TMK UNITED FUNDS INC, 497, 1995-11-06

TMK UNITED FUNDS INC
497, 1995-11-06

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<PAGE>
TMK/UNITED FUNDS, INC.

6300 Lamar Avenue

P. O. Box 29217

Shawnee Mission, Kansas 66201-9217

(913) 236-2000

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

November 1, 1995

PROSPECTUS

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

TMK/United Funds, Inc. (the "Fund") is a diversified, open-end management
investment company commonly known as a mutual fund, with ten separate Portfolios
each with separate goals and investment policies. The investment goals and
policies of the Portfolios, which may be changed by the Directors of the Fund
without a vote of the shareholders, are generally as follows:

Money Market Portfolio

Maximum current income consistent with stability of principal by investing
in money market securities.

Bond Portfolio

Current income with an emphasis on preservation of capital by investing
primarily in debt securities of varying yields, quality and maturities.

High Income Portfolio

Primary goal of high current income with a secondary goal of capital growth
by investing primarily in high-yield, high-risk fixed income securities but with
the ability to invest not more than 20% of assets in common stocks.

Growth Portfolio

Primary goal of capital growth with a secondary goal of current income by
investing in common stocks or securities convertible into common stocks.

Income Portfolio

Maintenance of current income, subject to market conditions, by investing
primarily in common stocks or securities convertible into common stocks.

International Portfolio

Primary goal of long-term appreciation of capital with a secondary goal of
current income by investing primarily in securities issued by companies or
governments of any nation.

Small Cap Portfolio

Capital growth through a diversified holding of securities, primarily in
the common stocks of, or securities convertible into the common stocks of,
relatively new or unseasoned companies, companies that are in their early stages
of development or smaller companies positioned in new and emerging industries
where the opportunity for rapid growth is anticipated to be above average.

Balanced Portfolio

Primary goal of current income with a secondary goal of long-term
appreciation of capital by investing in a variety of securities, including debt
securities, common stocks and preferred stocks.

Limited-Term Bond Portfolio

High level of current income consistent with preservation of capital by
investing primarily in debt securities of investment grade, including debt
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities ("U.S. Government Securities"). The Portfolio will maintain a
dollar-weighted average maturity of two to five years.

Asset Strategy Portfolio

High total return with reduced risk over the long term through investments
in stocks, bonds and short-term instruments.

This Prospectus contains concise information about the Fund of which you
should be aware before applying for certain variable life insurance policies and
variable annuity policies offered by Participating Insurance Companies.
Additional information about the Fund has been filed with the Securities and
Exchange Commission and is contained in the Statement of Additional Information
(the "SAI") dated November 1, 1995. You may obtain a copy of the SAI free of
charge by request to the Fund or its Distributor, Waddell & Reed, Inc., at the
address or telephone number shown above or from United Investors Life Insurance
Company, Variable Products Division, P.O. Box 156, Birmingham, Alabama 35201-
0156. The SAI is incorporated by reference into this Prospectus and you will
not be aware of all facts unless you read both this Prospectus and the SAI.

An investment in the Money Market Portfolio is neither insured nor
guaranteed by the U.S. Government. There can be no assurance that the Money
Market Portfolio will be able to maintain a stable net asset value of $1.00 per
share.

THE HIGH INCOME PORTFOLIO MAY INVEST UP TO ALL OF ITS ASSETS IN BONDS
ISSUED BY DOMESTIC OR FOREIGN ISSUERS RATED BELOW INVESTMENT GRADE, COMMONLY
KNOWN AS "JUNK BONDS," WHICH ENTAIL GREATER RISKS, INCLUDING DEFAULT RISKS, THAN
THOSE FOUND IN HIGHER RATED SECURITIES. INVESTORS SHOULD CAREFULLY CONSIDER
THESE RISKS BEFORE INVESTING. SEE "GOALS AND INVESTMENT POLICIES OF THE
PORTFOLIOS" INCLUDED IN THIS PROSPECTUS FOR A DISCUSSION OF THE RISKS ASSOCIATED
WITH NON-INVESTMENT GRADE DEBT SECURITIES. SEE APPENDIX A FOR A DISCUSSION OF
BOND RATINGS.

Retain This Prospectus For Future Reference.

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

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.

