Separate Account before the Effective Time to pay for
securities or other investments purchased and to pay accrued investment
management fees. The number of shares of beneficial interest in each series of
the Fund to be issued in the exchange shall be determined by dividing the value
of the net assets of each Sub-Account of the Separate Account to be transferred
(using the valuation procedures set forth in the Fund's Declaration of Trust, as
amended, prospectus or statement of additional information, and currently
effective valuation resolution as adopted by the Fund's Board of Trustees) as of
the close of trading on the first business day preceding the Closing Date, by
the per share value of the corresponding series of the Fund's shares of
beneficial interest as of the Effective Time or such other date required by law.
All such computations shall be made in cooperation with the auditors of the Fund
who will apply certain procedures designed to test such computations as agreed
by the Fund.

     SECTION 2.03. As of the Effective Time, Washington National shall cause the
shares of beneficial interest in the Fund it receives pursuant to Section 2.02
of this Agreement to be duly and validly recorded and held on its records as



                                       4
<PAGE>
assets of the Continuing Separate Account, such that the Contract Owners' 
interests in each Sub-Account of the Continuing Separate Account after the
Closing Date will then be equivalent to their former interests in each
Sub-Account of the Separate Account. Washington National shall take all action
necessary to ensure that such interests in the Continuing Separate Account,
immediately following the Effective Time, are duly and validly recorded on the
Contract Owners' individual account records.

     SECTION 2.04. The Fund's shares of beneficial interest to be issued
hereunder shall be issued in open account form by book entry without the
issuance of certificates. Each such share of beneficial interest that is issued
pursuant to Section 2.02 of this Agreement will be deemed to have been issued
for a consideration equal to the net asset value per share of the corresponding
Portfolio of the Fund as of the Effective Time or such other date required by
law.

     SECTION 2.05. If, at any time after the Closing Date, the Continuing
Separate Account, the Fund, or Washington National shall determine that any
further conveyance, assignment, documentation, or action is necessary or
desirable to complete the Transactions contemplated by this Agreement or confirm
full title to the assets transferred, the appropriate party or parties shall
execute and deliver all such instruments and take all such actions which are
considered reasonable and necessary to complete the Transactions.

     SECTION 2.06. Following the Closing Date, Washington National shall cease
charging the Continuing Separate Account for investment management services and
other expenses, although Washington National shall continue charging the 

                                       5
<PAGE>


Continuing Separate Account for annuity rate guarantees and financial accounting
services.

                   ARTICLE III: WARRANTIES AND CONDITIONS

     SECTION 3.01. The Separate Account, Washington National, and the Fund, as
appropriate, make the following representations and warranties, which shall
survive the Closing Date and bind their respective successors and assigns (e.g.,
the Continuing Separate Account):

     (a) There are no suits, actions, or proceedings pending or threatened
against any party to this Agreement which, to its knowledge, if adversely
determined, would materially and adversely affect its financial condition, the
conduct of its business, or its ability to carry out its obligations hereunder.

     (b) There are no investigations or administrative proceedings by the
Commission or by any insurance or securities regulatory body of any state or
territory or of the District of Columbia pending against any party to this
Agreement which, to its knowledge, would lead to any suit, action, or proceeding
that would materially and adversely affect its financial condition, the conduct
of its business, or its ability to carry out its obligations hereunder.

     (c) Should any party to this Agreement become aware, prior to the Effective
Time, of any suit, action, or proceeding, of the types described in paragraphs
(a) or (b) above, instituted or commenced against it, such party shall
immediately notify and advise all other parties to this Agreement.



                                       6
<PAGE>

     (d) Immediately prior to the Effective Time, Washington National shall have
valid and unencumbered title to the portfolio assets of the Separate Account,
except with respect to those assets for which payment has not yet been made.

     (e) Each party shall make available all information concerning itself which
may be required in any application, registration statement, or other filing with
a governmental body to be made by Washington National, the Separate Account, or
the Fund or any or all of them, in connection with any of the transactions
contemplated by this Agreement and shall join in all such applications or
filings, subject to reasonable approval by its counsel. Each party represents
and warrants that all of such information so furnished shall be correct in all
material respects and that it shall not omit any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading.

     (f) The Separate Account and Washington National warrant and represent that
the audited financial statements of the Separate Account as of and for the year
ended December 31, 1994, which will be furnished to the Fund prior to the
execution of this Agreement, fairly present the financial condition of the
Separate Account as of that date in conformity with generally accepted
accounting principles consistently applied.

     (g) The Separate Account will provide to the Fund an unaudited statement of
assets and liabilities and the related statement of operations and statement of
changes in net assets for each semi-annual period occurring between January 1,
1995, and the Closing Date.


                                       7
<PAGE>

     (h) The Separate Account and Washington National warrant and represent that
each Sub-Account of the Separate Account has satisfied or will satisfy the
diversification requirements of, and the Contracts have or will be treated as
annuities under, Section 817(h) of the Internal Revenue Code of 1986, as
amended, and the underlying Treasury regulations for the two calendar quarters
preceding the Closing Date.

     (i) From the date of this Agreement through the Closing Date, the Separate
Account and Washington National will conduct their business in accordance with
the governing Rules and Regulations of the Separate Account and in substantial
compliance with the Illinois Insurance laws and the terms of the Contracts.

     (j) Other than with respect to contracts entered into in connection with
the portfolio management of the Separate Account which shall terminate on or
prior to the Closing Date, no party is engaged currently, and the execution,
delivery and performance of this Agreement by each party will not result, in a
material violation of any such party's charter, by-laws, or any material
agreement, indenture, instrument, contract, lease or other undertaking to which
such party is bound, and to such party's knowledge, the execution, delivery and
performance of this Agreement will not result in the acceleration of any
obligation, or the imposition of any penalty, under any material agreement,
indenture, instrument, contract, lease, judgment or decree to which any such
party may be a party or to which it is bound.

     SECTION 3.02. The obligations of the parties hereunder shall be subject to
satisfaction of each of the following conditions:



                                       8
<PAGE>

     (a) The representations contained herein shall be true as of and at the
Effective Time with the same effect as though made at such time, and such
parties shall have performed all obligations required by this Agreement to be
performed by each of them prior to such time.

     (b) The Commission shall not have issued an unfavorable advisory report
under Section 25(b) of the 1940 Act nor instituted any proceeding seeking to
enjoin consummation of the Transactions contemplated hereby.

     (c) The appropriate parties shall have received orders from the Commission
providing such exemptions and approvals as they and their counsel reasonably
deem necessary, including exemptions from Sections 17(d), 26(a)(2)(C), and
27(c)(2) of the 1940 Act and Rule 17d-1 thereunder, and shall have made all
necessary filings, if any, with, and received all necessary approvals from,
state securities or insurance authorities.

     (d) The Separate Account and the Fund shall have filed with the Commission
a registration statement on Form N-14 under the Securities Act of 1933, as
amended (the "1933 Act"), and such pre-effective amendments thereto as may be
necessary or desirable to effect the purposes of the Transactions; and the
appropriate parties shall have taken all actions necessary for such filings to
become effective; and no reason shall be known by the parties which would
prevent the filings from becoming effective in a timely manner.

     (e) At a meeting of the Separate Account Voters called for such purpose (or
any adjournments thereof), a majority of the outstanding voting securities (as


                                       9
<PAGE>

defined in the 1940 Act and the rules thereunder) of the Separate Account shall
have voted in favor of approving this Agreement and the Transactions
contemplated hereby.

     (f) The Board of Trustees of the Fund shall have approved this Agreement
and adopted it as a valid obligation of the Fund and legally binding upon it.

     (g) All of the Contracts have been offered and sold in compliance with
applicable requirements of the federal securities laws.

     (h) The Fund shares to be issued pursuant to Section 2.02 of this Agreement
are duly authorized and, upon the Closing, will be validly issued and fully paid
and non-assessable and conform in all material respects to the description
thereof contained in the registration statement on Form N-14. The sale of the
Fund shares pursuant to Section 2.02 of this Agreement will be duly registered
under the 1933 Act; all reports required to be filed and fees required to be
paid in connection therewith shall have been duly and timely filed and paid; and
no stop order shall have been entered in connection therewith.

     (i) Washington National and the Separate Account shall have received an
opinion of counsel to the Fund in form and substance reasonably satisfactory to
Washington National and the Separate Account to the effect that, as of the
Closing Date,

     (1) the Fund has been duly organized, is existing in good standing, and is
authorized to issue shares of beneficial interest for the purposes contemplated
by this Agreement and is duly registered and in good standing as an investment
company under the 1940 Act,


                                       10
<PAGE>

     (2) the Fund's shares of beneficial interest to be issued pursuant to the
terms of this Agreement have been duly authorized and, when issued and delivered
as provided herein, will be validly issued, fully paid, and non-assessable,

     (3) to counsel's knowledge and belief, all corporate and other proceedings
required to be taken by or on the part of the Fund to authorize and carry out
this Agreement and effect the Transactions have been duly and properly taken,
and

     (4) this Agreement is a valid obligation of the Fund and legally binding
upon it in accordance with its terms.

     (j) The Fund and the Separate Account shall have received an opinion from
counsel to Washington National (who may be in-house counsel and/or the same as
counsel to the Separate Account) in form and substance reasonably satisfactory
to the Fund and the Separate Account to the effect that, as of the Closing Date,

     (1) Washington National and the Separate Account are validly organized and
established, respectively, and in good standing under the laws of the State of
Illinois and are fully empowered and qualified to carry out their business in
all jurisdictions where they do so, including to enter into this Agreement and
effect the transactions contemplated hereby,

     (2) the Separate Account is duly registered and in good standing as an
investment company under the 1940 Act,

     (3) the Contracts are validly issued and non-assessable,

     (4) to counsel's knowledge and belief, all corporate and other proceedings
necessary and required to be taken by or on the part of Washington 


                                       11
<PAGE>

National and the Separate Account to authorize and carry out this Agreement and
to effect the Transactions have been duly and properly taken, and

     (5) this Agreement is a valid obligation of Washington National and the
Separate Account and legally binding upon them in accordance with its terms.

     (k) Each party shall have furnished, as reasonably requested by any other
party, other legal opinions, officers' certificates, incumbency certificates,
certified copies of board and committee resolutions, certificates of good
standing or "all fees paid" or similar certificates, and other closing
documentation as may be appropriate for a transaction of this type.

                                ARTICLE IV: COSTS

     SECTION 4.01. Washington National shall bear all expenses incurred by it
and by the Separate Account in connection with effecting the Transactions
contemplated by this Agreement (including, without limitation, any expenses in
connection with: actions taken pursuant to Section 2.05 of this Agreement;
preparation and filing of registration statements, applications, and amendments
thereto on behalf of any and all parties hereto; and all legal, accounting, and
data processing services for Washington National and the Separate Account
necessary to effect the Transactions). The Fund shall bear the costs of
fulfilling its obligations hereunder (including, without limitation, Commission
registration fees for Fund shares, the cost of actions taken pursuant to Section
2.05 of this Agreement, and the cost of providing an opinion of counsel pursuant
to Section 3.02(j) of this Agreement).

                                       12
<PAGE>

                             ARTICLE V: TERMINATION

     SECTION 5.01. This Agreement may be terminated and the Transactions
abandoned at any time prior to the Effective Time, notwithstanding approval by
the Separate Account Voters,

     (a) by mutual consent of the parties hereto,

     (b) by any of the parties if any condition set forth in Section 3.02 of
this Agreement has not been fulfilled by the other parties, or

     (c) by any of the parties if the Transactions do not occur as of
_________________ and no subsequent date can be mutually agreed upon.

     SECTION 5.02. At any time prior to the Effective Time, any of the terms or
conditions of this Agreement may be waived by the party or parties entitled to
the benefit thereof if such waiver will not have a material adverse effect on
the interests of Contract Owners.

                               ARTICLE VI: GENERAL

     SECTION 6.01. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which shall constitute one
and the same instrument.

     SECTION 6.02. The Fund is organized as a Massachusetts business trust, and
references in this Agreement to the Fund mean and refer to the Trustees from
time to time serving under its Declaration of Trust on file with the Secretary
of State of the Commonwealth of Massachusetts, as the same may be amended from

                                       13
<PAGE>

time to time, pursuant to which the Fund conducts its business. It is expressly
agreed that the obligations of the Fund hereunder shall not be binding upon any
of the Trustees, shareholders, nominees, officers, agents, or employees of the
Fund personally, but bind only the property of the Fund, as provided in the
Fund's Declaration of Trust. Moreover, no series of the Fund other than the Bond
Portfolio, the Money Market Portfolio, and the Growth and Income Portfolio shall
be responsible for the obligations of the Fund hereunder, and all persons shall
look only to the respective assets of each of the Portfolios to satisfy the
obligations of the Fund hereunder. The execution and the delivery of this
Agreement have been authorized by the Fund's Board of Trustees, on behalf of
each of the Portfolios, and this Agreement has been signed by authorized
officers of the Fund acting as such, and neither such authorization by such
Trustees, nor such execution and delivery by such officers, shall be deemed to
have been made by any of them individually or to impose any liability on any of
them personally, but shall bind only the respective property of the Portfolios,
as provided in the Fund's Declaration of Trust.

     SECTION 6.03. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the Commonwealth of Massachusetts,
without regard to its principles of conflicts of law.

                                       14
<PAGE>

     IN WITNESS WHEREOF, as of the day and year first above written, each of the
parties has caused this Agreement to be executed on its behalf by its Chairman,
President, or Vice President and attested by its Secretary or Assistant
Secretary, all thereunto duly authorized.

                                    WASHINGTON NATIONAL INSURANCE COMPANY
Attest:


/s/Craig R. Edwards                 By: /s/James E. Dresmal
-------------------                     -------------------
Craig R. Edwards                        James E. Dresmal
Secretary                               Vice President


                                     SEPARATE ACCOUNT I OF WASHINGTON
                                     NATIONAL INSURANCE COMPANY
Attest:


/s/Craig R. Edwards                 By: /s/James E. Dresmal
-------------------                     -------------------
Craig R. Edwards                        James E. Dresmal
Secretary                               Chairman of the Board of Directors


                                    SCUDDER VARIABLE LIFE
                                    INVESTMENT FUND (on behalf of each of its
                                    Bond Portfolio, Money Market Portfolio,
                                    and Growth and Income Portfolio)
                                                     
Attest:


/s/Thomas F. McDonough              By: /s/David B. Watts
----------------------                  -----------------
Thomas F. McDonough                     David B. Watts
Secretary                               President


                                       15


<PAGE>


                                   APPENDIX B

           SEPARATE ACCOUNT I OF WASHINGTON NATIONAL INSURANCE COMPANY
                          Prospectus dated May 1, 1995


     The Separate Account's prospectus dated May 1, 1995, immediately follows
this page.


<PAGE>

                                INSURANCE COMPANY
                          LINCOLNSHIRE, ILLINOIS 60069
           A Washington National Corporation Financial Service Company

                                     WN PLAN
                       DEFERRED VARIABLE ANNUITY CONTRACT
                      FUNDED THROUGH SEPARATE ACCOUNT I OF
                      WASHINGTON NATIONAL INSURANCE COMPANY
                          LINCOLNSHIRE, ILLINOIS 60069
                                 (708) 793-3000

BOND SUB-ACCOUNT
High level of current income with capital preservation

                        SHORT-TERM PORTFOLIO SUB-ACCOUNT
                 Moderate level of current income with liquidity
                                STOCK SUB-ACCOUNT
                       Long-term capital growth and income

The  Deferred  Variable  Annuity  Contracts  described  in this  prospectus  are
designed for  retirement  planning  purposes by  individuals  who may or may not
qualify  for  special  tax  treatment  under the  Internal  Revenue  Code and by
tax-qualified retirement plans and trusts. The Contracts were offered on a group
and  individual  basis,  and may be  paid by a  single  Purchase  Payment  or by
periodic Purchase Payments. Purchase Payments may be allocated to one or more of
the Sub-Accounts of the Separate Account and/or to the Fixed Account. Washington
National  Insurance Company is no longer selling new Contracts but is continuing
to accept Purchase Payments under existing Contracts.

This prospectus  provides  information  about  Washington  National and Separate
Account I that a prospective  investor should know before investing.  Additional
information about Washington National,  Separate Account I and the Contracts has
been filed  with the  Securities  and  Exchange  Commission  in a  Statement  of
Additional Information,  dated May 1, 1995, and is available without charge upon
written or oral  request to  Washington  National  Insurance  Company,  Life and
Annuity  Administration,   300  Tower  Parkway,  Lincolnshire,   Illinois  60069
(telephone:   (708)  793-3243).  The  Statement  of  Additional  Information  is
incorporated  herein. To obtain,  simply fill out the postcard which accompanies
this  prospectus  and return it to us. The Table of Contents of the Statement of
Additional Information appears on page 34 of this prospectus.

Investments in the Short-Term Portfolio, Bond and Stock Sub-Accounts are neither
insured nor  guaranteed  by the U.S.  Government,  and none of the  Sub-Accounts
maintains a stable net asset value.  THESE  SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES  AND EXCHANGE  COMMISSION OR ANY STATE  SECURITIES
COMMISSION  NOR  HAS  THE  SECURITIES  AND  EXCHANGE  COMMISSION  OR  ANY  STATE
SECURITIES  COMMISSION  PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS PROSPECTUS SHOULD
BE READ AND RETAINED FOR FUTURE REFERENCE.

          The date of this Prospectus is May 1, 1995.

<PAGE>

                        TABLE OF CONTENTS
                                                              Page
  DEFINITIONS                                                  4
  SUMMARY                                                      5
     Separate Account I Fee Table                              5
     Separate Account I                                        6
     Free Look Right                                           7
     Purchase Payments                                         7
     Allocation of Purchase Payments                           7
     Transfers of Contract Accumulated Values                  7
     Charges and Deductions                                    7
  CONDENSED FINANCIAL INFORMATION                              9
  PERFORMANCE DATA                                            13
  THE COMPANY                                                 14
  THE SEPARATE ACCOUNT                                        14
  THE SUB-ACCOUNTS                                            15
     Bond Sub-Account                                         15
     Short-Term Portfolio Sub-Account                         16
     Stock Sub-Account                                        16
     Investment Policies and Restrictions                     16
     Valuation of Assets                                      17
  THE CONTRACTS                                               18
     PRIOR TO MATURITY (ACCUMULATION PERIOD)                  18
       Purchase Payments                                      18
       Sub-Account Allocations                                18
       Transfers of Accumulated Values                        18
       Accumulated Value                                      19
       Termination of Participation                           19
       Cash Surrender and Withdrawals                         19
       Withdrawals May Be Taxable                             20
       Loan From 403(b) Contracts                             20
       Options on Discontinuance of Purchase Payments         20
       Payment at Death                                       21
       Time and Delay of Payment                              21
       Inquiries About Your Contract                          21
     AFTER MATURITY (ANNUITY PERIOD)                          21
       Maturity Date                                          21
       Election of Options                                    22
          Option 1-Income for a Fixed Period                  22
          Option 2-Income for Life                            22
          Option 3-Income of Fixed Amount                     22
          Option 4-Interest Income                            22
          Option 5-Joint and Survivor Income for Life         23
          Option 6-Joint and Two-thirds 
             Survivor Income  for Life                        23
          Election of Fixed or Variable Annuity Payments      23
          Determination of Variable Annuity Payments          23
  HOW CONTRACTS WERE SOLD                                     24
  DEDUCTIONS AND CHARGES                                      24

                                       2
<PAGE>

     Annuity Rate Guarantee Deductions                        24
     Investment Management Charge                             24
     Financial Accounting Service Charge                      24
     Contingent Deferred Sales Charge                         25
     Contract Maintenance Charge                              25
     Expenses of Separate Account I                           26
     Premium Taxes                                            26
  CHANGES AND MODIFICATIONS                                   26
  VOTING RIGHTS                                               27
  FEDERAL INCOME TAX MATTERS                                  27
     How We Are Taxed                                         28
     How You Are Taxed                                        28
     Non-Qualified Contracts                                  28
     Qualified Contracts                                      29
     Other Considerations                                     31
  MANAGEMENT                                                  31
  INVESTMENT MANAGER                                          32
  LEGAL PROCEEDINGS                                           32
  THE FIXED ACCOUNT                                           32
     Fixed Account Accumulated Value                          32
     Amount of Each Fixed Annuity Payment                     33
     Time and Delay of Payment                                33
     Fixed Account                                            33
    TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL
     INFORMATION                                              34


                                       3
<PAGE>


                                   DEFINITIONS

We, Our, Us - the Washington  National Insurance Company.

You, Your - the owner of the Contract.

Accumulated Value - the value (prior to maturity) of all Accumulation Units
credited to the Contract or the Participant's Certificate under the Contract.

Accumulation Unit - a unit used to measure the value of the Contract prior to
maturity. 

Annuitant - the person named to receive annuity payments.

Annuity Unit - a unit used to determine the amount of each annuity payment.

Attained Age - the Annuitant's age on the Contract Date plus the number of years
and completed months from the Contract Date.

Beneficiary - the person or entity to receive the Proceeds in the event of the
Annuitant's death.

Certificate - certifies participation and represents a Participant's interest
under a group Contract.

Contract - the group or individual Contracts offered by this prospectus.

Contract Anniversary - the same day and month as the Contract Date for each
succeeding year the Contract remains in force.

Contract Date - the effective date of the Contract and the date from which
Contract Anniversaries, Contract years and Contract months are determined.

Fixed Account - all of Our assets other than those allocated to any of Our
separate accounts.

Fixed Annuity - an annuity with payments of a stated amount which are not based
on the investment results of Separate Account I, but are guaranteed by Us.

Net Accumulated Value - The Accumulated Value reduced by any applicable
deductions and charges. 

Participant - a person who participates in and for whom benefits are being
accrued under one of the group contracts offered through this prospectus. Unless
otherwise indicated, the term is used interchangeable with the term Annuitant in
this prospectus. 

Proceeds - the amount We are obligated to pay under the terms of the Contract
when a full or partial withdrawal is made, when the contract matures or when the
Annuitant dies. 

Purchase Payment - the amount paid to Us for the benefits under the Contract.

Separate Account I - the separate account established by Us under Illinois law,
the assets of which are kept separate from Our other assets. The Separate
Account I meets the definition of a separate account under the federal
securities laws. 

Sub-Account - a Separate Account I portfolio to which Purchase Payments are
allocated. The term Sub-Account also refers to a Sub-Account Division if a
Sub-Account has Divisions. 

Valuation Date - each day when the New York Stock Exchange is open for business
or when trades in the securities of any Sub-Account would materially change the
Accumulation and Annuity Unit Values of the Sub-Account. 

Valuation Period - the period of time between one Valuation Date and the next
Valuation Date. 

Variable Annuity - an annuity with payments which vary in amount with the
investment experience of a separate account. 

Written Request - in a written form satisfactory to Us, signed by You and/or the
Participant and filed in our Home Office in Lincolnshire, Illinois.

                                       4
<PAGE>

                             SUMMARY

The group and individual Variable Annuity Contracts described in this prospectus
are designed for use by retirement plans which receive favorable tax treatment
under the Internal Revenue Code, as well as by individuals and groups that are
not covered by such plans.

During the Accumulation Period, which is the time between the date a Contract is
issued and the maturity date (the date on which We begin making payments to the
Annuitant), the full amount of every Purchase Payment paid to Us is put to work.
We make no deduction for sales charges from those payments. You have a great
deal of flexibility as to how payments are applied and have the ability to move
Accumulated Values around within the available Sub-Accounts and the Fixed
Account. A brief description of these and other features of the Contract
follows. This prospectus describes generally only the variable aspects of this
Contract. For information about the fixed aspects of this Contract, see The
Fixed Account, page 32.

Separate Account I Fee Table


                                                Short-Term
                                 Bond            Portfolio         Stock
                              Sub-Account       Sub-Account     Sub-Account
                            -------------------------------------------------
Owner Transaction Expenses
 Sales Load Imposed on      
   Purchases                $     _          $     _        $     _
 Maximum Contingent
  Deferred Sales Load
  (as a percentage of
  Accumulated Value
  Withdrawn)                     6%               6%              6%
 Transfer Fee               $     _         $     _        $     _

Annual Contract Fee                    $30 Per Contract

Sub-Account Annual Expenses
 (as a percentage of
 average account value)
 Management Fee                .50%       .50%           .50%
 Annuity Rate Guarantees       .80%       .80%           .80%
 Financial Accounting Fees     .35%       .35%           .35%
 Other Expenses (net 
  charged to account)          .20%       .20%           .20%
 Total Annual Expenses        1.85%      1.85%          1.85%

The purpose of this Table is to assist you in understanding the various costs
and expenses that you bear directly and indirectly. For more information on the
charges described in this Table, see Deductions and Charges on page 24.


                                       5
<PAGE>


Examples

You would pay the following expenses on a $1000 investment, assuming a 5% annual
return on assets:

  1. If you surrender your Contract at the end of the applicable time
     period:*

                                      1 year  3 years 5 years 10 years
                                     ----------------------------------
  Bond Sub-Account                      $75    $119     $165    $221
  Short-Term Portfolio Sub-Account      $75    $119     $165    $221
  Stock Sub-Account                     $75    $119     $165    $221


  2. If you do not surrender your Contract:

                                      1 year  3 years 5 years 10 years
                                     ----------------------------------
  Bond Sub-Account                      $19     $59    $102    $221
  Short-Term Portfolio Sub-Account      $19     $59    $102    $221
  Stock Sub-Account                     $19     $59    $102    $221


THESE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE
EXPENSES AND THE ACTUAL EXPENSES PAID MAY BE GREATER OR LESSER THAN THOSE SHOWN.

  *  These  expense  amounts also apply if you  annuitize  your  Contract  under
     certain settlement options during the first five contract years.

Separate  Account I - Separate  Account I is an open-end  management  investment
company.  There are currently three Sub-Accounts within Separate Account I, each
with its own investment objective and policies as follows:

     a.   Bond Sub-Account - high level of current income while preserving
          capital by investing in fixed income securities. (See Bond
          Sub-Account, page 15.)

     b.   Short-Term Portfolio Sub-Account - moderate level of current income
          consistent with liquidity and preservation of capital by investing in
          money market instruments. (See Short-Term Portfolio Sub-Account, page
          16.) The Short-Term Portfolio Sub-Account may not be diversified.

     c.   Stock Sub-Account - long-term capital growth and income by investing
          principally in equity type securities. (See Stock Sub-Account, page
          16.)

There can be no assurance  that these  investment  objectives  will be achieved.
Investments in the Bond,  Short-Term  Portfolio and Stock  Sub-Accounts  are not
insured or guaranteed by any government,  government agency or other entity, and
none of the Sub-Accounts maintains a stable net asset value per share or unit.

All Sub-Account investments are subject to two general types of risks: financial
risk,  which refers to the ability of the issuer of a security to pay principal,
interest or dividends;  and market risk, which refers to the degree to which the
price of a  security  will  react to changes  in  conditions  in the  securities
markets and to changes in the overall level of interest rates.

                                       6
<PAGE>

The  Sub-Accounts  may invest in  certain  types of  securities,  subject to the
limitations  set forth under  Investment  Policies and  Restrictions on page 16,
that involve greater than usual risks. The Bond Sub-Account may invest a portion
of its assets in  securities  that are  unrated or are rated lower than the four
highest  ratings  of  Moody's  Investors  Service,  Inc.  and  Standard & Poor's
Corporation.  These  securities  may be subject to greater  market and financial
risk than higher  quality  issues.  (See Bond  Sub-Account,  page 15.) The Stock
Sub-Account will invest in equity securities for the purpose of achieving higher
returns.  This objective involves a greater risk of declining values. (See Stock
Sub-Account, page 16.)

The Accumulated Value of Purchase Payments  allocated to Separate Account I vary
with the investment  performance of the  Sub-Account(s)  and are not guaranteed.
Accumulated  Value  of the  Purchase  Payments  are  guaranteed  as to  payments
allocated to the Fixed Account.

We are the issuer of the Contracts  and serve as investment  manager to Separate
Account  I.  Washington  National  Equity  Company  ("WNEC")  was the  principal
underwriter for Separate Account I until March 31, 1990, when WNEC  deregistered
as a broker-dealer under the Securities and Exchange Act of 1934.

Free Look  Right _ You may,  at any time,  within 10 days  after  receipt of the
Contract, return it to Us at Our Home Office or to the agent through whom it was
purchased,  and We will cancel it. The return of the Contract  will void it from
the beginning and We will refund to You from the:

     a.   Fixed Account - all Your Purchase Payments allocated thereto.

     b.   Separate Account - the Accumulated Value of amounts allocated to
          Separate Account I and any deductions made from Purchase Payments.
          (Currently we make no deductions from purchase payments.)

Purchase  Payments - Each  payment  which you make must be at least $25 with no
less than $300 paid each year.  You may  allocate  no less than $25 to the Fixed
Account  or to any  Sub-Account  of  Separate  Account  I at any  time.  You may
increase  Your  payments  at any time,  but We do reserve the right to refuse to
accept any such increases. (See Purchase Payments, page 18.)

Allocation  of Purchase  Payments You indicate the manner in which Your Purchase
Payments are to be allocated  at the time You apply for the  Contract.  All or a
portion of the payment may be  directed  to one or more of the  Sub-Accounts  of
Separate  Account  I, to the  Fixed  Account  or to a  combination  of the Fixed
Account  and one or more of the  Sub-Accounts.  You  may  change  Your  Purchase
Payment  allocation at any time without charge.  (See  Sub-Account  Allocations,
page 18.)

Transfers  of Contract  Accumulated  Values - Transfers  of all or a part of the
Accumulated  Value of the  Contract are  permitted.  There is no charge made for
transfers, but there are some limitations. (See Transfers of Accumulated Values,
page 18.)

Charges and  Deductions  - We do not  currently  make any  deductions  from Your
Purchase Payments,  but apply the full amount We receive in the manner which You
have indicated.  During any Contract year prior to maturity, You may withdraw up
to 10% of the Accumulated  Value of the Contract  without a contingent  deferred
sales charge. A contingent deferred sales charge, which is intended to reimburse
Us for Our  expenses  in the sale of the  Contract,  will be  deducted  from any
amount  withdrawn  in excess  of 10% of the  Accumulated  Value of the  Contract
during each Contract  year.  The  contingent  deferred sales charge is 6% of the
amount  withdrawn  that is  subject  to the  charge.  (You will find a  detailed
description of the method of calculation  and a list of the exceptions  from the

                                       7
<PAGE>

charge under  Contingent  Deferred Sales Charge,  page 25.)  Withdrawals  may be
treated  as taxable  income  and they may be subject to a penalty  tax under the
Internal Revenue Code. (See How You Are Taxed, page 28.)

We deduct from the total value of each  Sub-Account  daily  charges  equal to an
annual rate of  approximately  .80% for the annuity rate guarantees (see Annuity
Rate Guarantee  Deductions,  page 24), .50% for investment  management  services
(see Investment  Management Charge,  page 24) and .35% for financial  accounting
(see  Financial  Accounting  Service  Charge,  page 24);  the daily  charge  for
investment  management  services is subject to change, but the rates for annuity
rate guarantees and financial accounting are not.

In addition,  Separate Account I pays for certain operational expenses, covering
such items as brokerage fees and commissions, fees and expenses of legal counsel
and  independent  auditors,  and custodian  fees and expenses.  (See Expenses of
Separate Account I, page 26.) Currently,  Separate Account I is charged daily at
an annual rate of .20% of the account value.

An  annual  charge  of $30 for  administration  and  contract  maintenance  (see
Contract  Maintenance Charge, page 25) is deducted from the Accumulated Value of
each Contract on the Contract  Anniversary  date, or on the date of surrender if
it occurs  between  Contract  Anniversaries.  The amount and  frequency  of this
charge is subject  to change.  We  currently  will waive this  charge if, on the
Contract  Anniversary  date, the Contract has an Accumulated Value of $20,000 or
more,  or if $1,000 or more in Purchase  Payments  were made during the Contract
Year.

While We do not, at this time,  make a deduction  for any premium taxes which We
must pay on Purchase  Payments  received by Us, We reserve the right to do so in
the future.  (See Premium  Taxes,  page 26.) We also retain the right to provide
for possible income taxes which may become payable for Separate  Account I. (See
How We Are Taxed, page 28.)


                                       8
<PAGE>
CONDENSED FINANCIAL INFORMATION

The following  audited  information  shows the value of an Accumulation Unit and
how it has changed in the last 10 years.

<TABLE>
<CAPTION>


Selected  data per  accumulation
unit outstanding throughout the year

For the years                 
ended December 31,             1994                          1993                            1992
                      ------------------------     ------------------------      ---------------------------
                            Sub-Account                   Sub-Account                      Sub-Account
                      ------------------------     ------------------------      ---------------------------
                            Short-Term                    Short-Term                       Short-Term

                       Bond  Portfolio  Stock      Bond   Portfolio  Stock        Bond    Portfolio    Stock
                      ------------------------     ------------------------      ---------------------------
<S>                     <C>    <C>     <C>         <C>       <C>     <C>         <C>        <C>       <C>  
                            
Per accumulation 
unit data:
 Investment income      $0.16  $0.07   $0.08       $0.16     $0.05   $0.07       $0.17      $0.06     $0.07
 Expenses               (0.04) (0.03)  (0.04)      (0.04)    (0.03)  (0.04)      (0.04)     (0.03)    (0.04)
                      ------------------------     ------------------------      ---------------------------
NET INVESTMENT         
INCOME                   0.12   0.04    0.04        0.12      0.02    0.03        0.13       0.03      0.03   
                       
 Net realized and      
  unrealized           
  gain (loss) on                     
 investments            (0.22)   --    (0.02)       0.03       --     0.21       (0.01)       --      0.12
                      ------------------------     ------------------------      ---------------------------
 Net increase          
 (decrease) in          
  accumulation                  
  unit value            (0.10)  0.04    0.02        0.15      0.02    0.24        0.12       0.03     0.15
 Accumulation unit     
  value at               
  beginning of          
  year                   2.26   1.66    2.52        2.11      1.64    2.28        1.99       1.61     2.13
                      ------------------------     ------------------------      ---------------------------
  ACCUMULATION         
  UNIT VALUE             
  AT END OF YEAR        $2.16  $1.70   $2.54       $2.26     $1.66   $2.52       $2.11      $1.64    $2.28
                      ========================     ========================      ===========================                       
Ratios:                
 Ratio of expenses     
  to average             
  net assets            1.87%   1.85%  1.83%       1.85%     1.85%   1.81%       1.85%       1.85%    1.85%
 Ratio of net          
   investment income      
   to average net 
   assets               5.28    2.47   1.41        5.50      1.28    1.17        6.22        1.82     1.33
 Portfolio          
   turnover rate         --           12.20       33.66       --     3.50       10.83         --      4.92
                       
Number of              
 accumulation units     
 outstanding at        
 end of year            
 (000's omitted)       5,297   1,032  9,882       5,836       980   10,202      6,457       1,065     10,457
                       
</TABLE>

                                       9
<PAGE>
CONDENSED FINANCIAL INFORMATION (cont.)
<TABLE>
<CAPTION>

Selected data per accumulation unit
outstanding throughout the year
           

For the years                 
ended December 31,             1991                          1990                            1989
                      ------------------------     ------------------------      ---------------------------
                            Sub-Account                   Sub-Account                      Sub-Account
                      ------------------------     ------------------------      ---------------------------
                            Short-Term                    Short-Term                       Short-Term

                       Bond  Portfolio  Stock      Bond   Portfolio  Stock        Bond    Portfolio    Stock
                      ------------------------     ------------------------      ---------------------------
<S>                     <C>    <C>     <C>         <C>       <C>     <C>         <C>        <C>       <C>  
                            
Per accumulation 
unit data:
 Investment income      $0.16  $0.09   $0.07       $0.16     $0.11   $0.08       $0.15      $0.12     $0.06
 Expenses               (0.03) (0.03)  (0.04)      (0.03)    (0.03)  (0.03)      (0.03)     (0.03)    (0.03)
                      ------------------------     ------------------------      ---------------------------

NET INVESTMENT         
INCOME                   0.13   0.06    0.03        0.13      0.08    0.05        0.12       0.09      0.03
                       
 Net realized and      
  unrealized           
  gain (loss) on                     
 investments             0.14     --    0.34       (0.11)     --    (0.14)        0.05       --        0.15
                      ------------------------     ------------------------      ---------------------------
 Net increase          
 (decrease) in          
  accumulation                  
  unit value             0.27   0.06    0.37        0.02      0.08   (0.09)       0.17       0.09      0.18
 Accumulation unit     
  value at               
  beginning of          
  year                   1.72   1.55    1.76       1.70       1.47    1.85        1.53       1.38      1.67
                      ------------------------     ------------------------      ---------------------------
  ACCUMULATION         
  UNIT VALUE             
  AT END OF YEAR        $1.99  $1.61   $2.13       $1.72     $1.55   $1.76       $1.70      $1.47     $1.85
                      ========================     ========================      ===========================                       
Ratios:                
 Ratio of expenses     
  to average             
  net assets            1.85%   1.86%  1.86%       1.79%     1.85%   1.83%      1.84%        1.85%     1.82% 
 Ratio of net          
   investment income      
   to average net 
   assets               7.02    3.80   1.85        7.61      5.29    2.82       7.50         6.34      1.97
 Portfolio          
   turnover rate         --      --    5.97       10.03       --    15.70       4.75          --      18.91
                       
Number of              
 accumulation units     
 outstanding at        
 end of year            
 (000's omitted)       6,616  1,130  10,564       7,308     1,505   10,693     7,503         1,496    11,111
                       
</TABLE>


                                       10
<PAGE>

CONDENSED FINANCIAL INFORMATION (cont.)
<TABLE>
<CAPTION>

Selected data per accumulation unit
outstanding throughout the year
           

For the years                 
ended December 31,              1988                          1987                            1986
                      ------------------------     ------------------------      ---------------------------
                            Sub-Account                   Sub-Account                      Sub-Account
                      ------------------------     ------------------------      ---------------------------
                            Short-Term                    Short-Term                       Short-Term

                       Bond  Portfolio  Stock      Bond   Portfolio  Stock        Bond    Portfolio    Stock
                      ------------------------     ------------------------      ---------------------------
<S>                     <C>    <C>     <C>         <C>       <C>     <C>         <C>        <C>       <C>  
                            
Per accumulation 
unit data:
 Investment income      $0.14  $0.11   $0.06       $0.13     $0.08   $0.06       $0.12      $0.08     $0.04
 Expenses               (0.03) (0.03)  (0.03)      (0.02)    (0.02)  (0.02)      (0.02)     (0.02)    (0.02)
                      ------------------------     ------------------------      ---------------------------

NET INVESTMENT         
INCOME                   0.11   0.08    0.03        0.11      0.06    0.04        0.10       0.06      0.02
                       
 Net realized and      
  unrealized           
  gain (loss) on                     
 investments            (0.01)     --    0.04       (0.11)     --     0.07        0.06       --        0.15
                      ------------------------     ------------------------      ---------------------------
 Net increase          
 (decrease) in          
  accumulation                  
  unit value             0.10   0.08    0.07          --      0.06    0.11        0.16       0.06      0.17
 Accumulation unit     
  value at               
  beginning of          
  year                   1.43   1.30    1.60        1.43      1.24    1.49        1.27       1.18      1.32
                      ------------------------     ------------------------      ---------------------------
  ACCUMULATION         
  UNIT VALUE             
  AT END OF YEAR        $1.53  $1.38   $1.67       $1.43     $1.30   $1.60       $1.43      $1.24     $1.49
                      ========================     ========================      ===========================                       
Ratios:                
 Ratio of expenses     
  to average             
  net assets            1.87%   1.84%  1.84%       1.86%     1.86%   1.91%       1.73%       1.73%     1.73% 
 Ratio of net          
   investment income      
   to average net 
   assets               7.31    5.60   1.70        7.35      4.82    1.29        7.53         5.00      1.24
 Portfolio          
   turnover rate         --      --   47.75       15.86       --    40.86       16.77          --      48.18
                       
Number of              
 accumulation units     
 outstanding at        
 end of year            
 (000's omitted)       7,382  1,569  11,618       7,101     1,571   11,588      6,555        1,005     9,026
                       
</TABLE>


                                       11
<PAGE>

CONDENSED FINANCIAL INFORMATION (cont.)
<TABLE>
<CAPTION>

Selected data per accumulation unit
outstanding throughout the year
           

For the years                 
ended December 31,              1985              
                      ------------------------    
                            Sub-Account           
                      ------------------------    
                            Short-Term            

                       Bond  Portfolio  Stock     
                      ------------------------    
<S>                     <C>    <C>     <C>        
                            
Per accumulation 
unit data:
 Investment income      $0.12  $0.09   $0.05      
 Expenses               (0.02) (0.02)  (0.02)     
                      ------------------------    

NET INVESTMENT         
INCOME                   0.10   0.07    0.03      
                       
 Net realized and      
  unrealized           
  gain (loss) on                     
 investments             0.11     --    0.24    
                      ------------------------    
 Net increase          
 (decrease) in          
  accumulation                  
  unit value             0.21   0.07    0.27      
 Accumulation unit     
  value at               
  beginning of          
  year                   1.06   1.11    1.05      
                      ------------------------    
  ACCUMULATION         
  UNIT VALUE             
  AT END OF YEAR        $1.27  $1.18   $1.32      
                      ========================                   
Ratios:                
 Ratio of expenses     
  to average             
  net assets            1.66%   1.65%  1.70%      
 Ratio of net          
   investment income      
   to average net 
   assets               9.39    6.22   2.43      
 Portfolio          
   turnover rate         --      --   52.40       
                       
Number of              
 accumulation units     
 outstanding at        
 end of year            
 (000's omitted)       4,187     983  5,436      
                       
</TABLE>

                                       12
<PAGE>

Beginning in August 1986,  Separate  Account I began paying for various expenses
attributable to Separate  Account I that previously had been paid voluntarily by
Us. A  charge,  equal to the  daily  allocation  of the  expected  expenses,  is
deducted from Separate  Account I.  Currently,  the charge is equal to an annual
rate of .20% of the average net assets of Separate Account I. In the future, the
amount of the daily  charge may be increased  or  decreased  depending  upon the
amount of expected expenses.

On August 26,  1983,  We deposited  $100,000  into  Separate  Account I to begin
operations. This amount was reflected as a purchase of Accumulation Units in the
Short-Term Portfolio Sub-Account and may be transferred between the Sub-Accounts
or withdrawn by Us at any time at Our discretion at the Accumulation  Unit value
on the date of  withdrawal.  We do not expect to withdraw  this amount  until We
determine that it is no longer needed for the operation of Separate Account I.

During January 1985, We invested an additional $10 million in Separate Account I
by purchasing  Accumulation  Units in each of the three Sub-Accounts as follows:
approximately  $5,000,000  of  Accumulation  Units  in  the  Stock  Sub-Account,
approximately  $4,000,000  of  Accumulation  Units in the Bond  Sub-Account  and
approximately  $1,000,000  of  Accumulation  Units in the  Short-Term  Portfolio
Sub-Account.  This  investment  was made to enable each of the  Sub-Accounts  to
develop a significant  portfolio and  meaningful  investment  performance  at an
earlier date than otherwise  would have been possible.  The  Accumulation  Units
purchased  by Us were  acquired for  investment  purposes and can be disposed of
only by redemption.  In 1987 We withdrew  $3,400,000 from the Stock  Sub-Account
and $1,400,000 from the Bond  Sub-Account.  In 1991 We withdrew  $1,000,000 from
the Bond Sub-Account and $500,000 from the Short-Term Portfolio Sub-Account. The
withdrawals were made mostly from short-term funds rather than long term assets.
In making the withdrawals, We were careful not to disturb the composition of the
Sub-Accounts' portfolios. We do not anticipate making further investments in the
Sub-Accounts of Separate Account I.

Our  financial  statements  and those of Separate  Account I may be found in the
Statement of Additional Information.

                                PERFORMANCE DATA

From  time  to  time,  We  may  advertise  yields  and  total  returns  for  the
Sub-Accounts of Separate Account I. In addition,  We may advertise the effective
yield of the Short-Term  Portfolio  Sub-Account.  These figures will be based on
historical information and are not intended to indicate future performance.

The yield of the  Short-Term  Portfolio  Sub-Account  refers  to the  annualized
income generated by an investment in that Sub-Account over a specified seven-day
period.  The yield is calculated by assuming that the income  generated for that
seven-day period is generated each seven-day period over a 52-week period and is
shown as a percentage  of the  investment.  The  effective  yield is  calculated
similarly  but,  when  annualized,  the income  earned by an  investment in that
Sub-Account  is assumed to be reinvested.  The effective  yield will be slightly
higher  than  the  yield  because  of the  compounding  effect  of this  assumed
reinvestment.

The yield of a Sub-Account  (other than the  Short-Term  Portfolio  Sub-Account)
refers to the annualized  income  generated by an investment in the  Sub-Account
over a specified thirty-day period. The yield is calculated by assuming that the
income  generated by the investment  during that thirty-day  period is generated
each thirty-day  period over a twelve-month  period and is shown as a percentage
of the investment.

                                       13
<PAGE>

Yield quotations will not reflect any contingent deferred sales charges.

The total  return of a  Sub-Account  refers to  return  quotations  assuming  an
investment  has  been  held  in the  Sub-Account  for  various  periods  of time
including, but not limited to, one and five years and a period measured from the
date  the  Sub-Account  commenced  operations.  When a  Sub-Account  has been in
operation for ten years, the total return for that period will be provided.  The
total return  quotations will represent the average annual  compounded  rates of
return that would equate an initial investment of $1,000 to the redemption value
of that  investment  as of the last day of each of the  periods  for which total
return  quotations are provided.  These standard  total return  quotations  will
reflect any applicable contingent deferred sales charge.

For additional  information  regarding yields and total returns calculated using
the standard formats briefly  described above,  please refer to the Statement of
Additional Information.

We may  from  time to  time  also  disclose  average  annual  total  return  for
non-standard  periods and/or in non-standard formats and cumulative total return
for the  Sub-Accounts  of Separate  Account I. The  non-standard  average annual
total return and cumulative total return will assume that no contingent deferred
sales charge is applicable.

All  non-standard  performance  data  will  only be  disclosed  if the  standard
performance  data for the required  periods is also  disclosed.  For  additional
information regarding the calculation of other performance data, please refer to
the Statement of Additional Information.

                                   THE COMPANY

We, Washington National Insurance Company, of Lincolnshire, Illinois, are a
stock life insurance company founded in 1911 and organized under the laws of the
State of Illinois. Our Home Office is located at 300 Tower Parkway,
Lincolnshire, Illinois 60069.

We act as investment  manager to Separate Account I and are registered under the
Investment Advisers Act of 1940. We are a wholly-owned  subsidiary of Washington
National Corporation ("WNC"), a Delaware  Corporation,  located in Lincolnshire,
Illinois. WNC is a financial services corporation.

                              THE SEPARATE ACCOUNT

Separate  Account I was  established by Us as a separate  account on November 5,
1982,  under  Illinois law. It is registered  with the  Securities  and Exchange
Commission as an open-end  management  investment  company under the  Investment
Company Act of 1940.  Registration  with the Securities and Exchange  Commission
does not involve  supervision of management or investment  practices or policies
of Separate Account I or Us by the Commission.

Separate Account I is a series type investment  company currently  consisting of
three Sub-Accounts, the Bond, Short-Term Portfolio and Stock Sub-Accounts.  (See
The Sub-Accounts, page 15.)

We own the  assets of  Separate  Account  I, but its  income,  gains and  losses
realized or  unrealized,  are credited to or charged  against the assets held in
the  Sub-Account  for which they are held  without  regard to Our other  income,
gains or losses. The Separate Account is not chargeable with liabilities arising
out of any other Separate Account,  or other business which We may conduct.  The
obligations   arising  under  the  variable  annuity  contract  herein  are  Our
obligations.

                                       14
<PAGE>

Ten  percent  or more of the assets of each  Sub-Account  are owned by Us. As of
December 31,  1994,  We owned  42.13% of the Bond  Sub-Account,  59.36% of 38the
Short-Term Portfolio Sub-Account, and 28.51% of the Stock Sub-Account.7

At present  there are three  Sub-Accounts,  but this number may be  increased or
decreased by Us in the future. Your Contract's investment results will depend on
the investment  performance of the portfolio of the Sub-Accounts You select. The
investment  objectives  of the  Sub-Accounts  stated  below are not  fundamental
policies and may be changed without the approval of the Contract  owners.  There
is no assurance that the investment objectives will be achieved. The fundamental
policies are stated under "Investment  Policies and Restrictions" and may not be
changed  without the  approval of a majority of the  Contract  owners  having an
interest in the affected Sub-Account.

                                THE SUB-ACCOUNTS

All  Sub-Account  investments  are  subject to two general  types of  investment
risks:  financial risk,  which refers to the ability of the issuer of a security
to pay principal,  interest or dividends,  and market risk,  which refers to the
degree to which the price of a security  will react to changes in  conditions in
the securities markets and to changes in the overall level of interest rates.

Bond Sub-Account
Objective  - to  obtain as high a level of  current  income  as  possible  while
preserving   capital.   Investments  will  be  made  primarily  in  fixed-income
securities.  It is  anticipated  that  85% of the  assets  will be  invested  in
securities  issued or guaranteed by the United States Government or its agencies
and publicly traded,  investment grade nonconvertible  corporate debt securities
issued by  United  States  corporations  which  bear one of the 4  highest  bond
ratings  of  either  Moody's  Investors  Services,  Inc.  or  Standard  & Poor's
Corporation.  The purchase of short-term  corporate debt securities  (commercial
paper) will be limited to those of the highest grade of those rating services.

See the  Statement of Additional  Information  for Moody's and Standard & Poor's
commercial paper and bond ratings.

Lower  rated and  unrated  securities  may be  subject  to  greater  market  and
financial risk than higher quality, lower yielding securities.

Up to 15% of the total assets may be invested in preferred  stocks,  convertible
securities and securities  which carry warrants to purchase  equity  securities,
and up to 10% in real estate.

We will not invest in common  stock,  but may, as a result of conversion of debt
securities or the exercise of warrants,  retain for a reasonable period up to 5%
of the assets in common stocks.

A  number  of  factors  determine  the  yields  which  may be  obtained  on debt
instruments,  such as the  size of the  offering,  maturities,  ratings  and the
general  economic  monetary  and market  conditions.  The  market  value of debt
instruments  varies depending on their yields,  thus changing the asset value of
the Bond Sub-Account as the general level of interest rates change.

When we believe  that  portfolio  transactions  will help Us to achieve the Bond
Sub-Account's  objectives,  we will  execute  them.  As a  result,  the  rate of
portfolio turnover may vary and portfolio securities may not be held to maturity
depending on business, economic and market conditions.

                                       15
<PAGE>

Short-Term Portfolio Sub-Account
Objective  - to obtain a  moderate  level of  current  income,  consistent  with
liquidity and preservation of capital.  We will pursue its investment  objective
by investing in high quality money market instruments such as obligations of the
U.S. Government,  its agencies, and instrumentalities;  certificates of deposit;
bankers'  acceptances;  commercial paper;  corporate bonds, notes and other debt
instruments; variable amount demand master notes; repurchase agreements; reverse
repurchase  agreements;  and when-issued and delayed  delivery  securities.  The
assets will consist  entirely of cash and investments  having a maturity date of
sixty days or less from the date of purchase. Some investments may have a stated
term or maturity date as short as one day. The average maturity of the portfolio
will vary  according  to the  investment  manager's  appraisal  of money  market
conditions.

Stock Sub-Account
Objective - to achieve long-term capital growth through capital appreciation and
income.  The  assets  of the  Stock  Sub-Account  are  expected  to be  invested
primarily in  equity-type  investments,  including  common stocks and securities
convertible  into common  stocks,  which  investments  may be maintained in both
rising and declining  markets.  We may also invest, for defensive  purposes,  in
investment-grade debt securities,  nonconvertible  preferred stocks,  government
obligations  or money market  instruments.  We may also invest up to 10% in real
estate.

Cash may be held or investment made in high grade  short-term debt securities to
provide  for  expenses  and  anticipated  withdrawals  and so  that  an  orderly
investment program may be carried out in accordance with investment policies.

We will invest  primarily in common stocks listed on the New York Stock Exchange
and other national securities exchanges and in those traded over the counter. We
will select stocks for their potential for long-term appreciation. Investing for
higher return involves greater risks of declining values. You should expect that
the value of the Stock Sub-Account will decline during periods when stock prices
in general decline.

Investment Policies and Restrictions

In connection with pursuing their  investment  objectives,  the Sub-Accounts may
engage in certain  investment  practices.  A more  complete  description  of the
Sub-Accounts'  investment  policies and  restrictions and the risks involved are
contained in the Statement of Additional  Information.  The following investment
policies  and  restrictions  are  fundamental  policies  and may not be  changed
without the approval of a majority,  as defined in the Investment Company Act of
1940, of the Contract owners having an interest in the affected Sub-Account.

     a.   The assets of the Bond and Stock Sub-Accounts will be kept fully
          invested, except that cash may be kept on hand for the following
          purposes:

          1.   to handle redemptions; or

          2.   pending investment; or

          3.   during periods warranting a more defensive investment position, a
               larger proportion of the assets of the appropriate Sub-Account
               may be temporarily maintained in cash or may be placed in money
               market instruments or short-term fixed income securities; or

          4.   temporarily, to take a defensive position if warranted by market
               conditions.

     b.   With respect to 75% of the value of the total assets of Separate
          Account I, We will not invest more than 5% of the value of the assets
          in the securities of, nor will We acquire more than 10% of the


                                       16
<PAGE>

          outstanding voting securities of any one issuer except those of the
          United States Government, its agencies and instrumentalities.
          Twenty-five percent of Separate Account I assets may be invested in
          securities of one or more issuers without regard for those
          limitations.

     c.   We reserve the right to invest up to 10% of the total assets of each
          of the Sub-Accounts, other than the Short-Term Portfolio Sub-Account,
          in interests in real estate. Purchases and sales may be made by the
          Sub-Accounts other than the Short-Term Portfolio Sub-Account of
          securities of issuers which invest or deal in oil, gas or other
          mineral exploration or development programs or real estate and real
          estate trusts.

     d.   Loans will not be made except through the acquisition of a portion of
          an issue of publicly distributed bonds, debentures, or other evidences
          of indebtedness of a type customarily purchased by institutional
          investors and except that money market instruments including
          repurchase agreements may be acquired and held as permitted in
          accordance with Our investment objectives and policies. Investments in
          repurchase agreements maturing in more than seven days and in
          interests in non-marketable real estate or any other illiquid asset
          will not exceed 10% of the total assets of any Sub-Account.

Valuation of Assets

The portfolio  instruments held in each Sub-Account are valued on each Valuation
Date as described  below.  A Valuation  Date is each day when the New York Stock
Exchange  is  open  for  business  or  when  trades  in  the  securities  of any
Sub-Account  would materially change the Accumulation and Annuity Unit Values of
the Sub-Account.

     a.   Stock and Bond Sub-Accounts

          1    Securities which are traded on national stock exchanges valued at
               the closing price on the Valuation Date. If there are no sales on
               that date, at the last current bid quotation.

          2.   Securities not traded on a national stock exchange valued at the
               average between the bid and asked prices.

          3.   Any other assets for which no fair market value is available
               valued as determined in good faith by or under the direction of
               the Board of Directors of Separate Account I.

     b.   Short-Term Portfolio Sub-Account The securities are valued on an
          amortized cost basis. Under this method, the security is initially
          valued at cost and adjusted on each Valuation Date thereafter for
          amortization of premium and accrual of discount until its maturity.
          Nevertheless, the Short-Term Portfolio Sub-Account will not maintain a
          stable net asset value.

                                       17
<PAGE>


                                  THE CONTRACTS

PRIOR TO MATURITY (ACCUMULATION PERIOD)

We  offered  both  individual  and  group  Contracts  which  may or  may  not be
tax-qualified. The Contracts are no longer being offered.

Purchase Payments

The first payment was due on the Contract Date. Future periodic Purchase Payment
due dates are determined by the mode or frequency You chose in the  application.
If the  application  could be accepted in the form received,  the first Purchase
Payment  would be credited to purchase  Accumulation  Units  within two business
days after receipt by Us. If, because the application was incomplete,  the first
Purchase  Payment  was not applied to purchase  Accumulation  Units  within five
business  days  after it was  received  by Us,  the  Purchase  Payment  would be
returned,  unless You  consented  to Our  retaining  the  Purchase  Payment  and
crediting it as soon as the necessary requirements were fulfilled.

The Contracts were issued on a periodic basis only. However, if only one payment
was made, it would be considered a single  Purchase  Payment  deferred  Variable
Annuity.  If you wished Variable Annuity payments to begin  immediately under an
individual  Contract,  You could  choose  to do so by  paying a single  Purchase
Payment of $2,000 or more,  and  electing  one of the  settlement  options  when
applying for the Contract.

Periodic Purchase  Payments may be made every twelve,  six or three months or on
one of the  monthly  modes  which We permit.  You may change  the  frequency  of
payment on any due date.

Increases  in the periodic  Purchase  Payment may be made only with Our consent,
and we reserve the right to refuse to accept any subsequent  increased  payment.
The minimum amount of Purchase Payment which we will accept, during any Contract
year, is $300.

Sub-Account Allocations

In the  application  for the Contract,  You tell Us the portion of Your Purchase
Payments to be allocated to each  Sub-Account  of Separate  Account I and to the
Fixed  Account;  this  allocation  may be changed at any time.  The amount to be
allocated to any  Sub-Account or allocated to the Fixed Account must be at least
$25.  The  number  of  Accumulation  Units  credited  for  each  Sub-Account  is
determined  by  dividing  the net amount  allocated  to the  Sub-Account  by the
Accumulation  Unit value for the  Sub-Account  for the  Valuation  Period during
which the Purchase Payment is received by Us.

Transfers of Accumulated Values

Transfers,  requested in writing,  of all or a part of the Accumulated  Value of
the Contract are permitted as follows (in $100 increments only):

     a.   Among the Stock, Bond and Short-Term Portfolio Sub-Accounts at any
          time;

     b.   From the Stock and Bond Sub-Accounts to the Fixed Account at any time;

     c.   From the Fixed Account to the Stock and Bond Sub-Accounts once every
          twelve months after the first Contract Year;

                                       18
<PAGE>

     d.   Not between the Fixed Account and the Short-Term Portfolio
          Sub-Account; and

     e.   Only if amounts of $100 or more are transferred to or from the Fixed
          Account or any Sub-Account.

If a partial  withdrawal will reduce the Accumulated  Value of the Fixed Account
or any  Sub-Account  to less  than  $300,  the total  Accumulated  Value of that
account, rather than the requested amount, will be transferred. Transfer will be
based upon the Accumulation Unit value in effect on, and will be made as of, the
Valuation Date on which We received Your request.

We reserve the right  under any  Contract or  Certificate  to limit,  suspend or
revoke the right to  transfer  among the Bond,  Short-Term  Portfolio  and Stock
Sub-Accounts.  From  time to  time,  We may  modify  Our  rules  and  procedures
regarding transfers.

Accumulated Value

The  Accumulated  Value  is the  sum of  the  Accumulated  Value  held  in  each
Sub-Account plus the Accumulated Value of any Purchase Payments allocated to the
Fixed  Account.  The  Accumulated  Value  of a  Sub-Account  is  the  number  of
Accumulation  Units credited to the Contract times the value of the Accumulation
Unit.  The  Net  Accumulated  Value  is the  Accumulated  Value  reduced  by any
applicable  deductions and charges,  which include any contingent deferred sales
charge, the contract maintenance charge and any premium taxes.

The value of an Accumulation  Unit for each Sub-Account was established at $1 on
the  first  Valuation  Date.  The  value  of  each  Accumulation  Unit  for  the
Sub-Accounts  will  vary  with the  investment  experience  of the  Sub-Account.
Subsequent  Accumulation  Unit values for the  Sub-Accounts  are  determined  by
multiplying:

     a.   the Accumulation Unit value for the previous Valuation Date; by

     b.   the net investment factor for the current Valuation Date, which
          reflects the investment performance of the Sub-Account less any
          deduction and charges made against the Sub-Account.

Termination of Participation

We retain the right to terminate the Contract  after the first contract year and
to pay the Accumulated Value to You if the Accumulated Value of all Sub-Accounts
and the Fixed  Account is less than $300. We will notify You of Our intention to
do so and grant a period of ninety  days for You to make  Purchase  Payments  to
increase  the  Accumulated  Value  to  $300.  The  Contract  will be  terminated
automatically  if  the  Accumulated  Value,  after  deduction  of  the  Contract
maintenance charge, is equal or less than zero.

Cash Surrender and Withdrawals

You or the  Participant,  if permitted  under the plan, may withdraw part or all
(surrender) of the Contract's Net  Accumulated  Value.  From each  withdrawal We
will deduct any applicable contingent deferred sales charge.

We require that:

     a.   A  Written Request be made;

     b.   You tell Us the amount and from which Sub-Account(s) and/or the Fixed
          Account We are to make a withdrawal;

                                       19
<PAGE>

     c.   The Contract be surrendered and sent to Us if a full withdrawal is
          made;

     d.   You withdraw at least $100; and

     e.   The Accumulated Value remaining in any Sub-Account or the Fixed
          Account be at least $300, unless a full withdrawal is made.

Withdrawals May Be Taxable

If at the time You make a surrender or withdrawal, You have not provided Us with
an election not to have federal income taxes  withheld,  We must by law withhold
such taxes from the taxable  portion of any  surrender or  withdrawal  and remit
that amount to the federal  government.  Moreover,  the  Internal  Revenue  Code
provides  that a 10% penalty tax may be imposed on certain  early  surrenders or
withdrawals.

Participants  in the Texas  Optional  Retirement  Program  are  prohibited  from
withdrawing  part or all of the  Accumulated  Value of the  Contract  except  at
retirement or termination of employment.

Section 403(b) of the Internal Revenue Code provides for tax-deferred retirement
savings plans for employees of certain non-profit and educational organizations.
In accordance with the  requirements of Section 403(b),  any Contract used for a
403(b) plan will prohibit  distributions of (i) elective  contributions  made in
years beginning  after December 31, 1988, (ii) earnings on those  contributions,
and (iii) earnings on amounts attributable to elective  contributions held as of
the  end  of  the  last  year  beginning   before  January  1,  1989.   However,
distributions  of such  amounts  will be  allowed  upon  death of the  employee,
attainment  of age 59 12,  separation  from  service,  disability  or  financial
hardship,  except that income attributable to elective  contributions may not be
distributed in the case of hardship.

Loans From 403(b) Contracts

If You have a  qualified  contract  issued  pursuant  to  Section  403(b) of the
Internal  Revenue Code,  You may take a loan of from $5,000 to $50,000 from your
contract, subject to various conditions including the following:

     1)   You may have only one loan outstanding at a time from all of your
          403(b) contracts issued by Us.

     2)   Generally, the loan must be repaid within five years.

     3)   The current rate of interest credited on any Accumulated Value of this
          contract will not be affected by any outstanding loan.

     4)   You will be charged a rate of interest based on Moody's Corporate Bond
          Yield Average; the interest rate may be changed on the loan
          anniversary date.

     5)   The loan may affect your withdrawal privileges.

     6)   Our handling of the loan will be in accordance with Section 72(p) of
          the Internal Revenue Service which may limit the amount you may
          borrow. (See Federal Income Tax Matters, p. 27.)

     7)   You will be charged a $200 loan fee in all states except Wisconsin,
          which has a separate fee schedule.

Options on Discontinuance of Purchase Payments

If you discontinue Purchase Payments, you may choose one of these Options:

     a.   Surrender (full withdrawal) You may surrender the Contract and
          withdraw all of the Net Accumulated Value;

                                       20
<PAGE>

     b.   Paid-Up Annuity You may have the Contract continued so that the
          Accumulation Units will provide benefits at the maturity date. This
          Paid-Up Annuity may be surrendered at any time prior to maturity for
          its then Net Accumulated Value.

You can resume  payments at any time prior to maturity  unless the  Contract has
been surrendered.

Payment at Death

If the Annuitant  dies prior to the date We begin to make annuity  payments,  We
will pay the Net  Accumulated  Value of the  Contract,  next  determined  on the
Valuation  Date on which proof of death is  received  by Us. If the  Beneficiary
elects to receive payments under a Settlement  Option, the election must be made
within 60 days  after  the date of death of the  annuitant  in order to  receive
favorable  tax  treatment,  during which time amounts will remain as  previously
allocated and will be subject to investment experience and/or interest credits.

For Contracts issued on or after January 19, 1985, federal tax law requires that
if the contract owner or any Joint contract owner dies before the maturity date,
generally the entire value of the Contract must be  distributed  within five (5)
years of the date of death of the  contract  owner.  Special  rules may apply to
spouses  of  the  deceased  owner.  See  "FEDERAL  TAX  MATTERS:   IRS  Required
Distribution" in the Statement of Additional Information for greater details.

Time and Delay of Payment

We will pay all  Proceeds  within  seven days of the date  Written  Request  for
withdrawal  is received  or the date an annuity  payment or payment of death and
maturity  Proceeds is due.  Payments under the Contract of any Proceeds  derived
from Purchase Payments made by check may be delayed until such time as the check
has cleared Your bank.

We have the right to delay payment when:

     a.   The New York Stock Exchange is closed, other than customary weekend
          and holiday closings;

     b.   Trading on the New York Stock Exchange is restricted;

     c.   An emergency exists so that it is not reasonably practicable for
          Separate Account I to dispose of securities or fairly to determine the
          value of its net assets; or

     d.   The Securities and Exchange Commission by order may permit for the
          protection of the owners of the Contracts.

Inquiries About Your Contract

If you  have any  questions  regarding  your  Contract,  you may  write to Us at
Washington  National Insurance  Company,  Life and Annuity  Administration,  300
Tower Parkway, Lincolnshire, Illinois 60069.

AFTER MATURITY (ANNUITY PERIOD)

Maturity Date

On the maturity date, which unless otherwise  changed is the date You specify in
the application, the Net Accumulated Value will be applied to the annuity option
You selected or, if requested by You, paid out as a single sum settlement.

                                       21
<PAGE>

While the  Contract  is in force,  You may,  by Written  Request,  elect to have
Annuity  Payments begin at an optional  maturity date, which may be any Contract
Anniversary on which the Annuitant's  Attained Age is fifty-five or more.  Prior
to the due date of the  first  Annuity  Payment,  You may  change  a  previously
elected optional maturity date to another optional maturity date.

Election of Options

You may elect to have all or part of the Proceeds of the Contract  applied under
one of the  following  settlement  options.  You may cancel or change a previous
election,  but  only if You do so prior to the  death  of the  Annuitant  or the
maturity  date of the Contract  and only if You do so in writing.  If You do not
elect a settlement  option prior to the Annuitant's  death,  the payee may do so
provided  the  election  is made  within one year after the date of death of the
Annuitant. Any settlement option election will be subject to the limitations and
conditions set forth in the Contract.

If the Annuitant dies after annuity  payments have begun, the death benefit will
be as stated under the  Settlement  Option  provision  elected.  If the contract
owner dies after  annuity  payments have begun,  the  remaining  interest in the
Contract  must be  distributed  at  least as  rapidly  as under  the  method  of
distribution in effect at the time of the contract owner's death.

Under Options 2(A) and 6, only one payment will be made if the Annuitant and any
joint Annuitant die(s) before the second payment is made; only two payments will
be made if the death(s) occur(s) before the third payment is made; and so forth.

OPTION 1 - Income for a Fixed Period

We will pay the  proceeds  in equal  installments  over a period  of from one to
thirty years.

OPTION 2 - Income for Life

We will pay a monthly income during a person's lifetime.  The monthly income may
be a life annuity  only,  Option 2(A); a life annuity with a minimum  guaranteed
period of five, ten or twenty years,  Option 2(B); or an installment refund life
annuity  with  payments  guaranteed  until the number of  Annuity  Units in each
payment,  multiplied  by the number of payments  made,  equals the total  amount
applied under the Option divided by the Annuity Unit value used to determine the
number of units in the first payment, Option 2(C).

OPTION 3 - Income of Fixed Amount
We will  pay  the  Proceeds  in  equal  installments  in the  amount  and at the
intervals  agreed  upon  until the  Proceeds  applied  under this  option,  with
interest at 3% per annum, are exhausted.  The final  installment will be for the
remaining balance.

OPTION 4 - Interest Income

We will hold the  Proceeds on deposit and pay or credit  interest at the rate of
3% per annum.  Payment of interest  will be at such time and for such periods as
are agreeable to You and Us.

                                       22
<PAGE>

OPTION 5 - Joint and Survivor Income for Life

We will pay an income during the lifetime of two payees,  and  continuing  until
the death of the survivor.  This option includes a minimum  guaranteed period of
10 years.

OPTION 6 - Joint and Two-thirds Survivor Income for Life

When a Fixed Annuity is elected,  We will pay an income (the "original  amount")
during the time two payees both remain  alive,  and  two-thirds  of the original
amount during the remaining lifetime of the survivor. When a Variable Annuity is
elected,  the number of units will be reduced by  one-third  at the death of one
payee.

Election of Fixed or Variable Annuity Payments

You may choose when annuity  payments begin,  to have the Net Accumulated  Value
applied, except under Options 1, 3 and 4, to provide for:

     a.   a Fixed Annuity;

     b.   a Variable Annuity; or

     c.   a mix of the above.

If You do not make an  election,  the Net  Accumulated  Value will be paid under
Option 2(B) with payments guaranteed for a period of ten years.

The net  investment  factor,  or a factor  which  reflects a  guaranteed  annual
investment rate of 3%, will apply if Option 3 is chosen.

Options 1, 3 and 4 are available as a Fixed Annuity  only.  The Net  Accumulated
Value needed to provide a Fixed  Annuity or a guaranteed  interest  rate will be
withdrawn from Separate Account I.

The Options described above are available only if We receive proper proof of age
and proof that the payee is living,  the  Accumulated  Value is at least $2,000,
and, under the Option chosen, results in a periodic payment of at least $20.

Determination of Variable Annuity Payments

On the maturity  date the Net  Accumulated  Value is applied to provide  annuity
payments.  The dollar amount of the first variable Annuity Payment is determined
based  on the  annuity  payment  rates  found  in the  Contract  for the  option
selected.  These rates are based on an assumed  interest  rate of 3.5% per year.
All  variable  Annuity  Payments  after the first will  reflect  the  investment
experience  of the  Sub-Accounts  in which the Net  Accumulated  Value was held.
After  the  maturity  date the  investments  may not be  transferred  among  the
Sub-Accounts. The dollar amount of each variable Annuity Payment after the first
may increase, decrease or remain constant, depending upon whether the investment
performance is greater than, less than or equal to the assumed  interest rate of
3.5%.

Accordingly,  variable Annuity Payments vary with the investment  performance of
Separate  Account  I and the  option  selected.  Options  that  involve  greater
durations  or  frequency  or life  contingencies  generally  result  in  smaller
periodic payments. Periodic payments will be greater for life annuities than for
joint and survivor annuities, because they are expected to be made for a shorter
period.  Also, the assumed  interest rate affects the amount of the payment.  If

                                       23
<PAGE>

the assumed rate were higher than 3.5%,  the initial  Annuity  Payment  would be
greater, but subsequent payments may be more likely to decrease.

We explain in detail how variable Annuity Payments are computed in the Statement
of Additional Information.

                            HOW CONTRACTS WERE SOLD

The Contracts were sold by Our life insurance agents,  who were licensed to sell
variable  annuities and were  registered  representatives  of WNEC, of Evanston,
Illinois (a former,  wholly-owned  subsidiary  of WNC),  which,  until March 31,
1990, was  registered as a  broker-dealer  under the Securities  Exchange Act of
1934, was the principal  underwriter  of Separate  Account I and was a member of
the National  Association of Securities  Dealers,  Inc. (NASD).  The commissions
paid to dealers do not exceed 6% of Purchase Payments.

The Contracts could also have been sold by registered  representatives  of other
NASD  member  broker-dealers  who  were  authorized  to  sell  Variable  Annuity
Contracts. The Contracts are no longer being sold; however,  additional Purchase
Payments will continue to be accepted in accordance with contractual provisions.

                             DEDUCTIONS AND CHARGES

Annuity Rate Guarantee Deductions

Although  Variable  Annuity  payments made to Annuitants will vary in accordance
with the investment  performance of the investments of Separate  Account I, they
will not be  affected  by the  mortality  experience  (death  rate)  of  persons
receiving such payments.  We assume this  "mortality  risk" by virtue of annuity
rates incorporated in the Contract which cannot be changed. To compensate Us for
assuming  this risk,  a charge  will be made daily from  Separate  Account I for
annuity rate guarantees, which is equal on an annual basis to approximately .80%
of the  current  asset  value  of  Separate  Account  I. If the  deductions  are
insufficient  to cover the actual cost of the  mortality  risk, We will bear the
loss; conversely, if the deductions prove more than sufficient,  the excess will
be a profit to Us. We may not increase  the rate of the annuity  rate  guarantee
deduction. This fee will be paid to Us monthly.

Investment Management Charge

We act as  investment  manager  for  Separate  Account  I  under  an  investment
management  agreement  between  Separate  Account I and Us. For providing  those
services,  a charge will be made daily from Separate Account I which is equal on
an annual basis to .50% of the average net assets of Separate Account I. We have
contracted with NBD Bank to act as Sub-Advisor for and to manage the investments
of the Stock Sub-Account, for which We pay NBD Bank a fee of .40% of average net
asset of the Stock  Sub-Account.  NBD Bank is a major  stockholder of Washington
National Corporation.

Financial Accounting Service Charge

We  provide  financial  accounting  services  to  Separate  Account  I under  an
Administrative  Service  Agreement  between  Separate  Account  I and  Us.  Such
services  include  preparation and  maintenance of all accounting,  bookkeeping,
financial and other statements  necessary to conduct the business and operations
of Separate Account I.

                                       24
<PAGE>

For providing these services, a charge is made daily from Separate Account I and
paid to Us monthly, which is equal on an annual basis to .35% of the average net
assets of  Separate  Account  I. The  charge  is  designed  to cover the  actual
expenses  incurred in  providing  these  services and We do not expect to profit
from the charge. The amount of the charge is guaranteed not to be increased, but
may be imposed on a more or less frequent basis.

Contingent Deferred Sales Charge

We do not make any deductions  for sales charges from Purchase  Payments when We
receive  them.  The full  amount is  invested  and  credited  to the  Contracts,
although  sales  expenses for items such as  commissions,  preparation  of sales
literature  and other  promotional  activities  are incurred in connection  with
their sale. The contingent deferred sales charge is made only when a withdrawal,
partial or full (including  applying the Accumulated  Value to a Paid-Up Annuity
under  certain  circumstances),  is made from the  Contract  and is  designed to
recover  those sales  expenses.  The proceeds  received from such charge are not
sufficient  to pay such  expenses;  We pay the excess out of Our general  funds,
which includes proceeds derived from the annuity rate guarantee charge.

In connection with certain  withdrawals,  We assess a contingent  deferred sales
charge.  The  contingent  deferred sales charge is made at the rate of 6% of the
amount withdrawn and is deducted from the amount withdrawn.

In calculating the amount of any contingent deferred sales charge:

     1.   Any amount  which You  withdraw  will be treated  as a  withdrawal  of
          Purchase  Payments  until You have  withdrawn  the total amount of all
          Purchase  Payments received within  seventy-two  months of the date of
          withdrawal.  The maximum  amount which You may withdraw  cannot exceed
          the Contract's or Certificate's Net Accumulated Value.

     2.   It will be assumed that the earliest Purchase  Payment(s) is (are) the
          source of the first amounts  withdrawn,  even if amounts are withdrawn
          from the Fixed Account or a Sub-Account  other than that to which such
          Purchase Payments were credited.

     3.   The total of such  charge will never  exceed 6% of the total  Purchase
          Payments.

We will not make a deduction for the contingent deferred sales charge:

     1.   On the first 10% of the Accumulated Value withdrawn from a Contract or
          Certificate  during any Contract or Certificate year. The amount which
          may be withdrawn  without  charge is  determined as of the date of the
          first withdrawal during the year.

     2.   On Purchase  Payments  received more than seventy-two  months prior to
          the date of withdrawal.

     3.   If the amount withdrawn is applied to:

          a.   a settlement option after the Contract or Certificate has been in
               effect for five or more years, or

          b.   Settlement Option 2, 5 or 6 at any time.

     4.   If the Annuitant dies.

Contract Maintenance Charge

On each Contract or Certificate  Anniversary,  or on the date of full withdrawal
or  election  of a  settlement  option  if  that  date is not  the  Contract  or
Certificate  Anniversary,  We will  deduct  from  the  Accumulated  Value of the
Contract a charge for establishing and maintaining records. The annual charge is

                                       25
<PAGE>

currently  $30 for  each  Contract  and  Certificate.  The  charge  will be made
pro-rata from the  Accumulated  Value of each  Sub-Account and the Fixed Account
and the number of Accumulated Units credited will be reduced  accordingly.  This
charge is not guaranteed,  may be changed in the future and may be deducted more
frequently  than  annually.  We currently will waive this charge if, on the last
day of the Contract Year,  the Contract has an  Accumulated  Value of $20,000 or
more,  or if $1,000 or more in Purchase  Payments  were made during the Contract
Year.

Expenses of Separate Account I

Separate Account I will pay all taxes, interest, brokerage fees and commissions,
fees and expenses of legal counsel and independent auditors,  custodian fees and
expenses,  expenses  associated with meetings of the contract  owners,  expenses
incurred  in  the   preparation,   printing  and  distribution  of  reports  and
prospectuses by Separate Account I to its current  contract owners,  fees of and
expenses  incurred by directors of Separate Account I who are not Our directors,
officers  or  employees,   fees  and  expenses  associated  with  the  approval,
qualification  or  registration  of the  Contracts,  extraordinary  expenses  if
permitted by applicable  laws and  regulations,  and all other fees and expenses
incurred by or on behalf of  Separate  Account I which are not borne by Us under
the  advisory  agreement  or an  administrative  services  agreement  or by  the
underwriter  under a  distribution  agreement.  These expenses will be allocated
between  Sub-Accounts  as the Board of  Directors  deems  appropriate,  which is
generally in proportion to the net assets of the Sub-Accounts.


Premium Taxes

Various  states  and  municipalities  impose a  premium  tax of up to 3.5%  upon
Purchase Payments received by insurance companies.  At present We will pay those
taxes,  but, We reserve the right to deduct premium taxes from Purchase Payments
or to charge  them  against  the  Contracts  or  Certificates  to which they are
attributable in the future.

                            CHANGES AND MODIFICATIONS

We reserve the right, subject to applicable law, and the approval,  if required,
of those who have the right to vote at the  meetings of the  contract  owners of
Separate Account I, to:

     a.   Change Separate Account I from a management  company and operate it as
          a unit investment  trust under the Investment  Company Act of 1940, or
          in any other form permitted by law;

     b.   Deregister  Separate  Account  I in the event  registration  under the
          Investment Company Act of 1940 is no longer required;

     c.   Combine or divide,  increase or decrease the number of Sub-Accounts or
          transfer assets and Contracts from one separate account or Sub-Account
          to another;

     d.   Amend, or deliver a new Contract in exchange for the Contract,  to: 1)
          assure that it qualifies for the benefits  which the Internal  Revenue
          Code provides annuity contracts; or 2) comply with the applicable law.

     e.   Terminate the Contract if we determine that a change in applicable law
          or its  interpretation  makes it no longer  feasible to  continue  the
          Contract and others like it in effect.

                                       26
<PAGE>

                                  VOTING RIGHTS

Before annuity payments begin, the contract owners have the right to vote at the
meetings of contract  owners to the extent of their interest in the Contracts on
the matters  listed  below.  Participants  have the right to  instruct  contract
owners as to votes  attributable  to their  interest in Separate  Account I. The
number of votes which may be cast is equal to the number of  Accumulation  Units
credited to their Contracts for each Sub-Account.

After annuity payments begin,  Annuitants have the right to vote at the meetings
of contract owners. The number of votes which may be cast in each Sub-Account is
equal to:

     a    The  reserve   needed  to  meet  the  Contract   obligations  in  each
          Sub-Account, divided by

     b.   The Accumulation Unit value for that Sub-Account for that date.

As a result,  the  number of votes  which may be cast will  decrease  as Annuity
Payments are made. Fractional votes will be counted.

Only those who have an interest  in a  Sub-Account  will have  voting  rights on
matters which affect the Sub-Accounts.  On matters which affect all Sub-Accounts
in the same way, votes will be counted as a group.

To be entitled to vote,  or to instruct the contract  owner as to how to vote, a
person must have been the owner,  Participant or Annuitant,  on a date chosen by
the Board of  Directors of Separate  Account I. That date will be within  ninety
days of the meeting and the date on which the number of votes is determined.

At least  twenty days prior to the meeting,  written  notice will be sent to the
persons entitled to vote. The matters which will be voted upon are:

     a.   Election of the Board of Directors of Separate Account I;

     b.   Any change in the fundamental  investment policies and restrictions of
          the Sub-Accounts;

     c.   Approval of any investment management agreement or its amendment(s);

     d.   Ratification  of the selection of an independent  auditor for Separate
          Account I; and

     e.   Any other business which may properly come before the meeting.

The  voting  rights  under the  Contract  do not  entitle  anyone to vote at any
meeting of Our shareholders or on matters which relate to the Fixed Account.

Votes may be cast in person or by proxy.  There is no current  intention to hold
routine annual contract owners meetings.

                           FEDERAL INCOME TAX MATTERS

BECAUSE OF THE COMPLEXITY OF THE LAW AND THE FACT THAT THE TAX  CONSEQUENCES MAY
VARY  ACCORDING TO THE ACTUAL STATUS OF THE CONTRACT OWNER INVOLVED AND THE TYPE
OF PLAN, IF ANY, UNDER WHICH THE CONTRACT IS PURCHASED, ANY PERSON CONTEMPLATING
THE  PURCHASE OF A CONTRACT  DESCRIBED  HEREIN IS ADVISED TO CONSULT A QUALIFIED
TAX ADVISOR.

                                       27
<PAGE>

It should be understood  that a complete  description  of the federal income tax
consequences  of the  purchase  of  these  Contracts  cannot  be  made  in  this
prospectus and that special tax rules may be applicable  with respect to certain
purchase situations not discussed here. In addition,  no attempt is made here to
consider any applicable  state or other tax laws. For more complete and detailed
information,  a qualified tax advisor should always be consulted. The discussion
here is general in nature and is based upon Our understanding of current federal
income tax laws as they are currently  interpreted.  No  representation  is made
regarding the likelihood of  continuation  of current federal income tax laws or
of the current  interpretations  thereof by the Internal  Revenue Service or the
courts.

How We Are Taxed

We are taxed as a life  insurance  company  under  Subchapter  L of the Internal
Revenue Code of 1986 (the "Code").  Separate Account I is not a separate taxable
entity; its operations form a part of, and are taxed with, Our total operations.
Under existing  federal income tax law, no taxes are due on interest,  dividends
or capital gains  realized by Separate  Account I with respect to the Contracts.
We reserve  the right to levy a charge to cover any taxes that might be assessed
against  Separate  Account I in the  future  due to any  change in the  existing
federal tax law.

How You Are Taxed

The  following  discussion  assumes that the  Contracts  will qualify as annuity
contracts  for  federal  income  tax  purposes.   The  Statement  of  Additional
Information discusses such qualifications.

Non-Qualified Contracts

An annuity  contract owner generally is not taxed on increases in the value of a
Contract  until  distribution  occurs,  either in the form of a lump sum payment
received  by  withdrawing  all or part of the cash value or as annuity  payments
under the annuity option elected. For this purpose, the assignment or pledge of,
or the  agreement  to assign or pledge,  any  portion of the value of a Contract
will be treated as a distribution.  The taxed portion of a distribution  (in the
form of a lump sum payment or an annuity) is taxed as ordinary income.  However,
for Purchase  Payments made after  February 28, 1986, an owner of a Contract who
is not a natural person (subject to limited exceptions)  generally will be taxed
on any  increase  in the  Contract's  cash  value  over the  "investment  in the
contract" during the taxable year, even if no distribution occurs. The following
discussion applies to Contracts owned by natural persons.

Except as provided  below,  in the case of a  surrender  or  withdrawal  under a
Contract,  amounts  received are first  treated as taxable  income to the extent
that the  Contract  Value of the  Contract  immediately  before  the  withdrawal
exceeds the  "investment in the contract" at that time.  Any  additional  amount
withdrawn is not taxable.  However, in the case of a withdrawal under a Contract
issued before August 14, 1982,  and allocable to an "investment in the contract"
made before that date,  amounts  received are treated as taxable  income only to
the extent that they exceed the "investment in the contract." The "investment in
the contract" generally equals the portion, if any, of any premium paid by or on
behalf  of an  individual  under a  Contract  which  is not  excluded  from  the
individual's gross income.

Although the tax consequences may vary depending on the form of annuity selected
under the  Contract,  the  recipient  of an  Annuity  Payment  under a  Contract
generally is taxed on the portion of such  payment that exceeds the  "investment
in the  contract."  For  Variable  Annuity  Payments,  the  taxable  portion  is
determined  by a formula  that  establishes  a  specific  dollar  amount of each
payment  that is not taxed.  The dollar  amount is  determined  by dividing  the
"investment in the contract" by the total number of expected periodic  payments.

                                       28
<PAGE>

For Fixed Annuity  Payments,  in general,  there is no tax on the amount of each
payment which  represents  the same ratio that the  "investment in the contract"
bears to the total  expected  value of the  Annuity  Payment for the term of the
payment;  however,  the  remainder  of each  Annuity  Payment  is  taxable.  For
individuals  whose Annuity  Commencement  Date is after  December 31, 1986,  the
entire  distribution  will be fully taxable once the recipient is deemed to have
recovered the dollar amount of his "investment in the contract."

There may be imposed a penalty tax on distributions  equal to ten percent of the
amount  treated as taxable  income.  The  penalty  tax is not imposed in certain
circumstances,  which generally include: (1) distributions  received on or after
the taxpayer attains age 59 12 ; (2) distributions made on or after the holder's
death or that are attributable to the taxpayer's  disability;  (3) distributions
received in  substantially  equal  installments  as a life  annuity  (subject to
special  "recapture" rules if the series of payments is subsequently  modified);
and (4)  distributions  allocable to the  "investment  in the  contract"  before
August 14, 1982.

A transfer of ownership or  assignment  of a Contract,  the selection of certain
maturity dates,  or the designation of an Annuitant or other  beneficiary who is
not also the  contract  owner,  may result in certain  tax  consequences  to the
contract owner that are not discussed herein. A contract owner contemplating any
such transfer, assignment,  selection, or designation should contact a competent
tax advisor with respect to the potential tax effects of such a transaction.

All non-qualified deferred annuity contracts entered into after October 21, 1988
that are issued by Us or an  affiliated  insurance  company to the same contract
owner  during any  calendar  year will be treated as one annuity  contract,  and
therefore  aggregated for purposes of determining the amount includable in gross
income.  In  addition,  there  may be other  situations  in which  the  Treasury
Department may conclude (under its authority to issue regulations) that it would
be appropriate to aggregate two or more annuity contracts  purchased by the same
contract owner.

We will withhold and remit to the U.S.  Government a part of the taxable portion
of each  distribution  made  under a  Contract  unless  the  contract  owner  or
Annuitant is permitted to elect not to have amounts  withheld and notifies Us at
or before the time of the  distribution  that he or she  chooses not to have any
amount withheld.

Qualified Contracts

The Contracts are designed for use with several  types of qualified  plans.  The
following are brief descriptions of qualified plans with which Our Contracts may
be used:

     a.   Corporate and H.R. 10 Pension and  Profit-Sharing  Plans--Section  401
          and 403(a) of the Code permit corporate employers to establish various
          qualified plans for their employees, and self-employed  individuals to
          establish qualified plans for themselves and their employees. Taxation
          of plan  Participants  depends on the specific  plan. The Code governs
          such plans with respect to maximum contributions,  distribution dates,
          non-forfeitability    of   interests,    tax   rates   applicable   to
          distributions,  and in other  respects.  In order to establish  such a
          plan, a plan  document,  often in prototype  form  preapproved  by the
          Internal Revenue Service,  is adopted and implemented by the employer.
          Such  retirement  plans may permit the  purchaser  of the  Contract to
          accumulate  retirement savings. When issued in connection with Section
          401 or 403(a)  plans,  a  Contract  will be  amended to conform to the
          requirements  under  the  Code.  Purchasers  of a  Contract  for  such


                                       29
<PAGE>

          purposes will be provided with  supplemental  information  required by
          the Internal Revenue Service or other appropriate agency.

     b.   Individual  Retirement  Annuities--Section  408  of the  Code  permits
          certain individuals to contribute to an individual  retirement program
          known as an  "Individual  Retirement  Annuity"  or an "IRA."  IRAs are
          subject to limitations on eligibility, maximum contributions,  time of
          distribution  and other  features.  Distributions  from certain  other
          types of qualified plans may be "rolled over" on a tax-deferred  basis
          into an IRA. Sales of a Contract for use with an IRA may be subject to
          special requirements of the Internal Revenue Service.  Purchasers of a
          Contract  for  such  purposes  will  be  provided  with   supplemental
          information   required  by  the  Internal  Revenue  Service  or  other
          appropriate  agency. Such purchasers will have the right to revoke the
          Contract within seven days of the earlier of the  establishment of the
          IRA or the purchase of the Contract.

     c.   Plans   of   Public   School    Systems   and   Certain   Tax   Exempt
          Organizations--Section  403(b)  of  the  Code  permits  public  school
          systems and certain  tax-exempt  organizations to establish plans that
          provide  retirement  benefits  for  employees  through the purchase of
          annuity contracts. Such plans may permit the purchase of the Contracts
          in order to provide benefits under the plans.  However,  distributions
          from Contracts  used in Section  403(b) plans are severely  restricted
          (see "Cash Surrender and Withdrawals" at page 19 of the prospectus).

     d.   Texas Optional Retirement  Program--The Optional Retirement Program of
          the State of Texas will contribute an amount equal to the contribution
          of each  Participant.  If a Participant is not a "faculty  member," as
          defined in the Texas  Education  Code,  at the beginning of the second
          year of participation,  We will return the employer's  contribution to
          the State.  In  addition,  the  Program  prohibits  Participants  from
          withdrawing  part  or all of the  Accumulated  Value  of the  Contract
          except at retirement or termination of employment. Payment of Proceeds
          will also be made at the death of a Participant.

     e.   Deferred  Compensation  Plans of State and Local  Governments--Section
          457 of the Code permits states,  political subdivisions of the states,
          agencies and instrumentalities of states or of political  subdivisions
          of states and certain tax exempt  organizations to establish  deferred
          compensation  plans for  individuals  who  perform  services  for such
          entities. Such entities are the legal owners of Contracts issued under
          such plans.  Thus,  Participants  will be in the position of a general
          creditor of the entity rather than the actual or  beneficial  owner of
          the assets of the plan.

Participants  under such  plans,  as well as  contract  owners,  annuitants  and
beneficiaries,  should be aware that the  rights of any  person to any  benefits
under  such  plans  may be  subject  to the terms  and  conditions  of the plans
themselves,  regardless of the terms and conditions of the Contracts. Purchasers
of Contracts for use with any qualified plan, as well as plan  participants  and
beneficiaries,  should consult  counsel and other  competent  advisors as to the
suitability of the Contracts to their  specific needs and as to applicable  Code
limitations and tax consequences.

The rules governing the tax treatment of contributions and  distributions  under
qualified  plans,  as  set  forth  in  the  Code  and  applicable   rulings  and
regulations, vary according to the type of the plan and the terms and conditions
of the plan itself. Generally, in the case of a distribution to a participant or
beneficiary  under a Contract  purchased in  connection  with these plans (other
than a Section 457 deferred  compensation plan), only the portion of the payment
in excess of the  "investment  in the  contract"  allocated  to that  payment is
subject to tax.  The  "investment  in the  contract"  equals the portion of plan
contributions   invested  in  the  Contract  that  was  not  excluded  from  the
participant's  gross income,  and may be zero. In general,  for  withdrawals  or

                                       30
<PAGE>

surrenders,  a ratable portion of the amount  received is taxable,  based on the
ratio of the  investment  in the  contract  to the  total  Contract  Value.  For
contracts with annuity  starting dates  commencing  after December 31, 1986, the
amount  excluded  from a taxpayer's  income will be limited to an aggregate  cap
equal to the investment in the contract. The taxable portion of annuity payments
is  generally  determined  under the same  rules  applicable  to Non-  Qualified
Contracts. However, special favorable tax treatment may be available for certain
distributions  (including lump sum distributions).  Adverse tax consequences may
result from  distributions  prior to age 59 12 (subject to certain  exceptions),
distributions  that  do  not  conform  to  specified  commencement  and  minimum
distribution  rules,  aggregate  distributions  in excess of a specified  annual
amount and in certain other  circumstances.  Effective January 1, 1993,  certain
distributions  from  Contracts  used in  plans  that  qualify  for  special  tax
treatment  under Sections  401(a),  403(a) and 403(b) of the Code are subject to
mandatory  withholding,  generally  at a  rate  of 20%  (that  is,  electing  no
withholding is not permitted).

Other Considerations

In past years,  legislation  has been  proposed in the U.S.  Congress that would
have adversely modified the federal taxation of certain annuities.  For example,
one such  proposal  would  have  changed  that tax  treatment  of  non-qualified
annuities that did not have "substantial life contingencies" by taxing income as
it is  credited  to the  anuuity.  Although  as of the  date of this  Prospectus
Congress was not actively considering any legislation  regarding the taxation of
annuities,  there is always the possibility  that the tax treatment of annuities
could change by  legislation  or other means (such as IRS  regulations,  revenue
rulings,  judicial  decisions,  etc.).  Moreover,  it is also  possible that any
change  could  be  retroactive  (that  is,  effective  prior  to the date of the
change).

Because of the  complexity of the federal tax law, and the fact that tax results
will vary according to the factual status of the individual involved, tax advice
may be needed by a person  contemplating  purchase of a Contract or the exercise
of elections under the Contract. It should be understood that the above comments
and the  discussion in the Statement of Additional  Information  concerning  the
federal  income tax  consequences  are not an  exhaustive  discussion of all tax
questions  that might  arise  under the  Contracts  and that  special  rules are
provided with respect to situations not discussed  there. No  representation  is
made regarding the likelihood of  continuation of the present income tax laws or
of current  interpretations by the Internal Revenue Service. No attempt has been
made to consider  any  applicable  state or other tax law except with respect to
the imposition of any state premium taxes.

We do not make any guarantee  regarding the tax status of any Contract,  and the
"Federal Tax Matters"  discussions  in this  prospectus  and in the Statement of
Additional Information are not intended as tax advice.

                                   MANAGEMENT

Separate  Account  I is  managed  by a Board of  Directors  consisting  of three
outside and two inside  directors.  Their duties,  as set forth in the Rules and
Regulations of Separate Account I, include: selection of an independent auditor;
approval  of  agreements   providing  for  sales,   administrative,   investment
management and advisory  services;  review and  supervision of the investment of
assets; obtaining of fidelity bond coverage; and any acts necessary to carry out
the above.

We serve as  investment  adviser  to  Separate  Account  I. We also  advise  The
Washington  National  Retirement Plan,  which was frozen effective  December 31,
1990.

                                       31
<PAGE>

                               INVESTMENT MANAGER

We act as  investment  manager  for  Separate  Account  I  under  an  investment
management  agreement between Us and Separate Account I. The agreement  provides
that We will manage the investments of Separate Account I under the direction of
the Board of Directors.  For providing those services,  Separate  Account I will
pay Us a fee at an annual  rate of .50% of the  average  net assets of  Separate
Account I. This fee will be calculated daily and paid monthly.  Our duties under
the agreement are to:

     a.   Decide on and place orders for the purchase and sale of securities for
          the Sub-Accounts, using Our best efforts to obtain the most favorable
          terms possible.

     b.   Regularly furnish reports at the periodic meetings of the Board of
          Directors.

We are  subject  to the  supervision  of  the  Board  of  Directors.  Under  the
agreement, We have the right to withdraw the use of Our name by Separate Account
I. The agreement  will continue in effect from its effective  date and from year
to year so long as it is approved by the Board of  Directors  or by the contract
holders as required by the Rules and  Regulations of Separate  Account I, and so
long as We do not terminate it by giving sixty days written notice.

Effective January 1, 1994, We have contracted with NBD Bank, an Illinois banking
corporation  having its principal office and place of business at 1603 Orrington
Avenue, Evanston, Illinois 60201 to have them manage the investment portfolio of
the Stock Sub-Account.  NBD Bank is controlled by NBD Bancorp,  Inc., a Delaware
corporation and bank holding company.

                                LEGAL PROCEEDINGS

We and certain  affiliated  companies  have been named in various  pending legal
proceedings  considered  to be ordinary  routine  litigation  incidental  to the
business of such companies. A number of other legal actions have been filed that
demand  compensatory and punitive damages  aggregating  material dollar amounts.
Our management  and chief legal officer  believe that such  litigation  will not
have a material  affect on the  consolidated  results of operations or financial
position.  See Note F to Our financial  statements  for a description of a class
action  complaint by two retired  employees,  relating to  retirement  benefits.
Separate Account I is not engaged in any litigation.

                                THE FIXED ACCOUNT

Purchase  Payments  which are allocated to the Fixed Account  become part of Our
general  account which supports  insurance and annuity  obligations.  Because of
exemptive and exclusionary  provisions,  interests in the Fixed Account have not
been registered  under the Securities Act of 1933 ("1933 Act"), nor is the Fixed
Account  registered as an investment company under the Investment Company Act of
1940 ("1940  Act").  Accordingly,  neither the Fixed  Account nor any  interests
therein  are  generally  subject  to the  provisions  of the 1933 or 1940  Acts.
Disclosures  regarding the fixed  portion of the annuity  contract and the Fixed
Account  have not been  reviewed  by the staff of the  Securities  and  Exchange
Commission.

Fixed  Account  Accumulated  Value-The  value of a fixed  Accumulation  Unit was
established at $1 and is adjusted daily to reflect the rate(s) of interest being
credited to Contracts with an interest in the Fixed Account.  A Calendar Year is
a period of one year from January 15 of one year through  January 14 of the next
year.  The Fixed  Account  Accumulated  Value is the total of periodic  Purchase

                                       32
<PAGE>

Payments  and  transfers  to  the  account,   increased  at  rates  of  interest
established by Us, reduced by the total of any deductions,  charges, withdrawals
and transfers from the account.  We reserve the right to deduct premium or other
taxes from  Purchase  Payments or to charge those taxes against the Contracts to
which they are attributable. The guaranteed interest rate for the first Calendar
Year is stated in the Contract. That rate may be changed by Us at the end of the
first  Calendar year and at the end of each Calendar  year  thereafter.  We will
credit interest daily at the established  rates, but interest will be compounded
annually.  We will notify You of the rate of interest to be credited  during the
next Calendar year.

We guarantee that the interest rate will be at least 4%.

Amount of Each Fixed Annuity Payment

     a.    The amount of the first Fixed Annuity payment will be equal to:

          1.   the amount of the Net Accumulated  Value being used to purchase a
               Fixed Annuity, divided by

          2.   $1,000, times

          3.   a factor  from the Fixed  Annuity  Settlement  Option  Table that
               appears in the Contract.

     b.   The dollar  amount of Fixed Annuity  payments  remain fixed during the
          annuity payment period, except under:

          1.   Option 4, and

          2.   Options 2, 3 and 5, which may be  increased by interest in excess
               of the guaranteed rates.

          3.   Option 6, under which the number of units is reduced one-third at
               the death of the first payee.

Time and Delay of Payment

Fixed  Account-We may delay paying the amount of any withdrawal or surrender for
up to six months after a request is received by Us.

                                       33
<PAGE>

                              TABLE OF CONTENTS OF
                     THE STATEMENT OF ADDITIONAL INFORMATION


                                                     Page
                                                     ----

GENERAL INFORMATION AND HISTORY                       3
     The Company                                      3
THE SEPARATE ACCOUNT                                  4
     Investment Policies And Restrictions             4
     Real Estate                                      4
     Money Market Instruments                         5
     Turnover                                         5
     Net Asset Value                                  5
THE CONTRACT                                          6
     Ownership                                        6
     Beneficiary                                      6
     Assignment                                       6
     Calculation of the Accumulation Unit Value       6
     Single Sum Settlement                            7
     Reports                                          7
ANNUITY PAYMENTS                                      8
     Election  of  Fixed  or  Variable   Annuity      8
Payments
     Limitations/Conditions                           8
     Variable Annuity Unit Value                      9
     Amount of Each Variable Annuity Payment          9
FEDERAL TAX MATTERS                                   9
     Diversification Requirements                     9
     IRS Required Distributions                      10
MANAGEMENT                                           11
     Directors and Officers of Separate Account I    11
     Remuneration of Board of Directors, Officers   
      and Employees                                  12
     Principal Stockholders of Washington National   
      Corporation                                    13  
INVESTMENT MANAGER                                   14
ADMINISTRATIVE SERVICES                              16
CUSTODY AGREEMENT                                    16
BROKERAGE ALLOCATION                                 16
     Securities Transactions                         16
      Transactions  May Be Made for a  Number  of   
       Accounts at Once                              17
     Other Transactions With Brokers or Dealers      17
UNDERWRITERS                                         17
PERFORMANCE DATA                                     17
LEGAL MATTERS                                        20
STATE REGULATION                                     20
REGISTRATION STATEMENT                               20
EXPERTS                                              20
FINANCIAL STATEMENTS                                 20
APPENDIX A: Commercial Paper and Bond Ratings       A-1
APPENDIX   B:   Short-Term  Portfolio  Sub-Account  B-1
Investments

                                       34
<PAGE>





                                   APPENDIX C

                      SCUDDER VARIABLE LIFE INVESTMENT FUND
                          Prospectus dated May 1, 1995


         The Fund's prospectus dated May 1, 1995, immediately follows this page.


<PAGE>


                                         

                      SCUDDER VARIABLE LIFE INVESTMENT FUND

                             Two International Place
                        Boston, Massachusetts 02110-4103

                                 (A Mutual Fund)




Scudder  Variable Life  Investment  Fund (the "Fund") is an open-end  management
investment company which offers shares of beneficial interest of six diversified
Portfolios,  three of which are offered herein. The Money Market Portfolio seeks
stability and current income from a portfolio of money market  instruments.  The
Money Market  Portfolio will maintain a  dollar-weighted  average maturity of 90
days or less in an effort to  maintain a constant  net asset  value of $1.00 per
share.  An  investment  in the Money  Market  Portfolio  is neither  insured nor
guaranteed by the United States  Government  and there can be no assurance  that
the  Portfolio  will be able to  maintain a stable net asset  value of $1.00 per
share.  The Bond  Portfolio  seeks high income from a high quality  portfolio of
bonds.  The Growth and  Income  Portfolio  seeks  long-term  growth of  capital,
current  income and growth of income from a portfolio  consisting  primarily  of
common stocks and securities  convertible  into common stocks.  

This  prospectus  sets forth  concisely  the  information  about the Fund that a
prospective  investor should know before applying for certain  variable  annuity
contracts and variable life insurance  policies offered in the separate accounts
of certain insurance companies  ("Participating  Insurance  Companies").  Please
read it  carefully  and  retain it for future  reference.  If you  require  more
detailed information,  a Statement of Additional  Information dated May 1, 1995,
as supplemented  from time to time, is available upon request without charge and
may be obtained by calling a  Participating  Insurance  Company or by writing to
broker/dealers  offering the above  mentioned  variable  annuity  contracts  and
variable life  insurance  policies,  or Scudder  Investor  Services,  Inc.,  Two
International  Place,  Boston,   Massachusetts  02110-4103.   The  Statement  of
Additional Information, which is incorporated by reference into this prospectus,
has been filed with the Securities and Exchange Commission.

THESE  SECURITIES  HAVE NOT BEEN APPROVED OR  DISAPPROVED  BY THE SECURITIES AND
EXCHANGE  COMMISSION OR ANY STATE  SECURITIES  COMMISSION NOR HAS THE SECURITIES
AND  EXCHANGE  COMMISSION  OR ANY STATE  SECURITIES  COMMISSION  PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL  OFFENSE.  

SHARES OF THE FUND ARE AVAILABLE AND ARE BEING MARKETED  EXCLUSIVELY AS A POOLED
FUNDING VEHICLE FOR LIFE INSURANCE  COMPANIES WRITING ALL TYPES OF VARIABLE LIFE
INSURANCE POLICIES AND VARIABLE ANNUITY CONTRACTS.



                                   PROSPECTUS
                                   May 1, 1995





                                     
<PAGE>


                                                                        
 -------------------------------------------------------------------------------

                                TABLE OF CONTENTS
 -------------------------------------------------------------------------------


                                                                           Page

INVESTMENT CONCEPT OF THE FUND                                               1
FINANCIAL HIGHLIGHTS                                                         2
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS                         5
     Money Market Portfolio                                                  5
     Bond Portfolio                                                          5
     Growth and Income Portfolio                                             6
POLICIES AND TECHNIQUES APPLICABLE TO THE PORTFOLIOS                         7
     Repurchase Agreements                                                   7
     Convertible Securities                                                  7
     Mortgage and Other Asset-Backed Securities                              7
     Foreign Securities                                                      8
     When-Issued Securities                                                  8
     Indexed Securities                                                      9
     Loans of Portfolio Securities                                           9
     Zero Coupon Securities                                                  9
     Derivatives                                                             9
     Options                                                                 9
     Options on Securities Indexes                                           9
     Futures Contracts                                                      10
     Forward Foreign Currency Exchange Contracts                            10
INVESTMENT RESTRICTIONS                                                     10
INVESTMENT ADVISER                                                          11
     Portfolio Management                                                   12
     Money Market Portfolio                                                 13
     Bond Portfolio                                                         13
     Growth and Income Portfolio                                            13
DISTRIBUTOR                                                                 13
PURCHASES AND REDEMPTIONS                                                   14
NET ASSET VALUE                                                             14
PERFORMANCE INFORMATION                                                     14
     Money Market Portfolio                                                 14
     Bond Portfolio                                                         15
     All Portfolios                                                         15
VALUATION OF PORTFOLIO SECURITIES                                           15
     Money Market Portfolio                                                 15
     Other Portfolios                                                       15
TAX STATUS, DIVIDENDS AND DISTRIBUTIONS                                     15
SHAREHOLDER COMMUNICATIONS                                                  15
ADDITIONAL INFORMATION                                                      17
     Fund Organization and Shareholder Indemnification                      17
     Other Information                                                      17
TRUSTEES AND OFFICERS                                                       18


<PAGE>


 -------------------------------------------------------------------------------

                         INVESTMENT CONCEPT OF THE FUND
 -------------------------------------------------------------------------------


Scudder  Variable Life Investment  Fund (the "Fund") is an open-end,  registered
management investment company comprised of the following diversified series: the
Money Market Portfolio,  Bond Portfolio,  Balanced Portfolio,  Growth and Income
Portfolio,  Capital Growth Portfolio,  and International Portfolio (individually
or collectively  hereinafter  referred to as a "Portfolio" or the "Portfolios").
Additional  Portfolios may be created from time to time. The Fund is intended to
be the funding  vehicle for variable  annuity  contracts  ("VA  contracts")  and
variable life insurance  policies ("VLI policies") to be offered by the separate
accounts  of  certain  life  insurance   companies   ("Participating   Insurance
Companies").  The Fund  currently  does not  foresee  any  disadvantages  to the
holders  of VA  contracts  and VLI  policies  arising  from  the  fact  that the
interests   of  the  holders  of  such   contracts   and  policies  may  differ.
Nevertheless,  the Fund's Trustees intend to monitor events in order to identify
any material irreconcilable  conflicts which may possibly arise and to determine
what action, if any, should be taken in response  thereto.  The VA contracts and
the VLI  policies  are  described  in the  separate  prospectuses  issued by the
Participating  Insurance Companies.  The Fund assumes no responsibility for such
prospectuses.  

Individual VA contract holders and VLI policyholders are not the  "shareholders"
of the Fund.  Rather, the Participating  Insurance  Companies and their separate
accounts are the shareholders or investors (the  "Shareholders"),  although such
companies  may  pass  through  voting  rights  to  their  VA  contract  and  VLI
policyholders.


                                       1
<PAGE>



 -------------------------------------------------------------------------------

                              FINANCIAL HIGHLIGHTS
 -------------------------------------------------------------------------------

Money Market Portfolio

The following table includes  selected data for a share  outstanding  throughout
each period and other performance information derived from the audited financial
statements.  

If  you  would  like  more  detailed  information   concerning  the  Portfolio's
performance,  a complete portfolio listing and audited financial  statements are
available  in the  Fund's  Annual  Report  dated  December  31,  1994 and may be
obtained  without  charge by  calling a  Participating  Insurance  Company or by
writing to  broker/dealers  offering the previously  mentioned  variable annuity
contracts and variable life insurance  policies,  or Scudder Investor  Services,
Inc.


<TABLE>
<CAPTION>

                                                                                                  SIX       FOR THE PERIOD
                                                                                                 MONTHS      JULY 16, 1985
                                                                                                 ENDED      (COMMENCEMENT)
                                                   YEARS ENDED DECEMBER 31,                     DECEMBER     OF OPERATIONS)  
                                 -------------------------------------------------------------      31,        TO JUNE 30,
                                 1994    1993    1992    1991    1990    1989   1988      1987    1986(e)          1986
                                 -------------------------------------------------------------  ----------   --------------

<S>                               <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>       <C>           <C>
Net asset value,
 beginning of period. . . .     $1.000  $1.000  $1.000  $1.000  $1.000  $1.000  $1.000  $1.000    $1.000        $1.000(b)
                                ------  ------  ------  ------  ------  ------  ------  ------    ------        ------
Income from investment
 operations:
 Net investment
   income (a) . . . . . . .       .037    .025    .033    .057    .076    .088    .068    .060      .026          .064
Less distributions from
 net investment income  . .      (.037)  (.025)  (.033)  (.057)  (.076)  (.088)  (.068)  (.060)    (.026)        (.064)
                                ------  ------  ------  ------  ------  ------  ------  ------    ------        ------
Net asset value,
 end of period  . . . . . .     $1.000  $1.000  $1.000  $1.000  $1.000  $1.000  $1.000  $1.000    $1.000        $1.000
                                ======  ======  ======  ======  ======  ======  ======  ======    ======        ======
TOTAL RETURN (%)  . . . . .       3.72    2.54    3.33    5.81    7.83    8.84    7.08    5.95      2.59(d)       6.59(d)
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
 period ($ millions). . . .         90      49      34      28      32      15      11       8         3            --
Ratio of operating
 expenses, net to
 average daily net
 assets (%) (a)   . . . . .        .56     .66     .64     .67     .69     .72     .75     .75       .75(c)        .60(c)
Ratio of net investment
 income to average
 daily net assets (%) . . .       3.80    2.55    3.26    5.67    7.57    8.53    6.99    6.06      5.10(c)       6.75(c)
(a) Portion of expenses
    reimbursed
    (Note B)  . . . . . . .     $   --  $   --  $   --  $   --  $   -- $  .001  $ .003  $ .006    $ .022        $ .133

<FN>
(b) Original capital
(c) Annualized
(d) Not annualized
(e) On August 22, 1986, the Trustees voted to change the year end of the Fund from June 30 to December 31.

</FN>
</TABLE>


                                       2
<PAGE>


 -------------------------------------------------------------------------------

                              FINANCIAL HIGHLIGHTS
 -------------------------------------------------------------------------------

Bond Portfolio

The following table includes  selected data for a share  outstanding  throughout
each period and other performance information derived from the audited financial
statements.   

If  you  would  like  more  detailed  information   concerning  the  Portfolio's
performance,  a complete portfolio listing and audited financial  statements are
available  in the  Fund's  Annual  Report  dated  December  31,  1994 and may be
obtained  without  charge by  calling a  Participating  Insurance  Company or by
writing to  broker/dealers  offering the previously  mentioned  variable annuity
contracts and variable life insurance  policies,  or Scudder Investor  Services,
Inc.

<TABLE>
<CAPTION>

                                                                                                           SIX       FOR THE PERIOD
                                                                                                         MONTHS      JULY 16, 1985
                                                                                                          ENDED     (COMMENCEMENT
                                                              YEARS ENDED DECEMBER 31, (E)              DECEMBER     OF OPERATIONS
                               -----------------------------------------------------------------------     31,        TO JUNE 30,
                                   1994     1993     1992     1991     1990     1989     1988     1987  1986(e)(f)       1986
                                 ---------------------------------------------------------------------  ----------  ---------------
<S>                              <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>       <C>          <C>
Net asset value,
   beginning of period . . .     $ 7.42   $ 7.19   $ 7.37   $ 6.73   $ 6.72   $ 6.39   $ 6.47   $ 6.67    $ 6.56       $ 6.00(b)
                                 ------   ------   ------   ------   ------   ------   ------   ------    ------       ------ 
Income from investment
 operations:
   Net investment
    income (a)   . . . . . .        .43      .48      .49      .52      .53      .54      .54      .49       .23          .45
   Net realized and
    unrealized gain
    (loss) on
    investment
    transactions . . . . . .       (.77)     .38     (.02)     .61     (.02)     .18     (.19)    (.40)      .08          .44
                                 ------   ------   ------   ------   ------   ------   ------   ------    ------       ------ 
Total from investment
 operations  . . . . . . . .       (.34)     .86      .47     1.13      .51      .72      .35      .09       .31          .89
                                 ------   ------   ------   ------   ------   ------   ------   ------    ------       ------ 
Less distributions from:
 Net investment income . . .       (.43)    (.48)    (.46)    (.47)    (.50)    (.39)    (.43)    (.29)     (.17)        (.33)
 Net realized gains on
   on investment
   transactions  . . . . . .       (.17)    (.15)    (.19)    (.02)      --       --       --       --      (.03)          --
                                 ------   ------   ------   ------   ------   ------   ------   ------    ------       ------ 
Total distributions  . . . .       (.60)    (.63)    (.65)    (.49)    (.50)    (.39)    (.43)    (.29)     (.20)        (.33)
                                 ------   ------   ------   ------   ------   ------   ------   ------    ------       ------ 
Net asset value,
 end of period   . . . . . .     $ 6.48   $ 7.42   $ 7.19   $ 7.37   $ 6.73   $ 6.72   $ 6.39   $ 6.47    $ 6.67       $ 6.56
                                 ======   ======   ======   ======   ======   ======   ======   ======    ======       ======
TOTAL RETURN (%) . . . . . .      (4.79)   12.38     7.01    17.61     8.06    11.65     5.46     1.22      4.90(d)     15.11(d)
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
 period ($ millions) . . . .        142      129      113       74       42       22        3        3         1           --
Ratio of operating
 expenses, net to
 average net
 assets (%) (a)  . . . . . .        .58      .61      .63      .69      .73      .75      .75      .75       .75(c)       .60(c)
Ratio of net investment
 income to average
 net assets (%)  . . . . . .       6.43     6.59     6.89     7.51     8.05     8.04     7.86     7.53      6.88(c)      7.48(c)
Portfolio turnover
 rate (%)  . . . . . . . . .      96.55   125.15    87.00   115.86    71.02   103.41   245.23   186.05     23.82(c)      6.27(c)

<FN>
(a) Portion of expenses
   reimbursed (Note B) . . .     $   --   $   --   $   --   $   --   $   --   $  .01   $  .04   $  .08    $  .21       $  .80
(b) Original capital
(c) Annualized
(d) Not annualized
(e) Per share amounts, for each of the periods identified, have been calculated using the monthly average shares outstanding 
    during the period method.
(f) On August 22, 1986, the Trustees voted to change the year end of the Fund from June 30 to December 31.
</FN>
</TABLE>


                                       3
<PAGE>


 -------------------------------------------------------------------------------

                              FINANCIAL HIGHLIGHTS
 -------------------------------------------------------------------------------

Growth and Income Portfolio

The following table includes  selected data for a share  outstanding  throughout
the period and other performance  information derived from the audited financial
statements.   

If  you  would  like  more  detailed  information   concerning  the  Portfolio's
performance,  a complete portfolio listing and audited financial  statements are
available  in the  Fund's  Annual  Report  dated  December  31,  1994 and may be
obtained  without  charge by  calling a  Participating  Insurance  Company or by
writing to  broker/dealers  offering the previously  mentioned  variable annuity
contracts and variable life insurance  policies,  or Scudder Investor  Services,
Inc.

<TABLE>
<CAPTION>

                                                                                                 For the Period 
                                                                                                  May 2, 1994
                                                                                                 (commencement 
                                                                                                 of operations) 
                                                                                                 to December 31, 
                                                                                                     1994
                                                                                                 ---------------
<S>                                                                                                   <C>
Net asset value, beginning of period  . . . . . . . . . . . . . . . . . . . . . . . . . . . .         $ 6.00(b)
                                                                                                      ------
Income from investment operations:                                                                     
 Net investment income (a)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            .13
 Net realized and unrealized gain (loss) on investment transactions   . . . . . . . . . . . .            .17(f)
                                                                                                      ------
Total from investment operations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            .30
                                                                                                      ------
Less distributions from net investment income . . . . . . . . . . . . . . . . . . . . . . . .           (.04)
                                                                                                      ------
Net asset value, end of period  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         $ 6.26
                                                                                                      ======
TOTAL RETURN (%)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           4.91(d)
RATIOS AND SUPPLEMENTAL DATA                                                                           
Net assets, end of period ($ millions)  . . . . . . . . . . . . . . . . . . . . . . . . . . .             20
Ratio of operating expenses, net to average net assets (%) (a)  . . . . . . . . . . . . . . .            .75(c)
Ratio of net investment income to average net assets (%)  . . . . . . . . . . . . . . . . . .           3.63(c)
Portfolio turnover rate (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          28.41(c)

<FN>                                                                                                   
(a) Portion of expenses waived (Note B)   . . . . . . . . . . . . . . . . . . . . . . . . . .         $  .03
(b) Original capital
(c) Annualized
(d) Not annualized
(e) Per share amounts have been calculated using the monthly average shares outstanding during the period method.
(f) The amount shown for a share outstanding throughout the period does not accord with the change in the aggregate gains and
    losses in the portfolio securities during the period because of the timing of sales and purchases of Portfolio shares in 
    relation to fluctuating market values during the period.
</FN>
</TABLE>


                                       4
<PAGE>


 -------------------------------------------------------------------------------
                            INVESTMENT OBJECTIVES AND
                           POLICIES OF THE PORTFOLIOS
 -------------------------------------------------------------------------------


Each type of Portfolio  has a different  investment  objective  which it pursues
through  separate  investment  policies,  as described below. The differences in
objectives  and  policies  among the  Portfolios  can be  expected to affect the
degree of market and financial  risk to which each  Portfolio is subject and the
return  of each  Portfolio.  The  investment  objectives  and  policies  of each
Portfolio may, unless otherwise  specifically stated, be changed by the Trustees
of the Fund without a vote of the  Shareholders.  There is no assurance that the
objectives of any Portfolio will be achieved. 

MONEY MARKET PORTFOLIO

The Money  Market  Portfolio  seeks to maintain  the  stability  of capital and,
consistent  therewith,  to  maintain  the  liquidity  of capital  and to provide
current  income.  The Portfolio  seeks to maintain a constant net asset value of
$1.00 per share,  although there can be no assurance that this will be achieved.
The Portfolio uses the amortized cost method of securities valuation.

The Money  Market  Portfolio  purchases  money  market  securities  such as U.S.
Treasury, agency and instrumentality obligations,  finance company and corporate
commercial paper,  bankers'  acceptances and certificates of deposit of domestic
and foreign  banks  (i.e.,  banks which at the time of their most recent  annual
financial  statements  show  total  assets in excess of $1  billion),  including
foreign  branches of domestic  banks,  which involve  different risks than those
associated with  investments in  certificates of deposit of domestic banks,  and
corporate obligations. The Money Market Portfolio may also enter into repurchase
agreements.  The Money  Market  Portfolio  may also  invest in  certificates  of
deposit issued by banks and savings and loan institutions  which had at the time
of their most recent annual  financial  statements  total assets of less than $1
billion, provided that (i) the principal amounts of such certificates of deposit
are  insured  by an  agency  of the U.S.  Government,  (ii) at no time  will the
Portfolio hold more than $100,000 principal amount of certificates of deposit of
any one such bank, and (iii) at the time of acquisition, no more than 10% of the
Portfolio's  assets  (taken at current  value) are invested in  certificates  of
deposit of such banks having total assets not in excess of $1 billion.

Investments are limited to those that are  dollar-denominated and at the time of
purchase are rated, or judged by the Fund's investment adviser, Scudder, Stevens
& Clark, Inc. (the "Adviser"), subject to the supervision of the Trustees, to be
equivalent  to  those  rated  high  quality  (i.e.,  rated  in the  two  highest
categories)  by any two  nationally-recognized  rating  services such as Moody's
Investors Service,  Inc. ("Moody's") and Standard & Poor's ("S&P"). In addition,
the Adviser seeks through its own credit  analysis to limit  investments to high
quality instruments presenting minimal credit risks. The portfolio is subject to
certain additional quality and diversification  restrictions which are set forth
in the Fund's Statement of Additional Information.

The remaining  maturity of each investment in the Money Market  Portfolio is 397
calendar days or less. The  dollar-weighted  average maturity of the Portfolio's
investments varies with money market conditions,  but is always 90 days or less.
As a money  market  fund with a  short-term  maturity,  the  Portfolio's  income
fluctuates  with  changes  in  interest  rates,  but its price to the  public or
"offering price," is expected to remain fixed at $1.00 per share.

BOND PORTFOLIO

The Bond  Portfolio  pursues a policy of  investing  for a high  level of income
consistent  with a high  quality  portfolio  of debt  securities.  Under  normal
circumstances,  the  Portfolio  invests  at least  65% of its  assets  in bonds,
including  those  of  the  U.S.  Government  and  its  agencies,  and  those  of
corporations  and other notes and bonds  paying  high  current  income.  It will
attempt to moderate the effect of market price fluctuation relative to that of a
long-term  bond by  investing  in  securities  with  varying  maturities  and by
entering  into futures  contracts  on debt  securities  and related  options for
hedging purposes.

The Portfolio is actively managed.  The Portfolio may invest in a broad range of
short-,  intermediate-,  and long-term securities.  Proportions among maturities
and  types of  securities  may vary  depending  upon the  prospects  for  income
relative to the outlook for the economy and the securities markets,  the quality
of available  investments,  the level of interest rates, and other factors.  The
Portfolio may also invest in preferred  stocks  consistent  with the Portfolio's
objectives.


                                       5
<PAGE>

The Bond  Portfolio  may purchase  corporate  notes and bonds  including  issues
convertible into common stock and obligations of municipalities. It may purchase
U.S.  Government  securities and  obligations  of federal  agencies that are not
backed by the full faith and credit of the U.S. Government,  such as obligations
of Federal Home Loan Banks, Farm Credit Banks and the Federal Home Loan Mortgage
Corporation.  In addition, it may purchase obligations of international agencies
such as the  International  Bank for  Reconstruction  and  Development,  and the
Inter-American  Development  Bank.  Other eligible  investments  include foreign
securities, such as non-U.S. dollar-denominated foreign debt securities and U.S.
dollar-denominated foreign debt securities (such as those issued by the Dominion
of Canada and its provinces) including, without limitation, Eurodollar Bonds and
Yankee  Bonds,  mortgage  and other  asset-backed  securities,  and money market
instruments such as commercial paper, and bankers'  acceptances and certificates
of deposit issued by domestic and foreign  branches of U.S. banks. The Portfolio
may  also  enter  into  repurchase  agreements  and may  invest  in zero  coupon
securities.

The Bond Portfolio is of high quality.  No purchase will be made if, as a result
thereof,  less than 50% of the  Portfolio's net assets would be invested in debt
obligations,  including  money  market  instruments,  that  (a)  are  issued  or
guaranteed by the U.S. Government,  (b) are rated at the time of purchase within
the two highest ratings  categories by any of the  nationally-recognized  rating
services  or (c) if not  rated,  are  judged by the  Adviser  to be of a quality
comparable to obligations  rated as described in (b) above. Not less than 80% of
the debt  obligations  in  which  the  Portfolio  invests  will,  at the time of
purchase,  be rated  within the three  highest  ratings  categories  of any such
service  or, if not  rated,  will be judged to be of  comparable  quality by the
Adviser.  The Fund may invest up to 20% of its assets in bonds rated below A but
no lower than B by Moody's or S&P, or unrated  securities  judged by the Adviser
to  be  of  comparable   quality.   Debt   securities   which  are  rated  below
investment-grade  (that is,  rated  below Baa by Moody's or below BBB by S&P and
commonly  referred  to as "junk  bonds") and unrated  securities  of  comparable
quality, which usually entail greater risk (including the possibility of default
or  bankruptcy of the issuers of such  securities),  generally  involve  greater
volatility  of price and risk of loss of principal  and income,  and may be less
liquid than  securities  in the higher  rating  categories.  Securities  rated B
involve a high degree of  speculation  with  respect to the payment of principal
and  interest.  Should  the  rating of any  security  held by the  Portfolio  be
downgraded after the time of purchase,  the Adviser will determine whether it is
in the best  interest  of the  Portfolio  to retain or dispose of the  security.
During the year ended  December 31, 1994,  the average  monthly  dollar-weighted
market value of the bonds held by the Portfolio,  by ratings categories,  was as
follows:  72.0% in  AAA/Aaa  securities,  1.0% in AA/Aa  securities,  19.0% in A
securities,  4.0% in BBB/Baa  securities,  2.0% in BB/Ba  securities and 2.0% in
unrated  securities,  respectively.  Future  asset  composition  may  vary.  

The Portfolio  may, for hedging  purposes,  purchase  forward  foreign  currency
exchange  contracts  and foreign  currencies in the form of bank  deposits.  The
Portfolio may also purchase other foreign money market  instruments,  including,
but not limited to, bankers'  acceptances,  certificates of deposit,  commercial
paper, short-term government obligations and repurchase agreements.

Except for limitations imposed by the Bond Portfolio's  investment  restrictions
(see "INVESTMENT RESTRICTIONS"),  there is no limit as to the proportions of the
Portfolio which may be invested in any of the eligible investments;  however, it
is a policy  of the  Portfolio  that its  non-governmental  investments  will be
spread  among a  variety  of  companies  and  will  not be  concentrated  in any
industry.

The Bond  Portfolio  cannot  guarantee a gain or eliminate the risk of loss. The
net asset value of the  Portfolio's  shares will  fluctuate  with changes in the
market price of the Portfolio's  investments,  which tend to vary inversely with
changes in prevailing interest rates and, to a lesser extent, changes in foreign
currency  exchange  rates. As interest rates fall, the prices of debt securities
tend to rise and vice versa.

GROWTH AND INCOME PORTFOLIO

The Growth and Income  Portfolio  seeks  long-term  growth of  capital,  current
income and growth of income. In pursuing these three  objectives,  the Portfolio
invests primarily in common stocks, preferred stocks, and securities convertible
into common stocks of companies  which offer the prospect for growth of earnings
while paying higher than average current dividends.  Over time, continued growth
of earnings tends to lead to higher  dividends and enhancement of capital value.
The  Portfolio   allocates  its  investments  among  different   industries  and
companies,  and changes its portfolio  securities for investment  considerations
and not for trading purposes.

The  Portfolio  attempts  to achieve  its  investment  objectives  by  investing
primarily in dividend  paying common  stocks,  preferred  stocks and  securities
convertible into common stocks.  The Portfolio may also purchase such securities
which do not pay  current  dividends  but which  offer  prospects  for growth of
capital and future income.  Convertible  securities (which may be current coupon
or zero coupon securities) are bonds,  notes,  debentures,  preferred stocks and

                                       6
<PAGE>

other securities which may be converted or exchanged at a stated or determinable
exchange ratio into  underlying  shares of common stock.  The Portfolio may also
invest  in  nonconvertible  preferred  stocks  consistent  with the  Portfolio's
objectives.  From  time to time,  for  temporary  defensive  purposes,  when the
Adviser  feels such a  position  is  advisable  in light of  economic  or market
conditions,  the  Portfolio  may invest a portion of its assets in cash and cash
equivalents.  The Portfolio may invest in foreign  securities  and in repurchase
agreements.

The Portfolio  may, for hedging  purposes,  purchase  forward  foreign  currency
exchange  contracts  and foreign  currencies in the form of bank  deposits.  The
Portfolio may also purchase other foreign money market  instruments,  including,
but not limited to, bankers'  acceptances,  certificates of deposit,  commercial
paper, short-term government obligations and repurchase agreements.

The Growth and Income Portfolio cannot guarantee a gain or eliminate the risk of
loss.  The net asset value of the  Portfolio's  shares will increase or decrease
with  changes in the market  prices of the  Portfolio's  investments  and,  to a
lesser extent, changes in foreign currency exchange rates.

 -------------------------------------------------------------------------------
                             POLICIES AND TECHNIQUES
                          APPLICABLE TO THE PORTFOLIOS
 -------------------------------------------------------------------------------


Except as  otherwise  noted  below,  the  following  description  of  additional
investment policies and techniques is applicable to all of the Portfolios.

REPURCHASE AGREEMENTS

As a means of earning  income for periods as short as  overnight,  the Fund,  on
behalf of a  Portfolio,  may enter  into  repurchase  agreements  with U.S.  and
foreign  banks,  and  any  broker-dealer  which  is  recognized  as a  reporting
government   securities  dealer,  if  the   creditworthiness   of  the  bank  or
broker-dealer  has been  determined by the Adviser to be of a sufficiently  high
quality. Under a repurchase agreement, a Portfolio acquires securities,  subject
to the seller's agreement to repurchase those securities at a specified time and
price.  Securities  subject to a repurchase  agreement  are held in a segregated
account and the seller agrees to maintain the market value of such securities at
least equal to 100.5% of the  repurchase  price on a daily basis.  If the seller
under a  repurchase  agreement  becomes  insolvent  and the Fund has  failed  to
perfect its interest in the underlying  securities,  the Fund might be deemed an
unsecured  creditor of the seller and may encounter delay and incur costs before
being able to sell the security.  Also, if a seller defaults,  the value of such
securities  might  decline  before  the Fund is able to  dispose  of  them.  The
Trustees  have  set  standards  of  counterparty  creditworthiness  and  monitor
compliance with such standards.

CONVERTIBLE SECURITIES

The  Bond  Portfolio  and  Growth  and  Income  Portfolio  may  each  invest  in
convertible  securities (bonds,  notes,  debentures,  preferred stocks and other
securities  convertible  into common  stocks) which may offer higher income than
the common stocks into which they are convertible. The convertible securities in
which each  Portfolio  may  invest  include  fixed  income or zero  coupon  debt
securities,  which may be converted  or  exchanged  at a stated or  determinable
exchange  ratio  into  underlying  shares  of  common  stock.   Prior  to  their
conversion,   convertible   securities  may  have  characteristics   similar  to
non-convertible securities.

While convertible  securities  generally offer lower yields than non-convertible
debt  securities  of similar  quality,  their prices may reflect  changes in the
value of the underlying common stock. Although to a lesser extent than with debt
securities  generally,  the  market  value of  convertible  securities  tends to
decline as  interest  rates  increase  and,  conversely,  tends to  increase  as
interest rates decline.  Convertible securities entail less credit risk than the
issuer's common stock.  The ratings of the  convertible  securities in which the
Portfolios  invest will be  comparable to the ratings of the  Portfolios'  fixed
income securities.

MORTGAGE AND OTHER ASSET-BACKED SECURITIES

The  Bond  Portfolio  may  invest  in  mortgage-backed  securities,   which  are
securities  representing  interests in pools of mortgage loans. These securities
provide  shareholders with payments consisting of both interest and principal as
the mortgages in the underlying mortgage pools are paid off.

The timely  payment of  principal  and  interest on  mortgage-backed  securities
issued or guaranteed by the Government National Mortgage Association ("GNMA") is
backed by GNMA and the full  faith  and  credit  of the U.S.  Government.  These

                                       7
<PAGE>

guarantees,   however,   do  not  apply  to  the   market   value  or  yield  of
mortgage-backed  securities or to the value of Portfolio shares.  Also, GNMA and
other mortgage-backed securities may be purchased at a premium over the maturity
value of the  underlying  mortgages.  This premium is not guaranteed and will be
lost  if  prepayment   occurs.   In  addition,   the  Portfolio  may  invest  in
mortgage-backed securities issued by other issuers, such as the Federal National
Mortgage Association, ("FNMA"), which are not guaranteed by the U.S. Government.
Moreover,  the  Portfolio may invest in debt  securities  which are secured with
collateral  consisting of  mortgage-backed  securities,  such as  collateralized
mortgage   obligations   ("CMOs"),   and  in  other  types  of  mortgage-related
securities.

Unscheduled  or early  payments  on the  underlying  mortgages  may  shorten the
securities'  effective  maturities  and  lessen  their  growth  potential.   The
Portfolio  may agree to  purchase  or sell these  securities  with  payment  and
delivery  taking place at a future date. A decline in interest rates may lead to
a faster rate of repayment of the underlying mortgages, and expose the Portfolio
to  a  lower  rate  of  return  upon  reinvestment.  To  the  extent  that  such
mortgage-backed  securities are held by the Portfolio,  the prepayment  right of
mortgagors  may limit the increase in net asset value of the  Portfolio  because
the  value  of the  mortgage-backed  securities  held by the  Portfolio  may not
appreciate as rapidly as the price of non-callable debt securities.

The Portfolio may also invest in securities  representing  interests in pools of
certain  other  consumer  loans,   such  as  automobile  loans  or  credit  card
receivables.  In some cases,  principal  and  interest  payments  are  partially
guaranteed  by a letter of credit  from a  financial  institution.  Asset-backed
securities  are  subject  to the  risk of  prepayment  and  the  risk  that  the
underlying loans will not be repaid.

FOREIGN SECURITIES

The Bond  Portfolio  and Growth and Income  Portfolio  may each  invest  without
limit,  except  as may be  applicable  to  debt  securities  generally,  in U.S.
dollar-denominated  foreign  debt  securities  (including  those  issued  by the
Dominion of Canada and its  provinces and other debt  securities  which meet the
criteria applicable to a Portfolio's domestic investments),  and in certificates
of deposit issued by foreign banks and foreign  branches of United States banks,
to any extent deemed  appropriate by the Adviser.  The Bond Portfolio may invest
up to 20% of its assets in non-U.S.  dollar-denominated foreign debt securities.
The Growth and Income  Portfolio  may invest up to 25% of its assets in non-U.S.
dollar-denominated  securities of foreign  issuers.  Global  investing  involves
considerations  not  typically  found  in  investing  in  U.S.  markets.   These
considerations,   which  may  favorably  or  unfavorably  affect  a  Portfolio's
performance, include changes in exchange rates and exchange rate controls (which
may  include  suspension  of the  ability  to  transfer  currency  from a  given
country), costs incurred in conversions between currencies,  devaluations in the
currencies in which a Portfolio's  securities  are  denominated,  non-negotiable
brokerage commissions, less publicly available information, different accounting
standards, lower trading volume and greater market volatility, the difficulty of
enforcing obligations in other countries, less securities regulation,  different
tax  provisions  (including  withholding  on dividends  paid to the Fund),  war,
expropriation,  political and social  instability  and diplomatic  developments.
Further, the settlement period of securities transactions in foreign markets may
be longer than in domestic  markets and payment for  securities  may be required
before  delivery.  These  considerations  generally  are  more of a  concern  in
developing  countries.  For  example,  the  possibility  of  revolution  and the
dependence on foreign economic assistance may be greater in these countries than
in developed countries.  The Adviser seeks to mitigate the risks associated with
these considerations through diversification and active professional management.

WHEN-ISSUED SECURITIES

A Portfolio may from time to time  purchase  securities  on a  "when-issued"  or
"forward  delivery"  basis.  Debt securities are often issued on this basis. The
price of such securities, which may be expressed in yield terms, is fixed at the
time a  commitment  to  purchase  is made,  but  delivery  and  payment for such
securities  take place at a later date.  During the period between  purchase and
settlement,  no payment is made by a Portfolio  and no  interest  accrues to the
Portfolio. To the extent that assets of a Portfolio are held in cash pending the
settlement of a purchase of  securities,  that  Portfolio  would earn no income;
however,  it is the Fund's  intention that each Portfolio will be fully invested
to the extent  practicable  and  subject to the  policies  stated  above.  While
when-issued or forward  delivery  securities may be sold prior to the settlement
date,  the  Portfolio  intends to purchase such  securities  with the purpose of
actually acquiring them unless a sale appears desirable for investment  reasons.
At the time a  Portfolio  makes the  commitment  to  purchase  a  security  on a
when-issued  or forward  delivery  basis,  it will  record the  transaction  and
reflect  the amount due and the value of the  security  in  determining  the net
asset  value of a  Portfolio.  The market  value of the  when-issued  or forward
delivery  securities  may be more or less than the purchase price payable at the

                                       8
<PAGE>

settlement date. The Fund does not believe that a Portfolio's net asset value or
income will be adversely affected by the purchase of securities on a when-issued
or forward  delivery basis.  Each Portfolio will establish a segregated  account
with its custodian in which it will maintain cash,  U.S.  Government  securities
and other high-grade debt obligations at least equal in value to commitments for
when-issued or forward delivery  securities.  Such segregated  securities either
will mature or, if necessary, be sold on or before the settlement date.