<PAGE>
PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information appearing in the body of the Prospectus. Cross-references in this
summary are to headings in the body of the Prospectus.

The Portfolios: This Prospectus describes ten separate portfolios (each a
"Portfolio" and collectively, the "Portfolios") of an open-
end, management investment company with different goals and
investment policies. Each of the Portfolios is a
diversified portfolio. Shares of the Fund are being
marketed exclusively as a funding or investment vehicle for
life insurance companies writing various types of variable
life insurance policies and variable annuity policies.

Investment Goals and Policies:

Money Market Portfolio: Maximum current income consistent with stability
of principal by investing in money market securities.

Bond Portfolio: Current income with an emphasis on preservation of capital
by investing primarily in debt securities of varying yields, quality and
maturities.

High Income Portfolio: Primary goal of high current income with a
secondary goal of capital growth by investing primarily in high-yield, high-risk
fixed income securities but with the ability to invest not more than 20% of its
assets in common stocks.

Growth Portfolio: Primary goal of capital growth with a secondary goal of
current income by investing in common stocks or securities convertible into
common stocks.

Income Portfolio: Maintenance of current income, subject to market
conditions, by investing primarily in common stocks or securities convertible
into common stocks.

International Portfolio: Primary goal of long-term appreciation of capital
with a secondary goal of current income by investing primarily in securities
issued by companies or governments of any nation.

Small Cap Portfolio: Capital growth through a diversified holding of
securities, primarily in the common stocks of, or securities convertible into
the common stocks of, relatively new or unseasoned companies, companies that are
in their early stages of development or smaller companies positioned in new and
emerging industries where the opportunity for rapid growth is anticipated to be
above average.

Balanced Portfolio: Primary goal of current income with a secondary goal
of long-term appreciation of capital by investing in a variety of securities,
including debt securities, common stocks and preferred stocks.

Limited-Term Bond Portfolio: High level of current income consistent with
preservation of capital by investing primarily in debt securities of investment
grade, including U.S. Government Securities. The Portfolio will maintain a
dollar-weighted average maturity of its portfolio of two to five years.

Asset Strategy Portfolio: High total return with reduced risk over the
long term by allocating its assets among stocks, bonds and short-term
instruments.

There can be no assurance that a Portfolio will be successful in meeting
its investment goal. For a further description of the ten Portfolios, their
investment techniques and certain risks which may be associated with investments
in repurchase agreements, the securities of foreign issuers, non-investment
grade debt securities, options and futures contracts, and with other investment
techniques, see "Investment Policies Common to the Ten Portfolios."

Investment Manager: Waddell & Reed Investment Management Company, a wholly-owned
subsidiary of Waddell & Reed, Inc., acts as investment
manager for each Portfolio. See "Management."

Distributor: Waddell & Reed, Inc. acts as principal distributor and
underwriter for the Fund. See "Management."

Purchases: The Fund is the funding or investment vehicle for variable
life insurance policies and variable annuity policies
offered by the separate accounts of certain life insurance
companies. As of the date of this Prospectus, the only
participating insurance company is United Investors Life
Insurance Company. Individual policyowners are not direct
shareholders of the Fund. The participating insurance
companies and their separate accounts are the actual
shareholders. The separate accounts of the participating
insurance companies place orders to purchase shares of each
Portfolio. Shares of a Portfolio are sold at their net
asset value and a sales charge is not incurred upon the
purchase of shares of a Portfolio. See "Purchases and
Redemptions" and "The Fund."

Redemptions: The separate accounts of the participating insurance
companies place orders to redeem shares of each Portfolio.
Redemptions are made at net asset value. See "Purchases and
Redemptions."

Dividends: Dividends are ordinarily declared and paid annually, except
by the Money Market Portfolio which is declared and paid
daily.

Dividends and other distributions are paid in additional
full and fractional shares of the paying Portfolio. See
"Dividends and Distributions."

<PAGE>
TMK/United Funds, Inc.

Financial Highlights

The following information, with the exception of June 30, 1995, has been
audited by Price Waterhouse LLP, independent accountants, and should be read in
conjunction with the financial statements and notes thereto, together with the
report of Price Waterhouse LLP included in the SAI.

(For a share outstanding throughout each period)

THE GROWTH PORTFOLIO
<TABLE>
<CAPTION>

For the six
months ended For the fiscal year ended December 31,
June 30, -------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987*
---- ---- ---- ---- ---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period ........... $5.8986 $6.1962 $6.1505 $5.5973 $4.9479 $5.4025 $4.9837 $4.7846 $5.0000
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income ......... 0.0466 0.1211 0.0537 0.1013 0.1229 0.1661 0.1611 0.1539 0.0523
Net realized and
unrealized gain
(loss) on
investments .... 0.9882 0.0268 0.8087 1.0653 1.6636 (0.4546) 1.2150 0.4944 (0.2154)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations ....... 1.0348 0.1479 0.8624 1.1666 1.7865 (0.2885) 1.3761 0.6483 (0.1631)
------- ------- ------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment
income .......... (0.0000) (0.1211) (0.0537) (0.1013) (0.1229) (0.1661) (0.1611) (0.1539) (0.0523)
Distribution from
capital gains ... (0.0000) (0.3244) (0.7569) (0.5121) (1.0142) (0.0000) (0.7962) (0.2953) (0.0000)
Distribution in
excess of capital
gains ........... (0.0000) (0.0000) (0.0061) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions . (0.0000) (0.4455) (0.8167) (0.6134) (1.1371) (0.1661) (0.9573) (0.4492) (0.0523)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value,
end of period ..... $6.9334 $5.8986 $6.1962 $6.1505 $5.5973 $4.9479 $5.4025 $4.9837 $4.7846
======= ======= ======= ======= ======= ======= ======= ======= =======
Total return ........ 17.54% 2.39% 14.02% 20.84% 36.10% -5.34% 27.61% 13.55% -6.86%
Net assets, end of
period (000
omitted) .......... $339,634 $276,737 $220,590 $122,363 $69,044 $37,440 $28,510 $14,521 $5,636
Ratio of expenses
to average net
assets ............ 0.77%** 0.77% 0.78% 0.80% 0.86% 0.86% 0.85% 0.96% 0.91%
Ratio of net investment
income to average
net assets ........ 1.52%** 2.07% 1.01% 2.00% 2.43% 3.58% 3.40% 3.79% 4.92%
Portfolio turnover
rate .............. 234.38%** 277.36% 297.81% 225.87% 316.72% 331.15% 344.71% 278.57% 127.80%

*The Money Market Portfolio, Bond Portfolio, High Income Portfolio and Growth Portfolio's inception date is December 2, 1986;
however, since these Portfolios did not have any investment activity or incur expenses prior to the date of initial offering,
the per share information is for a capital share outstanding for the period from July 13, 1987 (initial offering) through
December 31, 1987. The Income Portfolio's inception date is May 16, 1991; however, since this Portfolio did not have any
investment activity or incur expenses prior to the date of initial offering, the per share information is for a capital share
outstanding for the period from July 16, 1991 (initial offering) through December 31, 1991. The International Portfolio, Small
Cap Portfolio, Balanced Portfolio and Limited-Term Bond Portfolio's inception date is April 28, 1994; however, since these
Portfolios did not have any investment activity or incur expenses prior to the date of initial offering, the per share
information is for a capital share outstanding for the period from May 3, 1994 (initial offering) through December 31, 1994.
The Asset Strategy Portfolio's inception date is February 14, 1995; however, since this Portfolio did not have any investment
activity or incur expenses prior to the date of initial offering, the per share information is for a capital share outstanding
for the period from May 1, 1995 (initial offering) through September 30, 1995. Ratios and portfolio turnover rates have been
annualized.

**Annualized.
</TABLE>
<PAGE>
TMK/United Funds, Inc.

Financial Highlights

(For a share outstanding throughout each period)