INDEXED SECURITIES

The Bond  Portfolio  may  invest in  indexed  securities,  the value of which is
linked to currencies,  interest rates,  commodities,  indices or other financial
indicators  ("reference  instruments").   The  interest  rate  or  (unlike  most
fixed-income  securities) the principal amount payable at maturity of an indexed
security may be increased or decreased, depending on changes in the value of the
reference  instrument.  Indexed  securities  may  be  positively  or  negatively
indexed,  so that  appreciation  of the  reference  instrument  may  produce  an
increase  or a  decrease  in the  interest  rate or  value  at  maturity  of the
security.  In addition,  the change in the interest rate or value at maturity of
the  security may be some  multiple of the change in the value of the  reference
instrument.  Thus, in addition to the credit risk of the security's  issuer, the
Fund will bear the market risk of the reference instrument.

LOANS OF PORTFOLIO SECURITIES

The Fund may lend the  portfolio  securities  of any  Portfolio  (other than the
Money  Market  Portfolio)  provided:  (1) the loan is  secured  continuously  by
collateral consisting of U.S. Government securities, or cash or cash equivalents
adjusted daily to have a market value at least equal to the current market value
of the securities  loaned; (2) the Fund may at any time call the loan and regain
the securities  loaned; (3) the Portfolio will receive any interest or dividends
paid on the loaned securities;  and (4) the aggregate market value of securities
loaned  will  not at any  time  exceed  one-third  of the  total  assets  of the
Portfolio.  In addition, it is anticipated that the Portfolio may share with the
borrower some of the income  received on the  collateral for the loan or that it
will be paid a premium for the loan.  Before a Portfolio enters into a loan, the
Adviser   considers  all  relevant   facts  and   circumstances   including  the
creditworthiness of the borrower.

ZERO COUPON SECURITIES

The  Bond  Portfolio  may  invest  in zero  coupon  securities,  including  U.S.
Government  securities and privately  stripped  coupons on and receipts for U.S.
Government  securities.  These  securities  pay no cash income but are issued at
substantial discounts from their value at maturity. When held to maturity, their
entire  return,  which  consists of the  accretion of  discount,  comes from the
difference  between their issue price and their maturity value.  Because they do
not pay interest until  maturity,  zero coupon  securities tend to be subject to
greater  interim  fluctuation of market value in response to changes in interest
rates than interest-paying securities of similar maturities.

DERIVATIVES

The following  descriptions of Options,  Options on Securities Indexes,  Futures
Contracts,  and Forward Foreign  Currency  Exchange  Contracts  discuss types of
derivatives in which certain of the Portfolios may invest.

OPTIONS

The Fund may write covered call options on  securities  of any Portfolio  (other
than the Money Market  Portfolio)  in an attempt to earn income.  The Growth and
Income Portfolio may also write put options to a limited extent on its portfolio
securities in an attempt to earn additional income on its portfolio,  consistent
with its  investment  objectives,  and it may purchase  call and put options for
hedging purposes. Risks associated with writing put options include the possible
inability to effect closing  transactions at favorable prices. In addition,  the
Fund may engage in over-the-counter options transactions with broker-dealers who
make markets in these options.  Over-the-counter  options  purchased by the Fund
and  portfolio  securities  "covering"  the  Fund's  obligation  pursuant  to an
over-the-counter  option  may be deemed to be  illiquid  and may not be  readily
marketable.  The Adviser will monitor the  creditworthiness of dealers with whom
the Fund enters into such options  transactions under the general supervision of
the Fund's  Trustees.  The Fund may forego the  benefit of  appreciation  in its
Portfolios on securities sold pursuant to call options.

OPTIONS ON SECURITIES INDEXES

The Growth and Income  Portfolio may purchase put and call options on securities
indexes to hedge  against  the risk of  unfavorable  price  movements  adversely
affecting the value of the Portfolio's securities. Options on securities indexes
are similar to options on securities except that settlement is made in cash.

                                       9
<PAGE>

Unlike a securities option, which gives the holder the right to purchase or sell
a specified security at a specified price, an option on a securities index gives
the holder the right to receive a cash "exercise settlement amount" equal to (i)
the  difference  between the  exercise  price of the option and the value of the
underlying  stock index on the exercise date,  multiplied by (ii) a fixed "index
multiplier."  In  exchange  for  undertaking  the  obligation  to make such cash
payment, the writer of the securities index option receives a premium.

Gains or losses on the  Portfolio's  transactions  in  securities  index options
depend on price  movements in the stock market  generally (or, for narrow market
indexes,  in a  particular  industry or segment of the  market)  rather than the
price movements of individual securities held by the Portfolio. In this respect,
purchasing  a stock index put option is  analogous to the purchase of a put on a
securities index futures contract.

The Portfolio may sell securities  index options prior to expiration in order to
close out its positions in securities index options which it has purchased.  The
Portfolio may also allow options to expire unexercised.

FUTURES CONTRACTS

To protect against the effects of adverse  changes in interest rates  (sometimes
known as "hedging"),  the Bond Portfolio  may, to a limited  extent,  enter into
futures contracts on debt securities.  Such futures contracts obligate the Fund,
at maturity, to purchase or sell certain debt securities. The Bond Portfolio and
Growth and Income Portfolio may enter into securities index futures contracts to
protect  against  changes  in  securities  market  prices.  Each  of  these  two
Portfolios  may purchase and write put and call options on futures  contracts of
the type  which such  Portfolio  is  authorized  to enter into and may engage in
related  closing  transactions.  This type of option must be traded on a U.S. or
foreign exchange or board of trade.

When interest rates are rising or stock or security prices are falling,  futures
contracts can offset a decline in the value of a Portfolio's  current  portfolio
securities. When rates are falling or stock or security prices are rising, these
contracts can secure better rates or prices for a Portfolio  than might later be
available in the market when it makes anticipated purchases.

The Fund will engage in  transactions  in futures  contracts and options thereon
only in an effort to protect a  Portfolio  against a decline in the value of the
Portfolio's  securities  or an  increase  in the  price of  securities  that the
Portfolio  intends to acquire.  Also,  the initial  margin  deposits for futures
contracts  and  premiums  paid for related  options may not be more than 5% of a
Portfolio's total assets. These transactions involve brokerage costs and require
the Fund to segregate  assets,  such as cash,  U.S.  Government  securities  and
high-grade  debt  obligations,  of a Portfolio  to cover  contracts  which would
require it to purchase securities.  A Portfolio may lose the expected benefit of
the  transactions  if interest  rates or stock  prices move in an  unanticipated
manner.  Such  unanticipated  changes in interest rates or stock prices may also
result in poorer  overall  performance  in a Portfolio  than if the Fund had not
entered into any futures  transactions for that Portfolio.  A Portfolio would be
required to make and maintain  "margin" deposits in connection with transactions
in futures contracts.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

The Bond  Portfolio and Growth and Income  Portfolio may each enter into forward
foreign currency exchange contracts  ("forward  contracts") to the extent of 15%
of the value of their respective total assets,  for hedging purposes.  A forward
contract is a contract individually  negotiated and privately traded by currency
traders  and their  customers.  A forward  contract  involves an  obligation  to
purchase or sell a specific currency for an agreed price at a future date, which
may be any fixed number of days from the date of the contract.  The agreed price
may be fixed or with a specified range of prices.

 -------------------------------------------------------------------------------

                             INVESTMENT RESTRICTIONS
 -------------------------------------------------------------------------------


Unless specified to the contrary,  the following restrictions may not be changed
with  respect  to  any  Portfolio  without  the  approval  of  the  majority  of
outstanding  voting  securities of that Portfolio  (which,  under the Investment
Company Act of 1940, as amended (the "1940 Act"),  and the rules  thereunder and
as used in this  prospectus,  means the  lesser of (1) 67% of the shares of that
Portfolio  present  at a  meeting  if  the  holders  of  more  than  50%  of the
outstanding  shares of that Portfolio are present in person or by proxy,  or (2)
more than 50% of the  outstanding  shares  of that  Portfolio).  Any  investment
restrictions  which  involve a maximum  percentage of securities or assets shall
not be considered  to be violated  unless an excess over the  percentage  occurs
immediately after, and is caused by, an acquisition or encumbrance of securities
or assets of, or borrowings by or on behalf of, a Portfolio.

                                       10
<PAGE>

The Fund may not, on behalf of any Portfolio:

      (1)with  respect to 75% of the value of the total  assets of a  Portfolio,
         invest more than 5% of the value of the Portfolio's total assets in the
         securities of any one issuer,  except U.S.  Government  securities and,
         with  respect to 100% of the value of the total  assets of a Portfolio,
         the Fund may not invest  more than 25% of the value of the  Portfolio's
         total  assets  in  the  securities  of  any  one  issuer,  except  U.S.
         Government securities;

      (2)pledge,  mortgage or  hypothecate  its assets,  except that,  to secure
         borrowings  permitted by the investment  restriction  (8) below, it may
         pledge  securities  having a market  value  at the time of  pledge  not
         exceeding 15% of the value of a Portfolio's  total assets and except in
         connection  with the writing of covered  call  options and the purchase
         and sale of futures contracts and options on futures contracts;

      (3)make loans to other persons,  except loans of portfolio  securities and
         except  to  the  extent  that  the  purchase  of  debt  obligations  in
         accordance  with its  investment  objectives and policies and the entry
         into repurchase agreements may be deemed to be loans;

      (4)enter into  repurchase  agreements or purchase any  securities if, as a
         result thereof, more than 10% of the total assets of a Portfolio (taken
         at market  value)  would be, in the  aggregate,  subject to  repurchase
         agreements  maturing in more than seven days and invested in restricted
         securities or securities which are not readily marketable;

      (5)purchase the securities of any issuer if such purchase would cause more
         than  10% of the  voting  securities  of  such  issuer  to be held by a
         Portfolio;

      (6)purchase  securities if such purchase  would cause more than 25% in the
         aggregate of the market value of the total assets of a Portfolio at the
         time of such  purchase to be invested in the  securities of one or more
         issuers  having  their  principal  business   activities  in  the  same
         industry,   provided   that  there  is  no  limitation  in  respect  to
         investments in obligations issued or guaranteed by the U.S.  Government
         or  its  agencies  or  instrumentalities  (for  the  purposes  of  this
         restriction,  telephone  companies  are  considered  to  be a  separate
         industry  from gas and  electric  public  utilities,  and  wholly-owned
         finance companies are considered to be in the industry of their parents
         if their  activities are primarily  related to financing the activities
         of the parents).

      (7)purchase or sell any put or call  options or any  combination  thereof,
         except that the Fund may purchase and sell options on futures contracts
         on debt securities,  options on securities indexes and securities index
         futures contracts and write covered call option contracts on securities
         owned  by a  Portfolio,  and may also  purchase  call  options  for the
         purpose of  terminating  its  outstanding  obligations  with respect to
         securities  upon which covered call option  contracts have been written
         (i.e.,   "closing   purchase   transactions"),   and  except  that  the
         International  Portfolio  may also purchase and sell options on foreign
         currency and on foreign currency futures contracts.

      (8)borrow money except from banks as a temporary measure for extraordinary
         or emergency  purposes  (each  Portfolio is required to maintain  asset
         coverage  (including  borrowings)  of 300% for all  borrowings)  and no
         purchases of securities for a Portfolio  will be made while  borrowings
         of that Portfolio  exceed 5% of the Portfolio's  assets (the payment of
         interest  on  borrowings  by a Portfolio  will reduce that  Portfolio's
         income).  In  addition,  the  Board of  Trustees  has  adopted a policy
         whereby  each  Portfolio  of the Fund may borrow up to 10% of its total
         assets; provided,  however, that each Portfolio may borrow up to 25% of
         its total assets for extraordinary or emergency purposes, including the
         facilitation of redemptions.

"Value" for the  purposes of all  investment  restrictions  shall mean the value
used in determining a Portfolio's net asset value (see "NET ASSET VALUE").

 -------------------------------------------------------------------------------

                               INVESTMENT ADVISER
 -------------------------------------------------------------------------------

The Fund retains the investment advisory firm of Scudder, Stevens & Clark, Inc.,
a  Delaware   corporation,   Two  International  Place,  Boston,   Massachusetts
02110-4103,  to manage each  Portfolio's  daily  investment and business affairs
subject to the policies  established by the Trustees.  The Trustees have overall
responsibility  for the  management  of the Fund under  Massachusetts  law.  The
Adviser is one of the most  experienced  investment  counsel firms in the United

                                       11
<PAGE>

States.  It was  established  in 1919 and  pioneered  the  practice of providing
investment counsel to individual clients on a fee basis. The principal source of
the Adviser's  income is  professional  fees received from providing  continuing
investment advice,  and the firm derives no income from brokerage,  insurance or
underwriting  of  securities.  Today,  it provides  investment  counsel for many
individuals  and  institutions,   including   insurance   companies,   colleges,
industrial  corporations,  and financial and banking organizations.  Directly or
through  affiliates,  the Adviser provides  investment  advice to over 50 mutual
fund portfolios.

For its advisory services to the Portfolios,  the Adviser receives  compensation
monthly at the following annual rates for each Portfolio:

                                             Percent of the average
                                             daily net asset values
     Portfolio                                 of each Portfolio
     ---------                               ----------------------
      Money market Portfolio                         .370%
      Bond Portfolio                                 .475%
      Growth and Income Portfolio                    .475%    


Under the  investment  advisory  agreements  between the Fund, on behalf of each
Portfolio,  and the Adviser, the Fund is responsible for all its other expenses,
including  clerical  salaries;  fees and expenses  incurred in  connection  with
membership in investment company  organizations;  brokers'  commissions;  legal,
auditing and accounting  expenses;  taxes and governmental  fees; the charges of
custodians,  transfer  agents and other agents;  any other  expenses,  including
clerical expenses,  of issue, sale,  underwriting,  distribution,  redemption or
repurchase  of shares;  the expenses of and fees for  registering  or qualifying
securities  for sale;  the fees and expenses of the Trustees of the Fund who are
not affiliated with the Adviser;  the cost of preparing and distributing reports
and  notices to  shareholders.  The Fund is also  responsible  for its  expenses
incurred in connection  with  litigation,  proceedings  and claims and the legal
obligation  it may have to indemnify  its  officers  and  Trustees  with respect
thereto.  The Adviser,  through Scudder Investor Services,  Inc., a wholly-owned
subsidiary of the Adviser, places portfolio transactions on behalf of the Fund's
Portfolios.  In so doing,  the Adviser  seeks to obtain the most  favorable  net
results.  Subject to the  foregoing,  the Adviser may consider sales of variable
life insurance  policies and variable annuity contracts for which the Fund is an
investment  option,  as a factor in the selection of firms to execute  portfolio
transactions.

In  addition  to  payments  for  investment  advisory  services  provided by the
Adviser, the Trustees, consistent with the Fund's investment advisory agreements
and  underwriting  agreement,  have  approved  payments to the Adviser,  Scudder
Investor  Services,  Inc. and Scudder Fund Accounting  Corporation for clerical,
accounting and certain other services they may provide the Fund.

For a  period  of five  years  from  the date of  execution  of a  Participation
Agreement with the Fund, and from year to year  thereafter as agreed by the Fund
and the Participating  Insurance  Company,  each of the Participating  Insurance
Companies  have  agreed to  contribute  to the capital of the Fund to the extent
that the annual operating expenses of any Portfolio of the Fund exceed 3/4 of 1%
of the  average  daily net  assets of that  Portfolio  for any year of the Fund.
Other  Participating  Insurance Companies will be required to enter into similar
arrangements  with the Fund.  The  obligation  of each  Participating  Insurance
Company in relation to the total capital contribution due to a Portfolio will be
the  proportion  that the  average  value of the shares of such  Portfolio  held
during the year by a separate  account or separate  accounts of such company (or
$1 million, if greater) bears to such average daily net assets. To date, Charter
National Life Insurance  Company,  Mutual of America Life Insurance  Company and
Banner Life Insurance Company have been  Participating  Insurance  Companies for
the past eight,  six and five years,  respectively,  and have made  arrangements
with the Adviser to continue their participation.

In addition to the contributions to capital by Participating Insurance Companies
noted above,  until April 30, 1996,  the Adviser has agreed to waive part or all
of its  fees  for the  Growth  and  Income  Portfolio  to the  extent  that  the
Portfolio's expenses will be maintained at 0.75%.

PORTFOLIO MANAGEMENT

Each Portfolio is managed by a team of Scudder investment professionals who each
play an important role in the Portfolio's  management process. Team members work
together  to  develop  investment  strategies  and  select  securities  for  the
Portfolios. They are supported by Scudder's large staff of economists,  research
analysts,  traders,  and  other  investment  specialists  who work in  Scudder's
offices across the United States and abroad.  Scudder believes its team approach
benefits Fund  investors by bringing  together many  disciplines  and leveraging
Scudder's extensive resources.

                                       12
<PAGE>

MONEY MARKET PORTFOLIO

Lead  Portfolio  Manager  Robert  T.  Neff  has  led  Money  Market  Portfolio's
day-to-day  management  since 1985. Mr. Neff joined Scudder in 1972 and has more
than 20 years of  experience  managing  short-term  fixed-income  assets.  Nicca
Alcantara,  Portfolio Manager, has responsibility for the Portfolio's day-to-day
investments.  Ms.  Alcantara,  who came to  Scudder  in 1984,  has  worked  as a
portfolio  manager  since 1989 and joined the team in 1990.  Prior to becoming a
portfolio  manager,  Ms. Alcantara  worked as an account  assistant in Scudder's
Reserve Asset Management Group. Stephen L. Akers, Portfolio Manager,  joined the
team in 1995 and has  managed  several  fixed-income  portfolios  since  joining
Scudder in 1984.

BOND PORTFOLIO

Lead Portfolio  Manager Ruth Heisler has had  responsibility  for overseeing the
Portfolio's  day-to-day  operations  and has guided the  Portfolio's  investment
strategy  since  1988.  Ms.  Heisler,  who has  over 40  years  of  fixed-income
investing experience, joined the team in 1986. William M. Hutchinson,  Portfolio
Manager,  helps set Scudder's  overall  fixed-income  investment  strategy.  Mr.
Hutchinson,  who has 21 years of investment experience,  came to Scudder in 1986
as a  portfolio  manager and joined the team in 1987.  Renee L. Ross,  Portfolio
Manager,  has been a member of the team since 1988. Ms. Ross, who joined Scudder
in 1981,  has nine years of  experience  as a  portfolio  manager and focuses on
fixed-income analysis and investing.

GROWTH AND INCOME PORTFOLIO

Lead Portfolio Manager Robert T. Hoffman has  responsibility  for setting Growth
and Income  Portfolio's  stock  investing  strategy and oversees the Portfolio's
day-to-day  operations.  Mr. Hoffman,  who joined Scudder in 1990 as a portfolio
manager,  has 11 years  of  experience  in the  investment  industry,  including
several  years of pension  fund  management  experience.  Kathleen  T.  Millard,
Portfolio  Manager,  has worked in the  investment  industry since 1983 and as a
portfolio  manager since 1986. Ms.  Millard,  who joined  Scudder in 1991,  also
focuses on stock investing strategy and stock selection.  Benjamin W. Thorndike,
Portfolio  Manager,   is  the  Portfolio's  chief  analyst  and  strategist  for
convertible  securities.   Mr.  Thorndike,   who  has  16  years  of  investment
experience, joined Scudder in 1983 as a portfolio manager.

 -------------------------------------------------------------------------------

                                   DISTRIBUTOR
 -------------------------------------------------------------------------------


The Fund has an underwriting agreement with Scudder Investor Services, Inc. (the
"Distributor"),  a  wholly-owned  subsidiary of Scudder,  Stevens & Clark,  Inc.
Located  at Two  International  Place,  Boston,  Massachusetts  02110-4103,  the
Distributor is a Massachusetts  corporation  formed in 1947. Under the principal
underwriting  agreement  between  the  Fund  and the  Distributor,  the  Fund is
responsible  for the  payment of all fees and  expenses in  connection  with the
preparation and filing of any registration statement and prospectus covering the
issue and sale of shares,  and the registration and  qualification of shares for
sale with the  Securities  and Exchange  Commission  and in the various  states,
including registering the Fund as a broker or dealer. The Fund will also pay the
fees and expenses of preparing,  printing and mailing  prospectuses  annually to
existing  shareholders and any notice,  proxy statement,  report,  prospectus or
other   communication  to  shareholders  of  the  Fund,   printing  and  mailing
confirmations  of purchases of shares,  any issue taxes or any initial  transfer
taxes, a portion of toll-free  telephone service for shareholders,  wiring funds
for  share  purchases  and  redemptions  (unless  paid  by the  shareholder  who
initiates the transaction), printing and postage of business reply envelopes and
a portion of the computer terminals used by both the Fund and the Distributor.

The Distributor will pay for printing and  distributing  prospectuses or reports
prepared  for its  use in  connection  with  the  offering  of the  shares,  and
preparing,   printing  and  mailing  any  other  literature  or  advertising  in
connection  with the  offering  of the  shares  to the  Participating  Insurance
Companies. The Distributor will pay all fees and expenses in connection with its
qualification  and  registration  as a broker or dealer under  Federal and state
laws, a portion of the toll-free  telephone  service and of computer  terminals,
and of any activity which is primarily  intended to result in the sale of shares
issued by the Fund,  unless a Plan pursuant to Rule 12b-1 under the 1940 Act, as
amended,  is in effect  which  provides  that the Fund shall bear some or all of
such expenses.

As agent, the Distributor  currently offers shares of each Portfolio of the Fund
continuously to the separate  accounts of Participating  Insurance  Companies in
all states in which it is registered or where  permitted by applicable  law. The
underwriting  agreement provides that the Distributor  accepts orders for shares
at net asset value, as no sales  commission or load is charged.  The Distributor
has made no firm commitment to acquire shares of the Fund.

                                       13
<PAGE>

NOTE:

Although the Fund does not currently have a 12b-1 Plan and shareholder  approval
would be required in order to adopt one,  the  underwriting  agreement  provides
that the Fund will  also pay those  fees and  expenses  permitted  to be paid or
assumed  by the  Fund  pursuant  to a  12b-1  Plan,  if  adopted  by  the  Fund,
notwithstanding  any  other  provision  to  the  contrary  in  the  underwriting
agreement,  and the Fund or a third party will pay those fees and  expenses  not
specifically allocated to the Distributor in the underwriting agreement.

 -------------------------------------------------------------------------------

                            PURCHASES AND REDEMPTIONS
 -------------------------------------------------------------------------------

The separate accounts of the Participating  Insurance  Companies place orders to
purchase and redeem shares of each Portfolio  based on, among other things,  the
amount of premium payments to be invested and surrender and transfer requests to
be  effected on that day  pursuant  to VA  contracts  and VLI  policies.  Orders
received  by the Fund or its  agent are  effected  on days on which the New York
Stock Exchange (the "Exchange") is open for trading.  For orders received before
the close of regular  trading on the Exchange  (normally 4 p.m.,  eastern time),
such  purchases and  redemptions of the shares of each Portfolio are effected at
the respective net asset values per share  determined as of the close of regular
trading on the Exchange on that same day except  that,  in the case of the Money
Market Portfolio, purchases will not be effected until the next determination of
net asset value after  federal  funds have been made  available to the Fund (see
"NET ASSET VALUE").  Payment for  redemptions  will be made by State Street Bank
and Trust Company on behalf of the Fund and the relevant Portfolios within seven
days thereafter.  No fee is charged the shareholders  when they redeem Portfolio
shares.

The Fund may suspend the right of  redemption of shares of any Portfolio and may
postpone payment for any period: (i) during which the Exchange is closed,  other
than  customary  weekend and holiday  closings  or during  which  trading on the
Exchange  is  restricted;  (ii)  when the  Securities  and  Exchange  Commission
determines  that a state of emergency  exists which may make payment or transfer
not reasonably practicable;  (iii) as the Securities and Exchange Commission may
by order permit for the protection of the security  holders of the Fund; or (iv)
at any time when the Fund may, under  applicable laws and  regulations,  suspend
payment on the redemption of its shares.

Should any conflict between VA contract and VLI policy holders arise which would
require  that a  substantial  amount of net assets be  withdrawn  from the Fund,
orderly  portfolio  management could be disrupted to the potential  detriment of
such contract and policy holders.

 -------------------------------------------------------------------------------

                                 NET ASSET VALUE
 -------------------------------------------------------------------------------

Scudder Fund Accounting  Corporation,  a wholly-owned subsidiary of the Adviser,
determines  net asset value per share as of the close of regular  trading on the
Exchange,  normally 4 p.m.,  eastern  time, on each day the Exchange is open for
trading.  Net asset value per share is calculated for purchases and  redemptions
for each Portfolio by dividing the current market value (amortized cost value in
the case of the Money Market  Portfolio) of total Portfolio  assets,  plus other
assets, less all liabilities, by the total number of shares outstanding.

 -------------------------------------------------------------------------------

                             PERFORMANCE INFORMATION
 -------------------------------------------------------------------------------

MONEY MARKET PORTFOLIO

From  time to time,  quotations  of the Money  Market  Portfolio's  "yield"  and
"effective yield" may be included in advertisements, sales literature or reports
to  shareholders or prospective  investors.  Both yield figures are based on the
historical   performance  of  the  Portfolio  and  show  the  performance  of  a
hypothetical investment and are not intended to indicate future performance. The
yield  of the  Money  Market  Portfolio  refers  to the  net  investment  income
generated by the Portfolio over a specified seven-day period (the ending date of


                                       14
<PAGE>
which will be stated).  Included in "net investment  income" is the amortization
of market  premium or  accretion  of market and original  issue  discount.  This
income is then  "annualized."  That is,  the amount of income  generated  by the
Portfolio  during that week is assumed to be  generated  during each week over a
52-week  period and is shown as a percentage.  The effective  yield is expressed
similarly  but,  when  annualized,  the income  earned by an  investment  in the
Portfolio  is assumed to be  reinvested.  The  effective  yield will be slightly
higher  than  the  yield  because  of the  compounding  effect  of this  assumed
reinvestment.  Yield and effective  yield for the Portfolio  will vary based on,
among other things,  changes in market  conditions,  the level of interest rates
and the level of the Portfolio's expenses.

BOND PORTFOLIO

From time to time,  quotations of the Bond Portfolio's  yield may be included in
advertisements,  sales  literature  or reports to  shareholders  or  prospective
investors.  Yield  figures  are  based  on  historical  performance  of the Bond
Portfolio and show the  performance  of a  hypothetical  investment  and are not
intended to indicate future performance.  The yield of the Bond Portfolio refers
to net  investment  income  generated  by the Bond  Portfolio  over a  specified
thirty-day (or one month) period. This income is then "annualized." That is, the
amount of income  generated by the Bond Portfolio during that thirty-day (or one
month) period is assumed to be generated over a 12-month  period and is shown as
a percentage of net asset value.

ALL PORTFOLIOS

From time to time,  quotations of a Portfolio's  total return may be included in
advertisements,  sales  literature  or reports to  shareholders  or  prospective
investors.  Total  return  figures are based on  historical  performance  of the
Portfolio and show the  performance  of a  hypothetical  investment  and are not
intended to indicate future performance.  The total return of a Portfolio refers
to return  assuming an  investment  has been held in the Portfolio for one year,
five years and for the life of the  Portfolio  (the ending date of which will be
stated). The total return quotations may be expressed in terms of average annual
or  cumulative  rates of return for all periods  quoted.  Average  annual  total
return refers to the average annual  compound rate of return of an investment in
a Portfolio.  Cumulative total return  represents the cumulative change in value
of an investment in a Portfolio. Both will assume that all dividends and capital
gains distributions were reinvested.

Yield and total return for a Portfolio  will vary based on, among other  things,
changes in market conditions and the level of the Portfolio's expenses.

 -------------------------------------------------------------------------------

                        VALUATION OF PORTFOLIO SECURITIES
 -------------------------------------------------------------------------------

MONEY MARKET PORTFOLIO

Pursuant to a Rule of the Securities and Exchange  Commission,  the Money Market
Portfolio will be valued at amortized  cost.  Under the amortized cost method of
valuation, securities are valued at cost plus constant accretion/amortization to
maturity of any discount/premium every day.

By using  amortized  cost  valuation,  the Fund seeks to maintain a constant net
asset value of $1.00 per share for the Money  Market  Portfolio,  despite  minor
shifts  in the  market  value  of  its  portfolio  securities.  The  yield  on a
shareholder's investment may be more or less than that which would be recognized
if the net asset value per share of the Money Market Portfolio were not constant
and  were  permitted  to  fluctuate  with  the  market  value  of the  portfolio
securities  of the Money  Market  Portfolio.  However,  as a result  of  certain
procedures  adopted  by the Fund,  the  Adviser  believes  any  difference  will
normally be minimal.

OTHER PORTFOLIOS

An  exchange-traded  equity  security  (not subject to resale  restrictions)  is
valued at its most recent  sale price as of the close of regular  trading on the
Exchange on each day the  Exchange is open for trading.  Lacking any sales,  the
security is valued at the calculated  mean between the most recent bid quotation
and the most recent asked quotation. An unlisted equity security which is traded
on the NASDAQ system is valued at the most recent sale price or, if there are no
such  sales,  the  security  is valued  at the high or  "inside"  bid  quotation
supplied through such system. Debt securities, other than short-term securities,
are valued at prices supplied by the Fund's pricing agent. Short-term securities

                                       15
<PAGE>

with remaining maturities of sixty days or less are valued by the amortized cost
method,  which the Trustees believe  approximates market value. Foreign currency
forward  contracts  are valued at the value of the  underlying  currency  at the
prevailing   currency  exchange  rate.   Securities  for  which  current  market
quotations  are not readily  available are valued at fair value as determined in
good faith by the  Trustees,  although  the actual  calculations  may be made by
persons  acting  pursuant to the direction of the Trustees.  Please refer to the
section  entitled  "NET  ASSET  VALUE" in the  Fund's  Statement  of  Additional
Information for more information concerning valuation of portfolio securities.

 -------------------------------------------------------------------------------

                     TAX STATUS, DIVIDENDS AND DISTRIBUTIONS
 -------------------------------------------------------------------------------

The Internal Revenue Code of 1986 (the "Code") provides that each portfolio of a
series fund is to be treated as a separate taxpayer. Accordingly, each Portfolio
of the Fund intends to qualify as a separate regulated  investment company under
Subchapter M of the Code.

Each  Portfolio  of  the  Fund  intends  to  comply  with  the   diversification
requirements of Code Section 817(h). By meeting this and other requirements, the
Participating  Insurance Companies,  rather than the holders of VA contracts and
VLI policies, should be subject to tax on distributions received with respect to
Portfolio  shares.  For  further  information   concerning  federal  income  tax
consequences for the holders of the VA contracts and VLI policies,  such holders
should  consult the  prospectus  used in  connection  with the issuance of their
particular contracts or policies.

As a regulated investment company,  each Portfolio generally will not be subject
to tax on its ordinary income and net realized  capital gains to the extent such
income and gains are  distributed  in conformity  with  applicable  distribution
requirements  under  the  Code to the  separate  accounts  of the  Participating
Insurance  Companies  which  hold its  shares.  Distributions  of income and the
excess of net  short-term  capital gain over net long-term  capital loss will be
treated as  ordinary  income and  distributions  of the excess of net  long-term
capital  gain over net  short-term  capital  loss will be treated  as  long-term
capital gain by the Participating  Insurance Companies.  Participating Insurance
Companies should consult their own tax advisers as to whether such distributions
are  subject  to  federal  income  tax if they are  retained  as part of  policy
reserves.

The Money Market Portfolio will declare a dividend of its net investment  income
daily and distribute such dividend monthly.  Distributions  will be made shortly
after  the  first  business  day of  each  month  following  declaration  of the
dividend.  The Bond  Portfolio and Growth and Income  Portfolio will declare and
distribute  dividends from their net investment  income, if any,  quarterly,  in
January,  April, July and October.  Each of these Portfolios will distribute its
capital  gains,  if any,  within  three months of the fiscal  year-end.  For all
Portfolios,  dividends  declared in October,  November or December with a record
date in such a month will be deemed to have been  received  by  shareholders  on
December 31 if paid during January of the following year. All distributions will
be reinvested in shares of such Portfolios  unless an election is made on behalf
of a separate account to receive distributions in cash.  Participating Insurance
Companies will be informed about the amount and character of distributions  from
the relevant Portfolio for federal income tax purposes.

 -------------------------------------------------------------------------------

                           SHAREHOLDER COMMUNICATIONS
 -------------------------------------------------------------------------------

Owners of policies and contracts issued by Participating Insurance Companies for
which shares of one or more  Portfolios are the investment  vehicle will receive
from the  Participating  Insurance  Companies  unaudited  semi-annual  financial
statements and audited  year-end  financial  statements  certified by the Fund's
independent public  accountants.  Each report will show the investments owned by
the Fund and the market  values  thereof as  determined by the Trustees and will
provide other information about the Fund and its operations.

Participating Insurance Companies with inquiries regarding the Fund may call the
Fund's underwriter,  Scudder Investor Services,  Inc. at 1-617-295-1000 or write
Scudder Investor Services, Inc., Two International Place, Boston,  Massachusetts
02110-4103.


                                       16
<PAGE>



 -------------------------------------------------------------------------------

                             ADDITIONAL INFORMATION
 -------------------------------------------------------------------------------

FUND ORGANIZATION AND SHAREHOLDER INDEMNIFICATION

The Fund was organized in the  Commonwealth of Massachusetts as a "Massachusetts
business trust" on March 15, 1985. The Fund's shares of beneficial  interest are
presently  divided into six separate  series.  Additional  series may be created
from time to time.

Under  Massachusetts  law,  shareholders  of such a  trust  may,  under  certain
circumstances,  be held personally liable as partners for the obligations of the
trust.  The  Declaration of Trust contains an express  disclaimer of shareholder
liability  in  connection  with the Fund  property or the acts,  obligations  or
affairs of the Fund. The Declaration of Trust also provides for  indemnification
out of the Fund  property  of any  shareholder  held  personally  liable for the
claims and  liabilities  to which a shareholder  may become subject by reason of
being or having been a shareholder.  Thus,  the risk of a shareholder  incurring
financial loss on account of shareholder  liability is limited to  circumstances
in which the Fund itself would be unable to meet its  obligations.  The Trustees
believe  that,  in  view  of the  above,  the  risk  of  personal  liability  of
shareholders is remote.

OTHER INFORMATION

The activities of the Fund are supervised by the Trustees.

Although the Fund does not intend to hold annual  meetings,  shareholders of the
Fund have certain rights,  as set forth in the Declaration of Trust of the Fund,
including the right to call a meeting of shareholders  for the purpose of voting
on the  removal  of one or more  Trustees.  Shareholders  have one vote for each
share held. Fractional shares have fractional votes.

As of December 31, 1994,  Aetna Life Insurance and Annuity  Company owned 9.58%,
American  Skandia Life Assurance  Corporation  owned 4.53%,  AUSA Life Insurance
Company owned 0.08%, Banner Life Insurance Company owned 0.53%, Charter National
Life Insurance  Company owned 45.29%,  Fortis  Benefits Life  Insurance  Company
owned 0.05%,  Intramerica  Life Insurance  Company owned 3.59%,  Lincoln Benefit
Life Insurance  Company owned 0.04%,  Mutual of America Life  Insurance  Company
owned 19.96%,  Paragon Life Insurance Company owned 0.03%,  Providentmutual Life
and Annuity  Company of America  owned 0.18%,  Safeco Life  Insurance  Companies
owned 0.55%, The Union Central Life Insurance Company owned 15.52% and United of
Omaha owned 0.07% of the Fund's outstanding shares.

Each Portfolio of the Fund has a December 31 fiscal year end.

Portfolio  securities of the Fund are held  separately,  pursuant to a custodian
agreement,  by State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, as custodian.

Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts 02107-2291, is
the transfer and dividend paying agent for the Fund.

The firm of Dechert Price & Rhoads,  Boston,  Massachusetts,  is counsel for the
Fund.

The Fund's Statement of Additional  Information and this prospectus omit certain
information  contained in the  Registration  Statement  which the Fund has filed
with the  Securities and Exchange  Commission  under the Securities Act of 1933,
and reference is hereby made to the  Registration  Statement and its amendments,
for further  information  with  respect to the Fund and the  securities  offered
hereby.  The  Registration  Statement  and its  amendments,  are  available  for
inspection  by  the  public  at  the  Securities  and  Exchange   Commission  in
Washington, D.C.



                                       17
<PAGE>



 -------------------------------------------------------------------------------

                              TRUSTEES AND OFFICERS
 -------------------------------------------------------------------------------


David B. Watts*
President and Trustee

Dr. Kenneth Black, Jr.
Trustee; Regents' Professor Emeritus
of Insurance, Georgia State University

Peter B. Freeman
Trustee; Corporate Director and Trustee

Dr. J. D. Hammond
Trustee; Dean, Smeal College of Business Administration,  
Pennsylvania State University

Daniel Pierce*
Vice President and Trustee

Pamela A. McGrath*
Vice President and Treasurer

Thomas S. Crain*
Vice President

Jerard K. Hartman*
Vice President

Richard A. Holt*
Vice President

Thomas W. Joseph*
Vice President

David S. Lee*
Vice President

Steven M. Meltzer*
Vice President

Edward J. O'Connell*
Vice President and Assistant Treasurer

Randall K. Zeller*
Vice President

Thomas F. McDonough*
Secretary

Kathryn L. Quirk*
Vice President and Assistant Secretary

Coleen Downs Dinneen*
Assistant Secretary

*Scudder, Stevens & Clark, Inc.


                                       18
<PAGE>




                                     PART B

          INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION


<PAGE>

                       STATEMENT OF ADDITIONAL INFORMATION

           SEPARATE ACCOUNT I OF WASHINGTON NATIONAL INSURANCE COMPANY

                                       and

                      SCUDDER VARIABLE LIFE INVESTMENT FUND



     This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Proxy Statement/Prospectus dated ______________
___, 1995, pertaining to a proposed set of transactions (the "Transactions")
reorganizing Separate Account I of Washington National Insurance Company (the
"Separate Account"). A copy of that Proxy Statement/Prospectus may be obtained
by calling (800) 933-5432 or by writing Washington National Insurance Company,
Life and Annuity Administration, 300 Tower Parkway, Lincolnshire, Illinois
60069-3665.

     Pursuant to the Transactions, the Separate Account, which is currently a
management investment company, will be reconstituted as a unit investment trust
(the "Continuing Separate Account") and remain subdivided into three
Sub-Accounts. Each of the Sub-Accounts of the Continuing Separate Account will
invest in a corresponding portfolio of Scudder Variable Life Investment Fund
("the Fund"), a mutual fund whose shares are sold only to insurance company
separate accounts as the funding vehicle for variable annuity contracts and
variable life insurance policies. The Bond Portfolio, the Money Market
Portfolio, and the Growth and Income Portfolio of the Fund will represent the
continuation of the investment portfolios of the Bond Sub-Account, the
Short-Term Portfolio Sub-Account, and the Stock Sub-Account, respectively, of
the Separate Account immediately prior to the Transactions.

                            _______________ ___, 1995


                                      B - 1

<PAGE>
<TABLE>
<CAPTION>



                                        Statement Of Additional Information

                                                 TABLE OF CONTENTS

<C>                                                                     <C>                  <C>
                                                                                              Page in the
                                                                        Page in the           Proxy Statement/
                                                                        Statement of          Prospectus
                                                                        Additional            Containing
Caption in the Statement of Additional Information                      Information           Related Disclosure
--------------------------------------------------                      -----------           ------------------

PRO FORMA COMBINING FINANCIAL STATEMENTS (UNAUDITED) (for the Growth
and Income Portfolio of Scudder Variable Life Investment Fund)            B - 5                   9 - 11

         Pro Forma Combining Statement of Assets and
         Liabilities--As of June 30, 1995                                 B - 5

         Pro Forma Combining Investment Portfolios--As of June 30,
         1995                                                             B - 6

         Pro Forma Combining Statement of Operations--
         For the Year Ended December 31, 1994                             B -17

         Pro Forma Combining Statement of Operations--
         For the Six Months Ended June 30, 1995                           B -18

         Notes to Pro Forma Combining Financial Statements                B -19
</TABLE>

APPENDIX A --       STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1995, FOR
                    SEPARATE ACCOUNT I OF WASHINGTON NATIONAL INSURANCE COMPANY
                    (containing audited financial statements for the year
                    ended December 31, 1994)

APPENDIX B --       SEMI-ANNUAL  REPORT DATED JUNE 30, 1995,  FOR SEPARATE
                    ACCOUNT  I  OF   WASHINGTON   NATIONAL   INSURANCE   COMPANY
                    (containing unaudited financial  statements for the six 
                    months ended June 30, 1995)

APPENDIX C --       STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1995, FOR
                    SCUDDER VARIABLE LIFE INVESTMENT FUND

APPENDIX D --       ANNUAL  REPORT DATED  DECEMBER  31,  1994,  FOR SCUDDER
                    VARIABLE  LIFE   INVESTMENT   FUND   (containing   audited
                    financial statements for the year ended December 31, 1994)

APPENDIX E --       SEMI-ANNUAL  REPORT DATED JUNE 30,  1995,  FOR SCUDDER
                    VARIABLE  LIFE   INVESTMENT   FUND   (containing   unaudited
                    financial statements for the six months ended June 30, 1995)

                                      B - 2

<PAGE>



                         PRO FORMA FINANCIAL STATEMENTS

     Separate Account I of Washington National Insurance Company (the "Separate
Account") is a diversified open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), that is
comprised of three investment divisions ("Sub-Accounts"), which invest directly
in securities and other instruments according to each Sub-Account's respective
investment objectives. Scudder Variable Life Investment Fund (the "Fund") is a
diversified open-end management investment company registered under the 1940 Act
that is comprised of six investment divisions ("Portfolios"), which invest
directly in securities and other instruments according to each Portfolio's
respective investment objectives. The Transactions involve the transfer of the
net assets of each Sub-Account of the Separate Account to a corresponding
Portfolio of the Fund in exchange for shares of beneficial interest in that
Portfolio. The basic effect is that the Separate Account as restructured
pursuant to the Transactions (the "Continuing Separate Account") will no longer
hold investments directly but rather will hold similar investments indirectly
through the vehicle of the Fund (i.e., three Portfolios thereof). And those
investments will be managed by a different investment adviser (Scudder, Stevens
& Clark, Inc.) instead of Washington National Insurance Company.

     The pro forma financial statements of the Fund which follow are intended to
provide persons entitled to vote in respect of the Separate Account with
information about the effect of the Transactions by showing how the Transactions
might have affected the historical financial statements of the Fund if the
Transactions had been consummated at an earlier time. A pro forma condensed
statement of assets and liabilities and pro forma schedule of investments are
presented for the Growth and Income Portfolio of the Fund as of June 30, 1995. A
pro forma condensed statement of operations is presented for the Growth and
Income Portfolio of the Fund for the year ended December 31, 1994, and for the
six months ended June 30, 1995. Pro forma financial statements of the Bond
Portfolio and the Money Market Portfolio of the Fund have not been prepared
because the net asset value of the Bond Sub-Account and the Short-Term Portfolio

                                      B - 3

<PAGE>
Sub-Account of the Separate Account did not exceed ten percent of the net asset
value of the Bond Portfolio and the Money Market Portfolio, respectively, as of
August 31, 1995.
                                      B - 4

<PAGE>

           SEPARATE ACCOUNT I OF WASHINGTON NATIONAL INSURANCE COMPANY
                     STOCK SUB-ACCOUNT PROPOSED MERGER WITH
        SCUDDER VARIABLE LIFE INVESTMENT FUND GROWTH AND INCOME PORTFOLIO

<TABLE>
<CAPTION>
                                                                               Separate                            Pro Forma
Pro Forma Combining                                          Growth and        Account          Pro Forma           Growth
Statement of Assets and Liabilities                            Income           Stock          Adjustments        and Income
June 30, 1995 (Unaudited)                                    Portfolio       Sub-Account         (Note 2)          Combined
                                                          -----------------------------------------------------------------------
<S>                                                           <C>              <C>                                  <C>
Assets

Investments, at cost...................................       $ 34,176,983     $ 18,382,903   $              -      $ 52,559,886
                                                          -----------------------------------------------------------------------

Investments, at value..................................       $ 37,535,040     $ 29,913,490   $              -      $ 67,448,530
Cash...................................................                711            7,055                  -             7,766
Receivables:
  Investments sold.....................................              8,376                -                  -             8,376
  Dividends and interest...............................            140,455           53,704                  -           194,159    
  Other receivables....................................                  -           43,151                  -            43,151
                                                          -----------------------------------------------------------------------
    Total Assets.......................................         37,684,582       30,017,400                           67,701,982
                                                                                                             -
Liabilities

Payables:

  Investments purchased................................            102,404                -                  -           102,404
  Portfolio shares redeemed............................             86,035                -                  -            86,035
  Accrued expenses.....................................             70,093                -                  -            70,093
  Payable to Washington National Insurance Company.....                  -          288,933                  -           288,933
                                                          -----------------------------------------------------------------------
    Total liabilities..................................            258,532          288,933                  -           547,465
                                                          -----------------------------------------------------------------------
Net assets at market value.............................       $ 37,426,050     $ 29,728,467   $              -      $ 67,154,517
                                                          =======================================================================
Outstanding shares of beneficial interest, no
par value & $01 par value, unlimited number of
shares outstanding & 1,000,000,000 shares
authorized, respectively (Note 2)......................          5,281,521        9,713,617          4,193,014         9,474,535
                                                          -----------------------------------------------------------------------
Net asset value and redemption price per share.........              $7.09            $3.06                  -             $7.09
                                                          =======================================================================


See Notes to Pro Forma Combining Financial Statements

                                                                B - 5


</TABLE>

<PAGE>
           SEPARATE ACCOUNT I OF WASHINGTON NATIONAL INSURANCE COMPANY
                     STOCK SUB-ACCOUNT PROPOSED MERGER WITH
        SCUDDER VARIABLE LIFE INVESTMENT FUND GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>

Pro Forma Combining
Investment Portfolios
June 30, 1995 (Unaudited)               Shares/Par                                               Market Value ($)
                                          Growth   Separate                                                   Separate
                                    %      and     Account                                        Growth and   Account   Combining
Investment % After                After   Income    Stock    Combining  Security                    Income      Stock     Market
Type       Merger    Category    Merger Portfolio  Sub-Act.   Shares     Description             Portfolio $  Sub-Act.$   Value $
----       ------    --------    ------ --------  --------   ------     -----------             -----------  ---------   -------
<S>           <C>    <C>          <C>    <C>        <C>        <C>      <C>                      <C>            <C>        <C>    
Repurchase
Agreement     1.0%     Misc.        1.0%                                State Street Bank and Trust
                                                                        Company dated 6/30/95
                                                                        at 6%, to be repurchased at
                                                                        at $664,332 on 7/3/95,
                                                                        collateralized by a $760,000
                                                                        U.S. Treasury Bond,
                                          664,000              664,000  9.25%, 2/15/16               664,000               664,000
                                           ---------------------------                             -------------------------------
Total                                     664,000              664,000                               664,000               664,000
Repurchase
Agreement

Flt Rate
Demand                                                                  Associates Corp. of
Note          1.9%   Financial      1.9%            623,000    623,000     North America, 5.92%                 623,000    623,000
                                                                        General Electric
                                                    650,000    650,000     Credit Corp., 5.94%                  650,000    650,000
                                                                        Household Finance
                                                     33,000     33,000     Corp., 6.09%                          33,000     33,000
                                           ---------------------------                             -------------------------------
Total Flt Rate Demand Note                        1,306,000  1,306,000                                        1,306,000  1,306,000

Convertible                                                             First Financial Management
Bonds         0.1%   Financial      0.1%   40,000               40,000     Corp., 5%,12/15/99         54,000                54,000
                                           ---------------------------                             -------------------------------
Total                                      40,000               40,000                                54,000                54,000
Convertible Bonds


</TABLE>

                                      B - 6

<PAGE>
           SEPARATE ACCOUNT I OF WASHINGTON NATIONAL INSURANCE COMPANY
                     STOCK SUB-ACCOUNT PROPOSED MERGER WITH
        SCUDDER VARIABLE LIFE INVESTMENT FUND GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>

Pro Forma Combining
Investment Portfolios
June 30, 1995 (Unaudited)               Shares/Par                                               Market Value ($)
                                          Growth   Separate                                                   Separate
                                    %      and     Account                                        Growth and   Account   Combining
Investment % After                After   Income    Stock    Combining  Security                    Income      Stock     Market
Type       Merger    Category    Merger Portfolio  Sub-Act.   Shares     Description             Portfolio $  Sub-Act.$   Value $
----       ------    --------    ------ --------  --------   ------     -----------             -----------  ---------   -------
<S>           <C>    <C>          <C>    <C>        <C>        <C>      <C>                      <C>            <C>        <C>    
                                                                        FHP International Corp.,
Convtbl Pre   1.7%    Health        0.7%   18,200               18,200     Series A, 5%              432,250               432,250
                                           ---------------------------                             -------------------------------

                                                                        Boise Cascade Corp.
                   Manufacturing    0.2%      700                  700     "G", Cum $1.58             23,362                23,362
                                            1,800                1,800  Corning Inc., 6%              92,025                92,025
                                           ---------------------------                             -------------------------------
                                            2,500                2,500                               115,387               115,387

                      Service                                           General Motors Corp.,
                    Industries      0.9%    9,800                9,800     Series C, Cum $3.25       617,400               617,400
                                           ---------------------------                             -------------------------------
Total Conv. Pref. Stock                    30,500               30,500                             1,165,037             1,165,037


Common
Stocks       95.3%Communications    3.8%   19,700               19,700  Alltel Corp.                 499,887               499,887
                                                     10,500     10,500  Bell Atlantic corporation               588,000    588,000
                                           12,600               12,600  GTE Corp.                    429,975               429,975
                                                                        Hong Kong
                                                                           Telecommunications
                                           16,100               16,100     Ltd. (ADR)                319,987               319,987
                                                     10,800     10,800  Pacific Telesis Group                   288,900    288,900
                                           10,700               10,700  Sprint Corp.                 359,788               359,788
                                           ---------------------------                             -------------------------------
                                           59,100    21,300     80,400                             1,609,637    876,900  2,486,537

                     Consumer
                   Discretionary    5.0%    7,800                7,800  Darden Restaurants Inc.       84,825                84,825

</TABLE>


                                      B - 7
<PAGE>
           SEPARATE ACCOUNT I OF WASHINGTON NATIONAL INSURANCE COMPANY
                     STOCK SUB-ACCOUNT PROPOSED MERGER WITH
        SCUDDER VARIABLE LIFE INVESTMENT FUND GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>

Pro Forma Combining
Investment Portfolios
June 30, 1995 (Unaudited)               Shares/Par                                               Market Value ($)
                                          Growth   Separate                                                   Separate
                                    %      and     Account                                        Growth and   Account   Combining
Investment % After                After   Income    Stock    Combining  Security                    Income      Stock     Market
Type       Merger    Category    Merger Portfolio  Sub-Act.   Shares     Description             Portfolio $  Sub-Act.$   Value $
----       ------    --------    ------ --------  --------   ------     -----------             -----------  ---------   -------
<S>           <C>    <C>          <C>    <C>        <C>        <C>      <C>                      <C>            <C>        <C>    

                                            9,000                9,000  J.C. Penney Inc.             432,000               432,000
                                                     31,400     31,400  McDonald's Corporation                1,228,525  1,228,525
                                            2,400                2,400  Melville Corp.                82,200                82,200
                                                     16,000     16,000  Newell Company                          390,000    390,000
                                           11,000               11,000  Rite Aid Corp.               281,875               281,875
                                                     15,000     15,000  Rubbermaid, Inc.                        416,250    416,250
                                            7,500                7,500  Sears, Roebuck & Co.         449,063               449,063
                                           ---------------------------                             -------------------------------
                                           37,700    62,400    100,100                             1,329,963  2,034,775  3,364,738

                     Consumer       9.2%                                Anheuser Busch
                      Staples               7,700    13,200     20,900  Companies, Inc.              437,937    750,750  1,188,687
                                            7,500                7,500  Avon Products                502,500               502,500
                                            5,500                5,500  Clorox Co.                   358,875               358,875
                                                     12,600     12,600  CPC International                       778,050    778,050
                                            8,300                8,300  General Mills, Inc.          426,412               426,412
                                           12,700               12,700  H.J. Heinz Co.               563,562               563,562
                                            6,800                6,800  Philip Morris Companies      505,750               505,750
                                            9,400                9,400  Quaker Oats Co.              309,025               309,025
                                                                        RJR Nabisco
                                           15,980               15,980  Holdings Corp.               445,443               445,443
                                                     22,000     22,000  Sysco Corporation                       649,000    649,000
                                           10,700               10,700  Tambrands Inc.               457,425               457,425
                                           ---------------------------                             -------------------------------
                                           84,580    47,800    132,380                             4,006,929  2,177,800  6,184,729

                     Durables       5.5%    9,100                9,100  AAR Corp.                    162,662               162,662
                                            8,200                8,200  Dana Corp.                   234,725               234,725
</TABLE>


                                      B - 8
<PAGE>
           SEPARATE ACCOUNT I OF WASHINGTON NATIONAL INSURANCE COMPANY
                     STOCK SUB-ACCOUNT PROPOSED MERGER WITH
        SCUDDER VARIABLE LIFE INVESTMENT FUND GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>

Pro Forma Combining
Investment Portfolios
June 30, 1995 (Unaudited)               Shares/Par                                               Market Value ($)
                                          Growth   Separate                                                   Separate
                                    %      and     Account                                        Growth and   Account   Combining
Investment % After                After   Income    Stock    Combining  Security                    Income      Stock     Market
Type       Merger    Category    Merger Portfolio  Sub-Act.   Shares     Description             Portfolio $  Sub-Act.$   Value $
----       ------    --------    ------ --------  --------   ------     -----------             -----------  ---------   -------
<S>           <C>    <C>          <C>    <C>        <C>        <C>      <C>                      <C>            <C>        <C>    
                                                     15,000     15,000  General Motors Corp.                    652,500    652,500
                                           10,142               10,142  Lockheed Martin Corp.        640,214               640,214
                                                                        Rockwell International
                                           11,700               11,700  Corp.                        535,275               535,275
                                           14,400               14,400  Thiokol Corp.                435,600               435,600
                                           13,100               13,100  United Technologies Corp   1,023,438             1,023,438
                                           ---------------------------                             -------------------------------
                                           66,642    15,000     81,642                             3,031,914    652,500  3,684,414

                      Energy       10.8%             11,000     11,000  Amoco Corp.                             732,875    732,875
                                                     18,600     18,600  Chevron Corporation                     862,575    862,575
                                            1,800                1,800  El Paso Natural Gas Co.       51,300                51,300
                                            6,200    11,600     17,800  Exxon Corp.                  437,875    819,250  1,257,125
                                           11,100               11,100  Halliburton Co.              396,825               396,825
                                           18,700               18,700  McDermott International      451,137               451,137
                                                      7,600      7,600  Mobil Corporation                       729,600    729,600
                                           10,800               10,800  Murphy Oil Corp.             442,800               442,800
                                            7,200                7,200  Pennzoil Co.                 339,300               339,300
                                            7,800                7,800  Repsol SA (ADR)              246,675               246,675
                                                                        Royal Dutch Petroleum
                                            3,400                3,400  Co. (New York Shares)        414,375               414,375
                                                                        Societe Nationale
                                            9,248                9,248  Elf Aquitaine (ADR)          344,488               344,488
                                            5,000                5,000  Texaco Inc.                  328,125               328,125
                                            8,100                8,100  Total SA (ADR)               245,025               245,025
                                           22,800               22,800  YPF SA "D" (ADR)             430,350               430,350
                                           ---------------------------                             -------------------------------
                                          112,148    48,800    160,948                             4,128,275  3,144,300  7,272,575
</TABLE>


                                      B - 9
<PAGE>
           SEPARATE ACCOUNT I OF WASHINGTON NATIONAL INSURANCE COMPANY
                     STOCK SUB-ACCOUNT PROPOSED MERGER WITH
        SCUDDER VARIABLE LIFE INVESTMENT FUND GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>

Pro Forma Combining
Investment Portfolios
June 30, 1995 (Unaudited)               Shares/Par                                               Market Value ($)
                                          Growth   Separate                                                   Separate
                                    %      and     Account                                        Growth and   Account   Combining
Investment % After                After   Income    Stock    Combining  Security                    Income      Stock     Market
Type       Merger    Category    Merger Portfolio  Sub-Act.   Shares     Description             Portfolio $  Sub-Act.$   Value $
----       ------    --------    ------ --------  --------   ------     -----------             -----------  ---------   -------
<S>           <C>    <C>          <C>    <C>        <C>        <C>      <C>                      <C>            <C>        <C>    
                                                                        Aetna Life and
                     Financial     17.3%              6,200      6,200  Casualty Company                        389,825    389,825
                                                     14,456     14,456  Banc One Corporation                    466,206    466,206
                                                                        Bankers Trust
                                            6,000                6,000  New York Corp.               372,000               372,000
                                            8,300                8,300  Chemical Banking Corp.       392,175               392,175
                                           13,400               13,400  CoreStates Financial         467,325               467,325
                                            7,000                7,000  EXEL, Ltd.                   364,000               364,000
                                                                        Federal National
                                            5,000     8,500     13,500     Mortgage Association      471,875    803,250  1,275,125
                                           17,200               17,200  First Bank System Inc.       705,200               705,200
                                                     15,000     15,000  Fleet Financial Group                   556,875    556,875
                                                                        General Reinsurance
                                                      4,400      4,400     Corp. (REIT)                         589,050    589,050
                                                                        Great Western
                                            7,800                7,800  Financial Corp.              160,875               160,875
                                                                        Hartford Steam Boiler
                                            2,800                2,800  Inspection & Insurance       124,250               124,250
                                                                        Health Care Property
                                           14,700               14,700    Investment Inc. (REIT)     470,400               470,400
                                                     26,533     26,533  Huntington Bancshare                    550,560    550,560
                                            6,800                6,800  J.P. Morgan & Co., Inc.      476,850               476,850
                                           13,800    10,000     23,800  Lincoln National Corp.       603,750    437,500  1,041,250
                                                                        McArthur/Glen
                                           13,100               13,100     Realty Corp. (REIT)       191,587               191,587
</TABLE>


                                     B - 10
<PAGE>

           SEPARATE ACCOUNT I OF WASHINGTON NATIONAL INSURANCE COMPANY
                     STOCK SUB-ACCOUNT PROPOSED MERGER WITH
        SCUDDER VARIABLE LIFE INVESTMENT FUND GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>

Pro Forma Combining
Investment Portfolios
June 30, 1995 (Unaudited)               Shares/Par                                               Market Value ($)
                                          Growth   Separate                                                   Separate
                                    %      and     Account                                        Growth and   Account   Combining
Investment % After                After   Income    Stock    Combining  Security                    Income      Stock     Market
Type       Merger    Category    Merger Portfolio  Sub-Act.   Shares     Description             Portfolio $  Sub-Act.$   Value $
----       ------    --------    ------ --------  --------   ------     -----------             -----------  ---------   -------
<S>           <C>    <C>          <C>    <C>        <C>        <C>      <C>                      <C>            <C>        <C>    
                                           15,900               15,900  Meditrust SBI (REIT)         542,587               542,587
                                                     20,200     20,200  Merrill Lynch                         1,060,500  1,060,500
                                                                        Nationwide Health
                                           14,700               14,700  Properties Inc. (REIT)       573,300               573,300
                                                                        Student Loan
                                           18,600               18,600     Marketing Association     871,875               871,875
                                           ---------------------------                             -------------------------------
                                          165,100   105,289    270,389                             6,788,049  4,853,766 11,641,815

                                                                        American Home
                      Health       11.1%    7,400                7,400     Products Corp.            572,575               572,575
                                           24,500               24,500  Baxter International Inc     891,187               891,187
                                            6,200     7,100     13,300  Bristol-Myers Squibb Co.     422,375    483,688    906,063
                                           16,000               16,000  Carter-Wallace Inc.          182,000               182,000
                                           12,200               12,200  Eli Lilly Co.                957,700               957,700
                                            2,500                2,500  McKesson Corp.               116,875               116,875
                                                     20,400     20,400  Merck & Co.                           1,002,150  1,002,150
                                           13,500               13,500  Schering-Plough Corp.        595,688               595,688
                                                                        SmithKline Beecham
                                           10,900               10,900     PLC (ADR)                 493,225               493,225
                                            2,900                2,900  U.S. HealthCare, Inc.         88,813                88,813
                                            7,800     9,000     16,800  Warner-Lambert Co.           673,725    777,375  1,451,100
                                            8,700                8,700  Zeneca Group PLC             146,868               146,868
                                            1,300                1,300  Zeneca Group PLC (ADR)        66,625                66,625
                                           ---------------------------                             -------------------------------
                                          113,900    36,500    150,400                             5,207,656  2,263,213  7,470,869

                   Manufacturing   18.8%             17,700     17,700  Avnet, Inc.                             854,025    854,025
</TABLE>
                                     B - 11
<PAGE>

           SEPARATE ACCOUNT I OF WASHINGTON NATIONAL INSURANCE COMPANY
                     STOCK SUB-ACCOUNT PROPOSED MERGER WITH
        SCUDDER VARIABLE LIFE INVESTMENT FUND GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>

Pro Forma Combining
Investment Portfolios
June 30, 1995 (Unaudited)               Shares/Par                                               Market Value ($)
                                          Growth   Separate                                                   Separate
                                    %      and     Account                                        Growth and   Account   Combining
Investment % After                After   Income    Stock    Combining  Security                    Income      Stock     Market
Type       Merger    Category    Merger Portfolio  Sub-Act.   Shares     Description             Portfolio $  Sub-Act.$   Value $
----       ------    --------    ------ --------  --------   ------     -----------             -----------  ---------   -------
<S>           <C>    <C>          <C>    <C>        <C>        <C>      <C>                      <C>            <C>        <C>    
                                           10,200               10,200  Betz Laboratories Inc.       461,550               461,550
                                            4,600                4,600  Dow Chemical Co.             330,625               330,625
                                           22,000               22,000  Dresser Industries Inc.      489,500               489,500
                                                                        E.I. du Pont de
                                            9,700                9,700     Nemours & Co.             666,875               666,875
                                                     10,100     10,100  Emerson Electric                        722,150    722,150
                                                     15,600     15,600  General Electric                        879,450    879,450
                                                     18,000     18,000  Hewlett-Packard Company               1,341,000  1,341,000
                                           10,300               10,300  Kimberly-Clark Corp.         616,713               616,713
                                           16,100               16,100  Lyondell Petrochemical       412,562               412,562
                                                                        Minnesota Mining and
                                                     11,000     11,000     Manufacturing Co.                    631,125    631,125
                                            1,300                1,300  Olin Corp.                    66,950                66,950
                                                     23,700     23,700  Parker-Hannifin Group                   859,125    859,125
                                                     13,600     13,600  Pitney Bowes, Inc.                      520,200    520,200
                                                     21,600     21,600  Sherwin Williams                        769,500    769,500
                                            5,700                5,700  Thomas & Betts Corp.         389,738               389,738
                                            6,100                6,100  Timken Co.                   281,363               281,363
                                           10,300               10,300  TRW Inc.                     822,713               822,713
                                           15,700               15,700  Witco Corp.                  506,325               506,325
                                                     12,000     12,000  WMX Technologies                        340,500    340,500
                                            6,300                6,300  Xerox Corp.                  738,675               738,675
                                           ---------------------------                             -------------------------------
                                          118,300   143,300    261,600                             5,783,589  6,917,075 12,700,664

                       Media        2.1%             16,000     16,000  Interpublic Group Co.                   600,000    600,000
                                                                        Reader's Digest
</TABLE>


                                     B - 12
<PAGE>

           SEPARATE ACCOUNT I OF WASHINGTON NATIONAL INSURANCE COMPANY
                     STOCK SUB-ACCOUNT PROPOSED MERGER WITH
        SCUDDER VARIABLE LIFE INVESTMENT FUND GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>

Pro Forma Combining
Investment Portfolios
June 30, 1995 (Unaudited)               Shares/Par                                               Market Value ($)
                                          Growth   Separate                                                   Separate
                                    %      and     Account                                        Growth and   Account   Combining
Investment % After                After   Income    Stock    Combining  Security                    Income      Stock     Market
Type       Merger    Category    Merger Portfolio  Sub-Act.   Shares     Description             Portfolio $  Sub-Act.$   Value $
----       ------    --------    ------ --------  --------   ------     -----------             -----------  ---------   -------
<S>           <C>    <C>          <C>    <C>        <C>        <C>      <C>                      <C>            <C>        <C>    
                                            2,600                2,600     Association Inc. "A"      114,725               114,725
                                                     12,800     12,800  Walt Disney Company                     710,400    710,400
                                           ---------------------------                             -------------------------------
                                            2,600    28,800     31,400                               114,725  1,310,400  1,425,125

                     Metals &                                           Freeport McMoRan
                     Minerals       0.9%   19,200               19,200   Copper & Gold, Inc. "A"     396,000               396,000
                                           13,500               13,500  Oregon Steel Mills Inc.      231,188               231,188
                                           ---------------------------                             -------------------------------
                                           32,700               32,700                               627,188               627,188
                      Service
                    Industries      1.7%   14,500               14,500  Deluxe Corp.                 480,312               480,312
                                           14,400               14,400  H & R Block Inc.             592,200               592,200
                                                                        Jardine Strategic
                                           54,000               54,000     Holdings Ltd.              58,590                58,590
                                           ---------------------------                             -------------------------------
                                           82,900               82,900                             1,131,102             1,131,102

                    Technology      3.6%             22,000     22,000  Intel Corporation                     1,392,886  1,392,886
                                                     15,600     15,600  Motorola Incorporated                 1,047,150  1,047,150
                                           ---------------------------                             -------------------------------
                                                     37,600     37,600                                        2,440,036  2,440,036


                     Utilities      5.7%             19,600     19,600  Central & Southwest                     514,500    514,500
                                           10,800               10,800  CINergy Corp.                283,500               283,500
                                            6,000                6,000  CMS Energy Corp.             147,750               147,750
                                                     12,400     12,400  Duke Power                              514,600    514,600
                                                                        Empresa Nacional de
                                            3,500                3,500  Electricidad SA (ADR)        172,375               172,375
</TABLE>


                                     B - 13
<PAGE>

           SEPARATE ACCOUNT I OF WASHINGTON NATIONAL INSURANCE COMPANY
                     STOCK SUB-ACCOUNT PROPOSED MERGER WITH
        SCUDDER VARIABLE LIFE INVESTMENT FUND GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>

Pro Forma Combining
Investment Portfolios
June 30, 1995 (Unaudited)               Shares/Par                                               Market Value ($)
                                          Growth   Separate                                                   Separate
                                    %      and     Account                                        Growth and   Account   Combining
Investment % After                After   Income    Stock    Combining  Security                    Income      Stock     Market
Type       Merger    Category    Merger Portfolio  Sub-Act.   Shares     Description             Portfolio $  Sub-Act.$   Value $
----       ------    --------    ------ --------  --------   ------     -----------             -----------  ---------   -------
<S>           <C>    <C>          <C>    <C>        <C>        <C>      <C>                      <C>            <C>        <C>    
                                           12,300               12,300  National Power PLC (ADR)     152,213               152,213
                                                     17,400     17,400  Northeast Utilities                     391,500    391,500
                                            9,700                9,700  Pacific Gas & Electric       281,300               281,300
                                            1,800                1,800  PacifiCorp                    33,750                33,750
                                                                        Pennsylvania Power
                                                     17,800     17,800     and Light Company                    344,875    344,875
                                           11,100               11,100  PowerGen PLC (ADR)           135,975               135,975
                                                     10,000     10,000  SCE Corp                                171,250    171,250
                                           14,600               14,600  Southern Company             326,675               326,675
                                           13,500               13,500  Unicom Corp.                 359,438               359,438
                                           ---------------------------                             -------------------------------
Total                                      83,300    77,200    160,500                             1,892,976  1,936,725  3,829,701
Common
Stocks                                    958,970   623,989  1,582,959                            35,652,003 28,607,490 64,259,493
                                           ---------------------------                             -------------------------------
Total Invest.
Portfolio   100.0%                      1,693,470 1,929,989  3,623,459                            37,535,040 29,913,490 67,448,530
                                        ==============================                            ================================
</TABLE>

                                     B - 14
<PAGE>
          SEPARATE ACCOUNT I OF WASHINGTON NATIONAL INSURANCE COMPANY
                     STOCK SUB-ACCOUNT PROPOSED MERGER WITH
       SCUDDER VARIABLE LIFE INVESTMENT FUND GROWTH AND INCOME PORTFOLIO

<TABLE>
<CAPTION>

Pro Forma Combining
Investment Portfolios
June 30, 1995 (Unaudited)               Shares/Par                                               Market Value ($)
                                          Growth   Separate                                                   Separate
                                    %      and     Account                                        Growth and   Account   Combining
Investment % After                After   Income    Stock    Combining  Security                    Income      Stock     Market
Type       Merger    Category    Merger Portfolio  Sub-Act.   Shares     Description             Portfolio $  Sub-Act.$   Value $
----       ------    --------    ------ --------  --------   ------     -----------             -----------  ---------   -------
<S>           <C>    <C>          <C>    <C>        <C>        <C>      <C>                      <C>            <C>        <C>    




                                                                                                              Separate
                                                                        Identified Cost           Growth and   Account
                                                                        of Investments Held         Income      Stock    Combining
                                                                                                 Portfolio ($) Sub-Act.($) Cost ($)
                                                                                                -----------------------------------
                                                                        Repurchase Agreements        664,000               664,000
                                                                        Commercial Paper                   0                     0
                                                                        Floating Rate
                                                                           Demand Notes                       1,306,000  1,306,000
                                                                        Convertible Bonds             40,000                40,000
                                                                        Convertible Preferred Sto  1,142,518             1,142,518
                                                                        Common Stock              32,330,465 17,076,903 49,407,368
                                                                                                -----------------------------------
                                                                        Total Investments Held    34,176,983 18,382,903 52,559,886
                                                                                                ===================================
                                                                        Cost for Federal Income
                                                                        Tax Purposes              34,176,983 18,382,903 52,559,886
                                                                                                ===================================


</TABLE>

                                     B - 15
<PAGE>
          SEPARATE ACCOUNT I OF WASHINGTON NATIONAL INSURANCE COMPANY
                     STOCK SUB-ACCOUNT PROPOSED MERGER WITH
       SCUDDER VARIABLE LIFE INVESTMENT FUND GROWTH AND INCOME PORTFOLIO

<TABLE>
<CAPTION>

Pro Forma Combining
Investment Portfolios
June 30, 1995 (Unaudited)               Shares/Par                                               Market Value ($)
                                          Growth   Separate                                                   Separate
                                    %      and     Account                                        Growth and   Account   Combining
Investment % After                After   Income    Stock    Combining  Security                    Income      Stock     Market
Type       Merger    Category    Merger Portfolio  Sub-Act.   Shares     Description             Portfolio $  Sub-Act.$   Value $
----       ------    --------    ------ --------  --------   ------     -----------             -----------  ---------   -------
<S>           <C>    <C>          <C>    <C>        <C>        <C>      <C>                      <C>            <C>        <C>    


Security Valuation. Common and preferred stocks traded on national and international securities exchanges are
valued at the last sale price reported on such exchanges. Lacking any sales, the security will be valued at
the mean between the closing bid and asked prices on such exchanges or, in the absence of such prices, as
determined in good faith by the Trustees. Over-the -counter securities quoted on the NASDAQ system, but not
listed on the National Market System, are valued at the high or "inside" bid price supplied through such
system. Over-the-counter securities not quoted on the NASDAQ system are valued at the mean between the current
bid and asked prices. Portfolio debt securities are valued at market by pricing agents, which prices reflect
broker/dealer-supplied valuations and electronic data processing techniques and are representative of market
values at the close of business of the New York Stock Exchange. Repurchase agreements are valued at identified
cost which, when combined with accrued interest receivable, approximates market. Money market instruments with
remaining maturites of 60 days or less are valued at amortized cost which approximates market. All other
securities or securities subject to resale restrictions are valued at their fair value as determined in good
faith by the Trustees of the Fund.

</TABLE>


                                     B - 16
<PAGE>
           SEPARATE ACCOUNT I OF WASHINGTON NATIONAL INSURANCE COMPANY
                     STOCK SUB-ACCOUNT PROPOSED MERGER WITH
        SCUDDER VARIABLE LIFE INVESTMENT FUND GROWTH AND INCOME PORTFOLIO



<TABLE>
<CAPTION>
Pro Forma Combining                                                          Separate                            Pro Forma
Statement of Operations                                                      Account           Pro Forma           Growth
For the Period May 2, 1994 (Growth and                     Growth and         Stock           Adjustments        and Income
Income Portfolio commencement of                             Income        Sub-Account         (Note 3)           Combined
operations) to December 31, 1994                           Portfolio       (Unaudited)        (Unaudited)       (Unaudited)
                                                        -----------------------------------------------------------------------
<S>                                                        <C>              <C>                                 <C>
Income:

Income:
  Dividends  ...........................................   $     245,787    $     530,787     $             -   $      776,574
  Interest   ...........................................          60,432           52,296                   -          112,728
  Other      ...........................................               -                -                   -                -
  Less foreign taxes withheld ..........................          (3,279)               -                   -           (3,279)
                                                        -----------------------------------------------------------------------
Total Income                                                     302,940          583,083                   -          886,023
                                                                                                             
Expenses: (Note 3)

  Annuity rate guarantees (Note 3a).....................               -          133,997           (133,997)                -
  Management fee (Note 3b) .............................          32,724           83,749             (4,582)          111,891
  Administrative expenses (Note 3c).....................          25,179           37,807            (37,807)           25,179
  Custodian & Accounting (Note 3d)......................          34,349           58,624            (47,541)           45,432
  Legal & Auditing (Note 3e)............................           4,080                -               2,315            6,395
  Directors & Trustees' fees............................           4,498                -                   -            4,498
  Other (Note 3f).......................................          11,405                -                 832           12,237
                                                        -----------------------------------------------------------------------
Total expenses before reimbursement                              112,235          314,177           (220,780)          205,632
  Less: Expenses reimbursed by Adviser (Note 3g)........         (60,313)               -              32,877          (27,436)
                                                        -----------------------------------------------------------------------
Net Investment Income...................................         251,018          268,906             187,903          707,827
                                                        -----------------------------------------------------------------------

Realized and unrealized gain (loss) on investments
Net realized gain (loss) on:
  Investments...........................................         125,538          200,153                   -          325,691
  Foreign currency transactions.........................            (773)               -                   -             (773)
Net unrealized appreciation during the year on
  investments & foreign currency transactions...........       (327,767)          199,644                   -         (128,123)
                                                        -----------------------------------------------------------------------
Net gain on investments.................................       (203,002)          399,797                   -          196,795
                                                        -----------------------------------------------------------------------
Net increase in net assets resulting
  from operations.......................................  $       48,016    $     668,703   $         187,903   $      904,622
                                                        =======================================================================




See Notes to Pro Forma Combining Financial Statements

</TABLE>


                                     B - 17
<PAGE>



           SEPARATE ACCOUNT I OF WASHINGTON NATIONAL INSURANCE COMPANY
                     STOCK SUB-ACCOUNT PROPOSED MERGER WITH
        SCUDDER VARIABLE LIFE INVESTMENT FUND GROWTH AND INCOME PORTFOLIO


<TABLE>
<CAPTION>
Pro Forma Combining                                                          Separate                            Pro Forma
Statement of Operations                                    Growth and        Account           Pro Forma           Growth
For the Period January 1, 1995                               Income           Stock           Adjustments        and Income
to June 30, 1995 (Unaudited)                               Portfolio       Sub-Account         (Note 3)           Combined
                                                        -----------------------------------------------------------------------
<S>                                                        <C>              <C>                                 <C>
Income:

Income:
  Dividends...........................................     $     534,227    $     370,331    $              -   $      904,558
  Interest............................................            63,800           36,660                   -          100,460
  Other...............................................                 -              235                   -              235
  Less foreign taxes withheld.........................              (463)               -                   -             (463)
                                                        -----------------------------------------------------------------------
Total Income..........................................           597,564          407,226                   -        1,004,790

Expenses: (Note 3)

  Annuity rate guarantees (Note 3a)...................                 -          108,883           (108,883)                -
  Management fee (Note 3b)............................            66,771           68,052               3,054          137,877
  Administrative expenses (Note 3c)...................                 -           30,857            (30,857)                -
  Custodian & Accounting (Note 3d)....................            35,542           47,637            (34,606)           48,573
  Legal & Auditing (Note 3e)..........................             1,449                -                  93            1,542
  Directors & Trustees' fees..........................             7,776                -                   -            7,776
  Other (Note 3f).....................................             3,915                -               3,026            6,941
                                                        -----------------------------------------------------------------------
Total expenses before reimbursement...................           115,453          255,429           (168,173)          202,709
  Less: Expenses reimbursed by Adviser (Note 3g)......           (10,024)               -              10,024                -
                                                        -----------------------------------------------------------------------
Net Investment Income.................................           492,135          151,797             158,149          802,081
                                                        -----------------------------------------------------------------------

Realized and unrealized gain (loss) on investments
Net realized gain (loss) on:
  Investments.........................................          (69,966)           62,269                   -          (7,697)
  Foreign currency transactions.......................               85                -                    -               85
Net unrealized appreciation during the year on
  investments & foreign currency transactions.........         3,685,824        4,872,630                   -        8,558,454
                                                        -----------------------------------------------------------------------
Net gain on investments...............................         3,615,943        4,934,899                   -        8,550,842
                                                        -----------------------------------------------------------------------
Net increase in net assets resulting
  from operations.....................................     $   4,108,078    $   5,086,696   $         158,149    $   9,352,923
                                                        =======================================================================


See Notes to Pro Forma Combining Financial Statements
</TABLE>


                                     B - 18
<PAGE>

           SEPARATE ACCOUNT I OF WASHINGTON NATIONAL INSURANCE COMPANY
                     STOCK SUB-ACCOUNT PROPOSED MERGER WITH
        SCUDDER VARIABLE LIFE INVESTMENT FUND GROWTH AND INCOME PORTFOLIO

NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Combination

Subject to approval of the proposed Asset Transfer Agreement and Plan of
Reorganization (the "Plan") by the separate account voters of the Separate
Account I of Washington National Insurance Company (the "Separate Account") and
other conditions specified in the Plan, the Growth and Income Portfolio of
Scudder Variable Life Investment Fund (the "Growth and Income Portfolio") will
acquire substantially all of the assets of the Stock Sub-Account of the Separate
Account (the "Stock Sub-Account") in exchange for shares of the Growth and
Income Portfolio. This merger of the entities will be accounted for by the
method of accounting for tax free mergers of investment companies. The pro forma
combining Statement of Assets and Liabilities reflects the financial position of
the Growth and Income Portfolio and the Stock Sub-Account at June 30, 1995 as
though the merger occurred as of that date. The pro forma combining Statements
of Operations reflect the results of operations of the Growth and Income
Portfolio and the Stock Sub-Account for the periods ending December 31, 1994 and
June 30, 1995, respectively, as though the merger occurred at the beginning of
each period presented. Both the Statement of Assets and Liabilities and the
Statements of Operations are presented for the information of the reader and may
not necessarily be representative of what the combined statements would have
been.

2. Capital/Shares

The number of additional shares issued was calculated by dividing the net assets
of the Stock Sub-Account at June 30, 1995 by the net asset value per share of
the Growth and Income Portfolio at June 30, 1995 of $7.09. The pro forma
combined number of shares outstanding of 9,474,535 consists of the 4,193,014
shares issuable to the Separate Account in the merger and 5,281,521 shares of
the Growth and Income Portfolio outstanding at June 30, 1995.

3. Pro Forma Operating Income & Expenses

Pro forma operating income and expenses include the actual numbers of the Growth
and Income Portfolio and the Stock Sub-Account at December 31, 1994 and at June
30, 1995 adjusted for certain items which are factually supportable.

a) annuity rate guarantees not charged by the Growth and Income Portfolio.

b) elimination of Separate Account management fee offset by additional Growth
and Income Portfolio management expenses taken due to the combined net assets.

c) elimination of Separate Account administrative expenses.

d) elimination of Separate Account financial accounting fees offset by
additional Growth and Income Portfolio custody and accounting expense taken due
to combined net assets.

e) increase in legal and auditing expenses as a result of the combined net
assets.

f) increase in other expenses as a result of the combined net assets.

g) reduction in expenses reimbursed by Adviser as a result of the combined net
assets.

                                     B - 19


<PAGE>


                                   APPENDIX A

           SEPARATE ACCOUNT I OF WASHINGTON NATIONAL INSURANCE COMPANY
                   Statement of Additional Information dated
                                   May 1, 1995


     The Separate Account's statement of additional information dated May 1,
1995, immediately follows this page.
<PAGE>






                                     WN Plan


                       DEFERRED VARIABLE ANNUITY CONTRACT
                        FUNDED THROUGH SEPARATE ACCOUNT I
                                       OF
                      WASHINGTON NATIONAL INSURANCE COMPANY
                          LINCOLNSHIRE, ILLINOIS 60069
                                 (708) 793-3000


                       STATEMENT OF ADDITIONAL INFORMATION
                                DATED MAY 1, 1995



This is not a prospectus. It should be read with the prospectus for this product
dated May 1, 1995 which may be obtained by writing or calling Washington
National Insurance Company, Life and Annuity Administration, 300 Tower Parkway,
Lincolnshire, Illinois 60069; telephone (708) 793-3243.

The definitions used in the prospectus are incorporated in this statement.


















V103 A-8
<PAGE>





                      (THIS PAGE INTENTIONALLY LEFT BLANK)

<PAGE>


<TABLE>
<CAPTION>
                                                         TABLE OF CONTENTS
                                                                                                                       Prospectus
                                                                                                                Page      Page
                                                                                                                ----      ----
         <S>               <C>                                                                                   <C>      <C>
         GENERAL INFORMATION AND HISTORY..................................................................       3
                           The Company....................................................................       3         14
         THE SEPARATE ACCOUNT.............................................................................       4         14
                           Investment Policies and Restrictions...........................................       4         16
                           Real Estate....................................................................       4
                           Money Market Instruments.......................................................       5
                           Turnover.......................................................................       5
                           Net Asset Value................................................................       5
         THE CONTRACT(S)                                                                                         6         17
                           Ownership......................................................................       6
                           Beneficiary....................................................................       6
                           Assignment.....................................................................       6
                           Calculation of the Accumulation Unit Value.....................................       6
                           Single Sum Settlement..........................................................       7
                           Reports........................................................................       7
         ANNUITY PAYMENTS                                                                                        8
                           Election of Fixed or Variable Annuity Payments.................................       8
                           Limitations/Conditions.........................................................       8
                           Variable Annuity Unit Value....................................................       9
                           Amount of Each Variable Annuity Payment........................................       9
         FEDERAL TAX MATTERS..............................................................................       9         27
                           Diversification Requirements...................................................       9
                           IRS Required Distributions.....................................................      10
         MANAGEMENT                                                                                             11         31
                           Directors and Officers of Separate Account I...................................      11
                           Remuneration of Board of Directors, Officers and Employees.....................      12
                           Principal Stockholders of Washington National Corporation......................      13
         INVESTMENT MANAGER...............................................................................      14         31
         ADMINISTRATIVE SERVICES..........................................................................      16
         CUSTODY AGREEMENT                                                                                      16
         BROKERAGE ALLOCATION.............................................................................      16
                           Securities Transactions........................................................      16
                           Transactions May Be Made for a Number of Accounts at Once......................      17
                           Other Transactions With Brokers or Dealers.....................................      17
         UNDERWRITERS                                                                                           17
         PERFORMANCE DATA                                                                                       17         13
         LEGAL MATTERS                                                                                          20
         STATE REGULATION                                                                                       20
         REGISTRATION STATEMENT...........................................................................      20
         EXPERTS                                                                                                20
         FINANCIAL STATEMENTS.............................................................................      20
         APPENDIX A: Commercial Paper and Bond Ratings....................................................     A-1
         APPENDIX B: Short-Term Portfolio Sub-Account Investments.........................................     B-1
</TABLE>

                                     Page 2
<PAGE>





                      (THIS PAGE INTENTIONALLY LEFT BLANK)

<PAGE>

                         GENERAL INFORMATION AND HISTORY

The Company

We, Washington National Insurance Company, are a wholly-owned subsidiary of
Washington National Corporation (WNC), a Delaware Corporation, whose executive
offices are located at 300 Tower Parkway, Lincolnshire, Illinois 60069.

We are licensed to do business in all states of the United States (except New
York) and the District of Columbia. We have total assets of over $2.8 billion.














                                     Page 3
<PAGE>

                              THE SEPARATE ACCOUNT

Investment Policies and Restrictions

In addition to the investment policies and restrictions contained in the
prospectus, the Sub-Accounts have the following policies and restrictions. These
investment policies and restrictions are fundamental policies and may not be
changed without the approval of a majority of the contract owners having an
interest in the affected Sub-Account. A majority means the lesser of (A) 67% or
more of the voting securities present at a meeting, if more than 50% of the
voting securities are present, or (B) 50% of the voting securities.

     a.   No investment will be made in the securities of any issuer for the
          purpose of exercising management or control.

     b.   Investments will not be made in restricted or foreign securities,
          except that the Short-Term Portfolio Sub-Account may acquire
          Certificates of Deposit issued by U.S. branches of foreign banks and
          foreign branches of U.S. banks, and commercial paper issued by foreign
          corporations, assuming proper rating, provided that no more than 25%
          of the assets of the Sub-Account will be so invested at the time the
          investment is made.

     c.   No securities owned or held will be mortgaged, pledged, hypothecated
          or in any manner transferred as security for indebtedness.

     d.   Senior securities will not be issued.

     e.   1.   Investments will not be concentrated in any geographical area of
               the United States (such as northeastern states, mid-western     
               states, etc.).                                                  

          2.   No more than 25% of the total assets of any Sub-Account will be
               invested in any one industry other than obligations of the U.S.
               Government, its agencies and instrumentalities or bank
               certificates of deposit, bankers' acceptances or instruments
               secured by these money market instruments.

     f.   We may borrow money for temporary or emergency purposes up to an
          amount equal to 5% of the value of Separate Account I at the time of
          borrowing. All borrowings will be unsecured.

     g.   Securities of other issuers will not be underwritten, nor will we
          purchase the securities of other issuers which might later be deemed
          to be underwritten by Us.

     h.   No purchase will be made of commodities or commodity contracts.

     i.   Short sales, purchases on margin, or purchases of put or call options
          or combinations thereof, will not be made.

     j.   Investments may be made in the securities of one or more investment
          companies; but no Sub-Account may have more than 5% of its assets
          invested in any one investment company, have a total of more than 10%
          of its assets invested in investment company securities, nor own more
          than 3% of the total outstanding voting securities of any one
          investment company.

Real Estate

To a limited extent, the Bond and Stock Sub-Accounts may invest in real estate.
All real estate investments are subject to some degree of risk. Because of their
non-liquid nature, real estate equity investments may limit Our ability to vary
the portfolio promptly in response to changing economic, financial and
investment conditions. Such investments may be subject to adverse changes in


                                     Page 4
<PAGE>

general or local economic conditions, such as excessive building and increases
in unemployment, as well as other factors affecting real estate values,
including the attractiveness of the properties to tenants. Equity investments
are also subject to risks such as an inability to lease the premises on
acceptable terms, cancellation of existing leases, financial ability of tenants,
adverse changes in interest rates or the availability of long-term mortgage
funds, and changes in property tax rates or zoning laws.

Money Market Instruments

The instruments in which the Short-Term Portfolio Sub-Account will invest, the
practices it will follow and the risks involved are set forth in Appendix B.

Turnover

The turnover rate for the Bond and Stock Sub-Accounts cannot be accurately
predicted, but it is anticipated that turnover will range between 50% and 100%
per year for the Bond Sub-Account and should not exceed 75% per year for the
Stock Sub-Account. A turnover rate for the Short-Term Portfolio Sub-Account is
not applicable because of the short-term nature of its money market investments.
The turnover is calculated by dividing the lesser of purchase or sales of
Sub-Account securities by the monthly average of securities owned by the
Sub-Account during the year. Not included in this calculation are all securities
with maturity or expiration dates of one year or less at the time acquired.

During any year, conditions could dictate portfolio changes at a greater rate
than anticipated, in which case the turnover rate will not be a limiting factor.
Brokerage expenses will, however, be affected by portfolio activity.

Net Asset Value

The net asset value of the Sub-Accounts is determined as of 4:00 p.m. Eastern
Standard Time on each Valuation Date. It is calculated by determining the value
of securities owned, as described in the prospectus, for each Sub-Account,
adding any cash or other assets and subtracting all liabilities.

In the event of liquidation, You, as owner, will be entitled to receive an
amount equal to the Accumulated Value of the Accumulation Units of the
Sub-Account which are credited to the Contract. If the net asset value of the
Sub-Account is insufficient to pay the full amount, then the percentage of the
net assets which the Accumulation Units credited to the Contract bears to the
total Accumulation Units of the Sub-Account will be paid. In the event that the
net asset value of the Sub-Account exceeds the Accumulated Values of all
Contracts with Accumulation Units in the Sub-Account, the excess will be paid to
Us. Ten percent or more of the assets of each Sub-Account are owned by Us.

The Short-Term Portfolio Sub-Account determines the value of its portfolio
securities using the amortized cost method. Because the Sub-Account only invests
in high quality debt securities with a maturity of sixty days or less, it is
anticipated that the amortized cost method will result in a fair value.
Nevertheless, the Board of Directors will review the portfolio at appropriate
intervals to determine whether the net asset value calculated by the amortized
cost method deviates from its calculation using available market quotations. If
it believes the deviation may result in material dilution or other unfair
results to contract

                                     Page 5
<PAGE>

owners, the Board may take any corrective action it determines as necessary and
appropriate. This action may include:

     1.   Selling portfolio securities prior to maturity to realize gains or
          losses or to shorten average portfolio maturity;

     2.   Using available market quotations to determine the net asset value.

                                  THE CONTRACT

Ownership

You, as the owner of the Contract, are named as owner in the application. You
may exercise all the rights and options that the Contract provides. If You are
the owner of an individual Contract, Your rights and options, while the
Annuitant is living, are subject to the rights of any irrevocable Beneficiary.
If You are not the Annuitant under an individual Contract and You die before the
Annuitant, Your estate will become the owner unless You have named a successor
owner.

Beneficiary

The Beneficiary named in the application will receive the death Proceeds unless
You, or the Participant under a group Contract, name a new Beneficiary. In that
event, We will pay the death Proceeds to the Beneficiary named in the last
change of Beneficiary request as provided in the Contract.

Assignment

It is possible to assign or transfer the Contract according to its terms. We
must receive a copy of any assignment before We may be required to take notice
of or be responsible for honoring that transfer or assignment. Assignments made
after the death of the Annuitant will be valid only with Our consent. Of course,
We are not responsible for the validity of any assignment.

However, certain restrictions exist as to the assignment or transfer of
Contracts issued under a tax-qualified plan. A Contract issued under a
tax-qualified plan must provide that it may not be sold, assigned or pledged to
any person or organization other than the insurance company issuing it, when
owned by any person other than the trustees of any trust described in Section
401(a), the custodian of a custodial account as described in Section 401(f), or
the administrator of an annuity plan described in Section 403(a) of the Internal
Revenue Code. Contracts issued pursuant to Section 403(b) or certain other plans
may also be subject to restrictions on assignments or transfers.

The assignment or transfer of the Contract may result in adverse tax
consequences.

Calculation of the Accumulation Unit Value

These are the factors which We use to determine the Accumulation Unit value for
each Valuation Date for the Sub-Accounts. The Accumulation Unit value varies
with the investment performance of the Sub-Accounts, and with the deductions and
charges made against the Sub-Accounts.

                                     Page 6
<PAGE>

The gross investment rate is equal to:

     a.   investment income, plus

     b.   realized or unrealized capital gains, minus

     c.   realized or unrealized capital losses, adjusted for

     d.   any taxes paid or reserved on the Sub-Account (see Federal Income Tax
          Matters-How We Are Taxed, page 28 of the prospectus), minus

     e.   liabilities and the expenses allocable to the Sub-Account (see
          Investment Manager, page 31 of the prospectus), including the daily
          charge for investment fees, divided by

     f.   the net asset value of the Sub-Account at the beginning of the
          Valuation Period.

The net investment rate is:

     a.   the gross investment rate, minus

     b.   a daily charge of .000032 (.000022 for annuity rate guarantees and
          .000010 for financial accounting services). (See Charges and
          Deductions, page 7 of the prospectus.)

Both the gross investment rate and the net investment rate may be more or less
than 0.

The net investment factor is:

     a.   1.000000, plus

     b.   the net investment rate.

We reserve the right to deduct premium or other taxes allocable to a Sub-Account
either in the computation of the net investment factor or as a charge against
the Contracts to which such taxes are attributable.

Single Sum Settlement

While it is in force, You, by surrendering the Contract and filing a Written
Request with Us within thirty days prior to the maturity date, may elect to
receive a single sum settlement at the maturity date equal to the Net
Accumulated Value of the Contract at that date. The election will take effect on
the maturity date, if the Annuitant is living, and the annuity payments that
would otherwise have commenced at the maturity date will not be made.

Reports

We will send You periodically, and no less than once each Contract Year prior to
the date of the first annuity payment, a statement of:

     a.   the number of fixed and variable Accumulation Units credited;

     b.   the current unit values; and

     c.   the total Accumulated Value.

                                     Page 7
<PAGE>

The Payee will be sent semiannually a report containing financial statements and
a listing of portfolio securities of Separate Account I.

                                ANNUITY PAYMENTS

Election of Fixed or Variable Annuity Payments

You may choose, when annuity payments begin to have the Net Accumulated Value
applied, except under Options 1, 3 and 4, to provide for:

     a.   a Fixed Annuity;

     b.   a Variable Annuity; or

     c.   a mix of the above.

If You do not make an election, the Net Accumulated Value will be paid under
Option 2(B) with payments guaranteed for a period of ten years, with the portion
of the Accumulated Value that was held in Separate Account I applied to a
Variable Annuity and the portion held in the Fixed Account applied to a Fixed
Annuity.

The net investment factor, or a factor which reflects a guaranteed annual
investment rate of 3%, will apply if Option 3 is chosen. Options 1, 3 and 4 are
available as a Fixed Annuity only. The Net Accumulated Value needed to provide a
Fixed Annuity or a guaranteed interest rate will be withdrawn from Separate
Account I and placed in the general account of Washington National Insurance
Company. Such withdrawn amounts are not subject to annuity rate guarantee
charges or other charges made against assets in Separate Account I, except the
annual maintenance charge.

When a Fixed Annuity is elected, higher payments than those stated in the
Contract may be paid at Our discretion.

Limitations/Conditions

     a.   The amount applied under any settlement option must be at least $2,000
          and must be sufficient to provide a periodic installment or interest
          payment of at least $20.

     b.   An option will be available without Our consent only if the Proceeds
          are payable to a natural person receiving them for his or her own
          benefit.

     c.   We may require proof of the age of any payee under Option 2, 5 or 6.
          We also may require evidence that the payee is living at the time any
          payment is due.

     d.   The first payment under an option will be due on the date the option
          becomes effective, except under Option 4 it will be due at the end of
          the first payment interval.

     e.   If a settlement option is elected during the lifetime of the Annuitant
          and prior to the Contract being in effect for five years, a contingent
          deferred sales charge will be deducted. (See Contingent Deferred Sales
          Charge, page 25 of the prospectus for exceptions.)

                                     Page 8
<PAGE>

Variable Annuity Unit Value

The value of a Variable Annuity Unit for each Sub-Account was established at $1
on the first Valuation Date. Subsequent Annuity Unit values for each Sub-Account
are determined by multiplying:

     a.   the Annuity Unit value for the previous Valuation Date, by

     b.   the net investment factor for the current Valuation Date, divided by

     c.   a factor to reflect the assumed interest rate of 3.5% used in the
          Variable Annuity Settlement Option Tables that appear in the Contract,
          which are based on the Progressive Annuity Table assuming age last
          birthday and births in the year 1900.

Amount of Each Variable Annuity Payment

     a.   The amount of the first Variable Annuity payment will be equal to:

          1.   the amount of the Net Accumulated Value being used to purchase a
               Variable Annuity, divided by
          2.   1,000, times
          3.   the rate of each $1,000 of Proceeds in the table for the option
               chosen.

     The amount under Options 2, 5 and 6 will depend on the sex(es) and age(s)
     of the payee(s).

     b.   To determine the number of Variable Annuity Units in each payment:

          1.   the Net Accumulated Value for each Sub-Account is divided by
          2.   the Annuity Unit value for the Sub-Account.

     The number of Annuity Units in each payment then remains fixed, except
     under Option 6, where upon the death of either payee, the number of Annuity
     Units is reduced by one-third.

     c.   Each payment after the first is determined by multiplying:

          1.   the number of Annuity Units for each Sub-Account, by
          2.   the Annuity Unit value for the Sub-Account.

     Subsequent payments will be determined on the Valuation Date on or just
     prior to the seventh calendar day before the payment is due.

                               FEDERAL TAX MATTERS

Diversification Requirements

Section 817(h) of the Code provides in substance that Section 72 of the Code
will not apply and We will not be treated as the owner of the assets of Separate
Account I unless the investments made by Separate Account I are "adequately
diversified" in accordance with regulations prescribed by the Treasury. Thus, if
Separate Account I is not "adequately diversified," any increase in the value of
a variable annuity contract will be taxed to the contract owner currently. We
intend to comply with the diversification requirements prescribed by the
Treasury in Treas. Reg. ss. 1.817-5, which affect how Separate Account I's
assets may be invested. Treasury has also announced that the diversification


                                     Page 9
<PAGE>

regulations do not provide guidance concerning the extent to which owners may
direct their investments to particular divisions of a separate account. It is
not clear whether additional guidance will be provided nor whether it will be
prospective only. It is possible that if guidance is issued, the Contract may
need to be modified to comply with such guidance. For these reasons, we reserve
the right to modify the Contract as necessary to prevent the contract owner from
being considered the owner of the assets of the Separate Account.

IRS Required Distributions

In addition to the requirements of Section 817(h) of the Code, in order to be
treated as an annuity contract for federal income tax purposes, Section 72(s) of
the Code requires any Non-qualified Contract issued after January 18, 1985 to
provide that (a) if any Contract owner dies on or after the Annuity Date but
prior to the time the entire interest in the Contract has been distributed, the
remaining portion of such interest will be distributed at least as rapidly as
under the method of distribution being used as of the date of that Contract
owner's death; and (b) if any contract owner dies prior to the Annuity Date, the
entire interest in the Contract will be distributed within five years after the
date of that contract owner's death. These requirements shall be considered
satisfied if any portion of the contract owner's interest which is payable to or
for the benefit of a "designated beneficiary" is distributed over the life of
such "designated beneficiary" or over a period not extending beyond the life
expectancy of that beneficiary and such distributions begin within one year of
the contract owner's death. (The contract owner's "designated beneficiary" is
that person designated by such contract owner as a beneficiary and to whom
ownership of the Contract passes by reason of death and must be a natural
person.) However, if the contract owner's "designated beneficiary" is the
surviving spouse of the contract owner, the Contract may be continued with the
surviving spouse as the new contract owner.

The Non-qualified Contracts issued after January 18, 1985 contain provisions
which are intended to comply with the requirements of Section 72(s) of the Code,
although no regulations interpreting these requirements have yet been issued. We
intend to review such provisions and modify them if necessary to assure that
they comply with the requirements of Code Section 72(s) when clarified by
regulation or otherwise.

Other rules may apply to Qualified Contracts.





                                    Page 10
<PAGE>

                                   MANAGEMENT

Directors and Officers of Separate Account I

Separate Account I is managed by a Board of Directors in accordance with the
Rules and Regulations of Separate Account I.

The initials WNIC, WNC, and WNDC, refer to Washington National Insurance
Company, Washington National Corporation and Washington National Development
Company, respectively.

<TABLE>
<CAPTION>
        Name and                        Present Position with       Current Principal Business Affiliations and Principal
        Business Address                Separate Account I          Occupations during the Past 5 Years
        -------------------------------------------------------------------------------------------------------------------------
        <S>                             <C>                         <C>
        Harry C. Benford, III           Director                    Partner with law firm of Schuyler, Roche and Zwirner since
        1603 Orrington Avenue                                       January, 1985.                                            
        Evanston, IL 60201
        -------------------------------------------------------------------------------------------------------------------------
        Barbara A. Cremin*              Director                    Vice President of WNIC since January, 1993. Assistant Vice
        300 Tower Parkway                                           President from January, 1992 to January, 1993. Director,
        Lincolnshire, IL 60069                                      Life & Annuity Administration from September, 1990 to
                                                                    January, 1992.
        -------------------------------------------------------------------------------------------------------------------------
        George J. Cyrus, Jr.            Director                    Chairman, Cyrus Realtors since December, 1980.
        2929 Central Street
        Evanston, IL 60201
        -------------------------------------------------------------------------------------------------------------------------
        James E. Dresmal*               Chairman of the Board       Vice President and Chief Investment Officer of WNIC since
        300 Tower Parkway               and Director                January, 1990. President and Director of WNDC.
        Lincolnshire, IL 60069
        -------------------------------------------------------------------------------------------------------------------------
        Craig R. Edwards                Secretary and Counsel       Vice President, Corporate Counsel and Secretary of WNIC
        300 Tower Parkway                                           since May, 1992. Vice President and Investment Counsel
        Lincolnshire, IL 60069                                      July, 1991 to May, 1992; Investment Counsel July, 1989 to
                                                                    July, 1991.
        -------------------------------------------------------------------------------------------------------------------------
        William P. Zeh                  Director                    Private investor.
        1160 Breckenridge
        Lake Forest, IL 60045

<FN>
        *    Directors who are interested persons of Separate Account I as defined in the Investment Company Act of 1940.
</FN>
</TABLE>

Members of the Board of Directors who are not directors, officers or employees
of WNIC receive from Separate Account I an annual retainer of $1,000, a meeting
fee of $350 per meeting and are reimbursed for their travel expenses in
attending meetings of the Board of Directors. During 1994, the Members of the
Board of Directors of Separate Account I received as a group $4,050 in
compensation. There was one meeting of the Board in 1994.

                                    Page 11
<PAGE>

Remuneration of Board of Directors, Officers and Employees of Separate Account I

     The following table shows the compensation paid to all directors of
     Separate Account I during 1994:

<TABLE>
<CAPTION>
                                                                                                Total Compensation 
                                     Aggregate        Pension or Retirement     Estimated       From Registrant and 
 Name of Person,                Compensation From      Benefits Accrued As    Annual Benefits   Fund Complex Paid to     
    Position                        Registrant        Part of Fund Expenses   Upon Retirement         Directors      
----------------------------------------------------------------------------------------------------------------------
<S>                                  <C>                    <C>                  <C>                  <C>   
Harry C. Benford, III                $1,350                 $    0               $    0               $1,350
Director
----------------------------------------------------------------------------------------------------------------------
Barbara A. Cremin Director           $    0                 $    0               $    0               $    0
----------------------------------------------------------------------------------------------------------------------
George J. Cyrus Jr                   $1,350                 $    0               $    0               $1,350
Director
----------------------------------------------------------------------------------------------------------------------
James E. Dresmal Chairman            $    0                 $    0               $    0               $    0
of the Board and Director
----------------------------------------------------------------------------------------------------------------------
William P. Zeh                       $1,350                 $    0               $    0               $1,350
Director
</TABLE>

Members of the Board of Directors who are not directors, officers or employees
of Washington National Insurance Company receive from Separate Account I an
annual retainer of $1,000, a meeting fee of $350 per meeting and reimbursement
for their travel expenses in attending meetings of the Board of Directors.
During 1994, the Members of the Board of Directors of Separate Account I
received as a group $4,050 in compensation. There was one meeting of the Board
in 1994.







                                    Page 12
<PAGE>

Principal Stockholders of Washington National Corporation

The following table sets forth the stock ownership of all persons known by WNC
to be the beneficial owners of more than 5% of each class of the outstanding
voting stock of WNC (exclusive of treasury stock) as of April 17, 1995.

                                         Number of Shares Beneficially Owned (1)
                                         ---------------------------------------
Name and Address of Beneficial Owner         Number             Percentage
--------------------------------------------------------------------------------
George P. Kendall, Jr. (2)
300 Tower Parkway
Lincolnshire, Illinois 60069                 1,544,592            12.69%
--------------------------------------------------------------------------------
NBD Bank (3)
1603 Orrington Avenue
Evanston, Illinois 60201                     1,389,055            11.41%
--------------------------------------------------------------------------------
Shufro, Rose & Ehrman (4)
745 Fifth Avenue
New York, New York 10151                       686,200             5.64%
--------------------------------------------------------------------------------
SunTrust Banks, Inc. (5)
25 Park Place, N.E.
Atlanta, GA  30303                           1,498,350            12.32%
--------------------------------------------------------------------------------

(1)  The table includes common stock which could be acquired within 60 days by
     exercise of a stock option. The table does not include the beneficial
     ownership of WNC's preferred stock. The only person known to the Company to
     own beneficially more than 5% of the outstanding shares of the preferred
     stock is Melvin S. Cutler, Cutler Associates Investments, Inc., P.O. Box
     15049, Worcester, Massachusetts 01615, who beneficially owned, as of June
     30, 1994, 21,000 shares, or 14.5%, of the preferred stock according to a
     Schedule 13G filed with the Securities and Exchange Commission on such
     date. Such shares, if fully converted into shares of Common Stock, would
     constitute less than 1% of the outstanding shares of common stock.

(2)  George P. Kendall, Jr. beneficially owns 1,544,592 shares of common stock,
     including 1,327,603 shares reported above under NBD Bank's beneficial
     ownership total. The 1,327,603 shares are held by various trusts (including
     the G. R. Kendall Foundation and Trust) with respect to which George P.
     Kendall, Jr. and NBD Bank, as well as other members of the Kendall family,
     share voting and investment power as co-trustees of such trusts. Excluding
     these 1,327,603 shares, George P. Kendall, Jr., beneficially owns 216,989
     shares, or 1.78% of the outstanding shares.

(3)  According to a Schedule 13G filed with the Securities and Exchange
     Commission on February 9, 1995 by its parent company, NBD Bancorp, Inc.,
     NBD Bank beneficially owned on such date 1,389,055 shares of common stock.
     NBD Bank indicated that on such date it had sole voting power over 19,475
     shares, shared voting power over 1,369,580 shares, sole investment power
     over 34,926 shares and shared investment power over 1,352,754 shares.
     Included in NBD Bank's beneficial ownership total are 545,169 shares held
     by the G.R. Kendall Foundation and Trust over which NBD Bank shares voting
     and investment power in its capacity as co-trustee with, among others,
     George P. Kendall, Jr., a director of WNC.

                                    Page 13
<PAGE>

(4)  According to its Schedule 13G filed with the Securities and Exchange
     Commission on February 14, 1995, Shufro, Rose & Ehrman beneficially owned
     on such date 686,200 shares of common stock. Shufro, Rose & Ehrman
     indicated that on such date it had sole voting power over 70,740 shares and
     sole investment power over 686,200 shares.

(5)  According to a Schedule 13G filed with the Securities and Exchange
     Commission on February 3, 1995, SunTrust Banks, Inc., beneficially owned on
     such date 1,498,350 shares of common stock. SunTrust Banks, Inc., indicated
     that on such date it had sole voting power over 728,450 shares, sole
     investment power over 1,497,600 and shared investment power over 750
     shares.


                               INVESTMENT MANAGER

We act as investment manager for Separate Account I under an investment
management agreement between Us and Separate Account I. The agreement provides
that We will manage the investments of Separate Account I under the direction of
the Board of Directors. Our fees as investment adviser are .50% of the average
net assets of Separate Account I. The fees are calculated daily and paid
monthly. Each Sub-Account pays a pro rata portion of the advisory fee based on
its average net assets. For the last three years, Separate Account I has paid Us
$196,785, $200,155, and $170,429 for 1994, 1993, and 1992 respectively, in
advisory fees; during such respective years, Separate Account I paid Us $61,636,
$67,275, and $61,020 for the Bond Sub-Account; $ 8,400, $8,532, and $8,192 for
the Short-Term Portfolio Sub-Account; and $126,749, $124,348, and $101,217 for
the Stock Sub-Account.

Our duties under the agreement are to:

     a.   Make all determinations with respect to and place the orders for the
          purchase and sale of securities for the Sub-Accounts. Such
          determinations and services include determining the manner in which
          voting rights, rights to consent to corporate action and any other
          rights pertaining to securities should be exercised, subject to the
          supervision of the Board of Directors.

     b.   Regularly furnish reports at the periodic meetings of the Board of
          Directors and as may reasonably be requested by the Board of
          Directors, of:

          1.   the decisions which We have made with respect to the investment
               of the assets of Separate Account I and the purchase and sale of
               securities,
          2.   the reasons for such decisions, and
          3.   the extent to which those decisions have been implemented.

     c.   Place all orders for the execution of the securities transactions
          using Our best efforts to obtain the best securities prices available
          and place all such orders subject to and in accordance with any
          directions which the Board of Directors may issue from time to time.

Under the agreement We have the right to withdraw the use of Our name by
Separate Account I.

The agreement will continue in effect from its effective date and from year to
year except that, with respect to each Sub-Account:

     a.   The agreement will continue in effect for a period more than two years
          from its effective date as long as it is specifically approved at
          least annually by the Board of Directors by a majority of the votes in


                                    Page 14
<PAGE>

          the Sub-Account and is also approved by the vote of a majority of the
          members of the Board of Directors who are not interested persons.

     b.   The agreement will terminate automatically if it is assigned or if a
          majority of the votes of the Sub-Account do not approve the agreement
          at the first annual meeting of Contract owners.

     c.   The agreement may be terminated by the Board of Directors of Separate
          Account I or by a majority of the votes in the Sub-Account at any time
          with 60 days written notice to Us without the payment of any penalty.

     d.   The agreement may be terminated by Us at any time with 60 days written
          notice to Separate Account I without the payment of any penalty.

Under the agreement We will pay or reimburse Separate Account I for the
following costs associated with the furnishing of investment management
services: costs associated with the furnishing of office space, heat, telephone
service, light, power and other utilities, furnishings, advisory and research
services, salaries of personnel, reports to the Board of Directors of Separate
Account I and fidelity bond coverage. Separate Account I will pay all taxes,
interest, brokerage fees and commissions, fees and expenses of legal counsel and
independent auditors; custodian fees and expenses, expenses associated with
meetings of the contract owners, expenses incurred in the preparation, printing
and distribution of reports and prospectuses by Separate Account I to its
current contract owners, fees of and expenses incurred by directors of Separate
Account I who are not Our directors, officers or employees, fees and expenses
associated with the approval, qualification or registration of the Contracts,
extraordinary expenses if permitted by applicable laws and regulations, and all
other fees and expenses incurred by or on behalf of Separate Account I which are
not borne by Us under the agreement or an administrative services agreement or
by the underwriter under a distribution agreement.

The agreement, as amended in 1993, authorizes us to contract with one or more
other entities to provide investment advisory services, as sub-advisor, to one
or more of the Sub-Accounts. It also provides that the advisory fee paid to us
by any affected Sub-Account will be reduced by the amount of any fee the
Sub-Account pays to any such sub-advisor. Pursuant to that provision, We have
entered into a Sub-Investment Advisory Agreement (the "Sub-Agreement"),
effective January 1, 1994, with the Bank Trust Division of NBD Bank ("NBD"), an
Illinois banking corporation, pursuant to which NBD provides certain investment
advisory and management services for the Stock Sub-Account. NBD is responsible
for selecting portfolio securities for the Stock Sub-Account and for placing
purchase and sale orders. NBD's primary business is the provision of trust and
investment services to a wide range of individuals, corporations and other
entities. NBD currently has approximately $1.4 billion under management for
approximately 1,500 client accounts. The Sub-Agreement may be terminated at any
time without penalty upon 60 days notice by us or the Board of Directors, with 6
months notice by NBD, or by vote of a majority of the outstanding voting
securities of the Stock Sub-Account. The Sub-Agreement will continue in effect
subject to the same conditions and exceptions as the agreement with us, except
that the Sub-Agreement automatically terminates in the event of the termination
of the agreement with us.

As compensation for services provided, and expenses assumed, under the
Sub-Agreement, NBD will receive an investment management fee at an annual rate
of .40% of the Stock Sub-Account's average net assets.

NBD is a wholly-owned subsidiary of NBD Bancorp, Inc., which beneficially owns
an aggregate of 1,389,055 shares, or 11.41% of WNC. NBD also serves as trustee
for certain of our other accounts.

                                    Page 15
<PAGE>

                             ADMINISTRATIVE SERVICES

We have entered into agreements with Boston Financial Data Services, Inc.
(BFDS), Vantage Computer Systems, Inc. (Vantage), Investors Fiduciary Trust
Company of Kansas City, Missouri (IFTC) and Financial Administrative Services,
Inc. (FAS), under which they have agreed to perform certain administrative
services for Separate Account I and the Sub-Accounts. IFTC keeps records of all
investment information with respect to the Sub-Accounts. Our original contract
for administrative services was entered into with Data-Sys-Tance (DST) of Kansas
City, Missouri, but this agreement was assigned to BFDS in July 1985. In May
1991, We entered into an agreement with Vantage to provide administrative
services on an interim basis. Pursuant to an agreement with FAS dated February
26, 1990, FAS assumed the handling of all matters in connection with contract
issue and administration as of August 1, 1991. We will be entering into an
agreement with our subsidiary, United Presidential Life Insurance Company (UPI)
of Kokomo, Indiana to provide administrative services beginning in mid-1995.

In the last three years the total fees paid by us to IFTC were $133,686,
$132,565, and $111,064 for 1994, 1993 and 1992 respectively. The total fees paid
to FAS were $301,495, $314,513, and $362,377 in 1994, 1993 and 1992
respectively.

Neither We, Separate Account I nor any of Our affiliates have any connection
other than that described herein with BFDS, Vantage, DST, FAS or IFTC.

                                CUSTODY AGREEMENT

Since May 1, 1991, Bank of America Illinois, Chicago, Illinois 60697, has been
the custodian of the securities and other assets of Separate Account I and
receives remuneration based on its standard schedule of fees under an agreement
with Separate Account I and Us. The Federal Reserve Bank of Chicago, Depository
Trust Company of New York, and Mellon Securities Trust Company, New York act as
securities depositories of such securities under agreements with Bank of America
Illinois and such securities depositories attend to the collection of principal
and income and payment for and collection of proceeds of securities bought and
sold by Separate Account I.

                              BROKERAGE ALLOCATION

Securities Transactions

We have responsibility for placing orders for the purchase and sale of
securities for Separate Account I under an investment management agreement. In
meeting this responsibility, Our objective is to obtain the most favorable
prices and execution of orders possible. As a guide to assist Us in evaluating
commissions, We have established, and maintain, benchmarks as to the rates which
are prudent and as to what the market dictates. In the case of fixed income
securities, transactions are presented to a number of brokers for competitive
bids before orders are placed. Where equity securities are being bought and
sold, commissions are negotiated. We do not expect to use any one particular
broker or dealer but, subject to obtaining the best prices and executions,
brokers who provide statistical information and supplemental research to Us for
pricing and appraisal services may receive orders for transactions although
their commissions may be slightly higher. It is not possible to determine the
exact value of such statistical information and supplemental research, because
such information and research are used by Us for the benefit of all Our
investment accounts and no allocation of services or costs is made nor is such
an allocation possible.

                                    Page 16
<PAGE>

Transactions May Be Made for a Number of Accounts at Once

At times, transactions for Separate Account I may be executed together with
purchases or sales of the same security for Our Fixed Account or for other
accounts served by Us. When making concurrent transactions for several accounts
at once, We try to allocate executions and prices among them fairly.
Transactions of this type are executed only when We believe it is in the best
interest of Separate Account I. However, the possibility exists that concurrent
transactions may work out to Separate Account I's disadvantage.

Other Transactions With Brokers or Dealers

In addition to using brokers and dealers to execute portfolio securities
transactions for accounts We manage, We may enter into other types of business
transactions with brokers or dealers. These other transactions are unrelated to
allocation of any Sub-Account's portfolio transactions. In the last three years
We paid out total brokerage fees of $7,695, $4,748, and $8,294 for 1994, 1993
and 1992 respectively.

                                  UNDERWRITERS

Washington National Equity Company (WNEC), a Delaware Corporation, was a
wholly-owned subsidiary of WNC prior to WNEC's dissolution on June 29, 1990. It
acted as principal underwriter to Separate Account I. WNEC was a registered
broker-dealer under the Securities and Exchange Act of 1934 until March 31,
1990, and was a member of the National Association of Securities Dealers, Inc.
(NASD).

Variable annuity contracts are no longer offered for sale. No underwriting
commissions were paid by Us to WNEC since 1991, due to WNEC's dissolution.

                                PERFORMANCE DATA

Short-Term Portfolio Sub-Account Yields

The Short-Term Portfolio Sub-Account will attempt, consistent with safety of
principal, to achieve the highest possible yield from its investments. The
manner in which the Sub-Account's yield quotation will be derived is similar to
the way in which the yields of money market mutual funds are calculated. The
Short-Term Portfolio Sub-Account's annualized yield for a seven-day period will
be computed by determining the "net change in value" of a hypothetical account
(Contract) having a balance of one Accumulation Unit at the beginning of the
period, dividing the net change in account (Contract) Accumulated Value by the
Accumulated Value at the beginning of the base period to obtain the base period
return, subtracting a hypothetical charge reflecting deductions from contract
owner accounts, and multiplying the difference by 365/7 with the resulting yield
carried to the nearest hundredth of one percent. For the purposes of calculating
the yield, net changes in the value of an account (Contract) will consist of the
increases in the Accumulation Unit value after adjustment to exclude realized
gains or losses or unrealized appreciation or depreciation on portfolio
investments. The seven-day yield for the Short-Term Portfolio Sub-Account for
the period ended December 31, 1994, was 3.89%. The effective yield for the same
period was 3.96%.

                                    Page 17
<PAGE>

Yield as determined in any appropriate fashion with respect to the Short-Term
Portfolio Sub-Account normally will fluctuate, sometimes substantially, on a
daily basis and is affected by changes in interest rates on money market
instruments, average portfolio maturities, the types and quality of portfolio
securities held and the expenses of the Sub-Account. Therefore, the yield for
any given past period should not be considered as representative of the yield
for any future period.

Other Sub-Account Yields

We may from time to time disclose the current annualized yield of one or more of
the Sub-Accounts (except the Short-Term Portfolio Sub-Account) for thirty-day
periods. The annualized yield of a Sub-Account refers to the income generated by
the Sub-Account over a specified thirty-day period. Because the yield is
annualized, the yield generated by a Sub-Account during the thirty-day period is
assumed to be generated each thirty-day period. The yield is computed by
dividing the net investment income per accumulation unit earned during the
period by the price per unit on the last day of the period, according to the
following formula:

                  YIELD = 2[(a - b  + 1)^6  -  1]
                             -----
                               cd

Where:

     a  =  net investment income earned during the period by the Sub-Account;

     b  =  expenses accrued for the period (net of reimbursements);

     c  =  the average daily number of accumulation units outstanding during
           the period; and

     d  =  the maximum offering price per accumulation unit on the last day of
           the period.

Net investment income will be determined in accordance with rules established by
the Securities and Exchange Commission. Accrued expenses will include all
recurring fees that are charged to all owner accounts. The yield calculations do
not reflect the effect of any contingent deferred sales charges that may be
applicable to a particular Contract. The contingent deferred sales charge is
equal to 6% of the amount withdrawn attributable to Purchase Payments received
not more than seventy-two months prior to the date of withdrawal.

The yield on amounts held in the Sub-Accounts normally will fluctuate over time.
Therefore, the disclosed yield for any given past period is not an indication or
representation of future yields or rates of return. The Sub-Account's actual
yield will be affected by the types and quality of portfolio securities held by
the Sub-Account and its operating expenses.

For the thirty-day period ended December 31, 1994, the Bond Sub-Account's yield
was 5.85%.

                                    Page 18
<PAGE>

Total Return Calculations

We may from time to time also disclose average annual total returns for one or
more of the Sub-Accounts for various periods of time. Average annual total
return quotations are computed by finding the average annual compounded rates of
return over one, five and ten-year periods or the life of the Sub-Account that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:

                   P (1 - T)^n = ERV

Where:
     P    =   a hypothetical initial payment of $1,000;

     T    =   average annual total return;

     n    =   number of years; and

     ERV  =   ending redeemable value of a hypothetical $1,000 payment (made
              at the beginning of the one, five or ten year period) at the end
              of the one, five, or ten-year period (or fractional portion
              thereof).

All recurring fees that are charged to all owner accounts are recognized in the
ending redeemable value. The average annual total return calculations will
reflect the effect of contingent deferred sales charges that may be applicable
to a particular period.

For the one, five and ten-year periods ended December 31, 1994, respectively,
the average annual total returns for the Bond Sub-Account were -9.65%, 3.82% and
7.30%; and for the Stock Sub-Account were -4.72%, 5.52% and 9.16%.

We may from time to time also disclose average annual total returns in a
non-standard format in conjunction with the standard format described above. The
non-standard format will be identical to the standard format except that the
contingent deferred sales charge percentage will be assumed to be 0%. Using the
non-standard format, for the one, five and ten-year periods ended December 31,
1994 respectively, the average annual total returns for the Bond Sub-Account
were -4.49%, 4.83% and 7.30%; and for the Stock Sub-Account were 0.72%, 6.47%
and 9.16%.

We may from time to time also disclose cumulative total returns in conjunction
with the standard format described above. The cumulative returns will be
calculated using the following formula assuming that the contingent deferred
sales charge percentage will be 0%.

                  CTR = (ERV / P) - 1

Where:

     CTR  =   the cumulative total return net of Sub-Account recurring charges 
              for the period;

     ERV  =   ending redeemable value of a hypothetical $1,000 payment (made
              at the beginning of the one, five, or ten-year period) at the end
              of the one, five, or ten-year period (or fractional portion
              thereof); and

     P    =   a hypothetical initial payment of $1,000.

                                    Page 19
<PAGE>

All non-standard performance data will only be advertised if the standard
performance data for the required period is also disclosed.

                                  LEGAL MATTERS

Sutherland, Asbill & Brennan in Washington, D.C. has provided advice with
respect to certain matters relating to federal securities and tax laws.

                                STATE REGULATION

Washington National Insurance Company, an Illinois Company, is subject to
regulation by the Illinois Director of Insurance. An annual statement is filed
with the Director on or before March 1st of each year covering Our operations
for the preceding year and Our financial condition on December 31st of such
year. Our books and accounts are subject to review and examination by the
Illinois Insurance Department at all times and a full examination of Our
operations is conducted at periodic intervals. In addition, We are subject to
the insurance laws and regulations of the other jurisdictions in which We are
licensed to operate.

                             REGISTRATION STATEMENT

A registration statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended. This Prospectus does
not include all of the information contained in the registration statements, its
amendments and exhibits, which were also filed.

                                     EXPERTS

The consolidated financial statements of Washington National Insurance Company
and subsidiaries and the financial statements of Separate Account I of
Washington National Insurance Company appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, to the extent indicated in their reports thereon also appearing
elsewhere herein and in the Registration Statement. Such financial statements
have been included herein in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing.

                              FINANCIAL STATEMENTS

The consolidated financial statements of Washington National Insurance Company
and subsidiaries included herein should be distinguished from the financial
statements of Separate Account I and should be considered only as bearing upon
the ability of Washington National Insurance Company to meet its obligations
under the Contracts.

                                    Page 20
<PAGE>

<TABLE>
<CAPTION>
                                             Index to Financial Statements

Separate Account I of Washington National Insurance Company
                                                                                                                 Page
                                                                                                                 ----
         <S>                                                                                                       <C>
         Report of Independent Auditors...................................................................         22
         Statement of Assets and Liabilities..............................................................         23
         Portfolio of Investments.........................................................................         24
         Statement of Operations..........................................................................         29
         Statement of Changes in Net Assets...............................................................         30
         Notes to Financial Statements....................................................................         32
         Supplementary Information-Selected Per Accumulation Unit Data and Ratios.........................         35


Washington National Insurance Company and Subsidiaries

         Report of Independent Auditors...................................................................         37
         Consolidated Balance Sheet.......................................................................         37
         Statement of Consolidated Operations and Retained Earnings.......................................         39
         Statement of Consolidated Cash Flows.............................................................         40
         Notes to Consolidated Financial Statements.......................................................         42

</TABLE>

                                    Page 21
<PAGE>

                Report of Ernst & Young LLP, Independent Auditors




Contract Owners and Board of Directors
Separate Account I of Washington
National Insurance Company

We have audited the accompanying statements of assets and liabilities, including
the portfolio of investments, of Separate Account I of Washington National
Insurance Company (comprising, respectively, the Bond, Short-Term Portfolio, and
Stock Sub-Accounts) as of December 31, 1994, and the related statements of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the selected per
accumulation unit data and ratios for each of the five years in the period then
ended. These financial statements and per accumulation unit data and ratios are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and per accumulation unit data and
ratios based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and per accumulation
unit data and ratios are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1994, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and selected per accumulation unit data
and ratios referred to above present fairly, in all material respects, the
financial position of each of the respective Sub-Accounts constituting Separate
Account I of Washington National Insurance Company at December 31, 1994, the
results of their operations for the year then ended, the changes in their net
assets for each of the two years in the period then ended, and the selected per
accumulation unit data and ratios for each of the five years in the period then
ended, in conformity with generally accepted accounting principles.


Chicago, Illinois                                      /s/Ernst & Young LLP
February 3, 1995

                                    Page 22
<PAGE>

SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY

STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994

<TABLE>
<CAPTION>
                                                                                 Sub-Account
                                                          ----------------------------------------------------
                                                                                  Short-Term
                                                                Bond              Portfolio          Stock
                                                          ----------------------------------------------------
ASSETS

<S>                                                             <C>                <C>             <C>       
Investments, at fair value (cost: Bond-$11,761,173;
   Short-Term-$1,752,688; Stock-$18,357,713)-Note C            $11,283,360        $1,752,688      $25,015,674
Cash                                                                 2,375             1,334            5,023
Dividends and interest receivable                                  169,168             2,628           63,841
Other receivables                                                    9,159                --           39,332
                                                          ----------------------------------------------------
                                                                11,464,062         1,756,650       25,123,870

LIABILITIES

Payable to Washington National Insurance Company-Note B             16,979             2,338           37,140
                                                          ----------------------------------------------------

      NET ASSETS                                               $11,447,083        $1,754,312      $25,086,730
                                                          ====================================================

Accumulation units outstanding                                   5,296,628         1,031,762        9,882,431
                                                          ====================================================

Accumulation unit value                                              $2.16             $1.70            $2.54
                                                                     -----             -----            -----
</TABLE>


See notes to financial statements.

                                    Page 23
<PAGE>

SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY

PORTFOLIO OF INVESTMENTS
December 31, 1994

<TABLE>
<CAPTION>
                                                                              Principal            Fair
Description                                                                     Amount             Value
-------------------------------------------------------------------------    -------------     ------------
<S>                                                                           <C>               <C>          
BOND SUB-ACCOUNT
   U.S. Government and Government Agency Obligations--26.3%
     U.S. Treasury, 8% note, due 1-15-97                                 $      500,000    $     502,580
     U.S. Treasury, 7% note, due 4-15-99                                        500,000          484,530
     Government Trust Certificate, 9.25% certificate, due 11-15-01              500,000          519,510
     Federal Home Loan Mortgage Corporation, 6.2% debenture,
       due 9-8-08                                                               500,000          402,030
     Federal Home Loan Mortgage Corporation, 8.75% participation
       certificates, pool 160043, due 4-1-08                                    174,717          172,225
     Federal Home Loan Mortgage Corporation, 9.25% participation
       certificates, pool 160055, due 8-1-08                                    102,433          103,156
     Federal Home Loan Mortgage Corporation, 10.25% participation
       certificates, pool 160095, due 11-1-09                                    44,342           46,097
     Federal Home Loan Mortgage Corporation, 10.75% participation
       certificates, pool 170033, due 7-1-10                                     62,413           66,332
     Federal Home Loan Mortgage Corporation, 10% participation
       certificates, pool 170152, due 1-1-16                                     35,830           37,318
     Government National Mortgage Association, 7.5% participation
       certificates, pool 327726, due 8-15-22                                   732,544          679,662
                                                                                             ------------
         TOTAL U.S. GOVERNMENT AND GOVERNMENT AGENCY
         OBLIGATIONS (cost--$3,144,527)                                                        3,013,440

Corporate Bonds--53.3%
   Comerica, Inc., 7.125% note, due 12-1-13                                     500,000          425,965
   Morgan Stanley Group, 6.375% note, due 12-1-03                               500,000          421,240
   Nationsbank Corporation, 6.625% note, due 1-15-98                            500,000          476,535
   Hoechst Celanese Corporation, 9.625% note, due 9-1-99                        500,000          512,865
   DuPont De Nemours, 9.15% note, due 4-15-00                                   500,000          518,635
   General Motors Corporation, 9.625% debentures, due 12-1-00                   500,000          518,455
   Banc One Corporation, 7.25% note, due 8-1-02                                 500,000          466,415
   Aon Corporation, 6.7% note, due 6-15-03                                      500,000          446,430
   Equifax Inc., 6.5% note, due 6-15-03                                         500,000          442,695
   NCNB Texas National Bank, 9.5% note, due 6-1-04                              500,000          527,715
   Corestates Capital Corporation, 6.625% note, due 3-15-05                     500,000          427,020
   Pacificorp, 6.75% 1st mtg & collateral trust, due 4-1-05                     500,000          444,835
   General Telephone Company of the Northwest, Inc., 8.25% first
     mortgage bonds, Series W, due 2-1-07                                       500,000          477,115
                                                                                             ------------

         TOTAL CORPORATE BONDS (cost--$6,452,646)                                              6,105,920
</TABLE>

See notes to financial statements.
Percentages shown are based on total net assets of each Sub-account.

                                    Page 24
<PAGE>

SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY

PORTFOLIO OF INVESTMENTS  -- Continued

<TABLE>
<CAPTION>
                                                                             Principal            Fair
Description                                                                    Amount             Value
-------------------------------------------------------------------------   -------------     ------------
<S>                                                                         <C>               <C>          
Floating Rate Demand Notes - 18.9%
   Household Finance Corporation, 6.00%, due on demand                          500,000    $     500,000
   Goldman Sachs, 5.66%, due on demand                                          500,000          500,000
   Associates Corporation of North America, 5.66%, due on demand                558,000          558,000
   General Electric Credit Corporation, 5.41%, due on demand                    606,000          606,000
                                                                                             ------------

         TOTAL FLOATING RATE DEMAND NOTES (cost--$2,164,000)                                   2,164,000
                                                                                             ------------

TOTAL INVESTMENTS--BOND SUB-ACCOUNT--98.5% (cost--$11,761,173)                             $  11,283,360
                                                                                             ============

SHORT-TERM PORTFOLIO SUB-ACCOUNT
   Commercial Paper--68.1%
   Chevron Oil Finance Company, 5.90%, due 2-27-95                       $      200,000    $     198,099
   American Express Credit Corporation, 5.85%, due 1-25-95                      200,000          199,188
   Commercial Credit Company, 5.75%, due 1-27-95                                200,000          199,137
   Prudential Funding Company, 5.70%, due 1-20-95                               200,000          199,367
   John Deere Credit Company, 5.67%, due 1-17-95                                200,000          199,464
   Philip Morris Company, 5.67%, due 1-18-95                                    200,000          199,433
                                                                                             ------------
                                                                                             ------------

         TOTAL COMMERCIAL PAPER (cost--$1,194,688)                                             1,194,688

Floating Rate Demand Notes--31.8%
   Household Finance Corporation, 6.00%, due on demand                          200,000          200,000
   Associates Corporation of North America, 5.66%, due on demand                200,000          200,000
   General Electric Credit Corporation, 5.41%, due on demand                    158,000          158,000
                                                                                             ------------

         TOTAL FLOATING RATE DEMAND NOTES (cost--$558,000)                                       558,000
                                                                                             ------------

         TOTAL INVESTMENTS--SHORT-TERM PORTFOLIO SUB-
ACCOUNT--99.9% (cost--$1,752,688)                                                          $   1,752,688
                                                                                             ============


                                                                               Number of           Fair
                                                                                 Shares            Value
                                                                             -------------     ------------
STOCK SUB-ACCOUNT
   Common Stocks--94.2%
     Automobile--2.3%
     General Motor Corporation                                                   15,000    $     577,500

   Banks--4.8%
     Banc One Corporation                                                        14,456          366,821
     PNC Bank Corporation                                                        18,000          380,250
     Huntington Bancshare                                                        26,533          454,378
                                                                                             ------------
                                                                                               1,201,449
</TABLE>

See notes to financial statements.
Percentages shown are based on total net assets of each Sub-account.

                                    Page 25
<PAGE>

SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY

PORTFOLIO OF INVESTMENTS  -- Continued
<TABLE>
<CAPTION>
                                                                               Number of           Fair
Description                                                                      Shares            Value
                                                                             -------------     ------------
<S>                                                                           <C>               <C>          
STOCK SUB-ACCOUNT--Continued
Common Stocks--94.2% -- Continued

   Beverages--2.6%
     Anheuser-Busch                                                              13,200    $     671,550

   Brokerage Firms--2.9%
     Merrill Lynch                                                               20,200          722,150

   Consumer Products--5.2%
     Newell Company                                                              16,000          336,000
     Rubbermaid, Inc.                                                            10,000          287,500
     Warner Lambert                                                               9,000          693,000
                                                                                             ------------
                                                                                               1,316,500
   Drugs--4.7%
     Bristol-Myers Squibb                                                         7,100          410,912
     Merck & Co.                                                                 20,400          777,750
                                                                                             ------------
                                                                                               1,188,662
   Electrical--5.7%
     Emerson Electric                                                            10,100          631,250
     General Electric                                                            15,600          795,600
                                                                                             ------------
                                                                                               1,426,850
   Electronics and Instruments--6.2%
     Avnet, Inc.                                                                 17,700          654,900
     Hewlett-Packard Company                                                      9,000          898,875
                                                                                             ------------
                                                                                               1,553,775
   Entertainment--2.3%
     Walt Disney Company                                                         12,800          590,400

   Financial--2.4%
     Federal National Mortgage Association                                        8,500          619,438

   Foods--3.9%
     CPC International                                                           12,600          670,950
     Sysco Corporation                                                           12,000          309,000
                                                                                             ------------
                                                                                                 979,950

   Industrial--8.7%
     WMX Technologies, Inc.                                                      12,000          315,000
     Parker-Hannifin                                                             15,800          718,900
     Pitney Bowes, Inc.                                                          13,600          431,800
     Sherwin Williams                                                            21,600          715,500
                                                                                             ------------
                                                                                               2,181,200
</TABLE>

See notes to financial statements.
Percentages shown are based on total net assets of each Sub-account.

                                    Page 26
<PAGE>

SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY

PORTFOLIO OF INVESTMENTS  -- Continued
<TABLE>
<CAPTION>
                                                                               Number of           Fair
Description                                                                      Shares            Value
-------------------------------------------------------------------------    -------------     ------------
<S>                                                                           <C>               <C>          
STOCK SUB-ACCOUNT -- Continued
   Common Stocks--94.2% -- Continued

     Insurance--4.7%
     Aetna Life and Casualty Company                                              6,200    $     292,175
     General Re                                                                   4,400          544,500
     Lincoln National Corporation                                                10,000          350,000
                                                                                             ------------
                                                                                               1,186,675
   Mines and Minerals--2.3%
     Minnesota Mining and Manufacturing Company                                  11,000          587,125

   Oil--11.3%
     Amoco Corporation                                                           11,000          650,375
     Chevron Corporation                                                         18,600          830,025
     Exxon Corporation                                                           11,600          704,700
     Mobil Corporation                                                            7,600          640,300
                                                                                             ------------
                                                                                               2,825,400
   Radio and Television--2.3%
     Interpublic Group Company                                                   16,000          514,000

   Restaurants--3.7%
     McDonald's Corporation                                                      31,400          918,450

   Technology--7.8%
     Intel Corporation                                                           11,000          701,250
     Motorola Incorporated                                                       15,600          902,850
     Texas Instruments Incorporated                                               4,800          359,400
                                                                                             ------------
                                                                                               1,963,500
   Telephone--3.3%
     Bell Atlantic Corporation                                                   10,500          522,375
     Pacific Telesis Group                                                       10,800          307,800
                                                                                             ------------
                                                                                                 830,175
   Utilities--7.1%
     Central & Southwest                                                         19,600          443,450
     Duke Power                                                                  12,400          472,750
     Northeast Utilities                                                         17,400          376,275
     Pennsylvania Power and Light Company                                        17,800          338,200
     SCE Corp                                                                    10,000          146,250
                                                                                             ------------
                                                                                               1,776,925
                                                                                             ------------

         TOTAL COMMON STOCKS (cost--$16,973,713)                                              23,631,674
</TABLE>

See notes to financial statements.
Percentages shown are based on total net assets of each Sub-account.

                                    Page 27
<PAGE>

SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY

PORTFOLIO OF INVESTMENTS  -- Continued

<TABLE>
<CAPTION>
                                                                              Principal           Fair
Description                                                                     Amount            Value
-------------------------------------------------------------------------    -------------     ------------
<S>                                                                           <C>               <C>          

   Floating Rate Demand Notes--5.5%
     Household Finance Corporation, 6.00%, due on demand                         33,000    $      33,000
     Associates Corporation of North America, 5.66%, due on demand              537,000          537,000
     General Electric Credit Corporation, 5.41%, due on demand                  814,000          814,000
                                                                                             ------------

         TOTAL FLOATING RATE DEMAND NOTES (cost--$1,384,000)                                   1,384,000
                                                                                             ------------

         TOTAL INVESTMENTS--STOCK SUB-ACCOUNT--99.7% (cost--
$18,357,713)                                                                               $  25,015,674
                                                                                             ============

</TABLE>

See notes to financial statements.
Percentages shown are based on total net assets of each Sub-account.


                                    Page 28
<PAGE>

SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY

STATEMENT OF OPERATIONS
Year Ended December 31, 1994

<TABLE>
<CAPTION>
                                                                                    Sub-Account
                                                           -------------------------------------------------------------
                                                                                     Short-Term
                                                                Bond                  Portfolio                 Stock
                                                            ------------             -----------             -----------
<S>                                                         <C>                      <C>                     <C>        
Investment income:
    Interest                                                $    873,260             $    72,869             $    75,481
    Dividends                                                       --                      --                   741,497
    Other                                                           --                      --                    10,121
                                                            ------------             -----------             -----------
                                                                 873,260                  72,869                 827,099
Expenses--Note B:                                                                                                       
    Mortality and expense assurance                               97,244                  13,491                 201,789
    Investment advisory and management fee                        60,777                   8,432                 126,119
    Accounting service fee                                        42,544                   5,903                  88,283
    General and administrative expenses                           28,308                   3,373                  51,514
                                                            ------------             -----------             -----------
                                                                 228,873                  31,199                 467,705
                                                            ------------             -----------             -----------
                                                                                                                        
                     NET INVESTMENT INCOME                       644,387                  41,670                 359,394
                                                                                                                        
Realized and unrealized gains (losses):                                                                                 
        Net realized gains                                        26,252                                         237,338
        Unrealized gains (losses)--Note C                                                                               
            Beginning of year                                    728,923                                       7,071,529
            End of year                                         (477,813)                                      6,657,961
                                                            ------------                                     -----------
                                                                                                                        
           Net unrealized loss                                (1,206,736)                                       (413,568)
                                                            ------------                                     -----------
                                                                                                                        
           NET REALIZED AND UNREALIZED                                                                                  
              LOSS ON INVESTMENTS                             (1,180,484)                                       (176,230)
                                                            ------------             -----------             -----------
                                                                                                                        
           INCREASE (DECREASE) IN NET ASSETS FROM                                                                       
           OPERATIONS                                       $  (536,097)             $    41,670             $   183,164
                                                            ============             ===========             ===========
</TABLE>

See notes to financial statements.

                                    Page 29
<PAGE>

SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
                                                                             Year Ended December 31, 1994
                                                           -------------------------------------------------------------
                                                                                    Sub-Account
                                                           -------------------------------------------------------------
                                                                                     Short-Term
                                                                Bond                  Portfolio                 Stock
                                                            ------------             -----------             -----------
<S>                                                         <C>                      <C>                     <C>        
ADDITIONS (DEDUCTIONS)
    From operations
        Net investment income                               $    644,387            $     41,670            $    359,394       
        Net realized gain                                         26,252                    --                   237,338       
        Net unrealized loss                                   (1,206,736)                   --                  (413,568)      
                                                            ------------            ------------            ------------       
                                                                                                                         
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS               (536,097)                 41,670                 183,164       
                                                                                                                         
    From capital transactions-Note A                                                                                     
        Net proceeds from units sold                             406,807                  51,010               1,055,215       
        Cost of units redeemed                                  (992,431)               (134,122)             (2,092,462)      
        Net asset value of units transferred,                                                                            
            including exchanges with the Fixed Account          (592,255)                170,143                 233,261       
                                                            ------------            ------------            ------------       
                                                                                                                         
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL 
TRANSACTIONS                                                  (1,177,879)                 87,031                (803,986)      
                                                            ------------            ------------            ------------       
                                                                                                                         
NET INCREASE (DECREASE) IN NET ASSETS                         (1,713,976)                128,701                (620,822)      
                                                                                                                         
Net assets at beginning of year                               13,161,059               1,625,611              25,707,552       
                                                            ------------            ------------            ------------       
                                                                                                                         
NET ASSETS AT END OF YEAR                                   $ 11,447,083            $  1,754,312            $ 25,086,730       
                                                            ============            ============            ============       
                                                                                                                         
                                                                                                                         
ANALYSIS OF CHANGES IN UNITS OUTSTANDING                                                                                 
    Units sold                                                   185,686                  30,089                 420,378       
    Units redeemed                                              (454,958)                (80,108)               (831,402)      
    Units transferred                                           (270,163)                101,699                  91,183       
                                                            ------------            ------------            ------------       
                                                                                                                         
INCREASE (DECREASE) IN UNITS OUTSTANDING                        (539,435)                 51,680                (319,841)

    Units outstanding at beginning of year                     5,836,063                 980,082              10,202,272         
                                                            ------------            ------------            ------------

UNITS OUTSTANDING AT END OF YEAR                               5,296,628               1,031,762               9,882,431      
                                                            ============            ============            ============
</TABLE>

See notes to financial statements.

                                    Page 30
<PAGE>

SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
                                                                             Year Ended December 31, 1993
                                                           -------------------------------------------------------------
                                                                                    Sub-Account
                                                           -------------------------------------------------------------
                                                                                     Short-Term
                                                                Bond                  Portfolio                 Stock
                                                            ------------             -----------             -----------
<S>                                                         <C>                      <C>                     <C>        
ADDITIONS (DEDUCTIONS)
    From operations
        Net investment income                               $    738,165            $     21,759            $    295,247       
        Net realized gain (loss)                                 151,265                    --                   (90,544)      
        Net unrealized gain                                        2,152                    --                 2,241,023       
                                                            ------------            ------------            ------------       
                                                                                                                         
INCREASE IN NET ASSETS FROM OPERATIONS                           891,582                  21,759               2,445,726       
                                                                                                                         
    From capital transactions-Note A                                                                                     
        Net proceeds from units sold                             400,778                  43,723               1,184,427       
        Cost of units redeemed                                (1,610,829)                (73,925)             (2,308,288)      
        Net asset value of units transferred,                                                                            
            including exchanges with the Fixed Account          (152,258)               (109,822)                513,076       
                                                            ------------            ------------            ------------       
                                                                                                                         
 DECREASE IN NET ASSETS FROM CAPITAL TRANSACTIONS             (1,362,309)               (140,024)               (610,785)      
                                                            ------------            ------------            ------------       
                                                                                                                         
NET INCREASE (DECREASE) IN NET ASSETS                           (470,727)               (118,265)              1,834,941       
                                                                                                                         
Net assets at beginning of year                               13,631,786               1,743,876              23,872,611       
                                                            ------------            ------------            ------------       
                                                                                                                         
NET ASSETS AT END OF YEAR                                   $ 13,161,059            $  1,625,611            $ 25,707,552       
                                                            ============            ============            ============       
                                                                                                                         
                                                                                                                         
ANALYSIS OF CHANGES IN UNITS OUTSTANDING                                                                                 
    Units sold                                                   181,794                  26,452                 483,077       
    Units redeemed                                              (733,115)                (44,810)               (948,643)      
    Units transferred                                            (69,298)                (66,618)                210,388       
                                                            ------------            ------------            ------------       
                                                                                                                         
                                                                                                                         
DECREASE IN UNITS OUTSTANDING                                   (620,619)                (84,976)               (255,178)      
                                                                                                                         
    Units outstanding at beginning of year                     6,456,682               1,065,058              10,457,450       
                                                            ------------            ------------            ------------       
                                                                                                                         
UNITS OUTSTANDING AT END OF YEAR                               5,836,063                 980,082              10,202,272       
                                                            ============            ============            ============       
</TABLE>

See notes to financial statements.

                                    Page 31
<PAGE>

SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS

December 31, 1994

NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Account: The Separate Account I of Washington National Insurance Company
(the "Separate Account") is a segregated investment account of Washington
National Insurance Company ("WNIC"). WNIC is a wholly-owned subsidiary of
Washington National Corporation. The Separate Account is registered as an
open-end diversified management investment company pursuant to the provisions of
the Investment Company Act of 1940. The Separate Account no longer issues new
contracts. There are three Sub-Accounts within the Separate Account, each with
its own investment objectives and policies as follows:

     Bond Sub-Account -- high level of current income while preserving capital
     by investing in fixed income securities.

     Short-Term Portfolio Sub-Account -- moderate level of current income
     consistent with liquidity and preservation of capital by investing in one
     or more types of short-term instruments.

     Stock Sub-Account -- long-term capital growth and income by investing
     principally in equity-type securities.

In addition, a contract holder may elect to invest in a fixed annuity held by
WNIC, called the Fixed Account.

WNIC is a contract holder of the Separate Account. At December 31, 1994, the
fair value of WNIC's investments were $4,822,598, $1,041,313, and $7,151,985 in
the Bond, Short-Term Portfolio, and Stock Sub-Accounts, respectively.
During 1994, WNIC has made no deposits or withdrawals.

Valuation of Investments: Securities traded on a national securities exchange
are valued at the closing price as of the valuation date. Investments traded in
the over-the-counter market are valued at the average between the bid and ask
prices. Commercial paper is valued at amortized cost and other short-term
investments are valued at cost. Differences, if any, from fair value are not
considered material in relation to net assets.

Investment Transactions and Income: Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Interest income is
recorded on the accrual basis and dividend income is recorded on the ex-dividend
date. Realized gains and losses on investments are determined on a first-in,
first-out basis.

Accumulation Unit Valuation: Accumulation unit values reflect the net asset
value of each Sub-Account and are computed daily.

                                    Page 32
<PAGE>

SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS -- Continued
December 31, 1994


NOTE B -- DEDUCTIONS AND CHARGES

Deductions and charges are made from the Separate Account and paid to WNIC as
follows:

  o    As a fee for administration and contract maintenance, WNIC deducts $30
       annually from the accumulated value of each contract on the contract
       anniversary or on the date of surrender if it occurs between contract
       anniversaries. This fee does not apply to contracts for individual
       retirement accounts, or to contracts which at the end of any contract
       anniversary have received at least $1,000 of payments or in which the
       accumulated value is at least $20,000.

  o    As compensation for annuity rate guarantees, WNIC deducts an amount,
       computed on a daily basis, which is equal on an annual basis to .8% of
       the average net asset value of the Separate Account.

  o    As a fee for managing and administering the investment activities of the
       Separate Account, WNIC deducts an amount, computed on a daily basis,
       equal to an annual rate of .5% of the average net asset value of each
       Sub-Account.

  o    As compensation for providing financial accounting services to the
       Separate Account, WNIC deducts an amount, computed on a daily basis,
       equal to an annual rate of .35% of the average net asset value of the
       Separate Account.

  o    As reimbursement for incurring various other general and administrative
       expenses attributable to the Separate Account, WNIC deducts an amount,
       computed on a daily basis, equal to an annual rate of .2% of the average
       net asset value of the Separate Account. A component of these expenses is
       the fee paid to the Separate Account's Board of Directors. Only members
       of the Board of Directors who are not directors, officers, or employees
       of WNIC receive an annual retainer of $1,000, and a meeting fee of $350.
       During 1994, the Separate Account's three external directors each
       received $1,350.

  o    A contingent deferred sales charge of 6% is made on any amounts withdrawn
       which are in excess of 10% of the contract's accumulated value on the
       date of the first withdrawal during the respective contract year, except
       that no such charge is made for withdrawals of purchase payments received
       more than 72 months prior to the date of withdrawal and no such charge is
       made if the withdrawal amount is applied to a settlement option after the
       contract has been in force for five years or if the contract contains
       life contingencies.

                                    Page 33
<PAGE>

SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS -- Continued
December 31, 1994


NOTE C -- INVESTMENTS

The aggregate cost of purchases and sales of investments other than United
States Government obligations and short-term notes was:

                                                                   Proceeds
                                             Cost of                 From
                                           Investments            Investments
              Sub-Account                   Acquired                 Sold
          --------------------          ------------------     ---------------

          Bond                             $         -           $    807,884
          Stock                              3,087,196              2,886,600


The total unrealized gain or loss on investments at December 31, 1994 consisted
of unrealized appreciation of $123,229 and $7,263,885 and unrealized
depreciation of $601,042 and $605,924 in the Bond and Stock Sub-Accounts,
respectively.


NOTE D -- FEDERAL INCOME TAXES

The operations of the Separate Account form a part of, and are taxed with, the
operations of WNIC, which under the Internal Revenue Code is taxed as a "life
insurance company." The Separate Account is not taxed as a regulated investment
company under Subchapter M of the Code. Under existing federal income tax law,
no taxes are payable on the investment income or on the realized gains of the
Separate Account.


                                    Page 34
<PAGE>

SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY

SUPPLEMENTARY INFORMATION--SELECTED PER ACCUMULATION UNIT DATA AND RATIOS


Selected data per accumulation unit
outstanding throughout the year

<TABLE>
<CAPTION>
For the year ended December 31,              1994                          1993                          1992
                                   --------------------------    --------------------------    --------------------------
                                          Sub-Account                   Sub-Account                   Sub-Account
                                   --------------------------    --------------------------    --------------------------
                                          Short-Term                    Short-Term                    Short-Term
                                     Bond  Portfolio  Stock        Bond  Portfolio  Stock        Bond  Portfolio  Stock
                                   --------------------------    --------------------------    --------------------------
<S>                                <C>      <C>      <C>         <C>      <C>      <C>         <C>      <C>      <C>   
Per accumulation unit data:
Investment income                  $ 0.16   $ 0.07   $ 0.08      $ 0.16   $ 0.05   $ 0.07      $ 0.17   $ 0.06   $ 0.07
Expenses                            (0.04)   (0.03)   (0.04)      (0.04)   (0.03)   (0.04)      (0.04)   (0.03)   (0.04)
                                   ------------------------      ------------------------      ------------------------
  NET INVESTMENT INCOME              0.12     0.04     0.04        0.12     0.02     0.03        0.13     0.03     0.03

Net realized and unrealized
    gain (loss) on investments      (0.22)      --    (0.02)       0.03       --     0.21       (0.01)      --     0.12
                                   ------------------------      ------------------------      ------------------------
Net increase (decrease) in
    accumulation unit value         (0.10)    0.04     0.02        0.15     0.02     0.24        0.12     0.03     0.15
Accumulation unit value at
    beginning of year                2.26     1.66     2.52        2.11     1.64     2.28        1.99     1.61     2.13
                                   ------------------------      ------------------------      ------------------------

  ACCUMULATION UNIT VALUE
    AT END OF YEAR                 $ 2.16   $ 1.70   $ 2.54      $ 2.26   $ 1.66   $ 2.52      $ 2.11   $ 1.64   $ 2.28
                                   ========================      ========================      ========================


Ratios:
   Ratio of expenses to average
    net assets                       1.87%    1.85%    1.83%       1.85%    1.85%    1.81%       1.85%    1.85%    1.85%
Ratio of net investment income
    to average net assets            5.28     2.47     1.41        5.50     1.28     1.17        6.22     1.82     1.33
Portfolio turnover rate                --       --    12.20       33.66       --     3.50       10.83       --     4.92

Number of accumulation units
   outstanding at end of year
   (000's omitted)                  5,297    1,032    9,882       5,836      980   10,202       6,457    1,065   10,457
</TABLE>


See notes to financial statements.

                                    Page 35
<PAGE>

SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY

SUPPLEMENTARY INFORMATION--SELECTED PER ACCUMULATION UNIT DATA AND 
RATIOS (cont.)

Selected data per accumulation unit
outstanding throughout the year


<TABLE>
<CAPTION>
For the year ended December 31,              1991                          1990
                                  ----------------------------  ---------------------------
                                           Sub-Account                  Sub-Account
                                    --------------------------   --------------------------
                                          Short-Term                    Short-Term
                                     Bond   PortfolioStock        Bond   Portfolio Stock
                                   --------------------------    --------------------------
<S>                                <C>      <C>      <C>         <C>      <C>      <C>   
Per accumulation unit data:
   Investment income               $  0.16  $ 0.09   $ 0.07      $ 0.16   $ 0.11   $ 0.08
   Expenses                          (0.03)  (0.03)   (0.04)      (0.03)   (0.03)   (0.03)
                                   --------------------------    --------------------------
     NET INVESTMENT INCOME            0.13    0.06     0.03        0.13     0.08     0.05

   Net realized and unrealized
       gain (loss) on investments     0.14      --     0.34       (0.11)     --     (0.14)
                                   --------------------------    --------------------------
   Net increase (decrease) in                                      0.02     0.08   (0.09)
       accumulation unit value        0.27    0.06     0.37
   Accumulation unit value at
       beginning of year              1.72    1.55     1.76        1.70     1.47     1.85
                                   --------------------------    --------------------------

ACCUMULATION UNIT VALUE
     AT END OF YEAR                $  1.99  $ 1.61   $ 2.13      $ 1.72   $ 1.55   $ 1.76
                                   ==========================    ==========================


Ratios:
   Ratio of expenses to average
       net assets                     1.85%   1.86%    1.86%       1.79%    1.85%    1.83%
   Ratio of net investment income
       to average net assets          7.02    3.80     1.85        7.61     5.29     2.82
   Portfolio turnover rate              --      --     5.97       10.03       --    15.70

Number of accumulation units
   outstanding at end of year
   (000's omitted)                   6,616   1,130   10,564       7,308    1,505   10,693
</TABLE>

See notes to financial statements.


                                    Page 36
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholder
Washington National Insurance Company

--------------------------------------------------------------------------------

We have audited the accompanying consolidated balance sheets of Washington
National Insurance Company and subsidiaries as of December 31, 1994 and 1993,
and the related consolidated statements of operations, shareholder's equity,
and cash flows for each of the three years in the period ended December 31,
1994. The financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these financial
statements based on our audits.

    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Washington
National Insurance Company and subsidiaries at December 31, 1994 and 1993, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.

    As discussed in Note A, the Company changed its method of accounting for
certain investments in debt and equity securities in 1994, postemployment
benefits in 1993, and income taxes and postretirement benefits other than
pensions in 1992.


                                                /s/Ernst & Young LLP

Chicago, Illinois
February 13, 1995


                                       37
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEET 
(000s omitted)

<CAPTION>
                   December 31,                                                                1994          1993
-----------------------------------------------------------------------------------------------------------------
<S>                <C>                                                                   <C>           <C>
ASSETS             Investments
                   Fixed maturities-
                          Available for sale at fair value (cost: $1,768,181)            $1,649,453    $       --
                          Held to maturity at cost (fair value: $112,368; $134,448)         113,116       128,184
                          Held for sale at cost (fair value: $1,708,677)                         --     1,632,609
                      Mortgage loans on real estate                                         357,641       391,667
                      Real estate                                                            26,835        38,879
                      Policy loans                                                           54,368        52,285
                      Equities at fair value (cost: $13,218; $15,723)                        13,047        15,714
                      Other long-term                                                        17,293        20,686
                      Short-term                                                             51,642        67,352
                   Total Investments                                                      2,283,395     2,347,376
                   Cash                                                                       3,669         7,021
                   Deferred acquisition costs                                               293,850       256,956
                   Reinsurance recoverables and prepaid premiums                             54,842        56,314
                   Accrued investment income                                                 33,084        32,386
                   Insurance premiums in course of collection                                14,857        25,159
                   Property and equipment                                                    22,988        26,151
                   Goodwill                                                                  19,092        20,983
                   Separate Account                                                          42,178        44,589
                   Other                                                                     38,402        24,457
                   ----------------------------------------------------------------------------------------------
                   TOTAL ASSETS                                                          $2,806,357    $2,841,392
-----------------------------------------------------------------------------------------------------------------
LIABILITIES        Policy liabilities                                                    $2,354,818    $2,331,471
                   General expenses and other liabilities                                   119,069       117,056
                   Mortgage payable                                                           1,907         2,434
                   Short-term notes payable                                                   1,175         2,800
                   Income taxes (1994 current: $430)                                        (15,874)        5,631
                   Minority interest                                                         44,157        25,707
                   Separate Account                                                          42,178        44,589
                   ----------------------------------------------------------------------------------------------
                   TOTAL LIABILITIES                                                      2,547,430     2,529,688
-----------------------------------------------------------------------------------------------------------------
SHAREHOLDER'S      Common Stock ($5.00 par value; Authorized - 5,250,000
EQUITY              shares; Issued and outstanding - 5,007,370 shares)                       68,274        87,865
                   Retained earnings                                                        250,198       226,639
                   Unrealized losses on investments                                         (56,897)           (9)
                   Unfunded pension loss                                                     (2,648)       (2,791)
                   ----------------------------------------------------------------------------------------------
                   TOTAL SHAREHOLDER'S EQUITY                                               258,927       311,704
                   ----------------------------------------------------------------------------------------------
                   TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY                            $2,806,357    $2,841,392
-----------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.


                                       38
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS 
(000s omitted)

<CAPTION>
                  Year Ended December 31,                                        1994          1993           1992
-------------------------------------------------------------------------------------------------------------------
<S>               <C>                                                        <C>           <C>            <C>
REVENUES          Insurance premiums and policy charges                      $468,386      $438,822       $380,970
                  Net investment income                                       181,524       183,430        187,010
                  Realized investment gains (losses)                           (1,425)          896         (4,954)
                  Other                                                         8,142         6,324          6,925
                  -------------------------------------------------------------------------------------------------
                  TOTAL REVENUES                                              656,627       629,472        569,951
-------------------------------------------------------------------------------------------------------------------
BENEFITS AND      Insurance benefits paid or provided                         435,802       420,358        409,840
EXPENSES          Insurance and general expenses                              137,239       129,584        105,003
                  Amortization of deferred acquisition costs                   38,053        37,943         27,120
                  -------------------------------------------------------------------------------------------------
                  TOTAL BENEFITS AND EXPENSES                                 611,094       587,885        541,963
-------------------------------------------------------------------------------------------------------------------
EARNINGS          Income before income taxes, minority interest,
                    and cumulative effect of changes in
                    accounting principles                                      45,533        41,587         27,988
                  INCOME TAXES                                                 13,062        10,728          9,671
                  MINORITY INTEREST                                             2,937           389             --
                  -------------------------------------------------------------------------------------------------
                  Income before cumulative effect of changes
                    in accounting principles                                   29,534        30,470         18,317
                  CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING
                  PRINCIPLES---NET OF RELATED TAX EFFECTS                          --        (1,550)       (15,196)
                  -------------------------------------------------------------------------------------------------
                  NET INCOME                                                 $ 29,534      $ 28,920       $  3,121
-------------------------------------------------------------------------------------------------------------------
</TABLE>

See notes to consolidated financial statements.







                                       39
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS 
(000s omitted)

<CAPTION>
                   Year Ended December 31,                                       1994          1993           1992
-------------------------------------------------------------------------------------------------------------------
<S>                <C>                                                      <C>           <C>            <C>
OPERATING          Net income                                               $  29,534     $  28,920      $   3,121
ACTIVITIES         Adjustments to reconcile to net cash provided
                    by operating activities
                      Increase in policy liabilities                           48,998        80,440         82,513
                      Deferred acquisition costs                               (3,894)      (15,282)       (30,788)
                      Change in premiums in course of collection               10,302       (12,077)         6,963
                      Change in reinsurance receivable                        (11,387)        4,587             --
                      Changes in accounting principles - net of tax                --         1,550         15,196
                      Other, net                                                7,838        21,359         13,910
                   ------------------------------------------------------------------------------------------------
                   NET CASH PROVIDED BY OPERATING ACTIVITIES                   81,391       109,497         90,915
-------------------------------------------------------------------------------------------------------------------
INVESTING          Proceeds from sales
ACTIVITIES            Fixed maturities - available for sale                   113,375            --             --
                      Fixed maturities                                             --       261,313        123,549
                      Equities, mortgage loans, real estate, and other         18,239        55,354         68,854
                   Proceeds from maturities and redemptions
                      Fixed maturities - available for sale                   155,684            --             --
                      Fixed maturities - held to maturity                      17,313            --             --
                      Fixed maturities                                             --       266,217        435,506
                      Equities, mortgage loans, real estate, and other         58,666        73,763         85,864
                   Cost of purchases
                      Fixed maturities - available for sale                  (399,418)           --             --
                      Fixed maturities - held to maturity                      (5,000)           --             --
                      Fixed maturities                                             --      (726,358)      (775,858)
                      Equities, mortgage loans, real estate, and other        (26,068)      (40,661)      (110,046)
                   Increase in policy loans                                    (2,083)         (784)        (1,815)
                   Purchases of property and equipment                         (2,008)       (7,824)        (5,369)
                   Net (increase) decrease in short-term investments           15,710        (4,350)        38,562
                   ------------------------------------------------------------------------------------------------
                   NET CASH USED BY INVESTING ACTIVITIES                      (55,590)     (123,330)      (140,753)
-------------------------------------------------------------------------------------------------------------------
FINANCING          Policyholder account deposits                              143,627       142,871        174,841
ACTIVITIES         Policyholder account withdrawals                          (169,278)     (124,795)      (128,815)
                   Sale of Common Stock by subsidiary                              --        25,382             --
                   Change in short-term notes payable                              --       (11,950)        11,114
                   Repayment of mortgage and long-term notes payable             (527)       (9,536)          (822)
                   Proceeds from mortgage and long-term notes payable              --            --          4,400
                   Dividends to parent                                         (2,975)       (7,710)        (9,915)
                   ------------------------------------------------------------------------------------------------
                   NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES           (29,153)       14,262         50,803
-------------------------------------------------------------------------------------------------------------------
CHANGE IN          INCREASE (DECREASE) IN CASH                                 (3,352)          429            965
CASH               CASH AT BEGINNING OF YEAR                                    7,021         6,592          5,627
                   ------------------------------------------------------------------------------------------------
                   CASH AT END OF YEAR                                      $   3,669     $   7,021      $   6,592
-------------------------------------------------------------------------------------------------------------------
</TABLE>

See notes to consolidated financial statements.


                                       40
<PAGE>

<TABLE>
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY 
(000s omitted)

<CAPTION>
                            Year Ended December 31,                           1994        1993           1992
------------------------------------------------------------------------------------------------------------------
<S>                         <C>                                             <C>          <C>            <C>
COMMON STOCK                Balance at beginning of year                    $ 87,865      $ 87,865       $ 87,865
AND ADDITIONAL               Subsidiary stock issuance                       (19,591)           --             --
                            --------------------------------------------------------------------------------------
PAID-IN Capital             Balance at end of year                            68,274        87,865         87,865
------------------------------------------------------------------------------------------------------------------
RETAINED                    Balance at beginning of year                     226,639       205,429        212,223
EARNINGS                     Net income                                       29,534        28,920          3,121
                             Dividends to parent                              (5,975)       (7,710)        (9,915)
                            --------------------------------------------------------------------------------------
                            Balance at end of year                           250,198       226,639        205,429
------------------------------------------------------------------------------------------------------------------
NET UNREALIZED
GAINS (LOSSES) ON           Balance at beginning of year                          (9)          111         (3,248)
INVESTMENTS                  Effect of change in accounting principle         39,424            --             --
                             Change during year                              (96,312)         (120)         3,359
                            --------------------------------------------------------------------------------------
                            Balance at end of year                           (56,897)           (9)           111
------------------------------------------------------------------------------------------------------------------
UNFUNDED PENSION            Balance at beginning of year                      (2,791)       (1,269)        (2,498)
LOSS                         Change during year                                  143        (1,522)         1,229
                            --------------------------------------------------------------------------------------
                            Balance at end of year                            (2,648)       (2,791)        (1,269)
------------------------------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY        TOTAL SHAREHOLDER'S EQUITY AT END OF YEAR       $258,927      $311,704       $292,136
------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.







                                       41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A
Significant Accounting Policies and Practices

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP) and include the
accounts and operations of Washington National Insurance Company and its
subsidiaries (WNIC or the Company).  WNIC is a wholly owned subsidiary of
Washington National Corporation (WNC). Significant intercompany transactions
have been eliminated.

RECLASSIFICATIONS

Certain amounts in the 1993 and 1992 financial statements have been
reclassified to conform to the 1994 presentation.

MINORITY INTEREST

During the fourth quarter of 1993, United Presidential Corporation (UPC), an
insurance subsidiary of WNIC, issued and sold common stock to WNC, representing
a 28.7% interest in UPC. The shares were sold based on UPC's statutory book
value, which was less than UPC's GAAP book value. As a result of this
difference, an adjustment of $19,591,000 was recorded to WNIC's additional
paid-in capital to reflect the decrease in WNIC's GAAP-basis carrying value of
UPC. The operations of UPC are consolidated in the accompanying financial
statements, with WNC's interest in UPC represented by a minority interest.

NEW ACCOUNTING STANDARDS

Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) 115, "Accounting for Certain Investments in Debt
and Equity Securities," issued by the Financial Accounting Standards Board
(FASB) in 1993. The statement requires the Company to segregate its fixed
maturity portfolio into three separate classifications: investments held to
maturity, trading securities, and investments available for sale.

    Investments held to maturity are those fixed maturities that the Company
has a positive intent and ability to hold to maturity.  These securities are
carried at amortized cost less write-downs for other-than-temporary
impairments. Trading securities consist of those fixed maturity and equity
securities held for short periods of time and are carried on the balance sheet
at fair value, with any change in value reported as a component of income.
Available for sale investments consist of those securities that do not meet the
criteria of either investments held to maturity or trading securities and are
carried on the balance sheet at fair value.  Changes in fair values of
available for sale securities, after adjustment of deferred acquisition costs
(DAC) and minority interest, are reported as unrealized gains or losses
directly in shareholder's equity and, accordingly, have no effect on net
income. The DAC offsets represent valuation adjustments or reinstatements of
DAC that would have been required as charges or credits to operations had such
unrealized amounts been realized. The effect of the adjustment to market value
and the change to DAC is tax effected. If a decrease in the value of fixed
maturity investments is other than temporary, the loss is recognized as a
realized loss. The effect of the adoption of this standard on shareholder's
equity is as follows:

---------------------------------------------------------------------
(000s omitted)                              12/31/94          1/1/94
---------------------------------------------------------------------
Fair value adjustment to available
    for sale fixed maturity securities     $(118,728)       $ 74,273
DAC adjustments                               33,000         (18,630)
Deferred tax adjustments                      24,543         (13,999)
Minority interest                              4,385          (2,220)
---------------------------------------------------------------------
Net unrealized gain (loss) on
    fixed maturities available for sale    $ (56,800)       $ 39,424
---------------------------------------------------------------------

    At December 31, 1994, the unrealized loss was primarily due to the increase
in interest rates in 1994.

    In 1993, these securities were primarily classified as held for sale and
carried at the lower of market or amortized cost, less other-than-temporary
impairments.

                                       42
<PAGE>

    The Company foresees that this standard will continue to result in an
increase in the volatility of shareholder's equity as the standard does not
permit a corresponding adjustment to the liabilities that these assets support.

    In October 1994, the FASB issued SFAS 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments." The statement
requires increased disclosure of information on derivative financial
instruments such as forward, futures, swap, and option contracts. The Company
does not have any such instruments. However, the Company does have certain
financial commitments to extend credit and fund investments that fall under the
disclosure requirements of this statement and these are discussed in Note F.

    Effective December 1994, the Company adopted the American Institute of
Certified Public Accountants (AICPA) Statement of Position (SOP) 94-5,
"Disclosure of Certain Matters in the Financial Statements of Insurance
Enterprises." This SOP requires additional disclosure on statutory accounting
that is included in Note G.

    SFAS 114, "Accounting by Creditors for Impairment of a Loan," and its
amendments, will be adopted by the Company effective January 1, 1995. The
standard provides measurement criteria for determining the carrying value when
it is probable that a loan has been impaired and for disclosing of information
about investments in impaired loans. A loan is considered impaired when it is
probable that the Company will not collect all amounts due under the
contractual terms. The impairment is recognized by a valuation allowance which
may be subsequently increased or decreased based on changes in the measurement
criteria. The statement applies to essentially all loans in the Company's
mortgage loan portfolio. The adoption will not have a material impact on the
financial statements.

CUMULATIVE EFFECT OF ACCOUNTING CHANGES

Net income in 1993 was reduced by a one-time cumulative effect adjustment of
$1,550,000, net of taxes of $834,000, for the adoption of SFAS 112 "Employers'
Accounting for Postemployment Benefits." Net income in 1992 includes one-time   
cumulative effect adjustments of a reduction of $20,126,000, net of taxes of
$10,368,000, for the adoption of SFAS 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions," and an increase of $4,930,000 for
the adoption of SFAS 109, "Accounting for Income Taxes."

INVESTMENTS

FIXED MATURITIES. Fixed maturity investments are securities that mature more
than one year after issuance. They include bonds, notes, and redeemable
preferred stocks. Investments in fixed maturities are intended to be used by
WNIC as part of its asset/liability matching strategy. Effective in 1994 with
the adoption of SFAS 115, the Company classifies its fixed maturity investments
into available for sale investments and held to maturity investments.

    EQUITY SECURITIES. Equity securities include an investment of WNIC's funds
in its Separate Account, nonredeemable preferred stocks, and common stocks. The
Separate Account investment is carried at cost. The stocks of non-related
companies are carried at fair value derived from either a major securities
exchange or the National Association of Securities Dealers Automated Quotation
System. Unreahzed gains and losses on these securities are recorded directly in
shareholder's equity. Other-than-temporary declines below cost are recorded as
realized losses.

    MORTGAGE LOANS ON REAL ESTATE. Mortgage loans on real estate are carried at
unpaid principal net of unearned discount and allowance for possible loan
losses. Allowance for mortgage loan losses is based on an evaluation of the
mortgage loan portfolio, past credit loss experience, and current economic
conditions. Loans considered permanently impaired are written down to their net
realizable value.

    REAL ESTATE INVESTMENTS. Real estate investments are principally carried at
cost less allowances for depreciation and possible losses. Foreclosed real
estate is considered available for sale and is recorded at the lower of current
carrying value or fair value less estimated costs of disposal.

    OTHER LONG-TERM INVESTMENTS. Other long-term investments consist
principally of venture capital investments and are carried at cost less
other-than-temporary impairments.

    SHORT-TERM INVESTMENTS. Short-term investments include commercial paper,
variable demand notes, and money market funds and are carried at cost, which
approximates market value.

    INVESTMENT INCOME. Interest on fixed maturities, loans, and notes is
recorded as income as it is earned. Income is adjusted for any amortization of

                                       43
<PAGE>

premium or discount on these investments including adjustments resulting from
prepayments or expected changes in prepayments on mortgage- backed securities.
Income on impaired loans, real estate, and other long-term investments is
recorded principally on a cash basis. Dividends are recorded as income on
ex-dividend dates. Investment expenses are accrued as incurred.

    REALIZED INVESTMENT GAINS OR LOSSES. When an investment is sold, its
selling price may be higher or lower than its carrying value. Using the
specific identification method, the difference between the selling price and
the carrying value is recorded as a realized gain or loss. Investments that
have declined in fair value below costs for which the decline is judged to be
other-than- temporary, are written down to their estimated fair value. Write
downs and allowances for losses on mortgage loans are included in realized
investment losses.

DEPRECIATION

Provisions for depreciation of real estate investments and home office
properties are computed using primarily the straight-line method over the
estimated useful lives. Accumulated depreciation on real estate investments at
December 31 was $24,777,000 and $24,184,000 in 1994 and 1993, respectively.
Accumulated depreciation on home office property and equipment at December 31
was $2,434,000 and $1,101,000 in 1994 and 1993, respectively.

INSURANCE PREMIUMS AND POLICY CHARGES 

Insurance premiums and policy charges include reinsurance premiums assumed and
are net of reinsurance ceded. Health insurance premiums are earned and
recognized pro rata over the terms of the policies. Premiums for traditional 
life insurance products are recognized as revenues when due. Revenues for
certain interest-sensitive products consist of charges earned and assessed
against policy account balances during the period for the cost of insurance,
policy initiation fees, policy administration expenses, and surrender charges.

DEFERRED ACQUISITION COSTS

Costs directly associated with the acquisition of new business are generally
deferred and amortized. For traditional life insurance and health insurance
products, costs are amortized over the premium-paying period of the products
based on assumptions used in calculating policy benefitreserves. For certain
interest-sensitive products, costs are generally amortized over the estimated
lives of the products in relation to the present value of estimated gross
profits from surrender charges and investment, mortality, and expense margins.
Amortization for the products is adjusted periodically to reflect differences
in actual and assumed gross profits.

    DAC is increased for the estimated effect of realizing unrealized
investment losses and decreased for the estimated effect of realizing
unrealized investment gains. The offset to these amounts is recorded directly
to shareholder's equity.

    The unamortized cost of purchased insurance in force is included in DAC.
Amortization is primarily in relation to the present value of estimated gross
profits over the estimated twenty-two year remaining life of the related
insurance in force with interest rates ranging from 7.5% to 8.5%.

    The changes in the unamortized cost of purchased insurance in force for the
years ended December 31 follow:

------------------------------------------------------------------------
(000s omitted)                     1994            1993            1992
------------------------------------------------------------------------
Balance at beginning of year    $41,902         $47,039         $33,996
                                                   
   Interest on unamortized
     balance                      3,136           3,436           4,016
   Amortization                  (6,026)         (8,573)         (8,486)
   Effect of unrealized
     investment losses            6,270              --              --
   Change in accounting                         
     principle for income taxes      --              --          17,513
------------------------------------------------------------------------
Balance at end of year          $45,282         $41,902         $47,039
------------------------------------------------------------------------

    The estimated percentage of the December 31, 1994 balance before the effect
of unrealized investment losses to be amortized over the next five years
follows:

------------------------------------------------------------------------
1995                              14.6%
1996                              14.4%
1997                              14.0%
1998                              13.1%
1999                              12.9%
------------------------------------------------------------------------

POLICY LIABILITIES

Liabilities for future policy benefits for traditional life insurance products
are determined using the present value of future net premiums, benefits and
expenses, and the net level valuation method, based on estimates of future
investment yield, mortality, and withdrawal rates, adjusted to provide for 



                                       44
<PAGE>

possible adverse deviation. Interest rate assumptions are graded and ranged from
4.5% to 7.5%. Withdrawal assumptions are based principally on experience and
vary by issue age, type of coverage, and duration.

    Liabilities for future policy benefits of certain interest-sensitive
products are policy account balances before applicable surrender charges, plus
certain deferred policy initiation fees that are recognized as income over the
term of the policies, plus a provision for the return of the cost of insurance
charges. Policy benefits and claims that are charged to expense include
interest credited to policy account balances, benefit claims incurred in the
period in excess of related policy account balances, and provision for the
return of the cost of insurance charges. Credited interest rates for these
products ranged from 4.0% to 7.3% at December 31, 1994.

    Liabilities for policy and contract claims are determined using case-basis
evaluations and statistical analyses. These liabilities represent estimates of
the ultimate expected cost of incurred claims. Any required revisions in these
estimates are included in operations in the period when the revisions are made.

GOODWILL

The cost of purchased businesses in excess of net assets acquired is reported
as goodwill and is amortized on a straight-line basis over thirty-five years.
Goodwill is evaluated based on the prospect of continued growth and the
long-term nature of the insurance policies sold. The asset value is considered
appropriate. Accumulated amortization of goodwill was $6,038,000 and $5,332,000
at December 31, 1994 and 1993, respectively.

SEPARATE ACCOUNT

Separate Account assets and liabilities are principally carried at fair value
and represent funds that are separately administered for annuity contracts for
which the contract holders bear the investment risk. Investment income and
realized gains and losses allocable to Separate Accounts generally accrue to
the contract holders and are excluded from the Consolidated Statement of
Operations.

INCOME TAXES

The accounting policies of WNIC result in deferred taxes being provided for 
significant temporary differences between financial statement and tax return
bases, using the asset and liability method. These differences result primarily
from policy reserves, DAC, certain investments, and reserves for postretirement
benefits. WNIC and its subsidiaries file a consolidated life/nonlife federal
income tax return with its parent,WNC.

REINSURANCE

WNIC reinsures a portion of its life insurance, annuity, and health insurance
risks with other insurance companies to minimize its exposure to loss. The
Company's policy on claim exposure for the life insurance and annuity business
is to retain a maximum of $300,000 of life insurance exposure on any one
individual ($400,000 with accidental death coverage). For group insurance
products, the Company limits its paid-claim exposure in any one calendar year
to $750,000 per claim for major medical coverage and $250,000 per claim for
individual stop-loss. The Company retains a maximum of 50% of each long-term
disability and long-term care claim, and limits its group term life insurance
exposure to $200,000 per life ($400,000 with accidental death coverage). The
Company's reinsurance for individual health insurance claims is designed to
protect the Company from an excessive amount of claims over $250,000 on an
individual claim basis.

    Substantially all of the reinsurance ceded by the Company is to entities
rated "A" or better by A. M. Best, or to entities required to maintain assets
in an independent trust fund whose fair value is sufficient to discharge the
obligations of the reinsurer. To the extent that any reinsurance company is
unable to meet its obligations under the agreements, WNIC remains liable.

    Benefit amounts paid directly by the Company for insurance claims covered
under reinsurance ceded agreements are recorded as reinsurance recoverables to
the extent not already reimbursed. The cost of reinsurance related to
long-duration contracts is accounted for over the life of the underlying
reinsured policies using assumptions consistent with those used to account for
the underlying policies.

    Substantially all of the reinsurance assumed by the Company as of December
31, 1994 relates to individual health insurance. It is on a 50% or 100%
coinsurance basis and is accounted for in a manner similar to the direct
business.

                                       45
<PAGE>
NOTE B
Investments

FIXED MATURITIES

A comparison of amortized cost to fair value of fixed maturity investments by
category at December 31, 1994 and 1993 follows:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
                                                                            Gross        Gross
                                                           Amortized   Unrealized   Unrealized         Fair
(000s omitted)                                              Cost (a)        Gains       Losses        Value
-------------------------------------------------------------------------------------------------------------
<S>                                                         <C>            <C>         <C>      <C>
Fixed maturities                                                                  1994
-------------------------------------------------------------------------------------------------------------
Available for sale
   United States government obligations                    $   74,293     $   265     $  4,577   $   69,981
   Obligations of states and political subdivisions            75,555       1,215        5,286       71,484
   Public utilities                                           131,184          20       13,650      117,554
   Industrial and miscellaneous                               798,018       5,091       53,406      749,703
   Mortgage-backed securities                                 655,286       3,232       49,315      609,203
   Other                                                       33,845          63        2,380       31,528
-------------------------------------------------------------------------------------------------------------
Total available for sale                                    1,768,181       9,886      128,614    1,649,453
-------------------------------------------------------------------------------------------------------------
Held to maturity                                           
   United States government obligations                           251          --           --          251
   Obligations of states and political subdivisions            22,109         860           45       22,924
   Industrial and miscellaneous                                86,027         845        2,591       84,281
   Mortgage-backed securities                                   4,529         181           --        4,710
   Other                                                          200           2           --          202
-------------------------------------------------------------------------------------------------------------
Total held to maturity                                        113,116       1,888        2,636      112,368
-------------------------------------------------------------------------------------------------------------
Total fixed maturities                                     $1,881,297     $11,774     $131,250   $1,761,821
-------------------------------------------------------------------------------------------------------------
                                                                                  1993
-------------------------------------------------------------------------------------------------------------
Held for sale
   United States government obligations                    $   52,010     $ 3,784     $     93   $   55,701
   Obligations of states and political subdivisions            55,947       3,888          538       59,297
   Public utilities                                           137,132       5,501        1,701      140,932
   Industrial and miscellaneous                               655,068      41,643          849      695,862
   Mortgage-backed securities                                 695,246      24,410        1,571      718,085
   Other                                                       37,206       2,382          788       38,800
-------------------------------------------------------------------------------------------------------------
Total held for sale                                         1,632,609      81,608        5,540    1,708,677
-------------------------------------------------------------------------------------------------------------
Held to maturity                                                                         
   United States government obligations                         3,636           2           --        3,638
   Obligations of states and political subdivisions            27,182       1,817           --       28,999
   Industrial and miscellaneous                                90,566       3,918           --       94,484
   Mortgage-backed securities                                   6,540         507           --        7,047
   Other                                                          260          20           --          280
-------------------------------------------------------------------------------------------------------------
Total held to maturity                                        128,184       6,264           --      134,448
-------------------------------------------------------------------------------------------------------------
Total fixed maturities                                     $1,760,793     $87,872     $  5,540   $1,843,125
-------------------------------------------------------------------------------------------------------------
<FN>
(a)   Amortized cost is net of other-than-temporary impairments in 1994 and 1993 and an allowance for 
      high-yield bonds in 1993.
</FN>
</TABLE>

    Fixed maturities had an increase (decrease) in unrealized gains (the excess
of fair value over amortized cost) of $(201,808,000), $25,438,000 and
$(4,245,000) in 1994, 1993, and 1992, respectively.


                                       46
<PAGE>

    The amortized cost and fair value of fixed maturities at December 31, 1994,
by contractual maturity, follow. Expected maturities differ from contractual
maturities as borrowers may have the right to call or prepay obligations with
or without call or prepayment penalties.

------------------------------------------------------
                                Amortized         Fair
(000s omitted)                       Cost        Value
------------------------------------------------------
Available for sale:
  Fixed maturities, excluding
   mortgage-backed securities
    Due in 1995                $    3,599   $    3,583
    Due in 1996 - 1999            114,384      114,093
    Due in 2000 - 2004            397,876      375,100
    Due after 2004                597,036      547,474
  Mortgage-backed securities      655,286      609,203
------------------------------------------------------
Total available for sale       $1,768,181   $1,649,453
------------------------------------------------------
Held to maturity:
  Fixed maturities, excluding
   mortgage-backed securities
    Due in 1995                $    1,150   $    1,159
    Due in 1996 - 1999             34,366       34,353
    Due in 2000 - 2004             35,929       36,101
    Due after 2004                 37,142       36,045
  Mortgage-backed securities        4,529        4,710
Total held to maturity         $  113,116   $  112,368
------------------------------------------------------
Total fixed maturities         $1,881,297   $1,761,821
------------------------------------------------------

    At December 31, 1994, gross unrealized gains and losses on investments in
equity securities amounted to $88,000 and $259,000, respectively.


MORTGAGE LOANS

A rollforward of the allowance for mortgage loan losses follows:

------------------------------------------------------
(000s omitted)                           1994     1993
------------------------------------------------------
Balance at January 1                  $12,031  $11,618
Net additions                           1,501    3,475
Deductions                              5,500    3,062
------------------------------------------------------
Balance at December 31                $ 8,032  $12,031
------------------------------------------------------

INVESTMENT GAINS AND LOSSES

Details of realized investment gains (losses) for years ended December 31 
follow:

-----------------------------------------------------------
(000s omitted)                  1994        1993      1992
-----------------------------------------------------------
Fixed maturities:
   Gross gains               $ 2,026    $ 21,513   $ 9,798 
   Gross losses               (3,760)    (12,481)   (4,177)
-----------------------------------------------------------
Total fixed maturities        (1,734)      9,032     5,621 
Equity securities              1,447         383    (1,746) 
Mortgage loans                   (82)      2,047    (4,934) 
Real estate and other         (1,056)    (10,566)   (3,895)
-----------------------------------------------------------
Realized investment gains
     (losses)                $(1,425)   $    896   $(4,954)
-----------------------------------------------------------


INVESTMENT INCOME

Major sources of net investment income for the years ended December 31 follow:

------------------------------------------------------
(000s omitted)                  1994     1993     1992
------------------------------------------------------
Fixed maturities            $147,396 $141,809 $136,409
Equity securities                301    1,505    3,530
Mortgage loans                34,982   42,030   49,147
Real estate and other          7,880   11,401   11,180
Policy loans                   3,459    3,460    3,369
Short-term investments         2,326    2,123    3,872
------------------------------------------------------
Gross investment income      196,344  202,328  207,507
------------------------------------------------------
Investment expenses           14,820   18,898   20,497
------------------------------------------------------
Net investment income       $181,524 $183,430 $187,010
------------------------------------------------------

    Investment expenses consist primarily of real estate expenses.

    As of December 31, 1994, the carrying value of investments that produced no
income for the previous twelve month period was $16,880,000 or less than 1% of
invested assets.

OTHER

During 1994, 1993, and 1992, non-cash investing activities totaled $4,009,000,
$4,869,000, and $14,302,000, respectively and consisted of real estate acquired
through foreclosure of mortgage loans and in 1994 a venture capital
distribution of common stock.


                                       47
<PAGE>

NOTE C
Income Taxes

Components of WNIC's deferred tax liabilities and assets at December 31 follow:

----------------------------------------------------------------
(000s omitted)                              1994            1993
----------------------------------------------------------------
Deferred tax liabilities:
   DAC                                  $ 97,322        $ 85,114
   Accrued bond discount                   1,312           1,038
   Joint ventures and venture
     capital investments                   1,025           1,525
   Other                                   2,791           2,749
----------------------------------------------------------------
   Total deferred tax liabilities        102,450          90,426
Deferred tax assets:
   Policy liability adjustments           63,349          66,091
   Unrealized investment losses           41,452              --
   Liabilities for employee benefits      13,643          13,788
   Realized investment losses             11,449          15,448
   Other                                   4,459           4,233
----------------------------------------------------------------
   Total deferred tax assets             134,352          99,560
Valuation allowance                      (15,598)        (14,765)
----------------------------------------------------------------
Deferred tax assets, net of
 valuation allowance                     118,754          84,795
----------------------------------------------------------------
Net deferred tax (assets) liabilities   $(16,304)       $  5,631
----------------------------------------------------------------

    The nature of WNIC's deferred tax assets and liabilities is such that the
general reversal pattern for these temporary differences is expected to result
in a full realization of WNIC's deferred tax assets other than capital gain or
loss items.

    At December 31, 1994, WNIC had capital loss carryforwards for tax return
purposes of $1,394,000 that expire in 1996. For financial reporting purposes, a
valuation allowance of $15,598,000 has been recognized to offset the deferred
tax assets related to those carryforwards, investment loss reserves, and other
capital loss related deferred tax assets not expected to be realized. The
valuation allowance was increased by $833,000 in 1994 and reduced by $3,276,000
in 1993.

    The Omnibus Budget Reconciliation Act of 1993 changed WNIC's prevailing
federal income tax rate from 34% to 35% effective January 1, 1993.

    The following reconciles the difference between the actual tax provision
and the amounts obtained by applying the statutory federal income tax ratesof
35% for 1994 and 1993 and 34% for 1992 to the income or loss before income
taxes and cumulative effect of changes in accounting principles:

------------------------------------------------------------------------
(000s omitted)                     1994            1993            1992
------------------------------------------------------------------------
Income tax at statutory rate
  applied to income before
  taxes and cumulative effect
  of changes in accounting
  principles                    $14,909         $14,419         $ 9,516
Tax benefit (expense) not
  recognized on certain
  GAAP-basis capital
  gains or losses                (2,205)         (2,870)          1,551
Investment income not taxed        (733)         (1,035)         (1,514)
Amortization of purchase
  accounting adjustments            247             247             333
Other                               844             (33)           (215)
------------------------------------------------------------------------
Provision for income taxes      $13,062         $10,728         $ 9,671
------------------------------------------------------------------------
Comprised of:
   Current expense              $ 9,361         $ 4,476         $10,010
   Deferred expense (benefit)     3,701           6,252            (339)
------------------------------------------------------------------------
Income tax expense              $13,062         $10,728         $ 9,671
------------------------------------------------------------------------

    Prior to 1984, WNIC and UPI were required to accumulate certain untaxed
amounts in a memorandum "policyholders' surplus account." Under the Tax Reform
Act of 1984, the "policyholders' surplus account" balances were "capped" at
December 31, 1983 and the balances will be taxed only to the extent distributed
to shareholders or when they exceed certain prescribed limits. WNIC does not
intend to make any taxable distributions or exceed the prescribed limits in the
foreseeable future; therefore, no income tax provision has been made for those
purposes. However, if such taxes were assessed, the amount of tax payable would
be $19,851,000. As of December 31, 1994, the combined "policyholders' surplus
account" approximates $56,717,000.

    Under current and prior law, income of WNIC taxed on a current basis is
accumulated in a shareholder's surplus account and can be distributed without
tax. At December 31, 1994, this combined shareholder's surplus was
$256,043,000.

    Federal income taxes paid by WNIC were $8,120,000, $4,100,000, and
$8,700,000 in 1994, 1993, and 1992, respectively.


                                       48
<PAGE>

NOTE D
Reinsurance

The effect of reinsurance on premiums and policy charges for the years ended
December 31 follows:

-------------------------------------------------------------------------
(000s omitted)                      1994            1993            1992
-------------------------------------------------------------------------
Direct premiums and policy
  charges                       $473,443        $470,617        $440,574
Reinsurance assumed               56,640          31,022           2,570
Reinsurance ceded                (61,697)        (62,817)        (62,174)
-------------------------------------------------------------------------
Premiums and policy
  charges                       $468,386        $438,822        $380,970
-------------------------------------------------------------------------

        Reinsurance benefits ceded were $22,850,000, $22,685,000, and
$22,516,000, in 1994, 1993, and 1992, respectively.  

        As a result of past divestitures, the Company reinsures 100% of certain
supplemental health insurance, life insurance, and annuity business with
unaffiliated companies. At December 31, 1994, 50% of WNIC's total reinsurance
recoverables were ceded to Combined Life Insurance Company of America, and 16%
were ceded to American Founders Life Insurance Company. In addition, 16% of
reinsurance ceded was to UNUM Life Insurance Company in the normal course of
business.

        For 1994, 42% and 57% of reinsurance premiums assumed were from Harvest
Life Insurance Company (Harvest Life) and National Casualty Company (National
Casualty), respectively. These reinsurance agreements provide that the Company
will reinsure blocks of individual major medical business issued by National
Casualty and Harvest Life on a 50% and 100% coinsurance basis, respectively. The
Company also administers 100% of the National Casualty business.

        The Company uses yearly renewable term reinsurance at its subsidiary
United Presidential Life Insurance Company (UPI) to maintain statutory
profitability and other statutory financial requirements while sustaining UPI's
growth. At December 31, 1994, such reinsurance, all entered into prior to 1994,
net of related taxes, had contributed $9,044,000 of statutory capital to UPI. 
These transactions do not materially impact the Company's GAAP financial
statements.


NOTE E
Defined Benefit and Contribution Plans

RETIREMENT PLANS

The Company has three qualified defined contribution retirement plans: a
non-contributory money-purchase retirement plan, a non-contributory
discretionary profit sharing plan, and a contributory 401(k) plan. The plans
cover substantially all employees who have met the prescribed requirements for
participation. The Company contribution to the money-purchase retirement plan
is 3% of each employee's compensation plus an additional 3% of compensation in
excess of the Social Security wage base. The Company contribution to the profit
sharing plan is at the discretion of WNIC's and UPI's Boards of Directors in
consultation with WNC's Board of Directors and is based on financial
performance. Employees may contribute up to 12% of compensation to the 401(k)
plan. The Company matches employee contributions dollar for dollar up to a
maximum of 3% of compensation. The net pension expense for the defined
contribution plans in 1994, 1993, and 1992 was $3,006,000, $3,760,000, and
$2,808,000, respectively. The Company has a non-qualified supplemental
retirement plan under which benefits are paid to certain employees equal to the
amounts by which the qualified plan benefits are reduced due to provisions of
the Internal Revenue Code (IRC). At December 31, 1994 and 1993, the unfunded
liability for the supplemental retirement plan was immaterial.

        Both WNIC and UPI have a defined benefit retirement plan that covers
certain grandfathered employees and agents. Both plans have been amended to
terminate the accrual of future benefits, which resulted in the Company
recording a curtailment gain. Benefits are based principally on years of service
and compensation. Generally, the funding policies are to contribute annually at
least the minimum amounts required by the IRC. Contributions are intended to
provide benefits attributed to service to date.


                                       49
<PAGE>

    A summary of the components of the net periodic pension expense (income)
for the defined benefit retirement plans follows:

--------------------------------------------------------------
(000s omitted)                       1994       1993      1992
--------------------------------------------------------------
Interest cost on projected
  benefit obligations             $ 1,824    $ 1,923   $ 2,275
Service cost for benefits earned       --         99       300
Actual return on plan assets         (419)    (2,035)   (5,167)
Net amortization and deferral      (2,054)      (642)    2,996
Curtailment gain                       --       (491)       --
--------------------------------------------------------------
Net periodic pension
  expense (income)                $  (649)   $(1,146)  $   404
--------------------------------------------------------------

    The defined benefit retirement plans' funded status and amounts reported in
WNIC's consolidated balance sheets as part of other liabilities at December 31
follow:

-----------------------------------------------------------------
(000s omitted)                              1994            1993
-----------------------------------------------------------------
Actuarial present value of
 accumulated benefit obligations:
   Vested                               $(23,759)       $(28,696)
   Non-vested                               (118)           (254)
-----------------------------------------------------------------
Accumulated benefit obligations         $(23,877)       $(28,950)
-----------------------------------------------------------------
Projected benefit obligations for
 service provided to date               $(23,877)       $(28,950)
Plan assets at fair value                 22,794          26,429
-----------------------------------------------------------------
Projected benefit obligations in
 excess of plan assets                    (1,083)         (2,521)
-----------------------------------------------------------------
Comprised of:
   Prepaid pension cost                    1,526             512
   Unrecognized investment and
     actuarial net loss                   (7,835)         (9,566)
   Unrecognized transition asset           5,226           6,533
-----------------------------------------------------------------
Total                                   $ (1,083)       $ (2,521)
-----------------------------------------------------------------

    The unrecognized transition asset in the preceding schedule is the amount
by which the plans' net assets exceeded the actuarial present value of
projected benefit obligations, net of amortization, as of January 1, 1985, the
date current pension accounting standards were adopted. The transition asset is
being amortized by credits to income over a fourteen-year period. In addition,
the excess of actual investment and actuarial gains and losses realized over
those expected are deferred and, when the cumulative deferred amounts exceed
certain limits, will be amortized at a rate consistent with a fourteen-year
amortization period. Costs created by plan amendments that are associated with
prior employee service are also deferred and amortized over fourteen years.

    GAAP requires employers to recognize a minimum liability at least equal to
the unfunded accumulated benefit obligation. When the accrued or prepaid
pension cost is less than the minimum liability, an adjustment is made to the
liability with the offset directly to shareholder's equity. At December 31,
1994 and 1993, the pretax adjustment was $2,769,000 and $3,033,000,
respectively.

    The weighted-average discount rates used in calculating the projected
benefit obligations at December 31, 1994 and 1993 were 7.5% and 6.7%,
respectively. The expected weighted-average rate of return on plan assets was
7.6% in 1994 and 7.5% in 1993 and 1992.

    Plan assets are invested principally in mutual funds, bonds, and stocks.
Assets of the WNIC retirement plan include Common and Preferred Stock of WNC of
$8,580,000 and $10,863,000, at fair value, at December 31, 1994 and 1993,
respectively. Dividends of $492,000 were received on the WNC Common and
Preferred Stock in both 1994 and 1993. No WNC shares were purchased or sold
during 1994 or 1993.

POSTRETIREMENT BENEFITS

In addition to WNIC's retirement programs, medical and life insurance benefits
are provided to eligible retired employees under the WNIC Group Insurance Plan.
The plan was amended effective December 31, 1992 to limit future eligibility.
Active WNIC employees who were at least age 50 on December 31, 1992 are
eligible for medical and life insurance benefits after reaching a combination
of age and service requirements. The plan pays a stated percentage of most
medical expenses reduced for deductibles and payments made by government
programs or other group coverage. Retirees contribute to the plan based on a
schedule which averages 13% for single coverage and 21% for dependent coverage
of the benefits paid. Active WNIC employees who were not at least age 50 on
December 31, 1992 are eligible for $10,000 of life insurance benefits under the
plan after reaching a combination of age and service requirements. The 1992
plan curtailment resulted in a gain of $4,033,000 recorded as part of
operations in that year. The Company has reserved the right to change or
eliminate these benefits at any time.



                                       50
<PAGE>

    In December 1993, the Company established a Voluntary Employees'
Beneficiary Association (VEBA) trust under section 501(c)(9) of the IRC.
Prior to this time, postretirement benefits were unfunded. In December 1994 and
1993, the Company contributed $1,600,000 and $1,100,000, respectively, to the
VEBA trust. The amounts funded were based on the difference between the net
periodic postretirement benefit expense as measured by statutory accounting
rules and the retiree medical claims incurred during the respective periods,
subject to certain IRC limitations. Assets of the VEBA trust were invested in
two-year U. S. Treasury notes and corporate demand notes at December 31, 1994.

    Components of the net periodic postretirement benefit expense for the year
ended December 31 follow:

-------------------------------------------------------
(000s omitted)                  1994     1993     1992
-------------------------------------------------------
Interest cost                 $1,994   $2,061  $ 2,198
Service cost                      56       61      557
Return on plan assets            (28)      --       --
Net amortization and deferral    227      (14)      --
Curtailment gain                  --       --   (4,033)
-------------------------------------------------------
Net periodic postretirement
 benefit expense (income)     $2,249   $2,108  $(1,278)
-------------------------------------------------------

    The funded status of the plan and the amounts recognized in WNIC's
consolidated balance sheet at December 31 follow:

----------------------------------------------------------
(000s omitted)                           1994       1993
----------------------------------------------------------
Accumulated postretirement
 benefit obligation:
   Retirees                          $(25,022)  $(26,080)
   Fully eligible active plan
     participants                        (846)    (1,300)  
   Other active plan participants        (661)    (1,269)
----------------------------------------------------------
Total accumulated postretirement                            
 benefit obligation                    (26,529)  (28,649)     
Fair value of plan assets               2,726      1,100     
----------------------------------------------------------
Accumulated postretirement benefit                          
 obligation in excess of plan assets $(23,803)  $(27,549)  
----------------------------------------------------------
   Comprised of:
   Accrued postretirement benefit
    expense                          $(24,392)  $(26,198)
   Unrecognized net gain (loss)           393     (1,561)
   Unrecognized prior service cost        196        210
----------------------------------------------------------
Total                                $(23,803)  $(27,549)
----------------------------------------------------------

    The accumulated postretirement benefit obligation is based on actuarial
assumptions for the weighted-average discount rate and the health care cost
trend rate. The weighted-average discount rate was 7.5% in 1994 and 7.0% in
1993. The health care cost trend rate used in 1994 was 12% for pre-65 and 10%
for post-65 participants, graded evenly to 5% in 15 years. The health care cost
trend rate in 1993 was 14% graded evenly to 6% in 29 years. The
weighted-average expected long-term rate of return on plan assets net of
estimated taxes on investment income was 4.62% in 1994. The estimated income
tax rate for the VEBA trust was 34% in 1994. The health care cost trend rate
assumption has a significant effect on the amounts reported. Increasing the
trend rate by 1% per year would increase the accumulated postretirement benefit
obligation by $2,215,000 and $2,825,000 at December 31, 1994 and 1993,
respectively, and the aggregate of the service and interest cost components of
the net periodic postretirement benefit expense for 1994 and 1993 by $196,000
and $200,000, respectively.

NOTE F:
Commitments and Contingencies

LEASES

WNIC has noncancelable operating leases primarily for office space and office
equipment, the most significant of which is a twenty-year lease of WNIC's home
office building with a related party as lessor. Future minimum lease payments
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year at December 31, 1994 follows:

-------------------------------------------------------------
(000s omitted)
-------------------------------------------------------------
1995                                    $ 8,401 
1996                                      7,607 
1997                                      6,980 
1998                                      5,265 
1999                                      4,389
Thereafter                               48,522
-------------------------------------------------------------
Total minimum lease commitments         $81,164
-------------------------------------------------------------

    Rental expenses were $6,189,000, $6,900,000, and $2,871,000, in 1994, 1993,
and 1992, respectively.


                                       51
<PAGE>

FINANCIAL COMMITMENTS AND GUARANTEES

The Company has entered into financial guarantees which are financial
instruments with off-balance sheet credit risk. The exposure to credit risk is
represented by the amount the Company, under certain circumstances, would
contractually have to pay out. These financial instruments were entered into
for the fee income and the potential to share in future capital appreciation of
the underlying assets.

    A financial guarantee is a conditional commitment to guarantee the payment
of an obligation by an unrelated entity to a third party. At December 31, 1994,
the Company had two financial guarantees totaling $15,206,000 which are
collateralized by the underlying real estate and related assets compared to
guarantees totaling $24,132,000 at December 31, 1993. In the event of a sale or
refinancing, the Company is entitled to share in the appreciation of the
collateral.

    The financial guarantees are scheduled to expire in 1995 and 1997. The
Company has not funded any of its financial guarantees to date, and feels it
has adequate reserves for potential losses in the future.

LITIGATION

WNIC has been named in various pending legal proceedings considered to be
ordinary routine litigation incidental to the business of such companies. A
number of other legal actions have been filed that demand compensatory and
punitive damages aggregating material dollar amounts. WNIC believes that such
suits are substantially without merit and that valid defenses exist. WNIC's
management and its chief legal officer believe that such litigation will not
have a material effect on the WNIC consolidated results of operations or
financial position.

    In September 1994, two retired employees filed a lawsuit in the United
States District Court for the Northern District of Illinois against WNIC, WNC,
and the three individual trustees of the Washington National Insurance Company
Home Office Group Insurance Plan (the Plan). The plaintiffs purport to act as
members of a class consisting of all employees of WNIC and WNC who retired or
tendered their irrevocable notice of retirement on or before July 24, 1989 and
who are eligible to receive benefits under the Plan.

    The complaint is brought under the Employee Retirement Income Security Act
and alleges that WNIC, WNC, and the trustees have taken andthreatened to take
actions to modify, amend or terminate the Plan in violation of written and oral
promises and representations and the terms of the Plan. The alleged violations
include changing the method for computing claims payable under the Plan,
requiring retired employees to contribute to the payment of premiums for their
Medicare supplemental health insurance coverage, and maintaining that WNIC, WNC
and the trustees have reserved the right to modify or terminate benefits under
the Plan.  Plaintiffs seek a declaration of their rights under the Plan, with
respect to these actions, an award of attorneys' fees and other relief, and a
certification of the class.

    WNIC, WNC, and the trustees believe that valid defenses exist and intend to
contest vigorously the material allegations made in the complaint.

STATE GUARANTY FUNDS

Under insolvency or guaranty laws in most states in which the Company operates,
insurers can be assessed for policyholder losses incurred by insolvent
insurance companies. At present, most insolvency or guaranty laws provide for
assessments based on the amount of insurance underwritten in a given
jurisdiction. The Company paid $2,850,000, $2,500,000, and $1,800,000 in state
guaranty fund assessments in 1994, 1993, and 1992, respectively, and had
accrued liabilities of $3,128,000 and $2,800,000 for future assessments at
December 31, 1994 and 1993, respectively. Mandatory assessments can be
partially recovered through a reduction in future premium taxes in some states.

    The Company's accounting policy with regard to payments to state guaranty
funds is to treat as an asset any such payments in those states where current
law allows an offset against future premium taxes. At December 31, 1994 and
1993, other assets included $5,464,000 and $5,100,000, respectively, of
deferred payments to state guaranty funds. Generally, these amounts will be
used to offset future premium tax payments over periods from five to ten years.
In the event of a change in the state laws pertaining to prior tax offsets,
such amounts might become unrecoverable.

NOTE G
Statutory Financial Information

WNIC and its insurance subsidiary prepare statutory financial statements in
accordance with accounting principles and practices prescribed or permitted


                                       52
<PAGE>

by the insurance department of their state of domicile. Prescribed statutory
accounting practices currently include state laws, regulations, and general
administrative rules applicable to all insurance enterprises domiciled in a
particular state, as well as practices described in National Association of
Insurance Commissioners' (NAIC) publications. Permitted practices include
practices not prescribed, but allowed, by the domiciliary state insurance
department. The prescribed and permitted statutory accounting practices followed
by WNIC's insurance subsidiary differs from GAAP.

    Current statutory practice does not address reserves for certain endowment
features of several life insurance products marketed by one of the Company's
subsidiaries. The subsidiary uses a practice permitted by its state of domicile
and discounts the future benefit using mortality and interest rate assumptions.
    The NAIC is currently working on a project to codify statutory accounting
practices (SAP). This process will result in a single source of SAP, possibly
eliminating the concept of permitted practices.

STATUTORY TO GAAP RECONCILIATION

A reconciliation of SAP capital and surplus to GAAP shareholder's equity at 
December 31 follows:

------------------------------------------------------------------
(000s omitted)                               1994            1993
------------------------------------------------------------------
SAP capital and surplus                 $ 221,270       $ 206,841 
DAC                                       293,850         256,956 
Adjustments to policy liabilities        (119,521)       (126,325)
Godwill                                    19,092          20,983
Asset valuation and interest
  maintenance reserves                     29,005          30,666
Deferred income taxes                      16,304          (5,631)
Postretirement and pension
  liabilities                             (28,313)        (31,113)
Unrealized loss on fixed maturities      (118,728)             --
Minority interest                         (44,157)        (25,707)
Other, net                                 (9,875)        (14,966)
------------------------------------------------------------------
GAAP shareholder's equity               $ 258,927       $ 311,704
------------------------------------------------------------------

    A reconciliation of SAP net income to GAAP net income (loss) for the years
ended December 31 follows:

-------------------------------------------------------------------------
(000s omitted)                     1994            1993             1992
-------------------------------------------------------------------------
SAP net income                  $18,633         $10,954         $     36
DAC                               3,894          15,282           30,788
Cumulative effect of changes
 in accounting principles            --          (1,550)         (15,196)
Adjustments to policy
 benefits                         1,270             401          (14,812)
Financial reinsurance                --          (3,500)          (7,500)
Deferred income taxes            (3,700)         (6,262)             339
Other                             9,437          13,595            9,466
-------------------------------------------------------------------------
GAAP net income                 $29,534         $28,920         $  3,121
-------------------------------------------------------------------------

DIVIDENDS FROM SUBSIDIARIES

Regulatory restrictions limit the dollar amount of dividends available for
distribution to WNIC from UPI without prior approval by regulatory authorities.
The amount of dividends available is based on the greater of: a) 10% of the
insurance subsidiary's statutory capital and surplus as of the preceding year
end; or b) the insurance subsidiary's statutory net income from operations for
the preceding year. Based on these restrictions, WNIC's insurance subsidiary is
permitted a maximum of $5,687,000 in dividend distributions to WNIC in 1995. In
1994, WNIC declared dividends of $5,975,000 to its parent WNC of which
$3,000,000 will be paid in 1995.

NOTE H
Borrowings and Credit Arrangements

BORROWINGS

Borrowings of $3,082,000 at December 31, 1994 consist of a mortgage on
investment real estate with an interest rate of 6.5% that matures in April,
1998 and a non-interest bearing promissory note for $1,175,000 payable to WNC
in June 1995. Payments of $1,679,000, $672,000, $655,000, and $296,000 will be
required in 1995, 1996, 1997, and 1998, respectively. For the mortgage loan,
the property, with a carrying value of $11,922,000, is pledged as collateral.

    Interest paid on borrowings by WNIC was $405,000, $1,670,000, and
$1,306,000, in 1994, 1993, and 1992, respectively.


                                       53
<PAGE>

CREDIT ARRANGEMENTS

WNIC has a line of credit with one bank for short-term borrowings amounting to
$10,000,000, all unused at December 31, 1994. The line of credit arrangement is
renewable annually, but credit can be withdrawn at the bank's option.

    In addition, WNIC has six letters of credit with varying terms and
conditions totaling $2,395,000. As of December 31, 1994, the entire amount was
unused.

NOTE I
Policy Liabilities

WNIC's policy liabilities at December 31 follow:

---------------------------------------------------------
(000s omitted)                   1994              1993
---------------------------------------------------------
Future policy
 benefits-annuities        $1,278,252        $1,250,225
Future policy
 benefits-life                790,894           800,447
Policy and contract
 claims                       213,572           206,963
Unearned premiums              332,20            34,649
Other                          38,880            39,187
---------------------------------------------------------
Total policy liabilities   $2,354,818        $2,331,471
---------------------------------------------------------

    Activity in the liability for unpaid claims (a component of policy and
contract claims) and claim adjustment expense (a component of general expenses
and other liabilities) follows:

------------------------------------------------------
(000s omitted)                  1994     1993     1992
------------------------------------------------------
Balance at January 1        $210,348 $202,322 $195,538
Less: reinsurance
 recoverables                 11,547   11,956   14,039
------------------------------------------------------
Net balance at January 1     198,801  190,366  181,499
Incurred relating to:
  Current year               291,209  260,144  227,604
  Prior years                (31,296) (26,638) (20,231)
------------------------------------------------------
Total incurred               259,913  233,506  207,373
Paid relating to:
  Current year               179,762  151,989  124,379
  Prior years                 75,342   73,082   74,127
------------------------------------------------------
Total paid                   255,104  225,071  198,506
------------------------------------------------------
Net balance at December 31   203,610  198,801  190,366
------------------------------------------------------
Add: reinsurance
 recoverables                 11,741   11,547   11,956
------------------------------------------------------
Balance at December 31      $215,351 $210,348 $202,322
------------------------------------------------------

NOTE J
Fair Value of Financial Instruments

VALUATION METHODS AND ASSUMPTIONS

The disclosure of fair value information about certain financial instruments is
based primarily on quoted market prices. In cases where quoted market prices
are not available, fair values are based on estimates using present value or
other valuation techniques.  These estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized in
the immediate settlement of the instrument.

    The fair values of short-term investments, venture capital partnerships,
and accrued investment income approximate the carrying amounts reported in the
balance sheets.

    Fair values for fixed maturity and equity securities are based on quoted
market prices, where available. For fixed maturity securities not actively
traded, fair values are estimated using values obtained from independent
pricing services or, in the case of private placements, are estimated by
discounting expected future cash flows using a current market rate applicable
to the yield, credit quality, and maturity of the investments.

    Fair values for mortgage loans and policy loans are estimated using
discounted cash flow analyses, based on interest rates currently being offered
for similar loans to borrowers with similar credit ratings. A pricing cap is
put on mortgage loans that carry significant above-market interest rate yields
to reflect the prepayment risk.

    Fair values for liabilities under investment-type insurance contracts are
estimated using discounted cash flow calculations, based on interest rates
currently being offered for similar contracts with similar maturities.

    The fair value of the mortgage payable is estimated by discounting cash
flows, using current incremental borrowing rates for similar types of borrowing
arrangements.

    Fair values for real estate development guarantees are based on estimates
of fees to guarantee similar developments. Fair values for lending commitments
are based on the commitment fees of the loans in question.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair values of certain financial instruments along with their corresponding
carrying values at December 31, 1994 and 1993 follow. As the fair value of all


                                       54
<PAGE>

WNIC's assets and liabilities are notpresented, this information in the
aggregate does not represent the underlying value of WNIC. WNIC does not own any
financial instruments held or issued for trading purposes.
       
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
                                                                      1994                      1993
                                                           ------------------------   ----------------------
                                                                 Fair     Carrying          Fair    Carrying
(000s omitted)                                                  Value        Value         Value       Value
------------------------------------------------------------------------------------------------------------
<S>                                                        <C>          <C>           <C>         <C>
Assets
  Fixed maturities
     Available for sale (a)                                $1,649,453   $1,649,453    $1,708,677  $1,632,609
     Held to maturity                                         112,368      113,116       134,448     128,184
  Equity securities                                            13,047       13,047        15,714      15,714
  Mortgage loans on real estate                               366,373      357,641       411,250     391,667
  Policy loans                                                 52,600       54,368        50,340      52,285
Liabilities                                                
  Investment-type insurance contracts                       1,174,017    1,203,608     1,224,550   1,226,238
  Mortgage payable                                              1,854        1,907         2,438       2,434
Off-balance sheet                                          
  Real estate development guarantees (b)                           80           --           500          --
  Lending commitments                                             105           --           358          --
------------------------------------------------------------------------------------------------------------
<FN>
   (a) Classified as held for sale in 1993.
   (b) See Note F for further discussion of guarantees.
</FN>
</TABLE>

NOTE K                                                     
Segment Information                                        
                                                           
WNIC has three business segments: life insurance and annuities; health
insurance (previously reported as the individual health insurance and group
products segments); and corporate and other. The segments are based on WNIC's 
insurance products and organization. The corporate and other segment includes
realized investment gains and losses, a curtailment gain in 1992 of $4,033,000
resulting from a change to WNIC's postretirement health benefits program, and
operations that do not specifically support one of the other segments. Assets
not individually identifiable by segment are allocated, generally, based on
the amount of segment liabilities. Depreciation expense and capital
expenditures are not material. Revenues, income or loss before income taxes
and cumulative effect of changes in accounting principles (net of minority
interest in the life insurance and annuities segment), and assets by segment
for the years ended and at December 31 follows:
     
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
(000s omitted)                                                                1994         1993         1992
-------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>          <C>          <C>
Revenues:
   Life insurance and annuities                                         $  229,732   $  228,950   $  233,488
   Health insurance                                                        420,982      394,562      338,810
   Corporate and other                                                       5,913        5,960       (2,347)
-------------------------------------------------------------------------------------------------------------
Consolidated total                                                      $  656,627   $  629,472   $  569,951
-------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and cumulative effect:
   Life insurance and annuities                                         $   33,177   $   28,128   $   21,856
   Health insurance                                                          5,895       11,500        7,007
   Corporate and other                                                       3,524        1,570         (875)
-------------------------------------------------------------------------------------------------------------
Consolidated total                                                      $   42,596   $   41,198   $   27,988
-------------------------------------------------------------------------------------------------------------
Assets:
   Life insurance and annuities                                         $2,274,005   $2,291,529   $2,184,660
   Health insurance                                                        321,481      344,245      306,698
   Corporate and other                                                     210,871      205,618      219,423
-------------------------------------------------------------------------------------------------------------
Consolidated total                                                      $2,806,357   $2,841,392   $2,710,781
-------------------------------------------------------------------------------------------------------------
</TABLE>



                                       55
<PAGE>







                      [THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE>

                                   APPENDIX A
                        COMMERCIAL PAPER AND BOND RATINGS

Standard & Poor's Corporation (Standard & Poor's) and Moody's Investors Service,
Inc. ("Moody's") ratings:

Commercial Paper Ratings

Standard & Poor's commercial paper ratings are graded into four categories,
ranging from "A" for the highest quality obligations to "D" for the lowest. The
"A," "A-1" and "A-2" categories are described as follows:

     "A" Issues assigned this highest rating are regarded as having the greatest
     capacity for timely payment. Issues in this category are further refined
     with the designations 1, 2 and 3 to indicate the relative degree of safety.

     "A-1" This designation indicates that the degree of safety regarding timely
     payment is either overwhelming or very strong. Those issues determined to
     possess overwhelming safety characteristics will be noted with a plus (+)
     sign designation.

     "A-2" Capacity for timely payment on issues with this designation is
     strong. However, the relative degree of safety is not as overwhelming as
     for issues designated "A-1."

Moody's employs three designations all judged to be investment grade, to
indicate the relative repayment capacity of rated issuers. The two highest
designations are as follows:

Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:

*    Leading market positions in well-established industries.

*    High rates of return on funds employed.

*    Conservative capitalization structures with moderate reliance on debt and
     ample asset protection.

*    Broad margins in earnings coverage of fixed financial charges and high
     internal cash generation.

*    Well-established access to a range of financial markets and assured sources
     of alternate liquidity.

Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

                                      A-1
<PAGE>

Bond Ratings

Standard & Poor's

     AAA  Bonds rated AAA have the highest rating assigned by Standard & Poor's
          to a debt obligation. Capacity to pay interest and repay principal is
          extremely strong.

     AA   Bonds rated AA have a very strong capacity to pay interest and repay
          principal and differ from the highest rated issues only in small
          degree.

     A    Bonds rated A have a strong capacity to pay interest and repay
          principal although they are somewhat more susceptible to the adverse
          effects of changes in circumstances and economic conditions than bonds
          in higher rated categories.

     BBB  Bonds rated BBB are regarded as having an adequate capacity to pay
          interest and repay principal. Whereas they normally exhibit adequate
          protection parameters, adverse economic conditions or changing
          circumstances are more likely to lead to a weakened capacity to pay
          interest and repay principal for bonds in this category than for bonds
          in higher rated categories.

     BB,  B, CCC, CC Debt rated BB, CCC, or CC is regarded, on balance, as
          predominately speculative with respect to capacity to pay interest and
          repay principal in accordance with the terms of the obligation. "BB'
          indicates the lowest degree of speculation and "CC' the highest degree
          of speculation. While such debt will likely have some quality and
          protective characteristics, these are outweighed by large
          uncertainties or major risk exposures to adverse conditions.

     C    This rating is reserved for income bonds on which no interest is being
          paid.

     D    Debt rated D is in default, and payment of interest and/or repayment
          of principal is in arrears.

     NR   Indicates that no rating has been requested, that there is
          insufficient information on which to base a rating, or that Standard &
          Poor's does not rate a particular type of obligation as a matter of
          policy.

Plus (+) or Minus (-): The ratings from "AA" to "BB" may be modified by the
addition of a plus or minus to show relative standing within the major rating
categories.

     Aaa  Bonds which are rated Aaa are judged to be of the best quality. They
          carry the smallest degree of investment risk and are generally
          referred to as "gilt edge". Interest payments are protected by a large
          or by an exceptionally stable margin and principal is secure. While
          the various protective elements are likely to change, such changes as
          can be visualized are most unlikely to impair the fundamentally strong
          position of such issues.

     Aa   Bonds which are rated Aa are judged to be of high quality by all
          standards. Together with the Aaa group they comprise what are
          generally known as high grade bonds. They are rated lower than the
          best bonds because margins of protection may not be as large as an Aaa
          securities or fluctuation of protective elements may be of greater
          amplitude or there may be other elements present which make the
          long-term risks appear somewhat larger than in Aaa securities.

                                      A-2
<PAGE>

     A    Bonds which are rated A possess many favorable investment attributes
          and are to be considered as upper medium grade obligations. Factors
          giving security to principal and interest are considered adequate but
          elements may be present which suggest a susceptibility to impairment
          sometime in the future.

     Baa  Bonds which are rated Baa are considered as medium grade obligations,
          i.e., they are neither highly protected nor poorly secured. Interest
          payments and principal security appear adequate for the present but
          certain protective elements may be lacking or may be
          characteristically unreliable over any great length of time. Such
          bonds lack outstanding investment characteristics and in fact have
          speculative characteristics as well.

     Ba   Bonds which are rated Ba are judged to have speculative elements;
          their future cannot be considered as well assured. Often the
          protection of interest and principal payments may be very moderate and
          thereby not well safeguarded during both good and bad times over the
          future. Uncertainty of position characterizes bonds in this class.

     B    Bonds which are rated B generally lack characteristics of the
          desirable investment. Assurance of interest and principal payments or
          of maintenance of other terms of the contract over any long period of
          time may be small.

     Caa  Bonds which are rated Caa are of poor standing. Such issues may be in
          default or there may be present elements of danger with respect to
          principal or interest.

     Ca   Bonds which are rated Ca represent obligations which are speculative
          in a high degree. Such issues are often in default or have other
          marked shortcomings.

     C    Bonds which are rated C are the lowest rated class of bonds and issues
          so rated can be regarded as having extremely poor prospects of ever
          attaining any real investment standing.

NOTE: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.







                                      A-3
<PAGE>









                      [THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE>

                                   APPENDIX B
                  SHORT-TERM PORTFOLIO SUB-ACCOUNT INVESTMENTS

The Short-Term Portfolio Sub-Account and the other Sub-Accounts may invest in
these liquid, short-term debt securities:

     1.   U.S. Treasury Bills and other obligations issued or guaranteed by the
          U.S. Government and its agencies or instrumentalities. These are debt
          securities (including bills, certificates of indebtedness, notes, and
          bonds) issued or guaranteed by the U.S. Treasury or by an agency or
          instrumentality of the U.S. Government that is established under the
          authority of an act of Congress. Such agencies or instrumentalities
          include, but are not limited to, the Federal National Mortgage
          Association, the Federal Farm Credit Bank, and the Federal Home Loan
          Bank. Although all obligations of agencies and instrumentalities are
          not direct obligations of the U.S. Treasury, payment of the interest
          and principal on them is generally backed directly or indirectly by
          the U.S. Government. This support can range from the backing of the
          full faith and credit of the United States, to U.S. Treasury
          guarantees, or to the backing solely of the issuing instrumentality
          itself.

     2.   Certificates of deposit, bankers' acceptances and time deposits of
          banks having assets (as most recently reported) in excess of $1
          billion. Certificates of deposit issued by U.S. branches of foreign
          banks are eligible for purchase if the branches are subject to state
          banking laws, Federal Reserve reporting requirements and have a
          minimum U.S. deposit size of $1 billion. Certificates of deposit
          issued by foreign branches of U.S. banks may also be purchased if the
          dollar deposit of the branch exceeds $1 billion. Certificates of
          deposit issued for foreign branches of U.S. banks are not governed by
          U.S. banking and securities laws and may be influenced by future
          political and economic developments and governmental restrictions. The
          term "certificates of deposit" includes both Eurodollar certificates
          of deposit, which are traded in the over-the-counter market, and
          Eurodollar time deposits, for which there is generally not a market.
          "Eurodollars" are dollars deposited in banks outside the United
          States. An investment in Eurodollar instruments involves risks that
          are different in some respects from an investment in debt obligations
          of domestic issuers, including future political and economic
          developments such as possible expropriation or confiscatory taxation
          that might adversely affect the payment of principal and interest on
          the Eurodollar instruments. In addition, there might be less publicly
          available information about a foreign bank than about a domestic bank,
          and such foreign banks may not be subject to the same accounting,
          auditing, and financial standards and requirements as domestic banks.
          Finally, in the event of default, judgments against a foreign issuer
          might be difficult to obtain or enforce. "Certificates of deposit" are
          certificates evidencing the indebtedness of a commercial bank to repay
          funds deposited with it for a definite period of time (usually from
          fourteen days to one year). "Bankers' acceptances" are credit
          instruments evidencing the obligation of a bank to pay a draft which
          has been drawn on it by a customer. These instruments reflect the
          obligation both of the bank and of the drawer to pay the face amount
          of the instrument upon maturity. "Time deposits" are non-negotiable
          deposits in a bank for a fixed period of time.

     3.   Commercial paper issued by domestic corporations which at the date of
          investment is rated "high quality" by Moody's or Standard & Poor's,
          provided that in no event will the Sub-Account purchase commercial
          paper rated lower than Prime-2 by Moody's or A-2 by Standard & Poor's
          or, if not rated, issued by domestic corporations which have an
          outstanding senior long-term debt issue rated Aa or better by Moody's
          or AA or better by Standard & Poor's. See Appendix A for an
          explanation of the ratings issued by Moody's and Standard & Poor's.


                                      B-1
<PAGE>

          "Commercial paper" consists of short-term (usually from 1 to 270 days)
          unsecured promissory notes issued by corporations in order to finance
          their current operations.

     4.   Other corporate obligations issued by domestic corporations which at
          the date of investment are rated Aa or better by Moody's or AA or
          better by Standard & Poor's. See Appendix A for rating information.
          "Corporate obligations" are bonds and notes issued by corporations and
          other business organizations, including business trusts, in order to
          finance their long-term credit needs.

     5.   Variable amount demand master notes issued by domestic corporations
          which, at the date of investment, either (a) have an outstanding
          senior long-term debt issue rated Aa or better by Moody's or AA or
          better by Standard & Poor's or (b) do not have rated long-term debt
          outstanding but have commercial paper rated at least Prime-2 by
          Moody's or A-2 by Standard & Poor's. Variable amount demand master
          notes are unsecured obligations that permit the investment by the
          Sub-Account of amounts that may fluctuate daily, at varying rates of
          interest pursuant to direct arrangements between the Sub-Account and
          the issuing corporation. Although callable on demand by the
          Sub-Account, these obligations are not marketable to third parties.
          They will not be purchased unless the investment adviser has
          determined that the issuer's liquidity is such as to enable it to pay
          the principal and interest immediately upon demand.

Repurchase Agreements

We may enter into repurchase agreements with member banks of the Federal Reserve
System or with government securities dealers recognized by the Federal Reserve
Board. In a repurchase agreement transaction, a buyer invests the cash for
negotiated periods at prevailing market rates by purchasing securities from a
securities dealer or commercial bank and agreeing to resell such securities to
the seller at a later date at a specified price. Upon resale, the buyer receives
the Proceeds, plus an amount which represents interest on the Proceeds. The
period of maturity is usually quite short, possibly overnight or a few days,
although it may extend over a number of months. The resale price is in excess of
the purchase price, reflecting an agreed-upon market rate effective for the
period of time the Sub-Account's money is invested in the security, and is not
related to the coupon rate of the purchased security. Repurchase agreements may
be considered loans of money to the seller of the underlying security, which are
collateralized by the securities underlying the repurchase agreement. The
Sub-Account will not enter into repurchase agreements unless the agreement is
"fully collateralized," i.e., the value of the securities is, and during the
entire term of the agreement remains, at least equal to the amount of the "loan"
including accrued interest. The Sub-Account will take possession of the
securities underlying the agreement and will value them daily to assure that
this condition is met. The Sub-Account will make payment for such securities
only upon physical delivery of the certificates or evidence of book-entry
transfer to the account of the safekeeper of securities.

The Sub-Account has established standards for the parties with whom it will
enter into repurchase agreements which it believes are reasonably designed to
assure that such a party presents no serious risk of becoming involved in
bankruptcy proceedings within the time frame contemplated by the repurchase
agreement. In the event that a seller defaults on a repurchase agreement, the
Sub-Account may incur a loss on disposition in market value of the collateral;
and, if a party with whom the Sub-Account had entered into a repurchase
agreement becomes involved in bankruptcy proceedings, the Sub-Account's ability
to realize on the collateral may be limited or delayed.

                                      B-2
<PAGE>

Reverse Repurchase Agreements

The Sub-Account may enter into reverse repurchase agreements with banks, which
agreements have the characteristics of borrowing and involve the sale of
securities held by the Sub-Account with an agreement to repurchase the
securities at an agreed upon price and date, which reflect a rate of interest
paid for the use of funds for the period. Generally, the effect of such a
transaction is that the Sub-Account can recover all or most of the cash invested
in the securities involved during the term of the reverse repurchase agreement,
while in many cases it will be able to keep some of the interest income
associated with those securities. Such transactions are only advantageous if the
Sub-Account has an opportunity to earn a greater rate of interest on the cash
derived from the transaction than the interest cost of obtaining that cash. The
Sub-Account may be unable to realize a return from the use of the proceeds equal
to or greater than the interest required to be paid. Opportunities to achieve
this advantage may not always be available, and the Sub-Account intends only to
use the reverse repurchase technique when it appears to be to its advantage to
do so. The use of reverse repurchase agreements may exaggerate any increase or
decrease in the value of the Sub-Account's securities. The Sub-Account's
custodian bank will maintain in a separate account securities of the Sub-Account
that have a value equal to or greater than the Sub-Account's commitments under
reverse repurchase agreements. The value of the securities subject to reverse
repurchase agreements will not exceed 10% of the value of the Sub-Account's
total assets.

When Issued and Delayed Delivery Securities

From time to time, in the ordinary course of business, the Short-Term Portfolio
Sub-Account may purchase securities on a when-issued or delayed delivery basis,
i.e., delivery and payment can take place a month or more after the date of the
transaction. The purchase price and the interest rate payable on the securities
are fixed on the transaction date. The securities so purchased are subject to
market fluctuation, and no interest accrues to the Sub-Account until delivery
and payment take place. At the time the Sub-Account makes the commitment to
purchase securities on a when-issued or delayed delivery basis, it will record
the transaction and thereafter reflect the value, each day, of such securities
in determining its net asset value. The Sub-Account will make commitments for
when-used transactions only with the intention of actually acquiring the
securities and, to facilitate such acquisitions, the Sub-Account's custodian
bank will maintain in a separate account securities of the Sub-Account having a
value equal to or greater than such commitments. On delivery dates for such
transactions, the Sub-Account will meet its obligations from maturities or sales
of the securities held in the Separate Account and/or from the then available
cash flow. If the Sub-Account chooses to dispose of the right to acquire a
when-issued security prior to its acquisition, it could, as with the disposition
of any other obligation, incur a gain or loss due to market fluctuation. No
when-issued commitments will be made if, as a result, more than 15% of the
Sub-Account's net assets would be so committed.

Risk Factors

Because of the variability of interest rates and the risks inherent in
investment in money market instruments and other securities, there can be no
assurance that the investment objective will be obtained. To the extent that
investments are made in the instruments of nongovernmental issuers, these
assets, despite favorable credit ratings, are subject to some risk of default.
Moreover, investment yields on relatively short-term obligations such as will
comprise the portfolio, are subject to substantial and rapid fluctuation. The
value of the assets generally will vary inversely to changes in interest rates.
If interest rates increase after an issue is purchased, the security, if sold
prior to maturity, may return less than its cost. Current yield levels should
not be considered representative of yields for any future period of time.


                                      B-3
<PAGE>

Moreover, should many contract owners change from this Sub-Account to other
Sub-Accounts at about the same time, the Sub-Account might have to sell
portfolio securities at a time when it would be disadvantageous to do so, and at
a lower price than if such securities were held to maturity.























                                      B-4
<PAGE>

                                   APPENDIX B

           SEPARATE ACCOUNT I OF WASHINGTON NATIONAL INSURANCE COMPANY
                     Semi-Annual Report dated June 30, 1995

     The Separate Account's semi-annual report dated June 30, 1995, immediately
follows this page.


<PAGE>

SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY

June 30, 1995




Statement of Assets and Liabilities                             1
Portfolio of Investments                                        2
Statement of Operations                                         6
Statement of Changes in Net Assets                              7
Notes to Financial Statements                                   8
Supplementary Information -- Selected Per Accumulation 
Unit Data and Ratios                                           11


<PAGE>

SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY

STATEMENT OF ASSETS AND LIABILITIES  (UNAUDITED)
June 30, 1995

<TABLE>
<CAPTION>

                                                                                                Sub-Account
                                                                       -------------------------------------------------------------
                                                                                                Short-Term
                                                                             Bond               Portfolio                Stock
                                                                       -----------------     -----------------     -----------------
ASSETS

<S>                                                                    <C>                   <C>                   <C>
Investments, at fair value (cost: Bond-$11,919,151:
  Short-Term-$1,720,201: Stock-$18,382,903) - Note C                        $12,254,915            $1,720,201           $29,913,490
Cash                                                                              3,539                   629                 7,055
Dividends and interest receivable                                               182,382                 3,626                53,704
Other receivables                                                                 8,290                   ---                43,151
                                                                       -----------------     -----------------     -----------------
                                                                             12,449,126             1,724,456            30,017,400

LIABILITIES


Payable to Washington National Insurance Company) - Note B                      126,245                18,359               288,933
                                                                       -----------------     -----------------     -----------------
                                                                                126,245                18,359               288,933
                                                                       -----------------     -----------------     -----------------

                                                          NET ASSETS        $12,322,881            $1,706,097           $29,728,467
                                                                       =================     =================     =================

Accumulation units outstanding                                                5,172,649               982,975             9,713,617
                                                                       =================     =================     =================

Accumulation unit value                                                          $2.38                 $1.74                 $3.06
                                                                                 =====                 =====                 =====

See notes to financial statements.
</TABLE>

                                     - 1 -
<PAGE>
SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY

PORTFOLIO OF INVESTMENTS  (UNAUDITED)
June 30, 1995
<TABLE>
<CAPTION>


                                                                                    Principal                        Fair
                 Description                                                          Amount                        Value
                                                                                -----------------             ----------------
<S>                                                                            <C>                          <C>               
BOND SUB-ACCOUNT
     U.S. Government and Government Agency Obligations--25.7%
             U.S. Treasury, 8% note, due 1-15-97                               $          500,000           $          515,000
             U.S. Treasury, 7% note, due 4-15-99                                          500,000                      520,000
             Government Trust Certificate, 9.25% certificate, due 11-15-01                500,000                      550,000
             Federal Home Loan Mortgage Corporation, 6.2% debenture,
                 due 9-8-08                                                               500,000                      470,000
             Federal Home Loan Mortgage Corporation, 8.75% participation
                 certificates, pool 160043, due 4-1-08                                    162,677                      168,354
             Federal Home Loan Mortgage Corporation, 9.25% participation
                 certificates, pool 160055, due 8-1-08                                     97,656                      102,149
             Federal Home Loan Mortgage Corporation, 10.25% participation
                 certificates, pool 160095, due 11-1-09                                    42,005                       45,098
             Federal Home Loan Mortgage Corporation, 10.75% participation
                 certificates, pool 170033, due 7-1-10                                     58,006                       62,384
             Federal Home Loan Mortgage Corporation, 10% participation
                 certificates, pool 170152, due 1-1-16                                     34,085                       36,840
             Government National Mortgage Association, 7.5% participation
                 certificates, pool 327726, due 8-15-22                                   697,602                      701,090
                                                                                                              ----------------
                 TOTAL U.S. GOVERNMENT AND GOVERNMENT AGENCY
                    OBLIGATIONS (cost--$3,085,866)                                                                   3,170,915

     Corporate Bonds--58.5%
         Comerica, Inc., 7.125% note, due 12-1-13                                         500,000                      470,000
         Morgan Stanley Group, 6.375% note, due 12-1-03                                   500,000                      480,000
         Nationsbank Corporation, 6.625% note, due 1-15-98                                500,000                      505,000
         Hoechst Celanese Corporation, 9.625% note, due 9-1-99                            500,000                      535,000
         DuPont De Nemours, 9.15% note, due 4-15-00                                       500,000                      555,000
         General Motors Corporation, 9.625% debentures, due 12-1-00                       500,000                      565,000
         Banc One Corporation, 7.25% note, due 8-1-02                                     500,000                      510,000
         Aon Corporation, 6.7% note, due 6-15-03                                          500,000                      495,000
         Equifax Inc., 6.5% note, due 6-15-03                                             500,000                      485,000
         NCNB Texas National Bank, 9.5% note, due 6-1-04                                  500,000                      580,000
         Corestates Capital Corporation, 6.625% note, due 3-15-05                         500,000                      490,000
         Pacificorp, 6.75% 1st mtg & collateral trust, due 4-1-05                         500,000                      495,000
         General Telephone Company of the Northwest, Inc., 8.25% first
             mortgage bonds, Series W, due 2-1-07                                         500,000                      515,000
         American Home Products, 7.70% note, due 2-15-00                                  500,000                      525,000
                                                                                                              ----------------
                 TOTAL CORPORATE BONDS (cost--$6,954,285)                                                            7,205,000

     Floating Rate Demand Notes -- 15.3%
             Household Finance Corporation, 6.09%, due on demand                          500,000                      500,000
             Goldman Sachs, 6.16%, due on demand                                          500,000                      500,000
             Associate Corporation of North America, 5.92%, due on demand                 414,000                      414,000
             General Electric Credit Corporation, 5.94%, due on demand                    465,000                      465,000
                                                                                                              ----------------
                 TOTAL FLOATING RATE DEMAND NOTES (cost--$1,879,000)                                                 1,879,000

                 TOTAL INVESTMENTS--BOND SUB-ACCOUNT--99.5% (cost--$11,919,151)                             $       12,254,915
                                                                                                              ================

See notes to financial statements.
Percentages shown are based on total net assets of each Sub-account.
</TABLE>


                                     - 2 -
<PAGE>

SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY

PORTFOLIO OF INVESTMENTS (UNAUDITED) -- Continued
<TABLE>
<CAPTION>

                                                                                    Principal                        Fair
                 Description                                                          Amount                        Value
                                                                                -----------------             ----------------
<S>                                                                            <C>                          <C>               
SHORT-TERM PORTFOLIO SUB-ACCOUNT
     Commercial Paper--58.4%
             American Express Credit Corporation, 5.85%, due 7-12-95           $          200,000           $          199,643
             John Deere Credit Company, 5.93%, due 8-03-95                                200,000                      198,913
             IBM Credit Corporation, 5.96%, due 7-26-95                                   200,000                      199,172
             Prudential Funding Corporation, 5.93%, due 7-05-95                           200,000                      199,868
             Texaco Incorporated, 5.92%, due 7/13/95                                      200,000                      199,605
                                                                                                              ----------------
                 TOTAL COMMERCIAL PAPER (cost--$997,201)                                                               997,201

     Floating Rate Demand Notes--42.4%
             Household Finance Corporation, 6.09%, due on demand                          200,000                      200,000
             Goldman Sachs, 6.16%, due on demand                                          200,000                      200,000
             Associate Corporation of North America, 5.92%, due on demand                 201,000                      201,000
             General Electric Credit Corporation, 5.94%, due on demand                    122,000                      122,000
                                                                                                              ----------------
                 TOTAL FLOATING RATE DEMAND NOTES (cost--$723,000)                                                     723,000
                                                                                                              ----------------
                 TOTAL INVESTMENTS--SHORT-TERM PORTFOLIO SUB-ACCOUNT--100.8%                                $        1,720,201
                    (cost--$1,720,201)                                                                        ================

                                                                                     Number of                       Fair
                                                                                       Shares                       Value
                                                                                -----------------             ----------------
STOCK SUB-ACCOUNT
     Common Stocks--96.2%
         Automobile--2.2%
             General Motors Corporation                                                    15,000           $          652,500

         Banks--3.4%
             Banc One Corporation                                                          14,456                      466,206
             Huntington Bancshare                                                          26,533                      550,560
                                                                                                              ----------------
                                                                                                                     1,016,766
         Beverages--2.5%
             Anheuser-Busch                                                                13,200                      750,750

         Brokerage Firms--3.6%
             Merrill Lynch                                                                 20,200                    1,060,500

         Consumer Products--5.3%
             Newell Company                                                                16,000                      390,000
             Rubbermaid, Inc.                                                              15,000                      416,250
             Warner Lambert                                                                 9,000                      777,375
                                                                                                              ----------------
                                                                                                                     1,583,625
         Drugs--5.0%
             Bristol-Myers Squibb                                                           7,100                      483,688
             Merck & Co.                                                                   20,400                    1,002,150
                                                                                                              ----------------
                                                                                                                     1,485,838


See notes to financial statements.
Percentages shown are based on total net assets of each Sub-account.
</TABLE>

                                      - 3 -

<PAGE>

SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY

PORTFOLIO OF INVESTMENTS (UNAUDITED) -- Continued
<TABLE>
<CAPTION>

                                                                                     Number of                       Fair
                 Description                                                           Shares                       Value
                                                                                -----------------             ----------------
<S>                                                                            <C>                          <C>               
STOCK SUB-ACCOUNT--Continued
     Common Stocks--96.2% -- Continued
         Electrical--5.4%
             Emerson Electric                                                              10,100           $          722,150
             General Electric                                                              15,600                      879,450
                                                                                                              ----------------
                                                                                                                     1,601,600
         Electronics and Instruments--7.4%
             Avnet, Inc.                                                                   17,700                      854,025
             Hewlett-Packard Company                                                       18,000                    1,341,000
                                                                                                              ----------------
                                                                                                                     2,195,025
         Entertainment--2.4%
             Walt Disney Company                                                           12,800                      710,400

         Financial--4.6%
             Federal National Mortgage Association                                          8,500                      803,250
             Fleet Financial Group                                                         15,000                      556,875
                                                                                                              ----------------
                                                                                                                     1,360,125

         Foods--4.8%
             CPC International                                                             12,600                      778,050
             Sysco Corporation                                                             22,000                      649,000
                                                                                                              ----------------
                                                                                                                     1,427,050
         Industrial--8.4%
             WMX Technologies, Inc.                                                        12,000                      340,500
             Parker-Hannifin                                                               23,700                      859,125
             Pitney Bowes, Inc.                                                            13,600                      520,200
             Sherwin Williams                                                              21,600                      769,500
                                                                                                              ----------------
                                                                                                                     2,489,325
         Insurance--4.8%
             Aetna Life and Casualty Company                                                6,200                      389,825
             General Reinsurance Corporation                                                4,400                      589,050
             Lincoln National Corporation                                                  10,000                      437,500
                                                                                                              ----------------
                                                                                                                     1,416,375
         Mines and Minerals--2.1%
             Minnesota Mining and Manufacturing Company                                    11,000                      631,125

         Oil--10.6%
             Amoco Corporation                                                             11,000                      732,875
             Chevron Corporation                                                           18,600                      862,575
             Exxon Corporation                                                             11,600                      819,250
             Mobil Corporation                                                              7,600                      729,600
                                                                                                              ----------------
                                                                                                                     3,144,300
         Radio and Television--2.0%
             Interpublic Group Incorporated                                                16,000                      600,000

         Restaurants--4.1%
             McDonald's Corporation                                                        31,400                    1,228,525


See notes to financial statements.
Percentages shown are based on total net assets of each Sub-account.
</TABLE>

                                      - 4 -
<PAGE>

SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY

PORTFOLIO OF INVESTMENTS (UNAUDITED) -- Continued
<TABLE>
<CAPTION>

                                                                                     Number of                       Fair
                 Description                                                           Shares                       Value
                                                                                -----------------             ----------------
<S>                                                                            <C>                          <C>               
STOCK SUB-ACCOUNT -- Continued
     Common Stocks--96.2% -- Continued
         Technology--8.2%
             Intel Corporation                                                             22,000           $        1,392,886
             Motorola Incorporated                                                         15,600                    1,047,150
                                                                                                              ----------------
                                                                                                                     2,440,036
         Telephone--2.9%
             Bell Atlantic Corporation                                                     10,500                      588,000
             Pacific Teleisis Group                                                        10,800                      288,900
                                                                                                              ----------------
                                                                                                                       876,900
         Utilities--6.5%
             Central & Southwest                                                           19,600                      514,500
             Duke Power                                                                    12,400                      514,600
             Northeast Utilities                                                           17,400                      391,500
             Pennsylvania Power and Light Company                                          17,800                      344,875
             SCE Corp                                                                      10,000                      171,250
                                                                                                              ----------------
                                                                                                                     1,936,725

                 TOTAL COMMON STOCKS (cost--$17,076,903)                                                            28,607,490

                                                                                    Principal
                                                                                      Amount

     Floating Rate Demand Notes--4.4%
         Household Finance Corporation, 6.09%, due on demand                   $           33,000                       33,000
         Associate Corporation of North America, 5.92%, due on demand                     623,000                      623,000
         General Electric Credit Corportion, 5.94%, due on demand                         650,000                      650,000
                                                                                                              ----------------
                 TOTAL FLOATING RATE DEMAND NOTES (cost--$1,306,000)                                                 1,306,000
                                                                                                              ----------------
                 TOTAL INVESTMENTS--STOCK SUB-ACCOUNT--100.6% (cost--$18,382,903)                           $       29,913,490
                                                                                                              ================

See notes to financial statements.
Percentages shown are based on total net assets of each Sub-account.
</TABLE>

                                      - 5 -
<PAGE>
SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY

STATEMENT OF OPERATIONS  (UNAUDITED)
Six Months Ended June 30, 1995
<TABLE>
<CAPTION>
                                                                               Sub-Account
                                                     --------------------------------------------------------------------
                                                                                Short-Term
                                                            Bond                  Portfolio                  Stock
                                                     -----------------       -----------------        -------------------
<S>                                                  <C>                      <C>                     <C>
Investment income:
      Interest                                       $        446,670         $        52,274         $           36,660
      Dividends                                                   -                        -                     370,331
      Other                                                       -                        -                         235
                                                     -----------------       -----------------        -------------------
                                                              446,670                  52,274                    407,226
Expenses--Note B:
      Mortality and expense assurance                          47,250                   6,925                    108,883
      Investment advisory and management fee                   29,531                   4,328                     68,052
      Accounting service fee                                   20,672                   3,029                     47,637
      General and administrative expenses                       7,850                   1,731                     30,857
                                                     -----------------       -----------------        -------------------
                                                              105,303                  16,013                    255,429
                                                     -----------------       -----------------        -------------------

NET INVESTMENT INCOME                                         341,367                  36,261                    151,797

Realized and unrealized gains (losses):
          Net realized gains                                      279                                             62,269
          Unrealized gains (losses)--Note C:
                   Beginning of year                        (477,813)                                          6,657,961
                   End of year                                335,763                                         11,530,591
                                                     -----------------                                -------------------

          Net unrealized gain                                 813,576                                          4,872,630
                                                     -----------------                                -------------------

NET REALIZED AND UNREALIZED
         GAIN ON INVESTMENTS                                  813,855                                          4,934,899
                                                     -----------------       -----------------        -------------------

INCREASE IN NET ASSETS
         FROM OPERATIONS                             $      1,155,222         $        36,261         $        5,086,696
                                                     =================       =================        ===================


See notes to financial statements.

</TABLE>

                                     - 6 -

<PAGE>
SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>

                                                                            Six Months Ended June 30, 1995 (Unaudited)
                                                               ---------------------------------------------------------------------
                                                                                           Sub-Account
                                                               ---------------------------------------------------------------------
                                                                                             Short-Term
                                                                         Bond                Portfolio                   Stock
                                                               --------------------     -------------------     --------------------
ADDITIONS (DEDUCTIONS)
<S>                                                             <C>                     <C>                     <C>
 From operations
    Net investment income                                       $          341,367      $           36,261      $           151,797
    Net realized gain (loss)                                                   279                       -                   62,269
    Net unrealized gain (loss)                                             813,576                       -                4,872,630
                                                               --------------------     -------------------     --------------------

  INCREASE (DECREASE) IN  NET ASSETS FROM OPERATIONS                     1,155,222                  36,261                5,086,696

  From capital transactions-Note A
     Net proceeds from units sold                                          261,676                  20,872                  757,330
     Cost of units redeemed                                               (403,468)                (30,801)              (1,227,620)
     Net asset value of units transferred, including
       exchanges with the Fixed Account                                   (137,632)                (74,547)                   25,331
                                                               --------------------     -------------------     --------------------

  INCREASE (DECREASE) IN  NET ASSETS FROM CAPITAL TRANSACTIONS            (279,424)                (84,476)                (444,959)
                                                               --------------------     -------------------     --------------------

  NET INCREASE (DECREASE) IN NET ASSETS                                    875,798                (48,215)                4,641,737

Net assets at beginning of year                                         11,447,083               1,754,312               25,086,730
                                                               --------------------     -------------------     --------------------

            NET ASSETS AT END OF YEAR                           $       12,322,881      $        1,706,097      $        29,728,467
                                                               ====================     ===================     ====================

ANALYSIS OF CHANGES IN UNITS OUTSTANDING
    Units sold                                                             114,162                  12,489                  269,284
    Units redeemed                                                       (177,267)                (17,914)                (442,991)
    Units transferred                                                     (60,874)                (43,362)                    4,893
                                                                --------------------     -------------------     -------------------


     INCREASE (DECREASE) IN UNITS OUTSTANDING                            (123,979)                (48,787)                (168,814)

    Units outstanding at beginning of year                              5,296,628               1,031,762                9,882,431  
                                                               --------------------     -------------------     --------------------
     UNITS OUTSTANDING AT END OF YEAR                                   5,172,649                 982,975                9,713,617  
                                                               ====================     ===================     ====================



                                                                                    Year Ended December 31, 1994
                                                                --------------------------------------------------------------------
                                                                                            Sub-Account
                                                                --------------------------------------------------------------------
                                                                                              Short-Term
                                                                          Bond                Portfolio                   Stock
                                                                --------------------    --------------------    --------------------
ADDITIONS (DEDUCTIONS)
 From operations
    Net investment income                                        $          644,387      $           41,670      $           359,394
    Net realized gain (loss)                                                 26,252                       -                  237,338
    Net unrealized gain (loss)                                          (1,206,736)                       -                (413,568)
                                                                --------------------    --------------------    --------------------

  INCREASE (DECREASE) IN  NET ASSETS FROM OPERATIONS                      (536,097)                  41,670                  183,164

    From capital transactions-Note A
      Net proceeds from units sold                                         406,807                  51,010                1,055,215
      Cost of units redeemed                                              (992,431)               (134,122)              (2,092,462)
      Net asset value of units transferred, including
         exchanges with the Fixed Account                                 (592,255)                 170,143                  233,261
                                                                --------------------    --------------------    --------------------

  INCREASE (DECREASE) IN  NET ASSETS FROM CAPITAL TRANSACTIONS          (1,177,879)                  87,031                (803,986)
                                                                --------------------    --------------------    --------------------

  NET INCREASE (DECREASE) IN NET ASSETS                                 (1,713,976)                 128,701                (620,822)

Net assets at beginning of year                                          13,161,059               1,625,611               25,707,552
                                                                --------------------    --------------------    --------------------

            NET ASSETS AT END OF YEAR                            $       11,447,083      $        1,754,312      $        25,086,730
                                                                ====================    ====================    ====================


ANALYSIS OF CHANGES IN UNITS OUTSTANDING
    Units sold                                                              185,686                  30,089                  420,378
    Units redeemed                                                        (454,958)                (80,108)                (831,402)
    Units transferred                                                     (270,163)                 101,699                   91,183
                                                                --------------------    --------------------    --------------------


    INCREASE (DECREASE) IN UNITS OUTSTANDING                              (539,435)                  51,680                (319,841)

    Units outstanding at beginning of year                               5,836,063                 980,082               10,202,272
                                                               --------------------    --------------------    ---------------------

    UNITS OUTSTANDING AT END OF YEAR                                     5,296,628               1,031,762                9,882,431
                                                               ====================    ====================    =====================


See notes to financial statements.
</TABLE>
                                     - 7 -

<PAGE>

SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS
June 30, 1995
Unaudited



NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


The Account:  The Separate Account I of Washington  National  Insurance  Company
(the  "Separate  Account")  is a  segregated  investment  account of  Washington
National  Insurance  Company  ("WNIC").  WNIC is a  wholly-owned  subsidiary  of
Washington  National  Corporation.  The  Separate  Account is  registered  as an
open-end diversified management investment company pursuant to the provisions of
the Investment  Company Act of 1940.  The Separate  Account no longer issues new
contracts.  There are three Sub-Accounts within the Separate Account,  each with
its own investment objectives and policies as follows:

  Bond Sub-Account -- high level of current income while  preserving  capital by
  investing in fixed income securities.

  Short-Term   Portfolio   Sub-Account  --  moderate  level  of  current  income
  consistent  with liquidity and  preservation of capital by investing in one or
  more types of short-term instruments.

  Stock  Sub-Account  --  long-term  capital  growth  and  income  by  investing
  principally in equity-type securities.

In addition,  a contract  holder may elect to invest in a fixed  annuity held by
WNIC, called the Fixed Account.

WNIC is a contract  holder of the Separate  Account.  At June 30, 1995, the fair
value of WNIC's investments were $5,306,670,  $1,063,305,  and $8,625,633 in the
Bond, Short-Term Portfolio, and Stock Sub-Accounts, respectively.  During 1995,
WNIC has made no deposits or withdrawals.

Valuation of Investments:  Securities traded on a national  securities  exchange
are valued at the closing price as of the valuation date.  Investments traded in
the  over-the-counter  market are valued at the average  between the bid and ask
prices.  Commercial  paper is valued  at  amortized  cost and  other  short-term
investments  are valued at cost.  Differences,  if any,  from fair value are not
considered material in relation to net assets.

Investment  Transactions and Income:  Security transactions are accounted for on
the trade date (date the order to buy or sell is executed).  Interest  income is
recorded on the accrual basis and dividend income is recorded on the ex-dividend
date.  Realized  gains and losses on  investments  are determined on a first-in,
first-out basis.

Accumulation Unit Valuation: Accumulation unit values reflect the net asset
value of each Sub-Account and are computed daily.

                                      - 8 -
<PAGE>

SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS - Continued
June 30, 1995
Unaudited



NOTE B -- DEDUCTIONS AND CHARGES


Deductions  and charges are made from the  Separate  Account and paid to WNIC as
follows:

*  As a fee for  administration  and  contract  maintenance,  WNIC  deducts  $30
   annually  from  the  accumulated  value  of  each  contract  on the  contract
   anniversary  or on the  date  of  surrender  if it  occurs  between  contract
   anniversaries. This fee does not apply to contracts for individual retirement
   accounts,  or to contracts which at the end of any contract  anniversary have
   received at least $1,000 of payments or in which the accumulated  value is at
   least $20,000.

*  As compensation for annuity rate guarantees, WNIC deducts an amount, computed
   on a daily basis, which is equal on an annual basis to .8% of the average net
   asset value of the Separate Account.

*  As a fee for managing and  administering  the  investment  activities  of the
   Separate Account, WNIC deducts an amount, computed on a daily basis, equal to
   an annual rate of .5% of the average net asset value of each Sub-Account.

*  As compensation for providing  financial  accounting services to the Separate
   Account,  WNIC  deducts an amount,  computed  on a daily  basis,  equal to an
   annual rate of .35% of the average net asset value of the Separate Account.

*  As  reimbursement  for incurring  various  other  general and  administrative
   expenses  attributable  to the  Separate  Account,  WNIC  deducts  an amount,
   computed on a daily basis,  equal to an annual rate of .2% of the average net
   asset value of the Separate Account. A component of these expenses is the fee
   paid to the Separate Account's Board of Directors.  Only members of the Board
   of Directors who are not directors, officers, or employees of WNIC receive an
   annual  retainer of $1,000,  and a meeting fee of $350.  As of June 30, 1995,
   the Separate Account's three external directors each received $1,450.

*  A contingent  deferred  sales  charge of 6% is made on any amounts  withdrawn
   which are in excess of 10% of the contract's accumulated value on the date of
   the first withdrawal during the respective contract year, except that no such
   charge is made for  withdrawals  of purchase  payments  received more than 72
   months  prior to the date of  withdrawal  and no such  charge  is made if the
   withdrawal  amount is applied to a  settlement  option after the contract has
   been in force for five years or if the contract contains life contingencies.

                                      - 9 -
<PAGE>

SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS - Continued
June 30, 1995
Unaudited



NOTE C -- INVESTMENTS

The  aggregate  cost of  purchases  and sales of  investments  other than United
States Government obligations and short-term notes was:

                                      Proceeds
                       Cost of          From
                      Investments   Investments
      Sub-Account      Acquired         Sold
     ------------    ------------   -----------
     Bond             $499,370       $   -
     Stock             907,750        866,833


The total  unrealized  gain or loss on investments at June 30, 1995 consisted of
unrealized  appreciation of $436,433 and $11,632,390 and unrealized depreciation
of $100,669 and $101,803 in the Bond and Stock Sub-Accounts, respectively.


NOTE D -- FEDERAL INCOME TAXES

The  operations of the Separate  Account form a part of, and are taxed with, the
operations  of WNIC,  which under the Internal  Revenue Code is taxed as a "life
insurance company." The Separate Account is not taxed as a regulated  investment
company under  Subchapter M of the Code.  Under existing federal income tax law,
no taxes are payable on the  investment  income or on the realized  gains of the
Separate Account.


                                     - 10 -

<PAGE>
SEPARATE ACCOUNT I OF
WASHINGTON NATIONAL INSURANCE COMPANY

SUPPLEMENTARY INFORMATION--SELECTED PER ACCUMULATION UNIT DATA AND RATIOS

Selected data per accumulation unit
outstanding throughout the year

<TABLE>
<CAPTION>


                                                                              Six Months Ended
                                                                               June 30, 1995
                                                                                (Unaudited)
                                                             ---------------------------------------------------
                                                                                Sub-Account
                                                             ---------------------------------------------------
                                                                                 Short-Term
                                                                   Bond           Portfolio             Stock
                                                             --------------    ----------------    -------------
<S>                                                           <C>               <C>                 <C>
Per accumulation unit data:
   Investment income                                          $       0.09      $         0.05      $      0.04
   Expenses                                                         (0.02)              (0.01)           (0.02)
                                                             --------------    ----------------    -------------
                NET INVESTMENT INCOME                                 0.07                0.04             0.02

   Net realized and unrealized
       gain (loss) on investments                                     0.15               -                 0.50
                                                             --------------    ----------------    -------------
   Net increase (decrease) in
       accumulation unit value                                        0.22                0.04             0.52
   Accumulation unit value at
       beginning of year                                              2.16                1.70             2.54
                                                             --------------    ----------------    -------------

                ACCUMULATION UNIT VALUE
                     AT END OF YEAR                           $       2.38      $         1.74      $      3.06
                                                             ==============    ================    =============


Ratios:
   Ratio of expenses to average
       net assets                                                    1.78%               1.84%            1.87%
   Ratio of net investment income
       to average net assets                                          5.75                4.18             1.11
   Portfolio turnover rate                                             -                   -               3.31

Number of accumulation units
   outstanding at end of year
   (000's omitted)                                                   5,173                 983            9,714
</TABLE>
<TABLE>
<CAPTION>



                                                                                     1994
                                                             ---------------------------------------------------
                                                                                Sub-Account
                                                             ---------------------------------------------------
                                                                                 Short-Term
                                                                   Bond           Portfolio             Stock
                                                             --------------    ----------------    -------------
<S>                                                           <C>               <C>                 <C>
Per accumulation unit data:
   Investment income                                          $       0.16      $         0.07      $      0.08    
   Expenses                                                         (0.04)              (0.03)           (0.04)
                                                             --------------    ----------------    -------------
                NET INVESTMENT INCOME                                 0.12                0.04             0.04

   Net realized and unrealized
       gain (loss) on investments                                   (0.22)               -               (0.02)
                                                             --------------    ----------------    -------------
   Net increase (decrease) in
       accumulation unit value                                      (0.10)                0.04             0.02
   Accumulation unit value at
       beginning of year                                              2.26                1.66             2.52
                                                             --------------    ----------------    -------------

                ACCUMULATION UNIT VALUE
                     AT END OF YEAR                           $       2.16      $         1.70      $      2.54  
                                                             ==============    ================    =============


Ratios:
   Ratio of expenses to average
       net assets                                                    1.87%               1.85%            1.83%
   Ratio of net investment income
       to average net assets                                          5.28                2.47             1.41
   Portfolio turnover rate                                            0.00                0.00            12.20

Number of accumulation units
   outstanding at end of year
   (000's omitted)                                                   5,297               1,032            9,882
</TABLE>
<TABLE>
<CAPTION>


                                                                                     1993
                                                             ---------------------------------------------------
                                                                                Sub-Account
                                                             ---------------------------------------------------
                                                                                 Short-Term
                                                                   Bond           Portfolio             Stock
                                                             --------------    ----------------    -------------
<S>                                                           <C>               <C>                 <C>
Per accumulation unit data:
   Investment income                                          $       0.16      $         0.05      $        0.07        
   Expenses                                                         (0.04)              (0.03)             (0.04)
                                                             --------------    ----------------    ---------------
                NET INVESTMENT INCOME                                 0.12                0.02               0.03

   Net realized and unrealized
       gain (loss) on investments                                     0.03               -                   0.21     
                                                             --------------    ----------------    ---------------
   Net increase (decrease) in
       accumulation unit value                                        0.15                0.02               0.24
   Accumulation unit value at
       beginning of year                                              2.11                1.64               2.28
                                                             --------------    ----------------    ---------------

                ACCUMULATION UNIT VALUE
                     AT END OF YEAR                           $       2.26      $         1.66      $        2.52      
                                                             ==============    ================    ===============


Ratios:
   Ratio of expenses to average
       net assets                                                    1.85%               1.85%              1.81%
   Ratio of net investment income
       to average net assets                                          5.50                1.28               1.17
   Portfolio turnover rate                                           33.66                -                  3.50

Number of accumulation units
   outstanding at end of year
   (000's omitted)                                                   5,836                 980             10,202
</TABLE>

<TABLE>
<CAPTION>

                                                                                     1992
                                                             ------------------------------------------------------
                                                                                  Sub-Account
                                                             ------------------------------------------------------
                                                                                 Short-Term
                                                                   Bond           Portfolio              Stock
                                                             --------------    ----------------    ----------------
<S>                                                           <C>               <C>                 <C>
Per accumulation unit data:
   Investment income                                          $       0.17      $         0.06      $         0.07
   Expenses                                                         (0.04)              (0.03)              (0.04)
                                                             --------------    ----------------    ----------------
                NET INVESTMENT INCOME                                 0.13                0.03                0.03

   Net realized and unrealized
       gain (loss) on investments                                   (0.01)               -                    0.12
                                                             --------------    ----------------    ----------------
   Net increase (decrease) in
       accumulation unit value                                        0.12                0.03                0.15
   Accumulation unit value at
       beginning of year                                              1.99                1.61                2.13
                                                             --------------    ----------------    ----------------

                ACCUMULATION UNIT VALUE
                     AT END OF YEAR                           $       2.11      $         1.64      $         2.28
                                                             ==============    ================    ================


Ratios:
   Ratio of expenses to average
       net assets                                                    1.85%               1.85%               1.85%
   Ratio of net investment income
       to average net assets                                          6.22                1.82                1.33
   Portfolio turnover rate                                           10.83                -                   4.92

Number of accumulation units
   outstanding at end of year
   (000's omitted)                                                   6,457               1,065              10,457
</TABLE>


<TABLE>
<CAPTION>

                                                                                     1991
                                                             ------------------------------------------------------
                                                                                  Sub-Account
                                                             ------------------------------------------------------
                                                                                 Short-Term
                                                                   Bond           Portfolio              Stock
                                                             --------------    ----------------    ----------------
<S>                                                           <C>               <C>                 <C>
Per accumulation unit data:
   Investment income                                          $       0.16      $         0.09      $         0.07
   Expenses                                                         (0.03)              (0.03)              (0.04)
                                                             --------------    ----------------    ----------------
                NET INVESTMENT INCOME                                 0.13                0.06                0.03

   Net realized and unrealized
       gain (loss) on investments                                     0.14               -                    0.34
                                                             --------------    ----------------    ----------------
   Net increase (decrease) in
       accumulation unit value                                        0.27                0.06                0.37
   Accumulation unit value at
       beginning of year                                              1.72                1.55                1.76
                                                             --------------    ----------------    ----------------

                ACCUMULATION UNIT VALUE
                     AT END OF YEAR                           $       1.99      $         1.61      $         2.13
                                                             ==============    ================    ================


Ratios:
   Ratio of expenses to average
       net assets                                                    1.85%               1.86%               1.86%
   Ratio of net investment income
       to average net assets                                          7.02                3.80                1.85
   Portfolio turnover rate                                             -                  -                   5.97

Number of accumulation units
   outstanding at end of year
   (000's omitted)                                                   6,616               1,130              10,564

</TABLE>
See notes to financial statements.

                                     - 11 -
<PAGE>





                                   APPENDIX C

                      SCUDDER VARIABLE LIFE INVESTMENT FUND
                Statement of Additional Information dated May 1,
                                      1995


     The Fund's statement of additional information dated May 1, 1995,
immediately follows this page.


<PAGE>

                      SCUDDER VARIABLE LIFE INVESTMENT FUND

                             Two International Place

                        Boston, Massachusetts 02110-4103


        An open-end management investment company which currently offers 
                        shares of beneficial interest of
         six diversified Portfolios, three of which are offered herein,
        which seek, respectively, (i) stability and current income from a
      portfolio of money market instruments, (ii) high income from a high
              quality portfolio of bonds, and (iii) long-term growth
                 of capital, current income and growth of income
           from a portfolio consisting primarily of common stocks and
                    securities convertible into common stocks

                                 (A Mutual Fund)



--------------------------------------------------------------------------------


                       STATEMENT OF ADDITIONAL INFORMATION

                                   May 1, 1995

--------------------------------------------------------------------------------



      This Statement of Additional Information is not a prospectus and should be
read in conjunction with the prospectus of Scudder Variable Life Investment Fund
dated May 1, 1995,  as may be amended  from time to time, a copy of which may be
obtained  without  charge by  calling a  Participating  Insurance  Company or by
writing to  broker/dealers  offering  certain  variable  annuity  contracts  and
variable life  insurance  policies,  or Scudder  Investor  Services,  Inc.,  Two
International Place, Boston, Massachusetts 02110-4103.

<PAGE>

                                TABLE OF CONTENTS
                                                                          Page

INVESTMENT OBJECTIVES AND POLICIES.........................................1
         Money Market Portfolio............................................1
         Bond Portfolio....................................................2
         Growth and Income Portfolio.......................................3
         
POLICIES AND TECHNIQUES APPLICABLE TO THE PORTFOLIOS.......................4
         Repurchase Agreements.............................................4
         Zero Coupon Securities............................................5
         Mortgage-Backed Securities and Mortgage Pass-Through
          Securities.......................................................5
         Collateralized Mortgage Obligations ("CMOs")......................7
         FHLMC Collateralized Mortgage Obligations.........................7
         Other Mortgage-Backed Securities..................................7
         Other Asset-Backed Securities.....................................8
         Municipal Obligations.............................................9
         Convertible Securities............................................9
         Depositary Receipts..............................................10
         Foreign Securities...............................................10
         Limitations on Holdings of Foreign Securities....................11
         Indexed Securities...............................................11
         When-Issued Securities...........................................12
         Loans of Portfolio Securities....................................12
         Borrowing........................................................12 
         Options..........................................................13
         Securities Index Options.........................................14
         Futures Contracts................................................15
         Futures on Debt Securities.......................................15
         Limitations on the Use of Futures Contracts and Options 
          on Futures......................................................17
         Foreign Currency Transactions....................................18
         High Yield, High Risk Securities.................................20
         Combined Transactions............................................201

INVESTMENT RESTRICTIONS...................................................21

PURCHASES AND REDEMPTIONS.................................................22

INVESTMENT ADVISER AND DISTRIBUTOR........................................22
         Investment Adviser...............................................22
         Personal Investments by Employees of the Adviser.................25
         Distributor......................................................25

MANAGEMENT OF THE FUND....................................................26
         Trustees and Officers............................................26
         Remuneration.....................................................28

NET ASSET VALUE...........................................................29

TAX STATUS................................................................30

DIVIDENDS AND DISTRIBUTIONS...............................................34
         Money Market Portfolio...........................................34
         Other Portfolio..................................................34

PERFORMANCE INFORMATION...................................................35
         Money Market Portfolio...........................................35
                                       i
<PAGE>

                          TABLE OF CONTENTS (continued)
                                                                         Page


         Bond Portfolio...................................................35
         All Portfolios...................................................36
         Comparison of Portfolio Performance..............................37

SHAREHOLDER COMMUNICATIONS................................................40

ORGANIZATION AND CAPITALIZATION...........................................41
         General..........................................................41
         Shareholder and Trustee Liability................................42

ALLOCATION OF PORTFOLIO BROKERAGE.........................................42

PORTFOLIO TURNOVER........................................................43

EXPERTS...................................................................44

COUNSEL...................................................................44

ADDITIONAL INFORMATION....................................................44

FINANCIAL STATEMENTS......................................................45

APPENDIX
         Description of Bond Ratings
         Description of Commercial Paper Ratings

                                       ii
<PAGE>


                       INVESTMENT OBJECTIVES AND POLICIES

                    (See "INVESTMENT CONCEPT OF THE FUND" and
             "INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS"
                           in the Fund's prospectus.)

      Scudder  Variable  Life  Investment  Fund  (the  "Fund")  is an  open-end,
diversified   registered   management   investment  company   established  as  a
Massachusetts  business  trust.  The Fund is a  series  fund  consisting  of six
diversified series,  three of which, the Money Market Portfolio,  Bond Portfolio
and  Growth and  Income  Portfolio  (individually  or  collectively  hereinafter
referred to as a "Portfolio" or the "Portfolios") are offered herein. Additional
portfolios  may be created  from time to time.  The Fund is  intended  to be the
funding  vehicle for variable  annuity  contracts ("VA  contracts") and variable
life insurance  policies ("VLI policies") to be offered to the separate accounts
of certain life insurance companies ("Participating Insurance Companies").

      Each  Portfolio  has a  different  investment  objective  which it pursues
through  separate  investment  policies,  as described below. The differences in
objectives  and  policies  among the  Portfolios  can be  expected to affect the
degree of market and financial  risk to which each  Portfolio is subject and the
return  of each  Portfolio.  The  investment  objectives  and  policies  of each
Portfolio may, unless otherwise  specifically stated, be changed by the Trustees
of the Fund without a vote of the  shareholders.  There is no assurance that the
objectives of any Portfolio will be achieved.

Money Market Portfolio

      The Money Market Portfolio seeks to maintain the stability of capital and,
consistent  therewith,  to  maintain  the  liquidity  of capital  and to provide
current  income.  The Portfolio  seeks to maintain a constant net asset value of
$1.00 per share,  although there can be no assurance that this will be achieved.
The Portfolio will use the amortized cost method of securities valuation.

      The Money Market Portfolio purchases U.S. Treasury bills, notes and bonds;
obligations of agencies and  instrumentalities of the U.S. Government;  domestic
and foreign bank certificates of deposit; bankers' acceptances;  finance company
and  corporate  commercial  paper;  and  repurchase   agreements  and  corporate
obligations. Investments are limited to those that are dollar-denominated and at
the time of  purchase  are rated,  or judged by the Fund's  investment  adviser,
Scudder,  Stevens & Clark,  Inc. (the "Adviser"),  subject to the supervision of
the Trustees,  to be equivalent to those rated high quality (i.e.,  rated in the
two highest categories) by any two nationally-recognized rating services such as
Moody's Investors Service,  Inc.  ("Moody's") and Standard & Poor's ("S&P").  In
addition, the Adviser seeks through its own credit analysis to limit investments
to high quality instruments presenting minimal credit risks. Securities eligible
for  investment  by the Money  Market  Portfolio  which are rated in the highest
category by at least two rating services (or by one rating service,  if no other
rating  service has issued a rating with respect to that  security) are known as
"first tier  securities."  Securities  rated in the top two categories which are
not first tier securities are known as "second tier securities."  Investments in
commercial paper and finance company paper will be limited to securities  which,
at the time of  purchase,  will be rated A-1 or A-2 by S&P or Prime 1 or Prime 2
by Moody's or the  equivalent  by any  nationally-recognized  rating  service or
judged  to be  equivalent  by the  Adviser.  Obligations  which are  subject  to
repurchase agreements will be limited to those of the type and quality described
above.  The Money Market  Portfolio may also hold cash.  Shares of the Portfolio
are not insured by an agency of the U.S. Government.  Securities and instruments
in which the  Portfolio  may  invest may be issued by the U.S.  Government,  its
agencies and instrumentalities,  corporations,  trusts, banks, finance companies
and other business entities.

      The Money  Market  Portfolio  may invest in  certificates  of deposit  and
bankers'  acceptances of large domestic banks (i.e.,  banks which at the time of
their most recent annual financial  statements show total assets in excess of $1
billion)  including  foreign  branches of such  domestic  banks,  which  involve
different  risks than those  associated  with  investments  in  certificates  of
deposit  of  domestic  banks,  and of  smaller  banks as  described  below.  The
Portfolio  will invest in U.S.  dollar-denominated  certificates  of deposit and
bankers'   acceptances   of  foreign   banks  if  such  banks  meet  the  stated
qualifications.  Although the  Portfolio  recognizes  that the size of a bank is
important,   this   fact   alone   is   not   necessarily   indicative   of  its
creditworthiness. Investment in certificates of deposit and bankers' acceptances
issued  by  foreign  banks and  foreign  branches  of  domestic  banks  involves
investment  risks that are different in some respects from those associated with
<PAGE>

investments  in  certificates  of deposit  and  bankers'  acceptances  issued by
domestic  banks.  (See  "Foreign  Securities"  in this  Statement of  Additional
Information for further risks of foreign investment.)

      The Money  Market  Portfolio  may also invest in  certificates  of deposit
issued by banks and savings and loan institutions which had at the time of their
most recent annual  financial  statements  total assets of less than $1 billion,
provided  that (i) the  principal  amounts of such  certificates  of deposit are
insured by an agency of the U.S. Government,  (ii) at no time will the Portfolio
hold more than $100,000  principal  amount of certificates of deposit of any one
such  bank,  and  (iii)  at the  time of  acquisition,  no more  than 10% of the
Portfolio's  assets  (taken at current  value) are invested in  certificates  of
deposit of such banks having total assets not in excess of $1 billion.

      The assets of the Money Market  Portfolio  consist  entirely of cash items
and  investments  having a remaining  maturity date of 397 calendar days or less
from  date of  purchase.  The  Portfolio  will be  managed  so that the  average
maturity of all instruments in the portfolio (on a  dollar-weighted  basis) will
be 90 days or less. The average maturity of the Portfolio's  investments  varies
according to the Adviser's appraisal of money market conditions.

      To  ensure  diversity  of the  Portfolio's  investments,  as a  matter  of
non-fundamental  policy the Portfolio  will not invest more than 5% of its total
assets in the securities of a single issuer, other than the U.S. Government. The
Portfolio  may,  however,  invest more than 5% of its total  assets in the first
tier  securities  of a single  issuer for a period of up to three  business days
after  purchase,  although  the  Portfolio  may not  make  more  than  one  such
investment  at any time.  The Portfolio may not invest more than 5% of its total
assets in  securities  which were second tier  securities  when  acquired by the
Portfolio. Further, the Portfolio may not invest more than the greater of (1) 1%
of its total assets,  or (2) one million dollars,  in the securities of a single
issuer which were second tier securities when acquired by the Portfolio.

      The net  investment  income of the  Portfolio is declared as a dividend to
shareholders  daily and distributed  monthly in cash or reinvested in additional
shares.