THE INCOME PORTFOLIO

For the six For the fiscal year
months ended ended December 31,
June 30, -------------------------------------------
1995 1994 1993 1992 1991*
---- ---- ---- ---- ----
(Unaudited)
Net asset value,
beginning of
period ........... $6.7689 $6.9180 $5.9530 $5.3158 $5.0000
------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income ......... 0.0426 0.0702 0.0651 0.0803 0.0633
Net realized and
unrealized gain
(loss) on
investments .... 1.4241 (0.1490) 0.9650 0.6496 0.3158
------- ------- ------- ------- -------
Total from investment
operations ....... 1.4667 (0.0788) 1.0301 0.7299 0.3791
------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment
income ......... (0.0000) (0.0703) (0.0651) (0.0803) (0.0633)
Distribution from
capital gains .. (0.0000) (0.0000) (0.0000) (0.0124) (0.0000)
------- ------- ------- ------- -------
Total distributions (0.0000) (0.0703) (0.0651) (0.0927) (0.0633)
------- ------- ------- ------- -------
Net asset value,
end of period .... $8.2356 $6.7689 $6.9180 $5.9530 $5.3158
======= ======= ======= ======= =======
Total return ....... 21.67% -1.14% 17.30% 13.78% 17.43%
Net assets, end of
period (000
omitted) ......... $284,711 $218,774 $155,092 $65,027 $15,640
Ratio of expenses
to average net
assets ........... 0.78%** 0.77% 0.79% 0.85% 0.89%
Ratio of net investment
income to average
net assets ....... 1.21%** 1.16% 1.36% 1.78% 2.47%
Portfolio turnover
rate ............. 13.78%** 23.32% 18.38% 15.74% 4.41%

*The Money Market Portfolio, Bond Portfolio, High Income Portfolio and Growth
Portfolio's inception date is December 2, 1986; however, since these
Portfolios did not have any investment activity or incur expenses prior to
the date of initial offering, the per share information is for a capital share
outstanding for the period from July 13, 1987 (initial offering) through
December 31, 1987. The Income Portfolio's inception date is May 16, 1991;
however, since this Portfolio did not have any investment activity or incur
expenses prior to the date of initial offering, the per share information is
for a capital share outstanding for the period from July 16, 1991 (initial
offering) through December 31, 1991. The International Portfolio, Small Cap
Portfolio, Balanced Portfolio and Limited-Term Bond Portfolio's inception date
is April 28, 1994; however, since these Portfolios did not have any investment
activity or incur expenses prior to the date of initial offering, the per
share information is for a capital share outstanding for the period from May
3, 1994 (initial offering) through December 31, 1994. The Asset Strategy
Portfolio's inception date is February 14, 1995; however, since this Portfolio
did not have any investment activity or incur expenses prior to the date of
initial offering, the per share information is for a capital share outstanding
for the period from May 1, 1995 (initial offering) through September 30, 1995.
Ratios and portfolio turnover rates have been annualized.

**Annualized.

<PAGE>
TMK/United Funds, Inc.

Financial Highlights

(For a share outstanding throughout each period)

THE INTERNATIONAL PORTFOLIO

For the six For the
months ended period
June 30, ended
1995 12/31/94*
----------- ----------
(Unaudited)
Net asset value,
beginning of
period .. $4.9926 $5.0000
------- -------
Income from investment
operations:
Net investment
income 0.0740 0.0207
Net realized and
unrealized gain (loss)
on investments 0.2927 (0.0074)
------- -------
Total from investment
operations 0.3667 0.0133

Less dividends from net
investment
income ... (0.0000) (0.0207)
------ -------
Net asset value,
end of period $5.3593 $4.9926
======= =======
Total return 7.34% 0.26%
Net assets, end of
period (000
omitted) $40,396 $26,020
Ratio of expenses
to average net
assets ... 1.05%** 1.26%
Ratio of net investment
income to average
net assets 3.44%** 1.37%
Portfolio turnover
rate .... 27.66%** 23.23%

*The Money Market Portfolio, Bond Portfolio, High Income Portfolio and Growth
Portfolio's inception date is December 2, 1986; however, since these
Portfolios did not have any investment activity or incur expenses prior to the
date of initial offering, the per share information is for a capital share
outstanding for the period from July 13, 1987 (initial offering) through
December 31, 1987. The Income Portfolio's inception date is May 16, 1991;
however, since this Portfolio did not have any investment activity or incur
expenses prior to the date of initial offering, the per share information is
for a capital share outstanding for the period from July 16, 1991 (initial
offering) through December 31, 1991. The International Portfolio, Small Cap
Portfolio, Balanced Portfolio and Limited-Term Bond Portfolio's inception date
is April 28, 1994; however, since these Portfolios did not have any investment
activity or incur expenses prior to the date of initial offering, the per
share information is for a capital share outstanding for the period from May
3, 1994 (initial offering) through December 31, 1994. The Asset Strategy
Portfolio's inception date is February 14, 1995; however, since this Portfolio
did not have any investment activity or incur expenses prior to the date of
initial offering, the per share information is for a capital share outstanding
for the period from May 1, 1995 (initial offering) through September 30, 1995.
Ratios and portfolio turnover rates have been annualized.