Bond Portfolio

      The Bond  Portfolio  pursues a policy  of  investing  for a high  level of
income consistent with a high quality portfolio of debt securities. Under normal
circumstances  the  Portfolio  invests  at  least  65% of its  assets  in  bonds
including  those  of  the  U.S.   Government  and  its  agencies  and  those  of
corporations and other notes and bonds paying high current income. The Portfolio
may also invest in preferred stocks consistent with the Portfolio's  objectives.
It will attempt to moderate the effect of market price  fluctuation  relative to
that of a long-term bond by investing in securities with varying  maturities and
making use of futures  contracts  on debt  securities  and  related  options for
hedging purposes.

      The Bond Portfolio may purchase corporate notes and bonds including issues
convertible into common stock and obligations of municipalities. It may purchase
U.S.  Government  securities and  obligations  of federal  agencies that are not
backed by the full faith and credit of the U.S. Government,  such as obligations
of Federal Home Loan Banks, Farm Credit Banks and the Federal Home Loan Mortgage
Corporation.  The  Portfolio  may also  purchase  obligations  of  international
agencies such as the International  Bank for  Reconstruction and Development and
the Inter-American  Development Bank. Other eligible investments include foreign
securities,  including non-U.S.  dollar-denominated  foreign debt securities and
U.S.  dollar-denominated  foreign debt  securities  (such as those issued by the
Dominion of Canada and its provinces), including without limitation,  Eurodollar
Bonds and Yankee Bonds,  mortgage and other  asset-backed  securities  and money
market  instruments  such as  commercial  paper  and  bankers'  acceptances  and
certificates  of deposit issued by domestic and foreign  branches of U.S. banks.
The Portfolio may also enter into  repurchase  agreements and may invest in zero
coupon   securities.   The  Portfolio  invests  in  a  broad  range  of  short-,
intermediate-, and long-term securities.  Proportions among maturities and types
of securities may vary  depending upon the prospects for income  relative to the
outlook for the economy and the  securities  markets,  the quality of  available
investments, the level of interest rates, and other factors.

      The Bond  Portfolio is of high  quality.  No purchase will be made if as a
result thereof less than 50% of the  Portfolio's net assets would be invested in
debt  obligations,  including money market  instruments,  that (a) are issued or
guaranteed by the U.S. Government,  (b) are rated at the time of purchase within
the two highest ratings  categories by any of the  nationally-recognized  rating
services  or (c) if not  rated,  are  judged by the  Adviser  to be of a quality
comparable to obligations  rated as described in (b) above. Not less than 80% of
the debt  obligations  in  which  the  Portfolio  invests  will,  at the time of


                                       2
<PAGE>

purchase,  be rated  within the three  highest  ratings  categories  of any such
service  or, if not  rated,  will be judged to be of  comparable  quality by the
Adviser.  The Fund may invest up to 20% of its assets in bonds rated below A but
no lower than B by Moody's or S&P or in unrated securities judged by the Adviser
to  be  of  comparable   quality.   Debt   securities   which  are  rated  below
investment-grade  (that is,  rated below Baa by Moody's or below BBB by S&P) and
unrated  securities of comparable  quality,  which usually  entail  greater risk
(including  the  possibility  of default or  bankruptcy  of the  issuers of such
securities),  generally involve greater  volatility of price and risk of loss of
principal  and  income,  and may be less liquid  than  securities  in the higher
rating categories.  Securities rated B involve a high degree of speculation with
respect  to the  payment of  principal  and  interest.  Should the rating of any
security held by the Portfolio be  down-graded  after the time of purchase,  the
Adviser will  determine  whether it is in the best  interest of the Portfolio to
retain or dispose of the security.  During the year ended December 31, 1994, the
average monthly dollar-weighted market value of the bonds held by the Portfolio,
by ratings  categories,  was as follows:  72.0% in AAA/Aaa  securities,  1.0% in
AA/Aa securities,  19.0% in A securities,  4.0% in BBB/Baa  securities,  2.0% in
BB/Ba securities and 2.0% in unrated securities, respectively. (See "High Yield,
High Risk Securities.") Future asset composition may vary.

      See the Appendix to this  Statement of Additional  Information  for a more
complete description of the ratings assigned by ratings  organizations and their
respective characteristics.

      Except  for  limitations  imposed  by  the  Bond  Portfolio's   investment
restrictions, there is no limit as to the proportions of the Portfolio which may
be invested in any of the eligible  investments;  however, it is a policy of the
Portfolio that its  non-governmental  investments will be spread among a variety
of companies and will not be concentrated in any industry.

      The Bond  Portfolio may invest in securities  of the  Government  National
Mortgage Agency, a Government  corporation within the U.S. Department of Housing
and  Urban  Development   ("GNMAs").   GNMAs  are  mortgaged-backed   securities
representing part ownership of a pool of mortgage loans.  These loans, which are
issued by lenders  such as mortgage  bankers,  commercial  banks and savings and
loan  associations,  are either  insured by the Federal  Housing  Administration
(FHA) or guaranteed by the Veterans  Administration (VA). Once approved by GNMA,
the timely payment of interest and principal is guaranteed by the full faith and
credit of the U.S.
Government.

      The Bond Portfolio  cannot guarantee a gain or eliminate the risk of loss.
The net asset value of the Portfolio's shares will fluctuate with changes in the
market prices of the Portfolio's investments,  which tend to vary inversely with
changes in prevailing interest rates and, to a lesser extent, changes in foreign
currency  exchange  rates. As interest rates fall, the prices of debt securities
tend to rise and vice versa.

Growth and Income Portfolio

      The Growth and Income Portfolio seeks long-term growth of capital, current
income and growth of income. In pursuing these three  objectives,  the Portfolio
invests primarily in common stocks, preferred stocks, and securities convertible
into common stocks of companies  which offer the prospect for growth of earnings
while paying higher than average current dividends.  Over time, continued growth
of earnings tends to lead to higher  dividends and enhancement of capital value.
The  Portfolio   allocates  its  investments  among  different   industries  and
companies,  and changes its portfolio  securities for investment  considerations
and not for trading purposes. The Adviser believes that a portfolio investing in
these kinds of securities can perform well whether a growth or value  investment
style is in favor and that the  Portfolio's  dividend  strategy  can improve its
performance in down markets. The Adviser believes these characteristics can help
a  shareholder  feel  comfortable  holding onto the  Portfolio for the long run,
despite short-term changes in the investment climate.

     The Portfolio  attempts to achieve its  investment  objectives by investing
primarily in dividend  paying common  stocks,  preferred  stocks and  securities
convertible into common stocks.  The Portfolio may also purchase such securities
which do not pay  current  dividends  but which  offer  prospects  for growth of
capital and future income.  Convertible  securities (which may be current coupon
or zero coupon securities) are bonds,  notes,  debentures,  preferred stocks and
other securities which may be converted or exchanged at a stated or determinable
exchange ratio into  underlying  shares of common stock.  The Portfolio may also
invest  in  nonconvertible  preferred  stocks  consistent  with the  Portfolio's
objectives.  From  time to time,  for  temporary  defensive  purposes,  when the
Adviser  feels such a  position  is  advisable  in light of  economic  or market


                                       3
<PAGE>

conditions,  the  Portfolio  may invest a portion of its assets in cash and cash
equivalents.  The Portfolio may invest in foreign  securities  and in repurchase
agreements.

      When  evaluating a security for purchase or sale, the Adviser may consider
a  security's  dividend  yield  relative  to the average  dividend  yield of the
Standard and Poor's 500 Composite Stock Price Index.

      The Portfolio may, for hedging purposes, purchase forward foreign currency
exchange  contracts  and foreign  currencies in the form of bank  deposits.  The
Portfolio may also purchase other foreign money market  instruments,  including,
but not limited to, bankers'  acceptances,  certificates of deposit,  commercial
paper, short-term government obligations and repurchase agreements.

      The Growth and Income  Portfolio  cannot guarantee a gain or eliminate the
risk of loss.  The net asset value of the  Portfolio's  shares will  increase or
decrease with changes in the market prices of the Portfolio's  investments  and,
to a lesser extent, changes in foreign currency exchange rates.

              POLICIES AND TECHNIQUES APPLICABLE TO THE PORTFOLIOS

         (See "POLICIES AND TECHNIQUES APPLICABLE TO THE PORTFOLIOS" in
                             the Fund's prospectus.)

      Except as otherwise noted below,  the following  description of additional
investment policies and techniques is applicable to all of the Portfolios.

Repurchase Agreements

      On behalf of a Portfolio,  the Fund may enter into  repurchase  agreements
with  member  banks of the Federal  Reserve  System,  any  foreign  bank and any
broker-dealer which is recognized as a reporting government securities dealer if
the  creditworthiness  of the bank or  broker-dealer  has been determined by the
Adviser to be at least equal to that of issuers of commercial paper rated within
the two highest  categories  assigned by Moody's or S&P. A repurchase  agreement
with a member bank of the Federal Reserve System, which provides a means for the
Portfolio  to earn  income on funds for  periods  as short as  overnight,  is an
arrangement through which the Portfolio acquires a U.S. Government or other high
quality  short-term debt obligation (the "Obligation") and the seller agrees, at
the time of sale, to repurchase  the Obligation at a specified time and price. A
repurchase  agreement  with  foreign  banks may be  available  with  respect  to
government  securities of the particular  foreign  jurisdiction.  The repurchase
price may be higher than the purchase price,  the difference being income to the
Portfolio,  or the purchase and repurchase prices may be the same, with interest
at a stated rate due to the  Portfolio  together  with the  repurchase  price on
repurchase.  In either  case,  the income to the  Portfolio  is unrelated to the
interest  rate  on the  Obligation  subject  to the  repurchase  agreement.  For
purposes of the  Investment  Company Act of 1940, as amended (the "1940 Act"), a
repurchase  agreement is deemed to be a loan from the Portfolio to the seller of
the Obligation  subject to the repurchase  agreement and is therefore subject to
the  Portfolio's  investment  restriction  applicable to loans.  It is not clear
whether a court would consider the Obligation purchased by the Portfolio subject
to a repurchase agreement as being owned by the Portfolio or as being collateral
for a loan by the Portfolio to the seller.  In the event of the  commencement of
bankruptcy  or insolvency  proceedings  of the seller of the  Obligation  before
repurchase of the  Obligation  under a repurchase  agreement,  the Portfolio may
encounter  delay and incur costs before being able to sell the security.  Delays
may involve loss of interest or decline in price of the Obligation. If the court
characterizes  the  transaction  as a loan and the Portfolio has not perfected a
security interest in the Obligation, the Portfolio may be required to return the
Obligation to the seller's estate and be treated as an unsecured creditor of the
seller. As an unsecured  creditor,  the Portfolio would be at the risk of losing
some or all of the principal and income involved in the transaction. As with any
unsecured  debt  instrument  purchased  for the  Portfolio,  the  Fund  seeks to
minimize  the  risk of loss  through  repurchase  agreements  by  analyzing  the
creditworthiness  of the  obligor,  in this case the  seller of the  Obligation.
Apart from the risk of bankruptcy or insolvency  proceedings,  there is also the
risk that the seller may fail to repurchase the security. However, if the market
value of the Obligation  subject to the repurchase  agreement  becomes less than
the repurchase price (including interest),  the Portfolio will direct the seller
of the Obligation to deliver  additional  securities so that the market value of
all  securities  subject to the  repurchase  agreement  will equal or exceed the
repurchase  price.  It is possible that the Portfolio  will be  unsuccessful  in
seeking to impose on the seller a contractual  obligation to deliver  additional
securities.


                                       4
<PAGE>

Zero Coupon Securities

      The Bond Portfolio may invest in zero coupon  securities which pay no cash
income and are sold at substantial discounts from their value at maturity.  When
held to maturity,  their entire income, which consists of accretion of discount,
comes from the  difference  between the issue price and their value at maturity.
Zero coupon  securities  are subject to greater market value  fluctuations  from
changing  interest rates than debt  obligations of comparable  maturities  which
make  current   distributions  of  interest  (cash).   Zero  coupon  convertible
securities offer the opportunity for capital  appreciation (or  depreciation) as
increases (or decreases) in market value of such  securities  closely follow the
movements  in the market  value of the  underlying  common  stock.  Zero  coupon
convertible  securities  generally  are  expected to be less  volatile  than the
underlying common stocks because zero coupon convertible  securities are usually
issued  with  shorter  maturities  (15  years or less) and with  options  and/or
redemption  features  exercisable by the holder of the obligation  entitling the
holder to redeem the obligation and receive a defined cash payment.

      Zero coupon  securities  include  securities  issued  directly by the U.S.
Treasury,  and U.S. Treasury bonds or notes and their unmatured interest coupons
and  receipts  for  their  underlying  principal  ("coupons")  which  have  been
separated by their holder,  typically a custodian  bank or investment  brokerage
firm. A holder will separate the interest coupons from the underlying  principal
(the "corpus") of the U.S. Treasury  security.  A number of securities firms and
banks have  stripped the  interest  coupons and receipts and then resold them in
custodial receipt programs with a number of different names, including "Treasury
Income  Growth  Receipts"  ("TIGRS")  and  Certificate  of Accrual on Treasuries
("CATS").  The underlying U.S.  Treasury bonds and notes  themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e.,  unregistered  securities  which are owned  ostensibly  by the  bearer or
holder  thereof),  in trust on  behalf of the  owners  thereof.  Counsel  to the
underwriters  of these  certificates or other evidences of ownership of the U.S.
Treasury securities has stated that for federal tax and securities purposes,  in
their  opinion  purchasers of such  certificates,  such as the  Portfolio,  most
likely will be deemed the beneficial  holders of the underlying U.S.  government
securities.

      The  Treasury  has  facilitated  transfers  of  ownership  of zero  coupon
securities by accounting  separately for the beneficial  ownership of particular
interest coupons and corpus payments on Treasury  securities through the Federal
Reserve  book-entry  record-keeping  system.  The  Federal  Reserve  program  as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered  Interest and Principal of Securities."  Under the STRIPS program,
the  Portfolio  will be able to have its  beneficial  ownership  of zero  coupon
securities recorded directly in the book-entry  record-keeping system in lieu of
having to hold  certificates  or other  evidences of ownership of the underlying
U.S. Treasury securities.

      When U.S.  Treasury  obligations  have been  stripped  of their  unmatured
interest  coupons  by the  holder,  the  principal  or  corpus is sold at a deep
discount  because the buyer  receives  only the right to receive a future  fixed
payment on the  security  and does not receive  any rights to periodic  interest
(cash) payments. Once stripped or separated,  the corpus and coupons may be sold
separately.  Typically,  the coupons are sold  separately  or grouped with other
coupons with like maturity  dates and sold in such bundled  form.  Purchasers of
stripped  obligations   acquire,  in  effect,   discount  obligations  that  are
economically  identical to the zero coupon  securities  that the Treasury  sells
itself.

Mortgage-Backed Securities and Mortgage Pass-Through Securities

       The Bond Portfolio may also invest in mortgage-backed  securities,  which
are  interests  in pools of mortgage  loans,  including  mortgage  loans made by
savings and loan institutions,  mortgage bankers,  commercial banks, and others.
Pools of mortgage  loans are  assembled as  securities  for sale to investors by
various governmental,  government-related,  and private organizations as further
described  below.  The  Portfolio may also invest in debt  securities  which are
secured  with   collateral   consisting  of   mortgage-backed   securities  (see
"Collateralized  Mortgage Obligations"),  and in other types of mortgage-related
securities.

      A decline in interest  rates may lead to a faster rate of repayment of the
underlying  mortgages,  and expose the  Portfolio to a lower rate of return upon
reinvestment. To the extent that such mortgage-backed securities are held by the
Portfolio,  the prepayment  right will tend to limit to some degree the increase


                                       5
<PAGE>

in net asset value of the  Portfolio  because  the value of the  mortgage-backed
securities  held by the Portfolio may not  appreciate as rapidly as the price of
non-callable debt securities.

      Interests in pools of  mortgage-backed  securities differ from other forms
of debt  securities,  which normally provide for periodic payment of interest in
fixed  amounts  with  principal  payments at maturity or  specified  call dates.
Instead,  these  securities  provide a monthly  payment  which  consists of both
interest and principal payments.  In effect, these payments are a "pass-through"
of the monthly  payments  made by the  individual  borrowers  on their  mortgage
loans,  net of any fees paid to the  issuer  or  guarantor  of such  securities.
Additional  payments are caused by  repayments of principal  resulting  from the
sale of the underlying  property,  refinancing,  or foreclosure,  net of fees or
costs which may be incurred. Some mortgage-related securities such as securities
issued by the Government National Mortgage Association ("GNMA") are described as
"modified  pass-through."  These  securities  entitle  the holder to receive all
interest and principal  payments owed on the mortgage pool, net of certain fees,
at the  scheduled  payment  dates  regardless  of whether  or not the  mortgagor
actually makes the payment.

      The principal  governmental  guarantor of  mortgage-related  securities is
GNMA. GNMA is a wholly-owned U.S.  Government  corporation within the Department
of Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the U.S.  Government,  the timely  payment of principal  and
interest on securities issued by institutions  approved by GNMA (such as savings
and loan  institutions,  commercial  banks, and mortgage  bankers) and backed by
pools of FHA-insured or VA-guaranteed mortgages.  These guarantees,  however, do
not apply to the market value or yield of  mortgage-backed  securities or to the
value of  Portfolio  shares.  Also,  GNMA  securities  often are  purchased at a
premium over the maturity value of the underlying mortgages. This premium is not
guaranteed and will be lost if prepayment occurs.

      Government-related  guarantors  (i.e.,  not  backed by the full  faith and
credit of the U.S. Government) include the Federal National Mortgage Association
("FNMA") and the Federal Home Loan  Mortgage  Corporation  ("FHLMC").  FNMA is a
government-sponsored  corporation owned entirely by private stockholders.  It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases  conventional  (i.e., not insured or guaranteed by any government
agency) mortgages from a list of approved  seller/servicers  which include state
and  federally-chartered  savings and loan  associations,  mutual savings banks,
commercial banks, credit unions, and mortgage bankers.  Pass-through  securities
issued by FNMA are  guaranteed as to timely payment of principal and interest by
FNMA but are not backed by the full faith and credit of the U.S. Government.

      FHLMC  is a  corporate  instrumentality  of the  U.S.  Government  and was
created by Congress in 1970 for the purpose of increasing  the  availability  of
mortgage  credit  for  residential  housing.  Its  stock is owned by the  twelve
Federal Home Loan Banks. FHLMC issues  Participation  Certificates ("PCs") which
represent  interests in conventional  mortgages from FHLMC's national portfolio.
FHLMC  guarantees  the timely  payment of interest  and ultimate  collection  of
principal,  but PCs are not  backed  by the full  faith  and  credit of the U.S.
Government.

      Commercial  banks,   savings  and  loan  institutions,   private  mortgage
insurance  companies,  mortgage bankers, and other secondary market issuers also
create  pass-through pools of conventional  mortgage loans. Such issuers may, in
addition,  be the originators and/or servicers of the underlying  mortgage loans
as well as the guarantors of the mortgage-related  securities.  Pools created by
such  non-governmental  issuers  generally  offer a higher rate of interest than
government and government-related  pools because there are no direct or indirect
government or agency guarantees of payments. However, timely payment of interest
and  principal of these pools may be supported by various  forms of insurance or
guarantees,  including  individual loan, title,  pool and hazard insurance,  and
letters of credit.  The  insurance  and  guarantees  are issued by  governmental
entities,  private  insurers,  and the  mortgage  poolers.  Such  insurance  and
guarantees and the creditworthiness of the issuers thereof will be considered in
determining whether a mortgage-related security meets the Portfolio's investment
quality  standards.  There can be no  assurance  that the  private  insurers  or
guarantors can meet their obligations under the insurance  policies or guarantee
arrangements.   The  Portfolio  may  buy  mortgage-related   securities  without
insurance or guarantees,  if through an  examination of the loan  experience and
practices of the  originators/servicers and poolers, the Adviser determines that
the securities meet the Portfolio's  quality standards.  Although the market for
such securities is becoming  increasingly  liquid,  securities issued by certain
private organizations may not be readily marketable.


                                       6
<PAGE>

Collateralized Mortgage Obligations ("CMOs")

      A  CMO  is  a  hybrid  between  a  mortgage-backed  bond  and  a  mortgage
pass-through  security.  Similar to a bond,  interest and prepaid  principal are
paid, in most cases, semiannually.  CMOs may be collateralized by whole mortgage
loans  but  are  more  typically   collateralized   by  portfolios  of  mortgage
pass-through  securities  guaranteed by GNMA,  FHLMC,  or FNMA, and their income
streams.

      CMOs are structured into multiple classes, each bearing a different stated
maturity.  Actual  maturity  and average  life will  depend upon the  prepayment
experience  of  the  collateral.  CMOs  provide  for a  modified  form  of  call
protection  through a de facto  breakdown  of the  underlying  pool of mortgages
according  to how  quickly the loans are repaid.  Monthly  payment of  principal
received from the pool of underlying mortgages,  including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity  classes  receive  principal only after the first class has been
retired.  An investor is partially  guarded against a sooner than desired return
of principal because of the sequential payments.

      In a typical CMO transaction, a corporation issues multiple series, (e.g.,
A, B, C, Z) of CMO bonds  ("Bonds").  Proceeds of the Bond  offering are used to
purchase mortgages or mortgage  pass-through  certificates  ("Collateral").  The
Collateral  is  pledged to a third  party  trustee  as  security  for the Bonds.
Principal and interest payments from the Collateral are used to pay principal on
the Bonds in the order A, B, C, Z. The Series A, B, and C bonds all bear current
interest.  Interest on the Series Z Bond is accrued and added to principal and a
like amount is paid as principal on the Series A, B, or C Bond  currently  being
paid  off.  When the  Series A, B, and C Bonds  are paid in full,  interest  and
principal on the Series Z Bond begins to be paid currently.  With some CMOs, the
issuer  serves as a conduit to allow loan  originators  (primarily  builders  or
savings and loan associations) to borrow against their loan portfolios.

FHLMC Collateralized Mortgage Obligations

      FHLMC CMOs are debt obligations of FHLMC issued in multiple classes having
different  maturity  dates  which  are  secured  by  the  pledge  of a  pool  of
conventional  mortgage loans purchased by FHLMC.  Unlike FHLMC PCs,  payments of
principal and interest on the CMOs are made semiannually, as opposed to monthly.
The amount of principal payable on each semiannual payment date is determined in
accordance  with FHLMC's  mandatory  sinking fund schedule,  which,  in turn, is
equal to approximately 100% of FHA prepayment experience applied to the mortgage
collateral  pool.  All sinking  fund  payments in the CMOs are  allocated to the
retirement  of the  individual  classes  of bonds in the  order of their  stated
maturities. Payment of principal on the mortgage loans in the collateral pool in
excess of the amount of FHLMC's  minimum sinking fund obligation for any payment
date are paid to the holders of the CMOs as  additional  sinking fund  payments.
Because of the  "pass-through"  nature of all principal payments received on the
collateral pool in excess of FHLMC's minimum sinking fund requirement,  the rate
at which principal of the CMOs is actually repaid is likely to be such that each
class of bonds will be retired in advance of its scheduled maturity date.

      If collection of principal  (including  prepayments) on the mortgage loans
during any semiannual  payment period is not sufficient to meet FHLMC's  minimum
sinking fund  obligation on the next sinking fund payment date,  FHLMC agrees to
make up the deficiency from its general funds.

      Criteria for the mortgage loans in the pool backing the CMOs are identical
to those of FHLMC PCs. FHLMC has the right to substitute collateral in the event
of delinquencies and/or defaults.

Other Mortgage-Backed Securities

      The Adviser  expects  that  governmental,  government-related,  or private
entities may create  mortgage loan pools and other  mortgage-related  securities
offering  mortgage  pass-through  and  mortgage-collateralized   investments  in
addition to those described above. The mortgages underlying these securities may
include alternative  mortgage  instruments,  that is, mortgage instruments whose
principal  or interest  payments  may vary or whose terms to maturity may differ
from  customary  long-term  fixed rate  mortgages.  The Bond  Portfolio will not
purchase mortgage-backed securities or any other assets which, in the opinion of
the Adviser,  are  illiquid  if, as a result,  more than 10% of the value of the
Portfolio's  total  assets will be  illiquid.  As new types of  mortgage-related
securities are developed and offered to investors,  the Adviser will, consistent


                                       7
<PAGE>

with the Portfolio's  investment  objective,  policies,  and quality  standards,
consider making investments in such new types of mortgage-related securities.

Other Asset-Backed Securities

     The securitization  techniques used to develop mortgaged-backed  securities
are now being applied to a broad range of assets.  Through the use of trusts and
special  purpose  corporations,  various types of assets,  including  automobile
loans,  computer leases and credit card  receivables,  are being  securitized in
pass-through   structures  similar  to  the  mortgage  pass-through   structures
described above or in a structure similar to the CMO structure.  Consistent with
the Bond Portfolio's investment objective and policies, the Portfolio may invest
in these and other types of asset-backed securities that may be developed in the
future.  In general,  the collateral  supporting  these securities is of shorter
maturity  than  mortgage  loans  and is less  likely to  experience  substantial
prepayments with interest rate fluctuations.

      Several  types of  asset-backed  securities  have  already been offered to
investors,  including  Certificates  for  Automobile  ReceivablesSM  ("CARSSM").
CARSSM  represent  undivided  fractional  interests in a trust  ("Trust")  whose
assets consist of a pool of motor vehicle retail installment sales contracts and
security interests in the vehicles securing the contracts. Payments of principal
and interest on CARSSM are passed through  monthly to certificate  holders,  and
are  guaranteed up to certain  amounts and for a certain time period by a letter
of credit  issued by a financial  institution  unaffiliated  with the trustee or
originator of the Trust. An investor's return on CARSSM may be affected by early
prepayment of principal on the underlying vehicle sales contracts. If the letter
of credit is  exhausted,  the Trust may be  prevented  from  realizing  the full
amount  due  on  a  sales  contract   because  of  state  law  requirements  and
restrictions  relating to  foreclosure  sales of vehicles  and the  obtaining of
deficiency judgments following such sales or because of depreciation,  damage to
or loss of a vehicle,  the  application  of  federal  and state  bankruptcy  and
insolvency  laws,  or  other  factors.  As a  result,  certificate  holders  may
experience delays in payments or losses if the letter of credit is exhausted.

      Asset-backed  securities  present  certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the benefit
of any security  interest in the related  assets.  Credit card  receivables  are
generally  unsecured and the debtors are entitled to the  protection of a number
of state and federal  consumer  credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards,  thereby reducing the
balance due. There is the possibility that recoveries on repossessed  collateral
may not, in some cases, be available to support payments on these securities.

      Asset-backed  securities are often backed by a pool of assets representing
the  obligations  of a number of  different  parties.  To lessen  the  effect of
failures by obligors on underlying  assets to make payments,  the securities may
contain elements of credit support which fall into two categories: (i) liquidity
protection,  and (ii) protection  against losses resulting from ultimate default
by an obligor  on the  underlying  assets.  Liquidity  protection  refers to the
provision of advances, generally by the entity administering the pool of assets,
to ensure that the receipt of payments on the underlying pool occurs in a timely
fashion.  Protection  against  losses  results  from  payment  of the  insurance
obligations on at least a portion of the assets in the pool. This protection may
be provided  through  guarantees,  policies or letters of credit obtained by the
issuer or sponsor from third parties,  through  various means of structuring the
transaction or through a combination of such approaches. The Bond Portfolio will
not pay any additional or separate fees for credit support. The degree of credit
support  provided for each issue is generally  based on  historical  information
respecting  the level of credit  risk  associated  with the  underlying  assets.
Delinquency  or loss in excess of that  anticipated,  or  failure  of the credit
support could adversely affect the return on an investment in such a security.

      The Bond Portfolio may also invest in residual  interests in  asset-backed
securities.  In the case of  asset-backed  securities  issued in a  pass-through
structure,  the cash flow generated by the underlying  assets is applied to make
required payments on the securities and to pay related administrative  expenses.
The residual in an asset-backed security  pass-through  structure represents the
interest in any excess cash flow remaining after making the foregoing  payments.
The  amount  of  residual  cash  flow  resulting  from  a  particular  issue  of
asset-backed  securities will depend on, among other things, the characteristics
of the  underlying  assets,  the  coupon  rates  on the  securities,  prevailing
interest rates, the amount of administrative  expenses and the actual prepayment
experience  on  the  underlying  assets.   Assetbacked  security  residuals  not
registered  under  the  Securities  Act  of  1933  may  be  subject  to  certain
restrictions on transferability.  In addition, there may be no liquid market for
such securities.


                                       8
<PAGE>

     The availability of asset-backed  securities may be affected by legislative
or regulatory  developments.  It is possible that such  developments may require
the Bond Portfolio to dispose of any then existing holdings of such securities.

Municipal Obligations

      The Bond Portfolio may invest in municipal  obligations,  which are issued
by or on behalf of states,  territories,  and possessions of the U.S., and their
political  subdivisions,  agencies, and  instrumentalities,  and the District of
Columbia to obtain  funds for various  public  purposes.  The  interest on these
obligations  is generally  exempt from  federal  income tax in the hands of most
investors.  The two  principal  classifications  of  municipal  obligations  are
"notes" and "bonds." The return on municipal  obligations  is  ordinarily  lower
than that of taxable  obligations.  The Bond  Portfolio  may  acquire  municipal
obligations  when,  due to  disparities  in the  debt  securities  markets,  the
anticipated  total  return on such  obligations  is higher  than that on taxable
obligations.   The  Bond  Portfolio  has  no  current  intention  of  purchasing
tax-exempt  municipal  obligations  that would  amount to greater than 5% of the
Portfolio's total assets.

Convertible Securities

      The Bond  Portfolio  and Growth and Income  Portfolio  may each  invest in
convertible securities; that is, bonds, notes, debentures,  preferred stocks and
other  securities  which are  convertible  into  common  stock.  Investments  in
convertible  securities  can provide an  opportunity  for  capital  appreciation
and/or  income  through  interest  and  dividend  payments  by  virtue  of their
conversion or exchange features.

      The  convertible  securities  in which the Bond  Portfolio  and Growth and
Income Portfolio may invest include  fixed-income or zero coupon debt securities
which may be converted or exchanged at a stated or  determinable  exchange ratio
into  underlying  shares of common stock.  The exchange ratio for any particular
convertible  security  may be  adjusted  from time to time due to stock  splits,
dividends,  spin-offs, other corporate distributions or scheduled changes in the
exchange ratio.  Convertible  securities and convertible preferred stocks, until
converted,  have  general  characteristics  similar  to  both  debt  and  equity
securities. Although to a lesser extent than with debt securities generally, the
market  value of  convertible  securities  tends to  decline as  interest  rates
increase  and,  conversely,  tends to  increase as interest  rates  decline.  In
addition,  because of the  conversion or exchange  feature,  the market value of
convertible  securities  typically changes as the market value of the underlying
common stocks changes,  and,  therefore,  also tends to follow  movements in the
general market for equity securities. A unique feature of convertible securities
is that as the market price of the underlying common stock declines, convertible
securities  tend  to  trade  increasingly  on a  yield  basis,  and so  may  not
experience  market value  declines to the same extent as the  underlying  common
stock.  When the market  price of the  underlying  common stock  increases,  the
prices of the  convertible  securities tend to rise as a reflection of the value
of the underlying common stock, although typically not as much as the underlying
common stock. While no securities  investments are without risk,  investments in
convertible  securities  generally  entail less risk than  investments in common
stock of the same issuer.

       As fixed income securities,  convertible securities are investments which
provide  for a  stream  of  income  (or in the case of zero  coupon  securities,
accretion of income) with generally higher yields than common stocks. Of course,
like all  fixed  income  securities,  there  can be no  assurance  of  income or
principal payments because the issuers of the convertible securities may default
on their obligations.  Convertible  securities generally offer lower yields than
non-convertible  securities of similar  quality  because of their  conversion or
exchange features.

      Convertible  securities  are generally  subordinated  to other similar but
non-convertible  securities of the same issuer,  although  convertible bonds, as
corporate debt  obligations,  enjoy  seniority in right of payment to all equity
securities,  and  convertible  preferred stock is senior to common stock, of the
same issuer.  However,  because of the subordination feature,  convertible bonds
and  convertible  preferred  stock  typically  have lower  ratings  than similar
non-convertible securities.

       Convertible securities may be issued as fixed income obligations that pay
current income or as zero coupon notes and bonds,  including Liquid Yield Option
Notes  ("LYONs").  Zero  coupon  securities  pay no cash  income and are sold at
substantial discounts from their value at maturity. When held to maturity, their


                                       9
<PAGE>

entire  income,  which  consists  of  accretion  of  discount,  comes  from  the
difference  between the purchase price and their value at maturity.  Zero coupon
convertible  securities  offer  the  opportunity  for  capital  appreciation  as
increases (or decreases) in market value of such securities  closely follows the
movements  in the market  value of the  underlying  common  stock.  Zero  coupon
convertible  securities  are  generally  expected to be less  volatile  than the
underlying  common stocks as they are usually issued with short to medium length
maturities  (15 years or less) and are issued  with  options  and/or  redemption
features  exercisable  by the holder of the  obligation  entitling the holder to
redeem the obligation and receive a defined cash payment.

Depositary Receipts

      The Growth and Income  Portfolio  may invest  indirectly  in securities of
foreign issuers through sponsored or unsponsored  American  Depositary  Receipts
("ADRs"), Global Depositary Receipts ("GDRs"), International Depositary Receipts
("IDRs") and other types of Depositary Receipts (which, together with ADRs, GDRs
and IDRs are  hereinafter  referred  to as  "Depositary  Receipts").  Depositary
Receipts  may  not  necessarily  be  denominated  in the  same  currency  as the
underlying securities into which they may be converted. In addition, the issuers
of the stock of  unsponsored  Depositary  Receipts are not obligated to disclose
material  information  in the United States and,  therefore,  there may not be a
correlation  between such  information  and the market  value of the  Depositary
Receipts.  ADRs are  typically  issued by a United  States bank or trust company
which  evidence   ownership  of  underlying   securities  issued  by  a  foreign
corporation.  GDRs are  typically  issued by foreign  banks or trust  companies,
although they also may be issued by United States banks or trust companies,  and
evidence  ownership  of  underlying  securities  issued by either a foreign or a
United States corporation. Generally, Depositary Receipts in registered form are
designed for use in the United States securities markets and Depositary Receipts
in bearer form are designed  for use in  securities  markets  outside the United
States. For purposes of the Growth and Income Portfolio's  investment  policies,
the Portfolio's investments in ADRs, GDRs and other types of Depositary Receipts
will be  deemed  to be  investments  in the  underlying  securities.  Depositary
Receipts other than those denominated in U.S. dollars will be subject to foreign
currency exchange rate risk. Certain Depositary Receipts may not be listed on an
exchange and therefore may be illiquid securities.

Foreign Securities

       The Bond  Portfolio and Growth and Income  Portfolio  (collectively,  the
"Non-Money  Market  Portfolios")  may each  invest,  without  limit,  except  as
applicable to debt securities generally, in U.S. dollar-denominated foreign debt
securities  (including  those issued by the Dominion of Canada and its provinces
and other debt securities which meet the criteria  applicable to the Portfolio's
domestic  investments),  and in  certificates of deposit issued by foreign banks
and foreign branches of United States banks, to any extent deemed appropriate by
the Adviser.  The Bond  Portfolio may invest up to 20% of its assets in non-U.S.
dollar-denominated  foreign debt securities. The Growth and Income Portfolio may
invest up to 25% of its assets in non-U.S.  dollar denominated equity securities
of foreign issuers.

       Investors should recognize that investing in foreign securities  involves
certain special  considerations,  including those set forth below, which are not
typically  associated with investing in U.S.  securities and which may favorably
or unfavorably affect the Non-Money Market Portfolios'  performance.  As foreign
companies  are not  generally  subject to uniform  accounting  and  auditing and
financial reporting  standards,  practices and requirements  comparable to those
applicable  to  domestic  companies,   there  may  be  less  publicly  available
information about a foreign company than about a domestic company.  Many foreign
stock markets,  while growing in volume of trading activity,  have substantially
less volume than the New York Stock Exchange (the "Exchange"), and securities of
some foreign  companies  are less liquid and more  volatile  than  securities of
domestic companies. Similarly, volume and liquidity in most foreign bond markets
are less than the volume and  liquidity in the U.S. and at times,  volatility of
price can be greater than in the U.S.  Further,  foreign  markets have different
clearance and settlement procedures and in certain markets there have been times
when  settlements  have been  unable to keep pace with the volume of  securities
transactions  making  it  difficult  to  conduct  such  transactions.  Delays in
settlement  could result in temporary  periods when assets of the Portfolios are
uninvested and no return is earned  thereon.  The inability of the Portfolios to
make intended  security  purchases due to  settlement  problems  could cause the
Portfolios to miss attractive investment opportunities.  Inability to dispose of
portfolio securities due to settlement problems either could result in losses to
the Portfolios due to subsequent declines in value of the portfolio security or,
if the  Portfolios  have  entered  into a contract to sell the  security,  could
result in possible liability to the purchaser. Fixed commissions on some foreign
stock  exchanges  are  generally  higher  than  negotiated  commissions  on U.S.
exchanges,  although the Portfolios  will endeavor to achieve the most favorable


                                       10
<PAGE>

net results on its portfolio transactions. Further, the Portfolios may encounter
difficulties  or be unable to pursue  legal  remedies  and obtain  judgments  in
foreign courts. There is generally less government supervision and regulation of
business and industry practices,  stock exchanges,  brokers and listed companies
than in the U.S. It may be more  difficult  for the  Portfolios'  agents to keep
currently  informed  about  corporate  actions such as stock  dividends or other
matters  which may  affect the prices of  portfolio  securities.  Communications
between the U.S.  and foreign  countries  may be less  reliable  than within the
U.S., thus increasing the risk of delayed settlements of portfolio  transactions
or loss of certificates for portfolio securities.  In addition,  with respect to
certain  foreign  countries,   there  is  the  possibility  of  nationalization,
expropriation,  the imposition of withholding or confiscatory taxes,  political,
social,  or economic  instability,  devaluations  in the  currencies  in which a
Portfolio's securities are denominated,  or diplomatic  developments which could
affect U.S.  investments in those countries.  Investments in foreign  securities
may also entail certain risks, such as possible  currency  blockages or transfer
restrictions,  and the  difficulty  of  enforcing  rights  in  other  countries.
Moreover,  individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national  product,  rate of
inflation,  capital  reinvestment,  resource  self-sufficiency  and  balance  of
payments position.

      These  considerations  generally  are  more  of a  concern  in  developing
countries.  For example,  the  possibility  of revolution  and the dependence on
foreign  economic  assistance  generally is greater in these  countries  than in
developed countries.  The management of the Non-Money Market Portfolios seeks to
mitigate the risks associated with these considerations through  diversification
and active professional management.  Although investments in companies domiciled
in  developing  countries  may be  subject  to  potentially  greater  risks than
investments  in  developed  countries,  the  Portfolios  will not  invest in any
securities of issuers located in developing countries if the securities,  in the
judgment of the Adviser, are speculative.

      To the  extent  that the  Non-Money  Market  Portfolios  invest in foreign
securities,  the Portfolios' share price could reflect the movements of both the
different  stock and bond markets in which it is invested and the  currencies in
which the  investments  are  denominated;  the  strength or weakness of the U.S.
dollar  against  foreign  currencies  could account for part of the  Portfolios'
investment performance.

Limitations on  Holdings of Foreign  Securities

     Each Portfolio that invests in foreign  securities  shall invest in no less
than five foreign countries;  provided that, (i) if foreign securities  comprise
less than 80% of the value of the  Portfolio's  net assets,  the Portfolio shall
invest  in no less than  four  foreign  countries;  (ii) if  foreign  securities
comprise less than 60% of the value of the Portfolio's net assets, the Portfolio
shall  invest  in no  less  than  three  foreign  countries;  (iii)  if  foreign
securities  comprise less than 40% of the value of the  Portfolio's  net assets,
the Portfolio  shall invest in no less than two foreign  countries;  and (iv) if
foreign  securities  comprise less than 20% of the value of the  Portfolio's net
assets the Portfolio may invest in a single foreign country.

      Each  Portfolio  shall  invest  no more  than 20% of the  value of its net
assets in  securities  of issuers  located in any one country;  provided that an
additional  15% of the value of each  Portfolio's  net assets may be invested in
securities of issuers located in any one of the following countries:  Australia,
Canada, France, Japan, the United Kingdom and Germany; and provided further that
100% of a Portfolio's assets may be invested in securities of issuers located in
the United States.

Indexed Securities

     The Bond Portfolio may invest in indexed securities,  the value of which is
linked to currencies,  interest rates,  commodities,  indices or other financial
indicators ("reference instruments"). Most indexed securities have maturities of
three years or less.

      Indexed securities differ from other types of debt securities in which the
Fund may invest in several  respects.  First, the interest rate or, unlike other
debt securities, the principal amount payable at maturity of an indexed security
may vary based on changes in one or more specified reference  instruments,  such
as an interest rate compared with a fixed interest rate or the currency exchange
rates between two currencies (neither of which need be the currency in which the
instrument is denominated).  The reference instrument need not be related to the
terms of the indexed  security.  For  example,  the  principal  amount of a U.S.


                                       11
<PAGE>

dollar  denominated  indexed security may vary based on the exchange rate of two
foreign currencies. An indexed security may be positively or negatively indexed;
that is,  its value  may  increase  or  decrease  if the value of the  reference
instrument increases. Further, the change in the principal amount payable or the
interest rate of an indexed security may be a multiple of the percentage  change
(positive or negative) in the value of the underlying reference instrument(s).

      Investment in indexed  securities  involves  certain risks. In addition to
the credit risk of the  security's  issuer and the normal risks of price changes
in  response  to changes in  interest  rates,  the  principal  amount of indexed
securities  may  decrease  as a result  of  changes  in the  value of  reference
instruments.  Further,  in the case of certain  indexed  securities in which the
interest  rate is linked to a reference  instrument,  the  interest  rate may be
reduced to zero, and any further  declines in the value of the security may then
reduce the principal amount payable on maturity. Finally, indexed securities may
be more volatile than the reference instruments underlying indexed securities.

When-Issued Securities

      A Portfolio may from time to time purchase  securities on a  "when-issued"
or "forward delivery" basis. Debt securities are often issued on this basis. The
price of such securities, which may be expressed in yield terms, is fixed at the
time a  commitment  to  purchase  is made,  but  delivery  and  payment  for the
when-issued or forward  delivery  securities take place at a later date.  During
the period between purchase and settlement,  no payment is made by the Portfolio
and no  interest  accrues  to the  Portfolio.  To the  extent  that  assets of a
Portfolio are held in cash pending the  settlement of a purchase of  securities,
that Portfolio would earn no income;  however,  it is the Fund's  intention that
each Portfolio will be fully invested to the extent  practicable  and subject to
the policies stated above. While when-issued or forward delivery  securities may
be sold prior to the  settlement  date,  the Portfolio  intends to purchase such
securities  with the purpose of actually  acquiring  them unless a sale  appears
desirable for investment  reasons.  At the time the Fund makes the commitment on
behalf of a  Portfolio  to  purchase  a  security  on a  when-issued  or forward
delivery  basis,  it will record the  transaction and reflect the amount due and
the value of the security in determining the  Portfolio's  net asset value.  The
market value of the  when-issued or forward  delivery  securities may be more or
less than the  purchase  price  payable at  settlement  date.  The Fund does not
believe that a Portfolio's net asset value or income will be adversely  affected
by the purchase of securities on a when-issued or forward  delivery basis.  Each
Portfolio  will  establish a segregated  account in which it will maintain cash,
U.S. Government  securities and other high-grade debt obligations at least equal
in value to commitments for  when-issued or forward  delivery  securities.  Such
segregated securities either will mature or, if necessary,  be sold on or before
the settlement date.

Loans of Portfolio Securities

      The Fund may lend the portfolio  securities  of any Portfolio  (other than
the Money Market Portfolio)  provided:  (1) the loan is secured  continuously by
collateral  consisting of U.S. Government  securities,  cash or cash equivalents
adjusted  daily to have market value at least equal to the current  market value
of the securities  loaned; (2) the Fund may at any time call the loan and regain
the securities  loaned; (3) the Portfolio will receive any interest or dividends
paid on the loaned securities;  and (4) the aggregate market value of securities
loaned  will  not at any  time  exceed  one-third  of the  total  assets  of the
Portfolio.  In addition, it is anticipated that the Portfolio may share with the
borrower some of the income  received on the  collateral for the loan or that it
will be paid a premium for the loan.  Before the  Portfolio  enters into a loan,
the  Adviser  considers  all  relevant  facts and  circumstances  including  the
creditworthiness of the borrower.

Borrowing

      The Board of Trustees has adopted a policy  whereby each  Portfolio of the
Fund may  borrow up to 10% of its total  assets;  provided,  however,  that each
Portfolio  may  borrow  up to 25% of  its  total  assets  for  extraordinary  or
emergency purposes,  including the facilitation of redemptions.  A Portfolio may
only  borrow  money from  banks as a  temporary  measure  for  extraordinary  or
emergency  purposes  (each  Portfolio  is required to  maintain  asset  coverage
(including  borrowings)  of  300%  for  all  borrowings)  and  no  purchases  of
securities  for a  Portfolio  will be made while  borrowings  of that  Portfolio
exceed 5% of the Portfolio's assets. Borrowings by the Fund increase exposure to
capital risk. In addition, borrowed funds are subject to interest costs that may
offset or exceed the return earned on investment of such funds.


                                       12
<PAGE>

Options

      The Fund may,  on  behalf of any  Portfolio  (excluding  the Money  Market
Portfolio),  write  covered call  options on the  portfolio  securities  of such
Portfolio in an attempt to enhance  investment  performance.  A call option is a
contract  generally  having a duration  of nine  months or less which  gives the
purchaser of the option, in return for a premium paid, the right to buy, and the
writer the obligation to sell, the underlying  security at the exercise price at
any time upon the  assignment of an exercise  notice prior to the  expiration of
the option,  regardless  of the market price of the  security  during the option
period.  A covered call option is an option written on a security which is owned
by the writer throughout the option period.

      The Fund will write,  on behalf of a Portfolio,  covered call options both
to reduce the risks  associated  with certain of its investments and to increase
total investment  return.  In return for the premium income,  the Portfolio will
give up the  opportunity  to profit from an increase in the market  price of the
underlying  security above the exercise price so long as its  obligations  under
the  contract  continue,  except  insofar as the  premium  represents  a profit.
Moreover,  in writing the  option,  the  Portfolio  will retain the risk of loss
should the price of the security decline,  which loss the premium is intended to
offset  in  whole or in part.  Unlike  the  situation  in  which  the Fund  owns
securities not subject to a call option, the Fund, in writing call options, must
assume that the call may be exercised at any time prior to the expiration of its
obligations  as a  writer,  and  that in  such  circumstances  the net  proceeds
realized from the sale of the underlying  securities pursuant to the call may be
substantially below the prevailing market price. The Fund may forego the benefit
of appreciation in its Portfolios on securities sold pursuant to call options.

      When the Portfolio writes a covered call option, it gives the purchaser of
the option the right to buy the  underlying  security at the price  specified in
the option (the  "exercise  price") by exercising  the option at any time during
the option  period,  generally  ranging up to nine  months.  Some of the options
which the Fund  writes  may be of the  European  type  which  means  they may be
exercised  only at a specified  time.  If the option  expires  unexercised,  the
Portfolio will realize income in an amount equal to the premium received for the
written option. If the option is exercised,  a decision over which the Portfolio
has no control,  the Portfolio must sell the  underlying  security to the option
holder at the exercise  price.  By writing a covered call option,  the Portfolio
forgoes,  in exchange for the premium less the commission ("net  premium"),  the
opportunity  to profit  during the option  period from an increase in the market
value of the underlying security above the exercise price.

     The Growth and Income Portfolio may write covered call and put options to a
limited  extent on its  portfolio  securities  in an attempt to earn  additional
income  on  its  portfolio,  consistent  with  its  investment  objectives.  The
Portfolio  may  forego  the  benefits  of  appreciation  on  securities  sold or
depreciation on securities  acquired pursuant to call and put options written by
the Portfolio. The Portfolio has no current intention of writing options on more
than 5% of its net assets.

      When the Fund, on behalf of the Growth and Income Portfolio,  writes a put
option,  it gives the  purchaser of the option the right to sell the  underlying
security to the Portfolio at the specified exercise price at any time during the
option  period.  Some of the European  type options which the Fund writes may be
exercised  only at a specified  time.  If the option  expires  unexercised,  the
Portfolio will realize income in the amount of the premium  received for writing
the option. If the put option is exercised,  a decision over which the Portfolio
has no control,  the Portfolio  must purchase the  underlying  security from the
option holder at the exercise price. By writing a put option, the Portfolio,  in
exchange  for the net  premium  received,  accepts  the risk of a decline in the
market value of the underlying  security below the exercise price.  With respect
to each put option it writes,  the Portfolio  will have  deposited in a separate
account with its custodian U.S. Treasury obligations, high-grade debt securities
or cash  equal in value to the  exercise  price  of the put  option,  will  have
purchased a put option with a higher  exercise price that will expire no earlier
than the put  option  written  or will have used some  combination  of these two
methods.  The Fund,  on behalf of the  Portfolio,  will only  write put  options
involving securities for which a determination is made that it wishes to acquire
the securities at the exercise price at the time the option is written.

      The Portfolio  may  terminate its  obligation as a writer of a call or put
option by purchasing an option with the same exercise price and expiration  date
as the option previously written. This transaction is called a "closing purchase
transaction."


                                       13
<PAGE>

      When the  Portfolio  writes an option,  an amount equal to the net premium
received by the Portfolio is included in the liability  section of the Portfolio
Statement  of Assets and  Liabilities  as a deferred  credit.  The amount of the
deferred  credit  will be  subsequently  marked to market to reflect the current
market value of the option written.  The current market value of a traded option
is the last sale  price or,  in the  absence  of a sale,  the mean  between  the
closing bid and asked price.  If an option expires on its stipulated  expiration
date  or if the  Portfolio  enters  into a  closing  purchase  transaction,  the
Portfolio  will  realize  a gain  (or  loss if the  cost of a  closing  purchase
transaction  exceeds the  premium  received  when the option was sold),  and the
deferred  credit related to such option will be eliminated.  If a call option is
exercised,  the  Portfolio  will  realize  a gain or loss  from  the sale of the
underlying  security  and the  proceeds  of the sale  will be  increased  by the
premium originally  received.  The writing of covered call options may be deemed
to  involve  the  pledge of the  securities  against  which the  option is being
written. Securities against which call options are written will be segregated on
the books of the custodian for the Portfolio.

      The Portfolio may purchase call options on any  securities in which it may
invest in  anticipation  of an increase in the market value of such  securities.
The purchase of a call option would entitle the  Portfolio,  in exchange for the
premium  paid,  to purchase a security at a  specified  price  during the option
period.  The  Portfolio  would  ordinarily  have a  gain  if  the  value  of the
securities  increased above the exercise price sufficiently to cover the premium
and would have a loss if the value of the  securities  remained  at or below the
exercise price during the option period.

      The Growth and Income  Portfolio  will  normally  purchase  put options in
anticipation  of a decline in the market value of  securities  in its  portfolio
("protective  puts")  or  securities  of the type in which  it is  permitted  to
invest.  The purchase of a put option would entitle the  Portfolio,  in exchange
for the premium  paid,  to sell a security,  which may or may not be held by the
Portfolio,  at a  specified  price  during the option  period.  The  purchase of
protective  puts is designed  merely to offset or hedge against a decline in the
market value of the Portfolio's  portfolio  securities.  Put options may also be
purchased by the Portfolio for the purpose of  affirmatively  benefiting  from a
decline  in the  price of  securities  which  the  Portfolio  does not own.  The
Portfolio  would  ordinarily  recognize  a gain if the  value of the  securities
decreased  below the exercise price  sufficiently to cover the premium and would
recognize  a loss if the  value  of the  securities  remained  at or  above  the
exercise price. Gains and losses on the purchase of protective put options would
tend to be offset by countervailing changes in the value of underlying portfolio
securities.

     The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. To the extent that the option
markets  close  before the markets for the  underlying  securities,  significant
price and rate  movements can take place in the  underlying  securities  markets
that cannot be reflected in the option markets.  Exchange  markets in securities
options are a relatively new and untested  concept.  It is impossible to predict
the  volume  of  trading  that may  exist in such  options,  and there can be no
assurance that viable exchange markets will develop or continue.

      The  Fund  may  engage  in  over-the-counter   options  transactions  with
broker-dealers  who make  markets in these  options.  At present,  approximately
thirty  broker-dealers  make these  markets and the Adviser will  consider  risk
factors such as their  creditworthiness  when  determining a broker-dealer  with
which  to  engage  in   options   transactions.   The   ability   to   terminate
over-the-counter  option  positions is more  limited  than with  exchange-traded
option  positions  because the  predominant  market is the issuing broker rather
than an exchange, and may involve the risk that broker-dealers  participating in
such transactions will not fulfill their obligations.  Written  over-the-counter
options  purchased by the Fund and portfolio  securities  "covering"  the Fund's
obligation pursuant to an  over-the-counter  option may be deemed to be illiquid
and may not be readily marketable. The Adviser will monitor the creditworthiness
of dealers  with whom the Fund enters into such options  transactions  under the
general supervision of the Fund's Trustees.

Securities Index Options

      The Growth and  Income  Portfolio  may  purchase  call and put  options on
securities  indexes for the purpose of hedging  against the risk of  unfavorable
price movements  adversely  affecting the value of the  Portfolio's  securities.
Options on  securities  indexes are similar to options on stock  except that the
settlement is made in cash.

      Unlike a securities  option,  which gives the holder the right to purchase
or sell a specified  security at a specified  price,  an option on a  securities
index gives the holder the right to receive a cash "exercise  settlement amount"
equal to (i) the  difference  between the  exercise  price of the option and the
value of the underlying  securities  index on the exercise  date,  multiplied by


                                       14
<PAGE>

(ii) a fixed "index  multiplier."  In exchange for undertaking the obligation to
make such cash payment,  the writer of the  securities  index option  receives a
premium.

      A securities  index  fluctuates  with changes in the market  values of the
securities  so  included.  Some  securities  index  options are based on a broad
market  index  such as the S&P 500 or the NYSE  Composite  Index,  or a narrower
market  index  such as the S&P 100.  Indices  are also based on an  industry  or
market  segment  such as the AMEX Oil and Gas Index or the Computer and Business
Equipment Index. Options on securities indexes are currently traded on exchanges
including the Chicago Board Options Exchange,  Philadelphia  Exchange,  New York
Stock Exchange, and American Stock Exchange.

       The  effectiveness  of hedging  through the purchase of securities  index
options  will depend upon the extent to which price  movements in the portion of
the securities  portfolio  being hedged  correlate  with price  movements in the
selected  securities  index.  Perfect  correlation  is not possible  because the
securities  holdings of the Portfolio will not exactly match the  composition of
the securities indexes on which options are written.  In addition,  the purchase
of securities index options involves  essentially the same risks as the purchase
of options on futures  contracts.  The  principal  risk is that the  premium and
transactions costs paid by the Portfolio in purchasing an option will be lost as
a result of unanticipated  movements in prices of the securities  comprising the
securities index on which the option is written.  Options on securities  indexes
also entail the risk that a liquid secondary market to close out the option will
not exist,  although the Portfolio will generally only purchase or write such an
option if the Adviser believes the option can be closed out.

Futures Contracts

      The Fund may, on behalf of the Bond  Portfolio,  purchase and sell futures
contracts on debt  securities to hedge against  anticipated  changes in interest
rates  that  might  otherwise  have an  adverse  effect  upon  the  value of the
Portfolio's  debt  securities.  In  addition,  the Fund  may,  on  behalf of the
Non-Money Market Portfolios, purchase and sell securities index futures to hedge
the equity securities of a Portfolio with regard to market  (systematic) risk as
distinguished  from  stock-specific  risk. Each of these two Portfolios may also
purchase and write put and call  options on futures  contracts of the type which
such  Portfolio is  authorized  to enter into and may engage in related  closing
transactions.  All of such futures on debt  securities,  stock index futures and
related  options will be traded on exchanges  that are licensed and regulated by
the Commodity  Futures  Trading  Commission  ("CFTC") or on appropriate  foreign
exchanges, to the extent permitted by law.

Futures on Debt Securities

     A futures contract on a debt security is a binding  contractual  commitment
which,  if held to  maturity,  will  result in an  obligation  to make or accept
delivery,  during a particular future month, of securities having a standardized
face value and rate of return. By purchasing futures on debt securities assuming
a "long"  position the  Fund,  on behalf of a Portfolio,  will legally  obligate
itself to accept the future  delivery  of the  underlying  security  and pay the
agreed  price.  By  selling  futures  on  debt   securities assuming  a  "short"
position it  will  legally  obligate  itself to make the future  delivery of the
security  against  payment of the agreed price.  Open futures  positions on debt
securities will be valued at the most recent settlement price, unless such price
does not appear to the  Trustees to reflect the fair value of the  contract,  in
which  case the  positions  will be  valued  by or under  the  direction  of the
Trustees.

      Positions  taken in the futures markets are normally not held to maturity,
but are instead liquidated through offsetting transactions which may result in a
profit  or a loss.  While  futures  positions  taken by the Fund on  behalf of a
Portfolio  will usually be liquidated in this manner,  the Fund may instead make
or take delivery of the underlying  securities whenever it appears  economically
advantageous to the Portfolio to do so. A clearing  corporation  associated with
the exchange on which futures are traded assumes  responsibility for closing-out
and  guarantees  that the sale and purchase  obligations  will be performed with
regard to all positions that remain open at the termination of the contract.

      Hedging by use of  futures  on debt  securities  seeks to  establish  more
certainly  than would  otherwise  be possible  the  effective  rate of return on
portfolio  securities.  A Portfolio may, for example, take a "short" position in
the  futures  market  by  selling  contracts  for the  future  delivery  of debt
securities held by the Portfolio (or securities having  characteristics  similar
to those held by the Portfolio) in order to hedge against an anticipated rise in
interest  rates  that  would  adversely  affect  the  value  of the  Portfolio's


                                       15
<PAGE>

portfolio  securities.  When  hedging  of  this  character  is  successful,  any
depreciation in the value of portfolio  securities will be substantially  offset
by appreciation in the value of the futures position.

      On other occasions, the Portfolio may take a "long" position by purchasing
futures on debt  securities.  This  would be done,  for  example,  when the Fund
intends to purchase  for the  Portfolio  particular  securities  when it has the
necessary  cash,  but expects  the rate of return  available  in the  securities
markets at that time to be less favorable than rates currently  available in the
futures markets.  If the anticipated rise in the price of the securities  should
occur (with its  concomitant  reduction  in yield),  the  increased  cost to the
Portfolio of purchasing the securities will be offset,  at least to some extent,
by the rise in the value of the futures  position taken in  anticipation  of the
subsequent securities purchase.

Stock  Index  Futures.  A stock  index  futures  contract  does not  require the
physical  delivery of  securities,  but merely  provides  for profits and losses
resulting  from  changes in the market  value of the  contract to be credited or
debited  at the close of each  trading  day to the  respective  accounts  of the
parties  to the  contract.  On the  contract's  expiration  date  a  final  cash
settlement  occurs and the futures  positions are simply closed out.  Changes in
the market value of a particular stock index futures contract reflect changes in
the  specified  index of equity  securities  on which the future is based.  That
index is  designed  to  reflect  overall  price  trends in the market for equity
securities.

     Stock  index  futures  may be used to hedge the  equity  securities  of the
Growth and Income Portfolio with regard to market  (systematic)  risk (involving
the market's assessment of over-all economic  prospects),  as distinguished from
stock-specific  risk  (involving  the market's  evaluation  of the merits of the
issuer  of a  particular  security).  By  establishing  an  appropriate  "short"
position in stock index  futures,  the Fund may seek to protect the value of the
equity of the  Portfolio's  securities  against an overall decline in the market
for equity  securities.  Alternatively,  in anticipation  of a generally  rising
market, the Fund can seek on behalf of the Portfolio to avoid losing the benefit
of apparently  low current  prices by  establishing  a "long"  position in stock
index  futures  and  later   liquidating  that  position  as  particular  equity
securities are in fact acquired. To the extent that these hedging strategies are
successful, the Portfolio will be affected to a lesser degree by adverse overall
market price  movements,  unrelated to the merits of specific  portfolio  equity
securities, than would otherwise be the case.

Options on Futures.  For bona fide hedging purposes,  the Fund may also purchase
and  write,  on behalf  of each of the Bond  Portfolio  and  Growth  and  Income
Portfolio,  call and put  options  on  futures  contracts,  which are  traded on
exchanges that are licensed and regulated by the CFTC or on any foreign exchange
for the purpose of options  trading,  to the extent  permitted  by law. A "call"
option on a futures  contract  gives the purchaser the right,  in return for the
premium paid,  to purchase a futures  contract  (assume a "long"  position) at a
specified  exercise price at any time before the option expires.  A "put" option
gives the purchaser the right, in return for the premium paid, to sell a futures
contract  (assume a "short"  position),  for a specified  exercise price, at any
time before the option expires.

      Upon the  exercise of a "call," the writer of the option is  obligated  to
sell the futures contract (to deliver a "long" position to the option holder) at
the option  exercise  price,  which will  presumably  be lower than the  current
market price of the contract in the futures  market.  Upon  exercise of a "put,"
the writer of the option is obligated to purchase the futures contract  (deliver
a "short"  position to the option holder) at the option  exercise  price,  which
will  presumably be higher than the current  market price of the contract in the
futures  market.  When a person  exercises  an option and assumes a long futures
position, in the case of a "call," or a short futures position, in the case of a
"put," his gain will be credited to his futures margin  account,  while the loss
suffered by the writer of the option will be debited to his account. However, as
with the trading of futures,  most  participants  in the options  markets do not
seek to  realize  their  gains or losses by  exercise  of their  option  rights.
Instead,  the holder of an option will usually  realize a gain or loss by buying
or selling an offsetting  option at a market price that will reflect an increase
or a decrease from the premium originally paid.

      Options on futures can be used by a Portfolio to hedge  substantially  the
same  risks  as  might  be  addressed  by the  direct  purchase  or  sale of the
underlying futures contracts.  If the Portfolio purchases an option on a futures
contract,  it may obtain benefits  similar to those that would result if it held
the futures position itself. But in contrast to a futures transaction,  in which
only transaction costs are involved,  benefits received in an option transaction
will be  reduced  by the amount of the  premium  paid as well as by  transaction
costs. In the event of an adverse market movement,  however,  the Portfolio will


                                       16
<PAGE>

not be subject to a risk of loss on the option  transaction  beyond the price of
the premium it paid plus its transaction  costs,  and may  consequently  benefit
from a favorable  movement in the value of its portfolio  securities  that would
have been more completely  offset if the hedge had been effected through the use
of futures.

      If a Portfolio  writes  options on futures  contracts,  the Portfolio will
receive a premium but will assume a risk of adverse movement in the price of the
underlying  futures  contract  comparable  to that involved in holding a futures
position. If the option is not exercised,  the Portfolio will gain the amount of
the premium,  which may  partially  offset  unfavorable  changes in the value of
securities  held  in or to be  acquired  for the  Portfolio.  If the  option  is
exercised, the Portfolio will incur a loss in the option transaction, which will
be reduced by the amount of the premium it has received, but which may partially
offset favorable changes in the value of its portfolio securities.

      While the holder or writer of an option on a futures contract may normally
terminate its position by selling or purchasing an offsetting option of the same
series, the Portfolio's  ability to establish and close out options positions at
fairly established prices will be subject to the maintenance of a liquid market.
A Portfolio will not purchase or write options on futures  contracts  unless, in
the Adviser's opinion, the market for such options has sufficient liquidity that
the risks  associated  with such options  transactions  are not at  unacceptable
levels.

Limitations on the Use of Futures Contracts and Options on Futures

       All of the futures  contracts  and options on futures  transactions  into
which the Fund will  enter will be for bona fide  hedging  or other  appropriate
risk  management  purposes as  permitted by CFTC  regulations  and to the extent
consistent  with  requirements  of the Securities and Exchange  Commission  (the
"SEC").

      To ensure that its futures and options  transactions  meet this  standard,
the Fund will enter into them only for the purposes or with the intent specified
in CFTC  regulations,  subject  to the  requirements  of the SEC.  The Fund will
further seek to assure that  fluctuations in the price of the futures  contracts
and options on futures that it uses for hedging  purposes will be  substantially
correlated to fluctuations in the price of the securities held by a Portfolio or
which it expects to purchase,  though there can be no assurance that this result
will be  achieved.  The Fund will sell  futures  contracts  or  acquire  puts to
protect  against a decline in the price of securities that a Portfolio owns. The
Fund will purchase futures  contracts or calls on futures contracts to protect a
Portfolio  against an increase in the price of securities the Fund intends later
to purchase for the Portfolio before it is in a position to do so.

      As evidence of this hedging  intent,  the Fund expects that on 75% or more
of the occasions on which it purchases a long futures contract or call option on
futures for a Portfolio  the Fund will effect the purchase of  securities in the
cash market or take delivery as it closes out a Portfolio's futures position. In
particular  cases,  however,  when  it  is  economically   advantageous  to  the
Portfolio,  a long futures  position may be terminated (or an option may expire)
without the corresponding purchase of securities.

      As an  alternative  to  literal  compliance  with  the bona  fide  hedging
definition,  a CFTC  definition  now  permits the Fund to elect to comply with a
different test,  under which its long futures  positions will not exceed the sum
of (a) cash or cash equivalents  segregated for this purpose,  (b) cash proceeds
on existing  investments  due within thirty days and (c) accrued  profits on the
particular futures or options positions. However, the Fund will not utilize this
alternative unless it is advised by counsel that to do so is consistent with the
requirements of the SEC.

      Futures on debt securities and stock index futures are at present actively
traded on exchanges  that are licensed and registered by the CFTC, or consistent
with the CFTC regulations on foreign exchanges.  Portfolios will incur brokerage
fees in  connection  with their  futures and options  transactions,  and will be
required  to deposit  and  maintain  funds with  brokers as margin to  guarantee
performance of futures  obligations.  In addition,  while futures  contracts and
options on futures will be purchased  and sold to reduce  certain  risks,  those
transactions  themselves entail certain other risks. Thus, while a Portfolio may
benefit from the use of futures and options on futures, unanticipated changes in
interest  rates  or  stock  price  movements  may  result  in a  poorer  overall
performance  for the  Portfolio  than if it had not  entered  into  any  futures
contracts  or  options  transactions.  Moreover,  in the  event of an  imperfect
correlation  between the futures  position and the portfolio  position  which is
intended to be  protected,  the desired  protection  may not be obtained and the
Portfolio may be exposed to risk of loss.


                                       17
<PAGE>

     Each Portfolio,  in dealing in futures contracts and options on futures, is
subject to the 300% asset  coverage  requirement  for borrowings set forth under
"Investment  Restrictions"  in the Fund's  prospectus.  The  Trustees  have also
adopted a policy (which is not  fundamental  and may be modified by the Trustees
without a shareholder  vote) that,  immediately  after the purchase or sale of a
futures  contract or option thereon,  the value of the aggregate  initial margin
with  respect  to all  futures  contracts  and  premiums  on  options on futures
contracts  entered  into by a  Portfolio  will not exceed 5% of the fair  market
value of the Portfolio's total assets. Additionally,  the value of the aggregate
premiums paid for all put and call options held by the Portfolio will not exceed
2% of its net assets.  A futures contract for the receipt of a debt security and
long  index  futures  will  be  offset  by  assets  of the  Portfolio  held in a
segregated  account in an amount  equal to the total market value of the futures
contracts less the amount of the initial margin for the contracts.

Foreign Currency Transactions

     The Non-Money  Market  Portfolios may enter into forward  foreign  currency
exchange contracts ("forward contracts") for hedging purposes.  These Portfolios
may also, for hedging purposes,  purchase foreign currencies in the form of bank
deposits as well as other  foreign money market  instruments,  including but not
limited to, bankers'  acceptances,  certificates of deposit,  commercial  paper,
short-term government and corporate obligations and repurchase  agreements.  The
International  Portfolio may also enter into foreign currency futures  contracts
and foreign currency options.

      Because  investments in foreign companies usually will involve  currencies
of foreign  countries,  and because the Non-Money Market Portfolios  temporarily
may hold funds in bank deposits in foreign  currencies  during the completion of
investment  programs,  the value of their assets as measured in U.S. dollars may
be affected  favorably or  unfavorably by changes in foreign  currency  exchange
rates and exchange control  regulations,  and they may incur costs in connection
with  conversions  between  various  currencies.  Although the Non-Money  Market
Portfolios value their assets daily in terms of U.S. dollars, they do not intend
to convert their  holdings of foreign  currencies  into U.S.  dollars on a daily
basis.  They will do so from time to time, and investors  should be aware of the
costs of currency conversion.  Although foreign exchange dealers do not charge a
fee for  conversion,  they do  realize  a profit  based on the  difference  (the
"spread")  between  the  prices at which they are  buying  and  selling  various
currencies. Thus, a dealer may offer to sell a foreign currency to the Non-Money
Market  Portfolios at one rate,  while offering a lesser rate of exchange should
the Non-Money  Market  Portfolios  desire to resell that currency to the dealer.
The Non-Money  Market  Portfolios will conduct their foreign  currency  exchange
transactions  either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency  exchange  market,  or through entering into forward or, in
the case of the International  Portfolio,  futures contracts to purchase or sell
foreign currencies.

      A forward  contract  involves an obligation to purchase or sell a specific
currency at a future  date,  which may be any fixed number of days from the date
of the contract  agreed upon by the  parties,  at a price set at the time of the
contract.  These contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers. A
forward contract  generally has no deposit  requirement,  and no commissions are
charged at any stage for trades.

     A foreign  currency  futures  contract is a  standardized  contract for the
future delivery of a specified  amount of a foreign currency at a future date at
a price set at the time of the contract. The agreed price may be fixed or within
a specified range of prices.  Foreign currency  futures  contracts traded in the
United  States are  designed by and traded on  exchanges  regulated by the CFTC,
such as the Chicago  Mercantile  Exchange.  Futures  contracts involve brokerage
costs,  which  may vary from less  than 1% to 2.5% of the  contract  price,  and
require parties to the contract to make "margin" deposits to secure  performance
of the contract. The International Portfolio would also be required to segregate
assets to cover contracts that would require it to purchase foreign  currencies.
The  International  Portfolio  would  enter into  futures  contracts  solely for
hedging  or other  appropriate  risk  management  purposes  as  defined  in CFTC
regulations.

       Forward  contracts  differ from  foreign  currency  futures  contracts in
certain  respects.  For example,  the maturity date of a forward contract may be
any  fixed  number  of days  from the date of the  contract  agreed  upon by the
parties,  rather than a predetermined  date in a given month, and they may be in


                                       18
<PAGE>

any amounts agreed upon by the parties rather than predetermined  amounts. Also,
forward  contracts  are  traded  directly  between  currency  traders so that no
intermediary is required.  A forward  contract  generally  requires no margin or
other deposit.

      Upon the  maturity  of a forward or foreign  currency  futures  contract a
Portfolio may either  accept or make  delivery of the currency  specified in the
contract or, at or prior to maturity,  enter into a closing purchase transaction
involving  the  purchase or sale of an  offsetting  contract.  Closing  purchase
transactions  with respect to forward  contracts  are usually  effected with the
currency  trader  who is a  party  to the  original  forward  contract.  Closing
purchase  transactions  with  respect to futures  contracts  are  effected  on a
commodities  exchange;  a  clearing  corporation  associated  with the  exchange
assumes responsibility for closing out such contracts.

      A Portfolio may enter into forward  contracts and foreign currency futures
contracts under certain  circumstances.  When a Portfolio enters into a contract
for the purchase or sale of a security  denominated  in a foreign  currency,  or
when a Portfolio  anticipates the receipt in a foreign  currency of dividends or
interest payments on such a security which it holds, the Portfolio may desire to
"lock in" the U.S. dollar price of the security or the U.S. dollar equivalent of
such  dividend  or  interest  payment,  as the case may be. By  entering  into a
forward or futures  contract  for the  purchase or sale,  for a fixed  amount of
dollars,   of  the  amount  of  foreign  currency  involved  in  the  underlying
transactions,  the Portfolio  will attempt to protect  itself against a possible
loss  resulting  from an adverse  change in the  relationship  between  the U.S.
dollar and the foreign  currency during the period between the date on which the
security is purchased or sold,  or on which the dividend or interest  payment is
declared, and the date on which such payments are made or received.

     Additionally,  when management of a Portfolio believes that the currency of
a particular  foreign country may suffer a substantial  decline against the U.S.
dollar,  it may enter into a forward or futures  contract  to sell,  for a fixed
amount of dollars,  the amount of foreign  currency  approximating  the value of
some or all of the Portfolio's  securities denominated in such foreign currency.
The precise matching of the forward or futures contract amounts and the value of
the securities  involved will not generally be possible because the future value
of such securities in foreign  currencies will change as a consequence of market
movements  in the  value  of those  securities  between  the  date on which  the
contract is entered  into and the date it matures.  The  precise  projection  of
short-term  currency market  movements is not possible,  and short-term  hedging
provides  a means of fixing the  dollar  value of a portion  of the  Portfolio's
foreign assets.

      The Non-Money  Market  Portfolios do not intend to enter into such forward
or futures  contracts to protect the value of their  portfolio  securities  on a
regular  continuous  basis, and will not do so if, as a result, a Portfolio will
have  more  than  15%  of  the  value  of  its  total  assets  committed  to the
consummation  of such  contracts.  A  Portfolio  also will not  enter  into such
forward or foreign currency futures contracts or maintain a net exposure to such
contracts  where the  consummation of the contracts would obligate the Portfolio
to  deliver  an  amount  of  foreign  currency  in  excess  of the  value of the
Portfolio's  securities  or other assets  denominated  in that  currency.  Under
normal  circumstances,  consideration of the prospect for currency parities will
be  incorporated  into the long-term  investment  decisions  made with regard to
overall  diversification  strategies.  However,  the Non-Money Market Portfolios
believe that it is important to have the  flexibility to enter into such forward
or  foreign  currency  futures  contracts  when  each  determines  that the best
interests of the Portfolio will be served.

     Except when a Portfolio  enters into a forward  contract for the purpose of
the  purchase or sale of a security  denominated  in a foreign  currency,  State
Street  Bank and Trust  Company  (the  "Custodian"),  will  place cash or liquid
securities into a segregated  account of the Portfolio in an amount equal to the
value of the Portfolio's  total assets  committed to the consummation of forward
contracts  (or the  Portfolio's  forward  contracts  will be  otherwise  covered
consistent with applicable  regulatory  policies) and foreign  currency  futures
contracts  that require the  Portfolio to purchase  foreign  currencies.  If the
value of the securities placed in the segregated  account  declines,  additional
cash or  securities  will be placed in the  account on a daily basis so that the
value of the account will equal the amount of the Portfolio's  commitments  with
respect to such contracts.

      The Non-Money Market Portfolios generally will not enter into a forward or
foreign  currency futures contract with a term of greater than one year. It also
should be realized  that this method of  protecting  the value of a  Portfolio's
securities  against a  decline  in the value of a  currency  does not  eliminate
fluctuations in the underlying prices of the securities. It simply establishes a
rate of exchange which the Portfolio can achieve at some future point in time.


                                       19
<PAGE>

      While the Non-Money Market Portfolios will enter into forward contracts to
reduce  currency  exchange rate risks,  transactions  in such contracts  involve
certain other risks. Thus, while a Portfolio may benefit from such transactions,
unanticipated  changes  in  currency  prices  may  result  in a  poorer  overall
performance  for  the  Portfolio  than  if  it  had  not  engaged  in  any  such
transaction.  Moreover,  there may be imperfect correlation between the value of
the Portfolio's holdings of securities  denominated in a particular currency and
forward or futures  contracts  entered  into by the  Portfolio.  Such  imperfect
correlation  may prevent the Portfolio from achieving a complete hedge or expose
the Portfolio to risk of foreign exchange loss.

High Yield, High Risk Securities

      The Bond Portfolio may invest in below investment grade securities  (rated
Ba and lower by  Moody's  and BB and lower by S&P) or unrated  securities.  Such
securities carry a high degree of risk and are considered speculative. The lower
the ratings of such debt  securities,  the greater  their risks render them like
equity securities.  See the Appendix to this Statement of Additional Information
for a more complete description of the ratings assigned by ratings organizations
and their respective characteristics.

      As economic  downturn  may  disrupt  the high yield  market and impair the
ability of  issuers to repay  principal  and  interest.  Also,  an  increase  in
interest rates could adversely  affect the value of such obligations held by the
Portfolio.  Prices and yields of high yield  securities will fluctuate over time
and may affect the Portfolio's net asset value. In addition, investments in high
yield zero coupon or pay-in-kind bonds,  rather than  income-bearing  high yield
securities,  may be more speculative and may be subject to greater  fluctuations
in value due to changes in interest rates.

      The  trading  market for high yield  securities  may be thin to the extent
that there is no established  retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of the
Trustees  to value high yield  securities  accurately  in the  Portfolio  and to
dispose of those  securities.  Adverse  publicity and investor  perceptions  may
decrease the values and liquidity of high yield securities. These securities may
also involve special registration responsibilities, liabilities and costs.

      Credit quality in the high yield securities market can change suddenly and
unexpectedly,  and even recently-issued credit ratings may not fully reflect the
actual risks posed by a particular high yield security. For these reasons, it is
the  policy  of the  Adviser  not to  rely  exclusively  on  ratings  issued  by
established credit rating agencies,  but to supplement such ratings with its own
independent  and  on-going  review of credit  quality.  The  achievement  of the
Portfolio's  investment  objective may be more dependent on the Adviser's credit
analysis  than is the case for  higher  quality  bonds.  Should  the rating of a
portfolio security be downgraded the Adviser will determine whether it is in the
best interest of the Portfolio to retain or dispose of the security.

      Prices  for  below   investment   grade  securities  may  be  affected  by
legislative  and  regulatory  developments.  For example,  federal rules require
savings and loan institutions gradually to reduce their holdings of this type of
security.  Also,  Congress has from time to time  considered  legislation  which
would restrict or eliminate the corporate tax deduction for interest payments in
these  securities and regulate  corporate  restructurings.  Such legislation may
significantly depress the prices of outstanding securities of this type.

Combined Transactions

     Each  Portfolio may enter into multiple  transactions,  including  multiple
options transactions,  multiple futures transactions,  multiple foreign currency
transactions  (including  forward  contracts)  and any  combination  of futures,
options and foreign currency transactions ("component" transactions), instead of
a single transaction,  as part of a single hedging strategy when, in the opinion
of the Adviser,  it is in the best  interest of a Portfolio to do so. A combined
transaction,  while part of a single hedging strategy,  may not offset fully the
risks of each component transaction and, therefore, may contain elements of risk
that are present in each of its component transactions.  (See above for the risk
characteristics of certain transactions.)


                                       20
<PAGE>

Risks   of   Specialized  Investment  Techniques   Abroad

      The above  described  specialized  investment  techniques  when  conducted
abroad may not be  regulated as  effectively  as in the United  States;  may not
involve a clearing mechanism and related guarantees, and are subject to the risk
of  governmental  actions  affecting  trading  in,  or the  prices  of,  foreign
securities. The value of such positions also could be adversely affected by: (i)
other  complex  foreign  political,  legal and  economic  factors;  (ii)  lesser
availability  than  in the  United  States  of  data on  which  to make  trading
decisions;  (iii)  delays in the  Fund's  ability  to act upon  economic  events
occurring in foreign markets during on-business hours in the United States; (iv)
the  imposition of different  exercise and  settlement  terms and procedures and
margin requirements than in the United States; and (v) lesser trading volume.

                             INVESTMENT RESTRICTIONS

            (See "INVESTMENT RESTRICTIONS" in the Fund's prospectus.)

      Unless  specified to the contrary,  the following  restrictions may not be
changed  with respect to any  Portfolio  without the approval of the majority of
outstanding  voting securities of that Portfolio (which,  under the 1940 Act and
the rules  thereunder and as used in this  Statement of Additional  Information,
means the lesser of (1) 67% of the shares of that Portfolio present at a meeting
if the holders of more than 50% of the outstanding  shares of that Portfolio are
present in person or by proxy, or (2) more than 50% of the outstanding shares of
that Portfolio).  Any investment restrictions which involve a maximum percentage
of securities or assets shall not be considered to be violated  unless an excess
over the percentage occurs  immediately  after, and is caused by, an acquisition
or  encumbrance  of securities or assets of, or borrowings by or on behalf of, a
Portfolio.

      In  addition  to the  investment  restrictions  set  forth  in the  Fund's
prospectus, the Fund may not, on behalf of any Portfolio:

     (1)  purchase and sell real estate  (though it may invest in  securities of
          companies which deal in real estate and in other permitted investments
          secured  by real  estate) or  commodities  or  commodities  contracts,
          except (a) debt  securities  futures  contracts and  securities  index
          futures contracts and options thereon;

     (2)  participate  on a joint or a joint and  several  basis in any  trading
          account in securities,  but may for the purpose of possibly  achieving
          better  net  results  on  portfolio  transactions  or lower  brokerage
          commission  rates  join  with  other  investment  company  and  client
          accounts managed by Scudder,  Stevens & Clark or its affiliates in the
          purchase or sale of portfolio securities;

     (3)  purchase  or retain  securities  of an issuer  any of whose  officers,
          directors,  trustees or  security  holders is an officer or Trustee of
          the Fund or a member,  officer,  director or trustee of the investment
          adviser  of  the  Fund  if  one  or  more  of  such  individuals  owns
          beneficially  more than  one-half  of one  percent  (1/2 of 1%) of the
          shares or  securities  or both (taken at market  value) of such issuer
          and such individuals  owning more than one-half of one percent (1/2 of
          1%) of such shares or securities  together own beneficially  more than
          5% of such shares or securities or both;

     (4)  purchase securities on margin or make short sales unless, by virtue of
          its  ownership  of  other  securities,  it has  the  right  to  obtain
          securities  equivalent in kind and amount to the securities  sold and,
          if  the  right  is  conditional,  the  sale  is  made  upon  the  same
          conditions;

     (5)  issue   senior   securities,   except  as   appropriate   to  evidence
          indebtedness  which a Portfolio is permitted to incur  pursuant to the
          Investment  Restrictions set forth in the Fund's prospectus and except
          for shares of various  additional  series which may be  established by
          the Trustees; or

     (6)  act as underwriter of the securities  issued by others,  except to the
          extent  that  the  purchase  of  securities  in  accordance  with  its
          investment objective and policies directly from the issuer thereof and
          the later disposition thereof may be deemed to be underwriting.


                                       21
<PAGE>

      "Value" for the  purposes of all  investment  restrictions  shall mean the
value used in determining a Portfolio's net asset value.
(See "NET ASSET VALUE.")

                            PURCHASES AND REDEMPTIONS

           (See "PURCHASES AND REDEMPTIONS" in the Fund's prospectus.)

     The separate accounts of the Participating Insurance Companies purchase and
redeem  shares of each  Portfolio  based on, among other  things,  the amount of
premium  payments to be  invested  and  surrender  and  transfer  requests to be
effected on that day pursuant to variable  annuity  contracts  and variable life
insurance  policies  but only on days on which the Exchange is open for trading.
Such  purchases and  redemptions of the shares of each Portfolio are effected at
their  respective  net  asset  values  per share  determined  as of the close of
regular trading on the Exchange  (normally 4 p.m. eastern time) on that same day
except that, in the case of the Money Market  Portfolio,  purchases  will not be
effected  until the next  determination  of net asset value after  federal funds
have been made  available  to the Fund.  (See "NET ASSET  VALUE.")  Payment  for
redemptions will be made by State Street Bank and Trust Company on behalf of the
Fund and the  applicable  Portfolios  within  seven days  thereafter.  No fee is
charged the separate accounts of the Participating Insurance Companies when they
redeem Fund shares.

      The Fund may suspend the right of  redemption  of shares of any  Portfolio
and may postpone payment for any period: (i) during which the Exchange is closed
other than customary weekend and holiday closings or during which trading on the
Exchange is restricted;  (ii) when the SEC determines  that a state of emergency
exists which may make payment or transfer not reasonably  practicable,  (iii) as
the SEC may by order permit for the  protection  of the security  holders of the
Fund or (iv) at any  other  time when the Fund may,  under  applicable  laws and
regulations, suspend payment on the redemption of its shares.

     Should any conflict  between VA contract and VLI policy holders arise which
would  require that a  substantial  amount of net assets be  withdrawn  from the
Fund, orderly portfolio management could be disrupted to the potential detriment
of such contract and policy holders.

                       INVESTMENT ADVISER AND DISTRIBUTOR

     (See "INVESTMENT ADVISER" and "DISTRIBUTOR" in the Fund's prospectus.)

Investment Adviser

      The Fund has two investment advisory agreements,  one for the Money Market
Portfolio and Bond  Portfolio and one for the Growth and Income  Portfolio  (the
"Agreements"). These Agreements are with the investment counsel firm of Scudder,
Stevens & Clark,  Inc., a Delaware  corporation,  doing  business under the name
Scudder,  Stevens  & Clark.  This  organization  is one of the most  experienced
investment counsel firms in the United States. It currently manages in excess of
$90 billion in assets for its clients,  including: more than $50 billion in U.S.
and foreign  bonds,  and over $9 billion in balanced  portfolios  for over 3,000
institutional  and  private  accounts.  In  addition,  the  assets of  Scudder's
international  investment company clients exceed $6 billion.  Scudder, Stevens &
Clark,  Inc. was  established  in 1919 and  pioneered  the practice of providing
investment  counsel to individual clients on a fee basis. In 1928, it introduced
the first  no-load  mutual fund to the public.  The Adviser has been a leader in
international investment management and trading for over 40 years.

      The principal source of the Adviser's income is professional fees received
from providing continuous investment advice, and the firm derives no income from
brokerage or underwriting of securities.  Today, it provides  investment counsel
for many individuals and institutions,  including insurance companies, colleges,
industrial corporations,  and financial and banking organizations.  In addition,
it manages  Montgomery Street Income  Securities,  Inc.,  Scudder California Tax
Free Trust,  Scudder Cash Investment Trust,  Scudder  Development Fund,  Scudder
Equity Trust,  Scudder Fund,  Inc.,  Scudder Funds Trust,  Scudder  Global Fund,
Inc., Scudder GNMA Fund, Scudder Portfolio Trust,  Scudder  Institutional  Fund,
Inc.,  Scudder  International  Fund, Inc.,  Scudder  Investment  Trust,  Scudder
Municipal  Trust,  Scudder  Mutual  Funds,  Inc.,  Scudder New Asia Fund,  Inc.,
Scudder New Europe Fund,  Inc.,  Scudder State Tax Free Trust,  Scudder Tax Free
Money Fund,  Scudder Tax Free Trust,  Scudder U.S. Treasury Money Fund,  Scudder


                                       22
<PAGE>

Variable Life Investment Fund,  Scudder World Income  Opportunities  Fund, Inc.,
The Argentina Fund,  Inc., The Brazil Fund,  Inc., The First Iberian Fund, Inc.,
The Korea Fund,  Inc., The Japan Fund,  Inc. and The Latin America Dollar Income
Fund, Inc. Some of the foregoing companies or trusts have two or more series.

      The Adviser also provides investment advisory services to the mutual funds
which comprise the AARP  Investment  Program from Scudder.  The AARP  Investment
Program  from  Scudder has assets over $11 billion and  includes the AARP Growth
Trust,  AARP Income Trust,  AARP Tax Free Income Trust and AARP Cash  Investment
Funds.

      Certain  investments may be appropriate for the Fund and for other clients
advised by the Adviser.  Investment decisions for the Fund and other clients are
made with a view to achieving their respective  investment  objectives and after
consideration  of such factors as their current  holdings,  availability of cash
for  investment  and the  size of their  investments  generally.  Frequently,  a
particular  security  may be bought or sold for only one client or in  different
amounts  and at  different  times for more  than one but less than all  clients.
Likewise,  a particular  security may be bought for one or more clients when one
or more other clients are selling the security. In addition,  purchases or sales
of the same  security  may be made for two or more  clients on the same day.  In
such event,  such  transactions  will be allocated among the clients in a manner
believed by the Adviser to be equitable to each. In some cases,  this  procedure
could have an adverse effect on the price or amount of the securities  purchased
or sold by the Fund.  Purchase and sale orders for the Fund may be combined with
those of other clients of the Adviser in the interest of the most  favorable net
results to the Fund.

      The  Adviser  maintains  a  large  research  department,   which  conducts
continuous   studies  of  the  factors  that  affect  the  position  of  various
industries,  companies and individual securities. The Adviser receives published
reports and statistical  compilations from issuers and other sources, as well as
analyses from brokers and dealers who may execute portfolio transactions for the
Adviser's clients. However, the Adviser regards this information and material as
an adjunct to its own research activities.  Scudder's  international  investment
management  team  travels  the world,  researching  hundreds  of  companies.  In
selecting  the  securities  in which the Fund may invest,  the  conclusions  and
investment decisions of the Adviser with respect to the Fund are based primarily
on the analyses of its own research department.

      Under  the  Agreements,  the  Adviser  regularly  provides  the Fund  with
investment  research,  advice and  supervision  and  furnishes  continuously  an
investment  program  consistent  with the investment  objectives and policies of
each Portfolio,  and determines,  for each Portfolio,  what securities  shall be
purchased,  what  securities  shall  be held or  sold,  and  what  portion  of a
Portfolio's assets shall be held uninvested, subject always to the provisions of
the  Fund's  Declaration  of  Trust  and  By-Laws,  and of the 1940 Act and to a
Portfolio's  investment  objectives,  policies  and  restrictions,  and  subject
further to such policies and  instructions as the Trustees may from time to time
establish.  The Adviser  also  advises  and assists the  officers of the Fund in
taking such steps as are necessary or  appropriate to carry out the decisions of
its Trustees  and the  appropriate  committees  of the  Trustees  regarding  the
conduct of the business of the Fund.

      The Adviser pays the compensation and expenses of all affiliated  Trustees
and executive employees of the Fund and makes available,  without expense to the
Fund, the services of such affiliated persons as may duly be elected Trustees of
the Fund,  subject to their  individual  consent to serve and to any limitations
imposed  by law,  and pays  the  Fund's  office  rent  and  provides  investment
advisory, research and statistical facilities and all clerical services relating
to research,  statistical  and investment  work.  For its advisory  services the
Adviser  receives  compensation  monthly at the following  annual rates for each
Portfolio:
<TABLE>
<CAPTION>
                                            % of the average
                                            daily net asset
                                             values of each                           Dollar Amount
                    Portfolio                  Portfolio               1992               1993                1994
                    ---------                  ---------               ----               ----                ----
          <S>                                      <C>              <C>                <C>                 <C>     
          Money Market Portfolio                   .370%            $134,330           $130,455            $269,963
          Bond Portfolio                           .475%             438,085            550,565             650,361
          Growth and Income Portfolio              .475%                  --                 --                   0
          
</TABLE>


                                       23
<PAGE>

      Under the Agreements,  the Fund is responsible for all its other expenses,
including  clerical  salaries;  fees and expenses  incurred in  connection  with
membership in investment company  organizations;  brokers'  commissions;  legal,
auditing and accounting  expenses;  taxes and governmental  fees; the charges of
custodians,  transfer  agents and other agents;  any other  expenses,  including
clerical expenses,  of issue, sale,  underwriting,  distribution,  redemption or
repurchase  of shares;  the expenses of and fees for  registering  or qualifying
securities  for sale;  the fees and expenses of the Trustees of the Fund who are
not  affiliated  with the Adviser;  and the cost of preparing  and  distributing
reports and notices to shareholders.  The Fund may arrange to have third parties
assume all or part of the expense of sale,  underwriting and distribution of its
shares. (See "Distributor" for expenses paid by Scudder Investor Services, Inc.)
The Fund is also  responsible  for its  expenses  incurred  in  connection  with
litigation,  proceedings  and  claims  and the legal  obligation  it may have to
indemnify its officers and Trustees with respect thereto.

      In addition to payments for investment  advisory  services provided by the
Adviser, the Trustees, consistent with the Fund's investment advisory agreements
and underwriting  agreement,  have approved  payments to the Adviser and Scudder
Investor Services, Inc. for clerical, accounting and certain other services they
may provide the Fund.  Effective  October 1, 1994,  the Trustees  authorized the
elimination of these administrative expenses.  Under a new agreement,  effective
October 1, 1994, the Trustees  authorized the Fund, on behalf of each Portfolio,
to pay Scudder Fund  Accounting  Corporation,  a wholly-owned  subsidiary of the
Adviser, for determining the daily net asset value per share and maintaining the
portfolio and general accounting records of the Fund.

      For the year ended  December  31,  1992,  such  compensation  amounted  to
$38,079 for the Money  Market  Portfolio  and  $39,565  for the Bond  Portfolio,
respectively.

      For the year ended  December  31,  1993,  such  compensation  amounted  to
$48,886 for the Money  Market  Portfolio  and  $54,341  for the Bond  Portfolio,
respectively.

      For the year ended  December  31,  1994,  such  compensation  amounted  to
$40,297  for the Money  Market  Portfolio,  $40,238 for the Bond  Portfolio  and
$25,179 for the Growth and Income Portfolio, respectively.

      The Agreements dated November 14, 1986 (for the Money Market Portfolio and
Bond  Portfolio),  and May 1, 1994 (for the Growth and  Income  Portfolio)  will
remain in effect until  September  30, 1995.  The  Agreements  will  continue in
effect  from  year to year  thereafter  only if their  continuance  is  approved
annually by the vote of a majority of those Trustees who are not parties to such
Agreements or "interested  persons" of the Adviser or the Fund cast in person at
a meeting  called for the purpose of voting on such  approval and either by vote
of a majority of the  Trustees or a majority of the  outstanding  securities  of
such Portfolio. The Agreement for the Money Market Portfolio and Bond Portfolio,
were last  approved by such  Trustees  (including a majority of the Trustees who
are not such  "interested  persons") on August 12, 1994.  The  Agreement for the
Growth and Income  Portfolio  was last  approved by the  Trustees  (including  a
majority of the Trustees who are not such "interested  persons") on February 11,
1994. Each Agreement may be terminated at any time without payment of penalty by
either party on sixty days' written notice, and automatically  terminates in the
event of its assignment.

      Each  Agreement  also provides that the Fund may use any name derived from
the name "Scudder,  Stevens & Clark" only as long as such  Agreement  remains in
effect.

      In  reviewing  the terms of the  Agreements  and in  discussions  with the
Adviser concerning the Agreements,  Trustees who are not "interested persons" of
the Fund are represented by independent counsel at the Fund's expense.

      The Agreements  provide that the Adviser shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in connection
with  matters  to which the  Agreements  relate,  except a loss  resulting  from
willful misfeasance, bad faith or gross negligence on the part of the Adviser in
the  performance of its duties or from reckless  disregard by the Adviser of its
obligations and duties under the Agreements.

      Each  Participating  Insurance  Company  has  agreed  with the  Adviser to
reimburse  the  Adviser  for a  period  of five  years  to the  extent  that the
aggregate  annual  advisory fee paid on behalf of all Portfolios with respect to
the average daily net asset value of the shares of all  Portfolios  held in that
Participating  Insurance  Company's  general or  separate  account  (or those of


                                       24
<PAGE>

affiliates)  is less than  $25,000 in any year.  It is expected  that  insurance
companies which become  Participating  Insurance Companies in the future will be
required to enter into similar arrangements.

      For a period of five years from the date of execution  of a  Participation
Agreement with the Fund, the  Participating  Insurance  Companies have agreed to
contribute  to the capital of the Fund to the extent  that the annual  operating
expenses of any  Portfolio  of the Fund  exceed  0.75 of 1% of that  Portfolio's
average  daily net  assets  for any year of the  Fund.  The  obligation  of each
Participating  Insurance  Company in relation to the total capital  contribution
due to a Portfolio  is the  proportion  that the average  value of the shares of
such Portfolio held during the year by a separate  account or separate  accounts
of such Company (or  $1,000,000,  if greater)  bears to such  average  daily net
assets. The Adviser may advance some or all of such capital  contribution to the
Fund prior to receiving payment therefor from a Participating Insurance Company,
but it is under no obligation to do so; if the Adviser does advance such capital
contribution  to the  Fund and does not  receive  payment  therefor,  it will be
entitled to be repaid such amounts by the Fund.  It is expected  that  insurance
companies which become  Participating  Insurance Companies in the future will be
required to enter into similar arrangements.  These arrangements may be modified
or terminated in the future. To date,  Charter National Life Insurance  Company,
Mutual of America Life Insurance  Company and Banner Life Insurance Company have
been Participating  Insurance  Companies for the past eight, six and five years,
respectively,  and have made  arrangements  with the Adviser to  continue  their
participation.

      In addition to the  contributions  to capital by  Participating  Insurance
Companies  noted above,  until April 30,  1996,  the Adviser has agreed to waive
part or all of both the  management and  administrative  fees for the Growth and
Income Portfolio to the extent that the Portfolio's  expenses will be maintained
at 0.75%.

      Officers  and  employees  of the  Adviser  from  time  to  time  may  have
transactions with various banks,  including the Fund's custodian bank. It is the
Adviser's  opinion that the terms and conditions of those  transactions were not
influenced by existing or potential custodial or other Fund relationships.

     None of the  Trustees or officers  of the Fund may have  dealings  with the
Fund as principals in the purchase or sale of securities.

Personal Investments by Employees of the Adviser

      Employees  of the  Adviser  are  permitted  to  make  personal  securities
transactions,  subject  to  requirements  and  restrictions  set  forth  in  the
Adviser's  Code  of  Ethics.   The  Code  of  Ethics  contains   provisions  and
requirements  designed to identify  and address  certain  conflicts  of interest
between personal investment  activities and the interests of investment advisory
clients such as the Portfolios.  Among other things,  the Code of Ethics,  which
generally  complies  with  standards   recommended  by  the  Investment  Company
Institute's  Advisory Group on Personal  Investing,  prohibits  certain types of
transactions  absent prior approval,  imposes time periods during which personal
transactions may not be made in certain securities,  and requires the submission
of  duplicate  broker   confirmations   and  monthly   reporting  of  securities
transactions.  Additional  restrictions  apply to portfolio  managers,  traders,
research  analysts  and others  involved  in the  investment  advisory  process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.

Distributor

      The Fund has an  underwriting  agreement with Scudder  Investor  Services,
Inc.  (the  "Distributor"),  a  wholly-owned  subsidiary  of  the  Adviser,  Two
International Place, Boston,  Massachusetts 02110- 4103. The Fund's underwriting
agreement  dated July 12, 1985,  will remain in effect until September 30, 1995,
and from year to year thereafter only if its continuance is approved annually by
a majority of the Trustees who are not parties to such  agreement or "interested
persons" of any such party and either by vote of a majority of the Trustees or a
majority of the outstanding voting securities of the Fund.

      Under  the  principal  underwriting  agreement  between  the  Fund and the
Distributor, the Fund is responsible for the payment of all fees and expenses in
connection  with the preparation  and filing of any  registration  statement and
prospectus  covering  the issue and sale of  shares,  and the  registration  and
qualification  of shares for sale with the SEC in the various states,  including
registering the Fund as a broker or dealer.  The Fund will also pay the fees and
expenses of preparing,  printing and mailing  prospectuses  annually to existing


                                       25
<PAGE>

shareholders  and any  notice,  proxy  statement,  report,  prospectus  or other
communication to shareholders of the Fund, printing and mailing confirmations of
purchases of shares, any issue taxes or any initial transfer taxes, a portion of
toll-free  telephone service for shareholders,  wiring funds for share purchases
and redemptions  (unless paid by the shareholder who initiates the transaction),
printing and postage of business  reply  envelopes and a portion of the computer
terminals used by both the Fund and the Distributor.

      The  Distributor  will pay for printing and  distributing  prospectuses or
reports  prepared for its use in  connection  with the offering of the shares to
the  public  and  preparing,  printing  and  mailing  any  other  literature  or
advertising  in  connection  with the offering of the shares to the public.  The
Distributor will pay all fees and expenses in connection with its  qualification
and  registration  as a broker or dealer under Federal and state laws, a portion
of the  toll-free  telephone  service  and  of  computer  terminals,  and of any
activity  which is primarily  intended to result in the sale of shares issued by
the Fund,  unless a 12b-l Plan is in effect which  provides  that the Fund shall
bear some or all of such expenses.  The  Distributor has entered into agreements
with  broker-dealers  authorized to offer and sell VA contracts and VLI policies
on behalf of the  Participating  Insurance  Companies under which agreements the
broker-dealers  have agreed to be  responsible  for the fees and expenses of any
prospectus,   statement  of  additional   information  and  printed  information
supplemental  thereto of the Fund  distributed in connection with their offer of
VA contracts and VLI policies.

      As agent,  the Distributor  currently offers shares of each Portfolio on a
continuous basis to the separate accounts of Participating  Insurance  Companies
in all  states  in which  the  Portfolio  or the  Fund may from  time to time be
registered or where  permitted by  applicable  law. The  underwriting  agreement
provides  that the  Distributor  accepts  orders for  shares at net asset  value
without sales commission or load being charged. The Distributor has made no firm
commitment to acquire shares of any Portfolio.

Note:    3Although the Fund does not currently have a 12b-1 Plan and shareholder
         approval would be required in order to adopt one, the underwriting
         agreement provides that the Fund will also pay those fees and expenses
         permitted to be paid or assumed by the Fund pursuant to a 12b-1 Plan,
         if any, adopted by the Fund, notwithstanding any other provision to the
         contrary in the underwriting agreement, and the Fund or a third party
         will pay those fees and expenses not specifically allocated to the
         Distributor in the underwriting agreement.


                             MANAGEMENT OF THE FUND

<TABLE>
<CAPTION>
Trustees and Officers
                                                                                               Position with
                                                                                               Underwriter, Scudder
                                                                                               Investor Services,
Name and Address                    Position with Fund       Principal Occupation**            Inc.     
----------------                    ------------------       --------------------              ---------
<S>                                 <C>                      <C>                               <C>
David B. Watts*@+                   President and Trustee    Managing Director of Scudder,     Assistant Treasurer
                                                             Stevens & Clark, Inc.

Dr. Kenneth Black, Jr.              Trustee                  Regents' Professor Emeritus of      ----
Educational Foundation, Inc.                                 Insurance, Georgia State
35 Broad Street                                              University
11th Floor, Room 1144
Atlanta, GA  30303

Peter B. Freeman@                   Trustee                  Corporate Director and Trustee       ----
100 Alumni Avenue
Providence, RI  02906


                                       26
<PAGE>
                                                                                               Position with
                                                                                               Underwriter, Scudder
                                                                                               Investor Services,
Name and Address                    Position with Fund       Principal Occupation**            Inc.     
----------------                    ------------------       --------------------              ---------


Dr. J. D. Hammond                   Trustee                  Dean, Smeal College of Business      ----
801 Business                                                 Administration, Pennsylvania
  Administration Bldg.                                       State University
Pennsylvania State University
University Park, PA  16802

Daniel Pierce*@+                    Vice President and       Chairman of the Board and         Vice President,
                                    Trustee                  Managing Director of Scudder,     Director and Assistant
                                                             Stevens & Clark, Inc.             Treasurer

Pamela A. McGrath+                  Vice President and       Principal of Scudder, Stevens &      ----
                                    Treasurer                Clark, Inc.

Thomas S. Crain++                   Vice President           Managing Director of Scudder,        ----
                                                             Stevens & Clark, Inc.

Jerard K. Hartman#                  Vice President           Managing Director of Scudder,        ----
                                                             Stevens & Clark, Inc.

Richard A. Holt***                  Vice President           Managing Director of Scudder,        ----
                                                             Stevens & Clark, Inc.

Thomas W. Joseph+                   Vice President           Principal of Scudder, Stevens &   Vice President,
                                                             Clark, Inc.                       Director, Treasurer
                                                                                               and Assistant Clerk

David S. Lee+                       Vice President           Managing Director of Scudder,     President, Assistant
                                                             Stevens & Clark, Inc.             Treasurer and Director

Steven M. Meltzer+                  Vice President           Principal of Scudder, Stevens &      ----
                                   Clark, Inc.

Edward J. O'Connell#                Vice President and       Principal of Scudder, Stevens &   Assistant Treasurer
                                    Assistant Treasurer      Clark, Inc.

Randall K. Zeller#                  Vice President           Managing Director of Scudder,        ----
                                                             Stevens & Clark, Inc.
Thomas F. McDonough+                Secretary                Principal of Scudder, Stevens &   Clerk
                                   Clark, Inc.

Kathryn L. Quirk#                   Vice President and       Managing Director of Scudder,     Vice President
                                    Assistant Secretary      Stevens & Clark, Inc.

Coleen Downs Dinneen+               Assistant Secretary      Vice President of Scudder,        Assistant Clerk
                                                             Stevens & Clark, Inc.

          *         Messrs. Watts and Pierce are considered by the Fund and its counsel to be Trustees who are
                    "interested persons" of the Adviser or of the Fund (within the meaning of the 1940 Act).


                                       27
<PAGE>

          **        Unless otherwise stated,  all the officers and Trustees have
                    been  associated  with their  respective  companies for more
                    than five years, but not necessarily in the same capacity.
          @         Peter B. Freeman, Daniel Pierce and David B. Watts are members of the Executive Committee, which
                    has the power to declare dividends from ordinary income and distributions of realized capital
                    gains to the same extent as the Board is so empowered.
          +         Address:  Two International Place, Boston, Massachusetts  02110-4103
          #         Address:  345 Park Avenue, New York, New York  10154
          ++        Address:  600 Vine Street - Suite 2000, Cincinnati, Ohio  45202
          ***       Address:  111 E. Wacker Drive - Suite 2200, Chicago, Illinois  60601
</TABLE>
        
     Certain  of the  Trustees  and  officers  of the Fund also serve in similar
     capacities with other Scudder Funds.

Remuneration

      Several of the  officers  and Trustees of the Fund may also be officers of
the Adviser, the Distributor, Scudder Service Corporation, Scudder Trust Company
or Scudder Fund Accounting  Corporation which receive fees paid by the Fund. The
Fund pays no direct  remuneration to any officer of the Fund.  However,  each of
the Trustees who is not affiliated with the Adviser will be paid by the Fund. Of
these  unaffiliated  Trustees,  Drs.  Black and Hammond  each  receive an annual
Trustee's  fee of $2,000 per  Portfolio and a fee of $200 per Portfolio for each
Trustees'  meeting  attended  or for  each  meeting  held  for  the  purpose  of
considering  arrangements  between the Fund and the Adviser,  while Mr.  Freeman
receives fees of $1,250 per Portfolio and $125 per Portfolio, respectively. Drs.
Black and Hammond also receive $100 per Portfolio per committee meeting attended
(other  than  audit  committee,  for  which  each  receives  a fee of  $200  per
Portfolio),  while Mr.  Freeman  receives fees of $75 per Portfolio and $125 per
Portfolio,  respectively.  A total of $58,473  was paid for  Trustees'  fees and
expenses,  including  legal counsel to the Trustees,  in the year ended December
31, 1994.

   The following Compensation Table, provides in tabular form, the following
data.

Column (1) All Trustees who receive compensation from the Fund. 
Column (2) Aggregate compensation received by a Trustee from all series of the
Fund, which is comprised of Money Market Portfolio, Bond Portfolio, Balanced
Portfolio, Growth and Income Portfolio, Capital Growth Portfolio and
International Portfolio. 
Columns (3) and (4) Pension or retirement benefits accrued or proposed to be
paid by the Fund. The Fund does not pay its Trustees such benefits. 
Column (5) Total compensation received by a Trustee from Money Market Portfolio,
Bond Portfolio, Balanced Portfolio, Growth and Income Portfolio, Capital Growth
Portfolio and International Portfolio, plus compensation received from all funds
managed by the Adviser for which a Trustee serves. The total number of funds
from which a Trustee receives such compensation is also provided in column (5).


                                       28
<PAGE>
<TABLE>
<CAPTION>
                                                  Compensation Table
                                         for the year ended December 31, 1994
=========================== ============================= =================== ================= ====================
           (1)                          (2)                      (3)                (4)                 (5)

                                                          
                                                              Pension or                         
                                                              Retirement                         Total Compensation 
                            Aggregate Compensation from    Benefits Accrued      Estimated        From the Fund and 
     Name of Person,         the Scudder Variable Life     As Part of Fund    Annual Benefits     Fund Complex Paid 
         Position                 Investment Fund*             Expenses       Upon Retirement        to Trustee     
=========================== ============================= =================== ================= ====================
<S>                                  <C>                        <C>                <C>              <C>
Dr. Kenneth Black, Jr.,              $ 14,400                   N/A                N/A              $ 14,400
Trustee                                                                                             (6 funds)

Peter B. Freeman, Trustee             $ 9,600                   N/A                N/A            $ 141,843.83
                                                                                                   (31 funds)

Dr. J.D. Hammond,                    $ 14,400                   N/A                N/A              $ 14,400
Trustee                                                                                             (6 funds)

*        Scudder Variable Life Investment Fund consists of six Portfolios:  Money Market Portfolio, Bond Portfolio,
         Balanced Portfolio, Growth and Income Portfolio, Capital Growth Portfolio and International Portfolio.
</TABLE>

                                NET ASSET VALUE

         (See "NET ASSET VALUE" and "VALUATION OF PORTFOLIO SECURITIES"
                            in the Fund's prospectus)

     The net asset value of shares of each  Portfolio of the Fund is computed as
of the close of regular trading on the Exchange on each day the Exchange is open
for trading  (the "Value  Time").  The Exchange is scheduled to be closed on the
following holidays:  New Year's Day, Presidents Day, Good Friday,  Memorial Day,
Independence  Day, Labor Day,  Thanksgiving  and Christmas.  Net asset value per
share is  determined  by dividing the value of the total assets of a Fund,  less
all liabilities, by the total number of shares outstanding.

       The  valuation of the Money  Market  Portfolio  securities  is based upon
their amortized  cost,  which does not take into account  unrealized  securities
gains or losses.  This method  involves  initially  valuing an instrument at its
cost and thereafter assuming a constant amortization to maturity of any discount
or premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument.  While this method provides certainty in valuation,  it
may result in periods  during which value,  as determined by amortized  cost, is
higher or lower than the price the Money Market  Portfolio  would  receive if it
sold the  instrument.  During periods of declining  interest  rates,  the quoted
yield on shares of the Money Market  Portfolio may tend to be higher than a like
computation  made by a fund with  identical  investments  utilizing  a method of
valuation based upon market prices and estimates of market prices for all of its
portfolio  instruments.  Thus,  if the use of  amortized  cost by the  Portfolio
resulted in a lower aggregate portfolio value on a particular day, a prospective
investor in the Money Market Portfolio would be able to obtain a somewhat higher
yield if he  purchased  shares of the Money Market  Portfolio on that day,  than
would  result/from  investment in a fund  utilizing  solely market  values,  and
existing  investors in the Money Market  Portfolio would receive less investment
income. The converse would apply in a period of rising interest rates.

      An exchange-traded equity security (not subject to resale restrictions) is
valued at its most recent  sale price as of the Value  Time.  Lacking any sales,
the  security  is valued at the  calculated  mean  between  the most  recent bid
quotation and the most recent asked quotation (the "Calculated  Mean"). If there
are no bid and asked  quotations,  the security is valued at the most recent bid
quotation.  An  unlisted  equity  security  which  is  traded  on  the  National
Association  of Securities  Dealers  Automated  Quotation  ("NASDAQ")  system is
valued at the most recent sale price.  If there are no such sales,  the security
is valued at the high or "inside" bid quotation. The value of an equity security
not quoted on the NASDAQ System, but traded in another  over-the-counter market,


                                       29
<PAGE>

is the most  recent  sale price.  If there are no such  sales,  the  security is
valued at the Calculated  Mean. If there is no Calculated  Mean, the security is
valued at the most recent bid quotation.

      Debt securities,  other than short-term  securities,  are valued at prices
supplied  by the Fund's  pricing  agent  which  reflect  broker/dealer  supplied
valuations and electronic data processing techniques. Short-term securities with
remaining  maturities  of sixty  days or less are valued by the  amortized  cost
method,  which  the  Board  believes  approximates  market  value.  If it is not
possible  to value a  particular  debt  security  pursuant  to  these  valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker.  If no such bid quotation is available, the Adviser may
calculate the price of that debt security, subject to limitations established by
the Board.

      Option  contracts on securities,  currencies,  futures and other financial
instruments  traded on an exchange are valued at their most recent sale price on
the exchange. If no sales are reported,  the value is the Calculated Mean, or if
the Calculated Mean is not available,  the most recent bid quotation in the case
of purchased options,  or the most recent asked quotation in the case of written
options.  Option contracts traded over-the-counter are valued at the most recent
bid  quotation  in the case of  purchased  options and at the most recent  asked
quotation in the case of written  options.  Futures  contracts are valued at the
most recent settlement  price.  Foreign currency forward contracts are valued at
the value of the underlying currency at the prevailing currency exchange rate.

      If a  security  is  traded on more  than one  exchange,  or on one or more
exchanges  and in the  over-the-counter  market,  quotations  are taken from the
market in which the security is traded most extensively.

      If, in the  opinion of the  Fund's  Valuation  Committee,  the value of an
asset as determined in accordance  with these  procedures does not represent the
fair market value of the asset,  the value of the asset is taken to be an amount
which, in the opinion of the Valuation  Committee,  represents fair market value
on the basis of all available information. The value of other portfolio holdings
owned by the Fund is  determined  in a manner  which,  in the  discretion of the
Valuation  Committee  most fairly  reflects fair market value of the property on
the valuation date.

      Following the valuations of securities or other portfolio  assets in terms
of the  currency  in  which  the  market  quotation  used is  expressed  ("Local
Currency"),  the value of these assets in terms of U.S. dollars is calculated by
converting  the Local  Currency  into U.S.  dollars at the  prevailing  currency
exchange rates on the valuation date.

                                   TAX STATUS

    (See "TAX STATUS, DIVIDENDS AND DISTRIBUTIONS" in the Fund's prospectus.)

      Each  Portfolio  of the Fund has  elected  to be  treated  as a  regulated
investment  company under  Subchapter M of the Internal Revenue Code of 1986, as
amended  (the  "Code").   Such  qualification  does  not  involve   governmental
supervision or management of investment practices or policy.

      Each Portfolio  intends to comply with the provisions of Section 817(h) of
the  Code  relating  to  diversification   requirements  for  variable  annuity,
endowment and life insurance contracts.  Specifically, each Portfolio intends to
comply with either (i) the requirement of Section 817(h)(1) of the Code that its
assets be adequately diversified,  or (ii) the "Safe Harbor for Diversification"
specified  in  Section  817(h)(2)  of the  Code,  or (iii)  the  diversification
requirement of Section 817(h)(1) of the Code by having all or part of its assets
invested in U.S.  Treasury  securities  which  qualify for the "Special Rule for
Investments in United States Obligations"  specified in Section 817(h)(3) of the
Code.

      A regulated  investment  company qualifying under Subchapter M of the Code
is  required  to  distribute  to its  shareholders  at least 90  percent  of its
investment company taxable income and generally is not subject to federal income
tax to the extent that it distributes  annually its investment  company  taxable
income and net realized capital gains in the manner required under the Code.

      Investment  company taxable income of a Portfolio  generally is made up of
dividends,  interest,  certain  currency  gains and  losses  and  net-short-term
capital gains in excess of net long-term  capital  losses,  less  expenses.  Net
realized  capital  gains of a Portfolio for a fiscal year are computed by taking
into account any capital loss carryforward of the Portfolio.


                                       30
<PAGE>

      At December 31, 1994 the Bond  Portfolio  had a net tax basis capital loss
carryforward  of  approximately  $4,153,327  which may be  applied  against  any
realized net taxable  capital gains of each succeeding year until fully utilized
or until December 31, 2002, whichever occurs first.

      If any net  realized  long-term  capital  gains in excess of net  realized
short-term  capital  losses  are  retained  by  a  Portfolio  for  reinvestment,
requiring  federal  income  taxes  to be paid  thereon  by the  Portfolio,  such
Portfolio  intends  to  elect  to  treat  such  capital  gains  as  having  been
distributed to  shareholders.  As a result,  each  shareholder  will report such
capital  gains as long-term  capital  gains,  will be able to claim its share of
federal income taxes paid by the Portfolio on such gains as a credit against its
own federal income tax liability,  and will be entitled to increase the adjusted
tax basis of its shares of the Portfolio by the difference  between its pro rata
share of such gains and its tax credit.

     Distributions   of  investment   company  taxable  income  are  taxable  to
shareholders as ordinary income.

     Distributions  of the  excess  of  net  long-term  capital  gain  over  net
short-term  capital loss are taxable to shareholders as long-term  capital gain,
regardless of the length of time the shares of the relevant  Portfolio have been
held by such shareholders.  Any loss realized upon the redemption of shares held
at the time of redemption  for six months or less will be treated as a long-term
capital loss to the extent of any amounts treated as  distributions of long-term
capital gain during such six-month period.

      Distributions  of  investment  company  taxable  income  and net  realized
capital  gains  will be  taxable  as  described  above,  whether  reinvested  in
additional shares or in cash.  Shareholders electing to receive distributions in
the form of  additional  shares  will have a cost basis for  federal  income tax
purposes  in each share so  received  equal to the net asset value of a share on
the reinvestment date.

     All  distributions  of investment  company  taxable income and net realized
capital  gain,  whether  reinvested  in  additional  shares or in cash,  must be
reported  by each  shareholder  on its  federal  income  tax  return.  Dividends
declared  in October,  November  or December  with a record date in such a month
will be deemed to have been  received  by  shareholders  on  December 31 if paid
during  January of the following  year.  Redemptions of shares may result in tax
consequences  (gain or loss) to the  shareholder  and are also  subject to these
reporting requirements.

       Distributions by a Portfolio  (except the Money Market  Portfolio) result
in a  reduction  in the net  asset  value of the  Portfolio's  shares.  Should a
distribution  reduce the net asset value below a shareholder's  cost basis, such
distribution would nevertheless be taxable to the shareholder as ordinary income
or capital gain as described above, even though, from an investment  standpoint,
it may constitute a partial return of capital.  In particular,  investors should
consider the tax implications of buying shares just prior to a distribution. The
price of shares  purchased at that time  includes the amount of the  forthcoming
distribution.  Those purchasing just prior to a distribution will then receive a
partial  return of capital upon the  distribution,  which will  nevertheless  be
taxable to them.

     If the  Growth  and Income  Portfolio  invests in stock of certain  foreign
investment  companies,  the  Portfolio  may be  subject to U.S.  federal  income
taxation on a portion of any "excess distribution" with respect to, or gain from
the disposition  of, such stock.  The tax would be determined by allocating such
distribution or gain ratably to each day of the  Portfolio's  holding period for
the stock.  The  distribution  or gain so  allocated  to any taxable year of the
Portfolio,   other  than  the  taxable  year  of  the  excess   distribution  or
disposition, would be taxed to the Portfolio at the highest ordinary income rate
in effect for such year,  and the tax would be further  increased by an interest
charge to reflect the value of the tax deferral deemed to have resulted from the
ownership of the foreign  company's  stock.  Any amount of  distribution or gain
allocated  to the  taxable  year of the  distribution  or  disposition  would be
included in the Portfolio's  investment company taxable income and, accordingly,
would not be taxable to a Portfolio to the extent  distributed  by the Portfolio
as a dividend to its shareholders.

      Proposed  regulations  have been  issued  which may allow the  Growth  and
Income  Portfolio  to make an  election  to mark to market  its  shares of these
foreign  investment  companies in lieu of being subject to U.S.  federal  income
taxation.  At the end of each taxable year to which the  election  applies,  the
Portfolio  would  report as ordinary  income the amount by which the fair market


                                       31
<PAGE>

value of the foreign  company's stock exceeds the Portfolio's  adjusted basis in
these shares.  No mark to market losses would be  recognized.  The effect of the
election  would be to treat excess  distributions  and gain on  dispositions  as
ordinary  income  which is not subject to a fund level tax when  distributed  to
shareholders as a dividend. Alternatively, the Portfolio may elect to include as
income  and gain its share of the  ordinary  earnings  and net  capital  gain of
certain  foreign  investment  companies  in lieu of being  taxed  in the  manner
described above.

      Equity  options  (including  options on stock and options on  narrow-based
stock  indexes)  and  over-the-counter  options  on debt  securities  written or
purchased  by the  Portfolio  will be subject to tax under  Section  1234 of the
Code.  In general,  no loss is  recognized  by the  Portfolio  upon payment of a
premium in connection  with the purchase of a put or call option.  The character
of any gain or loss recognized  (i.e.,  long-term or short-term)  will generally
depend in the case of a lapse or sale of the option on the  Portfolio's  holding
period  for the  option  and in the case of an  exercise  of a put option on the
Portfolio's  holding period for the underlying  security.  The purchase of a put
option may constitute a short sale for federal  income tax purposes,  causing an
adjustment in the holding period of the underlying  security or a  substantially
identical  security  of the  Portfolio.  If the  Portfolio  writes a put or call
option,  no gain is  recognized  upon its  receipt of a  premium.  If the option
lapses or is closed  out,  any gain or loss is treated as a  short-term  capital
gain or  loss.  If a call  option  written  by a  Portfolio  is  exercised,  the
character  of the gain or loss depends on the holding  period of the  underlying
security.  The exercise of a put option  written by a Portfolio is not a taxable
transaction for the Portfolio.

      Many futures contracts, certain foreign currency forward contracts entered
into by a Portfolio and all listed nonequity options written or purchased by the
Portfolio  (including options on debt securities,  options on futures contracts,
options on securities  indexes and options on broad-based stock indexes) will be
governed by Section  1256 of the Code.  Absent a tax  election to the  contrary,
gain or loss  attributable  to the lapse,  exercise  or closing  out of any such
position  generally will be treated as 60% long-term and 40% short-term  capital
gain or loss,  and on the last trading day of the fiscal year,  all  outstanding
Section  1256  positions  will be  marked  to market  (i.e.  treated  as if such
positions  were  closed  out at  their  closing  price  on such  day),  with any
resulting gain or loss  recognized as 60% long-term and 40%  short-term  capital
gain or loss. Under Section 988 of the Code,  discussed below,  foreign currency
gain or loss from foreign  currency-related  forward contracts,  certain futures
and options  and similar  financial  instruments  entered  into or acquired by a
Portfolio will be treated as ordinary income. Under certain circumstances, entry
into a futures  contract  to sell a  security  may  constitute  a short sale for
federal income tax purposes,  causing an adjustment in the holding period of the
underlying  security  or  a  substantially   identical  security  owned  by  the
Portfolio.

      Subchapter M of the Code  requires that each  Portfolio  realize less than
30% of its annual  gross  income  from the sale or other  disposition  of stock,
securities and certain options, futures and forward contracts held for less than
three months. Certain options, futures and forward activities of a Portfolio may
increase the amount of gains realized by a Portfolio that are subject to the 30%
limitation.  Accordingly,  the amount of such  transactions that a Portfolio may
undertake may be limited.

      Positions of a Portfolio  which consist of at least one stock and at least
one stock  option or other  position  with respect to a related  security  which
substantially diminishes the Portfolio's risk of loss with respect to such stock
could be treated as a "straddle"  which is governed by Section 1092 of the Code,
the operation of which may cause deferral of losses,  adjustments in the holding
periods of stock or securities and conversion of short-term  capital losses into
long-term  capital  losses.  An exception to these straddle rules exists for any
"qualified covered call options" on stock written by a Portfolio.

      Positions  of a  Portfolio  which  consist  of at least one  position  not
governed by Section  1256 and at least one futures  contract,  foreign  currency
forward   contract  or   nonequity   option   governed  by  Section  1256  which
substantially diminishes the Portfolio's risk of loss with respect to such other
position will be treated as a "mixed  straddle."  Although  mixed  straddles are
subject to the straddle rules of Section 1092 of the Code, certain tax elections
exist for them which reduce or  eliminate  the  operation  of these rules.  Each
Portfolio  will  monitor  its  transactions  in options and futures and may make
certain tax elections in connection with these investments.

      Under the Code,  gains or losses  attributable to fluctuations in exchange
rates  which  occur  between  the  time  a  Portfolio  accrues   receivables  or
liabilities  denominated  in a  foreign  currency  and the  time  the  Portfolio
actually  collects  such  receivables  or pays such  liabilities  generally  are
treated as ordinary income or ordinary loss.  Similarly,  on disposition of debt


                                       32
<PAGE>

securities  denominated  in a foreign  currency  and on  disposition  of certain
futures contracts,  forward contracts and options,  gains or losses attributable
to fluctuations in the value of foreign currency between the date of acquisition
of the  security or contract  and the date of  disposition  are also  treated as
ordinary  gain or loss.  These  gains or losses,  referred  to under the Code as
"Section  988"  gains or  losses,  may  increase  or  decrease  the  amount of a
Portfolio's   investment  company  taxable  income  to  be  distributed  to  its
shareholders as ordinary income.

       If a Portfolio holds zero coupon securities or other securities which are
issued at a  discount,  a portion of the  difference  between the issue price of
zero coupon  securities and the face value  ("original  issue discount") will be
treated as income to the Portfolio each year, even though the Portfolio will not
receive cash  interest  payments  from these  securities.  This  original  issue
discount (imputed income) will comprise a part of the investment company taxable
income of the Portfolio  which must be distributed to  shareholders  in order to
maintain the  qualification of the Portfolio as a regulated  investment  company
and to avoid federal  income tax at the Portfolio  level.  Shareholders  will be
subject to income tax on such original issue discount, whether or not they elect
to  receive  their  distributions  in  cash.  If a  Portfolio  acquires  a  debt
instrument at a market discount,  a portion of the gain  recognized,  if any, on
disposition of such instrument may be treated as ordinary income.

      Dividend  and  interest  income  received by the  Portfolios  from sources
outside the U.S. may be subject to  withholding  and other taxes imposed by such
foreign  jurisdictions.  Tax conventions  between certain countries and the U.S.
may reduce or eliminate  these foreign  taxes,  however,  and foreign  countries
generally do not impose taxes on capital gains respecting investments by foreign
investors.

      Each Portfolio will be required to report to the Internal  Revenue Service
all distributions of investment company taxable income and capital gains as well
as gross proceeds from the redemption or exchange of shares,  except in the case
of certain  exempt  shareholders,  which  include most  corporations.  Under the
backup  withholding  provisions  of Section 3406 of the Code,  distributions  of
taxable income and capital gains and proceeds from the redemption or exchange of
the shares of a regulated  investment  company may be subject to  withholding of
federal income tax at the rate of 31% in the case of non-exempt shareholders who
fail to  furnish  the  investment  company  with their  taxpayer  identification
numbers  and with  required  certifications  regarding  their  status  under the
federal  income tax law.  Withholding  may also be required  if a  Portfolio  is
notified  by  the  IRS or a  broker  that  the  taxpayer  identification  number
furnished by the shareholder is incorrect or that the shareholder has previously
failed to report interest or dividend income.  Participating Insurance Companies
that are corporations should furnish their taxpayer  identification  numbers and
certify  their  status  as  corporations  in order to avoid  possible  erroneous
application of backup withholding.

      Shareholders  of the Portfolios may be subject to state and local taxes on
distributions received from such Portfolios and on redemptions of their shares.

     Each  distribution  is accompanied  by a brief  explanation of the form and
character of the distribution.

      The Fund is organized as a Massachusetts  business trust,  and neither the
Fund nor the  Portfolios  are  liable  for any  income or  franchise  tax in the
Commonwealth of Massachusetts providing each Portfolio continues to qualify as a
regulated investment company under Subchapter M of the Code.

      The foregoing  discussion of U.S. federal income tax law relates solely to
the application of that law to U.S.  persons.  Each  shareholder  which is not a
U.S. person should  consider the U.S. and foreign tax  consequences of ownership
of shares of the Portfolio,  including the  possibility  that such a shareholder
may be  subject to a U.S.  withholding  tax at a rate of 30% (or at a lower rate
under an applicable income tax treaty) on amounts  constituting  ordinary income
received by it, where such amounts are treated as income from U.S. sources under
the Code.

       For further  information  concerning  federal income tax consequences for
the holders of the VA contracts and VLI policies,  shareholders  should  consult
the  prospectus  used in  connection  with  the  issuance  of  their  particular
contracts or policies.  Shareholders should consult their tax advisers about the
application  of the  provisions  of tax  law  described  in  this  statement  of
additional information in light of their particular tax situations.


                                       33
<PAGE>

                           DIVIDENDS AND DISTRIBUTIONS
    (See "TAX STATUS, DIVIDENDS AND DISTRIBUTIONS" in the Fund's prospectus.)

Money Market Portfolio

      The net investment  income of the Money Market  Portfolio is determined as
of the close of regular trading on the Exchange  (normally 4 p.m.  eastern time)
on each day on which the Exchange is open for business. All of the net income so
determined  normally will be declared as a dividend to shareholders of record as
of the  close of  regular  trading  on such  Exchange  after  the  purchase  and
redemption of shares. Unless the business day before a weekend or holiday is the
last day of an accounting period, the dividend declared on that day will include
an amount in respect of the Portfolio's  income for the subsequent  non-business
day or days. No daily  dividend will include any amount of net income in respect
of a subsequent  semi-annual  accounting period.  Dividends commence on the next
business  day  after  the  date  of  purchase.  Dividends  will be  invested  in
additional  shares of the  Portfolio at the net asset value per share,  normally
$1.00,  determined as of the first  business day of each month unless payment of
the dividend in cash has been requested.

      Net  investment  income  of the Money  Market  Portfolio  consists  of all
interest  income accrued on portfolio  assets less all expenses of the Portfolio
and amortized  market premium.  Accreted market discount is included in interest
income.  The Portfolio  does not  anticipate  that it will normally  realize any
long-term capital gains with respect to its portfolio.

      Normally the Money Market Portfolio will have a positive net income at the
time of each determination  thereof. Net income may be negative if an unexpected
liability must be accrued or a loss realized. If the net income of the Portfolio
determined at any time is a negative amount,  the net asset value per share will
be reduced below $1.00 unless one or more of the following steps are taken:  the
Trustees  have  the  authority  (1) to  reduce  the  number  of  shares  in each
shareholder's  account,  (2) to offset each  shareholder's  pro rata  portion of
negative  net income from the  shareholder's  accrued  dividend  account or from
future  dividends,  or (3) to combine these methods in order to seek to maintain
the net asset  value per share at $1.00.  The Fund may  endeavor  to restore the
Portfolio's  net asset value per share to $1.00 by not declaring  dividends from
net income on subsequent  days until  restoration,  with the result that the net
asset value per share will  increase to the extent of positive  net income which
is not declared as a dividend.

      Should the Money Market Portfolio incur or anticipate, with respect to its
portfolio,  any unusual or  unexpected  significant  expense or loss which would
affect  disproportionately  the Portfolio's  income for a particular period, the
Trustees  would at that time consider  whether to adhere to the dividend  policy
described above or to revise it in light of the then prevailing circumstances in
order to ameliorate to the extent possible the  disproportionate  effect of such
expense  or loss on then  existing  shareholders.  Such  expenses  or losses may
nevertheless  result in a  shareholder's  receiving no dividends  for the period
during  which the shares are held and in receiving  upon  redemption a price per
share  lower  than that  which  was paid.  Similarly,  should  the Money  Market
Portfolio  incur or  anticipate  any unusual or unexpected  significant  income,
appreciation or gain which would affect disproportionately the fund's income for
a particular period, the Trustees or the Executive Committee of the Trustees may
consider  whether to adhere to the dividend policy  described above or to revise
it in light of the then prevailing  circumstances  in order to ameliorate to the
extent possible the disproportionate effect of such income, appreciation or gain
on the dividend received by existing  shareholders.  Such actions may reduce the
amount of the daily dividend received by existing shareholders.

Other Portfolios

      The Bond Portfolio and Growth and Income  Portfolio have each followed the
practice of declaring and distributing a dividend of investment  company taxable
income, if any, quarterly,  in January,  April, July and October. Each Portfolio
has  distributed  its net capital  gain within  three  months of the end of each
fiscal year. Both dividends and capital gain distributions will be reinvested in
additional  shares of such a Portfolio unless an election is made on behalf of a
separate account to receive dividends and capital gain distributions in cash.


                                       34
<PAGE>

                             PERFORMANCE INFORMATION

            (See "Performance Information" in the Fund's prospectus)

     From time to time, quotations of a Portfolio's  performance may be included
in  advertisements,  sales  literature or reports to shareholders or prospective
investors. These performance figures may be calculated in the following manner:

Money Market Portfolio

     A.   Yield is the net annualized  yield based on a specified seven calendar
          days  calculated  at simple  interest  rates.  Yield is  calculated by
          determining the net change, exclusive of capital changes, in the value
          of a hypothetical  pre-existing  account having a balance of one share
          at the  beginning  of the period  subtracting  a  hypothetical  charge
          reflecting  deductions  from  shareholder  accounts  and  dividing the
          difference  by the value of the account at the  beginning  of the base
          period to obtain the base period  return.  The yield is  annualized by
          multiplying  the base  period  return  by 365/7.  The yield  figure is
          stated to the nearest hundredth of one percent. The yield of the Money
          Market Portfolio for the seven-day period ended December 31, 1994, was
          5.20%.

     B.   Effective  yield is the net  annualized  yield for a  specified  seven
          calendar days assuming a  reinvestment  of the income or  compounding.
          Effective  yield is  calculated by the same method as yield except the
          yield  figure is  compounded  by adding 1,  raising the sum to a power
          equal to 365  divided  by 7,  and  subtracting  one  from the  result,
          according to the following formula:

              Effective Yield = [(Base Period Return + 1)^(365/7)] - 1.

          The effective  yield of the  Portfolio for the seven-day  period ended
          December 31, 1994, was 5.23%.

      As described  above,  yield and  effective  yield are based on  historical
earnings  and show the  performance  of a  hypothetical  investment  and are not
intended to indicate  future  performance.  Yield and effective  yield will vary
based on changes in market conditions and the level of expenses.

      In connection with  communicating  its yield or effective yield to current
or prospective  shareholders,  the Money Market Portfolio also may compare these
figures to the  performance  of other mutual funds tracked by mutual fund rating
services  or to  other  unmanaged  indexes  which  may  assume  reinvestment  of
dividends  but  generally  do not  reflect  deductions  for  administrative  and
management costs.

      From time to time,  in  marketing  pieces and other fund  literature,  the
Fund's yield and  performance  over time may be compared to the  performance  of
broad groups of comparable  mutual funds, bank money market deposit accounts and
fixed-rate  insured  certificates  of deposit  (CDs),  or  unmanaged  indexes of
securities  that are comparable to money market funds in their terms and intent,
such as Treasury bills,  bankers'  acceptances,  negotiable  order of withdrawal
accounts, and money market certificates.  Most bank CDs differ from money market
funds in several ways:  the interest rate is fixed for the term of the CD, there
are interest  penalties  for early  withdrawal  of the deposit,  and the deposit
principal is insured by the FDIC.

Bond Portfolio

     Yield is the net  annualized  yield  based on a  specified  30-day  (or one
     month)  period  assuming  a  semiannual  compounding  of  income.  Yield is
     calculated  by dividing the net  investment  income per share earned during
     the period by the maximum  offering  price per share on the last day of the
     period, according to the following formula:


                                       35
<PAGE>

                         YIELD = 2[((a-b)/cd + 1)^6 - 1]
         Where:

         a  = dividends and interest earned during the period.
         b  = expenses accrued for the period (net of reimbursements).
         c  = the average daily number of shares outstanding during the
              period that were entitled to receive dividends.
         d  = the maximum offering price per share on the last day of the
              period.

               Yield for the 30-day period ended December 31, 1994

                    Bond Portfolio          7.51%
All Portfolios

     A.   Average  Annual Total Return is the average  annual  compound  rate of
          return for the  periods  of one year and five  years (or such  shorter
          periods  as may be  applicable  dating  from the  commencement  of the
          Portfolio's  operations)  all  ended on the date of a recent  calendar
          quarter.

          Average annual total return quotations reflect changes in the price of
          a  Portfolio's  shares and assume that all dividends and capital gains
          distributions   during  the  respective  periods  were  reinvested  in
          Portfolio shares. Average annual total return is calculated by finding
          the  average  annual  compound  rates  of  return  of  a  hypothetical
          investment  over such  periods,  according  to the  following  formula
          (average annual total return is then expressed as a percentage):

                              T = (ERV/P)^(1/n) - 1

         Where:

         P   = a hypothetical initial investment of $1,000
         T   = Average Annual Total Return
         n   = number of years
         ERV = ending redeemable value: ERV is the value, at the end of the
               applicable period, of a hypothetical $1,000 investment made at
               the beginning of the applicable period.

         Average Annual Total Return for periods ended December 31, 1994

                                      One Year     Five Years      Life of Fund
                                      --------     ----------      ------------
  Money Market Portfolio                3.72%         4.63%           5.72%(1)
  Bond Portfolio                       -4.79          7.79            8.12(1)
  Growth and Income Portfolio           --              --            4.91(2)
  
  (1) For the period beginning July 16, 1985 (commencement of operations)
  (2) For the period  beginning May 2, 1994  (commencement of operations)
  
    B.    Cumulative Total Return is the cumulative  rate of return
          on  a  hypothetical initial investment of  $1,000  for  a
          specified  period.   Cumulative total  return  quotations
          reflect  changes  in  the price of a  Fund's  shares  and
          assume that all dividends and capital gains distributions
          during   the  period  were  reinvested  in  Fund  shares.
          Cumulative  total  return is calculated  by  finding  the
          cumulative   rates of return of a hypothetical investment
          over  such  periods, according to the  following  formula
          (cumulative   total  return  is  then  expressed   as   a
          percentage):


                                       36
<PAGE>


                                 C = (ERV/P) - 1
         Where:

         C   = Cumulative Total Return
         P   = a hypothetical initial investment of $1,000
         ERV = ending redeemable value: ERV is the value, at the end of the
               applicable period, of a hypothetical $1,000 investment made at
               the beginning of the applicable period.

           Cumulative Total Return for periods ended December 31, 1994

                                    One Year        Five Years     Life of Fund
                                    --------        ----------     ------------
  Money Market Portfolio              3.72%           25.39%          69.31%(1)
  Bond Portfolio                     -4.79            45.52          109.40 (1)
  Growth and Income Portfolio         --               --              4.91 (2)
 
  (1) For the period beginning July 16, 1985 (commencement of operations)
  (2) For the period  beginning May 2, 1994 (commencement of operations)
  
      As described above,  average annual total return,  cumulative total return
and yield are based on  historical  earnings  and are not  intended  to indicate
future  performance.  Average annual total return,  cumulative  total return and
yield for a Portfolio  will vary based on changes in market  conditions  and the
level of the Portfolio's expenses.

      In connection with  communicating  its total return or yield to current or
prospective  shareholders,  the  Fund  also  may  compare  these  figures  for a
Portfolio to the performance of other mutual funds tracked by mutual fund rating
services  or to  other  unmanaged  indexes  which  may  assume  reinvestment  of
dividends  but  generally  do not  reflect  deductions  for  administrative  and
management costs.

      Quoted  yields on  shares  of the  Fund's  Portfolios  will be of  limited
usefulness to policy and contract  holders for comparable  purposes because such
quoted yields will be more than yields on  participating  contracts and policies
due to charges imposed at the separate account level.

Comparison   of   Portfolio  Performance

     From time to time, in marketing and other fund literature,  the performance
of the Fund's  Portfolios may be compared to the  performance of broad groups of
mutual funds which are used in conjunction with variable annuities and have with
similar investment goals, as tracked by independent  organizations.  Among these
organizations,  Lipper  Analytical  Services,  Inc.,  Morningstar,  Inc. and the
Variable  Annuity  Research and Data Service  (V.A.R.D.S.R)  may be cited.  When
independent  tracking results are used, a Portfolio will be compared to Lipper's
appropriate  fund  category,  that is, by  investment  objective  and  portfolio
holdings.  For  instance,  growth  portfolios  will be compared to funds  within
Lipper's  growth  fund  category;  income  portfolios  will be compared to funds
within  Lipper's  income fund category;  and so on. Rankings may be listed among
one or more of the asset-size classes as determined by Lipper.

      Lipper,  Morningstar  and  V.A.R.D.S.R  track and rank the  performance of
variable  annuities  in each of the  major  investment  categories.  Performance
comparisons  and rankings by Lipper,  Morningstar  and  V.A.R.D.S.R are based on
total return and assume  reinvestment  of income and capital  gains,  but do not
take into account  sales  charges,  redemption  fees or certain  other  expenses
charged at the separate account level.

      Statistical  and other  information,  as provided  by the Social  Security
Administration,  may be used in marketing  materials  pertaining  to  retirement
planning  in order to  estimate  future  payouts  of social  security  benefits.
Estimates may be used on demographic and economic data.

      Comparison  of  the  quoted   non-standardized   performance   of  various
investments is valid only if performance is calculated in the same manner. Since
there  are  different  methods  of  calculating  performance,  investors  should
consider the effect of the methods used to calculate  performance when comparing


                                       37
<PAGE>

performance  of the  Portfolios  with  performance  quoted with respect to other
investment companies or types of investments.

      From  time  to  time,  in  marketing  and  other  Fund  literature,   each
Portfolio's  performance  may be compared to the  performance of broad groups of
comparable  mutual  funds  or  unmanaged   indexes  of  comparable   securities.
Evaluations  of  performance  made by  independent  sources  may also be used in
advertisements  concerning each Portfolio,  including reprints of, or selections
from, editorials or articles about these Portfolios.

      The Bond  Portfolio  and Growth and Income  Portfolio  may each  invest in
foreign  securities.  The following graph  illustrates the historical  risks and
returns of selected indices which track the performance of various  combinations
of United  States and  international  securities  for the ten year period  ended
December 31, 1994;  results for other periods may vary.  The graph uses ten year
annualized  international  returns  represented  by the Morgan  Stanley  Capital
International  Europe,  Australia  and  Far  East  (EAFE)  Index  and  ten  year
annualized  United  States  returns  represented  by the S&P 500 Index.  Risk is
measured by the standard deviation in overall portfolio  performance within each
index.  Performance  of an index is  historical,  and  does  not  represent  the
performance of a Fund, and is not a guarantee of future results.

LINE CHART -      EFFICIENT FRONTIER
                  MSCI EAFE vs. S&P 500 (12/31/84-12/31/94)

CHART DATA:

    Total          Standard
    Return         Deviation
    ------         ---------
    17.95           18.46      100% Int'l MSCI EAFE
    17.14           18.05      10 US/90 Int'l
    16.41           17.64      20/80
    15.8            17.23      30 U.S./70 Int'l
    15.3            16.82      40/60
    14.93           16.41      50 U.S./50Int'l
    14.7            16         60/40
    14.62           15.59      70 U.S./30 Int'l
    14.69           15.18      80/20
    14.91           14.77      90 U.S./10 Int'l
    15.27           14.36      100% U.S. S&P 500

MSCI EAFE vs. S&P 500 (12/31/84 - 12/31/94)

    18.46          17.95
    18.05          17.14
    17.64          16.41
    17.23          15.8
    16.82          15.3
    16.41          14.93
    16             14.7
    15.59          14.62
    15.18          14.69
    14.77          14.91
    14.36          15.27
 
Source:  Lipper Analytical Services, Inc. (Data as of 12/31/94)

      Evaluation of Fund performance or other relevant  statistical  information
made by independent  sources may also be used in  advertisements  concerning the
Fund,  including  reprints of, or selections from,  editorials or articles about
this Fund. Sources for Fund performance  information and articles about the Fund
may include the following:

American Association of Individual  Investors' Journal, a monthly publication of
the AAII that includes articles on investment analysis techniques.

Asian Wall Street  Journal,  a weekly Asian  newspaper  that often  reviews U.S.
mutual funds investing internationally.

Banxquote, an on-line source of national averages for leading money
market  and bank CD interest rates, published on a weekly basis  by
Masterfund, Inc. of Wilmington, Delaware.


                                       38
<PAGE>

Barron's,  a  Dow  Jones and Company, Inc. business  and  financial
weekly that periodically reviews mutual fund performance data.

Business  Week,  a  national  business  weekly  that  periodically  reports  the
performance rankings and ratings of a variety of mutual funds investing abroad.

CDA Investment  Technologies,  Inc., an organization which provides  performance
and ranking  information  through  examining the dollar results of  hypothetical
mutual fund investments and comparing these results against  appropriate  market
indices.

Consumer  Digest, a monthly  business/financial  magazine that includes a "Money
Watch" section featuring financial news.

Financial Times,  Europe's business newspaper,  which features from time to time
articles on international or country-specific funds.

Financial World, a general  business/financial  magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.

Forbes,  a national  business  publication  that from time to time  reports  the
performance of specific investment companies in the mutual fund industry.

Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.

The  Frank  Russell  Company,  a  West-Coast  investment  management  firm  that
periodically  evaluates  international stock markets and compares foreign equity
market performance to U.S. stock market performance.

Global  Investor, a European publication that periodically  reviews
the performance of U.S. mutual funds investing internationally.

IBC/Donoghue's   Money  Fund  Report,  a  weekly  publication  of  the  Donoghue
Organization, Inc., of Holliston, Massachusetts, reporting on the performance of
the nation's  money market  funds,  summarizing  money market fund  activity and
including certain averages as performance benchmarks,  specifically  "Donoghue's
Money Fund Average," and "Donoghue's Government Money Fund Average."

Ibbotson  Associates,  Inc., a company  specializing in investment  research and
data.

Investment  Company  Data,  Inc., an  independent  organization  which  provides
performance ranking information for broad classes of mutual funds.

Investor's  Daily, a daily  newspaper  that features  financial,  economic,  and
business news.

Kiplinger's Personal Finance Magazine, a monthly investment advisory publication
that periodically features the performance of a variety of securities.

Lipper   Analytical  Services,  Inc.'s  Mutual   Fund   Performance
Analysis,  a  weekly  publication  of  industry-wide  mutual   fund
averages by type of fund.

Money,  a monthly  magazine that from time to time features both specific  funds
and the mutual fund industry as a whole.

Morgan  Stanley  International,  an  integrated  investment  banking  firm  that
compiles statistical information.


                                       39
<PAGE>

Morningstar, Inc., a company that, among other activities,  analyzes, ranks, and
rates mutual funds and variable annuities.

Mutual  Fund Values, a biweekly Morningstar, Inc. publication  that
provides  ratings  of mutual funds based on fund performance,  risk
and portfolio characteristics.

Mutual Funds, a monthly magazine devoted to mutual fund investing.

The New York Times, a nationally  distributed  newspaper which regularly  covers
financial news.

The No-Load Fund Investor,  a monthly  newsletter,  published by Sheldon Jacobs,
that includes mutual fund  performance data and  recommendations  for the mutual
fund investor.

No-Load Fund*X, a monthly newsletter, published by DAL Investment Company, Inc.,
that reports on mutual fund  performance,  rates funds and discusses  investment
strategies for the mutual fund investor.

Personal  Investing  News,  a monthly  news  publication  that often  reports on
investment opportunities and market conditions.

Personal  Investor,  a monthly investment  advisory  publication that includes a
"Mutual Funds Outlook" section  reporting on mutual fund  performance  measures,
yields, indices and portfolio holdings.

Smart Money, a national personal finance magazine published monthly
by  Dow Jones and Company, Inc. and The Hearst Corporation.   Focus
is placed on ideas for investing, spending and saving.

Success,  a monthly magazine  targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.

United Mutual Fund Selector, a semi-monthly investment newsletter,  published by
Babson United  Investment  Advisors,  that includes mutual fund performance data
and reviews of mutual fund portfolios and investment strategies.

USA Today, a leading national daily newspaper.

U.S.  News  and  World  Report,  a national  business  weekly  that
periodically reports mutual fund performance data.

Wall  Street Journal, a Dow Jones and Company, Inc. newspaper which
regularly covers financial news.

Wiesenberger  Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds,  management policies, salient features,  management results,
income and dividend records and price ranges.

Working  Woman,  a monthly  publication  that  features a  "Financial  Workshop"
section reporting on the mutual fund/financial industry.

Worth, a national  publication  put out 10 times per year by Capital  Publishing
Company,  a  subsidiary  of  Fidelity  Investments.  Focus is placed on personal
financial journalism.

Your Money, a bimonthly magazine featuring articles about personal investing and
money management.

                           SHAREHOLDER COMMUNICATIONS

      Owners  of  policies  and  contracts  issued  by  Participating  Insurance
Companies for which shares of one or more Portfolios are the investment  vehicle
will receive from the Participating  Insurance Companies  unaudited  semi-annual
financial  statements and audited year-end financial statements certified by the
Fund's  independent  public  accountants.  Each report will show the investments


                                       40
<PAGE>

owned by the Fund and the market  values  thereof as  determined by the Trustees
and will provide other information about the Fund and its operations.

     Participating  Insurance  Companies with  inquiries  regarding the Fund may
call the Fund's underwriter, Scudder Investor Services, Inc., at 617-295-1000 or
write  Scudder  Investor  Services,   Inc.,  Two  International  Place,  Boston,
Massachusetts 02110-4103.

                         ORGANIZATION AND CAPITALIZATION

       (See "ADDITIONAL INFORMATION - Shareholder Indemnification" in the
                              Fund's prospectus.)

General

      The Fund is an open-end  investment company  established under the laws of
The Commonwealth of Massachusetts by Declaration of Trust dated March 15, 1985.

      As of December 31, 1994,  AEtna Life  Insurance  and Annuity  Company (151
Farmington Avenue PPH3,  Hartford,  CT 06156),  owned of record and beneficially
40.36% of the  International  Portfolio;  they owned of record and  beneficially
9.58%  of the  Fund's  total  outstanding  shares;  and  American  Skandia  Life
Assurance  Corporation (1 Corporation Drive, Shelton, CT 06484), owned of record
and  beneficially  37.69% of the Bond  Portfolio,  0.05% of the  Capital  Growth
Portfolio,  0.14% of the  Balanced  Portfolio  and  0.%  of the  International
Portfolio;  they owned of record  and  beneficially  4.53% of the  Fund's  total
outstanding  shares;  and AUSA Life Insurance  Company (4  Manhattanville  Road,
Purchase,  NY 10577) owned of record and beneficially 0.33% of the International
Portfolio;  they owned of record  and  beneficially  0.08% of the  Fund's  total
outstanding  shares;  and Banner Life Insurance  Company of Rockville,  MD (1701
Research Blvd.,  Rockville,  MD 20850) owned of record and beneficially 0.16% of
the Money Market Portfolio,  0.35% of the Bond Portfolio,  6.84% of the Balanced
Portfolio,  0.44% of the International Portfolio, 0.01% of the Growth and Income
Portfolio and 1.09% of the Capital  Growth  Portfolio;  they owned of record and
beneficially 0.53% of the Fund's total outstanding  shares; and Charter National
Life Insurance  Company (8301 Maryland  Avenue,  St. Louis, MO 63105, a Missouri
corporation)  and its  subsidiary,  Intramerica  Life Insurance  Company (1 Blue
Hills Plaza, Pearl River, NY 10965),  owned of record and beneficially 71.43% of
the Money Market Portfolio, 12.96% of the Bond Portfolio, 86.16% of the Balanced
Portfolio,  29.73% of the  Capital  Growth  Portfolio,  99.97% of the Growth and
Income Portfolio and 21.59% of the International Portfolio; they owned of record
and beneficially 48.88% of the Fund's total outstanding shares. In 1991, Charter
National Life Insurance Company  purchased the Colonial Penn Group,  Inc., which
indirectly owns  Intramerica,  a New York domestic life insurer.  On November 1,
1992, First Charter Life Insurance  Company ("First  Charter"),  a subsidiary of
Charter National Life Insurance  Company,  was merged with and into Intramerica.
As the company surviving the merger, Intramerica acquired legal ownership of all
of  First  Charter's  assets,   including  the  Variable  Account,   and  became
responsible for all of First Charter's liabilities and obligations.  As a result
of the merger,  all Contracts  issued by First Charter  before the merger became
Contracts  issued by Intramerica  after the merger.  Fortis  Benefits  Insurance
Company (Norwest Bank, Sixth and Marquette-MS0063,  Minneapolis, MN 55479) owned
of record and beneficially 0.21% of the International  Portfolio;  they owned of
record  and  beneficially  0.05% of the Fund's  total  outstanding  shares;  and
Lincoln  Benefit Life  Insurance  Company (134 South 13th  Street,  Lincoln,  NE
68508) owned of record and beneficially 0.06% of the Bond Portfolio and 1.16% of
the  Balanced  Portfolio;  they  owned of record and  beneficially  0.04% of the
Fund's total outstanding shares; and Mutual of America Life Insurance Company of
New York (666 5th Avenue,  New York, NY 10103, a New York  corporation)  and its
subsidiary,  American  Life  Insurance  Company  (666 5th Avenue,  New York,  NY
10103), owned of record and beneficially 47.43% of the Bond Portfolio, 65.04% of
the Capital Growth  Portfolio and 29.55% of the  International  Portfolio;  they
owned of record and beneficially  19.96% of the Fund's total outstanding shares;
and Paragon Life Insurance  Company (100 South  Brentwood,  St. Louis, MO 63105)
owned of record and beneficially  0.01% of the Money Market Portfolio,  0.02% of
the Bond Portfolio, 0.07% of the Capital Growth Portfolio, 0.21% of the Balanced
Portfolio,  0.03% of the  International  Portfolio  and 0.02% of the  Growth and
Income  Portfolio;  they  owned of record and  beneficially  0.03% of the Fund's
total  outstanding  shares;  and  Providentmutual  Life and  Annuity  Company of
America,  (300  Continental  Drive,  Newark,  DE  19713)  owned  of  record  and
beneficially 1.49% of the Bond Portfolio;  they owned of record and beneficially
0.18%  of the  Fund's  total  outstanding  shares;  and  Safeco  Life  Insurance
Companies  (15411 N.E.  51st  Street,  Redmond,  WA 98052),  owned of record and
beneficially  5.49% of the  Balanced  Portfolio  and 1.69% of the  International
Portfolio;  they owned of record  and  beneficially  0.55% of the  Fund's  total


                                       41
<PAGE>

outstanding  shares; and The Union Central Life Insurance Company (1876 Waycross
Road, Cincinnati, OH 45240) owned of record and beneficially 28.25% of the Money
Market  Portfolio,  4.02%  of the  Capital  Growth  Portfolio  and  5.52% of the
International  Portfolio;  they owned of record and  beneficially  15.52% of the
Fund's total  outstanding  shares;  and United of Omaha Life  Insurance  Company
(Mutual of Omaha Plaza, Law Division,  3301 Dodge Street, Omaha, NE 68131) owned
of record and beneficially  0.15% of the Money Market  Portfolio;  they owned of
record and beneficially 0.07% of the Fund's total outstanding shares.

      Shares  entitle  their  holders to one vote per share;  however,  separate
votes  will be  taken by each  Portfolio  on  matters  affecting  an  individual
Portfolio.  For  example,  a change in  investment  policy for the Money  Market
Portfolio  would  be  voted  upon  only  by  shareholders  of the  Money  Market
Portfolio. Additionally,  approval of the investment advisory agreement covering
a Portfolio is a matter to be determined separately by each Portfolio.  Approval
by the  shareholders of one Portfolio is effective as to that Portfolio.  Shares
have noncumulative  voting rights,  which means that holders of more than 50% of
the shares  voting for the election of Trustees  can elect all Trustees  and, in
such  event,  the holders of the  remaining  shares  voting for the  election of
Trustees  will not be able to elect any person or persons  as  Trustees.  Shares
have no preemptive or subscription rights, and are transferable.

      Shareholders have certain rights, as set forth in the Declaration of Trust
of the  Fund,  including  the right to call a meeting  of  shareholders  for the
purpose of voting on the removal of one or more  Trustees.  Such  removal can be
effected upon the action of two-thirds of the  outstanding  shares of beneficial
interest of the Fund.

Shareholder and Trustee Liability

      The Fund is an  entity  of the  type  commonly  known as a  "Massachusetts
business  trust." Under  Massachusetts  law,  shareholders  of such a trust may,
under  certain  circumstances,  be held  personally  liable as partners  for the
obligations  of  the  trust.  The  Declaration  of  Trust  contains  an  express
disclaimer of shareholder  liability for acts or obligations of the Fund. Notice
of such  disclaimer  will normally be given in each  agreement,  obligation,  or
instrument entered into or executed by the Fund or the Trustees. The Declaration
of  Trust  provides  for  indemnification  out  of  the  Fund  property  of  any
shareholder  held  personally  liable  for  the  obligations  of the  Fund.  The
Declaration of Trust also provides that the Fund shall, upon request, assume the
defense of any claim made against any  shareholder  for any act or obligation of
the Fund and satisfy  any  judgment  thereon.  Thus,  the risk of a  shareholder
incurring  financial  loss on account  of  shareholder  liability  is limited to
circumstances  in which the Fund itself would be unable to meet its obligations.
The Trustees believe that, in view of the above, the risk of personal  liability
of shareholders is remote.

      The  Declaration  of Trust further  provides that the Trustees will not be
liable for errors of judgment  or  mistakes  of fact or law,  but nothing in the
Declaration of Trust protects a Trustee  against any liability to which he would
otherwise  be  subject  by reason  of  willful  misfeasance,  bad  faith,  gross
negligence,  or reckless  disregard of the duties involved in the conduct of his
office.

                       ALLOCATION OF PORTFOLIO BROKERAGE

      To the maximum  extent  feasible,  the Adviser places orders for portfolio
transactions through its affiliate, the Distributor, which in turn places orders
on  behalf  of the Fund  with the  issuer,  underwriters  or other  brokers  and
dealers. The Distributor will receive no commissions, fees or other remuneration
for this service. Allocation of brokerage is supervised by the Adviser.

      The Fund's purchases and sales of portfolio securities of the Money Market
Portfolio and the Bond Portfolio and of debt  securities  acquired for the other
Portfolios,  are generally  placed by the Adviser with primary market makers for
these securities on a net basis,  without any brokerage commission being paid by
the Fund. Trading does, however,  involve  transaction costs.  Transactions with
dealers  serving as primary market makers reflect the spread between the bid and
asked prices. Purchases of underwritten issues may be made which will include an
underwriting  fee paid to the  underwriter.  Transactions  in equity  securities
generally involve the payment of a brokerage commission.

     The primary objective of the Adviser in placing orders for the purchase and
sale of securities for any Portfolio is to obtain the most favorable net results
taking into account such factors as price, commission (negotiable in the case of
U.S. stock  exchange  transactions  but which is generally  fixed in the case of
foreign exchange  transactions),  if any, size of order, difficulty of execution


                                       42
<PAGE>

and skill required of the executing broker/dealer. Subject to the foregoing, the
Adviser may  consider  sales of variable  life  insurance  policies and variable
annuity  contracts for which the Fund is an investment option as a factor in the
selection  of firms to execute  portfolio  transactions.  The  Adviser  seeks to
evaluate the overall  reasonableness  of brokerage  commissions paid through the
familiarity  of  the  Distributor   with   commissions   charged  on  comparable
transactions,  as well as by comparing  commissions paid by the Fund to reported
commissions  paid by others.  The Adviser reviews on a routine basis  commission
rates, execution and settlement services performed, making internal and external
comparisons.

      When it can be done  consistently  with the policy of  obtaining  the most
favorable net results,  it is the  Adviser's  practice to place such orders with
brokers and dealers who supply  market  quotations  to the custodian of the Fund
for  valuation  purposes,  or  who  supply  research,   market  and  statistical
information  to  the  Adviser.  The  term  "research,   market  and  statistical
information" includes advice as to the value of securities,  the advisability of
investing  in,  purchasing  or  selling  securities;  and  the  availability  of
securities or purchasers or sellers of securities;  and furnishing  analyses and
reports concerning issuers, industries, securities, economic factors and trends,
portfolio  strategy  and  the  performance  of  accounts.  The  Adviser  is  not
authorized when placing  portfolio  transactions for the Fund to pay a brokerage
commission  (to the extent  applicable)  in excess of that which another  broker
might have charged for effecting the same  transaction  solely on account of the
receipt  of  research,  market  or  statistical  information.   Subject  to  the
foregoing,  the Adviser may consider sales of variable life  insurance  policies
and variable annuity contracts for which the Fund is an investment  option, as a
factor in the selection of firms to execute portfolio  transactions.  Except for
implementing  the policy stated above,  there is no intention to place portfolio
transactions  with any  particular  brokers  or dealers  or groups  thereof.  In
effecting  transactions in over-the-counter  securities,  orders are placed with
the principal  market-makers  for the  securities  being traded  unless,  in the
opinion of the Adviser,  after  exercising  care, it appears that more favorable
results are available otherwise.

      Subject also to obtaining the most favorable net results,  the Adviser may
place  brokerage  transactions  with Bear,  Stearns & Co. A credit  against  the
custodian  fee due to State Street Bank and Trust  Company  equal to one-half of
the  commission  on any such  transaction  will be  given  with  respect  to the
applicable  Portfolio  on any such  transaction.  During the  fiscal  year ended
December 31, 1994, no such credit was applied against the custodian fee.

      Although certain research, market and statistical information from brokers
and  dealers  is useful to the Fund and the  Adviser,  it is the  opinion of the
Adviser  that  such  information  is only  supplementary  to the  Adviser's  own
research  effort,  since the information  must still be analyzed,  weighed,  and
reviewed by the Adviser's  staff.  Such information may be useful to the Adviser
in  providing  services  to  clients  other  than  the  Fund  and not  all  such
information is used by the Adviser in connection with the Fund. Conversely, such
information  provided to the Adviser by brokers and dealers  through  whom other
clients  of the  Adviser  effect  securities  transactions  may be useful to the
Adviser in providing services to the Fund.

      In the  years  ended  December  31,  1992,  1993 and  1994,  the Fund paid
brokerage commissions of $468,796,  $1,084,463 and $2,006,264,  respectively. In
the year ended December 31, 1994, the Growth and Income Portfolio paid brokerage
commissions of $34,967. In the year ended December 31, 1994, $12,945 (37.02%) of
the total brokerage commissions paid by the Growth and Income Portfolio resulted
from orders placed,  consistent  with the policy of obtaining the most favorable
net  results,  with  brokers  and dealers who  provided  supplementary  research
information to the Portfolios or the Adviser.

      The  Trustees  will  periodically  review  whether the  recapture  for the
benefit of the Fund of some portion of the brokerage commissions or similar fees
paid by the Fund on portfolio transactions is legally permissible and advisable.
No recapture arrangements are currently in effect.

                               PORTFOLIO TURNOVER

     The average annual  portfolio  turnover rate for each  Portfolio,  i.e. the
ratio of the lesser of annual sales or purchases to the monthly average value of
the portfolio (excluding from both the numerator and the denominator  securities
with  maturities at the time of acquisition of one year or less),  for the years
ended December 31, 1993 and 1994, respectively, was:


                                       43
<PAGE>

                                                    December 31,
                                               1993              1994
                                               ----              ----
         Bond Portfolio                       125.15%           96.55%
         Growth and Income Portfolio            --              28.41
        
      Under  the  above  definition,  the Money  Market  Portfolio  will have no
portfolio turnover.  Purchases and sales, for these Portfolios, are made for the
Portfolio whenever necessary,  in management's  opinion, to meet the Portfolio's
objective.

                                     EXPERTS

       The Financial  Highlights of the Fund included in the  prospectus and the
Financial  Statements  incorporated by reference in this Statement of Additional
Information  have been  audited by  Coopers & Lybrand  L.L.P.,  One Post  Office
Square, Boston,  Massachusetts 02109, independent accountants,  and have been so
included or incorporated by reference in reliance upon the  accompanying  report
of said  firm,  which  report  is given  upon  their  authority  as  experts  in
accounting and auditing.

                                     COUNSEL

      The firm of Dechert Price & Rhoads,  Ten Post Office  Square,  Suite 1230,
Boston, Massachusetts 02109, is counsel for the Fund.

                             ADDITIONAL INFORMATION

     The activities of the Fund are supervised by its Trustees,  who are elected
by  shareholders.  Shareholders  have one vote for each share  held.  Fractional
shares have fractional votes.

     Portfolio  securities  of the  Fund  are  held  separately,  pursuant  to a
custodian  agreement,  by State  Street  Bank and Trust  Company,  225  Franklin
Street, Boston, Massachusetts 02110, as custodian.

     Scudder Fund Accounting  Corporation  ("SFAC"),  Two  International  Place,
Boston,  Massachusetts  02110-4103,  a  wholly-owned  subsidiary of the Adviser,
computes net asset value for the Portfolios. Money Market Portfolio pays SFAC an
annual  fee equal to  0.020% of the first  $150  million  of  average  daily net
assets,  0.0060% of such  assets in excess of $150  million  and 0.0035% of such
assets in excess of $1 billion,  plus holding and  transaction  charges for this
service.  Bond Portfolio and Growth and Income Portfolio each pay SFAC an annual
fee equal to 0.025% of the first  $150  million  of  average  daily net  assets,
0.0075% of such  assets in excess of $150  million and 0.0045% of such assets in
excess of $1 billion, plus holding and transaction charges for this service.

     Scudder  Service  Corporation,   P.O.  Box  2291,  Boston,   Massachusetts,
02107-2291, is the transfer and dividend paying agent for the Fund.

     The Fund has a December 31 fiscal year end.

     The name "Scudder  Variable Life Investment Fund" is the designation of the
Trustees for the time being under a  Declaration  of Trust dated March 15, 1985,
as amended  from time to time,  and all persons  dealing with the Fund must look
solely to the property of the Fund for the enforcement of any claims against the
Fund as  neither  the  Trustees,  officers,  agents or  shareholders  assume any
personal liability for obligations  entered into on behalf of the Fund. Upon the
initial  purchase of shares,  the  shareholder  agrees to be bound by the Fund's
Declaration of Trust,  as amended from time to time. The Declaration of Trust is
on  file  at  the   Massachusetts   Secretary  of  State's   Office  in  Boston,
Massachusetts.

      The Fund's  prospectus and this Statement of Additional  Information  omit
certain information  contained in the Registration  Statement which the Fund has
filed with the SEC under the Securities Act of 1933 and reference is hereby made
to the Registration Statement, and its amendments,  for further information with
respect  to the  Fund  and  the  securities  offered  hereby.  The  Registration


                                       44
<PAGE>

Statement, and its amendments, are available for inspection by the public at the
SEC in Washington, D.C.

                              FINANCIAL STATEMENTS

      The financial  statements of Scudder  Variable  Life  Investment  Fund are
comprised of the following:

               Money Market Portfolio
               Bond Portfolio
               Growth and Income Portfolio

      The financial  statements,  including the investment portfolios of Scudder
Variable  Life  Investment  Fund,   together  with  the  Report  of  Independent
Accountants,   Financial  Highlights  and  notes  to  financial  statements  are
incorporated  by reference  and  attached  hereto,  in the Annual  Report to the
Shareholders  of the Fund dated  December 31, 1994,  and are hereby deemed to be
part of this Statement of Additional Information.


                                       45
<PAGE>

                                    APPENDIX

Description of Bond Ratings

Moody's Investors Service, Inc.

      Aaa:  Bonds that are rated Aaa are judged to be of the best quality.  They
carry the smallest  degree of investment  risk and are generally  referred to as
"gilt edged." Interest  payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change,  such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

      Aa:  Bonds  that are  rated Aa are  judged  to be of high  quality  by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds.  They are rated lower than the best bonds  because  margins of
protection  may  not  be as  large  as in  Aaa  securities  or  fluctuations  of
protective  elements may be of greater  amplitude or there may be other elements
present  which make the  long-term  risks  appear  somewhat  larger  than in Aaa
securities.

      A: Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations.  Factors giving security
to principal and interest are considered  adequate,  but elements may be present
which suggest a susceptibility to impairment some time in the future.

      Baa: Bonds that are rated Baa are considered as medium grade  obligations,
i.e., they are neither highly  protected nor poorly secured.  Interest  payments
and principal  security appear  adequate for the present but certain  protective
elements may be lacking or may be  characteristically  unreliable over any great
length of time. Such bonds lack outstanding  investment  characteristics  and in
fact have speculative characteristics as well.

      Ba: Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered  as well assured.  Often the  protection of interest
and principal  payments may be very moderate,  and thereby not well  safeguarded
during  both  good  and bad  times  over the  future.  Uncertainty  of  position
characterizes bonds in this class.

      B: Bonds that are rated B generally lack  characteristics of the desirable
investment.  Assurance of interest and principal  payments or of  maintenance of
other terms of the contract over any long period of time may be small.

Standard & Poor's

     AAA:  Bonds  rated AAA are  highest  grade debt  obligations.  This  rating
indicates an extremely strong capacity to pay principal and interest.

     AA: Bonds rated AA also qualify as  high-quality  obligations.  Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.

     A: Bonds rated A have a strong  capacity  to pay  principal  and  interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.

      BBB:  Bonds rated BBB are  regarded as having an adequate  capacity to pay
interest and repay principal.  Whereas they normally exhibit adequate protection
parameters,  adverse  economic  conditions  or changing  circumstances  are more
likely to lead to a weakened  capacity to pay interest and repay  principal  for
debt in this category than in higher rated categories.

     Bonds  rated BB and B are  regarded  as  having  predominantly  speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation. While such debt will likely have some
<PAGE>

quality  and   protective   characteristics,   these  are  outweighed  by  large
uncertainties or major risk exposures to adverse conditions.

      BB: Bonds rated BB have less near-term vulnerability to default than other
speculative issues.  However,  they face major ongoing uncertainties or exposure
to adverse  business,  financial  or  economic  conditions  which  could lead to
inadequate  capacity to meet timely  interest  and  principal  payments.  The BB
rating  category  is also  used for debt  subordinated  to  senior  debt that is
assigned an actual or implied BBB-rating.

     B: Bonds rated B have a greater vulnerability to default but currently have
the  capacity  to meet  interest  payments  and  principal  repayments.  Adverse
business,  financial  or  economic  conditions  will likely  impair  capacity or
willingness to pay interest and repay  principal.  The B rating category is also
used for debt  subordinated to senior debt that is assigned an actual or implied
BB or BB-rating.

Description  of Commercial Paper RatingsDescription  of  Commercial
Paper Ratings

Moody's Investors Service, Inc.

   P-1:   Moody's  Commercial  Paper  ratings  are  opinions  of the  ability of
          issuers to repay  punctually  senior  debt  obligations  which have an
          original maturity not exceeding one year. The designation "Prime-1" or
          "P-1"  indicates the highest quality  repayment  capacity of the rated
          issue.

Standard & Poor's

   A-1:   Standard & Poor's Commercial Paper ratings are current  assessments of
          the likelihood of timely payment of debt considered  short-term in the
          relevant  market.  The A-1 designation  indicates the degree of safety
          regarding timely payment is strong. Those issues determined to possess
          extremely  strong safety  characteristics  are denoted with a plus (+)
          sign designation.
<PAGE>



                                   APPENDIX D

                      SCUDDER VARIABLE LIFE INVESTMENT FUND
                      Annual Report dated December 31, 1994


     The Fund's annual report dated December 31, 1994, immediately follows this
page.


<PAGE>

                   Scudder Variable Life Investment Fund
                                     
                                     
                               Annual Report
                                     
                                     
                             December 31, 1994


An open-end management investment company that offers shares of beneficial
             interest in six types of diversified portfolios.

CONTENTS

<TABLE>

<CAPTION>
<S>                                                              <C>
                                                                 
Letter from the Fund's President                                 2
Money Market Portfolio Management Discussion                     3
Bond Portfolio Management Discussion                             4
Bond Portfolio Summary                                           5
Balanced Portfolio Management Discussion                         6
Balanced Portfolio Summary                                       7
Growth and Income Portfolio Management Discussion                8
Growth and Income Portfolio Summary                              9
Capital Growth Portfolio Management Discussion                   10
Capital Growth Portfolio Summary                                 11
International Portfolio Management Discussion                    12
International Portfolio Summary                                  13
Investment Portfolios, Financial Statements, and Financial       
Highlights
     Money Market Portfolio                                      14
     Bond Portfolio                                              20
     Balanced Portfolio                                          27
     Growth and Income Portfolio                                 37
     Capital Growth Portfolio                                    45
     International Portfolio                                     55
Notes to Financial Statements                                    66
Report of Independent Accountants                                69
Tax Information                                                  69
</TABLE>


LETTER FROM THE FUND'S PRESIDENT

Dear Shareholders,

     The world's financial markets were shaken repeatedly in 1994 by a
variety of events. Rising global interest rates, losses for investors in
highly leveraged derivatives, and some unsettling economic and political
developments -- including mounting U.S./Chinese tensions and the Mexican
currency crisis -- created a challenging environment for global stock and
bond investors.

     We face 1995 with more optimism. In the coming year, we expect a
combination of factors, including the U.S. Federal Reserve's tightening
efforts, to keep the economy and inflation on a moderate course, not only
in the United States but globally as well. Meanwhile, corporate profits
around the world continue to grow, and business investment is at an
all-time high, which should translate into greater economic capacity down
the road. We believe these developments ultimately will be viewed as
positive by the financial markets.

     For bond investors, the rise in interest rates in the past year has
meant generally falling prices but also higher income from these
investments at a time when inflation has remained relatively stable.
Although we believe the bulk of interest-rate increases is now behind us,
interest rates and investment income could rise somewhat further in 1995,
as central banks continue in their efforts to stem inflation and as
countries around the world compete for much-needed global investment
capital.

     Additional increases in interest rates may spark episodes of difficult
adjustment for financial markets. We encourage you to examine your
portfolio periodically to ensure that your asset allocation and fund
choices remain appropriate for your investment time frame and financial
goals. The past year demonstrated that virtually all investments, whether
conservative or aggressive, can perform poorly, prompting many investors to
move to the sidelines. Conservative investments such as money market
instruments naturally have a place in any well-balanced portfolio.
Experience has shown us that investors who have participated in the stock
and bond markets historically have accumulated far more wealth over time
than those who chose to protect their savings above all else.

     Thank you for choosing Scudder Variable Life Investment Fund to help
meet your investment needs. We hope we can continue to merit your
confidence in the year ahead.

Sincerely,

/s/David B. Watts
David B. Watts
President,
Scudder Variable Life Investment Fund
<PAGE>
MONEY MARKET PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION

Dear Shareholders,

     Interest rates rose steadily throughout the past year, increasing
borrowing costs for mortgages and credit cards and depressing bond prices,
which move in the opposite direction of interest rates. Despite a shaky
environment for bond and stock investors, the Money Market Portfolio
benefited from rising investment income, while its share price remained
constant at $1.00. Of course, past performance is no guarantee of future
results and the Portfolio's yield may fluctuate.

     On December 31, 1994, the Portfolio's 7-day net annualized yield was
5.20%. Factoring in the effect of compounding, the 7-day effective yield
was 5.23%, up sharply from 2.72% a year ago. The Portfolio provided a 3.72%
total return for the year ended December 31, 1994, reflecting reinvested
distributions of $0.037 per share.

 (CALLOUT NEXT TO CHART) - The continued rise in short-term interest rates
     during 1994 pushed up your Portfolio's yield from 2.72% to 5.23%.

(CHART DATA)
<TABLE>
<CAPTION>
       Interest Rates
       Commercial  Federal   3-Month
          Paper     Funds    Treasury
                               Bill
<S>       <C>       <C>       <C>
12/93     3.36      2.96      3.08
3/94      3.86      3.34      3.52
6/94      4.57      4.25      4.18
9/94      5.02      4.73      4.64
12/94     6.26      5.45      5.69
</TABLE>

        Portfolio Strategy Took Advantage of Rising Interest Rates

     We emphasized shorter average maturities throughout the year,
anticipating continued upward pressure on interest rates. By year's end,
the average maturity of the Portfolio was 35 days, down from its 44-day
average a year ago. By holding shorter-maturity money market securities as
rates rise, we can quickly deploy proceeds from maturing investments to
higher-yielding instruments.

     Corporate commercial paper remained a significant component of the
Portfolio, and, as always, we continued our high standards of security
selection.

     Looking ahead, we believe the Federal Reserve may push short-term
interest rates up a bit further if economic growth remains strong. As a
result, we intend to maintain our current strategy of favoring relatively
shorter-term money market securities. While it's impossible to predict when
interest rates will actually peak, any evidence suggesting that rates could
be ready to decline will prompt us to begin lengthening maturities in order
to achieve a high relative yield.

     Thank you for your interest in the Money Market Portfolio.

Sincerely,

Your Portfolio Management Team

/s/Robert T. Neff   /s/Nicca B. Alcantara
Robert T. Neff      Nicca B. Alcantara
Lead Portfolio Manager
<PAGE>

BOND PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION

Dear Shareholders,

     The Bond Portfolio's performance in 1994 reflected a year in which
interest rates rose persistently across the maturity spectrum. When
interest rates rise, bond prices decline, since existing bonds are deemed
less attractive than newly issued, higher-yielding securities. Rising
interest rates also resulted in a higher income stream for the Portfolio,
but it was not sufficient to offset the drop in share price experienced
during the year. Net asset value per share declined $0.94, from $7.42 at
the beginning of 1994 to $6.48 on December 31, 1994. The Portfolio also
distributed to shareholders income dividends totaling $0.425 per share and
a capital gain distribution of $0.172 per share. Combined, price changes
plus the distributions provided a -4.79% total return for the year ended
December 31, compared with -4.54% for the 24 corporate bond funds tracked
by Lipper Analytical Services, Inc., an independent firm that tracks
performance of variable annuity investment options.

     In the first half of the year, the portion of the Portfolio's holdings
in U.S. government obligations was increased from one third to over half
the portfolio in the face of rising interest rates. Later in the year,
however, this portion was decreased in favor of higher-yielding
mortgage-backed securities. Higher interest rates slowed the pace of
mortgage refinancings, which helped increase and stabilize the income
stream from these securities, making them more attractive holdings. We also
continued to focus on short- and long-term bonds. Quickly maturing
short-term bonds allow us to replace them with new higher-yielding debt
obligations, while providing some price stability. Longer-maturity holdings
generally provide higher relative income.

(CALLOUT NEXT TO THE PREVIOUS PARAGRAPH) - We increased our holdings of
mortgage-backed securities in the latter part of the year, while
maintaining our focus on both short- and long-term maturities.

     Looking ahead, we believe the Federal Reserve may continue to push
interest rates higher, although the Fed's six rate hikes in 1994 should
represent the bulk of the monetary tightening efforts. Moreover, the
economy is growing at a moderate pace (we believe a slowdown in growth is
possible in the latter half of 1995), and inflation appears under control--a
scenario that should keep interest rates from rising much beyond current
levels. As a result, we believe the Portfolio's mix of short- and long-term
income holdings positions us well for the year ahead.

Sincerely,

Your Portfolio Management Team

/s/Ruth Heisler          /s/Renee L. Ross
Ruth Heisler             Renee L. Ross
Lead Portfolio Manager

/s/William M. Hutchinson
William M. Hutchinson
<PAGE>
Bond Portfolio
Portfolio Summary as of December 31, 1994
-----------------------------------------------------------------
Growth of a $10,000 Investment
-----------------------------------------------------------------
Bond Portfolio
----------------------------------------
                     Total Return
  Period   Growth    -------------
   Ended     of               Average
12/31/94  $10,000  Cumulative  Annual
--------- -------  ----------  -------
1 Year    $ 9,521    -4.79%    -4.79%
5 Year    $14,552    45.52%     7.79%
Life of   
Fund*     $20,940   109.40%     8.12%

LB Aggregate Bond Index
--------------------------------------
                     Total Return
  Period   Growth    -------------
   Ended     of               Average
12/31/94  $10,000  Cumulative  Annual
--------- -------  ----------  -------
1 Year    $ 9,708    -2.92%    -2.92%
5 Year    $14,464    44.64%     7.66%
Life of  
Fund*     $23,376   133.76%     9.43%

*The Fund commenced operations on July 16, 1985.
Index comparisons begin July 31, 1985.

A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment. 
The data points from the graph are as follows:

Yearly periods ended December 31

Bond Portfolio
Year           Amount
---------------------
7/31/85*        10000
85              10737
86              12054
87              12201
88              12867
89              14366
90              15524
91              18258
92              19537
93              21956
94              20905

LB Aggregate Bond Index
Year            Amount
----------------------
7/31/85*        10000
85              11043
86              12729
87              13080
88              14111
89              16161
90              17610
91              20428
92              21940
93              24079
94              23376

The Lehman Brothers (LB) Aggregate Bond Index is an unmanaged market 
value-weighted measure of treasury issues, agency issues, corporate
bond issues and mortgage securities. Index returns assume reinvestment
of dividends and, unlike Fund returns, do not reflect any fees or
expenses.

All performance is historical, assumes reinvestment of all dividends
and capital gains, and is not indicative of future results. Investment
return and principal value will fluctuate, so an investor's shares, 
when redeemed, may be worth more or less than when purchased. Total
returns in some periods were higher due to maintenance of the Fund's
expenses. See Financial Highlights for the Bond Portfolio.


-------------------------------------------------------------------
ASSET QUALITY
-------------------------------------------------------------------
By Quality
-------------------
AAA             72%                       
AA               1%
A               19%             As rising interest rates slowed
BBB              4%             home-mortgage refinancings,
BB               2%             mortgage-backed securities provided
NR               2%             more dependable income and thus were
               ----             more attractive.
               100%      
               ====
-------------------
Average Quality: AAA

A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.

-------------------------------------------------------------------
MATURITY
-------------------------------------------------------------------
Less than 1 year        13%                       
1 < 3 years             31%
3 < 5 years              8%
5 < 10 years            15%
10 years or greater     33%
                       ----
                       100%
                       ====

Weighted average effective maturity: 8 years

-------------------------------------------------------------------
DIVERSIFICATION
-------------------------------------------------------------------
U.S. Treasury Obligations       49%
Corporate Bonds                 17%
Asset-Backed Securities         13%
U.S. Government Guaranteed
  Mortgages                      8%
Foreign Bonds                    8%
U.S. Government Agency
  Pass-Thrus                     3%
Collateralized Mortgage
  Obligations                    2%
                               ----
                               100%
                               ====

<PAGE>
BALANCED PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION

Dear Shareholders,

     The Balanced Portfolio posted a total return of -2.05% for the year
ended December 31, 1994, compared with a 2.19% return on average for the 18
balanced funds tracked by Lipper Analytical Services, Inc. Lipper is an
independent firm that tracks performance of variable annuity investment
options. The Portfolio's loss reflected a period in which bond prices
declined across all maturities. Stock prices also experienced volatility
through much of the year. Stocks, as measured by the unmanaged S&P 500
Index, returned just 1.32% in 1994, while the unmanaged Lehman Brothers
Aggregate Bond Index declined 2.92%.

(CALLOUT NEXT TO THE PREVIOUS PARAGRAPH) - The Portfolio benefited from
healthcare-related stock holdings and increased exposure to mortgage-backed
securities in the latter part of 1994.

     One of the most significant factors affecting the investment markets
in 1994 was the Federal Reserve's repeated increases in the federal funds
rate. These actions accelerated a trend of higher interest rates that had
begun in October 1993, when signs of stronger economic growth began to fuel
fears of rising inflation. Rising interest rates took their toll on bond
prices as inflation-wary investors demanded higher yields from long-term
debt instruments. Stock prices suffered because of the potentially negative
earnings impact of higher corporate borrowing costs and a slower economy.

     The Balanced Portfolio seeks to provide a balance of growth and income
by investing in both quality stocks and fixed-income securities. As of
December 31, 62% of the portfolio was invested in stocks, 31% in
fixed-income securities, and the remainder in cash.

     Recently, the Portfolio benefited from its healthcare-related stock
holdings, including Schering-Plough, United Healthcare, and Eli Lilly. Many
healthcare companies have improved their competitive positions through
alliances, acquisitions, and restructurings. These actions, plus the fact
that no federal healthcare bill was passed in 1994, helped boost prices of
well-positioned healthcare companies. Meanwhile, as the near-term outlook
for some emerging economies became less certain, we completely sold our
holdings in Compania de Telefonos de Chile, Telefonos de Mexico, and Hong
Kong Telecommunications at a profit.

     Bond holdings were adjusted in the latter months of 1994 by increasing
the Portfolio's percentage of mortgage-backed securities. Rising interest
rates slowed home refinancings, which made income from these securities
more stable.

     While some slowing in economic growth is likely later in the year, low
inflation and the longer-term expansion of the global economy should
continue to benefit both stocks and bonds.

     Importantly, as of January 1995, the Portfolio's management team
consists of Lead Portfolio Manager Bruce F. Beaty along with William F.
Gadsden, Renee L. Ross, and Ruth Heisler. Howard Ward, who had served as
Lead Portfolio Manager, has left Scudder. We thank him for his
contributions and wish him well in the future.

Sincerely,

Your Portfolio Management Team

/s/Bruce F. Beaty   /s/Ruth Heisler
Bruce F. Beaty      Ruth Heisler
Lead Portfolio Manager

/s/Renee L. Ross    /s/William F. Gadsden
Renee L. Ross       William F. Gadsden
<PAGE>
Balanced Portfolio
Portfolio Summary as of December 31, 1994
-----------------------------------------------------------------
Growth of a $10,000 Investment
-----------------------------------------------------------------
Balanced Portfolio
----------------------------------------
                     Total Return
  Period   Growth    -------------
   Ended     of               Average
12/31/94  $10,000  Cumulative  Annual
--------- -------  ----------  -------
1 Year    $ 9,795    -2.05%    -2.05%
5 Year    $14,016    40.16%     6.99%
Life of   
Fund*     $24,677   146.77%    10.02%

S&P 500 Index (60%) and LBAB Index (40%)
--------------------------------------
                     Total Return
  Period   Growth    -------------
   Ended     of               Average
12/31/94  $10,000  Cumulative  Annual
--------- -------  ----------  -------
1 Year    $ 9,997    -0.03%    -0.03%
5 Year    $14,946    49.46%     8.36%
Life of  
Fund*     $29,132   191.32%    12.02%

*The Fund commenced operations on July 16, 1985.
Index comparisons begin July 31, 1985.

A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment. 
The data points from the graph are as follows:

Yearly periods ended December 31

Balanced Portfolio
Year           Amount
---------------------
7/31/85*        10000
85              11318
86              13209
87              12988
88              14833
89              17725
90              17385
91              22067
92              23604
93              25363
94              24843

S&P 500 Index
Year            Amount
----------------------
7/31/85*        10000
85              11257
86              13358
87              14059
88              16394
89              21589
90              20919
91              27292
92              29371
93              32331
94              32758

LBAB Index
Year            Amount
----------------------
7/31/85*        10000
85              11043
86              12729
87              13080
88              14111
89              16161
90              17610
91              20428
92              21940
93              24079
94              23376

The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-
weighted measure of 500 widely held common stocks listed on the New
York Stock Exchange, American Stock Exchange, and Over-The-Counter
market and The Lehman Brothers Aggregate Bond (LBAB) Index is an
unmanaged market value-weighted measure of treasury issues, agency
issues, corporate bond issues and mortgage securities. Index returns 
assume reinvestment of dividends and, unlike Fund returns, do not 
reflect any fees or expenses.

All performance is historical, assumes reinvestment of all dividends
and capital gains, and is not indicative of future results. Investment
return and principal value will fluctuate, so an investor's shares, 
when redeemed, may be worth more or less than when purchased. Total
returns in some periods were higher due to maintenance of the Fund's
expenses. See Financial Highlights for the Balanced Portfolio. The
Balanced Portfolio, with its current name and investment objective, 
commenced operations on May 1, 1993. Performance figures include the
performance of its predecessor, the Managed Diversified Portfolio.
Since adopting its current objectives, the cumulative and average
annual returns are 4.96% and 2.94%, respectively.


-------------------------------------------------------------------
EQUITY HOLDINGS
-------------------------------------------------------------------
Sector breakdown of the          Five Largest Equity Holdings 
Portfolio's equity holdings      -----------------------------------
                                 1. General Electric Co. 
Consumer Staples        16%           Leading producer of electrical     
Financial               12%           equipment 
Health                  11%      2. American Telephone & Telegraph Co.
Technology              10%           Telecommunication services and 
Durables                 9%           business systems 
Media                    9%      3. Mellon Bank Corp.                           
Manufacturing            9%           Commercial banking and                    
Energy                   8%           financial services                       
Consumer Discretionary   7%      4. PepsiCo Inc. 
Other                    9%           Soft drinks, snack foods and 
                       ----           food services 
                       100%      5. Motorola Inc.
                       ====           Manufacturer of semiconductors  
                                      and communication products  
                                
                                     
                                     

-------------------------------------------------------------------
FIXED INCOME HOLDINGS
-------------------------------------------------------------------
By Asset Type                       
--------------------------------------------
U.S. Treasury Obligations                31%
Corporate Bonds                          22%
Cash Equivalents                         19%
Asset-Backed Securities                  11%
U.S. Gov't Guaranteed Mortgages           6%
U.S. Government Agency Pass-Thrus         5%
Foreign Bonds                             4%
Collateralized Mortgage Obligations       2%
                                        ----
                                        100%
                                        ====
By Quality
--------------------------------------------
AAA                                      69%
AA                                        3%
A                                        13%
BBB                                      12%
BB                                        2%
NR                                        1%
                                        ----
                                        100%
                                        ====

<PAGE>
GROWTH AND INCOME PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION

Dear Shareholders,

     Growth and Income Portfolio commenced operations on May 2, 1994. In
the eight months through December 31, 1994, the Portfolio's total return
was 4.91%, outpacing the 3.98% return of the unmanaged Standard & Poor's
500 Index for the same period.

     The Portfolio seeks long-term growth of capital, current income, and
growth of income by investing primarily in common stocks, preferred stocks,
and securities convertible into common stocks. Our disciplined investment
approach focuses on stocks that pay higher-than-average dividends (at least
20% above the market average) and have good prospects for earnings and
dividend growth.

(CALLOUT NEXT TO THE PREVIOUS PARAGRAPH) - During the period, Growth and
Income Portfolio took gains in some economically sensitive stocks and
invested the proceeds in select growth stocks such as consumer-staple
companies.

     The S&P 500's flat return masked no less than six rallies and
corrections. Much of the volatility reflected investors' alternating views
that the economic expansion would be choked off by persistently rising
interest rates, or, conversely, that higher rates reflected a stronger,
more inflation-prone economy.

     The positive return of the Portfolio in this environment resulted from
some gratifying successes. Still, some of the strategies that initially
worked to our advantage began to work against us later in the year. Most
significant was the overweighted position in manufacturing stocks (16% of
the equity portfolio versus 13% of the S&P 500). This group generally
outperformed the market during the first part of the year. However, by the
fourth quarter, manufacturing stocks became the biggest detractors of
portfolio performance, as investor's fears of an imminent economic slowdown
came to the fore.

     We expect investment challenges to continue in the new year. However,
we believe well-positioned manufacturing companies will prosper in the
current global growth environment despite their recent underperformance,
while financial stocks are in a position to benefit from eventual stability
or even declines in interest rates. We are also investing in
consumer-staple companies that have embarked upon new strategies to succeed
in an era of intense competition, price cutting, inventory reductions, and
the growth of private labels. Recent additions include Philip Morris,
Heinz, and Tambrands.

     Our aim in managing the Portfolio is to participate during periods of
rising equity prices while shielding the Portfolio from turbulent markets.
We believe the Portfolio remains positioned to provide exposure to the
long-term benefits of the equity market, while our emphasis on
high-yielding stocks should help provide a measure of price stability.

Sincerely,

Your Portfolio Management Team

/s/Robert T. Hoffman     /s/Kathleen T. Millard
Robert T. Hoffman        Kathleen T. Millard
Lead Portfolio Manager

/s/Benjamin W. Thorndike
Benjamin W. Thorndike
<PAGE>
Growth and Income Portfolio
Portfolio Summary as of December 31, 1994
-----------------------------------------------------------------
Growth of a $10,000 Investment
-----------------------------------------------------------------
Growth and Income Portfolio
----------------------------------------
                     Total Return
  Period   Growth    -------------
   Ended     of               Average
12/31/94  $10,000  Cumulative  Annual
--------- -------  ----------  -------
Life of   
Fund*     $10,491     4.91%      --%

S&P 500 Index
--------------------------------------
                     Total Return
  Period   Growth    -------------
   Ended     of               Average
12/31/94  $10,000  Cumulative  Annual
--------- -------  ----------  -------
Life of  
Fund*     $10,398     3.98%      --%

*The Fund commenced operations on May 2, 1994.

A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment. 
The data points from the graph are as follows:

Growth and Income Portfolio
Year           Amount
---------------------
5/2/94*         10000
5/94            10250
6/94            10100
7/94            10317
8/94            10883
9/94            10750
10/94           10776
11/94           10340
12/94           10491

S&P 500 Index
Year            Amount
----------------------
5/2/94*         10000
5/94            10164
6/94             9915
7/94            10241
8/94            10660
9/94            10400
10/94           10633
11/94           10246
12/94           10398

The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-
weighted measure of 500 widely held common stocks listed on the New
York Stock Exchange, American Stock Exchange, and Over-The-Counter
market. Index returns assume reinvestment of dividends and, unlike 
Fund returns, do not reflect any fees or expenses.

All performance is historical, assumes reinvestment of all dividends
and capital gains, and is not indicative of future results. Investment
return and principal value will fluctuate, so an investor's shares, 
when redeemed, may be worth more or less than when purchased. Total
returns were higher due to maintenance of the Fund's expenses. See 
Financial Highlights for the Growth and Income Portfolio.






-------------------------------------------------------------------
DIVERSIFICATION
-------------------------------------------------------------------
Equity Securities       90%               
Cash Equivalents        10%
                       ----       
                       100%      
                       ====

A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.

Sector breakdown of the Portfolio's equity holdings

Manufacturing           16%
Financial               14%
Health                  13%        Growth and Income Portfolio has
Energy                  11%        increased its focus on consumer-
Consumer Staples         9%        staples companies that stand to
Durables                 9%        benefit despite the industry's
Communications           5%        intense competition, price-
Consumer Discretionary   4%        cutting, and the growth of private
Utilities                3%        labels.
Other                    6%
                       ----       
                        90%      
                       ====

--------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS
--------------------------------------------------------------------------
 1. United Technologies Corp.
        Aerospace, climate control systems and elevators
 2. Eli Lilly Co.
        Leading pharmaceutical company
 3. Baxter International Inc.
        Manufacturer and distributor of hospital and laboratory
        products and services
 4. Alltel Corp.
        Telecommunications and data processing services
 5. Warner-Lambert Co.
        Drugs, toiletries and food products
 6. First Bank System Inc.
        Commercial banking in Minnesota and the northcentral U.S.
 7. Xerox Corp.
        Leading manufacturer of copiers and duplicators
 8. Boise Cascade Corp.
        Manufacturer of forest products
 9. Meditrust SBI (REIT)
        Owner of health care facilities
10. Murphy Oil Corp.
        International integrated oil company

<PAGE>
CAPITAL GROWTH PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION

Dear Shareholders,

     Two major trends influenced the stock market during much of 1994:
strong economic activity and persistently rising interest rates, due in
part to monetary tightening by the Federal Reserve. The struggle between
these opposing forces caused considerable unease among investors, and stock
prices were volatile throughout the year. In this environment, Capital
Growth Portfolio's net asset value per share declined to $12.23 on December
31, 1994, from $14.95 on December 31, 1993. However, the price change was
offset somewhat by $0.05 per share in income dividends and $1.31 per share
in capital gains distributions. The Portfolio recorded a -9.67% total
return for the year, compared with 1.32% for the unmanaged Standard &
Poor's 500 Index, and a -1.00% return for the 70 growth funds tracked by
Lipper Analytical Services, Inc. Lipper is an independent firm that tracks
performance of variable annuity investment options.

(CALLOUT NEXT TO THE PREVIOUS PARAGRAPH) - Capital Growth Portfolio is
positioned for 1995 with holdings that include cable, retail,
telecommunications, entertainment, healthcare, and financial stocks.

     The Portfolio's performance trailed the Index in part because of its
holdings in the cable and retail industries. Cable stocks dropped due to
renewed FCC regulation of basic cable rates and the collapse of some
high-profile mergers. In addition, some retail holdings suffered in
anticipation of disappointing Christmas sales. Looking forward, the cable
industry should benefit from an improved regulatory environment, new
opportunities from substantially increased channel capacity, and
prospective joint ventures and mergers.

     Several major developments influenced the domestic portion of the
Portfolio during the year. ITT proposed the acquisition of Caesar's World,
which we later sold at a substantial profit. We purchased United
Healthcare, U.S. HealthCare, and Baxter International in light of the
improved outlook for the healthcare industry and these companies in
particular. And the Portfolio's financial holdings were increased through
the purchase of AMBAC and MBIA, two municipal-bond insurers.

     The Portfolio's investment in foreign stocks increased during the year
in part through the purchase of ENDESA, a leading Spanish utility company.
We also added to our holdings in Nokia, a rapidly growing Finnish
manufacturer of cellular telephones. In late December, all Latin American
stock markets declined sharply following the devaluation of the Mexican
peso. We used this opportunity to purchase two of the largest telephone
companies in Argentina--Telefonica de Argentina and Telecom Argentina--as
well as Telespe, a Brazilian telephone company.

     Looking forward, we believe the market's overall valuation remains
reasonable, given 1994's rise in corporate earnings and our expectation for
further earnings gains in 1995. We are also encouraged by the moderate
outlook for U.S. inflation and economic activity in the new year. In view
of these prospects, we believe the Portfolio is well positioned to benefit
shareholders over time.

Sincerely,

Your Portfolio Management Team

/s/William F. Gadsden    /s/Steven P. Aronoff
William F. Gadsden       Steven P. Aronoff
Lead Portfolio Manager

/s/Julia D. Cox
Julia D. Cox
<PAGE>
Capital Growth Portfolio
Portfolio Summary as of December 31, 1994
-----------------------------------------------------------------
Growth of a $10,000 Investment
-----------------------------------------------------------------
Capital Growth Portfolio
----------------------------------------
                     Total Return
  Period   Growth    -------------
   Ended     of               Average
12/31/94  $10,000  Cumulative  Annual
--------- -------  ----------  -------
1 Year    $ 9,033    -9.67%     -9.67%
5 Year    $15,008    50.08%      8.46%
Life of   
Fund*     $29,783   197.83%     12.22%

S&P 500 Index
--------------------------------------
                     Total Return
  Period   Growth    -------------
   Ended     of               Average
12/31/94  $10,000  Cumulative  Annual
--------- -------  ----------  -------
1 Year    $10,132     1.32%      1.32%
5 Year    $15,174    51.74%      8.69%
Life of  
Fund*     $32,758   227.58%     13.43%

*The Fund commenced operations on July 16, 1985.
Index comparisons begin July 31, 1985.

A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment. 
The data points from the graph are as follows:

Yearly Periods Ended December 31

Capital Growth Portfolio
Year           Amount
---------------------
7/31/85*        10000
85              11245
86              13752
87              13492
88              16469
89              20215
90              18708
91              26108
92              27785
93              33587
94              30339

S&P 500 Index
Year           Amount
---------------------
7/31/85*        10000
85              11257         
86              13358
87              14059
88              16394
89              21589
90              20919
91              27292
92              29371
93              32331
94              32758

The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-
weighted measure of 500 widely held common stocks listed on the New
York Stock Exchange, American Stock Exchange, and Over-The-Counter
market. Index returns assume reinvestment of dividends and, unlike 
Fund returns, do not reflect any fees or expenses.




All performance is historical, assumes reinvestment of all dividends
and capital gains, and is not indicative of future results. Investment
return and principal value will fluctuate, so an investor's shares, 
when redeemed, may be worth more or less than when purchased. Total
returns in some periods were higher due to maintenance of the Fund's 
expenses. See Financial Highlights for the Capital Growth Portfolio.

-------------------------------------------------------------------
DIVERSIFICATION
-------------------------------------------------------------------
Equity Securities       95%               
Cash Equivalents         5%
                       ----       
                       100%      
                       ====

A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.

Sector breakdown of the Portfolio's equity holdings

Media                   18%                       
Consumer Discretionary  15%        A proposed acquisition in the
Communications          12%        gaming industry and a major
Technology              10%        telecommunications merger benefited
Financial               10%        Capital Growth Portfolio.
Health                   7%
Durables                 7%
Utilities                4%
Energy                   4%
Other                    8%
                       ----       
                        95%      
                       ====

--------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS
--------------------------------------------------------------------------
 1. Time Warner Inc.
        Publishing, broadcasting, and video entertainment company
 2. Tele-Communications Inc.
        Cable TV systems and microwave services
 3. Comcast Corp.
        Cable TV, sound and telecommunication systems
 4. Rogers Communications Inc.
        Cable TV and cellular telephones in Canada
 5. Intel Corp.
        Semiconductor memory circuits
 6. Chrysler Corp.
        Leading automobile manufacturer
 7. American Telephone & Telegraph Co.
        Telecommunication services and business systems
 8. Century Telephone Enterprises
        Telecommunication services
 9. Astra AB
        Pharmaceutical company
10. Microsoft Corp.
        Computer operating systems software

<PAGE>
INTERNATIONAL PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION

Dear Shareholders,

     We are pleased to report relatively strong performance during a
troublesome year for the world's financial markets. For the 12 months ended
December 31, 1994, International Portfolio returned -0.85%. By comparison,
the unmanaged Morgan Stanley Capital International's Europe, Australia, the
Far East and Canada Index returned 7.36%, owing to its large exposure to
Japan compared with that of the Fund. During the year, the Japanese yen
surged against the U.S. dollar, while Japanese stocks also rallied. The
combination produced a U.S. dollar return of 20.7% for Japan, though other
Asian markets fell 16.1% on average. In Mexico, the December devaluation of
the peso caused market declines throughout Latin America, although the
effect on the Portfolio was limited. European and American markets ended
the year little changed.

(CALLOUT NEXT TO THE PREVIOUS PARAGRAPH) - During the year, we invested in
companies benefiting from the global economic expansion, including those
involved in the production and exploration of oil and natural gas.

     During the year, we sought and invested in companies benefiting from
heightened economic activity worldwide. In Germany, for example, the
industrial sector has made significant gains in competitiveness and
profitability and now appears to be leading the European economic recovery.
Germany's economic activity thus far has been driven by exports, and recent
additions to the portfolio include such exporters as Henkel, a household
detergent and adhesives producer; BASF, a diversified chemicals
manufacturer; and Volkswagen.

     We also maintained our focus on energy-related companies benefiting
from a jump in worldwide demand for oil and other raw materials. In view of
this trend, we added to our positions in oil and gas exploration and
production companies, including Ampol Exploration Ltd. in Australia and
Total SA in France.

     Also, we further reduced our holdings of Japanese retailers,
completely eliminating our position in Autobacs Seven Co., Ltd., once one
of our largest holdings. Concerns about sluggish consumer spending and
increased competition have dimmed our enthusiasm for Japanese retail
stocks. Our Japanese holdings now largely represent major exporting firms
like Canon and Hitachi, as well as capital goods companies that we believe
are positioned for global expansion and likely to benefit from a declining
yen.

     Given ongoing political and economic uncertainties in many parts of
the world, we will seek to use additional market volatility to our
advantage by purchasing fundamentally strong companies at discounted
prices.

Sincerely,

Your Portfolio Management Team

/s/Carol L. Franklin     /s/Nicholas Bratt
Carol L. Franklin        Nicholas Bratt
Lead Portfolio Manager
<PAGE>
International Portfolio
Portfolio Summary as of December 31, 1994
-----------------------------------------------------------------
Growth of a $10,000 Investment
-----------------------------------------------------------------
International Portfolio
----------------------------------------
                     Total Return
  Period   Growth    -------------
   Ended     of               Average
12/31/94  $10,000  Cumulative  Annual
--------- -------  ----------  -------
1 Year    $ 9,915     -.85%      -.85%
5 Year    $13,633    36.33%      6.39%
Life of   
Fund*     $19,595    95.95%      9.18%

MSCI EAFE & Canada Index
--------------------------------------
                     Total Return
  Period   Growth    -------------
   Ended     of               Average
12/31/94  $10,000  Cumulative  Annual
--------- -------  ----------  -------
1 Year    $10,736     7.36%      7.36%
5 Year    $10,730     7.30%      1.42%
Life of  
Fund*     $13,915    39.15%      4.45%

*The Fund commenced operations on May 1, 1987.
Index comparisons begin May 31, 1987.

A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment. 
The data points from the graph are as follows:

Yearly Periods Ended December 31

International Portfolio
Year           Amount
---------------------
5/31/87*        10000
87               8997
88              10502
89              14470
90              13363
91              14893
92              14433
93              19896
94              19727

MSCI EAFE & Canada Index
Year           Amount
---------------------
5/31/87*        10000
87               9138
88              11682
89              12968
90               9980
91              11186
92               9824
93              12961
94              13915

The Morgan Stanley Capital International (MSCI) Europe, Australia,
the Far East (EAFE) & Canada Index is an unmanaged capitalization-
weighted measure of stock markets in Europe, Australia, the Far East
and Canada. Index returns assume dividends reinvested net of
withholding tax and, unlike Fund returns, do not reflect any fees or
expenses.

All performance is historical, assumes reinvestment of all dividends
and capital gains, and is not indicative of future results. Investment
return and principal value will fluctuate, so an investor's shares, 
when redeemed, may be worth more or less than when purchased. Total
returns in some periods were higher due to maintenance of the Fund's 
expenses. See Financial Highlights for the International Portfolio.

-------------------------------------------------------------------
DIVERSIFICATION
-------------------------------------------------------------------
By Region (Excluding Cash Equivalents)
--------------------------------------
Europe                  50%               
Japan                   28%
Pacific Basin           14%
Latin America            5%
Canada                   3%
                       ----       
                       100%      
                       ====

A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
                       
By Asset Type                       
--------------------------------------
Equity Holdings         90%                       
Cash Equivalents        10%
                       ----       
                       100%      
                       ====

A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.

--------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS
--------------------------------------------------------------------------
 1. Autoliv AB
        Swedish manufacturer of safety airbags for automobiles
 2. SAP AG
        German computer software manufacturer
 3. Canon Inc.
        Leading Japanese producer of visual image and information
        equipment
 4. NGK Spark Plug Co., Ltd.
        Leading Japanese manufacturer of automotive spark plugs
 5. Kyocera Corp.
        Leading Japanese ceramic packaging manufacturer
 6. Sony Corp.
        Japanese consumer electronic products manufacturer
 7. Hitachi Ltd.
        Japanese general electronics manufacturer
 8. Hitachi Metals, Ltd.
        Major Japanese producer of high-quality specialty steels
 9. Outokumpu Oy
        Metals and minerals in Finland
10. Schering AG
        German pharmaceutical and chemical producer
<PAGE>

<TABLE>
MONEY MARKET PORTFOLIO
INVESTMENT PORTFOLIO as of December 31, 1994
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                               % of            Principal                                                                   Value ($)
                           Portfolio           Amount ($)                                                                   (Note A)
------------------------------------------------------------------------------------------------------------------------------------
<S>                            <C>              <C>           <C>                                                      <C>
                                                ------------------------------------------------------------------------------------
                                4.5%                     REPURCHASE AGREEMENT
                                                ------------------------------------------------------------------------------------
                                                4,030,000     Repurchase Agreement with Donaldson, Lufkin & Jenrette
                                                              dated 12/30/94 at 5.875%, to be repurchased at
                                                              $4,032,631 on 1/3/95, collateralized by a $4,074,000
                                                              U.S. Treasury Note, 6.25%, 8/31/96 (Cost $4,030,000). .     4,030,000
                                                                                                                       ------------ 
                                                ------------------------------------------------------------------------------------
                               48.1%                     COMMERCIAL PAPER
                                                ------------------------------------------------------------------------------------
CONSUMER STAPLES                3.3%

   Food & Beverage                              3,000,000     H.J. Heinz Co., 5.95%, 1/27/95 . . . . . . . . . . . .      2,987,108
                                                                                                                       ------------ 
 COMMUNICATIONS                 3.3%

   Telephone/
   Communications                               3,000,000     AT&T Corp., 6.02%, 2/8/95  . . . . . . . . . . . . . .      2,980,937
                                                                                                                       ------------ 
FINANCIAL                      34.7%

   Banks                        6.7%            3,000,000     Bankers Trust New York Corp., 5.08%, 1/13/95 . . . . .      2,994,920
                                                3,000,000     J.P. Morgan & Co., Inc., 6.05%, 3/1/95 . . . . . . . .      2,970,254
                                                                                                                       ------------ 
                                                                                                                          5,965,174
                                                                                                                       ------------ 
   Business Finance             3.3%            3,000,000     Receivables Capital Corp., 5.95%, 1/24/95  . . . . . .      2,988,596
                                                                                                                       ------------ 

   Consumer Finance             7.9%            3,000,000     American Express Credit Corp., 5.88%, 2/2/95 . . . . .      3,000,000
                                                4,000,000     General Electric Capital Corp., 5.78%, 1/31/95 . . . .      4,000,000
                                                                                                                       ------------ 
                                                                                                                          7,000,000
                                                                                                                       ------------ 
   Other Financial
   Companies                   16.8%            3,000,000     American General Finance Corp., 5.81%, 1/27/95 . . . .      3,000,000
                                                3,000,000     Associates Corp. of North America, 5.68%, 1/18/95  . .      3,000,000
                                                3,000,000     Corporate Asset Funding Co., 6.05%, 2/10/95  . . . . .      2,979,833
                                                3,000,000     New Center Asset Trust, 5.65%, 1/13/95 . . . . . . . .      2,994,350
                                                3,000,000     Rincon Securities Inc., 5.75%, 1/17/95 . . . . . . . .      2,992,333
                                                                                                                       ------------ 
                                                                                                                         14,966,516
                                                                                                                       ------------ 
DURABLES                        3.4%
  
   Construction/
   Agricultural Equipment                       3,000,000     John Deere Capital Corp., 5.78%, 1/24/95 . . . . . . .      3,000,000
                                                                                                                       ------------

MANUFACTURING                   3.4%

   Chemicals                                    3,000,000     E.I. du Pont de Nemours & Co., 5.9%, 1/24/95 . . . . .      2,988,692
                                                                                                                       ------------ 
                                                              TOTAL COMMERCIAL PAPER (Cost $42,877,023)  . . . . . .     42,877,023
                                                                                                                       ------------ 
                                                ------------------------------------------------------------------------------------
                               11.0%                     U.S. TREASURY OBLIGATIONS
                                                ------------------------------------------------------------------------------------
                                                5,000,000     U.S. Treasury Bill, 4.71%, 1/5/95  . . . . . . . . . .      4,997,383
                                                2,000,000     U.S. Treasury Bill, 3.41%, 1/12/95 . . . . . . . . . .      1,997,916
                                                3,000,000     U.S. Treasury Bill, 6.75%, 12/14/95  . . . . . . . . .      2,804,957
                                                                                                                       ------------ 
                                                              TOTAL U.S. TREASURY OBLIGATIONS  
                                                                (Cost $9,800,256). . . . . . . . . . . . . . . . . .      9,800,256
                                                                                                                       ------------ 
</TABLE>
The accompanying notes are an integral part of the financial statements.



<TABLE>
                                                                                                                INVESTMENT PORTFOLIO
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                               % of         Principal                                                                      Value ($)
                           Portfolio        Amount ($)                                                                      (Note A)
------------------------------------------------------------------------------------------------------------------------------------
<S>                            <C>           <C>           <C>                                                      <C>
                                             ---------------------------------------------------------------------------------------
                               36.4%                  U.S. GOVERNMENT AGENCY OBLIGATIONS
                                             ---------------------------------------------------------------------------------------

                                             5,000,000     Federal Farm Credit Bank, Discount Note, 5.6%, 1/4/95 . . .     4,997,667
                                             3,000,000     Federal Home Loan Bank, Discount Note, 4.93%, 1/13/95 . . .     2,995,070
                                             5,000,000     Federal Home Loan Mortgage Corp., Discount Note,
                                                             5.9%, 1/3/95  . . . . . . . . . . . . . . . . . . . . . .     4,998,361
                                             5,000,000     Federal Home Loan Mortgage Corp., Discount Note,
                                                             5.78%, 1/17/95  . . . . . . . . . . . . . . . . . . . . .     4,987,155
                                             5,000,000     Federal Home Loan Mortgage Corp., Discount Note,
                                                             5.62%, 1/23/95  . . . . . . . . . . . . . . . . . . . . .     4,982,828
                                             4,500,000     Federal Home Loan Mortgage Corp., Discount Note,
                                                             6.17%, 4/4/95 . . . . . . . . . . . . . . . . . . . . . .     4,428,274
                                             5,000,000     Federal National Mortgage Association Discount Note,
                                                             5.8%, 1/9/95  . . . . . . . . . . . . . . . . . . . . . .     4,993,556
                                                                                                                         -----------
                                                           TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
                                                             (Cost $32,382,911)  . . . . . . . . . . . . . . . . . . .    32,382,911
                                                                                                                         -----------
------------------------------------------------------------------------------------------------------------------------------------
                                            TOTAL INVESTMENT PORTFOLIO - 100% (Cost $89,090,190)(a)  . . . . . . . . .    89,090,190
                                                                                                                         ===========
------------------------------------------------------------------------------------------------------------------------------------
<FN>
                                            (a) Cost for federal income tax purposes is $89,090,190.
</FN>
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
MONEY MARKET PORTFOLIO
FINANCIAL STATEMENTS
------------------------------------------------------------------------------------------------
                      STATEMENT OF ASSETS AND LIABILITIES

<S>                                                                      <C>        <C>
DECEMBER 31, 1994
------------------------------------------------------------------------------------------------
ASSETS
Investments, at value (amortized cost $89,090,190) (Note A) . . . . .                $ 89,090,190
Cash  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                         890
Receivables:
   Portfolio shares sold  . . . . . . . . . . . . . . . . . . . . . .                   1,382,184
   Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                      61,037
                                                                                     ------------ 
      Total assets  . . . . . . . . . . . . . . . . . . . . . . . . .                  90,534,301
                                                                

LIABILITIES
Payables:
   Due to Adviser (Note B)  . . . . . . . . . . . . . . . . . . . . .    $  30,056
   Accrued expenses (Note B)  . . . . . . . . . . . . . . . . . . . .        6,333
                                                                         ---------
      Total liabilities . . . . . . . . . . . . . . . . . . . . . . .                      36,389
                                                                                     ------------
Net assets, at value  . . . . . . . . . . . . . . . . . . . . . . . .                $ 90,497,912
                                                                                     ============

NET ASSETS
Net assets consist of:
   Paid-in capital  . . . . . . . . . . . . . . . . . . . . . . . . .                  90,497,912
                                                                                     ------------
Net assets, at value  . . . . . . . . . . . . . . . . . . . . . . . .                $ 90,497,912
                                                                                     ============
NET ASSET VALUE, offering and redemption price per share
   ($90,497,912 -:- 90,497,912 outstanding shares of beneficial
   interest, no par value, unlimited number of shares authorized) . .                       $1.00
                                                                                            =====
</TABLE>

The accompanying notes are an integral part of the financial statements.


<PAGE>

<TABLE>
                                                                            FINANCIAL STATEMENTS
------------------------------------------------------------------------------------------------
                            STATEMENT OF OPERATIONS
<S>                                                                     <C>          <C>
YEAR ENDED DECEMBER 31, 1994
------------------------------------------------------------------------------------------------
INVESTMENT INCOME
   Interest . . . . . . . . . . . . . . . . . . . . . . . . . . .                    $ 3,175,974
   Expenses (Note A):
      Management fee (Note B) . . . . . . . . . . . . . . . . . .       $269,963
      Administrative fees (Note B)  . . . . . . . . . . . . . . .         40,297
      Accounting fees (Note B)  . . . . . . . . . . . . . . . . .         17,630
      Trustees' fees (Note B) . . . . . . . . . . . . . . . . . .          9,886
      Custodian fees  . . . . . . . . . . . . . . . . . . . . . .         21,111
      Federal registration  . . . . . . . . . . . . . . . . . . .         18,186
      Legal . . . . . . . . . . . . . . . . . . . . . . . . . . .         15,785
      Auditing  . . . . . . . . . . . . . . . . . . . . . . . . .          9,984
      Other . . . . . . . . . . . . . . . . . . . . . . . . . . .          4,641         407,483
                                                                        --------     -----------
   Net investment income  . . . . . . . . . . . . . . . . . . . .                      2,768,491
                                                                                     -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS  . . . . . .                    $ 2,768,491
                                                                                     ===========

</TABLE>

    The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
MONEY MARKET PORTFOLIO
--------------------------------------------------------------------------------------------------------------
                                STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                   YEARS ENDED DECEMBER 31,
                                                                                  -------------------------
INCREASE (DECREASE) IN NET ASSETS                                                  1994               1993   
--------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>               <C>                  
Operations:
   Net investment income and net increase in net assets
      resulting from operations . . . . . . . . . . . . . . . . .              $   2,768,491     $     899,874
                                                                               -------------     -------------
Distributions to shareholders from net investment income                     
   ($.037 and $.025 per share, respectively . . . . . . . . . . .                 (2,768,491)         (899,874)
                                                                               -------------     -------------
                                                                             
Portfolio share transactions at net asset value of $1.00 per share:                                            
   Proceeds from shares sold  . . . . . . . . . . . . . . . . . .                186,827,297        98,111,621
   Net asset value of shares issued to shareholders in                                                         
      reinvestment of distributions from net investment income  .                  2,768,491           899,874 
   Cost of shares redeemed  . . . . . . . . . . . . . . . . . . .               (147,877,533)      (83,950,201)
                                                                               -------------     ------------- 
   Net increase in net assets from Portfolio share transactions .                 41,718,255        15,061,294 
                                                                               -------------     ------------- 
INCREASE IN NET ASSETS  . . . . . . . . . . . . . . . . . . . . .                 41,718,255        15,061,294 
Net assets at beginning of period . . . . . . . . . . . . . . . .                 48,779,657        33,718,363 
                                                                               -------------     ------------- 
NET ASSETS AT END OF PERIOD . . . . . . . . . . . . . . . . . . .              $  90,497,912     $  48,779,657 
                                                                               =============     ============= 
                                                                               
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
                                                                                                FINANCIAL HIGHLIGHTS

THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS. 
<CAPTION>
                                                                                                  SIX       FOR THE PERIOD
                                                                                                 MONTHS      JULY 16, 1985
                                                                                                 ENDED      (COMMENCEMENT)
                                                   YEARS ENDED DECEMBER 31,                     DECEMBER     OF OPERATIONS)  
                                 -------------------------------------------------------------      31,        TO JUNE 30,
                                 1994    1993    1992    1991    1990    1989   1988      1987    1986(e)          1986
                                 -------------------------------------------------------------  ----------   --------------

<S>                             <C>     <C>     <C>     <C>   <C>     <C>     <C>     <C>       <C>           <C>
Net asset value,
 beginning of period. . . .     $1.000  $1.000  $1.000  $1.000  $1.000  $1.000  $1.000  $1.000    $1.000        $1.000(b)
                                ------  ------  ------  ------  ------  ------  ------  ------    ------        ------
Income from investment
 operations:
 Net investment
   income (a) . . . . . . .       .037    .025    .033    .057    .076    .088    .068    .060      .026          .064
Less distributions from
 net investment income  . .      (.037)  (.025)  (.033)  (.057)  (.076)  (.088)  (.068)  (.060)    (.026)        (.064)
                                ------  ------  ------  ------  ------  ------  ------  ------    ------        ------
Net asset value,
 end of period  . . . . . .     $1.000  $1.000  $1.000  $1.000  $1.000  $1.000  $1.000  $1.000    $1.000        $1.000
                                ======  ======  ======  ======  ======  ======  ======  ======    ======        ======
TOTAL RETURN (%)  . . . . .       3.72    2.54    3.33    5.81    7.83    8.84    7.08    5.95      2.59(d)       6.59(d)
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
 period ($ millions). . . .         90      49      34      28      32      15      11       8         3            --
Ratio of operating
 expenses, net to
 average daily net
 assets (%) (a)   . . . . .        .56     .66     .64     .67     .69     .72     .75     .75       .75(c)        .60(c)
Ratio of net investment
 income to average
 daily net assets (%) . . .       3.80    2.55    3.26    5.67    7.57    8.53    6.99    6.06      5.10(c)       6.75(c)
(a) Portion of expenses
    reimbursed
    (Note B)  . . . . . . .     $   --  $   --  $   --  $   --  $   -- $  .001  $ .003  $ .006    $ .022        $ .133

<FN>
(b) Original capital
(c) Annualized
(d) Not annualized
(e) On August 22, 1986, the Trustees voted to change the year end of the Fund from June 30 to December 31.
</FN>
</TABLE>

The accompanying notes are an integral part of the financial statements.


<PAGE>

<TABLE>
BOND PORTFOLIO
INVESTMENT PORTFOLIO as of December 31, 1994
----------------------------------------------------------------------------------------------
<CAPTION>
  % of         Principal                                                              Market
Portfolio     Amount ($)                                                             Value ($)
----------------------------------------------------------------------------------------------
<S>        <C>                                                                      <C>
48.7%       U.S. TREASURY OBLIGATIONS
          ------------------------------------------------------------------------------------
            3,230,000   U.S. Treasury Bill, 5.78%, 5/18/95  . . . . . . . . .        3,156,582  
            4,200,000   U.S. Treasury Bond, 7.25%, 5/15/16  . . . . . . . . .        3,883,698  
            4,520,000   U.S. Treasury Bond, 7.875%, 2/15/21   . . . . . . . .        4,463,500  
            4,360,000   U.S. Treasury Note, 3.875%, 10/31/95  . . . . . . . .        4,245,550  
           13,555,000   U.S. Treasury Note, 4%, 1/31/96   . . . . . . . . . .       13,086,946  
            9,110,000   U.S. Treasury Note, 5.125%, 3/31/96   . . . . . . . .        8,855,193  
            8,510,000   U.S. Treasury Note, 6%, 6/30/96   . . . . . . . . . .        8,326,524  
            6,905,000   U.S. Treasury Note, 6.875%, 7/31/99   . . . . . . . .        6,646,063  
            3,200,000   U.S. Treasury Note, 7.25%, 5/15/04  . . . . . . . . .        3,072,992  
            8,100,000   U.S. Treasury Separate Trading Registered Interest                      
                          and Principal Securities, 11/15/09 (8.04**) . . . .        2,507,841  
           12,700,000   U.S. Treasury Separate Trading Registered Interest                     
                          and Principal Securities, 11/15/10 (8.05**) . . . .        3,628,263  
           18,740,000   U.S. Treasury Separate Trading Registered Interest                     
                         and Principal Securities, 2/15/12 (8.07**) . . . . .        4,837,918  
            8,050,000   U.S. Treasury Separate Trading Registered Interest                      
                         and Principal Securities, 5/15/15 (8.09**) . . . . .        1,600,984
                                                                                   -----------   
                        TOTAL U.S. TREASURY OBLIGATIONS (Cost $70,751,577)  .       68,312,054
                                                                                   -----------
          ------------------------------------------------------------------------------------
8.3%      U.S. GOV'T GUARANTEED MORTGAGES
          ------------------------------------------------------------------------------------
          9,077,233    Government National Mortgage Association, 8%, 7/15/24*  . .   8,677,199
          3,266,168    Government National Mortgage Association, 6.5%, 8/15/08*  .   2,984,461
                                                                                   -----------  
                       TOTAL U.S. GOV'T GUARANTEED MORTGAGES
                          (Cost $12,203,049)  . . . . . . . . . . . . . . . . . .   11,661,660
                                                                                   -----------
          ------------------------------------------------------------------------------------
3.3%      U.S. GOVERNMENT AGENCY PASS-THRUS
          ------------------------------------------------------------------------------------
          4,976,332    Federal National Mortgage Association, 7.5%, 10/1/24*
                          (Cost $4,731,404) . . . . . . . . . . . . . . . . . . .   4,646,651
                                                                                   ----------
          ------------------------------------------------------------------------------------
1.7%      COLLATERALIZED MORTGAGE OBLIGATIONS
          ------------------------------------------------------------------------------------
          2,000,000   Federal Home Loan Mortgage Corp., REMIC, 7%, 7/15/06  . . .   1,835,620
            272,776   Federal National Mortgage Association, REMIC,
                        8.5%, 4/25/18   . . . . . . . . . . . . . . . . . . . . .     273,883
            220,406   Resolution Trust Corp., Series 1992-7, Class A-2B,
                        8.35%, 6/25/29  . . . . . . . . . . . . . . . . . . . . .     219,821
                                                                                   ----------
                      TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
                      (Cost $2,321,803) . . . . . . . . . . . . . . . . . . . . .   2,329,324
                                                                                   ----------
          -----------------------------------------------------------------------------------
8.2%      FOREIGN BONDS - U.S. $ DENOMINATED
          -----------------------------------------------------------------------------------
          1,000,000   ABN-AMRO Bank NV, 7.75%, 5/15/23  . . . . . . . . . . . . .     891,990
          1,500,000   Banco Nacional de Comercio Exterior SNC, 9.875%, 6/24/96  .   1,462,500
            750,000   Fomento Economico Mexicano S.A., 9.5%, 7/22/97  . . . . . .     671,250
          1,000,000   Government of Malaysia, 9.875%, 9/27/00   . . . . . . . . .   1,058,350
          1,000,000   Gruma SA de C.V., 9.75%, 3/9/98   . . . . . . . . . . . . .     915,000
          2,000,000   Kingdom of Thailand, 8.25%, 3/15/02   . . . . . . . . . . .   1,963,240
          2,000,000   Korea Development Bank, 9.6%, 12/1/00   . . . .  .  . . . .   2,070,620
            450,000   Nacional Financiera SNC, 6%, 12/19/96   . . . . . . . . . .     409,500
            400,000   Nacional Financiera SNC, 9.375%, 7/15/02  . . . . . . . . .     338,000
          1,000,000   Nippon Telegraph & Telephone Corp., 9.5%, 7/27/98   . . . .   1,038,660
            750,000   Petroleos Mexicanos, 8.25%, 2/4/98  . . . . . . . . . . . .     680,625
                                                                                   ----------
                      TOTAL FOREIGN BONDS - U.S. $ DENOMINATED
                        (Cost $11,930,619)  . . . . . . . . . . . . . . . . . . .  11,499,735
                                                                                   ----------
</TABLE>

The accompanying notes are an integral part of the financial statements.


<PAGE>

<TABLE>
                                                            INVESTMENT PORTFOLIO
-----------------------------------------------------------------------------------------------------------------------
<CAPTION>
                              % of     Principal                                                               Market
                           Portfolio    Amount ($)                                                            Value ($)
-----------------------------------------------------------------------------------------------------------------------
                             13.0%    ASSET-BACKED SECURITIES
                                      ---------------------------------------------------------------------------------
<S>                           <C>     <C>                                                                    <C>
AUTOMOBILE RECEIVABLES        0.7%    1,000,000   Premier Auto Trust, Series 1994-3, 6.8%, 12/2/99   . .  .     972,500
                                                                                                             ----------
CREDIT CARD RECEIVABLES       9.2%    1,500,000   Chase Manhattan Credit Card Trust, 1991 "A", 7.65%,
                                                    11/15/98 . . . . . . . . . . . . . . . . . . . . . .  .   1,497,645
                                      3,000,000   Discover Credit Card Trust, Series 1992-A, 5.5%,
                                                    5/16/98   . . . . . . . . . . . . . . . . . . . . . . .   2,941,860
                                      1,000,000   First Chicago Master Trust, Series 1991-D, 8.4%, 6/15/98    1,003,120
                                      3,500,000   First USA Credit Corp., Series 1992-A, 5.2%, 6/15/98  . .   3,387,335
                                      2,500,000   Standard Credit Card Trust, Series 1990-3B, 9.85%,
                                                    7/10/97 . . . . .. . . . . . . . . . . . . . . . . . .    2,575,000
                                      1,500,000   Standard Credit Card Trust, Series 1990-6B, 9.625%,
                                                    9/10/97 . . . . . . . . . . . . . . . .  . . . . . . .    1,540,770
                                                                                                             ---------- 
                                                                                                             12,945,730
                                                                                                             ----------
HOME EQUITY LOANS             1.9%    2,000,000   Contimortgage Home Equity Loan Trust, Series 1994-5 A1,
                                                    9.07%, 5/15/06 . . . . . . . . . . . . . . . . . . . .    2,011,250
                                        668,573   United Companies Financial Corp., Home Loan Trust,
                                                    Series 1993 B1, 6.075%, 7/25/14*  . . . . . . . . . .       617,803
                                                                                                             ----------
                                                                                                              2,629,053
                                                                                                             ---------- 
MANUFACTURED HOUSING
RECEIVABLES                   1.2%    1,757,845   Green Tree Financial Corp., Securitized Series 1994B,
                                                    7.85%, 7/15/04*  . . . . . . . . . . . . . .  . . . .     1,713,899
                                                                                                             ----------
                                                  TOTAL ASSET-BACKED SECURITIES (Cost $18,967,489)  . . .    18,261,182
                                                                                                             ----------
                                      ---------------------------------------------------------------------------------
                             16.8%    CORPORATE BONDS
                                      ---------------------------------------------------------------------------------
CONSUMER DISCRETIONARY       1.4%     2,000,000   Dayton Hudson Corp., 8.6%, 1/15/12   . . . . . . . . . .    1,979,160
                                                                                                             ----------
CONSUMER STAPLES             0.7%     1,000,000   Seagram & Sons Inc., 9%, 8/15/21   . . . . . . . . . . .    1,020,450
                                                                                                             ----------
FINANCIAL                    3.5%     1,000,000   Banc One Corp., 8.74%, 9/15/03   . . . . . . . . . . . .    1,012,830
                                      1,000,000   BankAmerica Corp., 7.75%, 7/15/02   . . . . . .  . . . .      949,950
                                      1,000,000   Golden West Financial Corp., 6%, 10/1/03  . . .  . . . .      843,890
                                      1,000,000   Grand Metropolitan Investment Corp., 8.625%, 8/15/01 . .    1,006,640
                                      1,000,000   Household Finance Corp., 9.25%, 2/15/95   . . .  . . . .    1,003,080
                                                                                                             ----------
                                                                                                              4,816,390
                                                                                                             ----------

MEDIA                        1.3%     2,000,000   Time Warner Inc., 9.125%, 1/15/13  . . . . . . . . . . .    1,801,880
                                                                                                             ----------
DURABLES                     2.1%       750,000   Caterpillar Inc., 9.75%, 6/1/19  . . . . . . . . . . . .      792,105
                                      5,000,000   General Motors Acceptance Corp., Zero Coupon, 12/1/12. .    1,095,450
                                      1,000,000   Lockheed Corp., 9%, 1/15/22  . . . . . . . . . . . . . .    1,023,790
                                                                                                             ---------- 
                                                                                                              2,911,345
                                                                                                             ---------- 
MANUFACTURING                2.2%     1,000,000   ARCO Chemical Co., 9.375%, 12/15/05  . . . . . . . . . .    1,045,140
                                      1,000,000   Dow Chemical Co., 9%, 5/15/10   . . . . . . . .  . . . .    1,014,920
                                      1,000,000   Monsanto Co., 8.7%, 10/15/21 . . . . . . . . . . . . . .    1,006,170
                                                                                                             ----------
                                                                                                              3,066,230
                                                                                                             ----------
TECHNOLOGY                   1.3%     2,000,000   Loral Corp., 8.375%, 6/15/24   . . . . . . . . . . . . .    1,848,560
                                                                                                             ----------
ENERGY                       3.6%     2,000,000   Atlantic Richfield Co., 8.25%, 2/1/22  . . . . . . . . .    1,925,000
                                      2,000,000   Atlantic Richfield Co., 9.125%, 8/1/31   . . . . . . . .    2,070,860
                                      1,000,000   Enron Corp., 10%, 6/1/98   . . . . . . . . . . . . . . .    1,037,900
                                                                                                             ----------
                                                                                                              5,033,760
                                                                                                              ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
        

<PAGE>

<TABLE>
BOND PORTFOLIO
----------------------------------------------------------------------------------------------------------------
<CAPTION>
                              % of       Principal                                                       Market
                           Portfolio    Amount ($)                                                     Value ($)
----------------------------------------------------------------------------------------------------------------
<S>                          <C>        <C>                                                          <C>
METALS AND MINERALS          0.7%       1,000,000   Alcan Aluminum Ltd., 9.4%, 6/1/95  . . . . . .     1,009,380
                                                                                                     -----------
                                                    TOTAL CORPORATE BONDS (Cost $24,059,681) . . .    23,487,155
                                                                                                     -----------
----------------------------------------------------------------------------------------------------------------
                                                    TOTAL INVESTMENT PORTFOLIO -- 100.0%
                                                      (Cost $144,965,622)(a) . . . . . . . . . . .   140,197,761
                                                                                                     ===========
----------------------------------------------------------------------------------------------------------------
<FN>
*    Effective maturities will be shorter due to amortization and prepayments.
**   Yield; bond equivalent yield to maturity; not a coupon rate (unaudited).
(a)  At December 31, 1994, the net unrealized depreciation on investments based on cost for federal
     income tax purposes of $145,233,462 was as follows: 

     Aggregate gross unrealized appreciation for all investments in which there is an excess 
     of market value over tax cost  . . . . . . . . . . . . . . . . . . . . . . . . . . . .      $    311,092 
     Aggregate gross unrealized depreciation for all investments in which there is an excess
     of tax cost over market value . . . . . . . . . . . . . . . . . .  . . . . . . . . . .        (5,346,793)
                                                                                                 ------------
     Net unrealized depreciation . . . . . . . . . . . . . . . . . . . . . . . . . .  . . .      $ (5,035,701)
                                                                                                 ============
-------------------------------------------------------------------------------------------------------------
     At December 31, 1994, the Bond Portfolio had a net tax basis capital loss carryforward of approximately
     $4,153,327, which may be applied against any realized net taxable capital gains of each succeeding year
     until fully utilized or until December 31, 2002, whichever occurs first.  
-------------------------------------------------------------------------------------------------------------
     From November 1, 1994 through December 31, 1994, the Bond Portfolio incurred approximately $934,894 of
     net realized capital losses which the Portfolio intends to elect to defer and treat as arising in the 
     fiscal year ended December 31, 1995.
-------------------------------------------------------------------------------------------------------------
     Purchases and sales of investment securities (excluding short-term investments and U.S. Government
     securities),  for the year ended December 31, 1994, aggregated $26,330,691 and $28,463,557, 
     respectively.  Purchases and sales of U.S. Government securities for the year ended December 31, 1994,
     aggregated $127,013,697 and $98,526,029, respectively.

</FN>
</TABLE>

The accompanying notes are an integral part of the financial statements.


<PAGE>


<TABLE>
    
                                                                            FINANCIAL STATEMENTS
------------------------------------------------------------------------------------------------ 
<CAPTION>
                      STATEMENT OF ASSETS AND LIABILITIES                                      

------------------------------------------------------------------------------------------------
DECEMBER 31, 1994                                                                              
------------------------------------------------------------------------------------------------
<S>                                                                    <C>          <C>          
ASSETS                                                                                         
Investments, at market (identified cost $144,965,622) (Note A)  . .                 $140,197,761
Receivables:                                                                                   
   Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . .                    2,288,634
   Investments sold . . . . . . . . . . . . . . . . . . . . . . . .                      716,464
   Portfolio shares sold  . . . . . . . . . . . . . . . . . . . . .                       49,355
                                                                                    ------------
     Total assets   . . . . . . . . . . . . . . . . . . . . . . . .                  143,252,214

LIABILITIES                                                                                    
Payables:                                                                                      
   Due to custodian bank  . . . . . . . . . . . . . . . . . . . . .       $  2,424             
   Investments purchased  . . . . . . . . . . . . . . . . . . . . .        736,188             
   Portfolio shares redeemed  . . . . . . . . . . . . . . . . . . .         29,285             
   Due to Adviser (Note B)  . . . . . . . . . . . . . . . . . . . .         60,086             
   Accrued expenses (Note B)  . . . . . . . . . . . . . . . . . . .         19,619             
                                                                          --------             
      Total liabilities . . . . . . . . . . . . . . . . . . . . . .                      847,602
                                                                                    ------------
Net assets, at market value . . . . . . . . . . . . . . . . . . . .                 $142,404,612
                                                                                    ============
NET ASSETS                                                                                     
Net assets consist of:                                                                         
   Undistributed net investment income  . . . . . . . . . . . . . .                 $  2,188,157
   Net unrealized depreciation on investments . . . . . . . . . . .                   (4,767,861)
   Accumulated net realized loss  . . . . . . . . . . . . . . . . .                   (5,356,061)
   Paid-in capital  . . . . . . . . . . . . . . . . . . . . . . . .                  150,340,377
                                                                                    ------------
Net assets, at market value . . . . . . . . . . . . . . . . . . . .                 $142,404,612
                                                                                    ============
                                                                                               
NET ASSET VALUE, offering and redemption price per share                                       
   ($142,404,612 -:- 21,973,579 outstanding shares of beneficial                                    
   interest, no par value, unlimited number of shares authorized) .                        $6.48
                                                                                           =====
                                                                                               
                                                                               
</TABLE>                                                                      
                                                                              
       The accompanying notes are an integral part of the financial statements.
                                                                                



<PAGE>


<TABLE>
BOND PORTFOLIO
---------------------------------------------------------------------------------------------------
<CAPTION>
                                      STATEMENT OF OPERATIONS

<S>                                                                      <C>           <C>
YEAR ENDED DECEMBER 31, 1994
---------------------------------------------------------------------------------------------------
INVESTMENT INCOME
   Interest . . . . . . . . . . . . . . . . . . . . . . . . . . .                      $  9,603,254
   Expenses (Note A):
      Management fee (Note B) . . . . . . . . . . . . . . . . . .        $ 650,361
      Administrative fees (Note B)  . . . . . . . . . . . . . . .           40,238
      Accounting fees (Note B)  . . . . . . . . . . . . . . . . .           22,187
      Trustees' fees (Note B) . . . . . . . . . . . . . . . . . .           10,111
      Custodian fees  . . . . . . . . . . . . . . . . . . . . . .           32,442
      Auditing  . . . . . . . . . . . . . . . . . . . . . . . . .           14,153
      Legal . . . . . . . . . . . . . . . . . . . . . . . . . . .            5,717
      Other . . . . . . . . . . . . . . . . . . . . . . . . . . .           21,757          796,966
                                                                        ----------     ------------
   Net investment income  . . . . . . . . . . . . . . . . . . . .                         8,806,288
                                                                                       ------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
   Net realized loss from:
      Investments . . . . . . . . . . . . . . . . . . . . . . . .       (5,510,934)
      Foreign currency related transactions . . . . . . . . . . .          (96,214)      (5,607,148)
                                                                        ----------
   Net unrealized appreciation (depreciation) during the period on:
      Investments . . . . . . . . . . . . . . . . . . . . . . . .       (9,676,517)
      Foreign currency related transactions . . . . . . . . . . .            3,936       (9,672,581)
                                                                        ----------     ------------
   Net loss on investment transactions  . . . . . . . . . . . . .                       (15,279,729)
                                                                                       ------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS  . . . . . .                      $ (6,473,441)
                                                                                       =============



</TABLE>


        The accompanying notes are an integral part of the financial statements.




<PAGE>

<TABLE>
                                                                                            FINANCIAL STATEMENTS
----------------------------------------------------------------------------------------------------------------

                                 STATEMENTS OF CHANGES IN NET ASSETS
----------------------------------------------------------------------------------------------------------------

                                                                                      YEARS ENDED DECEMBER 31,
                                                                              ----------------------------------
INCREASE (DECREASE) IN NET ASSETS                                                      1994           1993
----------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>              <C>
Operations:
   Net investment income  . . . . . . . . . . . . . . . . . . . . . . . . . .     $   8,806,288    $   7,642,963
   Net realized gain (loss) from investment transactions  . . . . . . . . . .        (5,607,148)       3,118,124
   Net unrealized appreciation (depreciation) on investment
      transactions during the period  . . . . . . . . . . . . . . . . . . . .        (9,672,581)       2,512,942
                                                                                  -------------    -------------
Net increase (decrease) in net assets resulting from operations . . . . . . .        (6,473,441)      13,274,029
                                                                                  -------------    -------------
Distributions to shareholders from:
   Net investment income ($.43 and $.48 per share, respectively)  . . . . . .        (8,525,294)      (7,359,412)
                                                                                  -------------    -------------
   Net realized gain from investment transactions
      ($.17 and $.15 per share, respectively) . . . . . . . . . . . . . . . .        (3,161,229)      (2,268,442)
                                                                                  -------------    -------------
Portfolio share transactions:
   Proceeds from shares sold  . . . . . . . . . . . . . . . . . . . . . . . .        86,578,280       60,028,541
   Net asset value of shares issued to shareholders in
      reinvestment of distributions . . . . . . . . . . . . . . . . . . . . .        11,686,523        9,627,854
   Cost of shares redeemed  . . . . . . . . . . . . . . . . . . . . . . . . .       (66,398,542)     (57,355,192)
                                                                                  -------------    -------------
Net increase in net assets from Portfolio share transactions  . . . . . . . .        31,866,261       12,301,203
                                                                                  -------------    -------------
INCREASE IN NET ASSETS  . . . . . . . . . . . . . . . . . . . . . . . . . . .        13,706,297       15,947,378
Net assets at beginning of period . . . . . . . . . . . . . . . . . . . . . .       128,698,315      112,750,937
                                                                                  -------------    -------------
NET ASSETS AT END OF PERIOD (including undistributed net investment
   income of $2,188,157 and $2,203,911, respectively) . . . . . . . . . . . .     $ 142,404,612    $ 128,698,315
                                                                                  =============    =============
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
Shares outstanding at beginning of period   . . . . . . . . . . . . . . . . .        17,350,092       15,685,339
                                                                                  -------------    -------------
   Shares sold  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        12,843,292        8,119,378
   Shares issued to shareholders in reinvestment of distributions . . . . . .         1,713,654        1,324,202
   Shares redeemed  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        (9,933,459)      (7,778,827)
                                                                                  -------------    -------------
   Net increase in Portfolio shares . . . . . . . . . . . . . . . . . . . . .         4,623,487        1,664,753
                                                                                  -------------    -------------
Shares outstanding at end of period . . . . . . . . . . . . . . . . . . . . .        21,973,579       17,350,092
                                                                                  =============    =============
</TABLE>




The accompanying notes are an integral part of the financial statements.


<PAGE>

<TABLE>
BOND PORTFOLIO
FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD AND OTHER
PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.                                             

                                                                                                           SIX       FOR THE PERIOD
                                                                                                         MONTHS      JULY 16, 1985
                                                                                                          ENDED     (COMMENCEMENT
                                                              YEARS ENDED DECEMBER 31, (E)              DECEMBER     OF OPERATIONS
                               -----------------------------------------------------------------------     31,        TO JUNE 30,
                                   1994     1993     1992     1991     1990     1989     1988     1987  1986(e)(f)       1986
                                 ---------------------------------------------------------------------  ----------  ---------------
<S>                              <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>       <C>          <C>
Net asset value,
   beginning of period . . .     $ 7.42   $ 7.19   $ 7.37   $ 6.73   $ 6.72   $ 6.39   $ 6.47   $ 6.67    $ 6.56       $ 6.00(b)
                                 ------   ------   ------   ------   ------   ------   ------   ------    ------       ------ 
Income from investment
 operations:
   Net investment
    income (a)   . . . . . .        .43      .48      .49      .52      .53      .54      .54      .49       .23          .45
   Net realized and
    unrealized gain
    (loss) on
    investment
    transactions . . . . . .       (.77)     .38     (.02)     .61     (.02)     .18     (.19)    (.40)      .08          .44
                                 ------   ------   ------   ------   ------   ------   ------   ------    ------       ------ 
Total from investment
 operations  . . . . . . . .       (.34)     .86      .47     1.13      .51      .72      .35      .09       .31          .89
                                 ------   ------   ------   ------   ------   ------   ------   ------    ------       ------ 
Less distributions from:
 Net investment income . . .       (.43)    (.48)    (.46)    (.47)    (.50)    (.39)    (.43)    (.29)     (.17)        (.33)
 Net realized gains on
   on investment
   transactions  . . . . . .       (.17)    (.15)    (.19)    (.02)      --       --       --       --      (.03)          --
                                 ------   ------   ------   ------   ------   ------   ------   ------    ------       ------ 
Total distributions  . . . .       (.60)    (.63)    (.65)    (.49)    (.50)    (.39)    (.43)    (.29)     (.20)        (.33)
                                 ------   ------   ------   ------   ------   ------   ------   ------    ------       ------ 
Net asset value,
 end of period   . . . . . .     $ 6.48   $ 7.42   $ 7.19   $ 7.37   $ 6.73   $ 6.72   $ 6.39   $ 6.47    $ 6.67       $ 6.56
                                 ======   ======   ======   ======   ======   ======   ======   ======    ======       ======
TOTAL RETURN (%) . . . . . .      (4.79)   12.38     7.01    17.61     8.06    11.65     5.46     1.22      4.90(d)     15.11(d)
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
 period ($ millions) . . . .        142      129      113       74       42       22        3        3         1           --
Ratio of operating
 expenses, net to
 average net
 assets (%) (a)  . . . . . .        .58      .61      .63      .69      .73      .75      .75      .75       .75(c)       .60(c)
Ratio of net investment
 income to average
 net assets (%)  . . . . . .       6.43     6.59     6.89     7.51     8.05     8.04     7.86     7.53      6.88(c)      7.48(c)
Portfolio turnover
 rate (%)  . . . . . . . . .      96.55   125.15    87.00   115.86    71.02   103.41   245.23   186.05     23.82(c)      6.27(c)
<FN>
(a) Portion of expenses
   reimbursed (Note B) . . .     $   --   $   --   $   --   $   --   $   --   $  .01   $  .04   $  .08    $  .21       $  .80
(b) Original capital
(c) Annualized
(d) Not annualized
(e) Per share amounts, for each of the periods identified, have been calculated using the monthly average shares outstanding 
    during the period method.
(f) On August 22, 1986, the Trustees voted to change the year end of the Fund from June 30 to December 31.
</FN>
</TABLE>

<PAGE>

<TABLE>
                                                                                                             BALANCED PORTFOLIO
                                                                                   INVESTMENT PORTFOLIO as of December 31, 1994
-------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                           % of       Principal                                                                        Market
                         Portfolio    Amount ($)                                                                      Value ($)
-------------------------------------------------------------------------------------------------------------------------------
<S>                          <C>        <C>         <C>                                                              <C>
                              3.9%               REPURCHASE AGREEMENT
                                        ---------------------------------------------------------------------------------------
                                        1,810,000   Repurchase Agreement with Donaldson, Lufkin &
                                                    Jenrette dated 12/30/94 at 5.875%, to be repurchased
                                                    at $1,811,182 on 1/3/95, collateralized by a $1,871,000
                                                    U.S. Treasury Note, 4.25%, 11/30/95 (Cost $1,810,000) . . . .     1,810,000
                                                                                                                     ----------
                                        ---------------------------------------------------------------------------------------
                              3.3%               COMMERCIAL PAPER
                                        ---------------------------------------------------------------------------------------

                                        1,500,000   American Express Credit Corp., 5.755%, 1/3/95
                                                    (Cost $1,500,000)   . . . . . . . . . . . . . . . . . . . . .     1,500,000
                                                                                                                     ----------
                                        ---------------------------------------------------------------------------------------
                             11.7%               U.S. TREASURY OBLIGATIONS
                                        ---------------------------------------------------------------------------------------

                                          700,000   U.S. Treasury Bill, 5.78%, 5/18/95    . . . . . . . . . . . .       684,089
                                          340,000   U.S. Treasury Bond, 7.875%, 2/15/21   . . . . . . . . . . . .       335,750
                                          300,000   U.S. Treasury Bond, 8.125%, 5/15/21   . . . . . . . . . . . .       304,782
                                          300,000   U.S. Treasury Note, 4.125%, 6/30/95   . . . . . . . . . . . .       296,484
                                          550,000   U.S. Treasury Note, 5.125%, 3/31/96   . . . . . . . . . . . .       534,616
                                          300,000   U.S. Treasury Note, 6%, 6/30/96   . . . . . . . . . . . . . .       293,532
                                          900,000   U.S. Treasury Note, 5.25%, 7/31/98  . . . . . . . . . . . . .       828,000
                                          600,000   U.S. Treasury Note, 5.875%, 3/31/99   . . . . . . . . . . . .       557,436
                                          500,000   U.S. Treasury Note, 7.25%, 5/15/04  . . . . . . . . . . . . .       480,155
                                          940,000   U.S. Treasury Separate Trading Registered Interest and
                                                      Principal Securities, 11/15/09 (8.04**) . . . . . . . . . .       291,033
                                        1,300,000   U.S. Treasury Separate Trading Registered Interest and
                                                      Principal Securities, 11/15/10 (8.05**) . . . . . . . . . .       371,397
                                        1,460,000   U.S. Treasury Separate Trading Registered Interest and
                                                      Principal Securities, 2/15/12 (8.07**)  . . . . . . . . . .       376,914
                                                                                                                     ----------

                                                    TOTAL U.S. TREASURY OBLIGATIONS (Cost $5,549,036)   . . . . .     5,354,188
                                                                                                                     ----------
                                        ---------------------------------------------------------------------------------------
                              2.2%               U.S. GOV'T GUARANTEED MORTGAGES
                                        ---------------------------------------------------------------------------------------

                                          504,253   Government National Mortgage Association, 8%, 10/15/24(a) . .       482,030
                                          535,899   Government National Mortgage Association, 8.75%,
                                                      12/15/24(a) . . . . . . . . . . . . . . . . . . . . . . . .       523,841
                                                                                                                     ----------
                                                    TOTAL U.S. GOV'T GUARANTEED MORTGAGES (Cost $999,135)   . . .     1,005,871
                                                                                                                     ----------
                                        ---------------------------------------------------------------------------------------
                              2.1%               U.S. GOVERNMENT AGENCY PASS-THRUS
                                        ---------------------------------------------------------------------------------------

                                          497,633   Federal National Mortgage Association, 7.5%, 10/1/24(a) . . .       464,665
                                          494,944   Federal National Mortgage Association, 9%, 10/1/24(a) . . . .       497,419
                                                                                                                     ----------
                                                    TOTAL U.S. GOVERNMENT AGENCY PASS-THRUS
                                                      (Cost $976,204) . . . . . . . . . . . . . . . . . . . . . .       962,084
                                                                                                                     ----------
                                        ---------------------------------------------------------------------------------------
                              0.7%               COLLATERALIZED MORTGAGE OBLIGATIONS
                                        ---------------------------------------------------------------------------------------

                                          272,776   Federal National Mortgage Association, REMIC,
                                                      8.5%, 4/25/18 . . . . . . . . . . . . . . . . . . . . . . .       273,883
                                           55,101   Resolution Trust Corp., Series 1992-7, Class A-2B,
                                                      8.35%, 6/25/29  . . . . . . . . . . . . . . . . . . . . . .        54,955
                                                                                                                     ----------
                                                    TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $319,229) . .       328,838
                                                                                                                     ----------
                                        ---------------------------------------------------------------------------------------
                              1.5%               FOREIGN BONDS - U.S. $ DENOMINATED
                                        ---------------------------------------------------------------------------------------

                                          250,000   ABN-AMRO Bank NV, 7.75%, 5/15/23  . . . . . . . . . . . . . .       222,997
                                          250,000   Fomento Economico Mexicano S.A., 9.5%, 7/22/97  . . . . . . .       223,750


</TABLE>
        The accompanying notes are an integral part of the financial statements.






<PAGE>

<TABLE>
BALANCED PORTFOLIO
-------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
                              % of       Principal                                                                    Market
                           Portfolio    Amount ($)                                                                   Value ($)
-------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>       <C>                                                                          <C>
                                        265,000   Petroleos Mexicanos, 8.25%, 2/4/98  . . . . . . . . . . . . . .       240,487
                                                                                                                     ----------

                                                  TOTAL FOREIGN BONDS - U.S. $ DENOMINATED
                                                    (Cost $750,280) . . . . . . . . . . . . . . . . . . . . . . .       687,234
                                                                                                                     ----------
                                        ---------------------------------------------------------------------------------------
                              4.1%             ASSET-BACKED SECURITIES
                                        ---------------------------------------------------------------------------------------
AUTOMOBILE RECEIVABLES        0.5%
                                        250,000   Premier Auto Trust, Series 1994-3, 6.8%, 12/2/99  . . . . . . .       243,125
                                                                                                                     ----------
CREDIT CARD RECEIVABLES       2.7%
                                        250,000   Chase Manhattan Credit Card Trust, 1991 "A",
                                                    7.65%, 11/15/98 . . . . . . . . . . . . . . . . . . . . . . .       249,607
                                        250,000   Discover Credit Card Trust, Series 1992-A, 5.5%, 5/16/98  . . .       245,155
                                        250,000   First Chicago Master Trust, Series 1991-D, 8.4%, 6/15/98  . . .       250,780
                                        250,000   First USA Credit Corp., Series 1992-A, 5.2%, 6/15/98  . . . . .       241,952
                                        250,000   Standard Credit Card Trust, Series 1990-6B, 9.625%, 9/10/97 . .       256,795
                                                                                                                     ----------
                                                                                                                      1,244,289
                                                                                                                     ----------
HOME EQUITY LOANS             0.9%
                                        250,000   Contimortgage Home Equity Loan Trust, Series 1994-5 A1,
                                                    9.07%, 5/15/06  . . . . . . . . . . . . . . . . . . . . . . .       251,406
                                        167,143   United Companies Financial Corp., Home Loan Trust,
                                                    Series 1993 B1, 6.075%, 7/25/14(a)  . . . . . . . . . . . . .       154,451
                                                                                                                     ----------
                                                                                                                        405,857
                                                                                                                     ----------
                                                  TOTAL ASSET-BACKED SECURITIES (Cost $1,946,600) . . . . . . . .     1,893,271
                                                                                                                     ----------
                                        ---------------------------------------------------------------------------------------
                              8.3%             CORPORATE BONDS
                                        ---------------------------------------------------------------------------------------

CONSUMER STAPLES              0.4%
                                        250,000   Seagram Ltd., 6.875%, 9/1/23  . . . . . . . . . . . . . . . . .       200,600
                                                                                                                     ----------
MEDIA                         2.0%
                                        500,000   News America Holdings Inc., 9.25%, 2/1/13   . . . . . . . . . .       486,385
                                        500,000   Time Warner Inc., 9.125%, 1/15/13   . . . . . . . . . . . . . .       450,470
                                                                                                                     ----------
                                                                                                                        936,855
                                                                                                                     ----------
DURABLES                      1.6%
                                        500,000   Caterpillar Inc., 8%, 2/15/23   . . . . . . . . . . . . . . . .       465,920
                                        250,000   Lockheed Corp., 9%, 1/15/22   . . . . . . . . . . . . . . . . .       255,947
                                                                                                                     ----------
                                                                                                                        721,867
                                                                                                                     ----------
MANUFACTURING                 0.6%
                                        250,000   Corning Inc., 8.75%, 7/15/99  . . . . . . . . . . . . . . . . .       250,892
                                                                                                                     ----------
TECHNOLOGY                    1.0%
                                        500,000   Loral Corp., 8.375%, 6/15/24  . . . . . . . . . . . . . . . . .       462,140
                                                                                                                     ----------
ENERGY                        1.6%
                                        500,000   Atlantic Richfield Co., 8.25%, 2/1/22   . . . . . . . . . . . .       481,250
                                        250,000   Enron Corp., 10%, 6/1/98  . . . . . . . . . . . . . . . . . . .       259,475
                                                                                                                     ----------
                                                                                                                        740,725
                                                                                                                     ----------
METALS AND MINERALS           0.6%
                                        250,000   Alcan Aluminum Ltd., 9.4%, 6/1/95   . . . . . . . . . . . . . .       252,345
                                                                                                                     ----------
UTILITIES                     0.5%
                                        250,000   Commonwealth Edison Co., 9.05%, 10/15/99  . . . . . . . . . . .       244,942
                                                                                                                     ----------
                                                  TOTAL CORPORATE BONDS (Cost $4,011,595)   . . . . . . . . . . .     3,810,366
                                                                                                                     ----------
</TABLE>
       The accompanying notes are an integral part of the financial statements.




<PAGE>

<TABLE>
                                                                                             INVESTMENT PORTFOLIO
-----------------------------------------------------------------------------------------------------------------
<CAPTION>
                                 % of                                                                    Market
                              Portfolio     Shares                                                      Value ($)
-----------------------------------------------------------------------------------------------------------------
<S>                              <C>        <C>      <C>                                               <C>
                                 62.2%            COMMON STOCKS
-----------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY            4.1%

        Department &
        Chain Stores              2.9%      12,466   Home Depot, Inc.  . . . . . . . . . . . . . . .      573,436
                                             3,300   J.C. Penney Inc.  . . . . . . . . . . . . . . .      147,263
                                            16,000   Wal-Mart Stores Inc.  . . . . . . . . . . . . .      340,000
                                             6,500   Walgreen Co.  . . . . . . . . . . . . . . . . .      284,375
                                                                                                       ----------
                                                                                                        1,345,074
                                                                                                       ----------
        Restaurants               0.8%      13,000   McDonald's Corp.  . . . . . . . . . . . . . . .      380,250
                                                                                                       ----------
        Specialty Retail          0.4%       5,900   Toys "R" Us Inc.* . . . . . . . . . . . . . . .      179,950
                                                                                                       ----------

CONSUMER STAPLES                  9.8%

        Consumer Electronic &
        Photographic Products     0.8%       4,200   Duracell International Inc.   . . . . . . . . .      182,175
                                             4,100   Whirlpool Corp.   . . . . . . . . . . . . . . .      206,025
                                                                                                       ----------
                                                                                                          388,200
                                                                                                       ----------
        Food & Beverage           6.6%       8,800   Albertson's Inc.  . . . . . . . . . . . . . . .      255,200
                                             8,500   CPC International Inc.  . . . . . . . . . . . .      452,625
                                            11,000   ConAgra Inc.  . . . . . . . . . . . . . . . . .      343,750
                                             9,100   General Mills, Inc.   . . . . . . . . . . . . .      518,700
                                             5,000   Kellogg Co.   . . . . . . . . . . . . . . . . .      290,625
                                            19,500   PepsiCo Inc.  . . . . . . . . . . . . . . . . .      706,875
                                            17,600   Sara Lee Corp.  . . . . . . . . . . . . . . . .      444,400
                                                                                                       ----------
                                                                                                        3,012,175
                                                                                                       ----------
        Package Goods/
        Cosmetics                 2.4%       5,000   Colgate-Palmolive Co.   . . . . . . . . . . . .      316,875
                                             3,000   Gillette Co.    . . . . . . . . . . . . . . . .      224,250
                                             9,100   Procter & Gamble Co.    . . . . . . . . . . . .      564,200
                                                                                                       ----------
                                                                                                        1,105,325
                                                                                                       ----------
HEALTH                            7.0%

        Health Industry Services  0.7%       3,000   U.S. HealthCare, Inc.   . . . . . . . . . . . .      123,750
                                             3,700   United Healthcare Corp.   . . . . . . . . . . .      166,963
                                                                                                       ----------
                                                                                                          290,713
                                                                                                       ----------
        Hospital Management       1.1%      14,000   Columbia/HCA Healthcare Corp.  . . . . . . . . .     511,000
                                                                                                       ----------
        Pharmaceuticals           5.2%       6,600   Abbott Laboratories  . . . . . . . . . . . . . .     215,325
                                             9,500   Baxter International Inc.  . . . . . . . . . . .     268,375
                                             9,200   Eli Lilly Co.  . . . . . . . . . . . . . . . . .     603,750
                                             2,900   Johnson & Johnson  . . . . . . . . . . . . . . .     158,775
                                             8,000   Schering-Plough Corp.  . . . . . . . . . . . . .     592,000
                                             7,200   Warner-Lambert Co.     . . . . . . . . . . . . .     554,400
                                                                                                       ----------
                                                                                                        2,392,625
                                                                                                       ----------
COMMUNICATIONS                    2.0%

        Cellular Telephone        0.3%       4,300   AirTouch Communications, Inc.*   . . . . . . . .     125,237
                                                                                                       ----------
        Telephone/
        Communications            1.7%      15,500   American Telephone & Telegraph Co.   . . . . . .     778,875
                                                                                                       ----------


</TABLE>

        The accompanying notes are an integral part of the financial statements.




<PAGE>

<TABLE>
BALANCED PORTFOLIO
-----------------------------------------------------------------------------------------------------------------

<CAPTION>
                               % of                                                                      Market
                            Portfolio       Shares                                                      Value ($)
-----------------------------------------------------------------------------------------------------------------
<S>                              <C>        <C>      <C>                                               <C>      
FINANCIAL                        7.4%
                                                                                                      
        Banks                    3.9%        8,830   Banc One Corp.  . . . . . . . . . . . . . . . .      224,061
                                            24,450   Mellon Bank Corp.   . . . . . . . . . . . . . .      748,781
                                            17,300   Norwest Corp.   . . . . . . . . . . . . . . . .      404,388
                                            15,100   State Street Boston Corp.   . . . . . . . . . .      432,238
                                                                                                       ---------- 
                                                                                                        1,809,468
                                                                                                       ---------- 
        Insurance                2.4%        5,500   American International Group, Inc.  . . . . . .      539,000
                                             6,000   EXEL, Ltd.  . . . . . . . . . . . . . . . . . .      237,000
                                             5,700   MBIA Inc.   . . . . . . . . . . . . . . . . . .      319,913
                                                                                                       ---------- 
                                                                                                        1,095,913
                                                                                                       ---------- 
        Other Financial
        Companies                1.1%        7,000   Federal National Mortgage Association . . . . .      510,125
                                                                                                       ---------- 

MEDIA                            5.6%

        Advertising              0.7%        9,500   Interpublic Group of Companies Inc.   . . . . .     305,188
                                                                                                       ---------- 
        Broadcasting &
        Entertainment            3.8%        5,300   CBS Inc.  . . . . . . . . . . . . . . . . . . .      293,487
                                             3,600   Capital Cities/ABC Inc.   . . . . . . . . . . .      306,900
                                             9,000   Time Warner Inc.  . . . . . . . . . . . . . . .      316,125
                                             8,400   Turner Broadcasting System Inc. "B"   . . . . .      137,550
                                             7,000   Viacom Inc. "B"*  . . . . . . . . . . . . . . .      284,375
                                             9,100   Walt Disney Co.   . . . . . . . . . . . . . . .      419,737
                                                                                                       ---------- 
                                                                                                        1,758,174
                                                                                                       ---------- 
        Cable Television         0.8%        7,000   Comcast Corp. "A" . . . . . . . . . . . . . . .      109,812
                                            12,000   Tele-Communications Inc. "A"*   . . . . . . . .      261,000
                                                                                                       ---------- 
                                                                                                          370,812
                                                                                                       ---------- 
        Print Media              0.3%        2,800   News Corp. Ltd. (ADR) . . . . . . . . . . . . .       38,850
                                             5,600   News Corp. Ltd. (ADR) (New(b))  . . . . . . . .       87,500
                                                                                                       ---------- 
                                                                                                          126,350
                                                                                                       ---------- 

SERVICE INDUSTRIES               2.1%
        EDP Services             1.5%        6,000   Automatic Data Processing, Inc.   . . . . . . .      351,000
                                             3,500   First Data Corp.  . . . . . . . . . . . . . . .      165,813
                                             4,400   General Motors Corp. "E"  . . . . . . . . . . .      169,400
                                                                                                       ---------- 
                                                                                                          686,213
                                                                                                       ---------- 
        Miscellaneous
        Commercial Services      0.4%        6,800   Sysco Corp. . . . . . . . . . . . . . . . . . .      175,100
                                                                                                       ---------- 
        Printing/Publishing      0.2%        2,300   Reuters Holdings PLC "B" (ADR)  . . . . . . . .      100,913
                                                                                                       ---------- 

DURABLES                         5.6%

        Aerospace                0.6%        5,500   Boeing Co.  . . . . . . . . . . . . . . . . . .      257,125
                                                                                                       ---------- 
        Automobiles              1.8%        7,000   Chrysler Corp.  . . . . . . . . . . . . . . . .      343,000
                                            10,400   Ford Motor Co.  . . . . . . . . . . . . . . . .      291,200
                                             5,400   Magna International, Inc. "A"   . . . . . . . .      207,225
                                                                                                       ---------- 
                                                                                                          841,425
                                                                                                       ---------- 
        Construction/
        Agricultural Equipment   1.3%        6,200   Caterpillar Inc.  . . . . . . . . . . . . . . .      341,775
                                             4,000   Deere & Co.   . . . . . . . . . . . . . . . . .      265,000
                                                                                                       ---------- 
                                                                                                          606,775
                                                                                                       ---------- 


</TABLE>

       The accompanying notes are an integral part of the financial statements.




<PAGE>

<TABLE>
                                                                                             INVESTMENT PORTFOLIO
-----------------------------------------------------------------------------------------------------------------
<CAPTION>
                               % of                                                                      Market   
                            Portfolio       Shares                                                      Value ($)
-----------------------------------------------------------------------------------------------------------------
<S>     <C>                      <C>        <C>      <C>                                               <C>
        Telecommunications
        Equipment                1.5%        5,700   L.M. Ericsson Telephone Co. "B" (ADR) . . . . .      314,213
                                             5,300   Nokia AB Oy (ADR)   . . . . . . . . . . . . . .      397,500
                                                                                                       ----------
                                                                                                          711,713
                                                                                                       ----------
        Tires                    0.4%        7,300   Cooper Tire & Rubber Co.  . . . . . . . . . . .      172,462
                                                                                                       ----------

MANUFACTURING                    5.6%

        Diversified
        Manufacturing            3.7%        4,300   Dover Corp.     . . . . . . . . . . . . . . . .      221,988
                                            17,200   General Electric Co.  . . . . . . . . . . . . .      877,200
                                             8,500   Minnesota Mining & Manufacturing Co.  . . . . .      453,688
                                             2,000   TRW Inc.  . . . . . . . . . . . . . . . . . . .      132,000
                                                                                                       ----------
                                                                                                        1,684,876
                                                                                                       ----------
        Electrical Products      1.2%        4,200   ASEA AB (ADR) . . . . . . . . . . . . . . . . .      302,925
                                             4,000   Emerson Electric Co.  . . . . . . . . . . . . .      250,000
                                                                                                       ----------
                                                                                                          552,925
                                                                                                       ----------
        Machinery/Components/
        Controls                 0.7%        7,000   Parker-Hannifin Group  . . . . . . . . . . . . .     318,500
                                                                                                       ----------

TECHNOLOGY                       6.3%

        Computer Software        0.9%        3,600   Microsoft Corp.*  . . . . . . . . . . . . . . .      220,050
                                             2,300   Oracle Systems Corp.*   . . . . . . . . . . . .      101,488
                                             2,200   Sybase Inc.*  . . . . . . . . . . . . . . . . .      114,400
                                                                                                       ----------
                                                                                                          435,938
                                                                                                       ----------
        Diverse Electronic
        Products                 2.4%       13,200   General Motors Corp. "H"  . . . . . . . . . . .      460,350
                                            11,500   Motorola Inc.   . . . . . . . . . . . . . . . .      665,563
                                                                                                       ----------
                                                                                                        1,125,913
                                                                                                       ----------
        Electronic Components/
        Distributors             0.2%        2,500   Molex Inc. Class A  . . . . . . . . . . . . . .       77,500
                                                                                                       ----------
        Electronic Data
        Processing               1.4%        6,000   Compaq Computers Corp.* . . . . . . . . . . . .      237,000
                                             3,900   Hewlett-Packard Co.   . . . . . . . . . . . . .      389,513
                                                                                                       ----------
                                                                                                          626,513
                                                                                                       ----------
        Office/Plant
        Automation               0.3%        3,600   Cisco Systems, Inc.*  . . . . . . . . . . . . .      126,450
                                                                                                       ----------
        Semiconductors           1.1%        3,100   Intel Corp.   . . . . . . . . . . . . . . . . .      198,013
                                             3,800   Texas Instruments Inc.  . . . . . . . . . . . .      284,525
                                                                                                       ----------
                                                                                                          482,538
                                                                                                       ----------
ENERGY                           5.1%

        Engineering              1.4%        8,800   Fluor Corp.   . . . . . . . . . . . . . . . . .      379,500
                                             9,500   Foster Wheeler Corp.  . . . . . . . . . . . . .      282,625
                                                                                                       ----------
                                                                                                          662,125
                                                                                                       ----------
        Oil Companies            2.5%        4,300   Chevron Corp.   . . . . . . . . . . . . . . . .      191,887
                                             2,700   Exxon Corp.   . . . . . . . . . . . . . . . . .      164,025
                                             4,000   Mobil Corp.   . . . . . . . . . . . . . . . . .      337,000
                                             2,200   Royal Dutch Petroleum Co. (New York shares) . .      236,500
                                                                                                       



</TABLE>

        The accompanying notes are an integral part of the financial statements.





<PAGE>

<TABLE>
BALANCED PORTFOLIO
----------------------------------------------------------------------------------------------------------------
<CAPTION>
                              % of                                                                     Market
                           Portfolio      Shares                                                     Value ($)
----------------------------------------------------------------------------------------------------------------
<S>                            <C>        <C>                                                         <C>
                                           7,500   Unocal Corp. . . . . . . . . . . . . . . . . . .      204,375
                                                                                                      ----------
                                                                                                       1,133,787
                                                                                                      ----------
      Oil/Gas Transmission     1.2%       17,900   Enron Corp.  . . . . . . . . . . . . . . . . . .      545,950
                                                                                                      ----------
METALS AND MINERALS            1.1%
      Steel & Metals                       8,000   Allegheny Ludlum Corp. . . . . . . . . . . . . .      150,000
                                           6,500   Nucor Corp.  . . . . . . . . . . . . . . . . . .      360,750
                                                                                                      ----------
                                                                                                         510,750
                                                                                                      ----------
CONSTRUCTION                   0.5%
      Forest Products                      8,500   Louisiana-Pacific Corp.  . . . . . . . . . . . .      231,625
                                                                                                      ----------
                                                   TOTAL COMMON STOCKS (Cost $28,280,262) . . . . .   28,552,570
                                                                                                      ----------
----------------------------------------------------------------------------------------------------------------

                                                   TOTAL INVESTMENT PORTFOLIO -- 100.0%
                                                     (Cost $46,142,341)(c)  . . . . . . . . . . . .   45,904,422
                                                                                                      ==========
----------------------------------------------------------------------------------------------------------------
<FN>
    *   Non-income producing security.
   **   Yield; bond equivalent yield to maturity; not a coupon rate (unaudited).  
   (a)  Effective maturities will be shorter due to amortization and prepayments.  
   (b)  New shares issued in 1994, eligible for a pro rata share of 1994 dividends.  
   (c)  At December 31, 1994, the net unrealized depreciation on investments based on cost for 
        federal income tax purposes of $46,262,282 was as follows: 

        Aggregate gross unrealized appreciation for all investments in which there is an 
           excess of market value over tax cost  . . . . . . . . . . . . . . . . . . . . . . .       $ 1,587,277

        Aggregate gross unrealized depreciation for all investments in which there is an 
           excess of tax cost over market value  . . . . . . . . . . . . . . . . . . . . . . .        (1,945,137)
                                                                                                     -----------
        Net unrealized depreciation  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       $  (357,860)
                                                                                                     ===========
------------------------------------------------------------------------------------------------------------------
        From November 1, 1994 through December 31, 1994, the Balanced Portfolio incurred approximately $275,417 
        of net realized capital losses which the Portfolio intends to elect to defer and treat as arising in the 
        fiscal year ended December 31, 1995.  
------------------------------------------------------------------------------------------------------------------
        Purchases and sales of investment securities (excluding short-term investments and U.S. Government 
        securities), for the year ended December 31, 1994, aggregated $39,687,868 and $39,382,956, respectively.  
        Purchases and sales of U.S. Government securities for the year ended December 31, 1994, aggregated 
        $6,419,661 and $5,027,416, respectively.
</FN>
</TABLE>


The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>

                                                                            FINANCIAL STATEMENTS
------------------------------------------------------------------------------------------------
<CAPTION>
                       STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
------------------------------------------------------------------------------------------------
<S>                                                                       <C>       <C>
ASSETS
Investments, at market (identified cost $46,142,341) (Note A) . . . .               $ 45,904,422
Receivables:                                                                        
   Dividends and interest . . . . . . . . . . . . . . . . . . . . . .                    301,078
   Investments sold . . . . . . . . . . . . . . . . . . . . . . . . .                    238,822
   Portfolio shares sold  . . . . . . . . . . . . . . . . . . . . . .                     15,771
                                                                                    ------------
      Total assets  . . . . . . . . . . . . . . . . . . . . . . . . .                 46,460,093
LIABILITIES
Payables:
   Due to custodian bank  . . . . . . . . . . . . . . . . . . . . . .     $  4,397
   Investments purchased  . . . . . . . . . . . . . . . . . . . . . .      332,064
   Portfolio shares redeemed  . . . . . . . . . . . . . . . . . . . .      536,788
   Due to Adviser (Note B)  . . . . . . . . . . . . . . . . . . . . .       49,281
   Accrued expenses (Note B)  . . . . . . . . . . . . . . . . . . . .       12,988
                                                                          -----------
      Total liabilities . . . . . . . . . . . . . . . . . . . . . . .                    935,518
                                                                                    ------------
Net assets, at market value . . . . . . . . . . . . . . . . . . . . .               $ 45,524,575
                                                                                    ============
NET ASSETS
Net assets consist of:
   Undistributed net investment income  . . . . . . . . . . . . . , .               $    392,285
   Unrealized depreciation on investments . . . . . . . . . . . . . .                   (237,919)
   Accumulated net realized loss  . . . . . . . . . . . . . . . . . .                   (103,434)
   Paid-in capital  . . . . . . . . . . . . . . . . . . . . . . . . .                 45,473,643
                                                                                    ------------
Net assets, at market value . . . . . . . . . . . . . . . . . . . . .               $ 45,524,575
                                                                                    ============
NET ASSET VALUE, offering and redemption price per share
   ($45,524,575 -:- 5,076,236 outstanding shares of beneficial
   interest, no par value, unlimited number of shares authorized) . .                      $8.97 
                                                                                           =====


</TABLE>

The accompanying notes are an integral part of the financial statements.


<PAGE>

<TABLE>
BALANCED PORTFOLIO
------------------------------------------------------------------------------------------------

                                        STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 1994
------------------------------------------------------------------------------------------------
<S>                                                                    <C>           <C>
INVESTMENT INCOME
   Income:
      Interest  . . . . . . . . . . . . . . . . . . . . . . . . .                    $ 1,163,654
      Dividends (net of foreign taxes withheld of $4,976) . . . .                        646,047
                                                                                     -----------
                                                                                       1,809,701

   Expenses (Note A):
      Management fee (Note B) . . . . . . . . . . . . . . . . . .      $   218,621
      Administrative fees (net of $7,119 not imposed) (Note B)  .           38,204
      Accounting fees (Note B)  . . . . . . . . . . . . . . . . .           20,005
      Trustees' fees (Note B) . . . . . . . . . . . . . . . . . .            9,645
      Custodian fees  . . . . . . . . . . . . . . . . . . . . . .           36,314
      Auditing  . . . . . . . . . . . . . . . . . . . . . . . . .            8,241
      Legal . . . . . . . . . . . . . . . . . . . . . . . . . . .            2,419
      Other . . . . . . . . . . . . . . . . . . . . . . . . . . .           11,928       345,377
                                                                       -----------   -----------
   Net investment income  . . . . . . . . . . . . . . . . . . . .                      1,464,324
                                                                                     -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
   Net realized loss from:
      Investments . . . . . . . . . . . . . . . . . . . . . . . .          (56,422)
      Foreign currency related transactions . . . . . . . . . . .          (14,258)      (70,680)
                                                                       -----------
   Net unrealized appreciation (depreciation) during the period on:
      Investments . . . . . . . . . . . . . . . . . . . . . . . .       (2,374,851)
      Foreign currency related transactions . . . . . . . . . . .              741    (2,374,110)
                                                                       -----------   -----------
   Net loss on investment transactions  . . . . . . . . . . . . .                     (2,444,790)
                                                                                     -----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS  . . . . . .                    $  (980,466)
                                                                                     ===========

</TABLE>

The accompanying notes are an integral part of the financial statements.


<PAGE>

<TABLE>
                                                                            FINANCIAL STATEMENTS
---------------------------------------------------------------------------------------------------
                                STATEMENTS OF CHANGES IN NET ASSETS
---------------------------------------------------------------------------------------------------
<CAPTION>
                                                                           YEARS ENDED DECEMBER 31,
                                                                           ------------------------
INCREASE (DECREASE) IN NET ASSETS                                              1994         1993
---------------------------------------------------------------------------------------------------
<S>                                                                      <C>           <C>      
Operations:
   Net investment income  . . . . . . . . . . . . . . . . . . . . . .    $  1,464,324  $  1,256,776
   Net realized gain (loss) from investment transactions  . . . . . .         (70,680)    3,496,626
   Net unrealized depreciation on investment transactions
      during the period . . . . . . . . . . . . . . . . . . . . . . .      (2,374,110)   (1,774,580)
                                                                         ------------  ------------
Net increase (decrease) in net assets resulting from operations . . .        (980,466)    2,978,822
                                                                         ------------  ------------
Distributions to shareholders from:
   Net investment income ($.30 and $.28 per share, respectively)  . .      (1,442,472)   (1,153,730)
                                                                         ------------  ------------
   Net realized gains from investment transactions
      ($.77 and $.23 per share, respectively) . . . . . . . . . . . .      (3,525,834)     (897,228)
                                                                         ------------  ------------
Portfolio share transactions:
   Proceeds from shares sold  . . . . . . . . . . . . . . . . . . . .      14,384,876    12,283,985
   Net asset value of shares issued to shareholders in
      reinvestment of distributions . . . . . . . . . . . . . . . . .       4,968,306     2,050,958
   Cost of shares redeemed  . . . . . . . . . . . . . . . . . . . . .     (12,950,121)   (7,234,223)
                                                                         ------------  ------------
Net increase in net assets from Portfolio share transactions  . . . .       6,403,061     7,100,720
                                                                         ------------  ------------
INCREASE IN NET ASSETS  . . . . . . . . . . . . . . . . . . . . . . .         454,289     8,028,584
Net assets at beginning of period . . . . . . . . . . . . . . . . . .      45,070,286    37,041,702
                                                                         ------------  ------------
NET ASSETS AT END OF PERIOD (including undistributed net
   investment income of $392,285 and $366,737, respectively)  . . . .    $ 45,524,575  $ 45,070,286
                                                                         ============  ============

OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
Shares outstanding at beginning of period . . . . . . . . . . . . . .       4,407,727     3,695,913
                                                                         ------------  ------------
   Shares sold  . . . . . . . . . . . . . . . . . . . . . . . . . . .       1,539,383     1,226,706
   Shares issued to shareholders in reinvestment of distributions . .         532,133       207,183
   Shares redeemed  . . . . . . . . . . . . . . . . . . . . . . . . .      (1,403,007)     (722,075)
                                                                         ------------  ------------
   Net increase in Portfolio shares . . . . . . . . . . . . . . . . .         668,509       711,814
                                                                         ------------  ------------
Shares outstanding at end of period . . . . . . . . . . . . . . . . .       5,076,236     4,407,727
                                                                         ============  ============ 
</TABLE>

The accompanying notes are an integral part of the financial statements.


<PAGE>

<TABLE>
BALANCED PORTFOLIO
FINANCIAL HIGHLIGHTS

THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD AND OTHER
PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.                                             
<CAPTION>
                                                                                                           SIX       FOR THE PERIOD
                                                                                                          MONTHS      JULY 16, 1985
                                                                                                           ENDED     (COMMENCEMENT
                                                              YEARS ENDED DECEMBER 31, (e)                DECEMBER     OF OPERATIONS
                                   ----------------------------------------------------------------------    31,        TO JUNE 30,
                                    1994     1993     1992     1991     1990     1989     1988     1987    1986(e)(f)       1986
                                   ---------------------------------------------------------------------  ---------- ---------------
<S>                                <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>       <C>          <C>
Net asset value,
 beginning of period. . .          $10.23   $10.02   $ 9.85   $ 8.10   $ 8.75   $ 7.62   $ 6.88   $ 7.35    $ 7.58        $ 6.00(b)
                                   ------   ------   ------   ------   ------   ------   ------   ------    ------        ------
Income from investment
 operations:
 Net investment
   income (a) . . . . . .           .29      .30      .29      .35      .42      .40      .33      .34       .15           .31
 Net realized and
   unrealized gain (loss)
   on investment
   transactions . . . . .          (.48)     .42      .36     1.77     (.59)    1.06      .64     (.45)     (.11)         1.50
                                  ------   ------   ------   ------   ------   ------   ------   ------    ------        ------
Total from investment
 operations   . . . . . .          (.19)     .72      .65     2.12     (.17)    1.46      .97     (.11)      .04          1.81
                                  ------   ------   ------   ------   ------   ------   ------   ------    ------        ------
Less distributions from:
 Net investment
   income . . . . . . . .          (.30)    (.28)    (.29)    (.37)    (.43)    (.33)    (.23)    (.23)     (.18)         (.23)
 Net realized gains
   on investment
   transactions . . . . .          (.77)    (.23)    (.19)      --     (.05)      --       --     (.13)     (.09)           --
                                  ------   ------   ------   ------   ------   ------   ------   ------    ------        ------
Total distributions . . .         (1.07)    (.51)    (.48)    (.37)    (.48)    (.33)    (.23)    (.36)     (.27)         (.23)
                                  ------   ------   ------   ------   ------   ------   ------   ------    ------        ------
Net asset value,
 end of period  . . . . .         $ 8.97   $10.23   $10.02   $ 9.85   $ 8.10   $ 8.75   $ 7.62   $ 6.88    $ 7.35        $ 7.58
                                  ======   ======   ======   ======   ======   ======   ======   ======    ======        ======
TOTAL RETURN (%)  . . . .         (2.05)    7.45     6.96    26.93    (1.91)   19.50    14.21    (1.68)      .46(d)      30.60(d)
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
 period ($ millions). . .            46       45       37       25       16       18       11       12         1            --
Ratio of operating
 expenses, net to
 average net
 assets (%) (a)   . . . .           .75      .75      .75      .75      .75      .75      .75      .75       .75(c)        .60(c)
Ratio of net investment
 income to average
 net assets (%)   . . . .          3.19     3.01     3.01     4.00     5.15     4.74     4.48     4.42      4.20(c)       4.87(c)
Portfolio turnover
 rate (%)   . . . . . . .        101.64   133.95*   51.66    62.03    49.03    77.98   109.95   111.00     28.86(c)      64.12(c)
<FN>
(a) Portion of expenses
    reimbursed (Note B)          $   --   $   --   $   --   $  .01   $   --   $  .01   $  .03   $  .03    $  .17        $  .80
(b) Original capital
(c) Annualized
(d) Not annualized
(e) Per share amounts, for each of the periods identified, have been calculated using the monthly average shares outstanding 
    during the period method.
(f) On August 22, 1986, the Trustees voted to change the year end of the Fund from June 30 to December 31.
  * On May 1, 1993, the Portfolio adopted its present name and investment objective which is a balance of growth and income 
    from a diversified portfolio of equity and fixed income securities. Prior to that date, the Portfolio was known as the 
    Managed Diversified Portfolio and its investment objective was to realize a high level of long-term total rate of
    return consistent with prudent investment risk.  The portfolio turnover rate increased due to implementing the present 
    investment objective.  Financial highlights for the nine periods ended December 31, 1993 should not be considered 
    representative of the present Portfolio.

</FN>
</TABLE>


<PAGE>

<TABLE>
GROWTH AND INCOME PORTFOLIO
INVESTMENT PORTFOLIO as of December 31, 1994
---------------------------------------------------------------------------------------------------------------------
<CAPTION>
                              % of         Principal                                                  Market
                           Portfolio      Amount ($)                                                 Value ($)
---------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                                                                 <C>
                              2.9%      REPURCHASE AGREEMENT
                                        -----------------------------------------------------------------------------
                                          598,000   Repurchase Agreement with Donaldson, Lufkin &
                                                     Jenrette dated 12/30/94 at 5.875%, to be
                                                     repurchased at $598,390 on 1/3/95, collateralized
                                                     by a $557,000 U.S. Treasury Bond, 9.125%, 5/15/09
                                                    (Cost $598,000) . .. . . . . . . . . . . . . . . . .      598,000
                                                                                                            ---------
                                        -----------------------------------------------------------------------------
                              7.3%      COMMERCIAL PAPER
                                        -----------------------------------------------------------------------------
                                        1,000,000   American Express Credit Corp., 5.755%, 1/3/95 . . .     1,000,000
                                          500,000   General Electric Capital Corp., 5.005%, 1/6/95  . .       500,000
                                                                                                            ---------
                                                    TOTAL COMMERCIAL PAPER (Cost $1,500,000)  . . . . .     1,500,000
                                                                                                            ---------
                                        -----------------------------------------------------------------------------
                              0.5%      CONVERTIBLE BONDS
                                        -----------------------------------------------------------------------------
FINANCIAL
Banks                         0.2%         25,000   Credit Suisse, 4.875%, 11/19/02  . . . . . . . . . .       33,125
                                                                                                            ---------
Other Financial
Companies                     0.3%         40,000   First Financial Management, 5%, 12/15/99   . . . . .       42,200
                                           21,000   Jardine Strategic Holdings, 7.5%, 5/7/49  . . .  . .       23,940
                                                                                                            ---------
                                                                                                               66,140
                                                                                                            ---------
                                                    TOTAL CONVERTIBLE BONDS (Cost $96,350)  . . . .  . .       99,265
                                                                                                            ---------
                                        -----------------------------------------------------------------------------
                              4.3%      CONVERTIBLE PREFERRED STOCKS
                                        -----------------------------------------------------------------------------
                                         Shares
                                        -----------------------------------------------------------------------------
HEALTH                        1.3%
Health Industry Services                   11,300   FHP International Corp., Series A, 5%  . . . . . . .      276,850
                                                                                                            ---------
SERVICE INDUSTRIES            1.3%
EDP Services                                4,700   General Motors Corp., Series C, Cum. $3.25
                                                     (convertible into GM "E") . . . . . . . . . . . . .      269,662
                                                                                                            ---------   
DURABLES                      0.9%
Automobiles                                 2,100   Ford Motor Co., Series A, Cum. $4.20   . . . . . . .      193,200
                                                                                                            ---------
MANUFACTURING                 0.8%
Containers & Paper            0.7%          5,000   Boise Cascade Corp. "E", Cum. $1.79  . . . . . . . .      133,125
                                                                                                            ---------   
Industrial Specialty          0.1%            500   Corning Inc., 6%   . . . . . . . . . . . . . . . . .       23,375
                                                                                                            ---------
                                                    TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $920,649) .      896,212
                                                                                                            ---------
                                        -----------------------------------------------------------------------------
                             85.0%      COMMON STOCKS
                                        -----------------------------------------------------------------------------
CONSUMER DISCRETIONARY        3.6%
Department &
Chain Stores                                6,800   Edison Brothers Stores, Inc.   . . . . . . . . . . .      125,800
                                            3,800   J.C. Penney Inc.   . . . . . . . . . . . . . . . . .      169,575
                                           10,300   Rite Aid Corp.   . . . . . . . . . . . . . . . . . .      240,763
                                            4,500   Sears, Roebuck & Co. . . . . . . . . . . . . . . . .      207,000
                                                                                                            ---------
                                                                                                              743,138
                                                                                                            ---------

</TABLE>


The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
GROWTH AND INCOME PORTFOLIO
----------------------------------------------------------------------------------------------------------------
<CAPTION>
                              % of                                                                       Market
                           Portfolio        Shares                                                     Value ($)
----------------------------------------------------------------------------------------------------------------
<S>                           <C>           <C>     <C>                                                  <C>
CONSUMER STAPLES              9.3%         
  Alcohol & Tobacco           2.8%          3,500   American Brands Inc.   . . . . . . . . . . . .       131,250
                                            4,500   Anheuser Busch Companies, Inc.  . . . . . . . .      228,937
                                            3,800   Philip Morris Companies Inc.  . . . . . . . . .      218,500
                                                                                                      ----------      
                                                                                                         578,687
                                                                                                      ----------
  Food & Beverage             3.6%          4,800   General Mills, Inc.  . . . . . . . . . . . . .       273,600
                                            7,900   H.J. Heinz Co.  . . . . . . . . . . . . . . . .      290,325
                                            6,000   Quaker Oats Co.   . . . . . . . . . . . . . . .      184,500
                                                                                                      ----------
                                                                                                         748,425
                                                                                                      ----------
  Package Goods/                         
  Cosmetics                   2.9%          4,600   Avon Products  . . . . . . . . . . . . . . . .       274,850
                                            1,400   Clorox Co.  . . . . . . . . . . . . . . . . . .       82,425
                                            6,400   Tambrands Inc.  . . . . . . . . . . . . . . . .      247,200
                                                                                                      ----------
                                                                                                         604,475
                                                                                                      ----------
HEALTH                       11.5%       
  Health Industry                        
  Services                    0.5%          3,000   McKesson Corp.   . . . . . . . . . . . . . . .        97,875
                                                                                                      ----------
  Pharmaceuticals            11.0%          4,000   American Home Products Corp.   . . . . . . . .       251,000
                                           14,700   Baxter International Inc.   . . . . . . . . . .      415,275
                                            3,600   Bristol-Myers Squibb Co.  . . . . . . . . . . .      208,350
                                            4,700   Carter-Wallace Inc.   . . . . . . . . . . . . .       61,100
                                            7,500   Eli Lilly Co.   . . . . . . . . . . . . . . . .      492,188
                                            4,000   Schering-Plough Corp.   . . . . . . . . . . . .      296,000
                                            3,400   Smithkline-Beecham PLC (ADR)  . . . . . . . . .      116,450
                                            4,700   Warner-Lambert Co.  . . . . . . . . . . . . . .      361,900
                                            5,600   Zeneca Group PLC  . . . . . . . . . . . . . . .       76,989
                                                                                                      ----------
                                                                                                       2,279,252
                                                                                                      ----------
COMMUNICATIONS                4.7%       
  Telephone/                               12,900   Alltel Corp.   . . . . . . . . . . . . . . . .       388,612
  Communications                            3,600   Compania Telefonica Nacional de Espana SA (ADR)      126,450
                                            2,300   Compania de Telefonos de Chile, SA (ADR)  . . .      181,125
                                            9,300   Hong Kong Telecommunications Ltd. (ADR)   . . .      177,862
                                              800   Telecom Argentina S.A. "B" (ADR)  . . . . . . .       41,400
                                              900   Telefonica de Argentina (ADR)   . . . . . . . .       47,700
                                                                                                      ----------
                                                                                                         963,149
                                                                                                      ----------
FINANCIAL                    13.9%       
  Banks                       5.5%          6,400   Chemical Banking Corp.   . . . . . . . . . . .       229,600
                                           11,400   CoreStates Financial Corp.  . . . . . . . . . .      296,400
                                           10,800   First Bank System Inc.  . . . . . . . . . . . .      359,100
                                            4,400   J.P. Morgan & Co., Inc.   . . . . . . . . . . .      246,400
                                                                                                      ----------
                                                                                                       1,131,500
                                                                                                      ----------
  Insurance                   2.0%          5,200   EXEL, Ltd.   . . . . . . . . . . . . . . . . .       205,400
                                            6,200   Lincoln National Corp.  . . . . . . . . . . . .      217,000
                                                                                                      ----------
                                                                                                         422,400
                                                                                                      ----------
  Other Financial                        
  Companies                   1.9%         13,100   Great Western Financial Corp.  . . . . . . . .       209,600
                                            5,500   Student Loan Marketing Association  . . . . . .      178,750
                                                                                                      ----------
                                                                                                         388,350
                                                                                                      ----------
</TABLE>

The accompanying notes are an integral part of the financial statements.  

<PAGE>

<TABLE>
                                                                                         INVESTMENT PORTFOLIO
--------------------------------------------------------------------------------------------------------------
<CAPTION>
                              % of                                                                     Market
                           Portfolio      Shares                                                     Value ($)
--------------------------------------------------------------------------------------------------------------
<S>                          <C>          <C>                                                          <C>      
     Real Estate              4.5%        9,100   Health Care Property Investment Inc. (REIT)  .       274,137
                                          6,800   McArthur/Glen Realty Corp. (REIT)   . . . . . .      112,200
                                          9,900   Meditrust SBI (REIT)  . . . . . . . . . . . . .      299,475
                                          7,000   Nationwide Health Properties Inc. (REIT)  . . .      250,250
                                                                                                     ---------
                                                                                                       936,062
                                                                                                     ---------  
SERVICE INDUSTRIES            1.4%                                                                
     Miscellaneous
     Commercial Services      0.5%        4,200   Fleming Companies Inc.   . . . . . . . . . . .        97,650
                                                                                                     ---------  
     Miscellaneous
     Consumer Services        0.4%        2,600   H & R Block Inc.   . . . . . . . . . . . . . .        96,525
                                                                                                     ---------  
     Printing/Publishing      0.5%        3,900   Deluxe Corp.   . . . . . . . . . . . . . . . .       103,350
                                                                                                     ---------  
DURABLES                      7.7%
     Aerospace                6.4%        2,600   AAR Corp.  . . . . . . . . . . . . . . . . . .        34,775
                                          3,400   Lockheed Corp.  . . . . . . . . . . . . . . . .      246,925
                                          7,000   Rockwell International Corp.  . . . . . . . . .      250,250
                                         10,000   Thiokol Corp.   . . . . . . . . . . . . . . . .      278,750
                                          8,100   United Technologies Corp.   . . . . . . . . . .      509,288
                                                                                                     ---------  
                                                                                                     1,319,988
                                                                                                     ---------  
     Automobiles              1.3%        7,200   Dana Corp.   . . . . . . . . . . . . . . . . .       168,300
                                          1,900   Eaton Corp.   . . . . . . . . . . . . . . . . .       94,050
                                                                                                     ---------  
                                                                                                       262,350
                                                                                                     ---------
MANUFACTURING                15.3%
     Chemicals                3.5%        2,700   Dow Chemical Co.   . . . . . . . . . . . . . .       181,575
                                          5,200   E.I. du Pont de Nemours & Co.   . . . . . . . .      292,500
                                         10,000   Lyondell Petrochemical Co.  . . . . . . . . . .      258,750
                                                                                                     ---------
                                                                                                       732,825
                                                                                                     ---------
     Containers & Paper       3.4%        7,400   Boise Cascade Corp.  . . . . . . . . . . . . .       197,950
                                          7,000   Federal Paper Board Co., Inc.   . . . . . . . .      203,000
                                          3,000   Kimberly Clark de Mexico S.A. "A" (ADR)   . . .       69,750
                                          4,800   Kimberly-Clark Corp.  . . . . . . . . . . . . .      242,400
                                                                                                     ---------
                                                                                                       713,100
     Diversified                                                                                     ---------
     Manufacturing            1.9%        5,100   Dresser Industries Inc.  . . . . . . . . . . .        96,262
                                          4,400   TRW Inc.  . . . . . . . . . . . . . . . . . . .      290,400
                                                                                                     ---------
                                                                                                       386,662
                                                                                                     ---------  
     Electrical Products      0.8%        2,500   Thomas & Betts Corp.   . . . . . . . . . . . .       167,813
                                                                                                     ---------
     Machinery/
     Components/Controls      1.9%        4,300   Parker-Hannifin Group  . . . . . . . . . . . .       195,650
                                          5,700   Timken Co.  . . . . . . . . . . . . . . . . . .      200,925
                                                                                                     ---------  
                                                                                                       396,575
                                                                                                     ---------
     Office Equipment/                                  
     Supplies                 1.7%        3,500   Xerox Corp.  . . . . . . . . . . . . . . . . .       346,500
                                                                                                     ---------
     Specialty Chemicals      2.1%        6,200   Betz Laboratories Inc.   . . . . . . . . . . .       274,350
                                          6,200   Witco Corp.   . . . . . . . . . . . . . . . . .      152,675
                                                                                                     ---------  
                                                                                                       427,025
                                                                                                     ---------
TECHNOLOGY                    0.4%
     Military Electronics                 2,100   E-Systems, Inc.  . . . . . . . . . . . . . . .        87,412
                                                                                                     ---------  

</TABLE>

The accompanying notes are an integral part of the financial statements.


<PAGE>

<TABLE>
GROWTH AND INCOME PORTFOLIO
-------------------------------------------------------------------------------------------------------------------
<CAPTION>
                              % of                                                                        Market
                            Portfolio      Shares                                                        Value ($)
-------------------------------------------------------------------------------------------------------------------
<S>                          <C>           <C>                                                          <C>
ENERGY                       11.4%
     Engineering              1.4%         11,300   McDermott International Inc.   . . . . . . . .         279,675
                                                                                                        ----------
     Oil & Gas Production     0.6%          3,400   Louisiana Land & Exploration Co. . . . . . . .         123,675  
                                                                                                        ----------
     Oil Companies            7.9%            200   Amoco Corp.  . . . . . . . . . . . . . . . . .          11,825
                                            3,600   Exxon Corp.  . . . . . . . . . . . . . . . . .         218,700
                                            7,000   Murphy Oil Corp. . . . . . . . . . . . . . . .         297,500
                                            4,700   Pennzoil Co. . . . . . . . . . . . . . . . . .         207,388
                                            3,200   Repsol SA (ADR)  . . . . . . . . . . . . . . .          87,200
                                            2,100   Royal Dutch Petroleum Co. (New York shares). .         225,750
                                            5,548   Societe Nationale Elf Aquitaine (ADR)  . . . .         195,567
                                            7,100   Total SA (ADR) . . . . . . . . . . . . . . . .         209,450
                                            8,600   YPF SA "D" (ADR) . . . . . . . . . . . . . . .         183,825
                                                                                                        ----------
                                                                                                         1,637,205
                                                                                                        ----------
     Oil/Gas Transmission     0.4%          2,900   El Paso Natural Gas Co.  . . . . . . . . . . .          88,450
                                                                                                        ----------
     Oilfield Services/
     Equipment                1.1%          6,700   Halliburton Co.  . . . . . . . . . . . . . . .         221,937
                                                                                                        ----------
METALS AND MINERALS           2.3%
     Steel & Metals                        12,000   Freeport McMoRan Copper & Gold, Inc. "A" . . .         255,000
                                           13,500   Oregon Steel Mills Inc.  . . . . . . . . . . .         210,938
                                                                                                        ----------
                                                                                                           465,938
                                                                                                        ----------
TRANSPORTATION                0.4% 
     Marine Transportation                  3,300   Alexander & Baldwin Inc.   . . . . . . . . . .          73,425
                                                                                                        ----------
UTILITIES                     3.1%
     Electric Utilities                     6,000   CINergy Corp.  . . . . . . . . . . . . . . . .         140,250
                                            2,000   CMS Energy Corp. . . . . . . . . . . . . . . .          45,750
                                            8,200   Centerior Energy Corp. . . . . . . . . . . . .          72,775
                                            2,100   Empresa Nacional de Electricidad SA (ADR)  . .          85,050
                                              900   PacifiCorp.  . . . . . . . . . . . . . . . . .          16,313
                                            3,900   Pacific Gas & Electric Co. . . . . . . . . . .          95,063
                                              100   Southern Company . . . . . . . . . . . . . . .           2,000
                                            7,900   Unicom Corp. . . . . . . . . . . . . . . . . .         189,600
                                                                                                        ----------
                                                                                                           646,801
                                                                                                        ----------
                                                     TOTAL COMMON STOCKS (Cost $17,874,439)  . . .      17,568,194
                                                                                                        ----------
-------------------------------------------------------------------------------------------------------------------
                                                     TOTAL INVESTMENT PORTFOLIO -- 100.0%                        
                                                     (Cost $20,989,438)(a) . . . . . . . . . . . .      20,661,671
                                                                                                        ==========
-------------------------------------------------------------------------------------------------------------------
<FN>
    (a)   At December 31, 1994, the net unrealized depreciation on investments based on cost 
          for federal income tax purposes of $21,010,030 was as follows: 

          Aggregate gross unrealized appreciation for all investments in which there is an 
              excess of market value over tax cost . . . . . . . . . . . . . . . . . . . . . . . .      $  365,754

          Aggregate gross  unrealized depreciation for all investments in which there is an 
              excess of tax cost over market value . . . . . . . . . . . . . . . . . . . . . . . .        (714,113)
                                                                                                        ----------
          Net unrealized depreciation  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      $ (348,359)
                                                                                                        ==========
-------------------------------------------------------------------------------------------------------------------
          Purchases  and sales of investment securities (excluding short-term investments), for the  
          period May 2, 1994 (commencement of operations) to December 31, 1994, aggregated 
          $20,678,084 and $1,912,191, respectively.
</FN>
</TABLE>

The accompanying notes are an integral part of the financial statements.


<PAGE>

<TABLE>
                                                                          FINANCIAL STATEMENTS
----------------------------------------------------------------------------------------------
                              STATEMENT OF ASSETS AND LIABILITIES

DECEMBER 31, 1994
----------------------------------------------------------------------------------------------
<S>                                                                    <C>         <C>
ASSETS
Investments, at market (identified cost $20,989,438) (Note A) . .                  $20,661,671
Cash  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                          609
Receivables:                                                                        
   Investments sold . . . . . . . . . . . . . . . . . . . . . . .                      126,754
   Dividends and interest . . . . . . . . . . . . . . . . . . . .                       66,596
   Portfolio shares sold  . . . . . . . . . . . . . . . . . . . .                       38,675
                                                                                   -----------
      Total assets  . . . . . . . . . . . . . . . . . . . . . . .                   20,894,305
LIABILITIES                                                                         
Payables:                                                                           
   Investments purchased  . . . . . . . . . . . . . . . . . . . .      $793,868     
   Due to Adviser (Note B)  . . . . . . . . . . . . . . . . . . .        12,027     
   Accrued expenses (Note B)  . . . . . . . . . . . . . . . . . .        13,568     
                                                                       --------     
      Total liabilities . . . . . . . . . . . . . . . . . . . . .                      819,463
                                                                                   -----------
Net assets, at market value . . . . . . . . . . . . . . . . . . .                  $20,074,842
                                                                                   ===========
NET ASSETS                                                                          
Net assets consist of:                                                              
   Undistributed net investment income  . . . . . . . . . . . . .                  $   164,132
   Unrealized depreciation on investments . . . . . . . . . . . .                     (327,767)
   Accumulated net realized gain  . . . . . . . . . . . . . . . .                      125,538
   Paid-in capital  . . . . . . . . . . . . . . . . . . . . . . .                   20,112,939
                                                                                   -----------
Net assets, at market value . . . . . . . . . . . . . . . . . . .                  $20,074,842
                                                                                   ===========
NET ASSET VALUE, offering and redemption price per share                            
   ($20,074,842 -:- 3,204,882 outstanding shares of beneficial                           
   interest, no par value, unlimited number of shares authorized)                        $6.26
                                                                                         =====

</TABLE>

The accompanying notes are an integral part of the financial statements.


<PAGE>

<TABLE>
GROWTH AND INCOME PORTFOLIO
-------------------------------------------------------------------------------------------------
                                  STATEMENT OF OPERATIONS
-------------------------------------------------------------------------------------------------
FOR THE PERIOD MAY 2, 1994
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1994
-------------------------------------------------------------------------------------------------
<S>                                                                    <C>          <C>
INVESTMENT INCOME
   Income:
      Dividends (net of foreign taxes withheld of $3,279) . . . .                   $    242,508
      Interest  . . . . . . . . . . . . . . . . . . . . . . . . .                         60,432
                                                                                    ------------
                                                                                         302,940
   Expenses (Note A):
      Management fee (Note B) . . . . . . . . . . . . . . . . . .      $    32,724
      Administrative fees (Note B)  . . . . . . . . . . . . . . .           25,179
      Accounting fees (Note B)  . . . . . . . . . . . . . . . . .           14,437
      Trustees' fees (Note B) . . . . . . . . . . . . . . . . . .            4,498
      Custodian fees  . . . . . . . . . . . . . . . . . . . . . .           19,912
      Auditing  . . . . . . . . . . . . . . . . . . . . . . . . .            3,918
      Legal . . . . . . . . . . . . . . . . . . . . . . . . . . .              162
      Federal registration  . . . . . . . . . . . . . . . . . . .            6,976
      Other . . . . . . . . . . . . . . . . . . . . . . . . . . .            4,429
                                                                       -----------
      Total expenses before waivers . . . . . . . . . . . . . . .          112,235
      Waived expenses by the Adviser (Note B) . . . . . . . . . .          (60,313)
                                                                       -----------
      Expenses, net . . . . . . . . . . . . . . . . . . . . . . .                         51,922
                                                                                    ------------
   Net investment income  . . . . . . . . . . . . . . . . . . . .                        251,018
                                                                                    ------------

NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
   Net realized gain (loss) from:
      Investments . . . . . . . . . . . . . . . . . . . . . . . .          125,538
      Foreign currency related transactions . . . . . . . . . . .             (773)      124,765
                                                                       -----------
   Net unrealized depreciation on investments during the period .                       (327,767)
                                                                                    ------------
   Net loss on investment transactions  . . . . . . . . . . . . .                       (203,002)
                                                                                    ------------

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS  . . . . . .                   $     48,016
                                                                                    ============
</TABLE>
The accompanying notes are an integral part of the financial statements.


<PAGE>

 <TABLE>
                                                                                         FINANCIAL STATEMENTS
-------------------------------------------------------------------------------------------------------------
                                STATEMENT OF CHANGES IN NET ASSETS
-------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                             FOR THE PERIOD
                                                                                               MAY 2, 1994
                                                                                             (COMMENCEMENT
                                                                                            OF OPERATIONS) TO
                                                                                               DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS                                                                  1994
-------------------------------------------------------------------------------------------------------------
<S>                                                                                             <C>
Operations:
   Net investment income  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $     251,018
   Net realized gain from investment transactions . . . . . . . . . . . . . . . . . . . . . .         124,765
   Net unrealized depreciation on investment transactions during the period . . . . . . . . .        (327,767)
                                                                                                -------------
Net increase in net assets resulting from operations  . . . . . . . . . . . . . . . . . . . .          48,016
                                                                                                -------------
Distributions to shareholders from net investment income ($0.04 per share)  . . . . . . . . .         (86,114)
                                                                                                -------------
Portfolio share transactions:
   Proceeds from shares sold  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      22,441,709
   Net asset value of shares issued to shareholders in reinvestment of distributions  . . . .          86,114
   Cost of shares redeemed  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      (2,415,483)
                                                                                                -------------
Net increase in net assets from Portfolio share transactions  . . . . . . . . . . . . . . . .      20,112,340
                                                                                                -------------
INCREASE IN NET ASSETS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      20,074,242
Net assets at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             600
                                                                                                -------------
NET ASSETS AT END OF PERIOD (including undistributed net investment income of $164,132) . . .   $  20,074,842
                                                                                                =============
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
Shares outstanding at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . .             100
                                                                                                -------------
   Shares sold  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       3,576,097
   Shares issued to shareholders in reinvestment of distributions . . . . . . . . . . . . . .          13,561
   Shares redeemed  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        (384,876)
                                                                                                -------------
   Net increase in Portfolio shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       3,204,782
                                                                                                -------------
Shares outstanding at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       3,204,882
                                                                                                =============

</TABLE>
The accompanying notes are an integral part of the financial statements.


<PAGE>

<TABLE>
GROWTH AND INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS

THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD (E) AND OTHER PERFORMANCE 
INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.  
<CAPTION>
                                                                                                 For the Period 
                                                                                                  May 2, 1994
                                                                                                 (commencement 
                                                                                                 of operations) 
                                                                                                 to December 31, 
                                                                                                     1994
                                                                                                 ---------------
<S>                                                                                                   <C>
Net asset value, beginning of period  . . . . . . . . . . . . . . . . . . . . . . . . . . . .         $ 6.00(b)
                                                                                                      ------
Income from investment operations:                                                                     
 Net investment income (a)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            .13
 Net realized and unrealized gain (loss) on investment transactions   . . . . . . . . . . . .            .17(f)
                                                                                                      ------
Total from investment operations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            .30
                                                                                                      ------
Less distributions from net investment income . . . . . . . . . . . . . . . . . . . . . . . .           (.04)
                                                                                                      ------
Net asset value, end of period  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         $ 6.26
                                                                                                      ======
TOTAL RETURN (%)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           4.91(d)
RATIOS AND SUPPLEMENTAL DATA                                                                           
Net assets, end of period ($ millions)  . . . . . . . . . . . . . . . . . . . . . . . . . . .             20
Ratio of operating expenses, net to average net assets (%) (a)  . . . . . . . . . . . . . . .            .75(c)
Ratio of net investment income to average net assets (%)  . . . . . . . . . . . . . . . . . .           3.63(c)
Portfolio turnover rate (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          28.41(c)
<FN>                                                                                                   
(a) Portion of expenses waived (Note B)   . . . . . . . . . . . . . . . . . . . . . . . . . .         $  .03
(b) Original capital
(c) Annualized
(d) Not annualized
(e) Per share amounts have been calculated using the monthly average shares outstanding during the period method.
(f) The amount shown for a share outstanding throughout the period does not accord with the change in the aggregate gains and
    losses in the portfolio securities during the period because of the timing of sales and purchases of Portfolio shares in 
    relation to fluctuating market values during the period.
</FN>
</TABLE>


<PAGE>

<TABLE>
CAPITAL GROWTH PORTFOLIO
INVESTMENT PORTFOLIO as of December 31, 1994
---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                              % of      Principal                                                                 Market
                           Portfolio   Amount ($)                                                                Value ($)
---------------------------------------------------------------------------------------------------------------------------
<S>                          <C>       <C>                                                                       <C>
                                       ------------------------------------------------------------------------------------
                              4.8%             REPURCHASE AGREEMENT
                                       ------------------------------------------------------------------------------------
                                       12,504,000  Repurchase Agreement with Donaldson, Lufkin & Jenrette
                                                     dated 12/30/94 at 5.875%, to be repurchased at
                                                     $12,512,162 on 1/3/95, collateralized by a $12,740,000
                                                     U.S. Treasury Note, 6.875%, 7/31/99 (Cost $12,504,000)      12,504,000
                                                                                                                 ----------
                                       ------------------------------------------------------------------------------------
                              0.3%             CONVERTIBLE BONDS
                                       ------------------------------------------------------------------------------------
FINANCIAL
   Banks                                1,000,000  Banco Nacional de Mexico, 7%, 12/15/99
                                                     (Cost $1,226,250)  . . . . . . . . . . . . . . . . . . .      795,000
                                                                                                                ----------
                                       ------------------------------------------------------------------------------------
                              2.2%             CONVERTIBLE PREFERRED STOCKS
                                       ------------------------------------------------------------------------------------
                                         Shares
                                       ------------------------------------------------------------------------------------
DURABLES
   Automobiles                             43,000  Chrysler Corp., $4.625 (Cost $5,490,623)   . . . . . . . .     5,901,750
                                                                                                                -----------
                                       ------------------------------------------------------------------------------------
                              0.3%             PREFERRED STOCKS
                                       ------------------------------------------------------------------------------------
FINANCIAL
   Banks                                    8,000  First Nationwide Bank, non-cum. 11.5% (Cost $808,000). . .       783,000
                                                                                                                -----------
                                       ------------------------------------------------------------------------------------
                             90.9%             COMMON STOCKS
                                       ------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY       14.6%
   Apparel & Shoes            0.6%         46,200  Jones Apparel Group, Inc.*   . . . . . . . . . . . . . . .     1,189,650
                                           15,600  Luxottica Group SpA (ADR)  . . . . . . . . . . . . . . . .       532,350
                                                                                                                 ----------
                                                                                                                  1,722,000
                                                                                                                 ----------
   Department &
   Chain Stores               2.8%        241,500  Charming Shoppes Inc.  . . . . . . . . . . . . . . . . . .     1,599,937
                                           55,200  Consolidated Stores Corp.* . . . . . . . . . . . . . . . .     1,028,100
                                          144,000  Filene's Basement Corp.* . . . . . . . . . . . . . . . . .       666,000
                                           55,600  Fred Meyer Inc.* . . . . . . . . . . . . . . . . . . . . .     1,709,700
                                           40,000  Limited Inc. . . . . . . . . . . . . . . . . . . . . . . .       725,000
                                           71,700  Wal-Mart Stores Inc. . . . . . . . . . . . . . . . . . . .     1,523,625
                                                                                                                 ----------
                                                                                                                  7,252,362
                                                                                                                 ----------
   Hotels & Casinos           5.3%        108,000  Carnival Corp., Class A  . . . . . . . . . . . . . . . . .     2,295,000
                                          122,100  Circus Circus Enterprises Inc.*  . . . . . . . . . . . . .     2,838,825
                                            5,000  Club Mediterranee* . . . . . . . . . . . . . . . . . . . .       418,461
                                          146,750  Mirage Resorts Inc.* . . . . . . . . . . . . . . . . . . .     3,008,375
                                           58,500  President Riverboat Casinos* . . . . . . . . . . . . . . .       519,188
                                           55,200  Promus Companies Inc.* . . . . . . . . . . . . . . . . . .     1,711,200
                                           88,200  Royal Caribbean Cruises Ltd. . . . . . . . . . . . . . . .     2,513,700
                                           40,400  Station Casinos Inc.*  . . . . . . . . . . . . . . . . . .       525,200
                                                                                                                 ----------
                                                                                                                 13,829,949
                                                                                                                 ----------
   Recreational Products      2.8%        112,000  Acclaim Entertainment Inc.*  . . . . . . . . . . . . . . .     1,610,000
                                           38,200  Bally Gaming International Inc.*   . . . . . . . . . . . .       405,875
                                          111,800  Electronic Arts Inc.*  . . . . . . . . . . . . . . . . . .     2,152,150
                                          202,800  International Game Technology Inc. . . . . . . . . . . . .     3,143,400
                                                                                                                 ----------
                                                                                                                  7,311,425
                                                                                                                 ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
CAPITAL GROWTH PORTFOLIO
-----------------------------------------------------------------------------------------------------------------
<CAPTION>
                              % of                                                                       Market
                            Portfolio       Shares                                                      Value ($)
-----------------------------------------------------------------------------------------------------------------
<S>     <C>                   <C>        <C>         <C>                                               <C>
        Specialty Retail      3.1%         196,800   Fingerhut Companies, Inc.   . . . . . . . . . .    3,050,400
                                            95,000   Home Shopping Network Inc.*   . . . . . . . . .      950,000
                                           104,300   Intelligent Electronics, Inc.   . . . . . . . .      834,400
                                            40,000   Spiegel Inc. "A"  . . . . . . . . . . . . . . .      405,000
                                            96,000   Toys "R" Us Inc.*   . . . . . . . . . . . . . .    2,928,000
                                                                                                       ----------
                                                                                                        8,167,800
                                                                                                       ----------

CONSUMER STAPLES              1.2%

        Food & Beverage       0.9%          72,000   Panamerican Beverages Inc. "A"  . . . . . . . .    2,277,000
                                                                                                       ----------
        Package Goods/
        Cosmetics             0.3%          56,600   American Safety Razor Co.* .  . . . . . . . . .      778,250
                                                                                                       ----------

HEALTH                        7.3%

        Biotechnology         0.7%          44,000   Biogen Inc.*    . . . . . . . . . . . . . . . .    1,837,000
                                                                                                       ----------
        Health Industry
        Services              1.6%          52,000   Beverly Enterprises Inc.*   . . . . . . . . . .      747,500
                                            40,000   U.S. HealthCare, Inc.   . . . . . . . . . . . .    1,650,000
                                            40,000   United Healthcare Corp.   . . . . . . . . . . .    1,805,000
                                                                                                       ----------
                                                                                                        4,202,500
                                                                                                       ----------
        Hospital Management   0.6%          40,000   Columbia/HCA Healthcare Corp.   . . . . . . . .    1,460,000
                                                                                                       ----------
        Medical Supply &
        Specialty             0.0%           3,500   Sunrise Medical, Inc.*  . . . . . . . . . . . .       96,688
                                                                                                       ----------
        Pharmaceuticals       4.4%           7,500   Astra AB "A" (Free)   . . . . . . . . . . . . .      193,795
                                           171,050   Astra AB "B" (Free)   . . . . . . . . . . . . .    4,362,258
                                            55,000   Baxter International Inc.   . . . . . . . . . .    1,553,750
                                            80,000   Carter-Wallace Inc.   . . . . . . . . . . . . .    1,040,000
                                             1,300   Schering AG   . . . . . . . . . . . . . . . . .      853,215
                                            27,000   Schering-Plough Corp.   . . . . . . . . . . . .    1,998,000
                                            20,000   Warner-Lambert Co.  . . . . . . . . . . . . . .    1,540,000
                                                                                                       ----------
                                                                                                       11,541,018
                                                                                                       ----------
COMMUNICATIONS               12.5%

        Cellular Telephone    2.3%          63,000   AirTouch Communications, Inc.*    . . . . . . .    1,834,875
                                            52,175   Associated Group, Inc. "A"*   . . . . . . . . .    1,226,112
                                            52,175   Associated Group, Inc. "B"*   . . . . . . . . .    1,226,112
                                            27,500   Grupo Iusacell S.A. de CV "L" (ADR)*  . . . . .      512,187
                                            84,000   NEXTEL Communications Inc. "A"*   . . . . . . .    1,207,500
                                                                                                       ----------
                                                                                                        6,006,786
                                                                                                       ----------
        Telephone/
        Communications       10.2%         110,800   American Telephone & Telegraph Co.    . . . . .    5,567,700
                                           186,900   Century Telephone Enterprises   . . . . . . . .    5,513,550
                                             7,900   Indonesia Satellite Corp. (ADR)*  . . . . . . .      282,425
                                            60,000   Mobile Telecommunications Technology Corp.*   .    1,170,000
                                               305   Nippon Telegraph & Telephone Corp.  . . . . . .    2,697,029
                                            75,132   Southwestern Bell Corp.   . . . . . . . . . . .    3,033,455
                                            31,800   Telecom Argentina S.A. "B" (ADR)  . . . . . . .    1,645,650
                                         3,402,000   Telecomunicacoes de Sao Paulo S.A. (pfd.)   . .      483,992
                                            36,000   Telefonica de Argentina (ADR)   . . . . . . . .    1,908,000
                                            96,000   Telephone & Data Systems, Inc.  . . . . . . . .    4,428,000
                                                                                                       ----------
                                                                                                       26,729,801
                                                                                                       ----------



</TABLE>

        The accompanying notes are an integral part of the financial statements.





<PAGE>

<TABLE>
                                                                                                   INVESTMENT PORTFOLIO
-----------------------------------------------------------------------------------------------------------------------
<CAPTION>
                              % of                                                                           Market
                           Portfolio           Shares                                                      Value ($)
-----------------------------------------------------------------------------------------------------------------------
<S>                          <C>               <C>                                                         <C>
FINANCIAL                     9.6%
     Banks                    2.8%              40,000   Chemical Banking Corp.  . . . . . . . . . . . .    1,435,000
                                                40,000   Citicorp  . . . . . . . . . . . . . . . . . . .    1,655,000
                                                16,875   First Commerce Corp.  . . . . . . . . . . . . .      371,250
                                                 2,000   First Empire State Corp.  . . . . . . . . . . .      272,000
                                                40,000   GP Financial Corp.  . . . . . . . . . . . . . .      825,000
                                               103,000   MBNA Corp.  . . . . . . . . . . . . . . . . . .    2,407,625
                                                 9,000   Mercantile Bancorporation Inc.  . . . . . . . .      281,250
                                                                                                          -----------
                                                                                                            7,247,125
                                                                                                          -----------
     Insurance                4.8%              36,000   AMBAC Inc.  . . . . . . . . . . . . . . . . . .    1,341,000
                                                60,000   EXEL, Ltd.  . . . . . . . . . . . . . . . . . .    2,370,000
                                                31,300   General Re Corp.  . . . . . . . . . . . . . . .    3,873,375
                                                37,800   Liberty Corp.   . . . . . . . . . . . . . . . .      959,175
                                                20,000   MBIA Inc.   . . . . . . . . . . . . . . . . . .    1,122,500
                                                52,500   Mid Ocean Limited*  . . . . . . . . . . . . . .    1,430,625
                                               125,000   Western National Corp.  . . . . . . . . . . . .    1,609,375
                                                                                                          -----------
                                                                                                           12,706,050
                                                                                                          -----------
     Other Financial
     Companies                1.4%              44,000   Federal National Mortgage Association   . . . .    3,206,500
                                                 9,000   Nichiei Co., Ltd.   . . . . . . . . . . . . . .      578,139
                                                                                                          -----------
                                                                                                            3,784,639
                                                                                                          -----------
     Real Estate              0.6%             115,000   Price Enterprises, Inc.*  . . . . . . . . . . .    1,480,625
                                                                                                          -----------
MEDIA                        17.7%
     Broadcasting &
     Entertainment            6.6%              52,000   BET Holdings Inc. "A"*  . . . . . . . . . . . .      786,500
                                                32,800   Jacor Communications, Inc. "A"*   . . . . . . .      434,600
                                                23,500   Savoy Pictures Entertainment Inc.*  . . . . . .      152,750
                                               368,700   Time Warner Inc.  . . . . . . . . . . . . . . .   12,950,588
                                                 4,000   Viacom Inc. "A"*  . . . . . . . . . . . . . . .      166,500
                                                69,207   Viacom Inc. "B"*  . . . . . . . . . . . . . . .    2,811,534
                                                50,000   Viacom Inc. Rights*   . . . . . . . . . . . . .       56,250
                                                                                                          -----------
                                                                                                           17,358,722
                                                                                                          -----------
     Cable Television        10.8%             622,850   Comcast Corp. (Special) "A"   . . . . . . . . .    9,770,959
                                               535,000   Rogers Communications Inc. "B"*   . . . . . . .    7,151,132
                                               518,307   Tele-Communications Inc. "A"*   . . . . . . . .   11,273,177
                                                                                                          -----------
                                                                                                           28,195,268
                                                                                                          -----------
     Print Media              0.3%              14,300   Scholastic Corp.* . . . . . . . . . . . . . . .      729,300
                                                                                                          -----------
SERVICE INDUSTRIES            0.6%
     Investment                                 42,000   Franklin Resources Inc.   . . . . . . . . . . .    1,496,250
                                                                                                          -----------
DURABLES                      4.5%
     Automobiles              2.4%              44,000   Autoliv AB (Free)*    . . . . . . . . . . . . .    1,693,549
                                                60,000   Collins & Aikman Corp.*   . . . . . . . . . . .      510,000
                                               151,200   Ford Motor Co.  . . . . . . . . . . . . . . . .    4,233,600
                                                                                                          -----------
                                                                                                            6,437,149
                                                                                                          -----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
CAPITAL GROWTH PORTFOLIO
----------------------------------------------------------------------------------------------------------
<CAPTION>
                            % of                                                                  Market
                         Portfolio  Shares                                                       Value ($)
----------------------------------------------------------------------------------------------------------
<S>                           <C>   <C>       <C>                                                <C>
     Telecommunications
     Equipment                1.9%   40,000   DSC Communications Corp.*  . . . . . . . . . .     1,435,000
                                     22,000   Nokia AB Oy (ADR)   . . . . . . . . . . . . . .    1,650,000
                                     12,600   Nokia AB Oy (Preference)*   . . . . . . . . . .    1,856,696
                                                                                                 ---------
                                                                                                 4,941,696
                                                                                                 ---------
     Tires                    0.2%   20,000   Cooper Tire & Rubber Co.   . . . . . . . . . .       472,500
                                                                                                 ---------
MANUFACTURING                 2.3%

     Containers & Paper       0.6%   92,000   Stone Container Corp.*   . . . . . . . . . . .     1,587,000
                                                                                                 ---------
     Diversified
     Manufacturing            0.4%   60,000   Canadian Pacific Ltd.  . . . . . . . . . . . .       900,000
                                                                                                 ---------
     Electrical Products      1.1%  100,000   Philips NV (New York shares)   . . . . . . . .     2,937,500
                                                                                                 ---------
     Machinery/
     Components/Controls      0.2%   35,000   Daewoo Heavy Industries Ltd.*  . . . . . . . .       545,213
                                        700   Daewoo Heavy Industries Ltd. (New(b))*  . . . .       10,993
                                                                                                 ---------
                                                                                                   556,206
                                                                                                 ---------
TECHNOLOGY                    9.1%

     Computer Software        2.7%   52,600   Informix Corp.*  . . . . . . . . . . . . . . .     1,689,775
                                     74,150   Microsoft Corp.*  . . . . . . . . . . . . . . .    4,532,419
                                      1,400   SAP AG  . . . . . . . . . . . . . . . . . . . .      926,075
                                                                                                 ---------
                                                                                                 7,148,269
                                                                                                 ---------
     Diverse Electronic
     Products                 1.0%   46,000   Motorola Inc.  . . . . . . . . . . . . . . . .     2,662,250
                                                                                                 ---------
     EDP Peripherals          0.6%   60,000   Adaptec Inc.*  . . . . . . . . . . . . . . . .     1,417,500
                                                                                                 ---------
     Electronic Components/
     Distributors             1.5%   41,000   Kyocera Corp.  . . . . . . . . . . . . . . . .     3,041,152
                                      2,000   Kyocera Corp. (ADR)   . . . . . . . . . . . . .      298,000
                                        371   Samsung Electronics Co., Ltd. (GDS)   . . . . .       22,770
                                      4,202   Samsung Electronics Co., Ltd.(a)  . . . . . . .      620,668
                                        174   Samsung Electronics Co., Ltd. (New(b))(a)   . .       25,347
                                                                                                 ---------
                                                                                                 4,007,937
                                                                                                 ---------
     Electronic Data
     Processing               0.6%   20,000   International Business Machines Corp.  . . . .     1,470,000
                                                                                                 ---------
     Office/Plant
     Automation               1.1%   80,000   Cisco Systems, Inc.*   . . . . . . . . . . . .     2,810,000
                                                                                                 ---------
     Semiconductors           1.6%   40,000   Advanced Micro Devices Inc.*   . . . . . . . .       995,000
                                     50,000   Intel Corp.   . . . . . . . . . . . . . . . . .    3,193,750
                                                                                                 ---------
                                                                                                 4,188,750
                                                                                                 ---------
ENERGY                        4.3%
     Oil & Gas Production     2.0%   20,000   Anadarko Petroleum Corp.   . . . . . . . . . .       770,000
                                     40,000   Apache Corp.  . . . . . . . . . . . . . . . . .    1,000,000
                                     82,500   Perez Companc S.A. "B"  . . . . . . . . . . . .      339,883
                                     59,000   Perez Companc S.A. "B" (ADR)  . . . . . . . . .      486,750
                                     78,800   Triton Energy Corp.*  . . . . . . . . . . . . .    2,679,200
                                                                                                 ---------
                                                                                                 5,275,833
                                                                                                 ---------
</TABLE>

The accompanying notes are an integral part of the financial statements.


<PAGE>


<TABLE>

                                                                                          INVESTMENT PORTFOLIO
--------------------------------------------------------------------------------------------------------------


                              % of                                                                    Market
                           Portfolio      Shares                                                    Value ($)
--------------------------------------------------------------------------------------------------------------
<S>                           <C>     <C>                                                          <C>
     Oil Companies            2.0%       40,000   Chevron Corp   . . . . . . . . . . . . . . . .     1,785,000
                                        160,000   YPF SA "D" (ADR)   . . . . . . . . . . . . . .     3,420,000
                                                                                                   -----------
                                                                                                     5,205,000
                                                                                                   -----------
     Oilfield Services/
     Equipment                0.3%      168,800   Global Marine Inc.*    . . . . . . . . . . . .       611,900
                                                                                                   -----------
METALS AND MINERALS           1.4%

     Steel & Metals                      43,200   Allegheny Ludlum Corp.   . . . . . . . . . . .       810,000
                                          7,400   Oregon Steel Mills Inc.    . . . . . . . . . .       115,625
                                         25,000   Pohang Iron & Steel Co., Ltd.  . . . . . . . .       731,250
                                        148,000   Usinas Siderurgicas de Minas Gerais 
                                                    S/A (pfd.) (ADR)   . . . . . . . . . . . . .     1,961,000
                                                                                                   -----------
                                                                                                     3,617,875
                                                                                                   -----------
CONSTRUCTION                  1.6%                                                                 


     Building Materials       0.7%        6,400   Mannesmann AG (Bearer)   . . . . . . . . . . .     1,742,958
                                                                                                   -----------  
     Building Products        0.3%       40,000   USG Corp.*   . . . . . . . . . . . . . . . . .       780,000
                                                                                                   -----------
     Homebuilding             0.6%       99,000   Hovnanian Enterprises Inc. "A"*  . . . . . . .       532,125
                                         69,900   Kaufman & Broad Home Corp. . . . . . . . . . .       899,963
                                         20,000   Toll Brothers Inc.*  . . . . . . . . . . . . .       197,500
                                                                                                   -----------
                                                                                                     1,629,588
                                                                                                   -----------  
UTILITIES                     4.2%                                                                
     Electric Utilities                  20,000   CMS Energy Corp.   . . . . . . . . . . . . . .       457,500
                                         30,000   Centerior Energy Corp. . . . . . . . . . . . .       266,250
                                         10,000   Central Costanera SA (ADR) . . . . . . . . . .       265,000
                                      7,156,000   Companhia Energetica de Minas Gerais (pfd.)  .       650,545
                                         69,900   Destec Energy Inc.*  . . . . . . . . . . . . .       742,687
                                         50,000   Empresa Nacional de Electricidad SA (ADR)  . .     2,025,000
                                         30,000   Illinova Corp. . . . . . . . . . . . . . . . .       652,500
                                         25,000   Korea Electric Power Co. . . . . . . . . . . .       861,196
                                         58,000   Midlands Electricity PLC . . . . . . . . . . .       739,750
                                         50,000   National Power PLC . . . . . . . . . . . . . .       383,412
                                         99,000   Public Service Co. of New Mexico*  . . . . . .     1,287,000
                                         25,000   Shandong Huaneng Power Co. (ADR)*  . . . . . .       240,625
                                         50,000   Southern Electric PLC  . . . . . . . . . . . .       630,477
                                         30,000   TNP Enterprises Inc. . . . . . . . . . . . . .       446,250
                                         60,000   Unicom Corp. . . . . . . . . . . . . . . . . .     1,440,000
                                                                                                   -----------
                                                                                                    11,088,192
                                                                                                   -----------  
                                                  TOTAL COMMON STOCKS (Cost $240,313,574) . . .    237,698,661
                                                                                                   -----------  
                                      ------------------------------------------------------------------------
                              1.5%             WARRANTS
                                      ------------------------------------------------------------------------

TECHNOLOGY

     Semiconductors                     284,600   Intel Corp. Warrants (expire 3/14/98)*
                                                    (Cost $3,317,369)   . . . . . . . . . . . .      3,948,825
                                                                                                   -----------
--------------------------------------------------------------------------------------------------------------

                                                  TOTAL INVESTMENT PORTFOLIO -- 100.0%
                                                    (Cost $263,659,816)(c) . . . . . . . . . .     261,631,236
                                                                                                   ===========

--------------------------------------------------------------------------------------------------------------

</TABLE>

        The accompanying notes are an integral part of the financial statements.





<PAGE>

CAPITAL GROWTH PORTFOLIO
--------------------------------------------------------------------------------





--------------------------------------------------------------------------------
*   Non-income producing security.

(a) Security valued in good faith by the Valuation Committee of the Trustees.
    The cost and market value of this security at December 31, 1994 
    aggregated  $260,462 and $646,015 (.25% of net assets), respectively.

(b) New shares issued during 1994, eligible for a pro rata share of 1994
    dividends. 

(c) At December 31, 1994, the net unrealized depreciation on investments based
    on cost for federal income tax purposes of $263,612,803 was as follows: 

    Aggregate gross unrealized appreciation for all investments 
     in which there is an excess of market value
     over tax cost . . . . . . . . . . . . . . . . . . . . . . .   $ 18,361,493

    Aggregate gross unrealized depreciation for all investments 
     in which there is an excess of tax cost
     over market value . . . . . . . . . . . . . . . . . . . . .    (20,343,060)
                                                                   -------------
    Net unrealized depreciation. . . . . . . . . . . . . . . . .   $ (1,981,567)
                                                                   =============
--------------------------------------------------------------------------------

    Purchases and sales of investment securities (excluding short-term
    investments), for the year ended December 31, 1994, aggregated
    $190,827,357 and $162,561,433, respectively.













The accompanying notes are an integral part of the financial statements.


<PAGE>

<TABLE>
                                                                                           FINANCIAL STATEMENTS
---------------------------------------------------------------------------------------------------------------
                                                                                           
                                     STATEMENT OF ASSETS AND LIABILITIES        
                                                                                           
DECEMBER 31, 1994                                                                          
---------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                <C>
ASSETS                                                                                     
Investments, at market (identified cost $263,659,816) (Note A)  . . .                             $261,631,236
Cash  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                   50,276
Receivables:                                                                               
   Investments sold . . . . . . . . . . . . . . . . . . . . . . . . .                                2,981,543
   Portfolio shares sold  . . . . . . . . . . . . . . . . . . . . . .                                  561,600
   Dividends and interest . . . . . . . . . . . . . . . . . . . . . .                                  282,241
                                                                                                  ------------
      Total assets  . . . . . . . . . . . . . . . . . . . . . . . . .                              265,506,896
LIABILITIES                                                                                
Payables:                                                                                  
   Investments purchased  . . . . . . . . . . . . . . . . . . . . . .           $8,801,508 
   Portfolio shares redeemed  . . . . . . . . . . . . . . . . . . . .               25,873 
   Due to Adviser (Note B)  . . . . . . . . . . . . . . . . . . . . .              104,624 
   Accrued expenses (Note B)  . . . . . . . . . . . . . . . . . . . .               44,136 
                                                                                ---------- 
      Total liabilities . . . . . . . . . . . . . . . . . . . . . . .                                8,976,141
                                                                                                  ------------
Net assets, at market value . . . . . . . . . . . . . . . . . . . . .                             $256,530,755
                                                                                                  ============
                                                                                           
NET ASSETS                                                                                 
Net assets consist of:                                                                     
   Undistributed net investment income  . . . . . . . . . . . . . . .                             $    507,243
   Unrealized depreciation on:                                                             
      Investments . . . . . . . . . . . . . . . . . . . . . . . . . .                               (2,028,580)
      Foreign currency related transactions . . . . . . . . . . . . .                                   (4,400)
   Accumulated net realized gain  . . . . . . . . . . . . . . . . . .                                8,707,226
   Paid-in capital  . . . . . . . . . . . . . . . . . . . . . . . . .                              249,349,266
                                                                                                  ------------
Net assets, at market value . . . . . . . . . . . . . . . . . . . . .                             $256,530,755
                                                                                                  ============
NET ASSET VALUE, offering and redemption price per share                                   
   ($256,530,755 -:- 20,979,934 outstanding shares of beneficial                                
   interest, no par value, unlimited number of shares authorized) . .                                   $12.23
                                                                                                        ======
</TABLE>


The accompanying notes are an integral part of the financial statements.

<PAGE>

          
<TABLE>

CAPITAL GROWTH PORTFOLIO
------------------------------------------------------------------------------------------------
                                                                                                
                            STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 1994
------------------------------------------------------------------------------------------------
<S>                                                                    <C>          <C>
INVESTMENT INCOME
   Income:
      Dividends (net of foreign taxes withheld of $37,041)  . . .                   $  2,191,376
      Interest  . . . . . . . . . . . . . . . . . . . . . . . . .                        460,519
                                                                                    ------------        
                                                                                       2,651,895
   Expenses (Note A):
      Management fee (Note B) . . . . . . . . . . . . . . . . . .      $ 1,199,585
      Administrative fees (Note B)  . . . . . . . . . . . . . . .           45,253
      Accounting fees (Note B)  . . . . . . . . . . . . . . . . .           31,685
      Trustees' fees (Note B) . . . . . . . . . . . . . . . . . .           11,212
      Custodian fees  . . . . . . . . . . . . . . . . . . . . . .           98,462
      Auditing  . . . . . . . . . . . . . . . . . . . . . . . . .           25,795
      Legal . . . . . . . . . . . . . . . . . . . . . . . . . . .           10,798
      Other . . . . . . . . . . . . . . . . . . . . . . . . . . .           33,731     1,456,521
                                                                      ------------  ------------
   Net investment income  . . . . . . . . . . . . . . . . . . . .                      1,195,374
                                                                                    ------------        
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
   Net realized gain (loss) from:
      Investments . . . . . . . . . . . . . . . . . . . . . . . .        8,768,082
      Foreign currency related transactions . . . . . . . . . . .         (26,177)     8,741,905
                                                                      ------------      
   Net unrealized depreciation during the period on:
      Investments . . . . . . . . . . . . . . . . . . . . . . . .     (35,951,742)
      Foreign currency related transactions . . . . . . . . . . .             (46)  (35,951,788)
                                                                      ------------  ------------        
   Net loss on investment transactions  . . . . . . . . . . . . .                   (27,209,883)
                                                                                    ------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS  . . . . . .                   (26,014,509)
                                                                                    ============            





The accompanying notes are an integral part of the financial statements.

</TABLE>


<PAGE>

<TABLE>
                                                                                         FINANCIAL STATEMENTS
--------------------------------------------------------------------------------------------------------------
                                        STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                   YEARS ENDED DECEMBER 31,
                                                                                  --------------------------
INCREASE (DECREASE) IN NET ASSETS                                                    1994            1993
--------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>             <C>
Operations:                                                                     
   Net investment income  . . . . . . . . . . . . . . . . . . . . . . .         $  1,195,374    $    933,809
   Net realized gain from investment transactions . . . . . . . . . . .            8,741,905      23,896,099
   Net unrealized appreciation (depreciation) on investment                     
      transactions during the period  . . . . . . . . . . . . . . . . .          (35,951,788)     13,526,410
                                                                                -------------   ------------
Net increase (decrease) in net assets resulting from operations                  (26,014,509)     38,356,318
                                                                                -------------   ------------
Distributions to shareholders from:                                             
   Net investment income ($0.05 and $0.07 per share, respectively). . .             (889,382)     (1,052,879)
                                                                                -------------   ------------
   Net realized gain from investment transactions                               
      ($1.31 and $0.27 per share, respectively) . . . . . . . . . . . .          (23,981,060)     (3,623,212)
                                                                                -------------   ------------
Portfolio share transactions:                                                   
   Proceeds from shares sold  . . . . . . . . . . . . . . . . . . . . .          157,574,508     137,863,548
   Net asset value of shares issued to shareholders in                          
      reinvestment of distributions . . . . . . . . . . . . . . . . . .           24,870,442       4,676,091
   Cost of shares redeemed  . . . . . . . . . . . . . . . . . . . . . .         (131,982,527)    (86,357,046)
                                                                                -------------   ------------
Net increase in net assets from Portfolio share transactions  . . . . .           50,462,423      56,182,593
                                                                                -------------   ------------
INCREASE (DECREASE) IN NET ASSETS . . . . . . . . . . . . . . . . . . .             (422,528)     89,862,820
Net assets at beginning of period . . . . . . . . . . . . . . . . . . .          256,953,283     167,090,463
                                                                                =============   ============
NET ASSETS AT END OF PERIOD (including undistributed net                        
   investment income of $507,243 and $238,541, respectively). . . . . .         $256,530,755    $256,953,283
                                                                                -------------   ------------
                                                                                
OTHER INFORMATION                                                               
INCREASE (DECREASE) IN PORTFOLIO SHARES                                         
Shares outstanding at beginning of period . . . . . . . . . . . . . . .           17,184,932      13,146,981
                                                                                -------------   ------------
   Shares sold  . . . . . . . . . . . . . . . . . . . . . . . . . . . .           12,319,350      10,095,666
   Shares issued to shareholders in reinvestment of distributions . . .            1,905,054         375,250
   Shares redeemed  . . . . . . . . . . . . . . . . . . . . . . . . . .          (10,429,402)     (6,432,965)
                                                                                -------------   ------------
   Net increase in Portfolio shares . . . . . . . . . . . . . . . . . .            3,795,002       4,037,951
                                                                                -------------   ------------
Shares outstanding at end of period . . . . . . . . . . . . . . . . . .           20,979,934      17,184,932
                                                                                =============   ============
</TABLE>                                                                        

The accompanying notes are an integral part of the financial statements.

<PAGE>


<TABLE>

CAPITAL GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
----------------------------------------------------------------------------------------------------------------------

THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD AND OTHER 
PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.
<CAPTION>

                                                                                                  Six        For the Period
                                                                                                 Months      July 16, 1985
                                                                                                  Ended      (commencement
                                             Years Ended December 31, (e)                       December     of operations)
                             ----------------------------------------------------------------      31,       to June 30,
                              1994      1993     1992    1991    1990    1989    1988    1987   1986(e)(f)      1986
                             ----------------------------------------------------------------  -----------  --------------
<S>                           <C>      <C>      <C>      <C>    <C>      <C>   <C>     <C>      <C>          <C>
Net asset value,
 beginning of period          $14.95   $12.71   $12.28   $8.99  $10.21   $8.53 $  7.06 $  7.67  $ 7.93       $ 6.00(b)
                              ------   ------   ------   -----  ------   -----  ------ -------  ------       -------
Income from investment
 operations:
 Net investment
   income (a) . . . .            .06      .06      .11     .16     .25     .35     .16     .15     .09          .19
 Net realized and
   unrealized gain
   (loss) on investment
   transactions . . .          (1.42)    2.52      .66    3.35   (1.00)   1.58    1.40    (.28)   (.07)        1.87
                              ------   ------   ------   -----  ------   -----  ------ -------  ------       -------
Total from investment
 operations   . . . .          (1.36)    2.58      .77    3.51    (.75)   1.93    1.56    (.13)    .02         2.06
                              ------   ------   ------   -----  ------   -----  ------ -------  ------       -------
Less distributions from:                
 Net investment
   income . . . . . .           (.05)    (.07)    (.11)   (.22)   (.24)   (.25)   (.09)   (.09)   (.07)        (.13)
 Net realized gains
   on investment
   transactions . . .          (1.31)    (.27)    (.23)     --    (.23)     --      --    (.39)   (.21)          --
                              ------   ------   ------   -----  ------   -----  ------ -------  ------       -------
Total distributions .          (1.36)    (.34)    (.34)   (.22)   (.47)   (.25)   (.09)   (.48)   (.28)        (.13)
                              ------   ------   ------   -----  ------   -----  ------ -------  ------       -------
Net asset value,               
 end of period  . . .         $12.23   $14.95   $12.71  $12.28  $ 8.99  $10.21 $  8.53  $ 7.06  $ 7.67       $ 7.93
                              ======    ======   ======  =====   =====   =====  ======   =====   =====        =====
TOTAL RETURN (%)  . .          (9.67)   20.88     6.42   39.56   (7.45)  22.75   22.07   (1.88)    .26(d)     34.66(d)
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
 period ($ millions)             257      257      167     108      45      45      17      10       1           --
Ratio of operating
 expenses, net to
 average net
 assets (%) (a)   . .            .58      .60      .63     .71     .72     .75     .75     .75     .75(c)       .60(c)
Ratio of net investment
 income to average
 net assets (%)   . .            .47      .46      .95    1.49    2.71    3.51    2.17    1.68    2.21(c)      2.95(c)
Portfolio turnover
 rate (%)   . . . . .          66.44    95.31    56.29   58.88   61.39   63.96  129.75  113.34   38.78(c)     86.22(c)
<FN>
(a) Portion of expenses
   reimbursed (Note B)        $   --   $   --   $   --  $   --  $   --  $  .01 $   .01 $   .04  $  .20       $  .81
(b) Original capital
(c) Annualized
(d) Not annualized
(e) Per share amounts, for each of the periods identified, have been calculated
using the monthly average shares outstanding during the
   period method.
(f) On August 22, 1986, the Trustees voted to change the year end of the Fund
from June 30 to December 31.

</FN>
</TABLE>

The accompanying notes are an integral part of the financial statements.


<PAGE>

<TABLE>
                                                                                                          INTERNATIONAL PORTFOLIO
                                                                                     INVESTMENT PORTFOLIO as of December 31, 1994
----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                               % of        Principal                                                                  Market
                            Portfolio       Amount                                                                   Value ($)
----------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>       <C>                                                                          <C>
                              3.9%          REPURCHASE AGREEMENT
                                        ------------------------------------------------------------------------------------------
                                 U.S.$  18,230,000  Repurchase Agreement with Donaldson, Lufkin &
                                                     Jenrette, dated 12/30/94 at 5.875%, to be 
                                                     repurchased at $18,241,900 on 1/3/95, 
                                                     collateralized by a $17,463,000
                                                     U.S. Treasury Note, 8.5%, 7/15/97 (Cost $18,230,000)  . .       18,230,000
                                                                                                                    -----------
                              1.9%          COMMERCIAL PAPER
                                        ------------------------------------------------------------------------------------------
                                 U.S.$   5,000,000  General Electric Capital Corp., 5.78%, 1/31/95 . . . . . .        5,000,000
                                 U.S.$   1,110,000  J.P. Morgan & Co., Inc., 6.05%, 3/1/95   . . . . . . . . .        1,098,994
                                 U.S.$   3,000,000  Rincon Securities Inc., 6.08%, 1/9/95  . . . . . . . . . .        2,995,947
                                                                                                                    -----------
                                                    TOTAL COMMERCIAL PAPER (Cost $9,094,941) . . . . . . . . .        9,094,941
                                                                                                                    -----------
                              3.9%          SHORT-TERM NOTES
                                        ------------------------------------------------------------------------------------------
                                 U.S.$   6,390,000  Federal Home Loan Mortgage Corp., Discount Note,
                                                     5.76%, 1/24/95  . . . . . . . . . . . . . . . . . . . . .        6,366,485
                                 U.S.$  12,000,000  Federal National Mortgage Association, Discount Note,
                                                     5.8%, 1/9/95  . . . . . . . . . . . . . . . . . . . . . .       11,984,533
                                                                                                                    -----------
                                                    TOTAL SHORT-TERM NOTES (Cost $18,351,018)  . . . . . . . .       18,351,018
                                                                                                                    -----------
                              0.1%          BONDS
                                        ------------------------------------------------------------------------------------------
                                 DM        350,000  Deutsche Bank AG, 8%, 4/11/00   . . . . . . . . . . . . . .         230,389
                                 DM         23,000  Deutsche Bank AG (PC), 9%, 12/31/02 . . . . . . . . . . . .          16,105
                                 DM         33,000  Deutsche Bank AG (PC), 8.75%, 12/31/03  . . . . . . . . . .          22,777
                                                                                                                    -----------
                                                    TOTAL BONDS (Cost $220,601) . . . . . . . . . . . . . . . .         269,271
                                                                                                                    -----------
                              0.6%          CONVERTIBLE BONDS
                                        ------------------------------------------------------------------------------------------
                                 U.S.$   1,900,000  Henderson Land Development Co., Ltd., 4%, 10/27/96
                                                     (Property developer) . . . . . . . . . . . . . . . . . . .       1,805,000
                                 U.S.$   1,050,000  Ssangyong Oil Refining Co., Ltd., 3.75%, 12/31/08 
                                                     (Major oil refiner)  . . . . . . . . . . . . . . . . . . .       1,115,625
                                                                                                                    -----------
                                                     TOTAL CONVERTIBLE BONDS (Cost $2,955,694)  . . . . . . . .       2,920,625
                                                                                                                    -----------
                              2.1%          PREFERRED STOCKS
                                        ------------------------------------------------------------------------------------------
                                         Shares
GERMANY                       1.8%
                                             8,000  Henkel KGAA (Household detergent and adhesives producer). .       2,922,139
                                            10,000  SAP AG (Computer software manufacturer) . . . . . . . . . .       5,666,161
                                                                                                                    -----------
                                                                                                                      8,588,300
                                                                                                                    -----------
ITALY                         0.3%
                                           700,000  Fiat SpA (Multi-industry, automobiles)*   . . . . . . . . .       1,609,741
                                                                                                                    -----------
                                                    TOTAL PREFERRED STOCKS (Cost $6,985,179)  . . . . . . . . .      10,198,041
                                                                                                                    -----------
                             87.5%          COMMON STOCKS
                                        ------------------------------------------------------------------------------------------
ARGENTINA                     1.1%
                                           200,000  Perez Companc S.A. "B" (ADR) (Industrial conglomerate). . .       1,650,000
                                           170,000  YPF SA "D" (ADR) (Petroleum company)  . . . . . . . . . . .       3,633,750
                                                                                                                    -----------
                                                                                                                      5,283,750
                                                                                                                    -----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
INTERNATIONAL PORTFOLIO
------------------------------------------------------------------------------------------------------------------
<CAPTION>
                    % of                                                                                  Market
                  Portfolio      Shares                                                                  Value ($)
------------------------------------------------------------------------------------------------------------------
<S>                  <C>    <C>                                                                         <C>
AUSTRALIA            3.8%
                                1,556,504   Ampol Exploration Ltd. (Oil and gas 
                                              exploration company) . . . . . . . . . . . . . . . .       4,199,267
                                  290,319   Broken Hill Proprietary Co. Ltd. (Petroleum, 
                                              minerals and steel)  . . . . . . . . . . . . . . . .       4,411,390
                                  240,000   CRA Ltd. (Mining, manufacturing and development) . . .       3,311,885
                                  383,759   Coca Cola Amatil Ltd. (Soft drink bottler 
                                              and distributor)   . . . . . . . . . . . . . . . . .       2,439,587
                                2,090,535   M.I.M. Holdings Ltd. (Nonferrous metals and coal)  . .       3,484,495
                                                                                                      ------------      
                                                                                                        17,846,624
                                                                                                      ------------      
BELGIUM              0.3%
                                    3,200   Solvay & Cie. SA (Chemical producer) . . . . . . . . .       1,524,049
                                                                                                      ------------
BRAZIL               3.0%
                                5,178,870   Centrais Eletricas Brasileiras S/A "B"  
                                              (pfd.) (Electric utility)  . . . . . . . . . . . . .       1,797,624
                                3,077,425   Companhia Cervejaria Brahma (pfd.) (Leading beer
                                              producer and distributor)      . . . . . . . . . . .       1,013,152
                               19,421,000  Companhia Vale do Rio Doce (pfd.) (Diverse mining and
                                              industrial complex)    . . . . . . . . . . . . . . .       3,691,595
                               26,360,657  Lojas Americanas S.A. (pfd.) (Discount department
                                              store chain)   . . . . . . . . . . . . . . . . . . .         778,060
                               12,000,000  Petroleo Brasileiro S/A (pfd.) (Petroleum company)  . .       1,515,797
                               40,040,000  Telecomunicacoes Brasileiras S.A. (pfd.)
                                              (Telecommunication services)         . . . . . . . .       1,791,636
                            2,600,000,000  Usinas Siderurgicas de Minas Gerais S/A (pfd.)
                                              (Non-coated flat products and electrolytic
                                              galvanized products) . . . . . . . . . . . . . . . .       3,530,106
                                                                                                      ------------
                                                                                                        14,117,970
                                                                                                      ------------      
CANADA               2.4%                                                                    
                                  200,445   Canadian Pacific Ltd. (Transportation and natural
                                              resource conglomerate) . . . . . . . . . . . . . . .       2,982,919
                                  100,000   Imperial Oil Ltd.(Producer and refiner of natural gas
                                              and petroleum products in Canada)  . . . . . . . . .       3,297,095
                                   71,800   Magna International, Inc. "A" (Manufacturer of
                                              automotive parts)  . . . . . . . . . . . . . . . . .       2,755,325
                                  159,000   Rogers Communications Inc. "B" (Cable TV and
                                              cellular telephones in Canada)*  . . . . . . . . . .       2,125,290
                                                                                                      ------------      
                                                                                                        11,160,629
                                                                                                      ------------
DENMARK              0.3%
                                   35,000   Unidanmark A/S "A" (Bank holding company)*. . . . . .        1,346,309
                                                                                                      ------------
FINLAND              2.6%
                                   78,000   Metsa-Serla Oy "B" (Tissue paper producer) . . . . .         3,425,097
                                   29,000   Nokia AB Oy (Preference) (Leading manufacturer of
                                              cellular telephones)   . . . . . . . . . . . . . .         4,273,349
                                  247,000   Outokumpu Oy "A" (Metals and minerals)*  . . . . . .         4,536,607
                                   94,000   Outokumpu Oy Warrants (expire 6/28/96)*  . . . . . .            83,347
                                                                                                      ------------
                                                                                                        12,318,400
                                                                                                      ------------
FRANCE               5.9%
                                    9,300   Carrefour (Hypermarket and food retailing) . . . . .         3,851,638
                                   14,138   Castorama-Dubois Investissements (Retailer, 
                                              wholesaler and distributor)  . . . . . . . . . . .         1,765,596
                                   10,736   Cetelem (Consumer finance company)   . . . . . . . .         1,919,655
                                   10,000   Continentale d'Equipement Electrique (Protection
                                              equipment for electrical networks)   . . . . . . .           820,071
                                   19,300   ECIA - Equipements et Composants pour l'Industrie
                                              Automobile (Manufacturer of automobile parts and
                                              accessories) . . . . . . . . . . . . . . . . . . .         2,507,807
                                   88,000   Michelin "B" (Leading tire manufacturer)*  . . . . .         3,201,348
                                   12,226   S.A.G.A. (Major freight forwarding, logistics 
                                              and cargo handling operator)   . . . . . . . . . .         1,052,979
                                    2,980   Salomon S.A. (Manufacturer of sports equipment)              1,191,219
                                   34,952   Elf Aquitaine (Petroleum company)    . . . . . . . .         2,459,924
                                   15,420   Elf Aquitaine (ADR)    . . . . . . . . . . . . . . .           543,555



</TABLE>

The accompanying notes are an integral part of the financial statements.



<PAGE>

<TABLE>
                                                                                           INVESTMENT PORTFOLIO
----------------------------------------------------------------------------------------------------------------
<CAPTION>
                  % of                                                                              Market
                Portfolio  Shares                                                                  Value ($)
----------------------------------------------------------------------------------------------------------------
<S>               <C>   <C>                                                                       <C>
                           20,000   Television Francaise (Television broadcasting)..........       1,813,144
                           70,473   Total SA "B" (International oil and gas exploration,        
                                      development and production) ..........................       4,093,002
                           54,687   Valeo SA (Automobile and truck components) .............       2,722,575
                                                                                                  ----------
                                                                                                  27,942,513
                                                                                                  ----------
GERMANY           6.8%
                           20,000   BASF AG (Diversified manufacturer of chemicals for
                                      industrial use)  .....................................       4,123,778
                            6,000   Daimler-Benz AG (Automobile and truck manufacturer) ....       2,950,534
                            8,698   Deutsche Bank AG (Bank)  ...............................       4,041,535
                               46   Deutsche Bank AG Warrants (expire 6/30/95)* ............           4,987
                              330   Deutsche Bank AG Warrants (expire 6/30/97)* ............           8,455
                           18,500   Hoechst AG (Chemical producer) .........................       4,023,426
                           14,860   Mannesmann AG (Bearer) (Diversified construction
                                      and technology company) ..............................       4,046,930
                            6,900   Schering AG (Pharmaceutical and chemical producer) .....       4,528,605
                            3,027   Siemens AG (Bearer) (Manufacturer of electrical and
                                      electronic equipment) ................................       1,267,802
                           12,720   VEBA AG (Electric utility, distributor of oil and 
                                      chemicals)   .........................................       4,432,771
                           10,000   Volkswagen AG (Leading automobile manufacturer) ........       2,749,185
                                                                                                  ----------
                                                                                                  32,178,008
                                                                                                  ----------
HONG KONG         2.4%                                                                            
                          266,000   Cheung Kong Holdings Ltd. (Real estate company) ........       1,082,908
                          288,000   China Light & Power Co., Ltd. (Electric utility) .......       1,232,026
                          209,787   HSBC Holdings Ltd. (Bank)  .............................       2,263,937
                          288,000   Hong Kong & China Gas Co., Ltd. (Gas utility) ..........         465,267
                           24,000   Hong Kong & China Gas Co., Ltd. Warrants
                                      (expire 12/31/95)*  ..................................           4,560
                          330,000   Hong Kong Electric Holdings, Ltd.
                                      (Electric utility and real estate) ...................         902,036
                          732,000   Hutchison Whampoa, Ltd. (Container terminal and real
                                      estate company) ......................................       2,989,493
                          435,000   Hysan Development Co. (Real estate developer)...........         862,973
                          620,000   Johnson Electric Holdings Ltd. (Designer and
                                      manufacturer of micrometers for domestic and
                                      commercial uses)  ....................................       1,422,294
                                                                                                  ----------
                                                                                                  11,225,494
                                                                                                  ----------
INDONESIA         0.8%
                          200,000   Indocement Tunggal (Foreign registered)
                                      (Cement producer) ....................................         575,523
                           50,400   Indonesia Satellite Corp. (ADR) (International
                                      telecommunication services)* .........................       1,801,800
                          402,000   Kalbe Farma (Foreign registered) (Pharmaceutical
                                      producer and distributor) ............................       1,655,186
                                                                                                  ----------    
                                                                                                   4,032,509
                                                                                                  ----------
ITALY             3.6%
                           71,170   Assicurazioni Generali SpA (Life and property
                                      insurance company)  ..................................       1,673,943
                          350,000   Istituto Mobiliare Italiano SpA (Banking and financial
                                      services) ............................................       2,151,356
                        2,500,000   Istituto Nazionale delle Assicurazione (Insurance 
                                      company)* ............................................       3,321,517
                          670,000   La Rinascente SpA di Risparmio (Department store chain)        1,891,862
                          134,000   La Rinascente SpA di Risparmio Warrants
                                      (expire 12/31/99)*  ..................................          41,307
                          134,000   La Rinascente SpA Warrants (expire 12/31/99)* ..........         105,746
                           65,000   Luxottica Group SpA (ADR) (Manufacturer and marketer
                                      of eyeglasses) .......................................       2,218,125
                          964,000   Societa Finanziaria Telefonica Torino SpA (Telephone
                                      utility and telecommunication equipment manufacturer)        2,840,888
                        1,130,000   Telecom Italia SpA (Telecommunication services) ........       2,939,951
                                                                                                  ----------
                                                                                                  17,184,695
                                                                                                  ----------

</TABLE>

The accompanying notes are an integral part of the financial statements.


<PAGE>

<TABLE>
INTERNATIONAL PORTFOLIO
------------------------------------------------------------------------------------------------------------------
<CAPTION>
                   % of                                                                                     Market
                 Portfolio       Shares                                                                   Value ($)
------------------------------------------------------------------------------------------------------------------
<S>                <C>            <C>                                                                  <C>
JAPAN              25.8%
                                    1,000   Amano Corp. (Time-management systems) . . . . . . . . .         14,855
                                  125,000   Bridgestone Corp. (Leading automobile tire
                                              manufacturer) . . . . . . . . . . . . . . . . . . . .      1,957,242
                                  318,000   Canon Inc. (Leading producer of visual image and
                                              information equipment)  . . . . . . . . . . . . . . .      5,394,158
                                   65,000   Cox Co., Ltd. (Men's and ladies' wear chain 
                                              store operator)   . . . . . . . . . . . . . . . . . .      1,285,255
                                      490   DDI Corp. (Long distance telephone and 
                                              cellular operator). . . . . . . . . . . . . . . . . .      4,229,650
                                  400,000   Fujitsu Ltd. (Leading manufacturer of computers)  . . .      4,055,003
                                  190,000   Hitachi Construction Machinery Co., Ltd. (Leading
                                              maker of hydraulic shovels) . . . . . . . . . . . . .      2,498,243
                                  477,000   Hitachi Ltd. (General electronics manufacturer) . . . .      4,735,050
                                  380,000   Hitachi Metals, Ltd. (Major producer of high-quality
                                              specialty steels) . . . . . . . . . . . . . . . . . .      4,653,217
                                   88,000   Horipro Inc. (Growing entertainment production company)      2,172,840
                                   74,000   Ito-Yokado Co., Ltd. (Leading supermarket operator) . .      3,958,848
                                  465,000   Itochu Corp. (Leading general trading company). . . . .      3,313,761
                                   20,000   Japan Associated Finance Co. (Venture capital company).      3,111,513
                                   87,000   Japan Radio Co., Ltd. (Manufacturer of wireless
                                              telecommunication equipment)  . . . . . . . . . . . .      1,292,382
                                  550,000   Kawasaki Steel Corp. (Major integrated steelmaker)*   .      2,302,017
                                   29,000   Keyence Corp. (Specialized manufacturer of sensors)   .      3,289,170
                                   68,000   Kyocera Corp. (Leading ceramic packaging manufacturer).      5,043,862
                                   45,000   Mabuchi Motor Co., Ltd. (Manufacturer of DC motors) . .      3,387,534
                                  210,000   Matsushita Electrical Industrial Co., Ltd. (Consumer
                                              electronic products manufacturer) . . . . . . . . . .      3,456,790
                                  395,000   NGK Spark Plug Co., Ltd. (Leading manufacturer of
                                              automotive spark plugs) . . . . . . . . . . . . . . .      5,193,717
                                  540,000   NSK Ltd. (Leading manufacturer of bearings and other
                                              machinery parts)  . . . . . . . . . . . . . . . . . .      4,281,843
                                   49,000   Nichiei Co., Ltd. (Finance company for small and
                                              medium size firms)  . . . . . . . . . . . . . . . . .      3,147,646
                                  210,000   Nippon Shokubai Corp., Ltd. (Specialty chemical 
                                              producer) . . . . . . . . . . . . . . . . . . . . . .      2,044,565
                                  600,000   Nisshin Steel Co., Ltd. (Blast furnace steelmaker)  . .      3,023,186
                                   90,000   Pioneer Electronics Corp. (Leading manufacturer of
                                              audio equipment)  . . . . . . . . . . . . . . . . . .      2,168,022
                                   50,000   SMC Corp. (Leading maker of pneumatic equipment)  . . .      2,845,528
                                   56,000   Secom Co., Ltd. (Electronic security system operator) .      3,484,894
                                   40,000   Seven-Eleven Japan Co., Ltd. (Leading convenience
                                              store operator) . . . . . . . . . . . . . . . . . . .      3,215,899
                                  250,000   ShinMaywa Industries, Ltd. (Leading maker of dump
                                              trucks and other specialty vehicles)  . . . . . . . .      2,559,470
                                   84,000   Sony Corp. (Consumer electronic products manufacturer).      4,763,625
                                  400,000   Sumitomo Corp. (Leading general trading company, with
                                              offices, subsidiaries and affiliates throughout
                                              the world)  . . . . . . . . . . . . . . . . . . . . .      4,095,152 
                                   21,000   Sumitomo Electric Industries, Ltd. (ADR) (Leading
                                              maker of electric wires and cables) . . . . . . . . .      2,992,500
                                  197,000   Sumitomo Forestry Co., Ltd. (Forestry and house building)    3,163,706
                                  850,000   Sumitomo Metal Industries, Ltd. (Leading integrated
                                              crude steel producer)*  . . . . . . . . . . . . . . .      2,755,696
                                  315,000   Suzuki Motor Corp. (Leading minicar and motorcycle
                                              producer) . . . . . . . . . . . . . . . . . . . . . .      3,699,187
                                   94,000   Takuma Co., Ltd. (Leading maker of boilers, garbage
                                              incinerators and water treatment plants)  . . . . . .      1,698,284
                                  555,000   Toshiba Corp. (General electronics manufacturer)  . . .      4,027,552
                                   32,000   Tsutsumi Jewelry Co., Ltd. (Manufacturer, wholesaler
                                              and retailer of jewelry)  . . . . . . . . . . . . . .      2,922,814
                                                                                                       -----------      
                                                                                                       122,234,676
                                                                                                       -----------
KOREA              0.6%
                                    2,000   Korea International Trust IDR (Investment company)(a)*         117,000
                                   22,000   Samsung Electronics Co., Ltd. (GDS) (Major electronics
                                              manufacturer) . . . . . . . . . . . . . . . . . . . .      1,072,500
                                   33,000   Samsung Electronics Co., Ltd. (GDS) (New(b))  . . . . .      1,485,000
                        


The accompanying notes are an integral part of the financial statements.

</TABLE>


<PAGE>

<TABLE>
                                                                                                              INVESTMENT PORTFOLIO
-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                       % of                                                                                               Market
                     Portfolio       Shares                                                                             Value ($)
-----------------------------------------------------------------------------------------------------------------------------------
<S>                    <C>           <C>                                                                               <C>
                                       2,278   Samsung Electronics Co., Ltd. (GDS) (New(b)) . . . . . . . . .             139,812
                                                                                                                       ----------
                                                                                                                        2,814,312
                                                                                                                       ----------
MALAYSIA               2.0%
                                     294,000   Aokam Perdana Bhd. (Forest products company) . . . . . . . . .           1,819,150
                                     315,000   Malayan Banking Bhd. (Leading banking and financial
                                                services group) . . . . . . . . . . . . . . . . . . . . . . .           1,899,745
                                     870,000   Technology Resources Industries (Mobile telephone
                                                 operator)* . . . . . . . . . . . . . . . . . . . . . . . . .           2,776,777
                                     194,000   Telekom Malaysia Bhd. (Telecommunication services) . . . . . .           1,314,353
                                     250,000   Westmont Bhd. (Investment holding company) . . . . . . . . . .           1,556,687
                                                                                                                       ----------
                                                                                                                        9,366,712
                                                                                                                       ----------
MEXICO                 0.5%
                                     100,000   Grupo Carso, S.A. de CV (ADR) (Diversified industrial
                                                group)* . . . . . . . . . . . . . . . . . . . . . . . . . . .           1,500,000
                                      32,000   Panamerican Beverages Inc. "A" (Soft drink bottler)  . . . . .           1,012,000
                                                                                                                       ----------
                                                                                                                        2,512,000
                                                                                                                       ----------
NETHERLANDS            4.1%
                                      30,000   AEGON Insurance Group NV (Insurance company) . . . . . . . . .           1,918,313
                                      24,000   Akzo-Nobel NV (Chemical producer)  . . . . . . . . . . . . . .           2,770,666
                                     204,870   Elsevier NV (International publisher of scientific,
                                                professional, business, and consumer information books) . . .           2,136,152
                                      69,106   Getronics NV (Computer and software distributor) . . . . . . .           2,519,966
                                      16,000   Heineken Holdings NV "A" (Brewery) . . . . . . . . . . . . . .           2,163,258
                                      50,448   Internationale-Nederlanden Groep CVA (Banking
                                                and insurance holding company)  . . . . . . . . . . . . . . .           2,383,050
                                     122,000   Philips N.V. (Leading manufacturer of electrical equipment). .           3,612,420
                                      26,935   Wolters Kluwer CVA (Publisher) . . . . . . . . . . . . . . . .           1,992,312
                                                                                                                       ----------
                                                                                                                       19,496,137
                                                                                                                       ----------
NORWAY                 0.6%
                                     271,889   Saga Petroleum "A" (Free) (Oil and gas producer) . . . . . . .           2,955,097
                                                                                                                       ----------
PHILIPPINES            0.8%
                                      10,115   Philippine Long Distance Telephone Co.
                                                (Telecommunication services)  . . . . . . . . . . . . . . . .             557,589
                                     600,000   San Miguel Corp. "B" (Brewery) . . . . . . . . . . . . . . . .           3,124,491
                                                                                                                       ----------
                                                                                                                        3,682,080
                                                                                                                       ----------
PORTUGAL               0.3%
                                      30,192   Jeronimo Martins (Food producer and retailer)  . . . . . . . .           1,293,590
                                                                                                                       ----------
SINGAPORE              0.3%
                                     195,000   Sembawang Corp. (Ship repair and maritime
                                                services group) . . . . . . . . . . . . . . . . . . . . . . .           1,458,319
                                                                                                                       ----------
SPAIN                  2.2%
                                      37,400   Acerinox, S.A. (Stainless steel producer). . . . . . . . . . .           3,906,933
                                      21,800   Banco Santander, S.A. (Leading regional bank). . . . . . . . .             834,735
                                       7,266   Banco Santander, S.A. (New(b)) . . . . . . . . . . . . . . . .             269,387
                                     160,000   Compania Telefonica Nacional de Espana S.A.
                                                (Telecommunication services)  . . . . . . . . . . . . . . . .           1,890,218
                                     133,000   Repsol SA (Integrated oil company) . . . . . . . . . . . . . .           3,607,293
                                                                                                                       ----------
                                                                                                                       10,508,566
                                                                                                                       ----------
SWEDEN                 4.0%
                                      99,000   Astra AB "A" (Free) (Pharmaceutical company) . . . . . . . . .           2,558,088
                                         600   Astra AB "B" (Free)  . . . . . . . . . . . . . . . . . . . . .              15,302
                                     155,000   Autoliv AB (Free) (Manufacturer of safety airbags for
                                                automobiles)*   . . . . . . . . . . . . . . . . . . . . . . .           5,965,911
                                      35,000   L.M. Ericsson Telephone Co. "B" (ADR) (Leading
                                                manufacturer of cellular telephone equipment) . . . . . . . .           1,929,375
                                      65,000   Mo och Domsjo AB "B" (Free) (Manufacturer of newsprint, 
                                                paperboard, and various sawn timber products)*  . . . . . . .           3,026,694
</TABLE>




The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
INTERNATIONAL PORTFOLIO
-------------------------------------------------------------------------------------------------------------
<CAPTION>
                  % of                                                                              Market
                Portfolio         Shares                                                            Value ($)
-------------------------------------------------------------------------------------------------------------
<S>                 <C>         <C>                                                               <C>
                                  144,000   S.K.F. AB "B" (Free) (Manufacturer of 
                                              roller bearings)*  . . . . . . . . . . . . . . .      2,373,983
                                  175,000   Volvo AB "B" (Free) (Automobile manufacturer). . .      3,297,199
                                                                                                 ------------                   
                                                                                                   19,166,552
                                                                                                 ------------
SWITZERLAND         4.4%
                                    7,000   Alusuisse-Lonza Holdings AG (Registered)
                                              (Manufacturer of aluminum, chemicals, and paper
                                              packaging products)  . . . . . . . . . . . . . .      3,501,737
                                    5,180   Brown, Boveri & Cie. AG (Bearer) (Manufacturer of
                                              electrical equipment)  . . . . . . . . . . . . .      4,458,594
                                        5   Brown, Boveri & Cie. AG (Registered)   . . . . . .            825
                                    3,335   CS Holdings (Bearer) (Bank)  . . . . . . . . . . .      1,426,357
                                        5   CS Holdings (Bearer) Warrants (expire 12/16/94)* .             35
                                    3,623   Holderbank Financiere Glaris AG (Bearer) 
                                              (Cement company)   . . . . . . . . . . . . . . .      2,742,119  
                                    2,514   Nestle SA (Registered) (Food manufacturer)   . . .      2,394,286
                                    1,710   SGS Holdings SA (Bearer) (Trade inspection 
                                              company)     . . . . . . . . . . . . . . . . . .      2,363,845
                                    4,000   Sulzer Brothers Ltd. (Registered) (Multi-industry
                                              company)   . . . . . . . . . . . . . . . . . . .      2,767,786
                                    5,038   Swiss Bank Corp. (Bearer) (Switzerland's second 
                                              largest universal bank)  . . . . . . . . . . . .      1,392,871
                                       65   Swiss Bank Corp. Warrants (expire 6/30/95)*  . . .            782
                                      143   Swiss Bank Corp. Warrants (expire 6/30/98)*  . . .          1,693
                                      100   Swiss Reinsurance (Registered) (Life, 
                                              accident and health insurance company)   . . . .         60,259
                                                                                                  -----------
                                                                                                   21,111,189
                                                                                                  -----------
THAILAND            1.1%

                                   15,500   American Standard Sanitaryware (Foreign 
                                              registered)(Manufacturer of bathroom fixtures).         209,918
                                  716,000   Sinpinyo Fund #4 (Foreign registered) 
                                              (Investment company)* . . . . . . . . . . . . .         855,606
                                  525,220   Thai Farmers Bank (Foreign registered)
                                              (Commercial bank) . . . . . . . . . . . . . . .       4,267,870
                                                                                                  -----------
                                                                                                    5,333,394
                                                                                                  -----------
TURKEY              0.3%
                                  670,000   Migros Turkey (Retailer)  . . . . . . . . . . . .       1,281,137
                                                                                                  -----------   
UNITED KINGDOM      7.5%
                                  192,000   BAA PLC (Owner and operator of U.S. and 
                                              U.K. airports)  . . . . . . . . . . . . . . . .       1,421,221
                                  600,000   British Gas PLC (Integrated gas utility)  . . . .       2,938,967
                                  300,000   British Petroleum PLC (Major integrated world
                                              oil company)  . . . . . . . . . . . . . . . . .       1,997,653
                                  278,310   Cable and Wireless PLC (International 
                                              telecommunication services in the United  
                                              Kingdom and Hong Kong)  . . . . . . . . . . . .       1,641,985
                                  110,175   Cadbury Schweppes PLC (Candy, soft drinks and 
                                              other food products)  . . . . . . . . . . . . .         744,845
                                  236,000   Carlton Communications PLC (Television post
                                              production products and services) . . . . . . .       3,312,864
                                  310,400   Cookson Group PLC (Industrial materials 
                                              manufacturer)   . . . . . . . . . . . . . . . .       1,117,246
                                  710,218   Hanson PLC (Industrial management company)  . . .       2,567,455
                                1,320,427   Lasmo PLC (Oil production and exploration)*   . .       3,058,266
                                  170,000   Midlands Electricity PLC (Electric companies) . .       2,168,307
                                  255,000   PowerGen PLC (Electric utility)   . . . . . . . .       2,138,967
                                  304,628   RTZ Corp. PLC (Mining and finance company)  . . .       3,947,292
                                  439,200   Reuters Holdings PLC (International 
                                              news agency)  . . . . . . . . . . . . . . . . .       3,216,676
                                  449,140   SmithKline Beecham "A" (Manufacturer of ethical
                                              drugs and healthcare products)  . . . . . . . .       3,187,559
                                  389,000   Waste Management International PLC (Waste
                                              collection and disposal services)*  . . . . . .       2,179,374
                                                                                                  -----------           
                                                                                                   35,638,677
                                                                                                  -----------
                                            TOTAL COMMON STOCKS (Cost $393,294,522)   . . . .     415,013,388
                                                                                                  -----------      
-------------------------------------------------------------------------------------------------------------
                                            TOTAL INVESTMENT PORTFOLIO -- 100.0%
                                              (Cost $449,131,955)(c)  . . . . . . . . . . . .     474,077,284
                                                                                                  ===========
-------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
                                                                                INVESTMENT PORTFOLIO
------------------------------------------------------------------------------------------------------
                                                                                                      
------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>          
  *   Non-income producing security.
(a)   1000 shares = 1 IDR unit for Korea International Trust.
(b)   New shares issued during 1994, eligible for a pro rata share of 1994 dividends.
(c)   At December 31, 1994, the net unrealized appreciation on investments based on 
      cost for federal income tax purposes of $450,408,637 was as follows: 

      Aggregate gross unrealized appreciation for all investments in which there is 
          an excess of market value over tax cost ..................................     $ 44,572,806

      Aggregate gross unrealized depreciation for all investments in which there is 
          an excess of tax cost over market value ..................................      (20,904,159) 
                                                                                         ------------       

      Net unrealized appreciation ..................................................     $ 23,668,647
                                                                                         ============
<FN>
------------------------------------------------------------------------------------------------------
      Purchases and sales of investment securities (excluding short-term investments), for the year 
      ended December 31, 1994, aggregated $339,886,045 and $119,463,911, respectively.
</FN>
</TABLE>
<TABLE>
-------------------------------------------------------------------------------------
      At December 31, 1994, sector diversification of the International Portfolio's 
      equity holdings was as follows:
<CAPTION>
      SECTOR DIVERSIFICATION               EQUITY HOLDINGS               MARKET VALUE
      ----------------------               ---------------               ------------
      <S>                                          <C>                  <C>
      Manufacturing                                 20%                 $ 85,601,911
      Metals and Minerals                           11                    47,139,503
      Durables                                      11                    45,968,873
      Financial                                     10                    43,726,124
      Energy                                         8                    34,126,324
      Service Industries                             6                    27,823,821
      Consumer Discretionary                         6                    24,507,581
      Consumer Staples                               6                    24,038,995
      Communications                                 5                    21,784,847
      Technology                                     5                    19,982,304
      Other                                         12                    53,431,771
                                                   -----                ------------
      TOTAL EQUITY HOLDINGS                         100%                $428,132,054
                                                   =====                ============
-------------------------------------------------------------------------------------
</TABLE>
<TABLE>
      COMMITMENTS:
      As of December 31, 1994, the International Portfolio entered into the following 
      forward foreign currency exchange contracts  resulting in net unrealized depreciation of $1,493,469.
<CAPTION>
                                                                                                 NET UNREALIZED
                                                                                                 APPRECIATION/
                                                                         SETTLETLEMENT           DEPRECIATION
      CONTRACTS TO DELIVER            IN EXCHANGE FOR                        DATE                (U.S.$)
      ----------------------------    -----------------------------   --------------------  --------------------
      <S>                             <C>                 <C>             <C>                   <C>
      U.S. Dollars         859,643    Swiss Francs        1,141,175        1/4/95                  11,916
      U.S. Dollars       2,026,217    British Pound       1,310,874       1/12/95                  25,228
      Japanese Yen      34,195,236    U.S. Dollars          340,639        1/4/95                  (2,583)
      Japanese Yen      30,231,846    U.S. Dollars          303,171        1/5/95                    (270)
      Swiss Francs       1,513,105    U.S. Dollars        1,140,245        1/5/95                 (15,370)
      Japanese Yen      25,040,429    U.S. Dollars          251,194        1/6/95                    (141)
      British Pounds       234,529    U.S. Dollars          361,644       1/12/95                  (5,381)
      Japanese Yen     768,110,000    U.S. Dollars        7,000,000       1/24/95                (731,369)
      Japanese Yen     757,890,000    U.S. Dollars        7,000,000       1/25/95                (629,394)
      Japanese Yen  2  208,822,000    U.S. Dollars       22,000,000       4/28/95                (490,002)
      Japanese Yen  1, 911,000,000    U.S. Dollars       20,000,000       7/10/95                 343,897
                                                                                                ---------
                                                                                               (1,493,469)
                                                                                                =========
---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
Transactions in written put option contracts during the year ended December 31, 1994 were:
<CAPTION>
                                                                                                        PREMIUMS
                                                                          NUMBER OF CONTRACTS         RECEIVED ($)
                                                                     ---------------------------------------------
      <S>                                                                      <C>                      <C>
      Outstanding at December 31, 1993...........................               --                          --
          Contracts written  ....................................              920                      79,336
          Contracts expired  ....................................             (920)                    (79,336)
                                                                     ---------------------------------------------
      Outstanding at December 31, 1994 ..........................               --                          --
                                                                            ======                       ======

</TABLE>
    The accompanying notes are an integral part of the financial statements.


<PAGE>

<TABLE>
INTERNATIONAL PORTFOLIO
FINANCIAL STATEMENTS
-----------------------------------------------------------------------------------------------------
                                        STATEMENT OF ASSETS AND LIABILITIES                                     

DECEMBER 31, 1994                                                                     
-----------------------------------------------------------------------------------------------------
<S>                                                                     <C>             <C>
ASSETS                                                                                
Investments, at market (identified cost $449,131,955) (Note A)  . . .                   $474,077,284
Cash  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                        125,912
Forward foreign currency exchange contracts to buy, at market                         
   (contract cost $2,885,860) (Note A)  . . . . . . . . . . . . . . .                      2,923,004
Receivable on forward foreign currency exchange contracts to sell                     
   (Note A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                     58,396,893
Other receivables:                                                                    
   Investments sold . . . . . . . . . . . . . . . . . . . . . . . . .                      2,420,638
   Portfolio shares sold  . . . . . . . . . . . . . . . . . . . . . .                      1,413,511
   Foreign taxes recoverable  . . . . . . . . . . . . . . . . . . . .                        416,034
   Dividends and interest . . . . . . . . . . . . . . . . . . . . . .                        205,882
                                                                                        ------------
      Total assets  . . . . . . . . . . . . . . . . . . . . . . . . .                    539,979,158
LIABILITIES                                                                           
Payables:                                                                             
   Investments purchased  . . . . . . . . . . . . . . . . . . . . . .   $ 4,596,407   
   Portfolio shares redeemed  . . . . . . . . . . . . . . . . . . . .        52,950   
   Due to Adviser (Note B)  . . . . . . . . . . . . . . . . . . . . .       357,742   
   Accrued expenses (Note B)  . . . . . . . . . . . . . . . . . . . .       122,094   
   Forward foreign currency exchange contracts to buy                                 
      (Note A)  . . . . . . . . . . . . . . . . . . . . . . . . . . .     2,885,860   
   Forward foreign currency exchange contracts to sell,                               
      at market (contract cost $58,396,893) (Note A)  . . . . . . . .    59,927,506   
                                                                        -----------
      Total liabilities . . . . . . . . . . . . . . . . . . . . . . .                     67,942,559
                                                                                        ------------
Net assets, at market value . . . . . . . . . . . . . . . . . . . . .                   $472,036,599
                                                                                        ============
NET ASSETS                                                                            
Net assets consist of:                                                                
   Undistributed net investment income  . . . . . . . . . . . . . . .                   $    722,015
   Unrealized appreciation (depreciation) on:                                         
      Investments . . . . . . . . . . . . . . . . . . . . . . . . . .                     24,945,329
      Foreign currency related transactions . . . . . . . . . . . . .                     (1,505,831)
   Accumulated net realized gain  . . . . . . . . . . . . . . . . . .                      1,548,747
   Paid-in capital  . . . . . . . . . . . . . . . . . . . . . . . . .                    446,326,339
                                                                                        ------------
Net assets, at market value . . . . . . . . . . . . . . . . . . . . .                   $472,036,599
                                                                                        ============
NET ASSET VALUE, offering and redemption price per share                              
   ($472,036,599 -:- 44,139,826 outstanding shares of beneficial                           
   interest, no par value, unlimited number of shares authorized) . .                         $10.69
                                                                                              ======
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
                                                                                   FINANCIAL STATEMENTS
-------------------------------------------------------------------------------------------------------
                                        STATEMENT OF OPERATIONS                  
                                                                                         
YEAR ENDED DECEMBER 31, 1994                                                             
-------------------------------------------------------------------------------------------------------
<S>                                                                       <C>            <C>
INVESTMENT INCOME                                                                        
   Income:                                                                               
      Dividends (net of foreign taxes withheld of $909,141) . . .                        $ 4,589,934
      Interest (net of foreign taxes withheld of $52,996) . . . .                          1,791,616
                                                                                         -----------
                                                                                           6,381,550
   Expenses (Note A):                                                                    
      Management fee (Note B) . . . . . . . . . . . . . . . . . .         $ 3,363,597    
      Administrative fees (Note B)  . . . . . . . . . . . . . . .              45,272    
      Accounting fees (Note B)  . . . . . . . . . . . . . . . . .              96,548    
      Trustees' fees (Note B) . . . . . . . . . . . . . . . . . .              13,121    
      Custodian fees  . . . . . . . . . . . . . . . . . . . . . .             469,330    
      Auditing  . . . . . . . . . . . . . . . . . . . . . . . . .              50,810    
      Legal . . . . . . . . . . . . . . . . . . . . . . . . . . .              20,064    
      Other . . . . . . . . . . . . . . . . . . . . . . . . . . .             112,281      4,171,023
                                                                          -----------    -----------
   Net investment income  . . . . . . . . . . . . . . . . . . . .                          2,210,527
                                                                                         -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS                       
   Net realized gain (loss) from:                                                        
      Investments . . . . . . . . . . . . . . . . . . . . . . . .           4,033,919    
      Options . . . . . . . . . . . . . . . . . . . . . . . . . .              28,258    
      Foreign currency related transactions . . . . . . . . . . .            (391,175)     3,671,002
                                                                          -----------    
   Net unrealized depreciation during the period on:                                     
      Investments . . . . . . . . . . . . . . . . . . . . . . . .         (13,368,706)   
      Foreign currency related transactions . . . . . . . . . . .          (1,498,201)   (14,866,907)
                                                                          -----------    -----------
   Net loss on investment transactions  . . . . . . . . . . . . .                        (11,195,905)
                                                                                         -----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS  . . . . . .                        $(8,985,378)
                                                                                         -----------
</TABLE> 


The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
                                                                                INTERNATIONAL PORTFOLIO
---------------------------------------------------------------------------------------------------------
                                      STATEMENTS OF CHANGES IN NET ASSETS
---------------------------------------------------------------------------------------------------------
<CAPTION>                                                                  
                                                                            YEARS ENDED DECEMBER 31,
                                                                           -----------------------------
Increase (Decrease) in Net Assets                                          1994             1993
---------------------------------------------------------------------------------------------------------
<S>                                                                        <C>               <C>
Operations:                                                                
   Net investment income  . . . . . . . . . . . . . . . . . . . . . . .    $  2,210,527      $  1,092,953
   Net realized gain from investment transactions . . . . . . . . . . .       3,671,002           823,463
   Net unrealized appreciation (depreciation) on investment                
      transactions during the period  . . . . . . . . . . . . . . . . .     (14,866,907)       37,190,760
                                                                           -------------     -------------
Net increase (decrease) in net assets resulting from operations . . . .      (8,985,378)       39,107,176
                                                                           -------------     -------------
Distributions to shareholders:                                             
   From net investment income ($.07 and $.14 per share, respectively) .      (1,958,854)       (1,135,018)
                                                                           -------------     -------------
   In excess of net investment income ($.12 per share)  . . . . . . . .              --          (914,392)
                                                                           -------------     -------------
Portfolio share transactions:                                              
   Proceeds from shares sold  . . . . . . . . . . . . . . . . . . . . .     313,276,872       150,601,515
   Net asset value of shares issued to shareholders in                     
      reinvestment of distributions . . . . . . . . . . . . . . . . . .       1,958,854         2,049,410
   Cost of shares redeemed  . . . . . . . . . . . . . . . . . . . . . .     (70,378,561)      (16,376,694)
                                                                           -------------     -------------
Net increase in net assets from Portfolio share transactions  . . . . .     244,857,165       136,274,231
                                                                           -------------     -------------
INCREASE IN NET ASSETS  . . . . . . . . . . . . . . . . . . . . . . . .     233,912,933       173,331,997
Net assets at beginning of period . . . . . . . . . . . . . . . . . . .     238,123,666        64,791,669
                                                                           -------------     -------------
NET ASSETS AT END OF PERIOD (including undistributed net investment        
   income of $722,015 and $1,007,330, respectively) . . . . . . . . . .    $472,036,599      $238,123,666
                                                                           =============     =============
OTHER INFORMATION                                                          
INCREASE (DECREASE) IN PORTFOLIO SHARES                                    
Shares outstanding at beginning of period . . . . . . . . . . . . . . .      21,943,195         7,975,250
                                                                           -------------     -------------
   Shares sold  . . . . . . . . . . . . . . . . . . . . . . . . . . . .      28,463,330        15,488,679
   Shares issued to shareholders in reinvestment of distributions . . .         177,916           252,390
   Shares redeemed  . . . . . . . . . . . . . . . . . . . . . . . . . .      (6,444,615)       (1,773,124)
                                                                           -------------     -------------
   Net increase in Portfolio shares . . . . . . . . . . . . . . . . . .      22,196,631        13,967,945
                                                                           -------------     -------------
Shares outstanding at end of period . . . . . . . . . . . . . . . . . .      44,139,826        21,943,195
                                                                           =============     =============
</TABLE>                                                                   

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
                                                                             FINANCIAL HIGHLIGHTS

THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 
AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.  
<CAPTION>
                                                                                                      FOR THE PERIOD
                                                                                                       MAY 1, 1987
                                                                                                      (COMMENCEMENT
                                                        Years Ended December 31,                     OF OPERATIONS) TO
                                        ------------------------------------------------------------  DECEMBER 31,
                                        1994(e)  1993(e)  1992(e)  1991(e)  1990(e)  1989(e)  1988       1987 
                                        ------------------------------------------------------------ --------------
<S>                                     <C>      <C>      <C>      <C>      <C>      <C>      <C>    <C>
Net asset value,
 beginning of period  . . . . . . .     $10.85   $ 8.12   $ 8.47   $ 7.78   $ 8.46   $ 6.14   $ 5.26 $  6.00(b)
                                        ------   ------   ------   ------   ------   ------   ------ -------
Income from investment
 operations:
 Net investment income (a)  . . . .        .06      .09      .10      .12      .25      .10      .09      --
 Net realized and unrealized                               
   gain (loss) on investment
   transactions . . . . . . . . . .       (.15)    2.90     (.36)     .77     (.89)    2.22(f)   .79    (.64)
                                        ------    -----    -----    -----    -----    -----    -----   -----       
Total from investment
 operations   . . . . . . . . . . .       (.09)    2.99     (.26)     .89     (.64)    2.32      .88    (.64)
                                        ------    -----    -----    -----    -----    -----    -----   -----        
Less distributions:
 From net investment income   . . .       (.07)    (.14)    (.09)    (.20)    (.04)      --       --      --
 In excess of net investment income         --     (.12)      --       --       --       --       --      --
 From net realized gains on
   investment transactions  . . . .         --       --       --       --       --       --       --    (.10)
                                        ------    -----    -----    -----    -----    -----    -----   -----
Total distributions . . . . . . . .       (.07)    (.26)    (.09)    (.20)    (.04)      --       --    (.10)
                                        ------    -----    -----    -----    -----    -----    -----   -----    
Net asset value, end of period  . .     $10.69   $10.85   $ 8.12   $ 8.47   $ 7.78   $ 8.46   $ 6.14   $5.26
                                        ======   ======   ======   ======   ======   ======   ======   =====
TOTAL RETURN (%)  . . . . . . . . .       (.85)   37.82    (3.08)   11.45    (7.65)   37.79    16.73  (10.64)(d)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period 
($ millions)  . . . . . . . . . . .        472      238       65       41       35       17        3       2
Ratio of operating expenses,
 net to average net assets (%) (a)        1.08     1.20     1.31     1.39     1.38     1.50     1.50    1.50(c)
Ratio of net investment income
 to average net assets (%)  . . . .        .57      .91     1.23     1.43     2.89     1.30     1.59     .02(c)
Portfolio turnover rate (%) . . . .      33.52    20.36    34.42    45.01    26.67    57.69   110.42  146.08(c)
(a) Portion of expenses                                                
   reimbursed (Note B)  . . . . . .     $   --   $   --   $   --   $   --    $  --    $ .02  $   .14 $   .07
<FN>
(b) Original capital
(c) Annualized
(d) Not annualized
(e) Per share amounts, for each of the periods identified, have been calculated
using the monthly average shares outstanding during the
   period method.
(f) Includes provision for federal income tax of $.03 per share.





The accompanying notes are an integral part of the financial statements.


</FN>
</TABLE>


<PAGE>


SCUDDER VARIABLE LIFE INVESTMENT FUND
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
A. SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------------------------------------
Scudder Variable Life Investment Fund (the "Fund") is organized as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as an open-end, diversified management investment company.
Its shares of beneficial interest are divided into six separate diversified
series, called "Portfolios." The Portfolios are comprised of the Money Market
Portfolio, Bond Portfolio, Balanced Portfolio, Growth and Income Portfolio
(which commenced operations on May 2, 1994), Capital Growth Portfolio, and
International Portfolio.

The Fund is intended to be the funding vehicle for variable annuity contracts
and variable life insurance policies to be offered by the separate accounts of
certain life insurance companies ("Participating Insurance Companies"). As of
December 31, 1994, ownership breakdown of the Portfolios by each Participating
Insurance Company is as follows:

<TABLE>
<CAPTION>
                                                                        PORTFOLIOS
                        
                                                                                  GROWTH
          PARTICIPATING                        MONEY                               AND       CAPITAL    INTERNA-
       INSURANCE COMPANIES                     MARKET      BOND      BALANCED     INCOME     GROWTH      TIONAL
------------------------------------        -------------------------------------------------------------------------
<S>                                             <C>        <C>         <C>         <C>        <C>         <C>
Aetna Life Insurance & Annuity Co. .....         --%        --%         --%         --%        --%       40.4%
American Skandia Life Assurance Co......         --       37.7         0.1          --        0.1         0.3
AUSA Life Insurance Co. ................         --         --          --          --         --         0.3
Banner Life Insurance Co................        0.2        0.3         6.8          --        1.1         0.4
Charter National Life Insurance Co......       66.5       11.7        80.5        87.9       27.3        19.8
Fortis Benefits Insurance Co............         --         --          --          --         --         0.2
Intramerica Life Insurance Co...........        4.9        1.3         5.7        12.1        2.4         1.8
Lincoln Benefit Life Co.................         --        0.1         1.2          --         --          --
Mutual of America Life Insurance Co.....         --       47.4          --          --       65.0        29.6
Paragon Life Insurance Co...............         --         --         0.2          --        0.1          --
Providentmutual Life and Annuity Co            
of America..............................         --        1.5          --          --         --          --
Safeco Life Insurance Co................         --         --         5.5          --         --         1.7
Union Central Life Insurance Co. .......       28.3         --          --          --        4.0         5.5
United of Omaha Life Insurance Co. .....        0.1         --          --          --         --          --
                                            -------------------------------------------------------------------
                                              100.0%     100.0%      100.0%      100.0%     100.0%      100.0%
                                              =======    =======     =======     =======    =======     =======
</TABLE>



The policies described below are followed consistently by the Fund in the
preparation of the financial statements for its Portfolios in conformity with
generally accepted accounting principles.

SECURITY VALUATION. The Money Market Portfolio values all securities utilizing
the amortized cost method permitted in accordance with Rule 2a-7 under the
Investment Company Act of 1940, as amended, and pursuant to which the Portfolio
must adhere to certain conditions. Under this method, which does not take into
account unrealized gains or losses on securities, an instrument is initially
valued at its cost and thereafter assumes a constant accretion/amortization to
maturity of any discount/premium.

Securities in each of the remaining Portfolios are valued in the following
manner:

Portfolio securities which are traded on U.S. or foreign stock exchanges are
valued at the most recent sale price reported on the exchange on which the
security is traded most extensively. If no sale occurred, the security is then
valued at the calculated mean between the most recent bid and asked quotations.
If there are no such bid and asked quotations, the most recent bid quotation is
used. Securities quoted on the National Association of Securities Dealers
Automatic Quotation ("NASDAQ") System, for which there have been sales, are
valued at the most recent sale price reported on such system. If there are no
such sales, the value is the high or "inside" bid quotation. Securities which
are not quoted on the NASDAQ System but are traded in another over-the-counter
market are valued at the most recent sale price on such market. If no sale
occurred, the security is then valued at the calculated mean between the most
recent bid and asked quotations. If there are no such bid and asked quotations,
the most recent bid quotation shall be used.

<PAGE>

                                                  NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Portfolio debt securities with remaining maturities greater than sixty days are
valued by pricing agents approved by the officers of the Fund, which quotations
reflect broker/dealer-supplied valuations and electronic data processing
techniques. If the pricing agents are unable to provide such quotations, the
most recent bid quotation supplied by a bona fide market maker shall be used.
Short-term investments having a maturity of sixty days or less are valued at
amortized cost.

All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Trustees.

OPTIONS. The International Portfolio may purchase and write (sell)
exchange-listed and over-the-counter call and put options on securities and
other financial instruments. Exchange traded options are valued at the last
sale price or, in the absence of a sale, the mean between the closing bid and
asked quotations or at the most recent asked quotation (if written) or the most
recent bid quotation (if purchased) if no bid and asked quotations are
available. Over-the-counter options are valued at the most recent asked
quotation (if written) or the most recent bid quotation (if purchased).

FOREIGN CURRENCY TRANSLATIONS. The books and records of the Portfolios are
maintained in U.S. dollars. Foreign currency transactions are translated into
U.S. dollars on the following basis:

      (i)  market value of investment securities, other assets and liabilities
           at the daily rates of exchange, and

      (ii) purchases and sales of investment securities, dividend and interest
           income and certain expenses at the rates of exchange prevailing on
           the respective dates of such transactions.

The Portfolios do not isolate that portion of gains and losses on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included
with the net realized and unrealized gains and losses from investments.

Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on dividends,
interest, and foreign withholding taxes.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. In connection with portfolio
purchases and sales of securities denominated in a foreign currency, the
non-money market Portfolios may enter into forward foreign currency exchange
contracts ("contracts"). During the period, to hedge a portion of the
International Portfolio's Japanese Yen currency exposure, the International
Portfolio entered into Japanese Yen forward exchange contracts. Contracts are
recorded at market value. Certain risks may arise upon entering into these
contracts from the potential inability of counterparties to meet the terms of
their contracts. Realized and unrealized gains and losses arising from such
transactions are included in net realized and unrealized gain (loss) from
foreign currency related transactions.

REPURCHASE AGREEMENTS. The Fund on behalf of each Portfolio may enter into
repurchase agreements with U.S. and foreign banks and broker/dealers whereby
the Fund, through its custodian, receives delivery of the underlying
securities, the amount of which at the time of purchase and each subsequent
business day is required to be maintained at such a level that the market
value, depending on the maturity of the repurchase agreement and the underlying
collateral, is equal to at least 100.5% of the resale price.

FEDERAL INCOME TAXES. Each Portfolio is treated as a single corporate taxpayer
as provided for in the Internal Revenue Code of 1986, as amended. It is each
Portfolio's policy to comply with the requirements of the Internal Revenue Code
which are applicable to regulated investment companies and to distribute all of
its investment company taxable income to the separate accounts of the
Participating Insurance Companies which hold its shares. Accordingly, the
Portfolios paid no federal income taxes and no provision for federal income
taxes was required.

DISTRIBUTION OF INCOME AND GAINS. All of the net investment income of the Money
Market Portfolio is declared as a dividend to shareholders of record as of the
close of business each day and is paid to shareholders monthly. Dividends from
the Bond Portfolio, Balanced Portfolio, Growth and  Income Portfolio, and the
Capital Growth Portfolio are declared and paid quarterly in April, July,
October and January. All of the net investment income of the International
Portfolio normally will be declared and distributed as a dividend annually.
During any particular year, net realized gains from investment


<PAGE>

SCUDDER VARIABLE LIFE INVESTMENT FUND
--------------------------------------------------------------------------------

transactions for each Portfolio, in excess of available capital loss
carryforwards, would be taxable to the Portfolio if not distributed and,
therefore, will be distributed to the Participating Insurance Companies.

The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax
regulations which may differ from generally accepted accounting principles. The
differences primarily relate to investments in forward contracts, passive
foreign investment companies, post October loss deferral, non-taxable
distributions, and certain securities sold at a loss. As a result, net
investment income (loss) and net realized gain (loss) on investment
transactions for a reporting period may differ significantly from distributions
during such period. Accordingly, the Portfolios may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of each Portfolio. The Portfolios use the specific
identification method for determining realized gain or loss on investments for
both financial and federal income tax reporting purposes.

EXPENSES. Each Portfolio is charged for those expenses which are directly
attributable to it, such as management fees and custodian fees, while other
expenses (reports to shareholders, legal and audit fees) are allocated based on
relative net asset value among the Portfolios.

OTHER. Investment security transactions are accounted for on a trade date
basis. Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. All
original issue discounts are accreted for both tax and financial reporting
purposes.

B. RELATED PARTIES
--------------------------------------------------------------------------------
Under the Fund's Investment Advisory Agreement (the "Agreement") with Scudder,
Stevens and Clark, Inc. (the "Adviser"), the Fund agrees to pay the Adviser a
fee, based on average daily net assets, equal to an annual rate of 0.37% for
the Money Market Portfolio, 0.475% for the Bond Portfolio, 0.475% for the
Balanced Portfolio, 0.475% for the Growth and Income Portfolio, 0.475% for the
Capital Growth Portfolio, and 0.875% for the International Portfolio.

The Trustees authorized the Fund to pay the Adviser and Scudder Investor
Services, Inc. ("Investor Services"), a wholly-owned subsidiary of the Adviser,
for certain administrative expenses of the Fund in accordance with the
Agreement. Effective October 1, 1994, the Trustees authorized the elimination
of these administrative expenses.

The Trustees authorized the Fund on behalf of each Portfolio to pay Investor
Services for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. Effective October 1,
1994, under a new agreement, the Trustees authorized the Fund to pay Scudder
Fund Accounting Corp., a wholly-owned subsidiary of the Adviser, for such
services.

Related fees for such services are detailed in each Portfolio's statement of
operations.

For a period of five years from the date of execution of a Participation
Agreement with the Fund, and from year to year thereafter as agreed by the Fund
and the Participating Insurance Companies, each of the Participating Insurance
Companies has agreed to reimburse the Fund to the extent that the annual
operating expenses of any Portfolio of the Fund, other than the International
Portfolio, exceed three-quarters of one percent (0.75 of 1%) of that
Portfolio's average annual net assets. The Participating Insurance Companies
have agreed to reimburse the Fund to the extent that such expenses of the
International Portfolio exceed one and one-half percent (1.50 of 1%) of the
Portfolio's average annual net assets. The Adviser may advance some or all of
such reimbursement to the Fund prior to receiving payment therefore from a
Participating Insurance Company, but it is under no obligation to do so. If the
Adviser does advance such reimbursement to the Fund and does not receive
payment therefore, it will be entitled to be repaid such amounts by the Fund.
The amount due to the Adviser represents unpaid management fee, administrative
fees and accounting fees.  In addition to the reimbursement by Participating
Insurance Companies noted above, until April 30, 1996, the Adviser has agreed
to waive part or all of its fees for the Growth and Income Portfolio to the
extent that the Portfolio's expenses will be maintained at 0.75%.

The Fund pays each Trustee not affiliated with the Adviser and not a Trustee of
other Scudder affiliated funds $7,500 annually plus specified amounts for
attended board and committee meetings. The Fund pays each Trustee not
affiliated with the Adviser and who is a Trustee of other Scudder affiliated
funds $5,000 annually plus specified amounts for attended board and committee
meetings. Allocated Trustees' fees for each Portfolio for the year ended
December 31, 1994 are detailed in each Portfolio's statement of operations.


<PAGE>

                                          SCUDDER VARIABLE LIFE INVESTMENT FUND
                                              REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------

TO THE TRUSTEES AND SHAREHOLDERS OF SCUDDER VARIABLE LIFE INVESTMENT FUND:

We have audited the accompanying statements of assets and liabilities of
Scudder Variable Life Investment Fund (comprised of the six Portfolios
identified in Note A), including the investment portfolios, as of December 31,
1994, and the related statements of operations, the statements of changes in
net assets, and the financial highlights for each of the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Scudder Variable Life Investment Fund (comprised of the six Portfolios
identified in Note A) as of December 31, 1994, the results of their operations,
the changes in their net assets, and their financial highlights for each of the
periods indicated therein in conformity with generally accepted accounting
principles.


Boston, Massachusetts                                  COOPERS & LYBRAND L.L.P.
February 3, 1995

<PAGE>

SCUDDER VARIABLE LIFE INVESTMENT FUND
TAX INFORMATION
--------------------------------------------------------------------------------

Pursuant to section 852 of the Internal Revenue Code, the Balanced Portfolio,
Capital Growth Portfolio, and International Portfolio designate $292,083,
$5,511,650, and $1,548,747, respectively, as capital gain dividends for the
year ended December 31, 1994.

<PAGE>
Celebrating 75 Years of Serving Investors

     Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven
Clark, Scudder, Stevens & Clark was the first independent investment
counsel firm in the United States. Since its birth, Scudder's pioneering
spirit and commitment to professional long-term investment management have
helped shape the investment industry. In 1928, we introduced the nation's
first no-load mutual fund. Today we offer 36 pure no load(tm) funds,
including the first international mutual fund offered to U.S. investors.

     Over the years, Scudder's global investment perspective and dedication
to research and fundamental investment disciplines have helped Scudder
become one of the largest and most respected investment managers in the
world. Though times have changed since our beginnings, we remain committed
to our long-standing principles: managing money with integrity and
distinction; keeping the interests of our clients first; providing access
to investments and markets that may not be easily available to individuals;
and making investing as simple and convenient as possible through friendly,
comprehensive service.

An investment in the Money Market Portfolio is neither insured nor
guaranteed by the United States Government and there can be no assurance
that the Portfolio will be able to maintain a stable net asset value of
$1.00 per share.

This information must be preceded or accompanied by a current prospectus.

Portfolio changes should not be considered recommendations for action by
individual investors.

<PAGE>



                                   APPENDIX E

                      SCUDDER VARIABLE LIFE INVESTMENT FUND
                     Semi-Annual Report dated June 30, 1995


     The Fund's semi-annual report dated June 30, 1995, immediately follows this
page.



<PAGE>

                              Scudder Variable Life
                                 Investment Fund



                                Semiannual Report
                                  June 30, 1995

















   An open-end management investment company that offers shares of beneficial
                interest in six types of diversified portfolios.

<PAGE>

                     Scudder Variable Life Investment Fund


                                    Contents

Letter from the Fund's President ..........................................    2

Money Market Portfolio Management Discussion ..............................    3

Bond Portfolio Management Discussion ......................................    4

Bond Portfolio Summary ....................................................    5

Balanced Portfolio Management Discussion ..................................    6

Balanced Portfolio Summary ................................................    7

Growth and Income Portfolio Management Discussion .........................    8

Growth and Income Portfolio Summary .......................................    9

Capital Growth Portfolio Management Discussion ............................   10

Capital Growth Portfolio Summary ..........................................   11

International Portfolio Management Discussion .............................   12

International Portfolio Summary ...........................................   13

Investment Portfolios, Financial Statements, and Financial Highlights

         Money Market Portfolio ...........................................   14

         Bond Portfolio ...................................................   20

         Balanced Portfolio ...............................................   27

         Growth and Income Portfolio ......................................   37

         Capital Growth Portfolio .........................................   45

         International Portfolio ..........................................   54

Notes to Financial Statements .............................................   64

<PAGE>

SCUDDER VARIABLE LIFE INVESTMENT FUND
LETTER FROM THE FUND'S PRESIDENT

Dear Shareholders,

         Stock and bond prices worldwide improved dramatically in the first half
of this year as concerns about inflationary economic growth all but disappeared.
Economic growth in the United States and Europe has shown signs of weakening in
recent months, allowing stock investors to focus on the strong corporate
earnings increases that have characterized the past few years. Bond investors,
believing that inflation is no longer a current concern, have pushed prices
higher and interest rates lower. In the United States, the Federal Reserve
assured investors that this was the case with a quarter of a percentage point
reduction in the federal funds rate in early July.

         While growth in capital markets is always welcome, rapid increases in
asset prices often warn of excess. A 20% rise in the U.S. stock market in six
months, for example, is not reflective of an economy late in its expansionary
cycle. Indeed, the recent surge in mergers and acquisitions suggests that
corporations have exhausted the benefits of downsizing and are looking to other
means of generating profits. At a minimum, we think it will be difficult for the
markets to repeat in the next six months their performance in the first half of
this year, and caution investors not to be surprised by any near-term
corrections.

         Longer term, however, we believe that investment prospects around the
world are fundamentally positive. In our view, the driver of capital market
returns over the next five years will be disinflationary growth, dominated by
such forces as technological innovation, deregulation, and monetary restraint.
While both stock and bond markets will offer opportunity, those industries and
companies that flexibly accommodate change should offer above-average returns.
However, emerging markets and industries that truly emerge are likely to produce
the highest returns of all. A global disinflationary growth environment runs
counter to much of our previous economic experience. With an approach to
investment management grounded in innovative independent research, Scudder's
portfolio managers and analysts will continually assess the changing economic
landscape to try to identify those investment opportunities that provide
financial reward for shareholders with an appropriate level of risk.

         In closing, I am pleased to announce that Stephen L. Akers has joined
the Money Market Portfolio's management team and that Bruce F. Beaty has joined
the Capital Growth Portfolio's management team, replacing Steven P. Aronoff and
Julia D. Cox. Stephen joined Scudder in 1984 and is the Director of Scudder's
Reserve Asset Management Group, managing several portfolios. Bruce joined
Scudder in 1991 as a member of Scudder's Global Equity Group, concentrating on
research and investment in U.S. equities, and has 15 years' experience in stock
analysis and investing.

         Thank you for choosing Scudder Variable Life Investment Fund to help
meet your investment needs.

                                       Sincerely,

                                       /s/David B. Watts
                                       David B. Watts
                                       President,
                                       Scudder Variable Life Investment Fund



                                       2
<PAGE>

MONEY MARKET PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION

Dear Shareholders,

         We are pleased to report that Money Market Portfolio provided investors
with a stable $1.00 share price during the first half of 1995 and a 5.55% 7-day
net annualized yield as of June 30. The Portfolio also returned a competitive
2.83% for the same period, compared with 2.73% for the 85 money market funds
tracked by Lipper Analytical Services. While money markets generally offer
higher yields than insured bank savings accounts, it is important to keep in
mind that the Portfolio's yield will continue to fluctuate with prevailing
interest rates.

         After rising for much of 1994, long-term interest rates have declined
thus far in 1995. The Federal Reserve's series of rate hikes last year reassured
investors that inflation was under control. Shortly after the close of the June
30 semiannual period, the Fed reduced short-term interest rates by 1/4 of a
percentage point, providing further evidence that inflation is not currently a
threat to the economy. Given this year's interest rate environment, Money Market
Portfolio has extended its average maturity to 52 days at the close of the
six-month period, in contrast with 35 days six months earlier. Additional
interest rate declines will be the impetus for further adjustments of the
Portfolio's average maturity as we strive to provide both competitive yields and
price stability for shareholders.

         Corporate commercial paper constituted a significant portion of the
Portfolio throughout the period. These securities, which provide companies with
short-term funds at a lower rate than is typically offered by banks, continue to
provide attractive relative yields. At the end of the period, commercial paper
accounted for approximately 60% of the Portfolio.

         If, in the coming months, the economy continues to slow and inflation
remains under control, we intend to favor longer-term money market securities to
"lock in" higher interest rates. As always, our focus will remain on quality as
we select short-term money market investments to maintain Money Market
Portfolio's stable share price and competitive yield.

      Sincerely,
      Your Portfolio Management Team

      /s/Robert T. Neff                  /s/Stephen L. Akers
      Robert T. Neff                     Stephen L. Akers
      Lead Portfolio Manager

      /s/Nicca B. Alcantara
      Nicca B. Alcantara


                                       3
<PAGE>

BOND PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION

Dear Shareholders,

         The unmanaged Lehman Brothers Aggregate Bond Index provided a total
return of 11.44% for the six months ended June 30, the strongest first-half
return since the index was created in the early 1970s. The dramatic rally in
bonds so far this year reflects a much more benign interest rate environment
than existed last year. Indeed, the recent easing of interest rates by the
Federal Reserve, coming after a series of rate hikes in 1994, testifies to their
confidence in the current trend of slow economic growth and low inflation. While
interest rates have eased in many parts of the globe, the U.S. market provided
stronger overall returns (as measured by ten-year bonds) than those of its G-7
partners Canada, France, Germany, Italy, Japan, and the United Kingdom.

         The Bond Portfolio returned 10.40% during the period and provided a
6.89% 30-day net annualized SEC yield as of June 30. Performance, while strong,
reflects the fact that managed bond portfolios typically underperform the market
averages in periods of strong price appreciation. Unlike the indexes, bond
portfolios need to maintain some cash reserves at all times, which acts as a
drag on performance during market rallies.

         As the interest rate environment improved starting late last year, we
began to increase the Portfolio's duration. As of June 30, 1995, the average
duration stood at 5.22 years, compared with 5.09 years on December 31, 1994. The
longer duration allows the Portfolio to participate more fully in the bond price
rally while capturing higher relative yields. We also de-emphasized our position
in mortgage-backed securities during the period, which aided overall Portfolio
performance. These securities tend to underperform other types of bonds during
periods of strong price appreciation, because as yields decline the risk of
mortgage prepayment increases. Another contributor to performance was our
corporate bond holdings, where strong security selection resulted in solid price
appreciation during the period.

         Our current outlook calls for the possibility of further interest rate
declines over the next year to year-and-a-half. Evidence now suggests that
weaker economic growth and low inflation exists in most of the industrialized
world, which makes the global environment more conducive to easier monetary
policy and lower rates. Even so, after such unusually strong bond market returns
in the first half, we will be watching for periods of price corrections, which
could result from profit-taking or a spate of higher growth later this year. In
the coming months, we intend to maintain or slightly increase duration, and
focus more on intermediate-term securities, which currently offer solid values
in our opinion. We view the Portfolio's current positioning, with its emphasis
on both competitive yields and price appreciation, as appropriate in the current
environment.

      Sincerely,

      Your Portfolio Management Team

      /s/Ruth Heisler                    /s/Renee L. Ross
      Ruth Heisler                       Renee L. Ross
      Lead Portfolio Manager


      /s/William M. Hutchinson
      William M. Hutchinson



                                       4
<PAGE>

Bond Portfolio
Portfolio Summary as of June 30, 1995
-----------------------------------------------------------------
Growth of a $10,000 Investment
-----------------------------------------------------------------
Bond Portfolio
----------------------------------------
                     Total Return
  Period   Growth    -------------
   Ended     of               Average
 6/30/95  $10,000  Cumulative  Annual
--------- -------  ----------  -------
1 Year    $11,142    11.42%    11.42%
5 Year    $15,701    57.01%     9.44%
Life of   
Fund*     $23,117   131.17%     8.78%

LB Aggregate Bond Index
--------------------------------------
                     Total Return
  Period   Growth    -------------
   Ended     of               Average
 6/30/95  $10,000  Cumulative  Annual
--------- -------  ----------  -------
1 Year    $11,255    12.55%    12.55%
5 Year    $15,676    56.76%     9.40%
Life of  
Fund*     $26,052   160.52%    10.14%

*The Fund commenced operations on July 16, 1985.
Index comparisons begin July 31, 1985.

A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment. 
The data points from the graph are as follows:

Yearly periods ended June 30

Bond Portfolio
Year           Amount
---------------------
7/31/85*        10000
86              11492
87              11935
88              12656
89              13817
90              14699
91              16171
92              18573
93              21202
94              20713
95              23079

LB Aggregate Bond Index
Year            Amount
----------------------
7/31/85*        10000
86              12043
87              12708
88              13731
89              15409
90              16619
91              18397
92              20980
93              23453
94              26052

The Lehman Brothers (LB) Aggregate Bond Index is an unmanaged market 
value-weighted measure of treasury issues, agency issues, corporate
bond issues and mortgage securities. Index returns assume reinvestment
of dividends and, unlike Fund returns, do not reflect any fees or
expenses.

All performance is historical, assumes reinvestment of all dividends
and capital gains, and is not indicative of future results. Investment
return and principal value will fluctuate, so an investor's shares, 
when redeemed, may be worth more or less than when purchased. Total
returns in some periods were higher due to maintenance of the Fund's
expenses. See Financial Highlights for the Bond Portfolio.


-------------------------------------------------------------------
ASSET QUALITY
-------------------------------------------------------------------
By Quality
-------------------
AAA             74%                       
AA               3%           Despite the period's various changes
A               14%           in asset allocation, Bond Portfolio
BBB              8%           has maintained its high overall credit
NR               1%           quality, with over 90% of its holdings 
               ----           rated A or higher.
               100%      
               ====
-------------------
Average Quality: AAA

A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.

-------------------------------------------------------------------
EFFECTIVE MATURITY
-------------------------------------------------------------------
Less than 1 year        15%                       
1 < 3 years             22%
3 < 8 years             22%
8 < 10 years            11%
10 years or greater     30%
                       ----
                       100%
                       ====

Weighted average effective maturity: 9 years

-------------------------------------------------------------------
DIVERSIFICATION
-------------------------------------------------------------------
U.S. Treasury Obligations       52%
Corporate Bonds                 19%
Foreign Bonds                    8%
Asset-Backed Securities          8%
U.S. Government Guaranteed
  Mortgages                      7%
U.S. Government Agency
  Pass-Thrus                     4%
Collateralized Mortgage
  Obligations                    2%
                               ----
                               100%
                               ====


                                       5
<PAGE>

BALANCED PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION

Dear Shareholders,

         A combination of positive factors--including strong corporate earnings,
moderate inflation, declining interest rates, and strong flows into mutual
funds--drove overall market results in the year's first two quarters. The
unmanaged S&P 500 Index returned 20.21% while the bond market, as measured by
the unmanaged Lehman Brothers Aggregate Bond Index, returned 11.44% in the first
half of the year. The Balanced Portfolio provided a total return of 15.22% for
the semiannual period ended June 30, 1995. The Portfolio's performance compares
well with the 13.30% average total return for the 26 balanced funds tracked by
Lipper Analytical Services.

         Our strategy in the stock portion of the Portfolio continues to focus
on the purchase of large- and medium-capitalization growth stocks with
attractively valued growth of earnings relative to the market and industry
peers. Portfolio concentration in the first half of the year has remained in
financial service, consumer staples, healthcare, and technology issues. These
groups posted strong performance for the period, with financial holdings
benefiting from declining interest rates, healthcare holdings reaping the
rewards of restructuring, and technology companies enjoying strong product
demand. Despite significant gains in several holdings--including Nokia,
Ericsson, Motorola, Intel, and Texas Instruments--we are mindful that demand for
computers and related technology is unpredictable, and that heightened
performance expectations are vulnerable to disappointment. Fortunately, the
long-term outlook for further earnings growth in this sector remains positive.

         As for the income portion of the Portfolio, we have focused on a
slightly longer duration (4.85 years as of June 30 versus 4.77 years at
year-end) to take advantage of the price increases and yield declines that have
accompanied the current environment of falling interest rates. Other shifts
reflective of the trend toward lower rates include a de-emphasis of
mortgage-backed securities and an increase in intermediate-term holdings, the
latter of which we expect to continue to implement over the next few months.
Mortgage-backed securities typically underperform during periods of falling
interest rates, due to the higher risk of prepayment. Our focus on
intermediate-term maturities stems from their attractive yields and price
appreciation potential. Looking ahead, we believe that the Portfolio's
well-balanced equity and bond strategies are positioned to provide solid
absolute and relative performance over time.

      Sincerely,

      Your Portfolio Management Team

      /s/Bruce F. Beaty                  /s/Ruth Heisler
      Bruce F. Beaty                     Ruth Heisler
      Lead Portfolio Manager

      /s/Renee L. Ross                   /s/William F. Gadsden
      Renee L. Ross                      William F. Gadsden



                                       6
<PAGE>

Balanced Portfolio
Portfolio Summary as of June 30, 1995
-----------------------------------------------------------------
Growth of a $10,000 Investment
-----------------------------------------------------------------
Balanced Portfolio
----------------------------------------
             Total Return
  Period   Growth    -------------
   Ended     of               Average
 6/30/95  $10,000  Cumulative  Annual
--------- -------  ----------  -------
1 Year    $11,909    19.09%    19.09%
5 Year    $15,783    57.83%     9.56%
Life of   
Fund*     $28,434   184.34%    11.06%

S&P 500 Index (60%) and LBAB Index (40%)
--------------------------------------
             Total Return
  Period   Growth    -------------
   Ended     of               Average
 6/30/95  $10,000  Cumulative  Annual
--------- -------  ----------  -------
1 Year    $12,160    21.60%    21.60%
5 Year    $17,024    70.24%    11.22%
Life of  
Fund*     $34,055   240.55%    13.03%

*The Fund commenced operations on July 16, 1985.
Index comparisons begin July 31, 1985.

A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment. 
The data points from the graph are as follows:

Yearly periods ended June 30

Balanced Portfolio
Year           Amount
---------------------
7/31/85*        10000
86              13147
87              14545
88              14579
89              16925
90              18136
91              18546
92              21701
93              24108
94              24036
95              28625

S&P 500 Index
Year            Amount
----------------------
7/31/85*        10000
86              13602
87              17024
88              15850
89              19106
90              22257
91              23902
92              27108
93              30803
94              31236
95              39379


LBAB Index
Year            Amount
----------------------
7/31/85*        10000
86              12043
87              12708
88              13731
89              15409
90              16619
91              18397
92              20980
93              23453
94              23147
95              26052

The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-
weighted measure of 500 widely held common stocks listed on the New
York Stock Exchange, American Stock Exchange, and Over-The-Counter
market and The Lehman Brothers Aggregate Bond (LBAB) Index is an
unmanaged market value-weighted measure of treasury issues, agency
issues, corporate bond issues and mortgage securities. Index returns 
assume reinvestment of dividends and, unlike Fund returns, do not 
reflect any fees or expenses.

All performance is historical, assumes reinvestment of all dividends
and capital gains, and is not indicative of future results. Investment
return and principal value will fluctuate, so an investor's shares, 
when redeemed, may be worth more or less than when purchased. Total
returns in some periods were higher due to maintenance of the Fund's
expenses. See Financial Highlights for the Balanced Portfolio. The
Balanced Portfolio, with its current name and investment objective, 
commenced operations on May 1, 1993. Performance figures include the
performance of its predecessor, the Managed Diversified Portfolio.
Since adopting its current objectives, the cumulative and average
annual returns are 20.94% and 9.17%, respectively.


-------------------------------------------------------------------
EQUITY HOLDINGS
-------------------------------------------------------------------
Sector breakdown of the         Five Largest Equity Holdings 
Portfolio's equity holdings     -----------------------------------
---------------------------
Technology              15%     1. Federal National Mortgage Association   
Financial               14%         Insurer and holder of mortgage loans   
Consumer Staples        14%     2. Columbia/HCA Healthcare Corp.
Health                  12%         Leading hospital management company
Consumer Discretionary   8%     3. American International Group, Inc.      
Energy                   8%         Major international insurance holding  
Durables                 7%     4. Eli Lilly Co.                       
Media                    7%         Leading pharmaceutical company
Manufacturing            7%     5. Motorola Inc.
Other                    8%         Manufacturer of semiconductors and
               ----         communication products
               100%
               ====         
                       
                
-------------------------------------------------------------------
FIXED INCOME HOLDINGS
-------------------------------------------------------------------
By Asset Type                       
--------------------------------------------
U.S. Treasury Obligations                44%
Cash Equivalents                         19%
Corporate Bonds                          17%
U.S. Gov't Guaranteed Mortgages           6%
Asset-Backed Securities                   6%
Foreign Bonds                             5%
U.S. Government Agency Pass-Thrus         2%
Collateralized Mortgage Obligations       1%
                    ----
                    100%
                    ====
By Quality
--------------------------------------------
AAA                                      77%
AA                                        2%
A                                         9%
BBB                                      12%
                    ----
                    100%
                    ====


                                       7
<PAGE>

GROWTH AND INCOME PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION

Dear Shareholders,

         For the six months ended June 30, 1995, the Growth and Income Portfolio
provided a total return of 15.46%, reflecting the strong overall performance of
U.S. stocks: the unmanaged S&P 500 Index returned 20.21% for the same period.

         Manufacturing and durable goods holdings--sectors that are overweighted
in the Portfolio compared with the Index--made the most significant contribution
to performance, led by such standouts as United Technologies, Rockwell, and
Lockheed. Specialty chemicals companies Betz Labs and Witco also provided strong
gains. Financial stocks have continued their strong recovery from the difficult
interest rate environment of 1994, and the Portfolio's overweighting in such
stocks as Sallie Mae, Chemical Bank, and Bankers Trust also boosted returns.
Sallie Mae, in particular, now with a new group of board members who call
themselves "The Committee to Restore Value to Sallie Mae," has enjoyed a sharp
recovery this year, up 46.5% for the six-month period. The Portfolio also
benefited from its limited exposure to consumer stocks in the leisure, retail,
and entertainment industries. After several years of robust spending, American
consumers have tightened their purse strings, suppressing the earnings of many
consumer-goods-oriented companies--the second-worst performing group in the
quarter just ended.

         Although the Portfolio's performance this year has been strong on an
absolute basis, it has not kept pace with the S&P benchmark, in part because of
our commitment to energy stocks, which generally have underperformed. Despite
recent price weakness, we believe the longer-term outlook for energy stocks is
positive, given the burgeoning demand for energy by mature and developing
economies around the world. Another factor in the Portfolio's relative
underperformance was the absence of technology stocks, which as a group have led
the market rally in 1995. These stocks are often characterized by a high degree
of price volatility and minimal or nonexistent dividends. By contrast, our
investment approach is based on selecting stocks with a combination of
attractive fundamental qualities and high-paying dividends relative to the
S&P--a strategy designed to provide competitive returns in strong markets and
above-market performance in weak ones. We believe this approach will continue to
serve investors well in the future, as it has in the past.

      Sincerely,

      Your Portfolio Management Team


      /s/Robert T. Hoffman               /s/Kathleen T. Millard
      Robert T. Hoffman                  Kathleen T. Millard
      Lead Portfolio Manager


      /s/Benjamin W. Thorndike
      Benjamin W. Thorndike


                                       8
<PAGE>

Growth and Income Portfolio
Portfolio Summary as of June 30, 1995
-----------------------------------------------------------------
Growth of a $10,000 Investment
-----------------------------------------------------------------
Growth and Income Portfolio
----------------------------------------
                     Total Return
  Period   Growth    -------------
   Ended     of               Average
 6/30/95  $10,000  Cumulative  Annual
--------- -------  ----------  -------
1 Year    $11,993    19.93%     19.93%
Life of   
Fund*     $12,113    21.13%     17.94%

S&P 500 Index
--------------------------------------
                     Total Return
  Period   Growth    -------------
   Ended     of               Average
 6/30/95  $10,000  Cumulative  Annual
--------- -------  ----------  -------
1 Year    $12,607    26.07%    26.07%
Life of  
Fund*     $12,500    25.00%    21.18%

*The Fund commenced operations on May 2, 1994.

A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment. 
The data points from the graph are as follows:

Growth and Income Portfolio
Year           Amount
---------------------
5/2/94*         10000
6/94            10100
9/94            10750
12/94           10491
3/95            11175
6/95            12113

S&P 500 Index
Year            Amount
----------------------
5/2/94*         10000
6/94             9915
9/94            10400
12/94           10398
3/95            11411
6/95            12500

The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-
weighted measure of 500 widely held common stocks listed on the New
York Stock Exchange, American Stock Exchange, and Over-The-Counter
market. Index returns assume reinvestment of dividends and, unlike 
Fund returns, do not reflect any fees or expenses.

All performance is historical, assumes reinvestment of all dividends
and capital gains, and is not indicative of future results. Investment
return and principal value will fluctuate, so an investor's shares, 
when redeemed, may be worth more or less than when purchased. Total
returns were higher due to maintenance of the Fund's expenses. See 
Financial Highlights for the Growth and Income Portfolio.


-------------------------------------------------------------------
DIVERSIFICATION
-------------------------------------------------------------------
Equity Securities       98%               
Cash Equivalents         2%
                       ----       
                       100%      
                       ====

A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.

Sector breakdown of the Portfolio's equity holdings

Financial               18%
Manufacturing           16%
Health                  15%       Growth and Income Portfolio benefited
Energy                  11%       from its relatively large weightings
Consumer Staples        11%       in the manufacturing and durable goods
Durables                 8%       sectors, with notable performance coming
Utilities                5%       from United Technologies, Rockwell, and
Service Industries       5%       Lockheed Martin.
Communications           4%     
Other                    5%
                       ----       
                        98%      
                       ====

--------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS
--------------------------------------------------------------------------
 1. United Technologies Corp.
        Aerospace, climate control systems and elevators
 2. Eli Lilly Co.
        Leading pharmaceutical company
 3. Baxter International Inc.
        Manufacturer and distributor of hospital and laboratory
        products and services
 4. Student Loan Marketing Association
        Student loan financing programs
 5. TRW Inc.
        Defense electronics, automotive parts and systems
 6. Xerox Corp.
        Leading manufacturer of copiers and duplicators
 7. First Bank System Inc.
        Commercial banking in Minnesota and the northcentral U.S.
 8. Warner-Lambert Co.
        Drugs, toiletries and food products
 9. E.I. du Pont de Nemours & Co.
        Chemical producer
10. Lockheed Martin Corp.
        Manufacturer of aircraft, missiles and space equipment



                                       9
<PAGE>

CAPITAL GROWTH PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION

Dear Shareholders,

         Strong corporate earnings and declining interest rates pushed stock
prices to record highs in the first half of 1995. Capital Growth Portfolio's net
asset value rose $1.49 per share to $13.72 on June 30. In addition, the
Portfolio distributed $0.035 per share in income and $0.425 per share in capital
gains to shareholders, contributing to a total return of 16.48% for the period.

         The positive forces influencing stock market activity in recent months
will continue, in our opinion, to drive share prices for the balance of 1995. In
recent months, the Portfolio has benefited from significant appreciation in its
cable and technology holdings, with the strongest performance coming from such
semiconductor stocks as Intel, up 98% for the period. Intel was the Portfolio's
largest holding on June 30. Another important contributor to performance during
the period was the financial services sector, which benefited from a greatly
improved interest rate environment. Portfolio positions were added in American
International Group, PMI Group, and Fannie Mae.

         Alternatively, the Portfolio's historically high concentrations in
media and communications companies have been reduced. While we believe that the
long-term outlook for these companies remains quite positive, near-term
regulatory and competitive concerns no longer justify significant overweighting.
Similarly, in the gaming sector, which has continued to disappoint due to legal
difficulties and increased competition, we reduced or sold holdings in Bally
Gaming, Circus Circus, Mirage Resorts, and President Casinos. We continue to
favor the technology sector. But within the context of this large area we have
and will continue to adjust the Portfolio's mix of investments. Selling into the
recent rally, we took profits in such companies as Informix and Advanced Micro
Devices, and purchased Hewlett-Packard. Overall, the technology, financial, and
healthcare sectors continue to be areas of focus for the Portfolio.

         In the coming months, we expect a general slowing of economic growth
around the world and therefore have emphasized those industries and companies
where we believe earnings growth is sustainable. Fortunately, we are encouraged
by the relative health of U.S. corporations and the benign inflationary
environment. We believe Capital Growth Portfolio is well-positioned to benefit
shareholders over time.

      Sincerely,

      Your Portfolio Management Team


      /s/William F. Gadsden                      /s/Bruce F. Beaty
      William F. Gadsden                         Bruce F. Beaty
      Lead Portfolio Manager


                                       10
<PAGE>

Capital Growth Portfolio
Portfolio Summary as of June 30, 1995
-----------------------------------------------------------------
Growth of a $10,000 Investment
-----------------------------------------------------------------
Capital Growth Portfolio
----------------------------------------
                     Total Return
  Period   Growth    -------------
   Ended     of               Average
 6/30/95  $10,000  Cumulative  Annual
--------- -------  ----------  -------
1 Year    $12,031    20.31%     20.31%
5 Year    $17,148    71.48%     11.39%
Life of   
Fund*     $34,692   246.92%     13.30%

S&P 500 Index
--------------------------------------
                     Total Return
  Period   Growth    -------------
   Ended     of               Average
 6/30/95  $10,000  Cumulative  Annual
--------- -------  ----------  -------
1 Year    $12,607    26.07%     26.07%
5 Year    $17,693    76.93%     12.08%
Life of  
Fund*     $39,379   293.79%     14.83%

*The Fund commenced operations on July 16, 1985.
Index comparisons begin July 31, 1985.

A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment. 
The data points from the graph are as follows:

Yearly Periods Ended June 30

Capital Growth Portfolio
Year           Amount
---------------------
7/31/85*        10000
86              13718
87              17198
88              16314
89              19072
90              20609
91              21176
92              25087
93              29636
94              29374
95              35340

S&P 500 Index
Year           Amount
---------------------
7/31/85*        10000
86              13602
87              17024
88              15850
89              19106
90              22257
91              23902
92              27108
93              30803
94              31236
95              39379

The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-
weighted measure of 500 widely held common stocks listed on the New
York Stock Exchange, American Stock Exchange, and Over-The-Counter
market. Index returns assume reinvestment of dividends and, unlike 
Fund returns, do not reflect any fees or expenses.


All performance is historical, assumes reinvestment of all dividends
and capital gains, and is not indicative of future results. Investment
return and principal value will fluctuate, so an investor's shares, 
when redeemed, may be worth more or less than when purchased. Total
returns in some periods were higher due to maintenance of the Fund's 
expenses. See Financial Highlights for the Capital Growth Portfolio.

-------------------------------------------------------------------
DIVERSIFICATION
-------------------------------------------------------------------
Equity Securities       94%               
Cash Equivalents         6%
                       ----       
                       100%      
                       ====

A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.

Sector breakdown of the Portfolio's equity holdings

Technology              19%      
Financial               14%       The Portfolio's historically high
Health                  11%       concentrations in media and communications
Media                   11%       companies have beenr reduced, since       
Energy                   8%       current valuations and fundamental
Consumer Discretionary   6%       prospects no longer justify a substantial
Durables                 5%       overweighting in our opinion.
Communications           5%       
Service Industries       4%
Other                   11%
                       ----       
                        94%      
                       ====

--------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS
--------------------------------------------------------------------------
 1. Intel Corp.
        Semiconductor memory circuits
 2. Time Warner Inc.
        Publishing, broadcasting, and video entertainment company
 3. Columbia/HCA Healthcare Corp.
        Leading hospital management company
 4. Federal National Mortgage Association
        Insurer and holder of mortgage loans
 5. Hewlett-Packard Co.
        Measurement and test instruments, computer systems
 6. Texas Instruments Inc.
        Semiconductors and electronic equipment
 7. Tele-Communications Inc.
        Cable TV systems and microwave services
 8. American International Group, Inc.
        Major international insurance holding company
 9. Capital Cities/ABC Inc.
        TV and radio broadcasting, cable programming and publishing
10. Amoco Corp.
        International oil company



                                       11
<PAGE>

INTERNATIONAL PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION

Dear Shareholders,

         A noticeably more positive investment environment in recent months and
the strong performance of several portfolio holdings combined to provide a 4.25%
total return for International Portfolio in the six months ended June 30, 1995.
The Portfolio's return compares favorably with the 2.95% return of the unmanaged
Morgan Stanley Capital International Europe, Australia, and Far East plus Canada
Index, as well as with the 3.58% average return of the 58 international funds
tracked by Lipper Analytical Services.

         Throughout the six-month period, we continued to enhance investments in
European markets while trimming the Portfolio's exposure to Japan. This strategy
served the Portfolio well, as Finland, Sweden, and Switzerland were among the
best-performing stock markets in the world, returning 30.0%, 16.7%, and 23.2%,
respectively. Meanwhile, Japan returned -8.2% during the period, beset by the
strong yen, a deflationary spiral, trade conflict with the United States, and
ineffectual government policy. Despite the many excellent companies in Japan, we
intend to maintain a cautious approach to Japanese investments until the
Japanese government pursues meaningful policies to address its economic
difficulties. Also, as the likelihood of a weakening yen increased, we increased
our currency hedges on the Portfolio's remaining Japanese investments. Roughly
25% of the Portfolio's Japanese holdings was hedged back to the dollar as of
June 30.

         With the proceeds from our sales in Japan we invested in several
European companies that are enjoying the benefits of strong earnings and
negligible inflation, including stocks of financial companies. Central banks in
Europe and elsewhere have shifted from an anti-inflation policy, which included
rising interest rates, to a more neutral wait-and-see stance. Additions during
the period include Compagnie Bancaire SA and Societe Generale in France, and
AEGON Insurance Group NV in the Netherlands.

         In the coming months, we intend to remain focused on what we consider
the key global growth themes, identifying those companies that have established
successful market niches in a world economy characterized by slow overall growth
and low inflation.

      Sincerely,

      Your Portfolio Management Team


      /s/Carol L. Franklin                     /s/Nicholas Bratt
      Carol L. Franklin                        Nicholas Bratt
      Lead Portfolio Manager


      /s/Joan R. Gregory
      Joan R. Gregory


                                       12
<PAGE>

International Portfolio
Portfolio Summary as of June 30, 1995
-----------------------------------------------------------------
Growth of a $10,000 Investment
-----------------------------------------------------------------
International Portfolio
----------------------------------------
             Total Return
  Period   Growth    -------------
   Ended     of               Average
 6/30/95  $10,000  Cumulative  Annual
--------- -------  ----------  -------
1 Year    $10,262     2.62%      2.62%
5 Year    $13,275    32.75%      5.83%
Life of   
Fund*     $20,428   104.28%      9.15%

MSCI EAFE & Canada Index
--------------------------------------
             Total Return
  Period   Growth    -------------
   Ended     of               Average
 6/30/95  $10,000  Cumulative  Annual
--------- -------  ----------  -------
1 Year    $10,227     2.27%      2.27%
5 Year    $12,552    25.52%      4.65%
Life of  
Fund*     $14,325    43.25%      4.55%

*The Fund commenced operations on May 1, 1987.
Index comparisons begin May 31, 1987.

A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment. 
The data points from the graph are as follows:

Yearly Periods Ended June 30

International Portfolio
Year           Amount
---------------------
5/31/87*        10000
87              10688
88               9972
89              11921
90              15492
91              13925
92              15162
93              16540
94              20041
95              20566

MSCI EAFE & Canada Index
Year           Amount
---------------------
5/31/87*        10000
87               9706
88              10092
89              11065
90              11413
91              10167
92              10088
93              12057
94              14007
95              14325

The Morgan Stanley Capital International (MSCI) Europe, Australia,
the Far East (EAFE) & Canada Index is an unmanaged capitalization-
weighted measure of stock markets in Europe, Australia, the Far East
and Canada. Index returns assume dividends reinvested net of
withholding tax and, unlike Fund returns, do not reflect any fees or
expenses.

All performance is historical, assumes reinvestment of all dividends
and capital gains, and is not indicative of future results. Investment
return and principal value will fluctuate, so an investor's shares, 
when redeemed, may be worth more or less than when purchased. Total
returns in some periods were higher due to maintenance of the Fund's 
expenses. See Financial Highlights for the International Portfolio.

-------------------------------------------------------------------
DIVERSIFICATION
-------------------------------------------------------------------
By Region (Excluding Cash Equivalents)
--------------------------------------
Europe                  63%               
Japan                   18%
Pacific Basin           11%
Latin America            5%
Canada                   3%
               ----       
               100%      
               ====

A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
               
By Sector (Equity Holdings) 
-------------------------------------
Manufacturing           18%                       
Financial               12%
Metals and Minerals     10%
Durables                10%
Energy                   9%
Utilities                6%
Technology               6%
Service Industries       6%
Consumer Staples         5%
Other                   18%
               ----       
               100%      
               ====

A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.

--------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS
--------------------------------------------------------------------------
 1. SAP AG
    German computer software manufacturer
 2. Autoliv AB
    Swedish manufacturer of safety airbags for automobiles
 3. Nokia AB Oy
    Leading manufacturer of cellular telephones in Finland
 4. L.M. Ericsson Telephone Co.
    Leading manufacturer of cellular telephone equipment in Sweden
 5. SMC Corp.
    Leading maker of pneumatic equipment in Japan
 6. Heineken Holdings N.V.
    Brewery in the Netherlands
 7. Philips Electronics N.V.
    Leading manufacturer of electrical equipment in the Netherlands
 8. Hutchison Whampoa, Ltd.
    Container terminal and real estate company in Hong Kong
 9. Reuters Holdings PLC
    International news agency in the United Kingdom
10. Brown, Boveri & Cie. AG
    Swiss manufacturer of electrical equipment



                                       13
<PAGE>

<TABLE>
MONEY MARKET PORTFOLIO
INVESTMENT PORTFOLIO as of June 30, 1995 (Unaudited)
-------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                           % of    Principal                                                                    Value ($)
                        Portfolio  Amount ($)                                                                   (Note A)
-------------------------------------------------------------------------------------------------------------------------
<S>                      <C>       <C>                                                                        <C>
                                   --------------------------------------------------------------------------------------
                         13.7%     REPURCHASE AGREEMENT
                                   --------------------------------------------------------------------------------------
                                   11,293,000    Repurchase Agreement with Nesbitt Burns Securities
                                                  Inc. dated 6/30/95 at 6.125%, to be repurchased at
                                                  $11,298,764 on 7/3/95, collateralized by a $11,140,000
                                                  U.S. Treasury Note, 6.25%, 8/31/96 (Cost $11,293,000)......  11,293,000
                                                                                                               ----------       
                                   --------------------------------------------------------------------------------------
                         59.8%     COMMERCIAL PAPER
                                   --------------------------------------------------------------------------------------
HEALTH                    7.2%

    Pharmaceuticals                3,000,000     Eli Lilly & Co., 5.82%, 9/20/95.............................   2,960,715
                                   3,000,000     Warner Lambert Co., 5.55%, 12/18/95.........................   2,921,375
                                                                                                               ----------
                                                                                                                5,882,090
                                                                                                               ----------       
COMMUNICATIONS            7.2%

    Telephone/
    Communications                 3,000,000     AT&T Corp., 5.97%, 7/26/95..................................   2,987,562
                                   3,000,000     BellSouth Telecommunications Inc., 6.02%, 9/22/95...........   2,958,362
                                                                                                               ----------
                                                                                                                5,945,924
                                                                                                               ----------       
FINANCIAL                36.4%

    Banks                 7.3%     3,000,000     Deutsche Bank Financial Inc., 5.85%, 7/6/95.................   2,997,562
                                   3,000,000     Prudential Funding Corp., 6%, 7/14/95.......................   3,000,000
                                                                                                               ----------
                                                                                                                5,997,562
                                                                                                               ----------       

    Consumer Finance     10.9%     3,000,000     American Express Credit Corp., 5.99%, 8/8/95................   3,000,000
                                   3,000,000     Ford Motor Credit Corp., 5.97%, 7/7/95......................   2,997,015
                                   3,000,000     General Electric Capital Corp., 5.99%, 7/24/95..............   3,000,000
                                                                                                               ----------
                                                                                                                8,997,015
                                                                                                               ----------       
    Other Financial
    Companies            18.2%     3,000,000     Associated Corp. of North America, 5.96%, 7/10/95...........   3,000,000
                                   3,000,000     Ciesco L.P., 5.85%, 9/12/95.................................   2,964,412
                                   3,000,000     Corporate Asset Funding Corp., 5.9%, 8/23/95................   2,973,942
                                   3,000,000     New Center Asset Trust, 5.94%, 7/5/95.......................   2,998,020
                                   3,075,000     Rincon Securities Inc., 5.97%, 7/26/95......................   3,062,252
                                                                                                               ----------
                                                                                                               14,998,626
                                                                                                               ----------       

MANUFACTURING             3.6%

    Machinery/
    Components/Controls            3,000,000     Pitney Bowes Credit Corp., 6.17%, 9/6/95....................    2,965,551
                                                                                                               -----------      

ENERGY                    5.4%

    Oil Companies                  1,500,000     Chevron Oil Finance Co., 5.93%, 7/12/95.....................    1,497,282
                                   3,000,000     Shell Oil Credit Co., 5.95%, 8/1/95.........................    2,984,629
                                                                                                               -----------
                                                                                                                 4,481,911
                                                                                                               -----------
                                                 TOTAL COMMERCIAL PAPER (Cost $49,268,679)...................   49,268,679
                                                                                                               -----------
</TABLE>

    The accompanying notes are an integral part of the financial statements.



                                       14
<PAGE>
<TABLE>
                                                                                                      INVESTMENT PORTFOLIO
--------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                           % of    Principal                                                                     Value ($)
                        Portfolio  Amount ($)                                                                    (Note A)
--------------------------------------------------------------------------------------------------------------------------
                        <S>        <C>                                                                          <C>
                          13.2%    ---------------------------------------------------------------------------------------
                                   U.S. TREASURY OBLIGATIONS
                                   ---------------------------------------------------------------------------------------
                                   5,000,000   U.S. Treasury Bill, 6.32%, 7/6/95.............................    4,995,615
                                   3,000,000   U.S. Treasury Bill, 6.19%, 7/13/95............................    2,993,815
                                   3,000,000   U.S. Treasury Bill, 6.75%, 12/14/95...........................    2,906,694
                                                                                                                ----------
                                   TOTAL U.S. TREASURY OBLIGATIONS (Cost $10,896,124)........................   10,896,124
                                                                                                                ----------
                                   ---------------------------------------------------------------------------------------
                           3.6%    U.S. GOVERNMENT AGENCY OBLIGATIONS
                                   ---------------------------------------------------------------------------------------
                                   3,000,000   Federal National Mortgage Association, Discount Note,
                                                5.53%, 11/29/95 (Cost $2,930,414)............................    2,930,414
                                                                                                                ----------
                                   ---------------------------------------------------------------------------------------
                           9.7%    SHORT-TERM NOTES
                                   ---------------------------------------------------------------------------------------
                                   3,000,000   Fifth Third Bank, 6.2%, 10/26/95..............................    3,000,000
                                   3,000,000   Harris Trust and Savings Bank, 6.1%, 7/18/95..................    3,000,000
                                   2,000,000   Morgan Bank Delaware, 6.5%, 5/6/96............................    2,007,463
                                                                                                                ----------
                                               TOTAL SHORT-TERM NOTES (Cost $8,007,463)......................    8,007,463
                                                                                                                ----------
==========================================================================================================================
                                               TOTAL INVESTMENT PORTFOLIO - 100.0 - (Cost $82,395,680)(a)....   82,395,680
                                                                                                                ==========

(a)  Cost for federal income tax purposes is $82,395,680.

</TABLE>


The accompanying notes are an integral part of the financial statements.



                                       15
<PAGE>
<TABLE>
MONEY MARKET PORTFOLIO
FINANCIAL STATEMENTS
------------------------------------------------------------------------------------
<CAPTION>
                      STATEMENT OF ASSETS AND LIABILITIES
------------------------------------------------------------------------------------

JUNE 30, 1995 (UNAUDITED)
------------------------------------------------------------------------------------
ASSETS
<S>                                                         <C>          <C>
Investments, at value (amortized cost $82,395,680)......
   (Note A).............................................                 $82,395,680
Cash                                                                              66
Receivables:
   Portfolio shares sold................................                   1,400,985
   Interest.............................................                     186,535
                                                                         -----------
            Total assets................................                  83,983,266

LIABILITIES
Payables:
   Portfolio shares redeemed............................    $ 1,893
   Accrued management fee (Note B)......................     23,513
   Other accrued expenses (Note B)......................      9,301
                                                            -------
           Total liabilities............................                      34,707
                                                                         -----------
Net assets, at value....................................                 $83,948,559
                                                                         ===========

NET ASSETS
Net assets consist of:
   Paid-in capital......................................                  83,948,559
                                                                         -----------
Net assets, at value....................................                 $83,948,559
                                                                         ===========
NET ASSET VALUE, offering and redemption price per
   share ($83,948,559 divided by 83,948,559
   outstanding shares of beneficial interest,
   no par value, unlimited number of shares
   authorized)..........................................                       $1.00
                                                                               =====


</TABLE>


The accompanying notes are an integral part of the financial statements.



                                       16
<PAGE>
<TABLE>
                                                            FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
<CAPTION>
                            STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------

SIX MONTHS ENDED JUNE 30, 1995 (UNAUDITED)
--------------------------------------------------------------------------------
<S>                                                      <C>         <C>
INVESTMENT INCOME
Interest..............................................                $2,563,701
Expenses (Note A):....................................
Management fee (Note B)...............................   $154,582
Accounting fees (Note B)..............................     15,023
Trustees' fees (Note B)...............................      7,562
Legal.................................................     12,998
Custodian fees........................................      9,268
Auditing..............................................      7,382
Other.................................................      3,907        210,722
                                                         -------      ----------
Net investment income.................................                 2,352,979
                                                                      ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..                $2,352,979
                                                                      ==========

</TABLE>


The accompanying notes are an integral part of the financial statements.



                                       17
<PAGE>
<TABLE>
MONEY MARKET PORTFOLIO
-----------------------------------------------------------------------------------------------------------------
                      STATEMENTS OF CHANGES IN NET ASSETS
-----------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                      SIX MONTHS
                                                                                        ENDED           YEAR
                                                                                       JUNE 30,         ENDED
                                                                                         1995        DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS                                                     (UNAUDITED)       1994
-----------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>            <C>
Operations:
Net investment income and net increase in net
  assets resulting from operations..............................................    $  2,352,979   $   2,768,491
                                                                                    ------------   -------------
Distributions to shareholders from net investment income
  ($.028 and $.037 per share, respectively).....................................      (2,352,979)     (2,768,491)
Portfolio share transactions at net asset value of $1.00 per share:                 ------------   -------------
  Proceeds from shares sold.....................................................      64,134,282     186,827,297
  Net asset value of shares issued to shareholders in
     reinvestment of distributions from net investment income...................       2,352,979       2,768,491
  Cost of shares redeemed.......................................................     (73,036,614)   (147,877,533)
                                                                                    ------------   -------------
  Net increase (decrease) in net assets from Portfolio share transactions.......      (6,549,353)     41,718,255
                                                                                    ------------   -------------
INCREASE (DECREASE) IN NET ASSETS...............................................      (6,549,353)     41,718,255
Net assets at beginning of period...............................................      90,497,912      48,779,657
                                                                                    ------------   -------------
NET ASSETS AT END OF PERIOD.....................................................    $ 83,948,559   $  90,497,912
                                                                                    ============   =============
</TABLE>


The accompanying notes are an integral part of the financial statements.




                                       18
<PAGE>
<TABLE>

FINANCIAL HIGHLIGHTS
----------------------------------------------------------------------------------------------------------------------------------
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED
FROM THE FINANCIAL STATEMENTS.

<CAPTION>

                                     SIX                                                                                 SIX
                                    MONTHS                                                                              MONTHS
                                    ENDED                                                                               ENDED
                                   JUNE 30,                        YEARS ENDED DECEMBER 31,                            DECEMBER
                                     1995      ---------------------------------------------------------------------     31,
                                 (UNAUDITED)    1994     1993     1992     1991     1990     1989     1988     1987    1986(E)
                                 -----------   ---------------------------------------------------------------------  ----------
<S>                              <C>           <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>
Net asset value,
 beginning of period               $1.000      $1.000   $1.000   $1.000   $1.000   $1.000   $1.000   $1.000   $1.000   $1.000
Income from investment.........    ------      ------   ------   ------   ------   ------   ------   ------   ------   ------
 operations:
 Net investment
  income (a)...................      .028        .037     .025     .033     .057     .076     .088     .068     .060     .026
Less distributions from
 net investment income.........     (.028)      (.037)   (.025)   (.033)   (.057)   (.076)   (.088)   (.068)   (.060)   (.026)
                                   ------      ------   ------   ------   ------   ------   ------   ------   ------   ------
Net asset value,
 end of period.................    $1.000      $1.000   $1.000   $1.000   $1.000   $1.000   $1.000   $1.000   $1.000   $1.000
                                   ======      ======   ======   ======   ======   ======   ======   ======   ======   ======
TOTAL RETURN (%)...............      2.83(d)     3.72     2.54     3.33     5.81     7.83     8.84     7.08     5.95     2.59(d)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of
 period ($ millions)...........        84          90       49       34       28       32       15       11        8        3
Ratio of operating
 expenses, net to
 average daily net
 assets (%) (a)................       .50(c)      .56      .66      .64      .67      .69      .72      .75      .75      .75(c)
Ratio of net investment
 income to average
 daily net assets (%)..........      5.63(c)     3.80     2.55     3.26     5.67     7.57     8.53     6.99     6.06     5.10(c)

<FN>
(a) Portion of expenses
     reimbursed
     (Note B)..................    $    -      $    -   $    -   $    -   $    -   $    -   $ .001   $ .003   $ .006   $ .022
(b) Original capital
(c) Annualized
(d) Not annualized
(e) On August 22, 1986, the Trustees voted to change the year end of the Fund from June 30 to December 31.
</FN>
</TABLE>

<TABLE>
<CAPTION>

                                  FOR THE PERIOD
                                  JULY 16, 1985
                                  (COMMENCEMENT
                                  OF OPERATIONS)
                                   TO JUNE 30,
                                       1986
                                  --------------
<S>                               <C>
Net asset value,
 beginning of period                $1.000(b)
Income from investment.........     ------
 operations:
 Net investment
  income (a)...................       .064
Less distributions from
 net investment income.........      (.064)
                                    ------
Net asset value,
 end of period.................     $1.000
                                    ======
TOTAL RETURN (%)...............       6.59(d)

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of
 period ($ millions)...........          -

Ratio of operating
 expenses, net to
 average daily net
 assets (%) (a)................        .60(c)
Ratio of net investment
 income to average
 daily net assets (%)..........       6.75(c)

<FN>
(a) Portion of expenses
     reimbursed
     (Note B)..................     $ .133
(b) Original capital
(c) Annualized
(d) Not annualized
(e) On August 22, 1986, the Trustees voted to change the year end of the Fund from June 30 to December 31.
</FN>
</TABLE>




                                       19
<PAGE>
<TABLE>
BOND PORTFOLIO
INVESTMENT PORTFOLIO as of June 30, 1995 (Unaudited)
-------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                           % of    Principal                                                                     Market
                        Portfolio  Amount ($)                                                                   Value ($)
-------------------------------------------------------------------------------------------------------------------------
                        <S>        <C>          <C>                                                            <C>
                                   --------------------------------------------------------------------------------------
                        51.8%      U.S. TREASURY OBLIGATIONS
                                   --------------------------------------------------------------------------------------
                                    2,735,000   U.S. Treasury Bill, 5.5%, 8/3/95............................    2,722,638
                                   13,210,000   U.S. Treasury Bond, 7.25%, 5/15/16..........................   14,000,486
                                    1,520,000   U.S. Treasury Bond, 7.875%, 2/15/21.........................    1,728,529
                                   12,655,000   U.S. Treasury Note, 4%, 1/31/96.............................   12,532,373
                                   11,875,000   U.S. Treasury Note, 6%, 6/30/96.............................   11,904,687
                                    6,400,000   U.S. Treasury Note, 5.5%, 7/31/97...........................    6,356,992
                                    1,190,000   U.S. Treasury Note, 6.375%, 7/15/99.........................    1,205,803
                                    7,190,000   U.S. Treasury Note, 6%, 10/15/99............................    7,195,608
                                    6,910,000   U.S. Treasury Note, 6.375%, 8/15/02.........................    6,992,022
                                    3,670,000   U.S. Treasury Note, 5.875%, 2/15/04.........................    3,579,975
                                   12,700,000   U.S. Treasury Separate Trading Registered Interest
                                                  and Principal Securities, 11/15/10 (6.78**)...............    4,555,109
                                    5,340,000   U.S. Treasury Separate Trading Registered Interest
                                                  and Principal Securities, 2/15/12 (6.84**)................    1,744,898
                                                                                                               ----------
                                                TOTAL U.S. TREASURY OBLIGATIONS (Cost $72,297,430)..........   74,519,120
                                                                                                               ----------
                                   --------------------------------------------------------------------------------------
                         7.3%      U.S. GOV'T GUARANTEED MORTGAGES
                                   --------------------------------------------------------------------------------------
                                    3,183,519   Government National Mortgage Association,
                                                 6.5%, 8/15/08*.............................................    3,147,704
                                    6,806,378   Government National Mortgage Association,
                                                 10%, 8/15/20*..............................................    7,408,267
                                                                                                               ----------
                                                TOTAL U.S. GOV'T GUARANTEED MORTGAGES                                
                                                 (Cost $10,609,861).........................................   10,555,971
                                                                                                               ----------

                                   --------------------------------------------------------------------------------------
                         4.2%      U.S. GOVERNMENT AGENCY PASS-THRUS
                                   --------------------------------------------------------------------------------------
                                    5,729,457   Federal Home Loan Mortgage Corp., 9.5%, 3/1/25*
                                                 (Cost $ 6,003,397).........................................    6,012,321
                                                                                                               ----------
                                   --------------------------------------------------------------------------------------
                         1.6%      COLLATERALIZED MORTGAGE OBLIGATIONS
                                   --------------------------------------------------------------------------------------
                                    2,000,000   Federal Home Loan Mortgage Corp., REMIC, 7%, 7/15/06........    2,002,500

                                      231,929   Federal National Mortgage Association, REMIC, 8.5%,
                                                 4/25/18....................................................      235,842
                                                                                                               ----------
                                                TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
                                                 (Cost $2,054,250)..........................................    2,238,342
                                                                                                               ----------

                                   --------------------------------------------------------------------------------------
                         3.0%      FOREIGN BONDS - U.S. $ DENOMINATED
                                   --------------------------------------------------------------------------------------
                                    1,000,000   ABN-AMRO Bank NV, 7.75%, 5/15/23............................    1,018,730
                                    2,000,000   Korea Development Bank, 9.6%, 12/1/00.......................    2,256,520
                                    1,000,000   Nippon Telegraph & Telephone Corp., 9.5%, 7/27/98...........    1,092,770
                                                                                                               ----------
                                                TOTAL FOREIGN BONDS - U.S. $ DENOMINATED
                                                 (Cost $4,177,789)..........................................    4,368,020
                                                                                                               ----------

                                   --------------------------------------------------------------------------------------
                         5.4%      FOREIGN BONDS - NON U.S. $ DENOMINATED
                                   --------------------------------------------------------------------------------------
                              DM    5,300,000   Federal Republic of Germany, 6.5%, 7/15/03..................    3,713,469
                              FFr  19,500,000   Government of France OAT, 7.5%, 4/25/05.....................    3,982,200
                                                                                                               ----------
                                                TOTAL FOREIGN BONDS - NON U.S. $ DENOMINATED
                                                 (Cost $7,703,350)..........................................    7,695,669
                                                                                                               ----------

</TABLE>


The accompanying notes are an integral part of the financial statements.



                                       20
<PAGE>
<TABLE>

                                                                                                     INVESTMENT PORTFOLIO
-------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                           % of    Principal                                                                     Market
                        Portfolio  Amount ($)                                                                   Value ($)
-------------------------------------------------------------------------------------------------------------------------
<S>                     <C>        <C>                                                                        <C>
                                   --------------------------------------------------------------------------------------
                          7.6%     ASSET-BACKED SECURITIES
                                   --------------------------------------------------------------------------------------
Automobile Receivables    0.6%        898,739    Premier Auto Trust Asset Backed Certificate
                                                  Series 1994-3, 6.8%, 12/2/99*.............................      903,512
                                                                                                               ----------
Credit Card Receivables   4.5%      1,125,000    Chase Manhattan Credit Card Trust, 1991 "A",
                                                  7.65%, 11/15/98...........................................    1,128,859
                                    1,000,000    First Chicago Master Trust, Series 1991-D, 8.4%, 6/15/98...    1,018,750
                                    2,500,000    Standard Credit Card Trust, Series 1990-3B, 9.85%,
                                                  7/10/97...................................................    2,651,550
                                    1,500,000    Standard Credit Card Trust, Series 1990-6B, 9.625%,
                                                  9/10/97...................................................    1,587,180
                                                                                                               ----------
                                                                                                                6,386,339
                                                                                                               ----------
Home Equity Loans         1.5%     1,578,067     Contimortgage Home Equity Loan Trust, Series 1994-5 A1,
                                                  9.07%, 5/15/06*...........................................    1,592,614

                                     569,384     United Companies Financial Corp., Home Loan Trust,
                                                  Series 1993 B1, 6.075%, 7/25/14*..........................      552,124
                                                                                                               ----------
                                                                                                                2,144,738
                                                                                                               ----------
Manufactured Housing
Receivables               1.0%     1,493,629     Green Tree Financial Corp., Securitized NIM
                                                  Series 1994B, 7.85%, 7/15/04*.............................    1,497,363
                                                                                                               ----------
                                                 TOTAL ASSET-BACKED SECURITIES (Cost $11,245,316)...........   10,931,952
                                                                                                               ----------
                                   --------------------------------------------------------------------------------------
                         19.1%     CORPORATE BONDS
                                   --------------------------------------------------------------------------------------
Consumer Discretionary    3.6%     2,000,000     Dayton Hudson Corp., 8.6%, 1/15/12.........................    2,195,540
                                   3,000,000     Price/Costco Inc., 7.125%, 6/15/05.........................    3,013,980
                                                                                                               ----------
                                                                                                                5,209,520
                                                                                                               ----------
Consumer Staples          0.8%     1,000,000     Seagram & Sons Inc., 9%, 8/15/21...........................    1,130,570
                                                                                                               ----------
Financial                 2.2%     1,000,000     Banc One Corp., 8.74%, 9/15/03.............................    1,109,300
                                   1,000,000     Golden West Financial Corp., 6%, 10/1/03...................      941,670
                                   1,000,000     Grand Metropolitan Investment Corp., 8.625%, 8/15/01.......    1,093,510
                                                                                                               ----------
                                                                                                                3,144,480
                                                                                                               ----------
Media                     2.9%     4,000,000     Time Warner Inc., 9.125%, 1/15/13..........................    4,157,160
                                                                                                               ----------
Durables                  1.8%     5,000,000     General Motors Acceptance Corp., Zero Coupon, 12/1/12......    1,353,850
                                   1,000,000     Lockheed Corp., 9%, 1/15/22................................    1,181,220
                                                                                                               ----------
                                                                                                                2,535,070
                                                                                                               ----------
Manufacturing             1.6%     1,000,000     ARCO Chemical Co., 9.375%, 12/15/05........................    1,164,580
                                   1,000,000     Monsanto Co., 8.7%, 10/15/21...............................    1,149,640
                                                                                                               ----------
                                                                                                                2,314,220
                                                                                                               ----------
Technology                1.5%     2,000,000     Loral Corp., 8.375%, 6/15/24...............................    2,127,800
                                                                                                               ----------
Energy                    3.9%     2,000,000     Atlantic Richfield Co., 8.25%, 2/1/22......................    2,174,900
                                   2,000,000     Atlantic Richfield Co., 9.125%, 8/1/31.....................    2,406,040
                                   1,000,000     Enron Corp., 10%, 6/1/98...................................    1,082,350
                                                                                                               ----------
                                                                                                                5,663,290
                                                                                                               ----------
</TABLE>


The accompanying notes are an integral part of the financial statements.




                                       21
<PAGE>
<TABLE>
BOND PORTFOLIO
-------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                           % of    Principal                                                                     Market
                        Portfolio  Amount ($)                                                                   Value ($)
-------------------------------------------------------------------------------------------------------------------------
<S>                     <C>        <C>                                                                        <C>
Transportation          0.8%       575,000     American Airlines, 8.39%, 7/2/17                                   575,575
                                   600,000     American Airlines, 8.8%, 9/16/15                                   623,970
                                                                                                               ----------
                                                                                                                1,199,545
                                                                                                               ----------
                                               TOTAL CORPORATE BONDS (Cost $25,582,170)                        27,481,655
                                                                                                               ----------
=========================================================================================================================
                                               TOTAL INVESTMENT PORTFOLIO - 100.0%
                                                (Cost $139,673,563)(a)                                        143,803,050
                                                                                                              ===========

<FN>
 *  Effective maturities will be shorter due to amortization and prepayments.

**  Yield; bond equivalent yield to maturity; not a coupon rate (unaudited).

    (a) At June 30, 1995, the net unrealized appreciation on investments based on cost for
        federal income tax purposes of $139,766,334 was as follows:

        Aggregate gross unrealized appreciation for all investments in which there is an
          excess of market value over tax cost...........................................................      $4,707,448

        Aggregate gross unrealized depreciation for all investments in which there is an
          excess of tax cost over market value...........................................................        (670,732)
                                                                                                               ----------
        Net unrealized appreciation......................................................................      $4,036,716
                                                                                                               ==========
--------------------------------------------------------------------------------------------------------------------------
        At December 31, 1994, the Bond Portfolio had a net tax basis capital loss carryforward of approximately $4,153,327, which
        may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until December
        31, 2002, whichever occurs first.
--------------------------------------------------------------------------------------------------------------------------
        From November 1, 1994 through December 31, 1994, the Bond Portfolio incurred approximately $934,894 of net realized capital
        losses which the Portfolio intends to elect to defer and treat as arising in the fiscal year ended December 31, 1995.
--------------------------------------------------------------------------------------------------------------------------
        Purchases and sales of investment securities (excluding short-term investments and U.S. Government securities), for the six
        months ended June 30, 1995, aggregated $40,857,557 and $48,304,344, respectively. Purchases and sales of U.S. Government
        securities for the six months ended June 30, 1995, aggregated $69,417,915 and $67,599,030, respectively.
--------------------------------------------------------------------------------------------------------------------------
        COMMITMENTS:
        As of June 30, 1995, the Bond Portfolio entered into the following forward foreign currency exchange contracts resulting in
        net unrealized appreciation of $119,533.

</FN>
</TABLE>
<TABLE>
<CAPTION>

                                                                         NET UNREALIZED
                                                                         APPRECIATION/
                                                           SETTLEMENT     DEPRECIATION
CONTRACTS TO DELIVER           IN EXCHANGE FOR                DATE          (U.S.$)
----------------------------   -------------------------   ----------    --------------
<S>               <C>          <C>             <C>         <C>           <C>
Deutschemarks      5,380,751   U.S. Dollars    4,010,219    10/23/95         102,109
French Francs     18,975,450   U.S. Dollars    3,917,714    10/23/95          17,424
                                                                             -------
                                                                             119,533
                                                                             =======

The accompanying notes are an integral part of the financial statements.
</TABLE>




                                       22
<PAGE>
<TABLE>
                                                                                            FINANCIAL STATEMENTS
----------------------------------------------------------------------------------------------------------------
<CAPTION>
                                      STATEMENT OF ASSETS AND LIABILITIES
----------------------------------------------------------------------------------------------------------------

JUNE 30, 1995 (UNAUDITED)
----------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                <C>
ASSETS
Investments, at market (identified cost $139,673,563) (Note A)................                      $143,803,050
Cash..........................................................................                               664
Unrealized appreciation on forward currency exchange contracts (Note A).......                           119,533
Receivables:
  Interest....................................................................                         2,147,165
  Portfolio shares sold.......................................................                           116,483
                                                                                                    ------------
    Total assets..............................................................                       146,186,895

LIABILITIES
Payables:
  Portfolio shares redeemed...................................................   $  491,227
  Accrued management fee (Note B).............................................       59,844
  Other accrued expenses (Note B).............................................       16,157
                                                                                 ----------
    Total liabilities.........................................................                           567,228
                                                                                                    ------------
Net assets, at market value...................................................                      $145,619,667
                                                                                                    ============
NET ASSETS
Net assets consist of:
  Undistributed net investment income.........................................                      $  2,403,397
  Net unrealized appreciation on:
    Investments...............................................................                         4,129,487
    Foreign currency related transactions.....................................                           117,367
  Accumulated net realized loss...............................................                        (5,037,416)
  Paid-in capital.............................................................                       144,006,832
                                                                                                    ------------
Net assets, at market value...................................................                      $145,619,667
                                                                                                    ============
NET ASSET VALUE, offering and redemption price per share
        ($145,619,667 divided by 21,008,272 outstanding shares of beneficial
        interest, no par value, unlimited number of shares authorized)........                             $6.93
                                                                                                           =====
</TABLE>

    The accompanying notes are an integral part of the financial statements.



                                       23
<PAGE>
<TABLE>
BOND PORTFOLIO
------------------------------------------------------------------------------------------------------
<CAPTION>
                                       STATEMENT OF OPERATIONS
------------------------------------------------------------------------------------------------------

SIX MONTHS ENDED JUNE 30, 1995 (UNAUDITED)
------------------------------------------------------------------------------------------------------
<S>                                                                          <C>           <C>
INVESTMENT INCOME
  Interest...............................................................                  $ 4,927,305
  Expenses (Note A):
    Management fee (Note B)..............................................    $  336,348
    Accounting fees (Note B).............................................        21,673
    Trustees' fees (Note B)..............................................         8,414
    Custodian fees.......................................................         9,437
    Auditing.............................................................         8,876
    Legal................................................................         3,852
    Other................................................................         3,475        392,075
                                                                             ----------    -----------
  Net investment income..................................................                    4,535,230
                                                                                           -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
  Net realized gain (loss) from:
    Investments..........................................................       343,683
    Foreign currency related transactions................................       (25,038)       318,645
                                                                             ----------
  Net unrealized appreciation during the period on:
    Investments..........................................................     8,897,348
    Foreign currency related transactions................................       117,367      9,014,715
                                                                             ----------    -----------
  Net gain on investment transactions....................................                    9,333,360
                                                                                           -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.....................                  $13,868,590
                                                                                           ===========
</TABLE>

    The accompanying notes are an integral part of the financial statements.



                                       24
<PAGE>
<TABLE>
                                                                                          FINANCIAL STATEMENTS
--------------------------------------------------------------------------------------------------------------
<CAPTION>
                                     STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------------------------------------

                                                                                SIX MONTHS
                                                                                  ENDED               YEAR
                                                                                 JUNE 30,            ENDED
                                                                                   1995           DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS                                              (UNAUDITED)            1994
--------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                <C>
Operations:
  Net investment income.....................................................   $  4,535,230       $  8,806,288
  Net realized gain (loss) from investment transactions.....................        318,645         (5,607,148)
  Net unrealized appreciation (depreciation) on investment
    transactions during the period..........................................      9,014,715         (9,672,581)
                                                                               ------------       ------------
Net increase (decrease) in net assets resulting from operations.............     13,868,590         (6,473,441)
                                                                               ------------       ------------
Distributions to shareholders from:
  Net investment income ($.21 and $.43 per share, respectively).............     (4,319,990)        (8,525,294)
                                                                               ------------       ------------
  Net realized gain from investment transactions ($.17 per share)...........              -         (3,161,229)
                                                                               ------------       ------------
Portfolio share transactions:
  Proceeds from shares sold.................................................     30,873,203         86,578,280
  Net asset value of shares issued to shareholders in
    reinvestment of distributions...........................................      4,319,990         11,686,523
  Cost of shares redeemed...................................................    (41,526,738)       (66,398,542)
                                                                               ------------       ------------
Net increase (decrease) in net assets from Portfolio share transactions.....     (6,333,545)        31,866,261
                                                                               ------------       ------------
INCREASE IN NET ASSETS......................................................      3,215,055         13,706,297
Net assets at beginning of period...........................................    142,404,612        128,698,315
                                                                               ------------       ------------
NET ASSETS AT END OF PERIOD (including undistributed net investment
        income of $2,403,397 and $2,188,157, respectively)..................   $145,619,667       $142,404,612
                                                                               ============       ============
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
Shares outstanding at beginning of period...................................     21,973,579         17,350,092
                                                                               ------------       ------------
  Shares sold...............................................................      4,615,281         12,843,292
  Shares issued to shareholders in reinvestment of distributions............        659,112          1,713,654
  Shares redeemed...........................................................     (6,239,700)        (9,933,459)
                                                                               ------------       ------------
  Net increase (decrease) in Portfolio shares...............................       (965,307)         4,623,487
                                                                               ------------       ------------
Shares outstanding at end of period.........................................     21,008,272         21,973,579
                                                                               ============       ============
</TABLE>

    The accompanying notes are an integral part of the financial statements.



                                       25
<PAGE>
<TABLE>
BOND PORTFOLIO
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout each period and other performance information derived
from the financial statements.
<CAPTION>
                                                                                                                        SIX
                           SIX MONTHS                                                                                  MONTHS
                              ENDED                                                                                    ENDED
                             JUNE 30,                           YEARS ENDED DECEMBER 31, (E)                          DECEMBER
                             1995(E)     --------------------------------------------------------------------------     31,
                           (UNAUDITED)     1994     1993     1992     1991      1990      1989      1988    1987     1986(E)(F)
                           -----------   --------------------------------------------------------------------------  ----------
<S>                        <C>           <C>      <C>       <C>      <C>       <C>      <C>       <C>       <C>      <C>
Net asset value,
  beginning of period.....  $  6.48      $ 7.42   $  7.19   $ 7.37   $  6.73   $ 6.72   $  6.39   $  6.47   $  6.67  $ 6.56
                            -------      ------   -------   ------   -------   ------   -------   -------   -------  ------
Income from investment
  operations:
    Net investment
      income (a)..........      .21         .43       .48      .49       .52      .53       .54       .54       .49     .23
    Net realized and
      unrealized gain
      (loss) on
      investment
      transactions........      .45        (.77)      .38     (.02)      .61     (.02)      .18      (.19)     (.40)    .08
                            -------      ------   -------   ------   -------   ------   -------   -------   -------  ------
Total from investment
  operations..............      .66        (.34)      .86      .47      1.13      .51       .72       .35       .09     .31
                            -------      ------   -------   ------   -------   ------   -------   -------   -------  ------
Less distributions from:
  Net investment income...     (.21)       (.43)     (.48)    (.46)     (.47)    (.50)     (.39)     (.43)     (.29)   (.17)
  Net realized gains on
    on investment
    transactions..........        -        (.17)     (.15)    (.19)     (.02)       -         -         -         -    (.03)
                            -------      ------   -------   ------   -------   ------   -------   -------   -------  ------
Total distributions.......     (.21)       (.60)     (.63)    (.65)     (.49)    (.50)     (.39)     (.43)     (.29)   (.20)
                            -------      ------   -------   ------   -------   ------   -------   -------   -------  ------
Net asset value,
  end of period...........  $  6.93      $ 6.48   $  7.42   $ 7.19   $  7.37   $ 6.73   $  6.72   $  6.39   $  6.47  $ 6.67
                            =======      ======   =======   ======   =======   ======   =======   =======   =======  ======
TOTAL RETURN (%)..........    10.40(d)    (4.79)    12.38     7.01     17.61     8.06     11.65      5.46      1.22    4.90(d)

RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
  period ($ millions).....      146         142       129      113        74       42        22         3         3       1
Ratio of operating
  expenses, net to
  average net
  assets (%) (a)..........      .56(c)      .58       .61      .63       .69      .73       .75       .75       .75     .75(c)
Ratio of net investment
  income to average
  net assets (%)..........     6.45(c)     6.43      6.59     6.89      7.51     8.05      8.04      7.86      7.53    6.88(c)
Portfolio turnover
  rate (%)................   157.99(c)    96.55    125.15    87.00    115.86    71.02    103.41    245.23    186.05   23.82(c)
<FN>
(a) Portion of expenses
    reimbursed (Note B)...  $     -      $    -   $     -   $    -   $     -   $    -   $   .01   $   .04   $   .08  $  .21
(b) Original capital
(c) Annualized
(d) Not annualized
(e) Per share amounts, for each of the periods identified, have been calculated using the monthly average shares outstanding during
    the period method.
(f) On August 22, 1986, the Trustees voted to change the year end of the Fund from June 30 to December 31.
</FN>
</TABLE>

<TABLE>
BOND PORTFOLIO
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout each period and other performance information derived
from the financial statements.
<CAPTION>
                                   FOR THE PERIOD
                                   JULY 16, 1985
                                   (COMMENCEMENT
                                   OF OPERATIONS)
                                    TO JUNE 30,
                                       1986
                                   --------------
<S>                                <C>
Net asset value,
  beginning of period.....           $ 6.00(b)
                                     ------
Income from investment
  operations:
    Net investment
      income (a)..........              .45
    Net realized and
      unrealized gain
      (loss) on
      investment
      transactions........              .44
                                     ------
Total from investment
  operations..............              .89
                                     ------
Less distributions from:
  Net investment income...             (.33)
  Net realized gains on
    on investment
    transactions..........                -
                                     ------
Total distributions.......             (.33)
                                     ------
Net asset value,
  end of period...........           $ 6.56
                                     ======
TOTAL RETURN (%)..........            15.11(d)

RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
  period ($ millions).....                -
Ratio of operating
  expenses, net to
  average net
  assets (%) (a)..........              .60(c)
Ratio of net investment
  income to average
  net assets (%)..........             7.48(c)
Portfolio turnover
  rate (%)................             6.27(c)
<FN>
(a) Portion of expenses
    reimbursed (Note B)...           $  .80
(b) Original capital
(c) Annualized
(d) Not annualized
(e) Per share amounts, for each of the periods identified, have been calculated using the monthly average shares outstanding during
    the period method.
(f) On August 22, 1986, the Trustees voted to change the year end of the Fund from June 30 to December 31.
</FN>
</TABLE>



                                       26
<PAGE>

<TABLE>
                                                                          BALANCED PORTFOLIO
                                        INVESTMENT PORTFOLIO as of June 30, 1995 (Unaudited)
--------------------------------------------------------------------------------------------
<CAPTION>
  % OF     PRINCIPAL                                                                MARKET
PORTFOLIO  AMOUNT ($)                                                              VALUE ($)
--------------------------------------------------------------------------------------------
<S>        <C>                                                                    <C>
 7.5%      REPURCHASE AGREEMENT
           ---------------------------------------------------------------------------------
           4,285,000  Repurchase Agreement with Donaldson, Lufkin &
                      Jenrette dated 6/30/95 at 6.07%, to be repurchased
                      at $4,287,167 on 7/3/95, collateralized by a $4,286,000
                      U.S. Treasury Note, 6.125%, 5/31/97 (Cost $4,285,000)....    4,285,000
                                                                                  ----------
17.6%      U.S. TREASURY OBLIGATIONS
           ---------------------------------------------------------------------------------
             700,000  U.S. Treasury Bill, 5.56%, 8/3/95........................      696,836
           1,000,000  U.S. Treasury Bond, 7.25%, 5/15/16.......................    1,059,840
             500,000  U.S. Treasury Bond, 7.5%, 11/15/16.......................      544,375
             340,000  U.S. Treasury Bond, 7.875%, 2/15/21......................      386,645
             300,000  U.S. Treasury Bond, 8.125%, 5/15/21......................      350,391
             300,000  U.S. Treasury Note, 4.25%, 7/31/95.......................      299,673
           1,170,000  U.S. Treasury Note, 5.125%, 3/31/96......................    1,164,875
           2,000,000  U.S. Treasury Note, 6%, 6/30/96..........................    2,005,000
             500,000  U.S. Treasury Note, 5.5%, 7/31/97........................      496,640
             900,000  U.S. Treasury Note, 5.25%, 7/31/98.......................      882,981
             200,000  U.S. Treasury Note, 5.875%, 3/31/99......................      199,344
             550,000  U.S. Treasury Note, 6%, 10/15/99.........................      550,429
             250,000  U.S. Treasury Note, 6.375%, 8/15/02......................      252,967
             500,000  U.S. Treasury Note, 5.875%, 2/15/04......................      487,735
             800,000  U.S. Treasury Separate Trading Registered Interest
                        and Principal Securities, 11/15/10 (6.78**)............      286,936
           1,460,000  U.S. Treasury Separate Trading Registered Interest
                        and Principal Securities, 2/15/12 (6.84**).............      477,070
                                                                                  ----------
                      TOTAL U.S. TREASURY OBLIGATIONS (Cost $9,890,948)........   10,141,737
                                                                                  ----------
 2.4%      U.S. GOV'T GUARANTEED MORTGAGES
           ---------------------------------------------------------------------------------
             777,872  Government National Mortgage Association, 10%,
                        8/15/20 (a)............................................      846,659
             534,109  Government National Mortgage Association, 8.75%,
                        12/15/24 (a)...........................................      551,799
                                                                                  ----------
                      TOTAL U.S. GOV'T GUARANTEED MORTGAGES (Cost $1,343,920)..    1,398,458
                                                                                  ----------
 0.9%      U.S. GOVERNMENT AGENCY PASS-THRUS
           ---------------------------------------------------------------------------------
             481,964  Federal Home Loan Mortgage Corp., 9.5%, 3/1/25 (a)
                        (Cost $505,008)........................................      505,758
                                                                                  ----------
 0.4%      COLLATERALIZED MORTGAGE OBLIGATIONS
           ---------------------------------------------------------------------------------
             231,929  Federal National Mortgage Association, REMIC, 8.5%,
                        4/25/18 (Cost $222,797)................................      235,842
                                                                                  ----------
 0.5%      FOREIGN BONDS - U.S. $ DENOMINATED
           ---------------------------------------------------------------------------------
             250,000  ABN-AMRO Bank NV, 7.75%, 5/15/23 (Cost $247,031).........      254,682
                                                                                  ----------
 1.6%      FOREIGN BONDS - NON U.S. $ DENOMINATED
           ---------------------------------------------------------------------------------
   DM        650,000  Federal Republic of Germany, 6.5%, 7/15/03...............      455,425
  FFr      2,400,000  Government of France OAT, 7.5%, 4/25/05..................      490,117
                                                                                  ----------
                      TOTAL FOREIGN BONDS - NON U.S. $ DENOMINATED
                        (Cost $946,463)........................................      945,542
                                                                                  ----------
</TABLE>

    The accompanying notes are an integral part of the financial statements.



                                       27
<PAGE>
<TABLE>
BALANCED PORTFOLIO
---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                            % OF    PRINCIPAL                                                                       MARKET
                         PORTFOLIO  AMOUNT ($)                                                                    VALUE ($)
---------------------------------------------------------------------------------------------------------------------------
<S>                         <C>     <C>                                                                           <C>
                                    ---------------------------------------------------------------------------------------     
                            2.2%    ASSET-BACKED SECURITIES
                                    ---------------------------------------------------------------------------------------
AUTOMOBILE RECEIVABLES      0.4%

                                      224,685  Premier Auto Trust Asset Backed Certificate
                                                 Series 1994-3, 6.8%, 12/2/99 (a)..............................     225,878
                                                                                                                  ---------
CREDIT CARD RECEIVABLES     1.2%
                                      187,500  Chase Manhattan Credit Card Trust, 1991 "A", 7.65%,
                                                 11/15/98 (a)            188,143
                                      250,000  First Chicago Master Trust, Series 1991-D, 8.4%, 6/15/98........     254,687
                                      250,000  Standard Credit Card Trust, Series 1990-6B, 9.625%, 9/10/97.....     264,530
                                                                                                                  ---------
                                                                                                                    707,360
                                                                                                                  ---------
HOME EQUITY LOANS           0.6%
                                      197,258  Contimortgage Home Equity Loan Trust, Series 1994-5 A1,
                                                 9.07%, 5/15/06 (a)............................................     199,077
                                      142,346  United Companies Financial Corp., Home Loan Trust,
                                                 Series 1993 B1, 6.075%, 7/25/14 (a)...........................     138,031
                                                                                                                  ---------
                                                                                                                    337,108
                                                                                                                  ---------
                                               TOTAL ASSET-BACKED SECURITIES (Cost $1,285,115).................   1,270,346
                                                                                                                  ---------
                                    ---------------------------------------------------------------------------------------     
                            6.8%    CORPORATE BONDS
                                    ---------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY      0.4%
                                      250,000  Price/Costco Inc., 7.125%, 6/15/05..............................     251,165
                                                                                                                  ---------
CONSUMER STAPLES            0.4%
                                      250,000  Seagram Ltd., 6.875%, 9/1/23....................................     225,037
                                                                                                                  ---------
MEDIA                       1.8%
                                    1,000,000  Time Warner Inc., 9.125%, 1/15/13...............................   1,039,290
                                                                                                                  ---------
DURABLES                    0.5%
                                      250,000  Lockheed Corp., 9%, 1/15/22.....................................     295,305
                                                                                                                  ---------
MANUFACTURING               0.5%
                                      250,000  Corning Inc., 8.75%, 7/15/99....................................     266,842
                                                                                                                  ---------
TECHNOLOGY                  0.9%
                                      500,000  Loral Corp., 8.375%, 6/15/24....................................     531,950
                                                                                                                  ---------
ENERGY                      1.4%
                                      500,000  Atlantic Richfield Co., 8.25%, 2/1/22...........................     543,725
                                      250,000  Enron Corp., 10%, 6/1/98........................................     270,587
                                                                                                                  ---------
                                                                                                                    814,312
                                                                                                                  ---------
TRANSPORTATION              0.4%
                                      100,000  American Airlines, 8.39%, 7/2/17................................     100,100
                                      100,000  American Airlines, 8.8%, 9/16/15................................     103,995
                                                                                                                  ---------
                                                                                                                    204,095
                                                                                                                  ---------
UTILITIES                   0.5%
                                      250,000  Commonwealth Edison Co., 9.05%, 10/15/99........................     262,007
                                                                                                                  ---------
                                               TOTAL CORPORATE BONDS (Cost $3,699,546).........................   3,890,003
                                                                                                                  ---------
</TABLE>

    The accompanying notes are an integral part of the financial statements.



                                       28
<PAGE>
<TABLE>
                                                                                                 INVESTMENT PORTFOLIO
---------------------------------------------------------------------------------------------------------------------
<CAPTION>
                              % of                                                                          Market
                           Portfolio     Shares                                                            Value ($)
---------------------------------------------------------------------------------------------------------------------
<S>                        <C>         <C>          <C>                                                  <C>
                                       ------------------------------------------------------------------------------
                            60.1%        COMMON STOCKS
                                       ------------------------------------------------------------------------------
CONSUMER DISCRETIONARY       4.7%

    Department &
    Chain Stores             3.1%        14,966     Home Depot, Inc.................................        607,994
                                          2,400     J.C. Penney Inc.................................        115,200
                                          7,600     May Department Stores...........................        316,350
                                         16,000     Wal-Mart Stores Inc.............................        428,000
                                          6,500     Walgreen Co.....................................        325,813
                                                                                                        -----------
                                                                                                          1,793,357
                                                                                                        -----------

    Hotels & Casinos         0.7%        16,500     Carnival Corp., Class A.........................        385,687
                                                                                                        -----------

    Restaurants              0.4%         4,900     McDonald's Corp.................................        191,713
                                                                                                        -----------

    Specialty Retail         0.5%        11,200     Pep Boys - Manny, Moe & Jack....................        299,600
                                                                                                        -----------

CONSUMER STAPLES             8.3%

    Alcohol & Tobacco        0.6%         4,900     Philip Morris Companies Inc.....................        364,438
                                                                                                        -----------

    Consumer Electronic &
    Photographic Products    0.3%         4,200     Duracell International Inc......................        181,650
                                                                                                        -----------

    Food & Beverage          5.1%        22,000     Albertson's Inc.................................        654,500
                                          2,600     CPC International Inc...........................        160,550
                                         14,000     ConAgra Inc.....................................        488,250
                                          3,500     General Mills, Inc..............................        179,813
                                         17,500     PepsiCo Inc.....................................        798,438
                                         22,100     Sara Lee Corp...................................        629,850
                                                                                                        -----------
                                                                                                          2,911,401
                                                                                                        -----------

    Package Goods/
    Cosmetics                2.3%         2,700     Clorox Co.......................................        176,175
                                          4,800     Colgate-Palmolive Co............................        351,000
                                          6,800     Gillette Co.....................................        303,450
                                          6,500     Procter & Gamble Co.............................        467,188
                                                                                                        -----------
                                                                                                          1,297,813
                                                                                                        -----------

HEALTH                       7.2%

    Biotechnology            0.1%         1,900     Biogen Inc.*....................................         84,550
                                                                                                        -----------

    Hospital Management      1.8%        23,500     Columbia/HCA Healthcare Corp....................      1,016,375
                                                                                                        -----------

    Pharmaceuticals          5.3%         6,600     Abbott Laboratories.............................        267,300
                                          4,500     American Home Products Corp.....................        348,187
                                         11,200     Eli Lilly Co....................................        879,200
                                          4,900     Johnson & Johnson...............................        331,363
                                         11,400     Merck & Co. Inc.................................        558,600
                                          5,300     Sandoz Ltd. AG (ADR)............................        182,850
                                         11,000     Schering-Plough Corp............................        485,375
                                                                                                        -----------
                                                                                                          3,052,875
                                                                                                        -----------

COMMUNICATIONS               1.6%

    Cellular Telephone       0.5%         3,700     AirTouch Communications, Inc.*..................        105,450
                                          4,800     Vodafone Group PLC (ADR)........................        181,800
                                                                                                        -----------
                                                                                                            287,250
                                                                                                        -----------
</TABLE>


    The accompanying notes are an integral part of the financial statements.



                                       29
<PAGE>

<TABLE>
BALANCED PORTFOLIO
---------------------------------------------------------------------------------------------------------------------
<CAPTION>
                              % of                                                                          Market
                           Portfolio     Shares                                                            Value ($)
---------------------------------------------------------------------------------------------------------------------
<S>                        <C>           <C>        <C>                                                  <C>
    Telephone/
    Communications           1.1%        11,300     American Telephone & Telegraph Co...............        600,312
                                                                                                        -----------

FINANCIAL                    8.5%

    Banks                    2.9%        10,330     Banc One Corp...................................        333,142
                                         13,850     Mellon Bank Corp................................        576,506
                                          7,300     Norwest Corp....................................        209,875
                                         15,300     State Street Boston Corp........................        564,188
                                                                                                        -----------
                                                                                                          1,683,711
                                                                                                        -----------

    Insurance                3.8%         8,700     American International Group, Inc...............        991,800
                                          6,000     EXEL, Ltd.......................................        312,000
                                          1,700     General Re Corp.................................        227,588
                                          7,700     MBIA Inc........................................        512,050
                                          3,000     PMI Group, Inc..................................        130,125
                                                                                                        -----------
                                                                                                          2,173,563
                                                                                                        -----------

    Other Financial
    Companies                1.8%        10,800     Federal National Mortgage Association...........      1,019,250
                                                                                                        -----------

MEDIA                        4.4%

    Advertising              0.6%         9,500     Interpublic Group of Companies Inc..............        356,250
                                                                                                        -----------

    Broadcasting &
    Entertainment            3.1%         6,500     Capital Cities/ABC Inc..........................        702,000
                                          9,000     Time Warner Inc.................................        370,125
                                          4,600     Viacom Inc. "B"*................................        213,325
                                          9,100     Walt Disney Co..................................        506,187
                                                                                                        -----------
                                                                                                          1,791,637
                                                                                                        -----------

    Cable Television         0.7%        17,200     Tele-Communications Inc. "A"*...................        403,125
                                                                                                        -----------

SERVICE INDUSTRIES           2.6%

    EDP Services             1.2%         2,800     Automatic Data Processing, Inc..................        176,050
                                          3,500     First Data Corp.................................        199,063
                                          7,100     General Motors Corp. "E"........................        308,850
                                                                                                        -----------
                                                                                                            683,963
                                                                                                        -----------

    Miscellaneous
    Commercial Services      0.5%         1,700     Flightsafety International Inc..................         82,875
                                          6,800     Sysco Corp......................................        200,600
                                                                                                        -----------
                                                                                                            283,475
                                                                                                        -----------

    Miscellaneous
    Consumer Services        0.2%         2,300     H & R Block Inc.................................         94,587
                                                                                                        -----------

    Printing/Publishing      0.7%         8,600     Reuters Holdings PLC "B" (ADR)..................        431,075
                                                                                                        -----------

DURABLES                     4.5%

    Automobiles              0.1%         2,700     Echlin, Inc.....................................         93,825
                                                                                                        -----------

    Telecommunications
    Equipment                3.6%         9,200     DSC Communications Corp.*.......................        427,800
                                         15,700     General Instrument Corp.*.......................        602,488
                                         26,400     L.M. Ericsson Telephone Co. "B" (ADR)...........        528,000
                                          5,800     Nokia AB Oy (ADR)...............................        345,825
                                          1,300     U.S. Robotics Corp..............................        141,700
                                                                                                        -----------
                                                                                                          2,045,813
                                                                                                        -----------
</TABLE>


    The accompanying notes are an integral part of the financial statements.



                                       30
<PAGE>

<TABLE>
                                                                                                 INVESTMENT PORTFOLIO
---------------------------------------------------------------------------------------------------------------------
<CAPTION>
                              % of                                                                          Market
                           Portfolio     Shares                                                            Value ($)
---------------------------------------------------------------------------------------------------------------------
<S>                        <C>           <C>        <C>                                                  <C>
    Tires                    0.8%        19,400     Cooper Tire & Rubber Co.........................        472,875
                                                                                                        -----------

MANUFACTURING                4.0%

    Diversified
    Manufacturing            2.7%         5,100     Dover Corp......................................        371,025
                                          6,500     General Electric Co.............................        366,438
                                          7,900     Minnesota Mining & Manufacturing Co.............        452,275
                                          3,400     TRW Inc.........................................        271,575
                                          2,250     Thermo Electron Corp.*..........................         90,563
                                                                                                        -----------
                                                                                                          1,551,876
                                                                                                        -----------

    Electrical Products      1.3%         4,200     ASEA AB (ADR)...................................        359,100
                                          5,700     Emerson Electric Co.............................        407,550
                                                                                                        -----------
                                                                                                            766,650
                                                                                                        -----------

TECHNOLOGY                   9.2%

    Computer Software        1.1%         3,600     Microsoft Corp.*................................        325,350
                                          7,450     Oracle Systems Corp.*...........................        287,756
                                                                                                        -----------
                                                                                                            613,106
                                                                                                        -----------

    Diverse Electronic
    Products                 2.3%         1,200     Applied Materials, Inc.*........................        103,950
                                          9,700     General Motors Corp. "H"........................        383,150
                                         12,900     Motorola Inc....................................        865,913
                                                                                                        -----------
                                                                                                          1,353,013
                                                                                                        -----------

    Electronic Data
    Processing               1.7%         7,600     Ceridian Corp.*.................................        280,250
                                          8,000     Hewlett-Packard Co..............................        596,000
                                          2,200     Silicon Graphics Inc.*..........................         87,725
                                                                                                        -----------
                                                                                                            963,975
                                                                                                        -----------

    Military Electronics     1.0%        10,600     Loral Corp......................................        548,550
                                                                                                        -----------

    Office/Plant
    Automation               1.4%         2,600     3Com Corp.*.....................................        174,200
                                          6,500     Cabletron Systems Inc.*.........................        346,125
                                          6,000     Cisco Systems, Inc.*............................        303,375
                                                                                                        -----------
                                                                                                            823,700
                                                                                                        -----------

    Semiconductors           1.7%        10,600     Intel Corp......................................        671,113
                                          2,500     Texas Instruments Inc...........................        334,688
                                                                                                        -----------
                                                                                                          1,005,801
                                                                                                        -----------

ENERGY                       4.5%

    Engineering              0.8%         8,800     Fluor Corp......................................        457,600
                                                                                                        -----------

    Oil Companies            2.6%         5,900     Amoco Corp......................................        393,087
                                          8,500     Chevron Corp....................................        396,312
                                          2,700     Exxon Corp......................................        190,687
                                          2,900     Mobil Corp......................................        278,400
                                          2,200     Royal Dutch Petroleum Co. (New York shares).....        268,125
                                                                                                        -----------
                                                                                                          1,526,611
                                                                                                        -----------

    Oil/Gas Transmission     1.1%        17,900     Enron Corp......................................        628,737
                                                                                                        -----------
</TABLE>


    The accompanying notes are an integral part of the financial statements.



                                       31
<PAGE>

<TABLE>
BALANCED PORTFOLIO
---------------------------------------------------------------------------------------------------------------------
<CAPTION>
                              % of                                                                          Market
                           Portfolio     Shares                                                            Value ($)
---------------------------------------------------------------------------------------------------------------------
<S>                        <C>           <C>        <C>                                                  <C>
    METALS AND MINERALS      0.6%

    Steel & Metals                        6,500     Nucor Corp......................................        347,750
                                                                                                        -----------
                                                    TOTAL COMMON STOCKS (Cost $29,222,949)..........     34,587,539
                                                                                                        -----------

                                                    TOTAL INVESTMENT PORTFOLIO - 100.0%
                                                     (Cost $51,648,777)(b)..........................     57,514,907
                                                                                                        ===========
<FN>
      *  Non-income producing security.
 **  Yield; bond equivalent yield to maturity; not a coupon rate (unaudited).
(a)  Effective maturities will be shorter due to amortization and prepayments.
(b)  At June 30, 1995, the net unrealized appreciation on investments based on cost for federal income tax purposes 
     of $51,733,807 was as follows:
     Aggregate gross unrealized appreciation for all investments in which there
     is an excess of market value over tax cost.....................................................    $ 6,085,600
     Aggregate gross unrealized depreciation for all investments in which there
     is an excess of tax cost over market value.....................................................       (304,500)
                                                                                                        -----------
     Net unrealized appreciation....................................................................    $ 5,781,100
                                                                                                        ===========
</FN>
</TABLE>

--------------------------------------------------------------------------------
     From November 1, 1994 through December 31, 1994, the Balanced Portfolio
     incurred approximately $275,417 of net realized capital losses which the
     Portfolio intends to elect to defer and treat as arising in the fiscal year
     ended December 31, 1995.
--------------------------------------------------------------------------------
     Purchases and sales of investment securities (excluding short#term
     investments and U.S. Government securities), for the six months ended June
     30, 1995, aggregated $18,831,651 and $18,977,054, respectively. Purchases
     and sales of U.S. Government securities for the six months ended June 30,
     1995, aggregated $6,963,426 and $2,745,576, respectively.
--------------------------------------------------------------------------------
     COMMITMENTS:
     As of June 30, 1995, the Balanced Portfolio entered into the following
     forward foreign currency exchange contracts resulting in net unrealized
     appreciation of $14,667.

<TABLE>
<CAPTION>
                                                                                   NET UNREALIZED
                                                                                   APPRECIATION/
                                                              SETTLEMENT            DEPRECIATION
CONTRACTS TO DELIVER          IN EXCHANGE FOR                    DATE                 (U.S.$)
---------------------------   --------------------------      ----------           --------------
<S>             <C>           <C>             <C>             <C>                  <C>
Deutschemarks     659,903     U.S. Dollars    491,819          10/23/95                12,523
French Francs   2,335,440     U.S. Dollars    482,180          10/23/95                 2,144
                                                                                     --------
                                                                                       14,667
                                                                                     ========
</TABLE>


    The accompanying notes are an integral part of the financial statements.



                                       32
<PAGE>

<TABLE>
                                                                                           FINANCIAL STATEMENTS
----------------------------------------------------------------------------------------------------------------

                       STATEMENT OF ASSETS AND LIABILITIES
----------------------------------------------------------------------------------------------------------------

June 30, 1995 (Unaudited)
----------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>              <C>
ASSETS
Investments, at market (identified cost $51,648,777) (Note A) ..............                        $ 57,514,907
Cash .......................................................................                                 460
Unrealized appreciation on forward currency exchange contacts (Note A) .....                              14,667
Receivables:
   Dividends and interest ..................................................                             318,166
   Portfolio shares sold ...................................................                              43,445
     Total assets ..........................................................                          57,891,645
                                                                                                    ------------
LIABILITIES
Payables:
  Investments purchased ....................................................       $111,714
  Portfolio shares redeemed ................................................         13,033
  Accrued management fee (Note B) ..........................................         22,491
  Other accrued expenses (Note B) ..........................................         15,657
                                                                                   --------
     Total liabilities .....................................................                             162,895
                                                                                                    ------------
Net assets, at market value ................................................                        $ 57,728,750
                                                                                                    ============

NET ASSETS
Net assets consist of:
  Undistributed net investment income ......................................                        $    457,532
  Net unrealized appreciation on:
     Investments ...........................................................                           5,866,130
     Foreign currency related transactions .................................                              14,405
  Accumulated net realized loss ............................................                             (13,583)
  Paid-in capital ..........................................................                          51,404,266
                                                                                                    ------------
Net assets, at market value ................................................                        $ 57,728,750
                                                                                                    ============

NET ASSET VALUE, offering and redemption price per share
   ($57,728,750 divided by 5,708,319 outstanding shares of beneficial
   interest, no par value, unlimited number of shares authorized) ..........                              $10.11
                                                                                                          ======
</TABLE>


    The accompanying notes are an integral part of the financial statements.



                                       33
<PAGE>

<TABLE>
BALANCED PORTFOLIO
-----------------------------------------------------------------------------------------------------------
<CAPTION>
                            STATEMENT OF OPERATIONS
-----------------------------------------------------------------------------------------------------------

SIX MONTHS ENDED JUNE 30, 1995 (UNAUDITED)
-----------------------------------------------------------------------------------------------------------
<S>                                                                              <C>             <C>
INVESTMENT INCOME
   Income:
      Interest .............................................................                     $  721,498
      Dividends (net of foreign taxes withheld of $182) ....................                        290,725
                                                                                                 ----------
                                                                                                  1,012,223

Expenses (Note A):
   Management fee (Note B) .................................................     $  122,045
   Accounting fees (Note B) ................................................         18,595
   Trustees' fees (Note B) .................................................          8,005
   Custodian fees ..........................................................         13,189
   Auditing ................................................................          2,519
   Legal ...................................................................          1,375
   Other ...................................................................          5,710         171,438
                                                                                 ----------      ----------

Net investment income ......................................................                     $  840,785
                                                                                                 ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
   Net realized gain (loss) from:
      Investments ..........................................................        409,897
      Foreign currency related transactions ................................         (3,069)        406,828
                                                                                 ----------
   Net unrealized appreciation during the period on:
      Investments ..........................................................      6,104,049
      Foreign currency related transactions ................................         14,405       6,118,454
                                                                                 ----------      ----------
   Net gain on investment transactions .....................................                      6,525,282
                                                                                                 ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .......................                     $7,366,067
                                                                                                 ==========
</TABLE>

    The accompanying notes are an integral part of the financial statements.



                                       34
<PAGE>

<TABLE>
                                                                                  FINANCIAL STATEMENTS
------------------------------------------------------------------------------------------------------

                STATEMENTS OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                         SIX MONTHS
                                                                           ENDED              YEAR
                                                                          JUNE 30,           ENDED
                                                                            1995          DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS                                       (UNAUDITED)           1994
------------------------------------------------------------------------------------------------------
<S>                                                                    <C>                <C>
Operations:
   Net investment income ........................................      $    840,785       $  1,464,324
   Net realized gain (loss) from investment transactions ........           406,828            (70,680)
   Net unrealized appreciation (depreciation) on investment
      transactions during the period ............................         6,118,454         (2,374,110)
                                                                       ------------       ------------
Net increase (decrease) in net assets resulting from operations .         7,366,067           (980,466)
                                                                       ------------       ------------
Distributions to shareholders from:
   Net investment income ($.15 and $.30 per share, respectively)           (775,538)        (1,442,472)
                                                                       ------------       ------------
   Net realized gains from investment transactions
      ($.06 and $.77 per share, respectively) ...................          (316,977)        (3,525,834)
                                                                       ------------       ------------
Portfolio share transactions:
   Proceeds from shares sold ....................................         8,209,973         14,384,876
   Net asset value of shares issued to shareholders in
      reinvestment of distributions .............................         1,092,515          4,968,306
   Cost of shares redeemed ......................................        (3,371,865)       (12,950,121)
                                                                       ------------       ------------
Net increase in net assets from Portfolio share transactions ....         5,930,623          6,403,061
                                                                       ------------       ------------
INCREASE IN NET ASSETS ..........................................        12,204,175            454,289
Net assets at beginning of period ...............................        45,524,575         45,070,286
                                                                       ------------       ------------
NET ASSETS AT END OF PERIOD (including undistributed net
   investment income of $457,532 and $392,285, respectively) ....      $ 57,728,750       $ 45,524,575
                                                                       ============       ============
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
Shares outstanding at beginning of period .......................         5,076,236          4,407,727
                                                                       ------------       ------------
   Shares sold ..................................................           868,030          1,539,383
   Shares issued to shareholders in reinvestment 
        of distributions.........................................           117,990            532,133
   Shares redeemed ..............................................          (353,937)        (1,403,007)
                                                                       ------------       ------------
   Net increase in Portfolio shares .............................           632,083            668,509
                                                                       ------------       ------------
Shares outstanding at end of period .............................         5,708,319          5,076,236
                                                                       ============       ============
</TABLE>


    The accompanying notes are an integral part of the financial statements.



                                       35
<PAGE>

<TABLE>
BALANCED PORTFOLIO
FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------------------------------------------------------------
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED
FROM THE FINANCIAL STATEMENTS.

<CAPTION>
                                Six Months
                                  Ended
                                 June 30,                                  Years Ended December 31, (e)
                                 1995(e)         ----------------------------------------------------------------------------------
                               (Unaudited)         1994       1993      1992      1991     1990      1989       1988       1987
---------------------------   -------------      --------   -------   -------   -------   -------   -------   --------   ---------
 <S>                           <C>               <C>        <C>        <C>       <C>       <C>       <C>       <C>        <C>
Net asset value,
 beginning of period .......     $ 8.97          $ 10.23    $ 10.02    $ 9.85    $ 8.10    $ 8.75    $ 7.62    $  6.88    $  7.35
                                 ------          -------    -------    ------    ------    ------    ------    -------    -------
Income from investment
 operations:
 Net investment
  income (a) ...............        .15              .29        .30       .29       .35       .42       .40        .33        .34
 Net realized and
  unrealized gain (loss)
  on investment
  transactions .............       1.20             (.48)       .42       .36      1.77      (.59)     1.06        .64       (.45)
                                 ------          -------    -------    ------    ------    ------    ------    -------    -------
Total from investment
 operations ................       1.35             (.19)       .72       .65      2.12      (.17)     1.46        .97       (.11)
                                 ------          -------    -------    ------    ------    ------    ------    -------    -------
Less distributions from:
 Net investment
  income ...................       (.15)            (.30)      (.28)     (.29)     (.37)     (.43)     (.33)      (.23)      (.23)
 Net realized gains
  on investment
  transactions .............       (.06)            (.77)      (.23)     (.19)       --      (.05)     --         --         (.13)
                                 ------          -------    -------    ------    ------    ------    ------    -------    -------
Total distributions ........       (.21)           (1.07)      (.51)     (.48)     (.37)     (.48)     (.33)      (.23)      (.36)
                                 ------          -------    -------    ------    ------    ------    ------    -------    -------
Net asset value,
 end of period .............     $10.11          $  8.97    $ 10.23    $10.02    $ 9.85    $ 8.10    $ 8.75    $  7.62    $  6.88
                                 ======          =======    =======    ======    ======    ======    ======    =======    =======
TOTAL RETURN (%) ...........      15.22(D)         (2.05)      7.45      6.96     26.93     (1.91)    19.50      14.21      (1.68)
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
 period ($ millions) .......         58               46         45        37        25        16        18         11         12
Ratio of operating
 expenses, net to
 average net
 assets (%) (a) ............        .67(c)           .75        .75       .75       .75       .75       .75        .75        .75
Ratio of net investment
 income to average
 net assets (%) ............       3.30(c)          3.19       3.01      3.01      4.00      5.15      4.74       4.48       4.42
Portfolio turnover
 rate (%) ..................      91.96(c)        101.64     133.95*    51.66     62.03     49.03     77.98     109.95     111.00
<FN>
(a) Portion of expenses
    reimbursed (Note B).....     $    -          $     -    $     -    $    -    $  .01    $    -    $  .01    $   .03    $   .03

</FN>
</TABLE>

<TABLE>
<CAPTION>
                                       Six         For the Period
                                      Months       July 16, 1985
                                      Ended        (commencement
                                     December      of operations)
                                       31,          to June 30,
                                    1986(e)(f)          1986
-----------------------------------------------------------------
<S>                                 <C>            <C>
Net asset value,
 beginning of period .......         $ 7.58          $ 6.00(b)
                                     ------          ------
Income from investment
 operations:
 Net investment
  income (a) ...............            .15             .31
 Net realized and
  unrealized gain (loss)
  on investment
  transactions .............           (.11)           1.50
                                     ------          ------
Total from investment
 operations ................            .04            1.81
                                     ------          ------
Less distributions from:
 Net investment
  income ...................           (.18)           (.23)
 Net realized gains
  on investment
  transactions .............           (.09)           --
                                     ------          ------
Total distributions ........           (.27)           (.23)
                                     ------          ------
Net asset value,
 end of period .............         $ 7.35          $ 7.58
                                     ======          ======
TOTAL RETURN (%) ...........            .46(D)        30.60(D)
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
 period ($ millions) .......              1            --
Ratio of operating
 expenses, net to
 average net
 assets (%) (a) ............            .75(c)          .60(c)
Ratio of net investment
 income to average
 net assets (%) ............           4.20(c)         4.87(c)
Portfolio turnover
 rate (%) ..................          28.86(c)        64.12(c)
<FN>
(a) Portion of expenses
    reimbursed (Note B).....         $  .17          $  .80
(b) Original capital
(c) Annualized
(d) Not annualized
(e) Per share amounts, for each of the periods identified, have been calculated
    using the monthly average shares outstanding during the period method.
(f) On August 22, 1986, the Trustees voted to change the year end of the Fund
    from June 30 to December 31.
  * On May 1, 1993, the Portfolio adopted its present name and investment
    objective which is a balance of growth and income from a diversified
    portfolio of equity and fixed income securities. Prior to that date, the
    Portfolio was known as the Managed Diversified Portfolio and its investment
    objective was to realize a high level of long#term total rate of return
    consistent with prudent investment risk. The portfolio turnover rate
    increased due to implementing the present investment objective. Financial
    highlights for the nine periods ended December 31, 1993 should not be
    considered representative of the present Portfolio.
</FN>
</TABLE>


                                       36
<PAGE>

<TABLE>
                                                                                                 GROWTH AND INCOME PORTFOLIO
                                                                        INVESTMENT PORTFOLIO as of June 30, 1995 (Unaudited)
----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                 % of     Principal                                                                Market
                              Portfolio   Amount ($)                                                              Value ($)
----------------------------------------------------------------------------------------------------------------------------
<S>                           <C>         <C>          <C>                                                        <C>
                                          ----------------------------------------------------------------------------------
                                1.8%        REPURCHASE AGREEMENT
                                          ----------------------------------------------------------------------------------
                                           664,000     Repurchase Agreement with State Street Bank and
                                                         Trust Company dated 6/30/95 at 6%, to be repurchased
                                                         at $664,332 on 7/3/95, collateralized by a $760,000
                                                         U.S. Treasury Bond, 9.25%, 2/15/16 (Cost $664,000)....      664,000
                                                                                                                 -----------

                                          ----------------------------------------------------------------------------------
                                0.1%        CONVERTIBLE BONDS
                                          ----------------------------------------------------------------------------------
FINANCIAL

    Other Financial
    Companies                               40,000     First Financial Management Corp., 5%, 12/15/99
                                                         (Cost $40,000)........................................       54,000
                                                                                                                 -----------

                                          ----------------------------------------------------------------------------------
                                3.1%        CONVERTIBLE PREFERRED STOCKS
                                          ----------------------------------------------------------------------------------
                                            Shares
                                          ----------------------------------------------------------------------------------

HEALTH                          1.2%

    Health Industry Services                18,200     FHP International Corp., Series A, 5%...................      432,250
                                                                                                                 -----------

SERVICE INDUSTRIES              1.6%

    EDP Services                             9,800     General Motors Corp., Series C, Cum. $3.25
                                                         (convertible into GM "E").............................      617,400
                                                                                                                 -----------

MANUFACTURING                   0.3%

    Containers & Paper          0.1%           700     Boise Cascade Corp. "G", Cum $1.58......................       23,362
                                                                                                                 -----------

    Industrial Specialty        0.2%         1,800     Corning Inc., 6%........................................       92,025
                                                                                                                 -----------

                                                       Total Convertible Preferred Stocks (Cost $1,142,518)....    1,165,037
                                                                                                                 -----------

                                          ----------------------------------------------------------------------------------
                               95.0%        COMMON STOCKS
                                          ----------------------------------------------------------------------------------

CONSUMER DISCRETIONARY          3.5%

    Department &
    Chain Stores                3.3%         9,000     J.C. Penney Inc.........................................      432,000
                                             2,400     Melville Corp...........................................       82,200
                                            11,000     Rite Aid Corp...........................................      281,875
                                             7,500     Sears, Roebuck & Co.....................................      449,063
                                                                                                                 -----------
                                                                                                                   1,245,138
                                                                                                                 -----------

    Restaurants                 0.2%         7,800     Darden Restaurants Inc..................................       84,825
                                                                                                                 -----------

CONSUMER STAPLES               10.7%

    Alcohol & Tobacco           3.7%         7,700     Anheuser Busch Companies, Inc...........................      437,937
                                             6,800     Philip Morris Companies Inc.............................      505,750
                                            15,980     RJR Nabisco Holdings Corp...............................      445,443
                                                                                                                 -----------
                                                                                                                   1,389,130
                                                                                                                 -----------

    Food & Beverage             3.5%         8,300     General Mills, Inc......................................      426,412
                                            12,700     H.J. Heinz Co...........................................      563,562
                                             9,400     Quaker Oats Co..........................................      309,025
                                                                                                                 -----------
                                                                                                                   1,298,999
                                                                                                                 -----------
</TABLE>


    The accompanying notes are an integral part of the financial statements.



                                       37
<PAGE>

<TABLE>
GROWTH AND INCOME PORTFOLIO
----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                 % of                                                                              Market
                              Portfolio     Shares                                                                Value ($)
----------------------------------------------------------------------------------------------------------------------------
<S>                           <C>         <C>          <C>                                                        <C>

    Package Goods/
    Cosmetics                   3.5%         7,500     Avon Products...........................................      502,500
                                             5,500     Clorox Co...............................................      358,875
                                            10,700     Tambrands Inc...........................................      457,425
                                                                                                                 -----------
                                                                                                                   1,318,800
                                                                                                                 -----------

HEALTH                         13.9%

    Health Industry
    Services                    0.6%         2,500     McKesson Corp...........................................      116,875
                                             2,900     U.S. HealthCare, Inc....................................       88,813
                                                                                                                 -----------
                                                                                                                     205,688
                                                                                                                 -----------

    Pharmaceuticals            13.3%         7,400     American Home Products Corp.............................      572,575
                                            24,500     Baxter International Inc................................      891,187
                                             6,200     Bristol-Myers Squibb Co.................................      422,375
                                            16,000     Carter-Wallace Inc......................................      182,000
                                            12,200     Eli Lilly Co............................................      957,700
                                            13,500     Schering-Plough Corp....................................      595,688
                                            10,900     SmithKline Beecham PLC (ADR)............................      493,225
                                             7,800     Warner-Lambert Co.......................................      673,725
                                             8,700     Zeneca Group PLC........................................      146,868
                                             1,300     Zeneca Group PLC (ADR)..................................       66,625
                                                                                                                 -----------
                                                                                                                   5,001,968
                                                                                                                 -----------

COMMUNICATIONS                  4.3%

    Telephone/
    Communications                          19,700     Alltel Corp.............................................      499,887
                                            12,600     GTE Corp................................................      429,975
                                            16,100     Hong Kong Telecommunications Ltd. (ADR).................      319,987
                                            10,700     Sprint Corp.............................................      359,788
                                                                                                                 -----------
                                                                                                                   1,609,637
                                                                                                                 -----------

FINANCIAL                      18.1%

    Banks                       6.4%         6,000     Bankers Trust New York Corp.............................      372,000
                                             8,300     Chemical Banking Corp...................................      392,175
                                            13,400     CoreStates Financial Corp...............................      467,325
                                            17,200     First Bank System Inc...................................      705,200
                                             6,800     J.P. Morgan & Co., Inc..................................      476,850
                                                                                                                 -----------
                                                                                                                   2,413,550
                                                                                                                 -----------

    Insurance                   2.9%         7,000     EXEL, Ltd...............................................      364,000
                                             2,800     Hartford Steam Boiler Inspection & Insurance Co.........      124,250
                                            13,800     Lincoln National Corp...................................      603,750
                                                                                                                 -----------
                                                                                                                   1,092,000
                                                                                                                 -----------

    Other Financial
    Companies                   4.0%         5,000     Federal National Mortgage Association...................      471,875
                                             7,800     Great Western Financial Corp............................      160,875
                                            18,600     Student Loan Marketing Association......................      871,875
                                                                                                                 -----------
                                                                                                                   1,504,625
                                                                                                                 -----------

    Real Estate                 4.8%        14,700     Health Care Property Investment Inc. (REIT).............      470,400
                                            13,100     McArthur/Glen Realty Corp. (REIT).......................      191,587
                                            15,900     Meditrust SBI (REIT)....................................      542,587
                                            14,700     Nationwide Health Properties Inc. (REIT)................      573,300
                                                                                                                 -----------
                                                                                                                   1,777,874
                                                                                                                 -----------

MEDIA                           0.3%

    Print Media                              2,600     Reader's Digest Association Inc. "A"....................      114,725
                                                                                                                 -----------
</TABLE>

    The accompanying notes are an integral part of the financial statements.



                                       38
<PAGE>

<TABLE>
                                                                                                        INVESTMENT PORTFOLIO
----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                 % of                                                                              Market
                              Portfolio     Shares                                                                Value ($)
----------------------------------------------------------------------------------------------------------------------------
<S>                           <C>         <C>          <C>                                                        <C>

SERVICE INDUSTRIES              3.0%

    Miscellaneous
    Commercial Services         0.1%        54,000     Jardine Strategic Holdings Ltd..........................       58,590
                                                                                                                 -----------

    Miscellaneous
    Consumer Services           1.6%        14,400     H & R Block Inc.........................................      592,200
                                                                                                                 -----------

    Printing/Publishing         1.3%        14,500     Deluxe Corp.............................................      480,312
                                                                                                                 -----------

DURABLES                        8.1%

    Aerospace                   7.5%         9,100     AAR Corp................................................      162,662
                                            10,142     Lockheed Martin Corp....................................      640,214
                                            11,700     Rockwell International Corp.............................      535,275
                                            14,400     Thiokol Corp............................................      435,600
                                            13,100     United Technologies Corp................................    1,023,438
                                                                                                                 -----------
                                                                                                                   2,797,189
                                                                                                                 -----------

    Automobiles                 0.6%         8,200     Dana Corp...............................................      234,725
                                                                                                                 -----------

MANUFACTURING                  15.4%

    Chemicals                   3.8%         4,600     Dow Chemical Co.........................................      330,625
                                             9,700     E.I. du Pont de Nemours & Co............................      666,875
                                            16,100     Lyondell Petrochemical Co...............................      412,562
                                                                                                                 -----------
                                                                                                                   1,410,062
                                                                                                                 -----------

    Containers & Paper          1.6%        10,300     Kimberly-Clark Corp.....................................      616,713
                                                                                                                 -----------

    Diversified
    Manufacturing               3.7%        22,000     Dresser Industries Inc..................................      489,500
                                             1,300     Olin Corp...............................................       66,950
                                            10,300     TRW Inc.................................................      822,713
                                                                                                                 -----------
                                                                                                                   1,379,163
                                                                                                                 -----------

    Electrical Products         1.0%         5,700     Thomas & Betts Corp.....................................      389,738
                                                                                                                 -----------

    Machinery/
    Components/Controls         0.7%         6,100     Timken Co...............................................      281,363
                                                                                                                 -----------

    Office Equipment/
    Supplies                    2.0%         6,300     Xerox Corp..............................................      738,675
                                                                                                                 -----------

    Specialty Chemicals         2.6%        10,200     Betz Laboratories Inc...................................      461,550
                                            15,700     Witco Corp..............................................      506,325
                                                                                                                 -----------
                                                                                                                     967,875
                                                                                                                 -----------

ENERGY                         11.0%

    Engineering                 1.2%        18,700     McDermott International Inc.............................      451,137
                                                                                                                 -----------

    Oil Companies               8.6%         6,200     Exxon Corp..............................................      437,875
                                            10,800     Murphy Oil Corp.........................................      442,800
                                             7,200     Pennzoil Co.............................................      339,300
                                             7,800     Repsol SA (ADR).........................................      246,675
                                             3,400     Royal Dutch Petroleum Co. (New York shares).............      414,375
                                             9,248     Societe Nationale Elf Aquitaine (ADR)...................      344,488
                                             5,000     Texaco Inc..............................................      328,125
                                             8,100     Total SA (ADR)..........................................      245,025
                                            22,800     YPF SA "D" (ADR)........................................      430,350
                                                                                                                 -----------
                                                                                                                   3,229,013
                                                                                                                 -----------

    Oil/Gas Transmission        0.1%         1,800     El Paso Natural Gas Co..................................       51,300
                                                                                                                 -----------

    Oilfield Services/
    Equipment                   1.1%        11,100     Halliburton Co..........................................      396,825
                                                                                                                 -----------
</TABLE>

    The accompanying notes are an integral part of the financial statements.



                                       39
<PAGE>

<TABLE>
GROWTH AND INCOME PORTFOLIO
----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                 % of                                                                              Market
                              Portfolio     Shares                                                                Value ($)
----------------------------------------------------------------------------------------------------------------------------
<S>                           <C>         <C>          <C>                                                        <C>

METALS AND MINERALS             1.7%

    Steel & Metals                          19,200     Freeport McMoRan Copper & Gold, Inc. "A"................      396,000
                                            13,500     Oregon Steel Mills Inc..................................      231,188
                                                                                                                 -----------
                                                                                                                     627,188
                                                                                                                 -----------

UTILITIES                       5.0%

    Electric Utilities                      10,800     CINergy Corp............................................      283,500
                                             6,000     CMS Energy Corp.........................................      147,750
                                             3,500     Empresa Nacional de Electricidad SA (ADR)...............      172,375
                                            12,300     National Power PLC (ADR)................................      152,213
                                             1,800     PacifiCorp..............................................       33,750
                                             9,700     Pacific Gas & Electric Co...............................      281,300
                                            11,100     PowerGen PLC (ADR) (a)..................................      135,975
                                            14,600     Southern Company........................................      326,675
                                            13,500     Unicom Corp.............................................      359,438
                                                                                                                 -----------
                                                                                                                   1,892,976
                                                                                                                 -----------
                                                       TOTAL COMMON STOCKS (Cost $32,330,465)..................   35,652,003
                                                                                                                 -----------
============================================================================================================================
                                                       TOTAL INVESTMENT PORTFOLIO - 100.0%
                                                        (Cost $34,176,983) (b).................................   37,535,040
                                                                                                                 ===========
<FN>
(a) Security valued in good faith by the Valuation Committee of the Trustees.
    The cost and market value of this security at June 30, 1995 aggregated
    $139,172 and $135,975 (.36% of net assets), respectively.

(b) At June 30, 1995, the net unrealized appreciation on investments based on
    cost for federal income tax purposes of $34,187,761 was as follows:

    Aggregate gross unrealized appreciation for all investments in which there
    is an excess of market value over tax cost.................................................................  $ 3,632,109

    Aggregate gross unrealized depreciation for all investments in which there
    is an excess of tax cost over market value.................................................................     (284,830)
                                                                                                                 -----------
    Net unrealized appreciation................................................................................  $ 3,347,279
                                                                                                                 ===========
</FN>
</TABLE>

Purchases and sales of investment securities (excluding short#term investments),
for the six months ended June 30, 1995, aggregated $18,439,062 and $3,747,551,
respectively.


    The accompanying notes are an integral part of the financial statements.



                                       40
<PAGE>
<TABLE>
                                                                       FINANCIAL STATEMENTS
-------------------------------------------------------------------------------------------
<CAPTION>
                            STATEMENT OF ASSETS AND LIABILITIES
-------------------------------------------------------------------------------------------

JUNE 30, 1995 (UNAUDITED)
-------------------------------------------------------------------------------------------
ASSETS
<S>                                                                  <C>        <C>
Investments, at market (identified cost $34,176,983) (Note A)......             $37,535,040
Cash...............................................................                     711
Receivables:
  Investments sold.................................................                   8,376
  Dividends and interest...........................................                 140,455
                                                                                -----------
      Total assets.................................................              37,684,582
LIABILITIES
Payables:
  Investments purchased............................................  $102,404
  Portfolio shares redeemed........................................    86,035
  Accrued management fee (Note B)..................................    55,931
  Other accrued expenses (Note B)..................................    14,162
                                                                     --------
      Total liabilities............................................                 258,532
                                                                                -----------
Net assets, at market value........................................             $37,426,050
                                                                                ===========
NET ASSETS
Net assets consist of:
  Undistributed net investment income..............................             $   315,067
  Net unrealized appreciation on investments.......................               3,358,057
  Accumulated net realized loss....................................                 (94,632)
  Paid-in capital..................................................              33,847,558
                                                                                -----------
Net assets, at market value........................................             $37,426,050
                                                                                ===========

NET ASSET VALUE, offering and redemption price per share
  ($37,426,050 / 5,281,521 outstanding shares of beneficial
  interest, no par value, unlimited number of shares authorized)                      $7.09
                                                                                      =====
</TABLE>


    The accompanying notes are an integral part of the financial statements.


                                       41
<PAGE>
<TABLE>
GROWTH AND INCOME PORTFOLIO
------------------------------------------------------------------------------------------------

                                    STATEMENT OF OPERATIONS
------------------------------------------------------------------------------------------------

SIX MONTHS ENDED JUNE 30, 1995 (UNAUDITED)
------------------------------------------------------------------------------------------------
<S>                                                                     <C>           <C>
INVESTMENT INCOME
  Income:
    Dividends (net of foreign taxes withheld of $463).................                $  533,764
    Interest..........................................................                    63,800
                                                                                      ----------
                                                                                         597,564
  Expenses (Note A):
    Management fee (net of $10,024 not imposed) (Note B)..............  $ 56,747
    Accounting fees (Note B)..........................................    19,199
    Trustees' fees (Note B)...........................................     7,776
    Custodian fees....................................................    16,343
    Federal registration..............................................     2,144
    Legal.............................................................       879
    Auditing..........................................................       570
    Other.............................................................     1,771         105,429
                                                                        --------      ----------
  Net investment income...............................................                   492,135
                                                                                      ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
  Net realized gain (loss) from:
    Investments.......................................................   (69,966)
    Foreign currency related transactions.............................        85         (69,881)
                                                                        --------
  Net unrealized appreciation on investments during the period........                 3,685,824
                                                                                      ----------
  Net gain on investment transactions.................................                 3,615,943
                                                                                      ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..................                $4,108,078
                                                                                      ==========
</TABLE>


    The accompanying notes are an integral part of the financial statements.


                                       42
<PAGE>

<TABLE>
                                                                                     FINANCIAL STATEMENTS
---------------------------------------------------------------------------------------------------------

                                   STATEMENTS OF CHANGES IN NET ASSETS
---------------------------------------------------------------------------------------------------------





                                                                                         FOR THE PERIOD
                                                                        SIX MONTHS         MAY 2, 1994
                                                                           ENDED          (COMMENCEMENT
                                                                         JUNE 30,       OF OPERATIONS) TO
                                                                           1995            DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS                                       (UNAUDITED)            1994
---------------------------------------------------------------------------------------------------------
<S>                                                                     <C>             <C>
Operations:
  Net investment income...............................................  $   492,135       $   251,018
  Net realized gain (loss) from investment transactions...............      (69,881)          124,765
  Net unrealized appreciation (depreciation) on investment
    transactions during the period....................................    3,685,824          (327,767)
                                                                        -----------       -----------
Net increase in net assets resulting from operations..................    4,108,078            48,016
                                                                        -----------       -----------
Distributions to shareholders from:
  Net investment income ($.09 and $.04 per share, respectively).......     (341,200)          (86,114)
                                                                        -----------       -----------
  Net realized gains from investment transactions ($.04 per share)....     (150,289)               --
                                                                        -----------       -----------
Portfolio share transactions:
  Proceeds from shares sold...........................................   15,424,241        22,441,709
  Net asset value of shares issued to shareholders in reinvestment
    of distributions..................................................      491,489            86,114
  Cost of shares redeemed.............................................   (2,181,111)       (2,415,483)
                                                                        -----------       -----------
Net increase in net assets from Portfolio share transactions..........   13,734,619        20,112,340
                                                                        -----------       -----------
INCREASE IN NET ASSETS................................................   17,351,208        20,074,242
Net assets at beginning of period.....................................   20,074,842               600
                                                                        -----------       -----------
NET ASSETS AT END OF PERIOD (including undistributed net
  investment income of $315,067 and $164,132, respectively)...........  $37,426,050       $20,074,842
                                                                        ===========       ===========
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
Shares outstanding at beginning of period.............................    3,204,882               100
                                                                        -----------       -----------
  Shares sold.........................................................    2,327,536         3,576,097
  Shares issued to shareholders in reinvestment of distributions......       75,713            13,561
  Shares redeemed.....................................................     (326,610)         (384,876)
                                                                        -----------       -----------
  Net increase in Portfolio shares....................................    2,076,639         3,204,782
                                                                        -----------       -----------
Shares outstanding at end of period...................................    5,281,521         3,204,882
                                                                        ===========       ===========
</TABLE>


    The accompanying notes are an integral part of the financial statements.


                                       43
<PAGE>

<TABLE>
GROWTH AND INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
----------------------------------------------------------------------------------------------------------------

THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD (E) AND OTHER
PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.

<CAPTION>

                                                                                                 FOR THE PERIOD
                                                                                 SIX MONTHS        MAY 2, 1994
                                                                                   ENDED          (COMMENCEMENT
                                                                                 JUNE 30,        OF OPERATIONS)
                                                                                   1995          TO DECEMBER 31,
                                                                                (UNAUDITED)           1994
                                                                                -----------      ---------------
<S>                                                                             <C>              <C>
Net asset value, beginning of period..........................................    $ 6.26            $ 6.00(b)
                                                                                  ------            ------
Income from investment operations:
  Net investment income (a)...................................................       .12               .13
    Net realized and unrealized gain (loss) on investment transactions........       .84               .17(f)
                                                                                  ------            ------
Total from investment operations..............................................       .96               .30
                                                                                  ------            ------
Less distributions from:
  Net investment income.......................................................      (.09)             (.04)
  Net realized gains on investment transactions...............................      (.04)               --
                                                                                  ------            ------
Total distributions...........................................................      (.13)             (.04)
                                                                                  ------            ------
Net asset value, end of period................................................    $ 7.09            $ 6.26
                                                                                  ======            ======
TOTAL RETURN (%)..............................................................     15.46(D)           4.91(D)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions)........................................        37                20
Ratio of operating expenses, net to average net assets (%) (a)................       .75(c)            .75(c)
Ratio of net investment income to average net assets (%)......................      3.50(c)           3.63(c)
Portfolio turnover rate (%)...................................................     27.36(c)          28.41(c)
<FN>
(a)   Portion of expenses waived (Note B).....................................    $   --            $  .03
(b)   Original capital
(c)   Annualized
(d)   Not annualized
(e)   Per share amounts have been calculated using the monthly average shares
      outstanding during the period method.
(f)   The amount shown for a share outstanding throughout the period does not
      accord with the change in the aggregate gains and losses in the portfolio
      securities during the period because of the timing of sales and purchases
      of Portfolio shares in relation to fluctuating market values during the
      period.
</FN>
</TABLE>


                                       44
<PAGE>

<TABLE>
                                                                                                     CAPITAL GROWTH PORTFOLIO
                                                                         INVESTMENT PORTFOLIO as of June 30, 1995 (Unaudited)
-----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                   % of      Principal                                                              Market
                                Portfolio    Amount ($)                                                            Value ($)
-----------------------------------------------------------------------------------------------------------------------------
<S>                             <C>          <C>            <C>                                                    <C>
                                             --------------------------------------------------------------------------------
                                  5.8%                      REPURCHASE AGREEMENT
                                             --------------------------------------------------------------------------------

                                             16,956,000     Repurchase Agreement with Nesbitt Burns Securities
                                                              Inc. dated 6/30/95 at 6.125%, to be repurchased
                                                              at $16,964,655 on 7/3/95, collateralized by a
                                                              $16,890,000 U.S. Treasury Note, 6.25%, 8/31/96
                                                              (Cost $16,956,000).................................  16,956,000
                                                                                                                   ----------
                                             --------------------------------------------------------------------------------
                                  0.2%                      CONVERTIBLE BONDS
                                             --------------------------------------------------------------------------------
FINANCIAL

     Banks                                    1,000,000     Banco Nacional de Mexico, 7%, 12/15/99
                                                              (Cost $1,226,250)..................................     725,000
                                                                                                                   ----------
                                             --------------------------------------------------------------------------------
                                 0.8%                       PREFERRED STOCKS
                                             --------------------------------------------------------------------------------
                                               Shares
                                             --------------------------------------------------------------------------------
FINANCIAL                        0.3%

     Banks                                        8,000     First Nationwide Bank, non-cum. 11.5%................     864,000
                                                                                                                   ----------
TECHNOLOGY                       0.5%

     Electronic Components/
     Distributors                                14,740     Samsung Electronics Co., Ltd.........................   1,360,606
                                                  1,927     Samsung Electronics Co., Ltd. (New (b))..............     168,628
                                                                                                                   ----------
                                                                                                                    1,529,234
                                                                                                                   ----------
                                                            TOTAL PREFERRED STOCKS (Cost $1,949,332).............   2,393,234
                                                                                                                   ----------
                                             --------------------------------------------------------------------------------
                                92.2%                       COMMON STOCKS
                                             --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY           6.2%

     Department &
     Chain Stores                3.5%           187,600     Filene's Basement Corp.*.............................     656,600
                                                100,000     Lowe's Companies, Inc................................   2,987,500
                                                110,000     May Department Stores................................   4,578,750
                                                 71,700     Wal-Mart Stores Inc..................................   1,917,975
                                                                                                                   ----------
                                                                                                                   10,140,825
                                                                                                                   ----------

     Hotels & Casinos            2.0%           168,000     Carnival Corp., Class A..............................   3,927,000
                                                 88,200     Royal Caribbean Cruises Ltd..........................   1,940,400
                                                                                                                    5,867,400

     Specialty Retail            0.7%            21,800     Fingerhut Companies, Inc.............................     340,625
                                                 95,000     Home Shopping Network Inc.*..........................     807,500
                                                 36,000     Toys "R" Us Inc.*....................................   1,053,000
                                                                                                                   ----------
                                                                                                                    2,201,125
                                                                                                                   ----------

CONSUMER STAPLES                 3.6%

     Alcohol & Tobacco           0.8%            80,000     RJR Nabisco Holdings Corp............................   2,230,000
                                                                                                                   ----------

     Package Goods/
     Cosmetics                   2.8%            65,000     Clorox Co............................................   4,241,250
                                                 55,600     Colgate-Palmolive Co.................................   4,065,750
                                                                                                                   ----------
                                                                                                                    8,307,000
                                                                                                                   ----------
</TABLE>


    The accompanying notes are an integral part of the financial statements.


                                       45
<PAGE>

<TABLE>
CAPITAL GROWTH PORTFOLIO
-----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                   % of                                                                             Market
                                Portfolio      Shares                                                              Value ($)
-----------------------------------------------------------------------------------------------------------------------------
<S>                             <C>          <C>            <C>                                                    <C>
HEALTH                            11.2%

     Biotechnology                 0.6%         40,000      Biogen Inc.*.........................................   1,780,000
                                                                                                                   ----------

     Hospital Management           3.2%        220,000      Columbia/HCA Healthcare Corp.........................   9,515,000
                                                                                                                   ----------

     Pharmaceuticals               7.4%          7,500      Astra AB "A" (Free)..................................     231,342
                                               133,050      Astra AB "B" (Free)..................................   4,003,456
                                                40,000      BioChem Pharma, Inc.*................................     875,000
                                                80,000      Carter-Wallace Inc...................................     910,000
                                                40,000      Eli Lilly Co.........................................   3,140,000
                                                45,000      Johnson & Johnson....................................   3,043,125
                                               113,000      Merck & Co. Inc......................................   5,537,000
                                                89,000      Schering-Plough Corp.................................   3,927,125
                                                                                                                   ----------
                                                                                                                   21,667,048
                                                                                                                   ----------

COMMUNICATIONS                     4.4%

     Cellular Telephone            0.7%         56,870      Associated Group, Inc. "A"*..........................     981,007
                                                45,270      Associated Group, Inc. "B"*..........................     837,495
                                                   300      Korea Mobile Telecom (a).............................     282,434
                                                                                                                   ----------
                                                                                                                    2,100,936
                                                                                                                   ----------

     Telephone/
     Communications                3.7%        165,000      Century Telephone Enterprises........................   4,681,875
                                                    83      DDI Corp.............................................     665,919
                                                75,132      SBC Communicatons, Inc...............................   3,578,162
                                             2,660,000      Telecomunicacoes de Sao Paulo S.A. (pfd.)............     329,401
                                                60,000      WorldCom, Inc.*......................................   1,620,000
                                                                                                                   ----------
                                                                                                                   10,875,357
                                                                                                                   ----------

FINANCIAL                         13.7%

     Banks                         3.4%         80,000       Citicorp............................................   4,630,000
                                               163,000       MBNA Corp...........................................   5,501,250
                                                                                                                   ----------
                                                                                                                   10,131,250
                                                                                                                   ----------

     Insurance                     7.1%         59,000       American International Group, Inc...................   6,726,000
                                                60,000       EXEL, Ltd...........................................   3,120,000
                                                31,300       General Re Corp.....................................   4,190,287
                                                 9,900       Liberty Corp........................................     269,775
                                                70,000       MBIA Inc............................................   4,655,000
                                                41,200       PMI Group, Inc......................................   1,787,050
                                                                                                                   ----------
                                                                                                                   20,748,112
                                                                                                                   ----------

     Other Financial
     Companies                     3.2%        100,000       Federal National Mortgage Association...............   9,437,500
                                                                                                                   ----------

MEDIA                             10.8%

     Broadcasting &
     Entertainment                 6.3%         60,000       Capital Cities/ABC Inc..............................   6,480,000
                                                50,000       King World Productions, Inc.*.......................   2,025,000
                                               247,100       Time Warner Inc.....................................  10,161,988
                                                                                                                   ----------
                                                                                                                   18,666,988
                                                                                                                   ----------

     Cable Television              4.5%        279,750       Comcast Corp. "A"...................................   5,192,859
                                               338,307       Tele-Communications Inc. "A"*.......................   7,929,070
                                                                                                                   ----------
                                                                                                                   13,121,929
                                                                                                                   ----------
</TABLE>


    The accompanying notes are an integral part of the financial statements.


                                       46
<PAGE>

<TABLE>
                                                                                                         INVESTMENT PORTFOLIO
-----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                   % of                                                                             Market
                                Portfolio      Shares                                                              Value ($)
-----------------------------------------------------------------------------------------------------------------------------
<S>                             <C>          <C>            <C>                                                    <C>
SERVICE INDUSTRIES                 4.3%

     EDP Services                  0.4%         55,400      National Data Corp.                                     1,281,125
                                                                                                                   ----------

     Environmental Services        0.5%         40,000      Browning Ferris Industries                              1,445,000
                                                                                                                   ----------

     Investment                    1.3%         85,000      Franklin Resources Inc.                                 3,782,500
                                                                                                                   ----------

     Miscellaneous
     Consumer Services             1.4%        100,000      H & R Block Inc.                                        4,112,500
                                                                                                                   ----------

     Printing/Publishing           0.7%         40,000      Reuters Holdings PLC "B" (ADR)                          2,005,000
                                                                                                                   ----------

DURABLES                           4.5%

     Aerospace                     1.1%         40,000      United Technologies Corp.                               3,125,000
                                                                                                                   ----------

     Automobiles                   0.8%         44,000      Autoliv AB (Free)*                                      2,351,680
                                                                                                                   ----------

     Telecommunications
     Equipment                     2.6%         40,000      DSC Communications Corp.*                               1,860,000
                                                75,000      General Instrument Corp.*                               2,878,125
                                                50,400      Nokia AB Oy "A"                                         2,950,129
                                                                                                                   ----------
                                                                                                                    7,688,254
                                                                                                                   ----------

MANUFACTURING                      3.8%

     Chemicals                     1.4%         45,000      E.I. du Pont de Nemours & Co.                           3,093,750
                                                13,000      Schering AG                                               908,125
                                                                                                                   ----------
                                                                                                                    4,001,875
                                                                                                                   ----------

     Diversified
     Manufacturing                 0.6%         60,000      Canadian Pacific Ltd.                                   1,042,500
                                                21,000      Thermo Electron Corp.*                                    845,250
                                                                                                                   ----------
                                                                                                                    1,887,750
                                                                                                                   ----------

     Electrical Products           1.8%         40,000      American Power Conversion Corp.*                          915,000
                                               100,000      Philips NV (New York shares)                            4,275,000
                                                                                                                   ----------
                                                                                                                    5,190,000
                                                                                                                   ----------

TECHNOLOGY                        17.8%

     Computer Software             1.2%         27,000      Intuit Inc.*                                            2,052,000
                                                40,000      Oracle Systems Corp.*                                   1,545,000
                                                                                                                   ----------
                                                                                                                    3,597,000
                                                                                                                   ----------

     Diverse Electronic
     Products                      1.9%         83,100      Motorola Inc.                                           5,578,087
                                                                                                                   ----------

     EDP Peripherals               0.4%         91,700      Intergraph Corp.*                                       1,020,162
                                                                                                                   ----------

     Electronic Components/
     Distributors                  0.3%             74      Samsung Electronics Co., Ltd. (GDS) (a)                     5,322
                                                   374      Samsung Electronics Co., Ltd. (GDR)                        26,928
                                                 4,461      Samsung Electronics Co., Ltd. (a)                         760,977
                                                   882      Samsung Electronics Co., Ltd. (a) (New (b))               148,606
                                                                                                                   ----------
                                                                                                                      941,833
                                                                                                                   ----------

     Electronic Data
     Processing                    5.0%        125,000      Hewlett-Packard Co.                                     9,312,500
                                                40,000      International Business Machines Corp.                   3,840,000
                                                40,000      Silicon Graphics Inc.*                                  1,595,000
                                                                                                                   ----------
                                                                                                                   14,747,500
                                                                                                                   ----------
</TABLE>


    The accompanying notes are an integral part of the financial statements.


                                       47
<PAGE>

<TABLE>
CAPITAL GROWTH PORTFOLIO
----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                   % of                                                                                  Market
                                Portfolio      Shares                                                                   Value ($)
----------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>          <C>            <C>                                                       <C>


     Office/Plant
     Automation                    3.0%         22,000      3Com Corp.*.............................................     1,474,000
                                                40,000      Cabletron Systems Inc.*.................................     2,130,000
                                               100,000      Cisco Systems, Inc.*....................................     5,056,250
                                                                                                                       -----------
                                                                                                                         8,660,250
                                                                                                                       -----------

     Semiconductors                6.0%        150,000      Intel Corp..............................................     9,496,875
                                                60,000      Texas Instruments Inc...................................     8,032,500
                                                                                                                       -----------
                                                                                                                        17,529,375
                                                                                                                       -----------

ENERGY                             7.9%

     Oil & Gas Production          1.3%         78,800      Triton Energy Corp......................................     3,654,350
                                                                                                                       -----------

     Oil Companies                 6.6%         90,000      Amoco Corp..............................................     5,996,250
                                                40,000      Chevron Corp............................................     1,865,000
                                                40,000      Mobil Corp..............................................     3,840,000
                                               125,000      Repsol SA (ADR).........................................     3,953,125
                                               200,000      YPF SA "D" (ADR)........................................     3,775,000
                                                                                                                       -----------
                                                                                                                        19,429,375
                                                                                                                       -----------

METALS AND MINERALS                0.5%

     Steel & Metals                            123,000      Usinas Siderurgicas de Minas Gerais S/A(pfd.) (ADR).....     1,383,750
                                                                                                                       -----------

UTILITIES                          3.5%

     Electric Utilities                         20,000      CMS Energy Corp.........................................       492,500
                                                30,000      Centerior Energy Corp...................................       288,750
                                                43,700      Centrais Eletricas Brasileiras S/A (ADR)................       589,950
                                                 6,800      Central Costanera SA (ADR)..............................       214,200
                                                69,900      Destec Energy Inc.*.....................................       899,962
                                                50,000      Houston Industries Inc..................................     2,106,250
                                                30,000      Illinova Corp...........................................       761,250
                                                58,000      Midlands Electricity PLC................................       581,107
                                                50,000      National Power PLC*.....................................       354,246
                                                79,000      Public Service Co. of New Mexico*.......................     1,125,750
                                                50,000      Scottish Power PLC......................................       257,236
                                                50,000      Southern Electric PLC...................................       510,099
                                                30,000      TNP Enterprises Inc.....................................       483,750
                                                60,000      Unicom Corp.............................................     1,597,500
                                                                                                                       -----------
                                                                                                                        10,262,550
                                                                                                                       -----------
                                                            TOTAL COMMON STOCKS (Cost $244,804,027).................   270,465,386
                                                                                                                       -----------
                                                            ----------------------------------------------------------------------
                                   1.0%                     WARRANTS
                                                            ----------------------------------------------------------------------
TECHNOLOGY

     Semiconductors                             99,500      Intel Corp. Warrants (expire 3/14/98)*
                                                              (Cost $700,053).......................................     3,009,875
                                                                                                                       -----------
==================================================================================================================================

                                                            TOTAL INVESTMENT PORTFOLIO - 100.0%
                                                              (Cost $265,635,662)(c)................................   293,549,495
                                                                                                                       ===========
==================================================================================================================================
</TABLE>


    The accompanying notes are an integral part of the financial statements.


                                       48
<PAGE>

                                                            INVESTMENT PORTFOLIO
--------------------------------------------------------------------------------
  *  Non-income producing security.

(a)  Securities valued in good faith by the Valuation Committee of the Trustees.
     The cost and market value of these securities at June 30, 1995 aggregated
     $504,950 and $1,197,339 (.41% of net assets), respectively.

(b)  New shares issued during 1995, eligible for a pro rata share of 1995
     dividends.

(c)  At June 30, 1995, the net unrealized appreciation on investments based on
     cost for federal income tax purposes of $265,585,026 was as follows:
<TABLE>
     <S>                                                                                                          <C>
     Aggregate gross unrealized appreciation for all investments in which there is an excess of market value
       over tax cost                                                                                               $ 33,341,512
     Aggregate gross unralized depreciation for all investments in which there is an excess of tax cost
       over market value                                                                                             (5,377,043)
                                                                                                                   ------------
     Net unrealized appreciation
                                                                                                                   $ 27,964,469
                                                                                                                   ============
</TABLE>
--------------------------------------------------------------------------------

Purchases and sales of investment securities (excluding short-term investments),
for the six months ended June 30, 1995, aggregated $203,816,308 and
$216,473,003, respectively.



    The accompanying notes are an integral part of the financial statements.


                                       49
<PAGE>
<TABLE>
CAPITAL GROWTH PORTFOLIO
FINANCIAL STATEMENTS
----------------------------------------------------------------------------------------------------
<CAPTION>
                                   STATEMENT OF ASSETS AND LIABILITIES
----------------------------------------------------------------------------------------------------
JUNE 30, 1995 (UNAUDITED)
----------------------------------------------------------------------------------------------------
<S>                                                                 <C>            <C>
ASSETS
Investments, at market (identified cost $265,635,662) (Note A)....                 $293,549,495
Receivables:
  Investments sold................................................                   17,099,700
  Dividends and interest..........................................                      281,015
  Portfolio shares sold...........................................                       80,587
                                                                                   ------------
      Total assets................................................                  311,010,797
LIABILITIES
Payables:
  Due to custodian bank...........................................  $     1,741
  Investments purchased...........................................   20,835,429
  Accrued management fee (Note B).................................      113,129
  Other accrued expenses (Note B).................................       36,808
                                                                    -----------
      Total liabilities...........................................                   20,987,107
                                                                                   ------------
Net assets, at market value.......................................                 $290,023,690
                                                                                   ============
NET ASSETS
Net assets consist of:
  Undistributed net investment income.............................                 $    982,885
  Net unrealized appreciation on:
      Investments.................................................                   27,913,833
      Foreign currency related transactions.......................                       38,922
  Accumulated net realized gain...................................                   10,056,935
  Paid-in capital.................................................                  251,031,115
                                                                                   ------------
Net assets, at market value.......................................                 $290,023,690
                                                                                   ============
Net asset value, offering and redemption price per share
      ($290,023,690 divided by 21,145,291 outstanding
      shares of beneficial interest, no par value,
      unlimited number of shares authorized)......................                 $      13.72
                                                                                   ============
</TABLE>

The accompanying notes are an integral part of the financial statements.



                                       50
<PAGE>

<TABLE>
FINANCIAL STATEMENTS
----------------------------------------------------------------------------------------------------
<CAPTION>
                                      STATEMENT OF OPERATIONS
----------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1995 (UNAUDITED)
----------------------------------------------------------------------------------------------------
<S>                                                                         <C>           <C>
INVESTMENT INCOME
  Income:
     Dividends (net of foreign taxes withheld of $32,942)................                 $ 1,647,706
     Interest............................................................                     313,898
                                                                                          -----------
                                                                                            1,961,604
  Expenses (Note A):
     Management fee (Note B).............................................   $   629,333
     Accounting fees (Note B)............................................        39,163
     Trustees' fees (Note B).............................................         7,760
     Custodian fees......................................................        41,676
     Auditing............................................................        14,002
     Legal...............................................................         7,471
     Other...............................................................        12,074       751,479
                                                                            -----------   -----------
  Net investment income..................................................                   1,210,125
                                                                                          -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
  Net realized gain (loss) from:
     Investments.........................................................    10,180,538
     Foreign currency related transactions...............................       (25,996)   10,154,542
                                                                            -----------
  Net unrealized appreciation during the period on:
     Investments.........................................................    29,942,413
     Foreign currency related transactions...............................        43,322    29,985,735
                                                                            -----------   -----------
  Net gain on investment transactions....................................                  40,140,277
                                                                                          -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.....................                 $41,350,402
                                                                                          ===========
</TABLE>

The accompanying notes are an integral part of the financial statements.



                                       51
<PAGE>

<TABLE>
CAPITAL GROWTH PORTFOLIO
--------------------------------------------------------------------------------------------------------
                                          STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                               Six Months
                                                                                  Ended               Year
                                                                                June 30,             Ended
                                                                                  1995            December 31,
INCREASE (DECREASE) IN NET ASSETS                                              (Unaudited)            1994
--------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                <C>
Operations:
        Net investment income...........................................      $  1,210,125       $   1,195,374
        Net realized gain from investment transactions..................        10,154,542           8,741,905
        Net unrealized appreciation (depreciation) on investment
                transactions during the period..........................        29,985,735         (35,951,788)
                                                                              ------------       -------------
Net increase (decrease) in net assets resulting from operations.........        41,350,402         (26,014,509)
                                                                              ------------       -------------
Distributions to shareholders from:
        Net investment income ($.04 and $.05 per share, respectively)...          (734,483)           (889,382)
                                                                              ------------       -------------
        Net realized gain from investment transactions
                ($.43 and $1.31 per share, respectively)................        (8,804,833)        (23,981,060)
                                                                              ------------       -------------
Portfolio share transactions:
        Proceeds from shares sold.......................................        53,172,113         157,574,508
        Net asset value of shares issued to shareholders in
                reinvestment of distributions...........................         9,539,316          24,870,442
        Cost of shares redeemed.........................................       (61,029,580)       (131,982,527)
                                                                              ------------       -------------
Net increase in net assets from Portfolio share transactions............         1,681,849          50,462,423
                                                                              ------------       -------------
INCREASE (DECREASE) IN NET ASSETS.......................................        33,492,935            (422,528)
Net assets at beginning of period.......................................       256,530,755         256,953,283
                                                                              ------------       -------------
NET ASSETS AT END OF PERIOD (including undistributed net
        investment income of $982,885 and $507,243, respectively).......      $290,023,690       $ 256,530,755
                                                                              ============       =============
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
Shares outstanding at beginning of period...............................        20,979,934          17,184,932
                                                                              ------------       -------------
        Shares sold.....................................................         4,256,654          12,319,350
        Shares issued to shareholders in reinvestment of distributions..           792,498           1,905,054
        Shares redeemed.................................................        (4,883,795)        (10,429,402)
                                                                              ------------       -------------
        Net increase in Portfolio shares................................           165,357           3,795,002
                                                                              ------------       -------------
Shares outstanding at end of period.....................................        21,145,291          20,979,934
                                                                              ============       =============
</TABLE>

The accompanying notes are an integral part of the financial statements.



                                       52
<PAGE>

<TABLE>
                                                                                                               FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------------------------------------------------------------
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED
FROM THE FINANCIAL STATEMENTS.

<CAPTION>
                              SIX MONTHS
                                 ENDED
                                JUNE 30,                         YEARS ENDED DECEMBER 31, (e)
                                1995(e)     -----------------------------------------------------------------------
                              (UNAUDITED)    1994     1993     1992     1991     1990     1989      1988      1987
                              -----------   -----------------------------------------------------------------------
<S>                           <C>           <C>      <C>      <C>      <C>      <C>      <C>      <C>       <C>
Net asset value,
 beginning of period........    $ 12.23     $14.95   $12.71   $12.28   $ 8.99   $10.21   $ 8.53   $  7.06   $  7.67
                                -------     ------   ------   ------   ------   ------   ------   -------   -------
Income from investment
 operations:
 Net investment
  income (a)................        .06        .06      .06      .11      .16      .25      .35       .16       .15
 Net realized and
  unrealized gain
  (loss) on investment
  transactions..............       1.90      (1.42)    2.52      .66     3.35    (1.00)    1.58      1.40      (.28)
                                -------     ------   ------   ------   ------   ------   ------   -------   -------
Total from investment
  operations................       1.96      (1.36)    2.58      .77     3.51     (.75)    1.93      1.56      (.13)
                                -------     ------   ------   ------   ------   ------   ------   -------   -------
Less distributions from:
 Net investment
  income....................       (.04)      (.05)    (.07)    (.11)    (.22)    (.24)    (.25)     (.09)     (.09)
 Net realized gains
  on investment
  transactions..............       (.43)     (1.31)    (.27)    (.23)       -     (.23)       -         -      (.39)
                                -------     ------   ------   ------   ------   ------   ------   -------   -------
Total distributions.........       (.47)     (1.36)    (.34)    (.34)    (.22)    (.47)    (.25)     (.09)     (.48)
                                -------     ------   ------   ------   ------   ------   ------   -------   -------
Net asset value,
 end of period..............    $ 13.72     $12.23   $14.95   $12.71   $12.28   $ 8.99   $10.21   $  8.53   $  7.06
                                =======     ======   ======   ======   ======   ======   ======   =======   =======
TOTAL RETURN (%)............      16.48(d)   (9.67)   20.88     6.42    39.56    (7.45)   22.75     22.07     (1.88)
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
 period ($ millions)........        290        257      257      167      108       45       45        17        10
Ratio of operating
 expenses, net to
 average net
 assets (%) (a).............        .57(c)     .58      .60      .63      .71      .72      .75       .75       .75
Ratio of net investment
 income to average
 net assets (%).............        .92(c)     .47      .46      .95     1.49     2.71     3.51      2.17      1.68
Portfolio turnover
 rate (%)...................     159.11(c)   66.44    95.31    56.29    58.88    61.39    63.96    129.75    113.34

<FN>
(a)   Portion of expenses
      reimbursed (Note B)...    $     -     $    -   $    -   $    -   $    -   $    -   $  .01   $   .01   $   .04

(b)   Original capital

(c)   Annualized

(d)   Not annualized

(e)   Per share amounts, for each of the periods identified, have been calculated using the monthly average shares outstanding 
      during the period  method.

(f)   On August 22, 1986, the Trustees voted to change the year end of the Fund from June 30 to December 31.
</FN>
</TABLE>

<TABLE>
<CAPTION>
                                 SIX       FOR THE PERIOD
                                MONTHS     JULY 16, 1985
                                ENDED      (COMMENCEMENT
                               DECEMBER    OF OPERATIONS)
                                 31,         TO JUNE 30,
                              1986(e)(f)        1986
                              ----------   --------------
<S>                           <C>          <C>
Net asset value,
 beginning of period........    $ 7.93        $ 6.00(b)
                                ------        ------
Income from investment
 operations:
 Net investment
  income (a)................       .09           .19
 Net realized and
  unrealized gain
  (loss) on investment
  transactions..............      (.07)         1.87
                                ------        ------
Total from investment
  operations................       .02          2.06
                                ------        ------
Less distributions from:
 Net investment
  income....................      (.07)         (.13)
 Net realized gains
  on investment
  transactions..............      (.21)            -
                                ------        ------
Total distributions.........      (.28)         (.13)
                                ------        ------
Net asset value,
 end of period..............    $ 7.67        $ 7.93
                                ======        ======
TOTAL RETURN (%)............       .26(d)      34.66(d)
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
 period ($ millions)........         1             -
Ratio of operating
 expenses, net to
 average net
 assets (%) (a).............       .75(c)        .60(c)
Ratio of net investment
 income to average
 net assets (%).............      2.21(c)       2.95(c)
Portfolio turnover
 rate (%)...................     38.78(c)      86.22(c)

<FN>
(a)   Portion of expenses
      reimbursed (Note B)...    $  .20        $  .81

(b)   Original capital

(c)   Annualized

(d)   Not annualized

(e)   Per share amounts, for each of the periods identified, have been calculated using the monthly average shares outstanding 
      during the period method.

(f)   On August 22, 1986, the Trustees voted to change the year end of the Fund from June 30 to December 31.
</FN>
</TABLE>


                                       53
<PAGE>

<TABLE>
INTERNATIONAL PORTFOLIO
INVESTMENT PORTFOLIO  as of June 30, 1995 (Unaudited)
------------------------------------------------------------------------------------------------------------------------
<CAPTION>
              % OF       PRINCIPAL                                                                               MARKET
            PORTFOLIO    AMOUNT                                                                                VALUE ($)
------------------------------------------------------------------------------------------------------------------------
<S>           <C>        <C>           <C>                                                                    <C>
                         -----------------------------------------------------------------------------------------------
               8.3%      REPURCHASE AGREEMENT
                         -----------------------------------------------------------------------------------------------
                  U.S.$  41,252,000    Repurchase Agreement with Nesbitt Burns Securities
                                        Inc., dated 6/30/95 at 6.125%, to be repurchased at
                                        $41,273,056 on 7/3/95, collateralized by a $40,320,000
                                        U.S. Treasury Note, 6.875%, 3/31/97 (Cost $41,252,000).............   41,252,000
                                                                                                              ----------
                         -----------------------------------------------------------------------------------------------
               2.0%      COMMERCIAL PAPER
                         -----------------------------------------------------------------------------------------------
                  U.S.$  10,000,000    Household Finance, 5.75, 7/5/95 (Cost $ 9,993,611)..................    9,993,611
                                                                                                              ----------
                         -----------------------------------------------------------------------------------------------
               0.1%      BONDS
                         -----------------------------------------------------------------------------------------------
                  DM        350,000    Deutsche Bank AG, 8%, 4/11/00.......................................      267,021
                  DM         23,000    Deutsche Bank AG (PC), 9%, 12/31/02.................................       18,046
                  DM         33,000    Deutsche Bank AG (PC), 8.750%, 12/31/03.............................       25,391
                                                                                                              ----------
                                       Total Bonds (Cost $220,601).........................................      310,458
                                                                                                              ----------
                         -----------------------------------------------------------------------------------------------
               0.6%      CONVERTIBLE BONDS
                         -----------------------------------------------------------------------------------------------
                  U.S.$   1,900,000    Henderson Land Development Co., Ltd., 4%, 10/27/96
                                        (Property developer)...............................................    1,890,500
                  U.S.$   1,050,000    Ssangyong Oil Refining Co., Ltd., 3.75%, 12/31/08
                                        (Major oil refiner)................................................    1,118,250
                                                                                                              ----------
                                       Total Convertible Bonds (Cost $2,955,694)...........................    3,008,750
                                                                                                              ----------
                         -----------------------------------------------------------------------------------------------
               4.1%      PREFERRED STOCKS
                         -----------------------------------------------------------------------------------------------
                           Shares
                         -----------------------------------------------------------------------------------------------
GERMANY        3.4%          15,000    Rheinisch-Westfaelisches Elektrizitaetswerk AG
                                        (Electric utility)*................................................    4,126,261
                             10,000    SAP AG (Computer software manufacturer).............................   12,600,788
                                                                                                              ----------
                                                                                                              16,727,049
                                                                                                              ----------
ITALY          0.7%       1,500,000    Fiat SpA (Multi-industry, automobiles)*.............................    3,263,560
                                                                                                              ----------
                                       Total Preferred Stocks (Cost $9,846,935)............................   19,990,609
                                                                                                              ----------
                         -----------------------------------------------------------------------------------------------
              84.8%      COMMON STOCKS
                         -----------------------------------------------------------------------------------------------
ARGENTINA      0.7%
                            170,000    YPF SA "D" (ADR) (Petroleum company)................................    3,208,750
                                                                                                              ----------
AUSTRALIA      0.7%
                          1,556,504    Ampol Exploration Ltd. (Oil and gas exploration company)............    3,519,900
                              7,525    Coca Cola Amatil Ltd. (Soft drink bottler and distributor) (c)......       46,075
                                 60    M.I.M. Holdings Ltd. (Nonferrous metals and coal)...................           75
                                                                                                              ----------
                                                                                                               3,566,050
                                                                                                              ----------
BRAZIL         3.3%
                          8,578,870    Centrais Eletricas Brasileiras S/A "B" (pfd.) (Electric utility)....    2,283,349
                          5,000,000    Companhia Cervejaria Brahma (pfd.) (Leading beer producer and
                                        distributor).......................................................    1,640,359
                             86,206    Companhia Cervejaria Brahma (pfd.) (New (b))........................       25,754
                         28,110,000    Companhia Vale do Rio Doce (pfd.) (Diverse mining and industrial
                                        complex)...........................................................    4,244,747
</TABLE>

The accompanying notes are an integral part of the financial statements.



                                       54
<PAGE>

<TABLE>
                                                                                                    INVESTMENT PORTFOLIO
------------------------------------------------------------------------------------------------------------------------
<CAPTION>
              % OF                                                                                              MARKET
            PORTFOLIO    SHARES                                                                                VALUE ($)
------------------------------------------------------------------------------------------------------------------------
<S>           <C>      <C>             <C>                                                                    <C>
                           22,000,000  Petroleo Brasileiro S/A (pfd.) (Petroleum company)..................    1,864,204
                           65,040,000  Telecomunicacoes Brasileiras S.A. (pfd.)
                                        (Telecommunication services).......................................    2,140,915
                        3,574,800,000  Usinas Siderurgicas de Minas Gerais S/A (pfd.)
                                        (Non-coated flat products and electrolytic galvanized
                                         products).........................................................    4,038,883
                                                                                                              ----------
                                                                                                              16,238,211
                                                                                                              ----------
CANADA         2.7%
                              160,000  Barrick Gold Corp. (Gold exploration and production
                                        in North and South America)........................................    4,047,610

                              201,821  Canadian Pacific Ltd. (Transportation and natural
                                        resource conglomerate).............................................    3,471,061

                              200,000  Hemlo Gold Mines, Inc. (Large gold producer, with
                                        single mine in Ontario; active exploration company)................    2,147,563

                              100,000  Imperial Oil Ltd. (Producer and refiner of natural gas
                                        and petroleum products in Canada)..................................    3,712,736
                                                                                                              ----------
                                                                                                              13,378,970
                                                                                                              ----------
DENMARK        0.8%
                               85,000  Unidanmark A/S "A" (Bank holding company)...........................    4,170,910
                                                                                                              ----------
FINLAND        2.9%
                               78,000  Metsa-Serla Oy "B" (Tissue paper producer)..........................    3,469,913
                              116,000  Nokia AB Oy "A" (Leading manufacturer of cellular
                                        telephones)........................................................    6,789,979
                              247,000  Outokumpu Oy "A" (Metals and minerals)..............................    4,106,064
                                                                                                              ----------
                                                                                                              14,365,956
                                                                                                              ----------
FRANCE         8.0%
                                9,300  Carrefour (Hypermarket and food retailing)..........................    4,763,824
                               14,138  Castorama-Dubois Investissements (Retailer, wholesaler
                                        and distributor)...................................................    2,343,098
                               10,607  Compagnie Bancaire SA (Bank)........................................    1,268,139
                               30,000  Compagnie de Saint-Gobain (Glass manufacturer)......................    3,623,808
                               14,950  ECIA - Equipements et Composants pour l'Industrie
                                        Automobile (Manufacturer of automobile parts and
                                        accessories).......................................................    2,049,317
                               12,000  LVMH Moet-Hennessy Louis Vuitton (Producer of wine,
                                        spirits and luxury products).......................................    2,159,443
                               88,000  Michelin "B" (Leading tire manufacturer)*...........................    3,898,212
                               20,000  Societe Generale (Bank).............................................    2,337,542
                               48,952  Societe Nationale Elf Aquitaine (Petroleum company).................    3,617,478
                               15,420  Societe Nationale Elf Aquitaine (ADR)...............................      574,395
                               44,000  Television Francaise (Television broadcasting)......................    4,330,843
                               70,473  Total SA "B" (International oil and gas exploration,
                                        development and production)........................................    4,241,817
                               94,687  Valeo SA (Automobile and truck components
                                        manufacturer)......................................................    4,604,311
                                                                                                              ----------
                                                                                                              39,812,227
                                                                                                              ----------
GERMANY        5.8%
                               16,000  Bayer AG (Leading chemical producer)................................    3,980,186
                               86,980  Deutsche Bank AG (Bank).............................................    4,226,819
                               14,860  Mannesmann AG (Bearer) (Diversified construction
                                        and technology company)............................................    4,540,153
                               69,000  Schering AG (Pharmaceutical and chemical producer)..................    4,820,046
                                3,027  Siemens AG (Bearer) (Manufacturer of electrical and
                                        electronic equipment)..............................................    1,502,719
                               12,720  VEBA AG (Electric utility, distributor of oil and chemicals)........    4,999,328
                               12,000  Viag AG (Provider of electrical power and natural gas
                                        services, aluminum products, chemicals, ceramics and
                                        glass).............................................................    4,736,305
                                                                                                              ----------
                                                                                                              28,805,556
                                                                                                              ----------
</TABLE>

The accompanying notes are an integral part of the financial statements.



                                       55
<PAGE>

<TABLE>

INTERNATIONAL PORTFOLIO
------------------------------------------------------------------------------------------------------------------------
<CAPTION>
              % OF                                                                                      MARKET
            PORTFOLIO    SHARES                                                                          VALUE ($)
------------------------------------------------------------------------------------------------------------------------
<S>           <C>        <C>           <C>                                                                    <C>
HONG KONG      3.3%
                            209,787    HSBC Holdings Ltd. (Bank)............................................   2,690,863
                          2,665,600    Hong Kong & China Gas Co., Ltd. (Gas utility)........................   4,254,460
                             24,000    Hong Kong & China Gas Co., Ltd. Warrants
                                        (expire 12/31/95)*..................................................       3,660
                            330,000    Hong Kong Electric Holdings, Ltd. (Electric utility and
                                        real estate)........................................................   1,121,637
                          1,182,000    Hutchison Whampoa, Ltd. (Container terminal and real
                                        estate company).....................................................   5,728,372
                            781,000    Television Broadcasts, Ltd. (Television broadcasting)*...............   2,745,380
                                                                                                              ----------
                                                                                                              16,544,372
                                                                                                              ----------
INDONESIA      1.1%
                            200,000    Indocement Tunggal (Foreign registered)
                                        (Cement producer)...................................................     785,811
                             75,400    Indonesia Satellite Corp. (ADR) (International
                                        telecommunication services).........................................   2,884,050
                            402,000    Kalbe Farma (Foreign registered) (Pharmaceutical
                                        producer and distributor)...........................................   1,841,222
                                                                                                              ----------
                                                                                                               5,511,083
                                                                                                              ----------
ITALY          2.3%
                          2,500,000    Istituto Nazionale delle Assicurazione (Insurance
                                        company)*...........................................................   3,361,345
                             65,000    Luxottica Group SpA (ADR) (Manufacturer and marketer
                                        of eyeglasses)......................................................   2,413,125
                            964,000    Societa Finanziaria Telefonica Torino SpA (Telephone
                                        utility and telecommunication equipment manufacturer)...............   2,665,913
                          1,130,000    Telecom Italia SpA (Telecommunication services)......................   3,062,827
                                                                                                              ----------
                                                                                                              11,503,210
                                                                                                              ----------
JAPAN         16.5%
                              1,000    Amano Corp. (Time-management systems)................................      11,799
                            258,000    Canon Inc. (Leading producer of visual image and
                                        information equipment)..............................................   4,200,814
                             65,000    Cox Co., Ltd. (Men's and women's wear chain store
                                        operator)...........................................................     613,533
                                260     DDI Corp. (Long distance telephone and cellular operator)...........   2,086,013
                            255,000    Fujitsu Ltd. (Leading manufacturer of computers).....................   2,542,328
                            190,000    Hitachi Construction Machinery Co., Ltd. (Leading
                                        maker of hydraulic shovels).........................................   1,629,756
                            377,000    Hitachi Ltd. (General electronics manufacturer)......................   3,758,657
                            380,000    Hitachi Metals, Ltd. (Major producer of high-quality
                                        specialty steels)...................................................   4,263,819
                             88,000    Horipro Inc. (Growing entertainment production company)..............   1,453,602
                             39,000    Ito-Yokado Co., Ltd. (Leading supermarket operator)..................   2,056,870
                            465,000     Itochu Corp. (Leading general trading company)......................   2,715,769
                            550,000     Kawasaki Steel Corp. (Major integrated steelmaker)*.................   1,804,023
                             44,000    Keyence Corp. (Specialized manufacturer of sensors)..................   4,931,862
                             43,000    Kyocera Corp. (Leading ceramic package manufacturer).................   3,541,266
                             30,000    Mabuchi Motor Co., Ltd. (Manufacturer of DC motors)..................   2,067,135
                            280,000    Matsushita Electrical Industrial Co., Ltd. (Consumer
                                        electronic products manufacturer)...................................   4,360,805
                            295,000    NGK Spark Plug Co., Ltd. (Leading manufacturer of
                                        automotive spark plugs).............................................   3,271,783
                            540,000    NSK Ltd. (Leading manufacturer of bearings and other
                                        machinery parts)....................................................   3,115,568
                             33,000    Nichiei Co., Ltd. (Finance company for small and
                                        medium-sized firms).................................................   2,036,340
                            165,000    Nippon Shokubai Corp., Ltd. (Specialty chemical producer)............   1,458,144
                            945,000    Nisshin Steel Co., Ltd. (Blast furnace steelmaker)...................   3,467,583
                             90,000    Pioneer Electronics Corp. (Leading manufacturer of
                                        audio equipment)....................................................   1,529,113
                            110,000    SMC Corp. (Leading maker of pneumatic equipment).....................   6,320,571
</TABLE>

The accompanying notes are an integral part of the financial statements.



                                       56
<PAGE>

<TABLE>
                                                                                                    INVESTMENT PORTFOLIO
------------------------------------------------------------------------------------------------------------------------
<CAPTION>
              % OF                                                                                      MARKET
            PORTFOLIO    SHARES                                                                          VALUE ($)
------------------------------------------------------------------------------------------------------------------------
<S>           <C>        <C>           <C>                                                                    <C>
                             44,000    Seven-Eleven Japan Co., Ltd. (Leading convenience
                                        store operator)....................................................    3,151,201
                            250,000    ShinMaywa Industries, Ltd. (Leading maker of dump
                                        trucks and other specialty vehicles)...............................    2,097,221
                             44,000    Sony Corp. (Consumer electronic products manufacturer)..............    2,112,914
                            530,000    Sumitomo Corp. (Leading general trading company, with
                                        offices, subsidiaries and affiliates throughout the
                                        world).............................................................    4,827,562
                             21,000    Sumitomo Electric Industries, Ltd. (ADR) (Leading maker
                                        of electric wires and cables)......................................    2,509,500
                          1,360,000    Sumitomo Metal Industries, Ltd. (Leading integrated
                                        crude steel producer)*.............................................    3,546,221
                                                                                                              ----------
                                                                                                              81,481,772
                                                                                                              ----------
KOREA          0.8%
                              2,000    Korea International Trust IDR (Investment company) (a)*.............      101,000
                             10,884    Samsung Electronics Co., Ltd. (Major electronics
                                        manufacturer) (c)..................................................      586,735
                                648    Samsung Electronics Co., Ltd. (GDS) (c).............................       46,600
                             55,000    Samsung Electronics Co., Ltd. (GDS)(New (b))........................    2,970,000
                              3,278    Samsung Electronics Co., Ltd. (GDR).................................      236,016
                                                                                                              ----------
                                                                                                               3,940,351
                                                                                                              ----------
MALAYSIA       1.5%
                            445,000    Malayan Banking Bhd. (Leading banking and
                                        financial services group)..........................................    3,522,765
                          1,100,000    Renong Berhad (Holding company involved in engineering
                                        and construction, financial services, telecommunication
                                        and information technology)*.......................................    2,048,400
                            662,000    Technology Resources Industries (Mobile telephone
                                        operator)*.........................................................    1,900,738
                                                                                                              ----------
                                                                                                               7,471,903
                                                                                                              ----------
NETHERLANDS    5.9%
                            105,000    AEGON Insurance Group NV (Insurance company)........................    3,632,139
                             24,000    Akzo-Nobel N.V. (Chemical producer).................................    2,868,538
                            204,870    Elsevier NV (International publisher of scientific,
                                        professional, business, and consumer information books)............    2,419,568
                             70,137    Getronics N.V. (Computer and software distributor)..................    3,435,559
                             43,750    Heineken Holdings N.V. "A" (Brewery)................................    6,070,507
                             50,448    Internationale-Nederlanden Groep CVA (Banking and
                                        insurance holding company).........................................    2,790,186
                            137,000    Philips Electronics N.V. (Leading manufacturer of
                                        electrical equipment)..............................................    5,800,065
                             26,935    Wolters Kluwer CVA (Publisher)......................................    2,376,260
                                                                                                              ----------
                                                                                                              29,392,822
                                                                                                              ----------
NORWAY         0.8%
                            271,889    Saga Petroleum AS "A" (Oil and gas exploration and
                                        production)........................................................    3,861,119
                                                                                                              ----------
PHILIPPINES    0.7%
                             10,115    Philippine Long Distance Telephone Co.
                                        (Telecommunication services).......................................      725,751
                            622,700    San Miguel Corp. "B" (Brewery)......................................    2,582,907
                                                                                                              ----------
                                                                                                               3,308,658
                                                                                                              ----------
PORTUGAL       0.3%
                             30,192    Jeronimo Martins (Food producer and retailer).......................    1,537,460
                                                                                                              ----------
SPAIN          3.1%
                             37,400    Acerinox, S.A. (Stainless steel producer)...........................    4,591,439
                             22,000    Banco Popular Espanol, S.A. (Retail bank)...........................    3,269,350
                             29,066    Banco Santander, S.A. (Leading regional bank).......................    1,145,842
                            160,000    Compania Telefonica Nacional de Espana S.A.
                                        (Telecommunication services).......................................    2,060,681
                            133,000    Repsol SA (Integrated oil company)..................................    4,183,529
                                                                                                              ----------
                                                                                                              15,250,841
                                                                                                              ----------
</TABLE>

The accompanying notes are an integral part of the financial statements.



                                       57
<PAGE>

<TABLE>
INTERNATIONAL PORTFOLIO
------------------------------------------------------------------------------------------------------------------------
<CAPTION>
              % OF                                                                                               MARKET
            PORTFOLIO    SHARES                                                                                VALUE ($)
------------------------------------------------------------------------------------------------------------------------
<S>           <C>        <C>           <C>                                                                    <C>
SWEDEN           6.8%
                             99,000    Astra AB "A" (Free) (Pharmaceutical company).........................   3,053,708
                                600    Astra AB "B" (Free)..................................................      18,054
                            155,000    Autoliv AB (Free) (Manufacturer of safety airbags for
                                        automobiles)........................................................   8,284,329
                            324,000    L.M. Ericsson Telephone Co. "B" (ADR) (Leading
                                        manufacturer of cellular telephone equipment).......................   6,480,000
                             75,000    Mo och Domsjo AB "B" (Free) (Manufacturer of newsprint,
                                        paperboard, and various sawn timber products).......................   4,322,841
                            144,000    S.K.F. AB "B" (Free) (Manufacturer of roller bearings)...............   2,908,411
                            270,000    Skandia Foersaekrings AB (Free) (Financial conglomerate)*............   5,230,689
                            175,000    Volvo AB "B" (Free) (Automobile manufacturer)........................   3,330,150
                                                                                                              ----------
                                                                                                              33,628,182
                                                                                                              ----------
SWITZERLAND      5.0%
                              7,000    Alusuisse-Lonza Holdings AG (Registered)
                                        (Manufacturer of aluminum, chemicals, and paper
                                        packaging products).................................................   4,389,058
                              5,180    Brown, Boveri & Cie. AG (Bearer) (Manufacturer of
                                        electrical equipment)...............................................   5,362,188
                                  5    Brown, Boveri & Cie. AG (Registered).................................       1,003
                              3,623    Holderbank Financiere Glaris AG (Bearer) (Cement
                                        company)............................................................   2,973,283
                             18,115    Holderbank Financiere Glaris AG Warrants
                                        (expire 12/20/95)*..................................................      24,384
                              2,514    Nestle SA (Registered) (Food manufacturer)...........................   2,617,704
                              1,710    SGS Holdings SA (Bearer) (Trade inspection company)..................   2,970,039
                              5,000    Sandoz Ltd. AG (Registered) (Pharmaceutical company).................   3,447,677
                              8,054    Swiss Bank Corp. (Bearer) (Switzerland's second
                                        largest universal bank).............................................   2,853,697
                                  1    Swiss Bank Corp. (Bearer) Warrants (expire 6/30/95)*.................          24
                                                                                                              ----------
                                                                                                              24,639,057
                                                                                                              ----------
THAILAND         1.1%
                             15,500    American Standard Sanitaryware (Foreign registered)
                                        (Manufacturer of bathroom fixtures).................................     260,583
                            525,220    Thai Farmers Bank (Foreign registered) (Commercial bank).............   5,021,346
                                                                                                              ----------
                                                                                                               5,281,929
                                                                                                              ----------
UNITED KINGDOM  10.7%
                            810,000    British Gas PLC (Integrated gas utility).............................   3,729,246
                            588,829    British Petroleum PLC (Major integrated world oil
                                        company)............................................................   4,218,630
                            278,310    Cable and Wireless PLC (International
                                        telecommunication services in the United Kingdom
                                        and Hong Kong)......................................................   1,903,201
                            236,000    Carlton Communications PLC (Television post
                                        production products and services)...................................   3,574,905
                            140,000    De La Rue PLC (Printer of commercial banknotes and
                                        securities).........................................................   2,083,970
                            660,000    Enterprise Oil PLC (Oil and gas exploration and production)..........   4,156,489
                            710,218    Hanson PLC (Industrial management company)...........................   2,479,212
                          1,320,427    Lasmo PLC (Oil production and exploration)...........................   3,601,355
                            170,000    Midlands Electricity PLC (Electric companies)........................   1,703,244
                            495,000    PowerGen PLC (Electric utility)......................................   3,798,306
                            307,362    RTZ Corp. PLC (Mining and finance company)...........................   4,005,775
                            654,200    Reuters Holdings PLC (International news agency).....................   5,446,465
                            588,634    SmithKline Beecham "A" (Manufacturer of ethical
                                        drugs and healthcare products)......................................   5,326,539
                              7,102    U.S. Industries, Inc. (Consumer group manufacturing
                                        and distributing housewares, recreational and leisure
                                        products, footwear and textiles)*...................................      96,765
                            389,000    Waste Management International PLC (Waste
                                        collection and disposal services)*..................................   1,793,186
</TABLE>

The accompanying notes are an integrl part of the financial statements.



                                       58
<PAGE>

<TABLE>
                                                                                                    INVESTMENT PORTFOLIO
------------------------------------------------------------------------------------------------------------------------
<CAPTION>
              % OF                                                                                               MARKET
            PORTFOLIO    SHARES                                                                                VALUE ($)
------------------------------------------------------------------------------------------------------------------------
<S>           <C>        <C>           <C>                                                                  <C>
                            300,000       Zeneca Group PLC (Holding company: manufacturing
                                           and marketing of pharmaceutical and agrochemical
                                           products and specialty chemicals)..............................     5,064,408
                                                                                                             -----------
                                                                                                              52,981,696
                                                                                                             -----------
                                          TOTAL COMMON STOCKS (Cost $380,630,630)........................    419,881,085
                                                                                                             -----------
                         -----------------------------------------------------------------------------------------------
               0.1%      PURCHASED OPTIONS
                         -----------------------------------------------------------------------------------------------
                          Principal
                           Amount
                         -----------------------------------------------------------------------------------------------
                  JPY    2,352,000,000    Put on Japanese Yen, strike price JPY 84.8, expire 4/11/96
                                           (Cost $ 777,336)..............................................        736,176
                                                                                                             -----------
========================================================================================================================
                                          TOTAL INVESTMENT PORTFOLIO - 100.0%
                                           (Cost $445,676,807) (d).......................................    495,172,689
                                                                                                             ===========
========================================================================================================================
<FN>
  *    Non-income producing security.

(a)    1000 shares = 1 IDR unit for Korea International Trust.

(b)    New shares issued during 1995, eligible for a pro rata share of 1995 dividends.

(c)    Securities valued in good faith by the Valuation Committee of the Trustees.
       The cost and market value of these securities at June 30, 1995 aggregated $482,632
       and $679,410 (.14% of net assets), respectively.

(d)    At June 30, 1995, the net unrealized appreciation on investments based on cost
       for federal income tax purposes of $446,129,053 was as follows:
       Aggregate gross unrealized appreciation for all investments in which there
        is an excess of market value over tax cost.......................................................   $ 74,286,132

       Aggregate gross unrealized depreciation for all investments in which there
        is an excess of tax cost over market value.......................................................    (25,242,496)
                                                                                                            ------------

       Net unrealized appreciation.......................................................................   $ 49,043,636
                                                                                                            ============
------------------------------------------------------------------------------------------------------------------------
       Purchases and sales of investment securities (excluding short-term investments), for the six months ended
        June 30, 1995, aggregated $114,451,194 and $116,034,064, respectively.
------------------------------------------------------------------------------------------------------------------------
       Sector breakdown of the International Portfolio's equity securities is noted on page 13.
------------------------------------------------------------------------------------------------------------------------
</FN>
</TABLE>

       At June 30, 1995, outstanding written call options were as follows (Note
A):

<TABLE>
<CAPTION>
                                PRINCIPAL          EXPIRATION        STRIKE                MARKET
                                  AMOUNT              DATE           PRICE                VALUE ($)
                             ----------------------------------------------------------------------
       <S>                   <C>                   <C>               <C>                  <C>
       Japanese Yen.......   JPY 2,352,000,000       Apr. 96         JPY 75                421,008
                                                                                           -------
       Total outstanding written options (Premiums received $777,336)..................    421,008
                                                                                           =======
</TABLE>

       Transactions in written call option contracts during the six months ended
June 30, 1995 were:


<TABLE>
<CAPTION>
                                                                         PREMIUMS 
                                                PRINCIPAL AMOUNT       RECEIVED ($)
                                              -------------------------------------
       <S>                                    <C>                      <C>
       Outstanding at December 31, 1994.....                    -              -
         Contracts written..................  JPY   2,352,000,000        777,336
                                              -------------------        -------
       Outstanding at June 30, 1995.........  JPY   2,352,000,000        777,336
                                                    =============        =======
</TABLE>

The accompanying notes are an integral part of the financial statements.



                                       59
<PAGE>

<TABLE>
INTERNATIONAL PORTFOLIO
FINANCIAL STATEMENTS
---------------------------------------------------------------------------------------------------------------
<CAPTION>
                STATEMENT OF ASSETS AND LIABILITIES
---------------------------------------------------------------------------------------------------------------
June 30, 1995 (Unaudited)
---------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>          <C>
ASSETS
Investments, at market (identified cost $445,676,807) (Note A)....................                 $495,172,689
Cash..............................................................................                       26,901
Receivables:
  Investments sold................................................................                    1,220,002
  Dividends and interest..........................................................                    2,367,618
  Portfolio shares sold...........................................................                      351,985
                                                                                                   ------------
    Total assets..................................................................                  499,139,195
                                                                                                   ============
LIABILITIES
Payables:
  Investments purchased...........................................................   $1,085,461
  Portfolio shares redeemed.......................................................       39,474
  Accrued management fee (Note B).................................................      349,467
  Other accrued expenses (Note B).................................................      160,068
  Payable on closed forward foreign currency exchange contracts
    (Note A)......................................................................      114,417
  Written options, at market (premiums received $777,336) (Note A)................      421,008
                                                                                     ----------
    Total liabilities.............................................................                   2,169,895
                                                                                                  ------------
Net assets, at market value.......................................................                $496,969,300
                                                                                                  ============
NET ASSETS
Net assets consist of:
    Undistributed net investment income...........................................                $  4,382,505
    Net unrealized appreciation on:
      Investments.................................................................                  49,495,882
      Written options.............................................................                     356,328
      Foreign currency related transactions.......................................                      44,092
    Accumulated net realized loss.................................................                 (10,690,438)
    Paid-in capital...............................................................                  453,380,931
                                                                                                   ------------
Net assets, at market value.......................................................                 $496,969,300
                                                                                                   ============
NET ASSET VALUE, offering and redemption price per share
    ($496,969,300 divided by 44,825,333 outstanding shares of beneficial
    interest, no par value, unlimited number of shares authorized)................                 $      11.09
                                                                                                   ============
</TABLE>

The accompanying notes are an integral part of the financial statements.



                                       60
<PAGE>

<TABLE>
                                                                                     FINANCIAL STATEMENTS
---------------------------------------------------------------------------------------------------------
                                      STATEMENT OF OPERATIONS
---------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1995 (UNAUDITED)
---------------------------------------------------------------------------------------------------------
<S>                                                                            <C>           <C>
INVESTMENT INCOME
  Income:
     Dividends (net of foreign taxes withheld of $544,316)...............                    $  5,522,064
     Interest............................................................                       1,240,509
                                                                                             ------------
                                                                                                6,762,573
  Expenses (Note A):
     Management fee (Note B).............................................      $ 2,040,333
     Accounting fees (Note B)............................................          135,451
     Trustees' fees (Note B).............................................            9,103
     Custodian fees......................................................          276,923
     Auditing............................................................           34,345
     Legal...............................................................           15,053
     Other...............................................................           18,582      2,529,790
                                                                               -----------   ------------
  Net investment income..................................................                       4,232,783
                                                                                             ------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
  Net realized loss from:
     Investments.........................................................       (8,333,683)
     Foreign currency related transactions...............................       (2,276,669)   (10,610,352)
                                                                               -----------
  Net unrealized appreciation during the period on:
     Investments.........................................................       24,550,553
     Written options.....................................................          356,328
     Foreign currency related transactions...............................        1,549,923     26,456,804
                                                                               -----------   ------------
  Net gain on investment transactions....................................                      15,846,452
                                                                                             ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.....................                    $ 20,079,235
                                                                                             ============
</TABLE>

The accompanying notes are an integral part of the financial statements.



                                       61
<PAGE>

<TABLE>
INTERNATIONAL PORTFOLIO
------------------------------------------------------------------------------------------------------------------
                                             STATEMENTS OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                        SIX MONTHS
                                                                                          ENDED          YEAR
                                                                                         JUNE 30,        ENDED
                                                                                          1995        DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS                                                      (UNAUDITED)        1994
------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>             <C>
Operations:
  Net investment income...........................................................    $   4,232,783   $  2,210,527
  Net realized gain (loss) from investment transactions...........................      (10,610,352)     3,671,002
  Net unrealized appreciation (depreciation) on investment
    transactions during the period................................................       26,456,804    (14,866,907)
                                                                                       ------------   ------------
Net increase (decrease) in net assets resulting from operations...................       20,079,235     (8,985,378)
                                                                                       ------------   ------------
Distributions to shareholders from:
  Net investment income ($.01 and $.07 per share, respectively)...................         (572,293)    (1,958,854)
                                                                                       ------------   ------------
  Net realized gain from investment transactions ($.04 per share).................       (1,628,833)             -
                                                                                       ------------   ------------
Portfolio share transactions:
  Proceeds from shares sold.......................................................      299,749,345    313,276,872
  Net asset value of shares issued to shareholders in
    reinvestment of distributions.................................................        2,201,126      1,958,854
  Cost of shares redeemed.........................................................     (294,895,879)   (70,378,561)
                                                                                       ------------   ------------
Net increase in net assets from Portfolio share transactions......................        7,054,592    244,857,165
                                                                                       ------------   ------------
INCREASE IN NET ASSETS............................................................       24,932,701    233,912,933
Net assets at beginning of period.................................................      472,036,599    238,123,666
                                                                                       ------------   ------------
NET ASSETS AT END OF PERIOD (including undistributed net investment
  income of $4,382,505 and $722,015, respectively)................................    $ 496,969,300   $472,036,599
                                                                                       ============   ============
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
Shares outstanding at beginning of period.........................................       44,139,826     21,943,195
                                                                                       ------------   ------------
  Shares sold.....................................................................       27,671,154     28,463,330
  Shares issued to shareholders in reinvestment of distributions                            216,220        177,916
  Shares redeemed.................................................................      (27,201,867)    (6,444,615)
                                                                                       ------------   ------------
  Net increase in Portfolio shares................................................          685,507     22,196,631
                                                                                       ------------   ------------
Shares outstanding at end of period...............................................       44,825,333     44,139,826
                                                                                       ============   ============
</TABLE>

The accompanying notes are an integral part of the financial statements.



                                       62
<PAGE>

<TABLE>
                                                                                                               FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------------------------------------------------------------
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED
FROM THE FINANCIAL STATEMENTS.

<CAPTION>
                                        SIX MONTHS
                                           ENDED
                                          JUNE 30,                      YEARS ENDED DECEMBER 31,
                                          1995(e)      -----------------------------------------------------------------
                                        (UNAUDITED)    1994(e)   1993(e)  1992(e)   1991(e)  1990(e)   1989(e)     1988
                                        -----------    -----------------------------------------------------------------
<S>                                     <C>            <C>       <C>      <C>       <C>      <C>       <C>       <C>
Net asset value,
 beginning of period...................   $10.69       $10.85    $ 8.12   $ 8.47    $ 7.78   $ 8.46    $ 6.14    $  5.26
                                          ------       ------    ------   ------    ------   ------    ------    -------
Income from investment
 operations:
 Net investment income (a).............      .10          .06       .09      .10       .12      .25       .10        .09
 Net realized and unrealized
  gain (loss) on investment
  transactions.........................      .35         (.15)     2.90     (.36)      .77     (.89)     2.22(f)     .79
                                          ------       ------    ------   ------    ------   ------    ------    -------
Total from investment
 operations............................      .45         (.09)     2.99     (.26)      .89     (.64)     2.32        .88
                                          ------       ------    ------   ------    ------   ------    ------    -------
Less distributions:
 From net investment income............     (.01)        (.07)     (.14)    (.09)     (.20)    (.04)        -          -
 In excess of net investment
  income...............................        -            -      (.12)       -         -        -         -          -
 From net realized gains on
  investment transactions..............     (.04)           -         -        -         -        -         -          -
                                          ------       ------    ------   ------    ------   ------    ------    -------
 Total distributions...................     (.05)        (.07)     (.26)    (.09)     (.20)    (.04)        -          -
                                          ------       ------    ------   ------    ------   ------    ------    -------
Net asset value, end of period.........   $11.09       $10.69    $10.85   $ 8.12    $ 8.47   $ 7.78    $ 8.46    $  6.14
                                          ======       ======    ======   ======    ======   ======    ======    =======
TOTAL RETURN (%).......................     4.25(d)      (.85)    37.82    (3.08)    11.45    (7.65)    37.79      16.73
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
 ($ millions)..........................      497          472       238       65        41       35        17          3
Ratio of operating expenses,
 net to average net assets (%) (a).....     1.09(c)      1.08      1.20     1.31      1.39     1.38      1.50       1.50
Ratio of net investment income
 to average net assets (%).............     1.82(c)       .57       .91     1.23      1.43     2.89      1.30       1.59
Portfolio turnover rate (%)............    53.06(c)     33.52     20.36    34.42     45.01    26.67     57.69     110.42

<FN>
(a)   Portion of expenses reimbursed
      (Note B)                            $    -       $    -    $    -   $    -    $    -   $    -    $  .02    $   .14

(b)   Original capital

(c)   Annualized

(d)   Not annualized

(e)   Per share amounts, for each of the periods identified, have been calculated using the monthly average shares outstanding
      during the period method.

(f)   Includes provision for federal income tax of $.03 per share.

</FN>
</TABLE>

<TABLE>
<CAPTION>
                                             FOR THE PERIOD
                                              MAY 1, 1987
                                             (COMMENCEMENT
                                           OF OPERATIONS) TO
                                              DECEMBER 31,
                                                  1987
                                           -----------------
<S>                                        <C>
Net asset value,
 beginning of period...................        $  6.00(b)
                                               -------
Income from investment
 operations:
 Net investment income (a).............              -
 Net realized and unrealized
  gain (loss) on investment
  transactions.........................           (.64)
                                               -------
Total from investment
 operations............................           (.64)
                                               -------
Less distributions:
 From net investment income............              -
 In excess of net investment
  income...............................              -
 From net realized gains on
  investment transactions..............           (.10)
                                               -------
 Total distributions...................           (.10)
                                               -------
Net asset value, end of period.........        $  5.26
                                               =======
TOTAL RETURN (%).......................         (10.64)(d)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
 ($ millions)..........................              2
Ratio of operating expenses,
 net to average net assets (%) (a).....           1.50(c)
Ratio of net investment income
 to average net assets (%).............            .02(c)
Portfolio turnover rate (%)............         146.08(c)

<FN>
(a)   Portion of expenses reimbursed
      (Note B)                                 $   .07

(b)   Original capital

(c)   Annualized

(d)   Not annualized

(e)   Per share amounts, for each of the periods identified, have been calculated using the monthly average shares outstanding
      during the period method.

(f)   Includes provision for federal income tax of $.03 per share.
</FN>
</TABLE>




                                       63
<PAGE>

SCUDDER VARIABLE LIFE INVESTMENT FUND
NOTES TO FINANCIAL STATEMENTS (Unaudited)
--------------------------------------------------------------------------------

A. SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------

Scudder Variable Life Investment Fund (the "Fund") is organized as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as an open-end, diversified management investment company.
Its shares of beneficial interest are divided into six separate diversified
series, called "Portfolios." The Portfolios are comprised of the Money Market
Portfolio, Bond Portfolio, Balanced Portfolio, Growth and Income Portfolio,
Capital Growth Portfolio, and International Portfolio.

The Fund is intended to be the funding vehicle for variable annuity contracts 
and variable life insurance policies to be offered by the separate accounts of
certain life insurance companies ("Participating Insurance Companies"). As of
June 30, 1995, ownership breakdown of the Portfolios by each Participating
Insurance Company is as follows:

<TABLE>
<CAPTION>
                                                                          PORTFOLIOS
                                                     -------------------------------------------------------                     
PARTICIPATING                                                                    GROWTH
                                                     MONEY                         AND     CAPITAL  INTERNA-
INSURANCE COMPANIES                                  MARKET   BOND    BALANCED   INCOME    GROWTH    TIONAL
------------------------------------                 ------   ----    --------   ------    -------  --------
<S>                                                  <C>      <C>     <C>       <C>        <C>      <C>
Aetna Life Insurance & Annuity Co..............         -%       -%       -%        -%        -%      45.8%
American Skandia Life Assurance Co.............         -     35.8      0.1         -         -        0.5
AUSA Life Insurance Co.........................         -        -        -         -         -        0.8
Banner Life Insurance Co.......................       0.3      0.4      6.8       0.6       1.4        0.5
Charter National Life Insurance Co.............      59.8     14.2     78.5      88.0      26.9       16.7
Fortis Benefits Insurance Co...................         -        -        -         -         -        0.3
Intramerica Life Insurance Co..................       5.1      1.6      5.7      11.1       2.4        1.5
Lincoln Benefit Life Co........................         -      0.5      1.7         -         -          -
Mutual of America Life Insurance Co............         -     45.3        -         -      64.8       24.8
Paragon Life Insurance Co......................         -        -      0.3         -       0.1        0.1
Providentmutual Life and Annuity Co.
 of America....................................         -      2.0        -       0.3         -          -
Safeco Life Insurance Co.......................         -        -      6.9         -         -        2.3
Union Central Life Insurance Co................      34.6        -        -         -       4.3        6.7
United of Omaha Life Insurance Co..............       0.2      0.2        -         -         -          -
USAA Life Insurance Co.........................         -        -        -         -       0.1          -
                                                     -----   -----    -----     -----     -----      -----
                                                     100.0%  100.0%   100.0%    100.0%    100.0%     100.0%
                                                     =====   =====    =====     =====     =====      =====
</TABLE>

The policies described below are followed consistently by the Fund in the
preparation of the financial statements for its Portfolios in conformity with
generally accepted accounting principles.

SECURITY VALUATION. The Money Market Portfolio values all securities utilizing
the amortized cost method permitted in accordance with Rule 2a-7 under the
Investment Company Act of 1940, as amended, and pursuant to which the Portfolio 
must adhere to certain conditions. Under this method, which does not take into 
account unrealized gains or losses on securities, an instrument is initially 
valued at its cost and thereafter assumes a constant accretion/amortization to
maturity of any discount/premium.

Securities in each of the remaining Portfolios are valued in the following 
manner:

Portfolio securities which are traded on U.S. or foreign stock exchanges are 
valued at the most recent sale price reported on the exchange on which the 
security is traded most extensively. If no sale occurred, the security is then 
valued at the calculated mean between the most recent bid and asked quotations. 
If there are no such bid and asked quotations, the most recent bid quotation is
used. Securities quoted on the National Association of Securities Dealers
Automatic Quotation ("NASDAQ") System, for which there have been sales, are 
valued at the most recent sale price reported on such system. If there are no
such sales, the value is the high or "inside" bid quotation. Securities which
are not quoted on the NASDAQ System but are traded in another over-the-counter
market are valued at the most recent sale price on such market. If no sale 
occurred, the security is then valued at the calculated mean between the most
recent bid and asked quotations. If there are no such bid and asked quotations,
the most recent bid quotation shall be used.




                                       64
<PAGE>

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Portfolio debt securities with remaining maturities greater than sixty days are
valued by pricing agents approved by the officers of the Fund, which quotations
reflect broker/dealer-supplied valuations and electronic data processing
techniques. If the pricing agents are unable to provide such quotations, the
most recent bid quotation supplied by a bona fide market maker shall be used.
Short-term investments having a maturity of sixty days or less are valued at
amortized cost.

All other securities are valued at their fair value as determined in good faith 
by the Valuation Committee of the Trustees.

OPTIONS. An option contract is a contract in which the writer of the option
grants the buyer of the option the right to purchase from (call option), or sell
to (put option), the writer a designated instrument at a specified price within
a specified period of time. Certain options, including options on indices, will
require cash settlement by the Fund if the option is exercised. During the
period, the International Portfolio purchased put options on currencies and
wrote call options on currencies as a hedge against potential adverse price
movements in the value of portfolio assets.

The liability representing the Fund's obligation under an exchange traded
written option or investment in a purchased option is valued at the last sale
price or, in the absence of a sale, the mean between the closing bid and asked
price or at the most recent asked price (bid for purchased options) if no bid
and asked price are available. Over-the-counter written or purchased options are
valued using dealer supplied quotations.

FOREIGN CURRENCY TRANSLATIONS. The books and records of the Portfolios are
maintained in U.S. dollars. Foreign currency transactions are translated into 
U.S. dollars on the following basis: 

     (i)   market value of investment securities, other assets and liabilities
           at the daily rates of exchange, and

     (ii)  purchases and sales of investment securities, dividend and interest
           income and certain expenses at the rates of exchange prevailing on
           the respective dates of such transactions.

The Portfolios do not isolate that portion of gains and losses on investments 
which is due to changes in foreign exchange rates from that which is due to 
changes in market prices of the investments. Such fluctuations are included with
the net realized and unrealized gains and losses from investments.

Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on dividends,
interest, and foreign withholding taxes.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency exchange
contract (forward contract) is a commitment to purchase or sell a foreign
currency at the settlement date at a negotiated rate. During the period, the
non-money market Portfolios utilized forward contracts as a hedge in connection
with portfolio purchases and sales of securities denominated in foreign
currencies and the Bond Portfolio, Balance Portfolio, and the International
Portfolio utilized forward contracts as a hedge against changes in exchange
rates relating to foreign currency denominated assets.

Forward contracts are valued at the prevailing forward exchange rate of the 
underlying currencies and unrealized gain/loss is recorded daily. Forward
contracts having the same settlement date and broker are offset and any gain
(loss) is realized on the date of offset; otherwise, gain (loss) is realized on
settlement date. Realized and unrealized gains and losses which represent the
difference between the value of the forward contract to buy and the forward
contract to sell are included in net realized and unrealized gain (loss) from
foreign currency related transactions.

Certain risks may arise upon entering into forward contracts from the potential 
inability of counterparties to meet the terms of their contracts. Additionally, 
when utilizing forward contracts to hedge the Fund gives up the opportunity to
profit from favorable exchange rate movements during the term of the contract.




                                       65
<PAGE>

SCUDDER VARIABLE LIFE INVESTMENT FUND
--------------------------------------------------------------------------------

REPURCHASE AGREEMENTS. The Fund on behalf of each Portfolio may enter into
repurchase agreements with U.S. and foreign banks and broker/dealers whereby the
Fund, through its custodian, receives delivery of the underlying securities, the
amount of which at the time of purchase and each subsequent business day is
required to be maintained at such a level that the market value, depending on
the maturity of the repurchase agreement and the underlying collateral, is equal
to at least 100.5% of the resale price.

FEDERAL INCOME TAXES. Each Portfolio is treated as a single corporate taxpayer
as provided for in the Internal Revenue Code of 1986, as amended. It is each 
Portfolio's policy to comply with the requirements of the Internal Revenue Code
which are applicable to regulated investment companies and to distribute all of
its investment company taxable income to the separate accounts of the
Participating Insurance Companies which hold its shares. Accordingly, the
Portfolios paid no federal income taxes and no provision for federal income
taxes was required.

DISTRIBUTION OF INCOME AND GAINS. All of the net investment income of the Money
Market Portfolio is declared as a dividend to shareholders of record as of the
close of business each day and is paid to shareholders monthly. Dividends from
the Bond Portfolio, Balanced Portfolio, Growth and Income Portfolio, and the
Capital Growth Portfolio are declared and paid quarterly in April, July, October
and January. All of the net investment income of the International Portfolio
normally will be declared and distributed as a dividend annually. During any
particular year, net realized gains from investment transactions for each
Portfolio, in excess of available capital loss carryforwards, would be taxable
to the Portfolio if not distributed and, therefore, will be distributed to the
Participating Insurance Companies.

The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. The differences
primarily relate to investments in forward contracts, passive foreign investment
companies, post October loss deferral, non-taxable distributions, and certain
securities sold at a loss. As a result, net investment income (loss) and net
realized gain (loss) on investment transactions for a reporting period may
differ significantly from distributions during such period. Accordingly, the
Portfolios may periodically make reclassifications among certain of its capital
accounts without impacting the net asset value of each Portfolio.

The Portfolios use the specific identification method for determining realized 
gain or loss on investments for both financial and federal income tax reporting 
purposes.

EXPENSES. Each Portfolio is charged for those expenses which are directly
attributable to it, such as management fees and custodian fees, while other
expenses (reports to shareholders, legal and audit fees) are allocated based on
relative net asset value among the Portfolios.

OTHER. Investment security transactions are accounted for on a trade date basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. All original
issue discounts are accreted for both tax and financial reporting purposes.

B. RELATED PARTIES
--------------------------------------------------------------------------------

Under the Fund's Investment Advisory Agreement (the "Agreement") with Scudder, 
Stevens and Clark, Inc. (the "Adviser"), the Fund agrees to pay the Adviser a
fee, based on average daily net assets, equal to an annual rate of 0.37% for the
Money Market Portfolio, 0.475% for the Bond Portfolio, 0.475% for the Balanced
Portfolio, 0.475% for the Growth and Income Portfolio, 0.475% for the Capital
Growth Portfolio, and 0.875% for the International Portfolio.

The Trustees authorized the Fund on behalf of each Portfolio to pay Scudder Fund
Accounting Corp., a wholly-owned subsidiary of the Adviser, for determining the
daily net asset value per share and maintaining the portfolio and general
accounting records of the Fund. 

Related fees for such services are detailed in each Portfolio's statement of 
operations.



                                       66
<PAGE>

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

For a period of five years from the date of execution of a Participation
Agreement with the Fund, and from year to year thereafter as agreed by the Fund
and the Participating Insurance Companies, each of the Participating Insurance
Companies has agreed to reimburse the Fund to the extent that the annual
operating expenses of any Portfolio of the Fund, other than the International
Portfolio, exceed three-quarters of one percent (0.75 of 1%) of that Portfolio's
average annual net assets. The Participating Insurance Companies have agreed to
reimburse the Fund to the extent that such expenses of the International
Portfolio exceed one and one-half percent (1.50 of 1%) of the Portfolio's
average annual net assets. The Adviser may advance some or all of such
reimbursement to the Fund prior to receiving payment therefore from a
Participating Insurance Company, but it is under no obligation to do so. If the
Adviser does advance such reimbursement to the Fund and does not receive payment
therefore, it will be entitled to be repaid such amounts by the Fund. In
addition to the reimbursement by Participating Insurance Companies noted above,
until April 30, 1996, the Adviser has agreed to waive part or all of its fees
for the Growth and Income Portfolio to the extent that the Portfolio's expenses
will be maintained at 0.75%.

The Fund pays each Trustee not affiliated with the Adviser and not a Trustee of
other Scudder affiliated funds $12,000 annually plus specified amounts for
attended board and committee meetings. The Fund pays each Trustee not
affiliated  with the Adviser and who is a Trustee of other Scudder affiliated
funds $7,500  annually plus specified amounts for attended board and committee
meetings.  Allocated Trustees' fees for each Portfolio for the six months ended
June 30,  1995 are detailed in each Portfolio's statement of operations.
        



                                       67
<PAGE>


                     Page 68 was intentionally left blank.


                                       68
<PAGE>

Celebrating Over 75 Years of Serving Investors
--------------------------------------------------------------------------------

                                    Established in 1919 by Theodore Scudder,
                           Sidney Stevens, and F. Haven Clark, Scudder, Stevens
                           & Clark was the first independent investment counsel
                           firm in the United States. Since its birth, Scudder's
                           pioneering spirit and commitment to professional
                           long-term investment management have helped shape the
                           investment industry. In 1928, we introduced the
                           nation's first no-load mutual fund. Today we offer 36
                           pure no load(TM) funds, including the first
                           international mutual fund offered to U.S. investors.

                                    Over the years, Scudder's global investment
                           perspective and dedication to research and
                           fundamental investment disciplines have helped
                           Scudder become one of the largest and most respected
                           investment managers in the world. Though times have
                           changed since our beginnings, we remain committed to
                           our long-standing principles: managing money with
                           integrity and distinction; keeping the interests of
                           our clients first; providing access to investments
                           and markets that may not be easily available to
                           individuals; and making investing as simple and
                           convenient as possible through friendly,
                           comprehensive service.




An investment in the Money Market Portfolio                                     
is neither insured nor guaranteed by the                                        
United States Government and there can be no                                    
assurance that the Portfolio will be able to                                    
maintain a stable net asset value of $1.00                                      
per share.                                                                      
                                            
This information must be preceded or                                            
accompanied by a current prospectus.                                            
                                            
Portfolio changes should not be considered                                      
recommendations for action by individual                                        
investors.                                                                      
<PAGE>






                                     PART C

                                OTHER INFORMATION


<PAGE>



Item 15. Indemnification
         ---------------

      a) Separate Account I of Washington National Insurance Company:
         ------------------------------------------------------------

     Pursuant to an Indemnification Agreement, the members of the Board of
Directors and the officers of Separate Account I of Washington National
Insurance Company (the "Separate Account") are indemnified by Washington
National Insurance Company and Washington National Corporation against claims
and liabilities to which such persons may become subject by reason of having
acted as a member of such Board of Directors or an officer so long as the
following conditions are met:

     1.   The person acted in good faith and in a reasonable manner believed to
          be in or not opposed to the best interests of the Separate Account;
          and

     2.   If the proceeding was criminal, the person had no reasonable cause to
          believe his or her conduct was unlawful.

     In the absence of an adjudication that a member of the Board of Directors
or an officer committed no willful misfeasance, gross negligence or reckless
disregard of duty, the person will be indemnified only if a determination has
been made by a majority of the members of the Board of Directors not involved in
the proceeding, or by written opinion of independent counsel, that such
indemnification would be appropriate.

     Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to members of the Board of Directors and
officers of the Separate Account pursuant to the provisions described in the
Indemnification Agreement, the Separate Account has been advised that in the
opinion of the SEC such indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than payment by the Separate
Account of expenses incurred or paid by a member of the Board of Directors,
officer or controlling person of the Separate Account in the successful defense
of any action, suit or proceeding) is asserted by such member of the Board of
Directors or officer in connection with the securities being registered, the
Separate Account will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

     (b) Scudder Variable Life Investment Fund:
         --------------------------------------

     A policy of insurance covering Scudder, Stevens & Clark, Inc., its
subsidiaries including Scudder Investor Services, Inc., and all of the
registered investment companies advised by Scudder, Stevens & Clark, Inc.
insures Trustees and officers of Scudder Variable Life Investment Fund (the
"Fund") and others against liability arising by reason of an alleged breach of
duty caused by any negligent act, error or accidental omission in the scope of
their duties.

     Article IV, Sections 4.1 - 4.3 of the Fund's Declaration of Trust provide
as follows:

                  Section 4.1. No Personal Liability of Shareholders,  Trustees,
                  etc. No Shareholder shall be subject to any personal liability
                  whatsoever to any Person in  connection  with Fund Property or
                  the acts,  obligations  or  affairs of the Fund.  No  Trustee,
                  officer, employee or agent of the Fund shall be subject to any
                  personal liability whatsoever to any Person, other than to the
                  Fund or its Shareholders,  in connection with Fund Property or
                  the  affairs  of the Fund,  save only  that  arising  from bad
                  faith,  willful  misfeasance,  gross  negligence  or  reckless
                  disregard of his duties with  respect to such Person;  and all
                  such  Persons  shall  look  solely  to the Fund  Property  for
                  satisfaction  of claims of any nature  arising  in  connection
                                     
                                       C-1

<PAGE>
                                
                  with the  affairs of the Fund.  If any  Shareholder,  Trustee,
                  officer,  employee,  or agent, as such, of the Fund, is made a
                  party to any suit or proceeding to enforce any such  liability
                  of the Fund, he shall not, on account thereof, be held to 
                  any personal  liability.  The Fund shall  indemnify and hold 
                  each  Shareholder  harmless from and against all claims and 
                  liabilities,  to which such Shareholder may  become  subject
                  by reason of his being or having  been a Shareholder,  and 
                  shall  reimburse  such  Shareholder  for all legal  and  other
                  expenses  reasonably  incurred  by  him  in connection  with
                  any  such  claim or  liability.  The  rights accruing  to a
                  Shareholder  under this  Section 4.1 shall not exclude  any
                  other  right to which  such  Shareholder  may be lawfully 
                  entitled,   nor  shall  anything  herein  contained
                  restrict  the right of the Fund to  indemnify  or  reimburse a
                  Shareholder  in any  appropriate  situation  even  though  not
                  specifically provided herein.

                  Section  4.2.  Non-Liability  of  Trustees,  etc.  No Trustee,
                  officer,  employee or agent of the Fund shall be liable to the
                  Fund,  its  Shareholders,  or  to  any  Shareholder,  Trustee,
                  officer,  employee, or agent thereof for any action or failure
                  to act (including  without limitation the failure to compel in
                  any way any former or acting  Trustee to redress any breach of
                  trust)  except  for his own bad  faith,  willful  misfeasance,
                  gross negligence or reckless  disregard of the duties involved
                  in the conduct of his office.

                  Section 4.3.  Mandatory Indemnification.  (a) Subject to the 
                  exceptions and limitations contained in paragraph (b) below:

                           (i) every  person  who is, or has been,  a Trustee or
                           officer of the Fund shall be  indemnified by the Fund
                           to the fullest  extent  permitted  by law against all
                           liability   and  against  all   expenses   reasonably
                           incurred or paid by him in connection with any claim,
                           action,  suit  or  proceeding  in  which  he  becomes
                           involved  as a party or  otherwise  by  virtue of his
                           being or having been a Trustee or officer and against
                           amounts  paid or  incurred  by him in the  settlement
                           thereof;

                           (ii)  the  words   "claim,"   "action,"   "suit,"  or
                           "proceeding"  shall  apply  to all  claims,  actions,
                           suits or  proceedings  (civil,  criminal,  or  other,
                           including  appeals),  actual or  threatened;  and the
                           words   "liability"  and  "expenses"  shall  include,
                           without    limitation,    attorneys'   fees,   costs,
                           judgments,   amounts  paid  in   settlement,   fines,
                           penalties and other liabilities.

                  (b) No indemnification shall be provided hereunder to a 
                  Trustee or officer:

                           (i)  against  any   liability  to  the  Fund  or  the
                           Shareholders  by reason of willful  misfeasance,  bad
                           faith,  gross negligence or reckless disregard of the
                           duties involved in the conduct of his office;

                           (ii) with  respect to any matter as to which he shall
                           have been  finally  adjudicated  not to have acted in
                           good faith in the  reasonable  belief that his action
                           was in the best interest of the Fund;

                           (iii)  in  the  event  of  a   settlement   or  other
                           disposition  not  involving a final  adjudication  as
                           provided in paragraph  (b)(i)  resulting in a payment
                           by a  Trustee  or  officer,  unless  there has been a
                           determination  that such  Trustee or officer  did not
                           engage  in  willful  misfeasance,  bad  faith,  gross
                           negligence  or  reckless   disregard  of  the  duties
                           involved in the conduct of his office;

                                   (A) by the court or other body approving the 
                                    settlement or other disposition; or

                                                     C - 2

<PAGE>

                                    (B) based upon a review of readily available
                                    facts  (as  opposed  to a full  trial-  type
                                    inquiry)  by (x) vote of a  majority  of the
                                    Disinterested Trustees acting on the matter
                                    (provided that a majority of the
                                    Disinterested Trustees then in office act on
                                    the  matter)  or  (y)  written   opinion  of
                                    independent legal counsel.

                  (c) The  rights  of  indemnification  herein  provided  may be
                  insured against by policies  maintained by the Fund,  shall be
                  severable,  shall not  affect  any  other  rights to which any
                  Trustee or officer may now or  hereafter  be  entitled,  shall
                  continue  as to a person who has ceased to be such  Trustee or
                  officer   and  shall  inure  to  the  benefit  of  the  heirs,
                  executors,  administrators  and  assigns  of  such  a  person.
                  Nothing   contained   herein   shall   affect  any  rights  to
                  indemnification  to which  personnel  of the Fund  other  than
                  Trustees and officers may be entitled by contract or otherwise
                  under law.

                  (d) Expenses of preparation  and  presentation of a defense to
                  any  claim,  action,  suit,  or  proceeding  of the  character
                  described  in  paragraph  (a) of this  Section  4.3  shall  be
                  advanced by the Fund prior to final  disposition  thereof upon
                  receipt of an undertaking by or on behalf of the recipient, to
                  repay such amount if it is  ultimately  determined  that he is
                  not  entitled  to  indemnification  under  this  Section  4.3,
                  provided that either:

                           (i) such  undertaking  is secured by a surety bond or
                           some  other  appropriate  security  provided  by  the
                           recipient,  or the  Fund  shall  be  insured  against
                           losses arising out of any such advances; or

                           (ii) a majority of the Disinterested  Trustees acting
                           on  the  matter  (provided  that  a  majority  of the
                           Disinterested  Trustees  act  on  the  matter)  or an
                           independent  legal counsel in a written opinion shall
                           determine,  based upon a review of readily  available
                           facts (as opposed to a full trial-type inquiry), that
                           there  is  reason  to  believe  that  the   recipient
                           ultimately will be found entitled to indemnification.

                  As used in this Section 4.3, a "Disinterested  Trustee" is one
                  who is not (i) an "Interested  Person" of the Trust (including
                  anyone who has been exempted from being an "Interested Person"
                  by any rule,  regulation or order of the Commission),  or (ii)
                  involved in the claim, action, suit or proceeding.

     (c)  Participation Agreement:

     The Participation Agreement (a Form of which is attached as Exhibit 5(b)
hereto) between Scudder Variable Life Investment Fund (the "Fund") and
Washington National Insurance Company ("Washington National") contains cross-
indemnification provisions pursuant to which: (a) Washington National agrees to
indemnify and hold harmless the Fund and each of its Trustees and officers and
each person, if any, who controls the Fund within the meaning of Section 15 of
the Securities Act of 1933 (the "Act") against any and all losses, claims,
damages, liabilities or litigation (including legal and other expenses), arising
out of the acquisition of any of the Fund's shares of beneficial interest
("Shares") by any person, to which the Fund or such Trustees, officers or
controlling person may become subject under the Act, under any other statute, at
common law or otherwise, which may be based on certain acts, statements, or
omissions; and (b) the Fund agrees to indemnify and hold harmless Washington
National and each of its Directors and officers and each person, if any, who
controls Washington National within the meaning of Section 15 of the Act against
any and all losses, claims, damages, liabilities or litigation (including legal
and other expenses) to which it or such Directors, officers or controlling
person may become subject under the Act, under any other statute, at common law
or otherwise, arising out of the acquisition of any Shares by any person which
may be based on certain acts, statements, or omissions.


                                      C - 3

<PAGE>
     (d)  Reimbursement Agreement:

     The Reimbursement Agreement (a Form of which is attached as Exhibit 17(c)
hereto) between Scudder, Stevens, & Clark, Inc. ("SS&C") and Washington National
Insurance Company ("Washington National") contains cross-indemnification
provisions pursuant to which: (a) Washington National agrees to indemnify and
hold harmless SS&C and each of its Directors and officers and each person, if
any, who controls SS&C within the meaning of Section 15 of the Securities Act of
1933 (the "Act") or any person, controlled by or under common control with SS&C
against any and all losses, claims, damages, liabilities or litigation
(including legal and other expenses) to which SS&C or such Directors, officers
or controlling person may become subject under the Act, under any other statute,
at common law or otherwise, arising out of the acquisition of any of the Fund's
shares of beneficial interest ("Shares") by any person which may be based on
certain acts, statements, or omissions; (b) SS&C agrees to indemnify and hold
harmless Washington National and each of its Directors and officers and each
person, if any, who controls Washington National within the meaning of Section
15 of the Act against any and all losses, claims, damages, liabilities or
litigation (including legal and other expenses) to which it or such Directors,
officers or controlling person may become subject under the Act, under any other
statute, at common law or otherwise, arising out of the acquisition of any
Shares by any person which may be based on certain acts, statements, or
omissions; and (c) SS&C agrees to indemnify and hold harmless Washington
National and each of its Directors and officers against any and all losses,
claims, damages, liabilities or litigation arising from the imposition of
additional federal income taxes on Washington National or any policyholder under
certain circumstances.

Item 16. Exhibits.

(1)      (a)      Resolution of Executive Committee of Board of Directors of 
                  Washington National Insurance Company establishing Separate 
                  Account I of Washington National Insurance Company a1/

         (b)      (i)      Declaration of Trust of Scudder Variable Life 
                           Investment Fund dated March 15, 1985 b1/

                  (ii)     Amendment to the Declaration of Trust of Scudder
                           Variable Life Investment Fund dated March 10, 1988
                           b7/

                  (iii)    Establishment and Designation of Series of Shares of
                           Beneficial Interest, without Par Value b1/

                  (iv)     Establishment and Designation of Series of Shares of
                           Beneficial Interest, without Par Value b3/

                  (v)      Establishment and Designation of Series of Shares of
                           Beneficial Interest, without Par Value, with respect
                           to the Managed International Portfolio b5/

                  (vi)     Amended Establishment and Designation of Series of
                           Shares of Beneficial Interest, without Par Value
                           dated April 15, 1988 b7/

                  (vii)    Amended  Establishment  and  Designation of Series of
                           Shares  of  Beneficial  Interest,  without  Par Value
                           dated April 30, 1993 b9/

                  (viii)   Abolition of Series b9/


                                      C - 4

<PAGE>

                  (ix)     Amended Establishment and Designation of Series of 
                           Shares of Beneficial Interest, without Par Value, 
                           with respect to the Growth and Income Portfolio 
                           dated February 11, 1994 b10/

(2)      (a)      Rules and Regulations of Separate Account I of Washington
                  National Insurance Company, as amended a2/

         (b)      (i)      By-Laws of Scudder Variable Life Investment Fund
                           dated March 15, 1985 b1/

                  (ii)     Amendment to the By-Laws of Scudder Variable Life 
                           Investment Fund dated November 13, 1991 b8/

(3)      (a)      (Not applicable to Separate Account I of Washington National 
                  Insurance Company)

         (b)      (Not applicable to Scudder Variable Life Investment Fund)

(4)  Form of Asset Transfer Agreement and Plan of Reorganization, (incorporated
     by reference from Appendix A to the Proxy Statement/Prospectus forming a
     part of this Registration Statement*)

(5)      (a)      (i)    Non Qualified Individual Variable Annuity Contract a3/

                  (ii)   Tax Qualified Individual Variable Annuity Contract a3/

                  (iii)  Non Qualified Group Allocated Variable Annuity
                         Contract a3/

                  (iv)   Certificate for Non Qualified Group Allocated Variable
                         Annuity Contract a3/

                  (v)    Tax Qualified Group Allocated Variable Annuity 
                         Contract a3/

                  (vi)   Certificate for Tax Qualified Group Allocated Variable
                         Annuity Contract a3/

                  (vii)  Tax Qualified Group Unallocated Variable Annuity
                         Contract a3/

                  (viii) Certificate for Tax Qualified Group Unallocated 
                         Variable Annuity Contract a3/

                  (ix)   Total and Permanent Disability Benefit Rider on Form 
                         ED30-1 for Non Qualified and Tax Qualified Individual
                         Variable Annuity Contracts a2/

                  (x)    Tax Qualification Amendment on Form V32-1 for Tax 
                         Qualified Individual Variable Annuity Contracts a2/

                  (xi)   Tax Qualification Amendment on Form V33-1 for Tax 
                         Qualified Individual Variable Annuity Contract a3/

                  (xii)  Individual Retirement Annuity Rider on Form OFA7-2 for
                         Tax Qualified Individual Variable Annuity Contract a2/

                  (xiii)  Tax Qualification Amendment on Form V36-1 for Tax
                          Qualified Group Variable Annuity Contract a2/

                  (xiv)   Tax Qualification Amendment on Form V42-1 for Tax 
                          Qualified Group Variable Annuity Contract a3/

                  (xv)    Amendment for Contracts under Texas Optional 
                          Retirement Program a3/


                                      C - 5

<PAGE>
                  (xvi)   Distribution on Death of the Contract Owner Rider on 
                          Form ED 188 a7/

                  (xvii)  Tax Qualification Amendment on Form V38-1 a7/

                  (xviii) Tax Qualified Amendment (Joint and Survivor Annuity) 
                          on Form OFA20-1 a7/

                  (xix)   Amendment to Contracts regarding assignment and option
                          restriction on Form TDA-V32-1 a7/

                  (xx)    Individual Retirement Annuity Rider on Form V116-2 a7/

                  (xxi)   Annuity Loan Rider for certain states on Form ED224-1
                          a8/

                  (xxii)  Annuity Loan Rider for Wisconsin only on Form ED224A 
                          a8/

         (b)      Form of Participation Agreement between Scudder Variable Life 
                  Investment Fund and Washington National Insurance Company*

(6)      (a)      (i)     Investment Management Agreement dated July 26, 1983 
                          between Washington National Insurance Company and
                          Separate Account I of Washington National
                          Insurance Company a2/

                  (ii)    Investment Sub-Advisory Agreement, effective January
                          1, 1994, between NBD Bank and Washington National 
                          Insurance Company a12/

         (b)      (i)     Investment Advisory Agreement between Scudder Variable
                          Life Investment Fund and Scudder, Stevens & Clark Ltd.
                          dated November 14, 1986 b4/

                  (ii)    Investment Advisory Agreement between the Registrant 
                          and Scudder, Stevens & Clark, Inc. with respect to the
                          Managed International Portfolio b6/

                  (iii)   Investment Advisory Agreement between the Registrant
                          and Scudder, Stevens & Clark, Inc. with respect to the
                          Growth and Income Portfolio dated May 1, 1994 b11/

(7)      (a)      (i)    Distribution Agreement dated July 26, 1983 between 
                         Separate Account I of Washington National Insurance
                         Company and Washington National Equity Company a2/

                  (ii)   Agreement dated July 26, 1983 between Washington 
                         National Insurance Company and Washington National
                         Equity Company a2/

                  (iii)  Form of Agent Agreement among Washington National 
                         Insurance Company, Washington National Equity Company
                         and agents a2/

         (b)      (i)    Underwriting Agreement between Scudder Variable Life 
                         Investment Fund and Scudder Investor Services, Inc., 
                         dated July 12, 1985 b2/

                  (ii)   Participating Contract and Policy Agreement between
                         Scudder, Investor Services, Inc. and Participating 
                         Insurance Companies b2/

                  (iii)  Participating Contract and Policy Agreement between 
                         Scudder Investor Services, Inc. and Carillon
                         Investments, Inc. dated February 18, 1992 b9/


                                      C - 6

<PAGE>
                  (iv)   Participating Contract and Policy Agreement between
                         Scudder Investor Services, Inc. and AEtna Life
                         Insurance and Annuity Company dated April 27, 1992 b9/

                  (v)    Participating Contract and Policy Agreement between 
                         Scudder Investor Services, Inc. and PNMR Securities,
                         Inc. dated December 1, 1992 b9/

                  (vi)   Prototype Participating Contract and Policy Agreement
                          b10/

(8)      (a)      (Not applicable to Separate Account I of Washington National
                  Insurance Company)

         (b)      (Not applicable to Scudder Variable Life Investment Fund)

(9)      (a)      Custody Agreement dated May 1991 among Washington National
                  Insurance Company, Separate Account I of Washington National 
                  Insurance Company and Continental Bank, N.A. a11/

         (b)      (i)         Custodian Contract between Scudder Variable Life 
                              Investment Fund and State Street Bank and Trust
                              Company dated August 22, 1985 b2/

                  (ii)        Fee schedule for Exhibit 9(b)(i) b7/

                  (iii)       Amendment to the Custodian Contract dated February
                              17, 1987 b7/

                  (iv)        Amendment to the Custodian Contract dated 
                              February 17, 1987 b7/

                  (v)         Amendment to the Custodian Contract dated August 
                              13, 1987 b7/

                  (vi)        Amendment to the Custodian Contract dated August 
                              12, 1988 b7/

                  (vii)       Amendment to the Custodian Contract dated August
                              9, 1991 b8/

                  (viii)      Fee schedule for Exhibit 9(b)(i) b11/

(10)     (a)      (Not applicable to Separate Account I of Washington National 
                  Insurance Company)

         (b)      (Not applicable to Scudder Variable Life Investment Fund)

(11)     (a)      Opinion of counsel and consent to its use as to the legality 
                  of the securities being registered by Separate Account I of
                  Washington National Insurance Company*

         (b)      Opinion of counsel and consent to its use as to the legality
                  of the securities being registered by Scudder Variable Life 
                  Investment Fund (to be filed with the Rule 24f-2 Notice of
                  Scudder Variable Life Investment Fund)  

(12)     Opinion of counsel and consent to its use, supporting the tax matters 
         and consequences to Contract Owners discussed in Part A of this 
         registration statement*

(13)     (a)      (i)         Administrative Services Agreement dated July 26, 
                              1983 between Separate Account I of Washington 
                              National Insurance Company and Washington National
                              Insurance Company a2/

                  (ii)        Indemnification Agreement dated July 20, 1983 for
                              Directors and Officers of Separate Account I of
                              Washington National Insurance Company a2/


                                      C - 7

<PAGE>
                  (iii)       Service Agreement dated October 21, 1983 between 
                              Washington National Insurance Company and DST
                              Systems, Inc. a3/

                  (iv)        Recordkeeping Agency Agreement between Washington
                              National Insurance Company and Investors Fiduciary
                              Trust Company a2/

                  (v)         Service Agreement dated February 26, 1990 between
                              Washington National Insurance Company and 
                              Financial Administrative Services, Inc. a10/

         (b)      (i)         Transfer, Dividend Disbursing and Plan Agency 
                              Agreement between Scudder Variable Life Investment
                              Fund and State Street Bank and Trust Company dated
                              July 12, 1985 b2/

                  (ii)        Fee schedule for Exhibit 13(b)(i) b2/

                  (iii)       Transfer Agency and Service Agreement between 
                              Scudder Variable Life Investment Fund and Scudder
                              Service Corporation dated April 6, 1992 b9/

                  (iv)        Participation Agreement between the Registrant and
                              Security Equity Life Insurance Company dated 
                              September 10, 1985 b2/

                  (v)         Amendment to Participation Agreement between the 
                              Registrant and Security Equity Life Insurance 
                              Company dated July 21, 1987 b6/

                  (vi)        Participation Agreement between the Registrant 
                              and Charter National Life Insurance Company dated
                              June 9, 1986 b6/

                  (vii)       Amendment to Participation Agreement between the 
                              Registrant and Charter National Life Insurance 
                              Company dated July 20, 1987 b6/

                  (viii)      Amendment to Participation Agreement between the
                              Registrant and Charter National Life Insurance 
                              Company dated May 2, 1988 b7/

                  (ix)        Amendment to Participation Agreement between the 
                              Registrant and Charter National Life Insurance 
                              Company dated June 30, 1991 b8/

                  (x)         Participation Agreement between the Registrant and
                              The Union Central Life Insurance Company dated 
                              February 18, 1992 b9/

                  (xi)        Participation Agreement between the Registrant and
                              AEtna Life Insurance and Annuity Company dated 
                              April 27, 1992 b9/

                  (xii)       Participation Agreement between the Registrant and
                              Safeco Life Insurance Companies dated December 31,
                              1992 b9/

                  (xiii)      Prototype Participation Agreement - Form A b10/

                  (xiv)       Prototype Participation Agreement - Form B b10/

                  (xv)        First   Amendment   to  the   Fund   Participation
                              Agreement between AEtna Life Insurance and Annuity
                              Company and the Fund dated February 19, 1993 b10/

                  (xvi)       Second   Amendment   to  the  Fund   Participation
                              Agreement between AEtna Life Insurance and Annuity
                              Company and the Fund dated August 13, 1993 b10/


                                      C - 8

<PAGE>

                  (xvii)      First Amendment to the Participation Agreement 
                              between Mutual of America Life Insurance Company,
                              The American Life Insurance Company of New York 
                              and the Fund dated August 13, 1993. b10/

                  (xviii)     First Amendment to the Participation Agreement 
                              between The Union Central Life Insurance Company
                              and the Fund dated September 30, 1993. b10/

                  (xix)       Accounting Services Agreement between Scudder 
                              Variable Life Investment Fund and Scudder Investor
                              Services, Inc. dated August 1, 1989 b11/

                  (xx)        Fund Accounting Services Agreement between Scudder
                              Variable Life Investment Fund, on behalf of the
                              Money Market Portfolio, and Scudder Fund 
                              Accounting Corporation dated October 1, 1994 b11/

                  (xxi)       Fund Accounting Services Agreement between Scudder
                              Variable Life Investment Fund, on behalf of the 
                              Bond Portfolio, and Scudder Fund Accounting
                              Corporation dated October 1, 1994 b11/

                  (xxii)      Fund Accounting Services Agreement between the
                              Registrant, on behalf of the Balanced Portfolio,
                              and Scudder Fund Accounting Corporation dated 
                              October 1, 1994 b11/

                  (xxiii)     Fund Accounting Services Agreement between the 
                              Registrant, on behalf of the Growth and Income
                              Portfolio, and Scudder Fund Accounting Corporation
                              dated October 1, 1994 b11/

                  (xxiv)      Fund Accounting Services Agreement between Scudder
                              Variable Life Investment Fund, on behalf of the
                              Capital Growth Portfolio, and Scudder Fund 
                              Accounting Corporation dated October 1, 1994 b11/

                  (xxv)       Fund Accounting Services Agreement between the 
                              Registrant, on behalf of the International
                              Portfolio, and Scudder Fund Accounting Corporation
                              dated October 1, 1994 b11/

(14)     (a)      Consent of Ernst & Young LLP*

         (b)      Consent of Coopers & Lybrand L.L.P.*

(15)     (Not applicable)

(16)     (a)   Powers of Attorney executed by certain Directors of Separate    
               Account I of Washington National Insurance Company*          

(17)     (a)   Copy of earlier declaration by Separate Account I of Washington
               National Insurance Company registering an indefinite number of 
               securities pursuant to Rule 24f-2 under the Investment Company 
               Act of 1940*                                                   

         (b)   Copy of earlier declaration by Scudder Variable Life Investment 
               Fund registering an indefinite amount of securities pursuant to 
               Rule 24f-2 under the Investment Company Act of 1940 b12/        

         (c)   Form of Reimbursement Agreement between Scudder, Stevens & Clark,
               Inc. and Washington National Insurance Company*                  

                                      C - 9

<PAGE>
-------------
*     Filed herewith.

a1/ Incorporated  herein by reference to the initial  registration  statement on
Form N-3 for Separate Account I of Washington  National  Insurance Company (File
No. 2-81129), filed with the Commission on December 30, 1982.

a2/ Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
registration statement on Form N-3 for Separate Account I of Washington National
Insurance Company (File No. 2-81129), filed with the Commission on July 29,
1983.

a3/ Incorporated herein by reference to Pre-Effective Amendment No. 2 to the
registration statement on Form N-3 for Separate Account I of Washington National
Insurance Company (File No. 2-81129), filed with the Commission on October 31,
1983.

a4/ Incorporated herein by reference to Post-Effective Amendment No. 2 to the
registration statement on Form N-3 for Separate Account I of Washington National
Insurance Company (File No. 2-81129), filed with the Commission on May 1, 1985.

a5/ Incorporated herein by reference to Post-Effective Amendment No. 3 to the
registration statement on Form N-3 for Separate Account I of Washington National
Insurance Company (File No. 2-81129), filed with the Commission on May 20, 1985.

a6/ Incorporated herein by reference to Post-Effective Amendment No. 5 to the
registration statement on Form N-3 for Separate Account I of Washington National
Insurance Company (File No. 2-81129), filed with the Commission on March 2,
1987.

a7/ Incorporated herein by reference to Post-Effective Amendment No. 6 to the
registration statement on Form N-3 for Separate Account I of Washington National
Insurance Company (File No. 2-81129), filed with the Commission on April 22,
1987.

a8/ Incorporated herein by reference to Post-Effective Amendment No. 7 to the
registration statement on Form N-3 for Separate Account I of Washington National
Insurance Company (File No. 2-81129), filed with the Commission on April 29,
1988.

a9/ Incorporated herein by reference to Post-Effective Amendment No. 10 to the
registration statement on Form N-3 for Separate Account I of Washington National
Insurance Company (File No. 2-81129), filed with the Commission on April 27,
1990.

a10/ Incorporated herein by reference to Post-Effective Amendment No. 11 to the
registration statement on Form N-3 for Separate Account I of Washington National
Insurance Company (File No. 2-81129), filed with the Commission on April 29,
1991.

a11/ Incorporated herein by reference to Post-Effective Amendment No. 12 to the
registration statement on Form N-3 for Separate Account I of Washington National
Insurance Company (File No. 2-81129), filed with the Commission on April 30,
1992.

a12/ Incorporated herein by reference to Post-Effective Amendment No. 14 to the
registration statement on Form N-3 for Separate Account I of Washington National
Insurance Company (File No. 2-81129), filed with the Commission on April 26,
1994.

a13/ Incorporated herein by reference to Post-Effective Amendment No. 15 to the
registration statement on Form N-3 for Separate Account I of Washington National
Insurance Company (File No. 2-81129), filed with the Commission on April 25,
1995.


                                     C - 10

<PAGE>
b1/ Incorporated herein by reference to Pre-Effective Amendment No. 4 to the
registration statement on Form N-1A for Scudder Variable Life Investment Fund
(File No. 2-96461), filed with the Commission on July 11, 1985.

b2/ Incorporated herein by reference to Post-Effective Amendment No. 1 to the
registration statement on Form N-1A for Scudder Variable Life Investment Fund
(File No. 2-96461), filed with the Commission on January 2, 1986.

b3/ Incorporated herein by reference to Post-Effective Amendment No. 2 to the
registration statement on Form N-1A for Scudder Variable Life Investment Fund
(File No. 2-96461) filed with the Commission on March 3, 1986.

b4/ Incorporated herein by reference to Post-Effective Amendment No. 5 to the
registration statement on Form N-1A for Scudder Variable Life Investment Fund
(File No. 2-96461), filed with the Commission on January 30, 1987.

b5/ Incorporated herein by reference to Post-Effective Amendment No. 7 to the
registration statement on Form N-1A for Scudder Variable Life Investment Fund
(File No. 2-96461), filed with Commission on April 30, 1987.

b6/ Incorporated herein by reference to Post-Effective Amendment No. 8 to the
registration statement on Form N-1A for Scudder Variable Life Investment Fund
(File No. 2-96461), filed with Commission on March 4, 1988.

b7/ Incorporated herein by reference to Post-Effective Amendment No. 9 to the
registration statement on Form N-1A for Scudder Variable Life Investment Fund
(File No. 2-96461), filed with the Commission on March 3, 1989.

b8/ Incorporated herein by reference to Post-Effective Amendment No. 12 to the
registration statement on Form N-1A for Scudder Variable Life Investment Fund
(File No. 2-96461), filed with the Commission on March 2, 1992.

b9/ Incorporated herein by reference to Post-Effective Amendment No. 13 to the
registration statement on Form N-1A for Scudder Variable Life Investment Fund
(File No. 2-96461), filed with the Commission on March 2, 1993.

b10/ Incorporated herein by reference to Post-Effective Amendment No. 14 to the
registration statement on Form N-1A for Scudder Variable Life Investment Fund
(File No. 2-96461), filed with the Commission on March 2, 1994.

b11/ Incorporated herein by reference to Post-Effective Amendment No. 15 to the
registration statement on Form N-1A for Scudder Variable Life Investment Fund
(File No. 2-96461), filed with the Commission on November 1, 1994.

b12/ Incorporated herein by reference to the initial registration statement on
Form N-14 for Scudder Variable Life Investment Fund (File No. 33-45797), filed
with the Commission on February 18, 1992.


                                     C - 11

<PAGE>
Item 17. Undertakings.

(1) The undersigned registrant agrees that prior to any public reoffering of the
securities registered through the use of a prospectus which is a part of this
registration statement by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c) of the Securities Act [17 CFR 230.145c], the
reoffering prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.

(2) The undersigned registrant agrees that every prospectus that is filed under
paragraph (1) above will be filed as a part of an amendment to the registration
statement and will not be used until the amendment is effective, and that, in
determining any liability under the 1933 Act, each post-effective amendment
shall be deemed to be a new registration statement for the securities offered
therein, and the offering of the securities at that time shall be deemed to be
the initial bona fide offering of them.



                                     C - 12

<PAGE>

                                   SIGNATURES
                                   ----------

     As required by the Securities Act of 1933, this registration statement has
been signed on behalf of Separate Account I of Washington National Insurance
Company in the Village of Lincolnshire and State of Illinois on the 20th day of
September, 1995.

                                SEPARATE ACCOUNT I OF
                                WASHINGTON NATIONAL INSURANCE COMPANY



                                By: /s/ Craig R. Edwards
                                    ------------------------
                                   Craig R. Edwards, Secretary and Counsel

     As required by the Securities Act of 1933, this registration statement has
been signed by the following persons in the capacities and on the dates
indicated.

Signature                  Title                       Date
---------                  -----                       ----

_________________________* Chairman of the Board of    ________________
James E. Dresmal           Directors and Director
                           (Principal Executive,
                           Financial, and Accounting
                           Officer)

_________________________* Director                    ________________
Harry C. Benford, III

_________________________* Director                    ________________
George J. Cyrus, Jr.

/s/ Barbara Cremin         Director                    September  20 , 1995
_________________________
Barbara A. Cremin

_________________________* Director                    ________________
William P. Zeh




* By: /s/ Barbara Cremin
     ------------------------
     Barbara A. Cremin, Attorney-in-Fact and Agent, on September 20th, 1995,
     pursuant to the Power of Attorney filed as Exhibit 16(a) hereto.

<PAGE>



                                   SIGNATURES

     As required by the Securities Act of 1933, the Registrant has duly caused
this amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston and the
Commonwealth of Massachusetts on the 22nd day of September, 1995.


                                           SCUDDER VARIABLE LIFE INVESTMENT FUND



                                           By: /s/Thomas F. McDonough
                                                  Thomas F. McDonough, Secretary

     Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on N-14 has been signed below by the following persons in
the capacities and on the dates indicated. By so signing, each of the
undersigned in his capacity as a trustee or officer, or both, as the case may be
of the Registrant, does hereby appoint David S. Lee, Thomas F. McDonough and
Sheldon A. Jones and each of them, severally, or if more than one acts, a
majority of them, his true and lawful attorney and agent to execute in his name,
place and stead (in such capacity) any and all amendments to the Registration
Statement and any post-effective amendments thereto and all instruments
necessary or desirable in connection therewith, to attest the seal of the
Registrant thereon and to file the same with the Securities and Exchange
Commission. Each of said attorneys and agents shall have the power to act with
or without the other and have full power and authority to do and perform in the
name and on behalf of each of the undersigned, in any and all capacities, every
act whatsoever necessary or advisable to be done in the premises as fully and to
all intents and purposes as each of the undersigned might or could do in person,
hereby ratifying and approving the act of said attorneys and agents and each of
them.

<TABLE>
<CAPTION>
<C>                                          <C>                                        <C>
Signature                                     Title                                      Date



/s/David B. Watts                             President (Principal Executive Officer)     September 22, 1995
David B. Watts                                and Trustee



/s/Daniel Pierce                              Vice President and Trustee                  September 22, 1995
Daniel Pierce




/s/Dr. Kenneth Black, Jr.                     Trustee                                     September 22, 1995
Dr. Kenneth Black, Jr.



/s/Peter B. Freeman                           Trustee                                     September 22, 1995
Peter B. Freeman



/s/Dr. J. D. Hammond                          Trustee                                     September 22, 1995
Dr. J. D. Hammond



/s/Pamela A. McGrath                          Treasurer (Principal Financial and          September 22, 1995
Pamela A. McGrath                             Accounting Officer) and Vice President

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                                                   EXHIBIT INDEX

<C>                <C>                                                                                            <C>

Exhibit
Number                                                                                                             Page


(5)  (b)       Form of Participation Agreement between Scudder Variable Life  
               Investment Fund and Washington National Insurance Company    

(11) (a)       Opinion of counsel and consent to its use as to the legality of
               the securities being registered by Separate Account I of       
               Washington National Insurance Company                          

(12)           Opinion of counsel and consent to its use supporting the tax    
               matters and consequences to Contract Owners discussed in Part A
               of this registration statement                                 

(14) (a)       Consent of Ernst & Young LLP

(14) (b)       Consent of Coopers & Lybrand L.L.P.

(16) (a)       Powers of Attorney executed by certain Directors of Separate
               Account I of Washington National Insurance Company          

(17) (a)       Copy of earlier declaration by Separate Account I of Washington
               National Insurance Company registering an indefinite number of 
               securities pursuant to Rule 24f-2 under the Investment Company 
               Act of 1940                                                    

(17) (c)       Form of Reimbursement Agreement between Scudder, Stevens & Clark,
               Inc. and Washington National Insurance Company                   

</TABLE>


                                                                  Exhibit (5)(b)

                             PARTICIPATION AGREEMENT

         PARTICIPATION AGREEMENT (the "Agreement") made by and between SCUDDER
VARIABLE LIFE INVESTMENT FUND (the "Fund"), a Massachusetts business trust
created under a Declaration of Trust dated March 15, 1985, as amended, with a
principal place of business in Boston, Massachusetts and WASHINGTON NATIONAL
INSURANCE COMPANY, an Illinois corporation (the "Company"), with a principal
place of business in Lincolnshire, Illinois on behalf of Separate Account I, a
separate account of the Company, and any other separate account of the Company
as designated by the Company from time to time, upon written notice to the Fund
in accordance with Section 10 herein (each, an "Account").

         WHEREAS, the Fund acts as the investment vehicle for the separate
accounts established for variable life insurance policies and variable annuity
contracts (collectively referred to herein as "Variable Insurance Products") to
be offered by insurance companies which have entered into participation
agreements substantially identical to this Agreement ("Participating Insurance
Companies") and their affiliated insurance companies; and

         WHEREAS, the beneficial interest in the Fund is divided into several
series of shares of beneficial interest ("Shares"), and additional series of
Shares may be established, each designated a "Portfolio" and representing the
interest in a particular managed portfolio of securities; and

         WHEREAS, it is in the best interest of Participating Insurance
Companies to make capital contributions if required so that the annual expenses
of each Portfolio of the Fund in which a Participating Insurance Company is a

<PAGE>

shareholder will not exceed a fixed percentage of the Portfolio's average annual
net assets; and

         WHEREAS, the Parties desire to evidence their agreement as to certain
other matters,

         NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereto agree as
follows:

         1.       Additional Definitions.

         For the purposes of this Agreement, the following definitions shall
apply:

                  (a) The "expenses of a Portfolio" for any fiscal year shall
mean the expenses for such fiscal year as shown in the Statement of Operations
(or similar report) certified by the Fund's independent public accountants;

                  (b) A "Portfolio's average daily net assets" for each fiscal
year shall mean the sum of the net asset values determined throughout the year
for the purpose of determining net asset value per Share, divided by the number
of such determinations during such year;

                  (c) The Company's "Required Contribution" on behalf of the
Account in respect of a Portfolio for any fiscal year shall mean an amount equal
to the expenses of that Portfolio for such year minus the below-indicated
percentage of that Portfolio's average daily net assets for the year:

                International Portfolio. . . . . . . . . . 1.50%
                Each other Portfolio. . . . . . . . . . . . 0.75%

multiplied by a fraction the denominator of which is the average daily net
assets of that Portfolio and the numerator of which is the average daily net


                                       2
<PAGE>

asset value of the Shares of that Portfolio owned by the Account (referred to
herein as a "Participating Shareholder"). The Company's Required Contribution in
respect of a Portfolio shall be pro-rated based on the number of business days
on which this Agreement is in effect for periods of less than a fiscal year.

                  (d) The "average daily net asset value of the Shares of the
Portfolio" owned by the Account for any fiscal year of the Fund shall mean the
greater of (i) $500,000 or (ii) the sum of the aggregate net asset values of the
Shares so owned determined during the fiscal year, as of each determination of
the net asset value per Share, divided by the total number of determinations of
net asset value during such year.

                  (e)      "Shares" means shares of beneficial interest, without
par value, of any Portfolio, now or hereafter created, of the Fund.

         2.       Capital Contribution.

         The Company on behalf of the Account shall, within sixty days after the
end of each fiscal year of the Fund, make a capital contribution to the Fund in
respect of each Portfolio equal to the Required Contribution for that Portfolio
for such year; provided, however, that in the event that both clauses (i) and
(ii) of paragraph (d) of Section 1 of this Agreement or similar agreements are
applicable to different Participating Insurance Companies during the same fiscal
year, there shall be a proportionate reduction of the Required Contribution of
each Participating Insurance Company to which said clause (ii) is applicable so
that the total of all required capital contributions to the Fund on behalf of


                                       3
<PAGE>

any Portfolio is not greater than the excess of the expenses of that Portfolio
for that fiscal year less the percentage of that Portfolio's total expenses set
forth in paragraph (c) of Section 1 of this Agreement for such fiscal year.

         3.       Duty of Fund to Sell.

         The Fund shall make its Shares available for purchase at the applicable
net asset value per Share by Participating Insurance Companies and their
affiliates and separate accounts on those days on which the Fund calculates its
net asset value pursuant to rules of the Securities and Exchange Commission;
provided, however, that the Trustees of the Fund may refuse to sell Shares of
any Portfolio to any person, or suspend or terminate the offering of Shares of
any Portfolio, if such action is required by law or by regulatory authorities
having jurisdiction or is, in the sole discretion of the Trustees, necessary in
the best interest of the shareholders of any Portfolio.

         4.       Requirement to Execute Participation Agreement; Requests.

         Each Participating Insurance Company shall, prior to purchasing Shares
in the Fund, execute and deliver a participation agreement in a form
substantially identical to this Agreement.

         The Fund shall make available, upon written request from the
Participating Insurance Company given in accordance with Paragraph 10, to each
Participating Insurance Company which has executed an Agreement and which
Agreement has not been terminated pursuant to Paragraph 8 (i) a list of all
other Participating Insurance Companies, and (ii) a copy of the Agreement as
executed by any other Participating Insurance Company.

                                       4
<PAGE>

         The Fund shall also make available upon request to each Participating
Insurance Company which has executed an Agreement and which Agreement has not
been terminated pursuant to Paragraph 8, the net asset value of any Portfolio of
the Fund as of any date upon which the Fund calculates the net asset value of
its Portfolios for the purpose of purchase and redemption of Shares.

         5.       Indemnification.

         (a) The Company agrees to indemnify and hold harmless the Fund and each
of its Trustees and officers and each person, if any, who controls the Fund
within the meaning of Section 15 of the Securities Act of 1933 (the "Act")
against any and all losses, claims, damages, liabilities or litigation
(including legal and other expenses), arising out of the acquisition of any
Shares by any person, to which the Fund or such Trustees, officers or
controlling person may become subject under the Act, under any other statute, at
common law or otherwise, which (i) may be based upon any wrongful act by the
Company, any of its employees or representatives, any affiliate of or any person
acting on behalf of the Company or a principal underwriter of its insurance
products, or (ii) may be based upon any untrue statement or alleged untrue
statement of a material fact contained in a registration statement or prospectus
covering Shares or any amendment thereof or supplement thereto or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if such a
statement or omission was made in reliance upon information furnished to the
Fund by the Company, or (iii) may be based on any untrue statement or alleged
untrue statement of a material fact contained in a registration statement or


                                       5
<PAGE>

prospectus covering insurance products sold by the Company or any insurance
company which is an affiliate thereof, or any amendments or supplement thereto,
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statement or statements therein not
misleading, unless such statement or omission was made in reliance upon
information furnished to the Company or such affiliate by or on behalf of the
Fund; provided, however, that in no case (i) is the Company's indemnity in favor
of a Trustee or officer or any other person deemed to protect such Trustee or
officer or other person against any liability to which any such person would
otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of his duties or by reason of his reckless
disregard of obligations and duties under this Agreement or (ii) is the Company
to be liable under its indemnity agreement contained in this Paragraph 5 with
respect to any claim made against the Fund or any person indemnified unless the
Fund or such person, as the case may be, shall have notified the Company in
writing pursuant to Paragraph 10 within a reasonable time after the summons or
other first legal process giving information of the nature of the claims shall
have been served upon the Fund or upon such person (or after the Fund or such
person shall have received notice of such service on any designated agent), but
failure to notify the Company of any such claim shall not relieve the Company
from any liability which it has to the Fund or any person against whom such
action is brought otherwise than on account of its indemnity agreement contained
in this Paragraph 5. The Company shall be entitled to participate, at its own


                                       6
<PAGE>

expense, in the defense, or, if it so elects, to assume the defense of any suit
brought to enforce any such liability, but, if it elects to assume the defense,
such defense shall be conducted by counsel chosen by it and satisfactory to the
Fund, to its officers and Trustees, or to any controlling person or persons,
defendant or defendants in the suit. In the event that the Company elects to
assume the defense of any such suit and retain such counsel, the Fund, such
officers and Trustees or controlling person or persons, defendant or defendants
in the suit, shall bear the fees and expenses of any additional counsel retained
by them, but, in case the Company does not elect to assume the defense of any
such suit, the Company will reimburse the Fund, such officers and Trustees or
controlling person or persons, defendant or defendants in such suit, for the
reasonable fees and expenses of any counsel retained by them. The Company agrees
promptly to notify the Fund pursuant to Paragraph 10 of the commencement of any
litigation or proceedings against it in connection with the issue and sale of
any Shares.

         (b) The Fund agrees to indemnify and hold harmless the Company and each
of its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the Act against any and all losses, claims,
damages, liabilities or litigation (including legal and other expenses) to which
it or such directors, officers or controlling person may become subject under
the Act, under any other statute, at common law or otherwise, arising out of the
acquisition of any Shares by any person which (i) may be based upon any wrongful
act by the Fund, any of its employees or representatives or a principal


                                       7
<PAGE>

underwriter of the Fund, or (ii) may be based upon any untrue statement or
alleged untrue statement of a material fact contained in a registration
statement or prospectus covering Shares or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading unless such statement or omission was made in reliance upon
information furnished to the Fund by the Company or (iii) may be based on any
untrue statement or alleged untrue statement of a material fact contained in a
registration statement or prospectus covering insurance products sold by the
Company, or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information furnished to the
Company by or on behalf of the Fund; provided, however, that in no case (i) is
the Fund's indemnity in favor of a director or officer or any other person
deemed to protect such director or officer or other person against any liability
to which any such person would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of his duties or
by reason of his reckless disregard of obligations and duties under this
Agreement or (ii) is the Fund to be liable under its indemnity agreement
contained in this Paragraph 5 with respect to any claims made against the
Company or any such director, officer or controlling person unless it or such
director, officer or controlling person, as the case may be, shall have notified
the Fund in writing pursuant to Paragraph 10 within a reasonable time after the


                                       8
<PAGE>

summons or other first legal process giving information of the nature of the
claim shall have been served upon it or upon such director, officer or
controlling person (or after the Company or such director, officer or
controlling person shall have received notice of such service on any designated
agent), but failure to notify the Fund of any claim shall not relieve it from
any liability which it may have to the person against whom such action is
brought otherwise than on account of its indemnity agreement contained in this
Paragraph. The Fund will be entitled to participate at its own expense in the
defense, or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but if the Fund elects to assume the defense, such
defense shall be conducted by counsel chosen by it and satisfactory to the
Company, its directors, officers or controlling person or persons, defendant or
defendants, in the suit. In the event the Fund elects to assume the defense of
any such suit and retain such counsel, the Company, its directors, officers or
controlling person or persons, defendant or defendants in the suit, shall bear
the fees and expenses of any additional counsel retained by them, but, in case
the Fund does not elect to assume the defense of any such suit, it will
reimburse the Company or such directors, officers or controlling person or
persons, defendant or defendants in the suit, for the reasonable fees and
expenses of any counsel retained by them. The Fund agrees promptly to notify the
Company pursuant to Paragraph 10 of the commencement of any litigation or
proceedings against it or any of its officers or Trustees in connection with the
issuance or sale of any Shares.

                                       9
<PAGE>

         6.       Procedure for Resolving Irreconcilable Conflicts.

                  (a) The Trustees of the Fund will monitor the operations of
the Fund for the existence of any material irreconcilable conflict among the
interests of all the contract holders and policy owners of Variable Insurance
Products (the "Participants") of all separate accounts investing in the Fund. An
irreconcilable material conflict may arise, among other things, from: (a) an
action by any state insurance regulatory authority; (b) a change in applicable
insurance laws or regulations; (c) a tax ruling or provision of the Internal
Revenue Code or the regulations thereunder; (d) any other development relating
to the tax treatment of insurers, contract holders or policy owners or
beneficiaries of Variable Insurance Products; (e) the manner in which the
investments of any Portfolio are being managed; (f) a difference in voting
instructions given by variable annuity contract holders, on the one hand, and
variable life insurance policy owners, on the other hand, or by the contract
holders or policy owners of different participating insurance companies; or (g)
a decision by an insurer to override the voting instructions of Participants.

         (b) The Company will be responsible for reporting any potential or
existing conflicts to the Trustees of the Fund. The Company will be responsible
for assisting the Trustees in carrying out their responsibilities under this
Paragraph 6(b) and Paragraph 6(a), by providing the Trustees with all
information reasonably necessary for the Trustees to consider the issues raised.
The Fund will also request its investment adviser to report to the Trustees any
such conflict which comes to the attention of the adviser.

                                       10
<PAGE>

         (c) If it is determined by a majority of the Trustees of the Fund, or a
majority of its disinterested Trustees, that a material irreconcilable conflict
exists involving the Company, the Company shall, at its expense, and to the
extent reasonably practicable (as determined by a majority of the disinterested
Trustees), take whatever steps are necessary to eliminate the irreconcilable
material conflict, including withdrawing the assets allocable to some or all of
the separate accounts from the Fund or any Portfolio and reinvesting such assets
in a different investment medium, including another Portfolio of the Fund,
offering to the affected Participants the option of making such a change or
establishing a new funding medium including a registered investment company.

         For purposes of this Paragraph 6(c), the Trustees, or the disinterested
Trustees, shall determine whether or not any proposed action adequately remedies
any irreconcilable material conflict. In the event of a determination of the
existence of an irreconcilable material conflict, the Trustees shall cause the
Fund to take such action, such as the establishment of one or more additional
Portfolios, as they in their sole discretion determine to be in the interest of
all shareholders and Participants in view of all applicable factors, such as
cost, feasibility, tax, regulatory and other considerations. In no event will
the Fund be required by this Paragraph 6(c) to establish a new funding medium
for any variable contract or policy.

         The Company shall not be required by this Paragraph 6(c) to establish a
new funding medium for any variable contract or policy if an offer to do so has
been declined by a vote of a majority of the Participants materially adversely


                                       11
<PAGE>

affected by the material irreconcilable conflict. The Company will recommend to
its Participants that they decline an offer to establish a new funding medium
only if the Company believes it is in the best interest of the Participants.

         (d) The Trustees' determination of the existence of an irreconcilable
material conflict and its implications promptly shall be communicated to all
Participating Insurance Companies by written notice thereof delivered or mailed,
first class postage prepaid.

         7.       Voting Privileges.

         The Company shall be responsible for assuring that its separate account
or accounts participating in the Fund shall use a calculation method of voting
procedures substantially the same as the following: those Participants permitted
to give instructions and the number of Shares for which instructions may be
given will be determined as of the record date for the Fund shareholders'
meeting, which shall not be more than 60 days before the date of the meeting.
Whether or not voting instructions are actually given by a particular
Participant, all Fund shares held in any separate account or sub-account thereof
and attributable to policies will be voted for, against, or withheld from voting
on any proposition in the same proportion as (i) the aggregate record date cash
value held in such sub-account for policies giving instructions, respectively,
to vote for, against, or withhold votes on such proposition, bears to (ii) the
aggregate record date cash value held in the sub-account for all policies for
which voting instructions are received. Participants continued in effect under
lapse options will not be permitted to give voting instructions. Shares held in


                                       12
<PAGE>

any other insurance company general or separate account or sub-account thereof
will be voted in the proportion specified in the second preceding sentence for
shares attributable to policies.

         8.       Duration and Termination.

         This Agreement shall remain in force for the period ending five years
from the date of its execution (such date and any anniversary of such date being
hereinafter called a "Renegotiation Date"), and from year to year thereafter
provided that neither the Company nor the Fund shall have given written notice
to the other within thirty (30) days prior to a Renegotiation Date that it
desires to renegotiate the amount of contribution to capital due hereunder
("Renegotiation Notice"). If a Renegotiation Notice is properly given as
aforesaid and the Fund and the Company shall fail, within sixty (60) days after
the Renegotiation Date, either to enter into an amendment to this Agreement or a
written acknowledgment that the Agreement shall continue in effect, this
Agreement shall terminate as of the one hundred twentieth day after such
Renegotiation Date. If this Agreement is so terminated, the Fund may, at any
time thereafter, automatically redeem the Shares of any Portfolio held by a
Participating Shareholder. This Agreement may be terminated at any time, at the
option of either of the Company or the Fund, when neither the Company, any
insurance company nor the separate account or accounts of such insurance company
which is an affiliate thereof which is not a Participating Insurance Company own
any Shares of the Fund or may be terminated by either party to the Agreement
upon a determination by a majority of the Trustees of the Fund, or a majority of


                                       13
<PAGE>

its disinterested Trustees, following certification thereof by a Participating
Insurance Company given in accordance with Paragraph 10 that an irreconcilable
conflict exists among the interests of (i) all contract holders and policy
holders of Variable Insurance Products of all separate accounts or (ii) the
interests of the Participating Insurance Companies investing in the Fund.
Notwithstanding anything to the contrary in this Agreement or its termination as
provided herein, the Company's obligation to make a capital contribution to the
Fund in accordance with this Agreement at the time in effect shall continue (i)
following a properly given Renegotiation Notice, in the absence of agreement
otherwise, until termination of this Agreement, and (ii) (except termination due
to the existence of an irreconcilable conflict), following termination of this
Agreement, until the later of the fifth anniversary of the date of this
Agreement or the date on which the Company, its separate account(s) or the
separate account(s) of any affiliated insurance company owns no Shares.

         9.       Compliance.

         The Fund will comply with the provisions of Section 4240(a) of the New
York Insurance Law.

         Each Portfolio of the Fund will comply with the provisions of Section
817(h) of the Internal Revenue Code of 1986, as amended (the "Code"), relating
to diversification requirements for variable annuity, endowment and life
insurance contracts. Specifically, each Portfolio will comply with either (i)
the requirement of Section 817(h)(1) of the Code that its assets be adequately
diversified, or (ii) the "Safe Harbor for Diversification" specified in Section
817(h)(2) of the Code, or (iii) the diversification requirement of Section


                                       14
<PAGE>

817(h)(1) of the Code by having all or part of its assets invested in U.S.
Treasury securities which qualify for the "Special Rule for Investments in
United States Obligations" specified in Section 817(h)(3) of the Code.

         The provisions of Paragraphs 6 and 7 of this Agreement shall be
interpreted in a manner consistent with any Rule or order of the Securities and
Exchange Commission under the Investment Company Act of 1940, as amended,
applicable to the parties hereto.

         No Shares of any Portfolio of the Fund may be sold to the general
public.

         10.      Notices.

         Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.

         If to the Fund:

                  Scudder Variable Life Investment Fund
                  Two International Place
                  Boston, Massachusetts  02110
                  (617) 295-2275
                  Attn:  David B. Watts

         If to the Company:

                  Washington National Insurance Company
                  300 Tower Parkway
                  Lincolnshire, Illinois  60069
                  Attn:  Thomas Scott

                                       15
<PAGE>

         11.      Massachusetts Law to Apply.

         This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of The Commonwealth of Massachusetts.

         12.      Miscellaneous.

         The name "Scudder Variable Life Investment Fund" is the designation of
the Trustees for the time being under a Declaration of Trust dated March 15,
1985, as amended, and all persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Trustees, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund. No Portfolio shall
be liable for any obligations properly attributable to any other Portfolio.

         The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which taken together shall
constitute one and the same instrument.

         13.      Entire Agreement.

         This Agreement incorporates the entire understanding and agreement
among the parties hereto, and supersedes any and all prior understandings and
agreements between the parties hereto with respect to the subject matter hereof.

                                       16
<PAGE>

         IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the ____ day of
___________, 1995.



SEAL                                    SCUDDER VARIABLE LIFE
                                          INVESTMENT FUND


                                        By:________________________________
                                            David B. Watts
                                            President


SEAL                                    WASHINGTON NATIONAL INSURANCE COMPANY




                                        By:________________________________

                                        Its:_______________________________






                                       17



                                                                 Exhibit (11)(a)


September 13, 1995


Board of Directors
Washington National Insurance Company
300 Tower Parkway
Lincolnshire, IL 60069

Gentlemen:

This opinion is furnished in  connection  with the  registration  by  Washington
National Insurance Company  ("Washington  National") under the Securities Act of
1933,  as amended  (the  "Act"),  of an  indefinite  amount of units of interest
("Units")  under  variable  annuity  contracts (the  "Contracts")  in Washington
National  Insurance  Company  Separate Account I (the "Separate  Account").  The
securities  are being  registered  under the Act by the filing of a registration
statement  (File No. ) (the  "Registration  Statement")  in connection  with the
reorganization  (the  "Reorganization")  of  the  Separate  Account  into a unit
investment trust.

I am the Vice President,  Corporate Counsel and Secretary of Washington National
and in such  capacity I am  familiar  with  Washington  National's  Articles  of
Incorporation and By-Laws and have reviewed all statements, records, instruments
and  documents  which I have deemed it  necessary  to examine for the purpose of
this  opinion.  I have examined the form of  registration  statement to be filed
with the Securities and Exchange  Commission on Form N-14 in connection with the
registration,  under  the  Act,  of an  indefinite  number  of Units  under  the
Contracts  to  be  issued  by  the  Separate  Account  in  connection  with  the
Reorganization.  I am familiar  with the  proceedings  taken and  proposed to be
taken in  connection  with the  authorization,  issuance  and sale of the Units.
Based  upon  a  review  of  these  documents  and  such  laws  that  I  consider
appropriate, I am of the opinion that:

         1. Washington  National and the Separate Account are validly  organized
         and in good  standing  under the laws of the State of Illinois  and are
         fully  empowered  and  qualified  to carry  out their  business  in all
         jurisdictions  where they do so,  including to enter into the Agreement
         and Plan of Reorganization (the "Agreement") that appears as Appendix A
         to the Registration Statement and effect the transactions  contemplated
         thereby.

         2. All  corporate  and other  proceedings  necessary and required to be
         taken by on the part of Washington National and the Separate Account to
         authorize and carry out the Agreement and to effect the  Reorganization
         have been duly and properly taken.

<PAGE>

Board of Directors
September 13, 1995
Page 2



         3. The Agreement is a valid obligation of Washington National and the
         Separate Account, and legally binding upon them in accordance with its
         terms.

         4. The Units to be issued  pursuant to the terms of the Agreement  have
         been duly  authorized  and,  when  issued  and  delivered  as  provided
         therein, will be validly issued, fully paid and non-assessable.

I hereby  consent to the use of this  opinion as an exhibit to the  Registration
Statement.

Respectfully submitted,


/s/Craig R. Edwards
Craig R. Edwards
Vice President, Corporate
Counsel and Secretary


                                                                      Exhibit 12


September 20, 1995



Board of Directors
Washington National Insurance Company
300 Tower Parkway
Lincolnshire, IL 60069


Re:      Reorganization of Separate Account I


Gentlemen:

I am Vice  President,  Corporate  Counsel and Secretary of  Washington  National
Insurance Company, an Illinois Corporation, and am authorized to practice law in
the state of Illinois. I have acted as counsel for Washington National Insurance
Company in connection  with the transfer of the assets of Separate  Account I to
the Scudder Variable Life Investment Fund and the  reorganization of the Account
into a unit investment trust (the "Transaction").

As such counsel, I have reviewed copies of the applicable annuity contracts, the
Form N-14  Registration  Statement,  the Asset  Transfer  Agreement  and Plan of
Reorganization,  and examined such other documents, made investigations of fact,
and considered such questions of law as, in my judgment,  have been necessary to
enable me to render this opinion.  Based upon the foregoing, I am of the opinion
that the transaction  will result in no adverse tax consequences to the contract
holders of annuity contracts issued through Separate Account I.

My opinion is based upon  existing  provisions  of the Internal  Revenue Code of
1986,  as amended  (the  "Code"),  existing  and  currently  effective  Treasury
Regulations  promulgated under the Code,  applicable  legislative history of the
Code, and existing  judicial  decisions and present  administrative  rulings and
practices,  all of which are subject to change and differing  interpretations at
any time.  Any change in the state of existing tax law may render  inaccurate my
opinion.
<PAGE>

Board of Directors
September 20, 1995
Page 2


I  hereby  consent  to the  inclusion  of this  opinion  as an  exhibit  to this
Registration Statement on Form N-14.

Respectfully submitted,



Craig R. Edwards

CRE/sr





               Consent of Ernst & Young LLP, Independent Auditors



We  consent to the  reference  to our firm under the  caption  "Experts"  in the
Statement of Additional Information of Separate Account I of Washington National
Insurance  Company (Separate Account I) dated May 1, 1995, which is incorporated
by  reference  in the  Registration  Statement  (Form  N-14) and  related  proxy
statement/prospectus  of Separate Account I for the  reorganization  of Separate
Account I from a management investment company to a unit investment trust.

We also consent to the  incorporation  by reference  therein of our report dated
February 3, 1995,  with respect to the financial  statements  and  supplementary
information of Separate  Account I for the year ended December 31, 1994, and our
report  dated  February 13, 1995,  with  respect to the  consolidated  financial
statements of Washington  National  Insurance  Company and  subsidiaries for the
year ended December 31, 1994,  which are included in the Statement of Additional
Information of Separate  Account I dated May 1, 1995,  filed with the Securities
and Exchange Commission.






                                              /s/ Ernst & Young LLP



Chicago, Illinois
September 15, 1995



                                                                 Exhibit (14)(b)

                       CONSENT OF INDEPENDENT ACCOUNTANTS

To The Trustees of Scudder
     Variable Life Investment Fund:

     We consent to the inclusion in the Registration Statement of Scudder
Variable Life Investment Fund on Form N-14 of our report dated February 3, 1995
on our audit of the financial statements and financial highlights of Scudder
Variable Life Investment Fund which report is included in the Annual Report to
Shareholders for the year ended December 31,1994 which is included in the
Registration Statement.

                                             /s/Coopers & Lybrand, L.L.P.
Boston, Massachusetts                           Coopers & Lybrand, L.L.P.
September 21, 1995



                                                                 Exhibit (16)(a)


                               POWER OF ATTORNEY



         Each of the undersigned directors and officers of Separate Account I of
Washington  National  Insurance Company hereby constitutes and appoints James E.
Dresmal  and  Barbara  A.  Cremin,  and  each  of  them,  his  true  and  lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for him and in his name,  place and stead, in any and all capacities,  to do any
and  all  acts  and  things  and to  sign  any  and  all  documents  which  said
attorneys-in-fact  or agents deem  necessary  or  desirable  to enable  Separate
Account I to comply with the Securities  Act of 1933 and the Investment  Company
Act of 1940 and any  regulations of the Securities and Exchange  Commission with
respect to such Acts, including specifically but without limiting the generality
of the  foregoing,  power and  authority to sign the name or names of any one or
more of Separate  Account I and the  undersigned  directors  and officers to any
documents  filed as a part of or in connection  with any filing  required by the
Securities  Act of 1933 or the Investment  Company Act of 1940 and  regulations,
thereunder,  any and all exhibits or amendments to any such filings, and each of
the undersigned hereby ratifies and confirms all that said attorneys-in-fact and
agents shall do or cause to be done by virtue hereof.

         IN  WITNESS  WHEREOF,  the  undersigned  have  executed  this  POWER OF
ATTORNEY dated May 13, 1993 in or more counterparts.



Signature                           Title                          Date
---------                           -----                          ----


/s/ James E. Dresmal                Chairman of the Board      May 13, 1993
------------------------
James E. Dresmal



/s/ Harry C. Benford                Director                   May 13, 1993
------------------------
Harry C. Benford, III



/s/ Barbara Cremin                  Director                   May 13, 1993
------------------------
Barbara A. Cremin



/s/ George J. Cyrus, Jr.            Director                   May 13, 1993
------------------------
George J. Cyrus, Jr.



/s/ William P. Zeh                  Director                   May 13, 1993
------------------------
William P. Zeh



                                                                 Exhibit (17)(a)



                                             1933 Act Registration No. 2-
                                             1940 Act Registration No. 811-
  ----------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON D.C. 20549

                                    FORM N-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933             /X /
                                                                                
         Pre-Effective Amendment No. ________                       /  /

         Post-Effective Amendment No. ________                      /  /

                                     and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940     /X /

         Amendment No. ________                                     /  /
                (Check appropriate box or boxes)

           SEPARATE ACCOUNT I OF WASHINGTON NATIONAL INSURANCE COMPANY 
               (Exact name of Registrant as Specified in Charter)

                  1630 Chicago Avenue, Evanston, Illinois 60201
               (Address of Principal Executive Offices) (Zip Code)

       Registrant's Telephone Number, including Area Code: (312) 866-3000

                             Patricia T. Kuehn, Esq.
                      Washington National Insurance Company
                               1630 Chicago Avenue
                            Evanston, Illinois 60201
                     (Name and Address of Agent for Service)

                                    Copy to:
                             Stuart L. Goodman, Esq.
                              Schiff Hardin & Waite
                                7200 Sears Tower
                             233 South Wacker Drive
                             Chicago, Illinois 60606

          -----------------------------------------------------------
                  Approximate date of proposed public offering:
             As soon as practicable after the Registration Statement
               under the Securities Act of 1933 becomes effective.
          -----------------------------------------------------------

                  Declaration required by Rule 24f-2: An indefinite amount of
securities of the Registrant is being registered by this Registration Statement.


                  The Registrant hereby amends this Registration Statement under
the Securities Act of 1933 on such date or dates as may be necessary to delay
its effective date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933 or until
the Registration Statement shall become effective on such date as the
Commission, acting pursuant to Section 8(a), may determine.
--------------------------------------------------------------------------------


                                                                 Exhibit (17)(c)


                             REIMBURSEMENT AGREEMENT


         REIMBURSEMENT AGREEMENT (the "Agreement") made by and between SCUDDER,
STEVENS & CLARK, INC., a Delaware corporation ("SS&C"), with a principal place
of business in Boston, Massachusetts and WASHINGTON NATIONAL INSURANCE COMPANY,
an Illinois corporation (the "Company"), with a principal place of business in
Lincolnshire, Illinois on behalf of the Separate Account I, a separate account
of the Company, and any other separate account of the Company as designated by
the Company from time to time, upon written notice to the Fund in accordance
with Section 8 herein (the "Account").

         WHEREAS, SS&C has caused to be organized Scudder Variable Life
Investment Fund (the "Fund"), a Massachusetts business trust created under a
Declaration of Trust dated March 15, 1985, as amended, the beneficial interest
in which is divided into several series, each designated a "Portfolio" and
representing the interest in a particular managed portfolio of securities; and

         WHEREAS, the purpose of the Fund is to act as the investment vehicle
for the separate accounts established for variable life insurance policies and
variable annuity contracts to be offered by insurance companies which have
entered into reimbursement agreements substantially identical to this Agreement;
and

         WHEREAS, the parties desire to express their agreement as to certain
other matters;

         NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereto agree as
follows:

         1.       Additional Definitions.
<PAGE>

         For purposes of this Agreement, the following definitions shall apply:

                  (a) "Shares" means shares of beneficial interest, without par
                  value, of any Portfolio, now or hereafter created, of the
                  Fund.

         2.       Access to Other Products.

         SS&C shall permit a Participating Shareholder to participate in any
registered investment company other than the Fund which is intended as the
funding vehicle for insurance products and for which SS&C or an affiliate of
SS&C acts as investment adviser, on the same basis as other insurance companies
are permitted to participate in such a registered investment company. This
provision shall not require SS&C to make available to the Company shares of any
investment company which is organized solely as the funding vehicle for
insurance products offered by a single insurance company or a group of
affiliated insurance companies.

         3.       Right to Review and Approve Sales Materials.

         The Company shall furnish, or shall cause to be furnished, to SS&C or
its designee, at least twenty days prior to its intended use, each piece of
promotional material in which SS&C or the Fund is named. No such material shall
be used unless SS&C or its designee shall have approved such use in writing, or
twenty days shall have elapsed without approval, rejection or objection since
receipt by SS&C or its designee of such material.

         SS&C shall furnish, or shall cause to be furnished, to the Company or
its designee, at least twenty days prior to its intended use, each piece of
promotional material in which the Company or its separate account(s) is named.
No such material shall be used unless the Company or its designee shall have


                                       2
<PAGE>

approved such use in writing, or twenty days shall have elapsed without
approval, rejection or objection since receipt by the Company or its designee of
such material.

         4.       Sales Organization Meetings.

         Representatives of SS&C or its designee shall meet with the sales
organizations of the Company at such reasonable times and places as may be
agreed upon by the Company and SS&C or its designee for the purpose of educating
sales personnel about the Fund.

         5.       Duration.

         This Agreement shall continue in effect for five (5) years from the
date of its execution, except that the obligation of each party hereto to
indemnify the other party hereto shall continue with respect to all losses,
claims, damages, liabilities or litigation based upon the acquisition of Shares
purchased as the funding vehicle for any variable life insurance policy or
variable annuity contract issued by the Company or any affiliated insurance
company.

         6.       Indemnification.

         (a) The Company agrees to indemnify and hold harmless SS&C and each of
its directors and officers and each person, if any, who controls SS&C within the
meaning of Section 15 of the Securities Act of 1933 (the "Act") or any person,
controlled by or under common control with SS&C ("affiliate") against any and
all losses, claims, damages, liabilities or litigation (including legal and
other expenses) to which SS&C or such directors, officers or controlling person
may become subject under the Act, under any other statute, at common law or


                                       3
<PAGE>

otherwise, arising out of the acquisition of any Shares by any person which (i)
may be based upon any wrongful act by the Company, any of its employees or
representatives, any affiliate of or any person acting on behalf of the Company
or a principal underwriter of its insurance products, or (ii) may be based upon
any untrue statement or alleged untrue statement of a material fact contained in
a registration statement or prospectus covering Shares or any amendment thereof
or supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading if such a statement or omission was made in reliance upon
information furnished to SS&C or the Fund by the Company, provided, however,
that in no case (i) is the Company's indemnity in favor of a director or officer
or any other person deemed to protect such director or officer or other person
against any liability to which any such person would otherwise be subject by
reason of willful misfeasance, bad faith, or gross negligence in the performance
of his duties or by reason of his reckless disregard of obligations and duties
under this Agreement or (ii) is the Company to be liable under its indemnity
agreement contained in this Paragraph 6 with respect to any claim made against
SS&C or any person indemnified unless SS&C or such person, as the case may be,
shall have notified the Company in writing pursuant to Paragraph 8 within a
reasonable time after the summons or other first legal process giving
information of the nature of the claims shall have been served upon SS&C or upon
such person (or after SS&C or such person shall have received notice of such
service on any designated agent), but failure to notify the Company of any such


                                       4
<PAGE>

claim shall not relieve the Company from any liability which it has to SS&C or
any person against whom such action is brought otherwise than on account of the
indemnity agreement contained in this Paragraph 6. The Company shall be entitled
to participate, at its own expense, in the defense, or, if it so elects, to
assume the defense of any suit brought to enforce any such liability, but, if it
elects to assume the defense, such defense shall be conducted by counsel chosen
by it and satisfactory to SS&C, to its officers and directors, or to any
controlling person or persons, defendant or defendants in the suit. In the event
that the Company elects to assume the defense of any such suit and retain such
counsel, SS&C, such officers and directors or controlling person or persons,
defendant or defendants in the suit, shall bear the fees and expenses of any
additional counsel retained by them, but, in case the Company does not elect to
assume the defense of any such suit, the Company will reimburse SS&C, such
officers and directors or controlling person or persons, defendant or defendants
in such suit, for the reasonable fees and expenses of any counsel retained by
them. The Company agrees promptly to notify SS&C pursuant to Paragraph 8 of the
commencement of any litigation or proceedings against it in connection with the
issue and sale of any Shares.

         (b) SS&C agrees to indemnify and hold harmless the Company and each of
its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the Act against any and all losses, claims,
damages, liabilities or litigation (including legal and other expenses) to which
it or such directors, officers or controlling persons may become subject under


                                       5
<PAGE>

the Act, under any other statute, at common law or otherwise, arising out of the
acquisition of any Shares by any person which (i) may be based upon any wrongful
act by SS&C, any of its employees or representatives or a principal underwriter
of the Fund, or (ii) may be based upon any untrue statement or alleged untrue
statement of a material fact contained in a registration statement or prospectus
covering Shares or any amendment thereof or supplement thereto or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if such
statement or omission was made in reliance upon information furnished to the
Company by SS&C; provided, however, that in no case (i) is SS&C's indemnity in
favor of a director or officer or any other person deemed to protect such
director or officer or other person against any liability to which any such
person would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence in the performance of his duties or by reason of his
reckless disregard of obligations and duties under this Agreement or (ii) is
SS&C to be liable under its indemnity agreement contained in this Paragraph 6
with respect to any claims made against the Company or any such director,
officer or controlling person unless it or such director, officer or controlling
person, as the case may be, shall have notified SS&C in writing pursuant to
Paragraph 8 within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon it or upon such director, officer or controlling person (or after the
Company or such director, officer or controlling person shall have received
notice of such service on any designated agent), but failure to notify SS&C of


                                       6
<PAGE>

any claim shall not relieve it from any liability which it may have to the
person against whom such action is brought otherwise than on account of its
indemnity agreement contained in this Paragraph 6. SS&C will be entitled to
participate at its own expense in the defense, or, if it so elects, to assume
the defense of any suit brought to enforce any such liability, but if SS&C
elects to assume the defense, such defense shall be conducted by counsel chosen
by it and satisfactory to the Company, its directors, officers or controlling
person or persons, defendant or defendants, in the suit. In the event SS&C
elects to assume the defense of any such suit and retain such counsel, the
Company, its directors, officers or controlling person or persons, defendant or
defendants in the suit, shall bear the fees and expenses of any additional
counsel retained by them, but, in case SS&C does not elect to assume the defense
of any such suit, it will reimburse the Company or such directors, officers or
controlling person or persons, defendant or defendants in the suit, for the
reasonable fees and expenses of any counsel retained by them. SS&C agrees
promptly to notify the Company pursuant to Paragraph 8 of the commencement of
any litigation or proceedings against it or any of its officers or directors in
connection with the issuance or sale of any Shares.

         (c) SS&C agrees to indemnify and hold harmless the Company and each of
its directors and officers against any and all losses, claims, damages,
liabilities or litigation arising from the imposition of additional federal
income taxes on the Company or any policyholder solely as a result of a Final
Determination that any Portfolio has failed (x) to comply with the


                                       7
<PAGE>

diversification requirements of section 817(h) of the Internal Revenue Code of
1986, as amended (the "Code"), relating to the diversification requirements for
variable annuity, endowment and life insurance contracts, or (y) to qualify as a
regulated investment company within the meaning of section 851 of the Code;
provided, however, that (i) SS&C shall have no liability under this Paragraph
6(c) if such failure is caused by a third party who is not an employee or agent
of SS&C (e.g., the Fund's custodian or another service provider), and (ii) in no
case is SS&C's indemnity under this Paragraph 6(c) deemed to protect any person
against any liability to which that person would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence in the performance of that
person's duties or by reason of reckless disregard by that person of obligations
under this Agreement.

                  The Company agrees that if the Internal Revenue Service
asserts in writing in connection with any governmental audit or review of the
Company or, to the Company's knowledge, of any policyholder, that any Portfolio
has failed to comply with the diversification requirements of section 817(h) of
the Code or the Company otherwise becomes aware of any facts that could give
rise to any claim against SS&C as a result of such a failure or alleged failure,
(i) the Company shall promptly notify SS&C of such assertion or potential claim;
(ii) the Company shall consult with SS&C as to how to minimize any liability
that may arise as a result of such failure or alleged failure; (iii) the Company
shall use its best efforts to minimize any liability of SS&C for indemnification
resulting from such failure, including, without limitation, demonstrating,
pursuant to Treasury Regulations Section 1.817-5(a) (2), to the Commissioner of


                                       8
<PAGE>

the Internal Revenue Service that such failure was inadvertent; (iv) the Company
shall permit SS&C and its legal and accounting advisors to participate in any
conferences, settlement discussions or other administrative or judicial
proceedings or contests (including judicial appeals thereof) with the Internal
Revenue Service, any policyholder or any other claimant regarding any claims
that could give rise to indemnification by SS&C as a result of such a failure or
alleged failure; (v) any written materials to be submitted by the Company to the
Internal Revenue Service, any policyholder or any other claimant in connection
with any of the foregoing proceedings or contests (including, without
limitation, any such materials to be submitted to the Internal Revenue Service
pursuant to Treasury Regulations Section 1.817-5(a) (2)), (a) shall be provided
by the Company to SS&C (together with any supporting information or analysis) at
least 10 business days prior to the day on which such proposed materials are to
be submitted and (b) shall not be submitted by the Company to any such person
without the express written consent of SS&C, which shall not be unreasonably
withheld; (vi) the Company shall provide SS&C and its advisors with such
cooperation as SS&C shall reasonably request (including, without limitation, by
permitting SS&C and its accounting and legal advisors to review the relevant
books and records of the Company) in order to facilitate SS&C's review of any
written submissions provided to it pursuant to the preceding clause or its
assessment of the validity or amount of any claim against it arising from such a
failure or alleged failure; (vii) the Company shall not with respect to any
claim of the IRS or any policyholder that would give rise to a claim for


                                       9
<PAGE>

indemnification against SS&C (a) compromise or settle any claim, (b) accept any
adjustment on audit, or (c) forego any allowable judicial appeals, without the
express written consent of SS&C, which shall not be unreasonably withheld,
provided that the Company shall not be required to appeal any adverse judicial
decision unless SS&C shall have provided an opinion of independent counsel to
the effect that a reasonable basis (consistent with Formal Opinion 85-352 of the
American Bar Association) exists for taking such appeal; and (viii) SS&C shall
have no liability as a result of such failure or alleged failure if the Company
fails to comply with any of the foregoing clauses (i) through (vii). Should SS&C
refuse to give its written consent to any compromise or settlement of any claim
or liability hereunder, the Company may, in its discretion, authorize SS&C to
act in the name of the Company in, and to control the conduct of, such
conferences, discussions, proceedings, contests or appeals and all
administrative or judicial appeals thereof, and in that event SS&C shall bear
the fees and expenses associated with the conduct of the proceedings that it is
so authorized to control.

         For purposes of this Paragraph 6(c), "Final Determination" shall mean,
with respect to any claim, a settlement of such claim (including the acceptance
of an adjustment proposed by the Internal Revenue Service) or a decision of a
court of competent jurisdiction with respect to such claim that has become final
after either the (i) exhaustion of allowable appeals or (2) expiration of the
time to take any such appeal with respect to the claim.

         7.       Massachusetts Law to Apply.

                                       10
<PAGE>

         This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of The Commonwealth of Massachusetts.

         8.       Notices.

         Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.

         If to SS&C:

                  Scudder, Stevens & Clark, Inc.
                  Two International Place
                  Boston, Massachusetts  02110
                  (617) 295-2275
                  Attn:  David B. Watts

         If to the Company:

                  Washington National Insurance Company
                  300 Tower Parkway
                  Lincolnshire, IL  60069
                  Attn:  Thomas Scott

         9.       Miscellaneous.

         The captions in the Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which taken together shall
constitute one and the same instrument.


                                       11
<PAGE>

         IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the day of
__________, 1995.


SEAL                                    SCUDDER, STEVENS & CLARK, INC.


                                        By:  ____________________________
                                             David S. Lee
                                             Authorized Officer


SEAL                                    WASHINGTON NATIONAL INSURANCE COMPANY


                                        By:  ____________________________
                                             Name:
                                             Title:



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