**Annualized.

<PAGE>
TMK/United Funds, Inc.

Financial Highlights

(For a share outstanding throughout each period)

THE SMALL CAP PORTFOLIO

For the six For the
months ended period
June 30, ended
1995 12/31/94*
----------- ----------
(Unaudited)
Net asset value,
beginning of
period .. $5.9918 $5.0000
------- -------
Income from investment
operations:
Net investment
income 0.0600 0.0376
Net realized and
unrealized gain
on investments 0.8812 1.0086
------- -------
Total from investment
operations 0.9412 1.0462
------- -------
Less distributions:
Dividends from net
investment
income (0.0000) (0.0376)
Distribution from
capital gains (0.0000) (0.0168)
------- -------
Total distributions(0.0000) (0.0544)
------- -------
Net asset value,
end of period $6.9330 $5.9918
======= =======
Total return 15.71% 20.92%
Net assets, end of
period (000
omitted) $34,207 $16,080
Ratio of expenses
to average net
assets ... 1.01%** 1.08%
Ratio of net investment
income to average
net assets 2.36%** 2.35%
Portfolio turnover
rate .... 56.10%** 21.61%

*The Money Market Portfolio, Bond Portfolio, High Income Portfolio and Growth
Portfolio's inception date is December 2, 1986; however, since these
Portfolios did not have any investment activity or incur expenses prior to the
date of initial offering, the per share information is for a capital share
outstanding for the period from July 13, 1987 (initial offering) through
December 31, 1987. The Income Portfolio's inception date is May 16, 1991;
however, since this Portfolio did not have any investment activity or incur
expenses prior to the date of initial offering, the per share information is
for a capital share outstanding for the period from July 16, 1991 (initial
offering) through December 31, 1991. The International Portfolio, Small Cap
Portfolio, Balanced Portfolio and Limited-Term Bond Portfolio's inception date
is April 28, 1994; however, since these Portfolios did not have any investment
activity or incur expenses prior to the date of initial offering, the per
share information is for a capital share outstanding for the period from May
3, 1994 (initial offering) through December 31, 1994. The Asset Strategy
Portfolio's inception date is February 14, 1995; however, since this Portfolio
did not have any investment activity or incur expenses prior to the date of
initial offering, the per share information is for a capital share outstanding
for the period from May 1, 1995 (initial offering) through September 30, 1995.
Ratios and portfolio turnover rates have been annualized.

**Annualized.

<PAGE>
TMK/United Funds, Inc.

Financial Highlights

(For a share outstanding throughout each period)

THE BALANCED PORTFOLIO

For the six For the
months ended period
June 30, ended
1995 12/31/94*
----------- ----------
(Unaudited)
Net asset value,
beginning of
period .. $4.9359 $5.0000
------- -------
Income from investment
operations:
Net investment
income 0.0732 0.0460
Net realized and
unrealized gain (loss)
on investments 0.5080 (0.0641)
------- -------
Total from investment
operations 0.5812 (0.0181)
Less dividends from net
investment
income .. (0.0000) (0.0460)
------- -------
Net asset value,
end of period $5.5171 $4.9359
====== =======
Total return 11.78% -0.37%
Net assets, end of
period (000
omitted) $15,766 $8,671
Ratio of expenses
to average net
assets ... 0.79%** 0.95%
Ratio of net investment
income to average
net assets 3.54%** 3.14%
Portfolio turnover
rate .... 78.58%** 19.74%

*The Money Market Portfolio, Bond Portfolio, High Income Portfolio and Growth
Portfolio's inception date is December 2, 1986; however, since these
Portfolios did not have any investment activity or incur expenses prior to the
date of initial offering, the per share information is for a capital share
outstanding for the period from July 13, 1987 (initial offering) through
December 31, 1987. The Income Portfolio's inception date is May 16, 1991;
however, since this Portfolio did not have any investment activity or incur
expenses prior to the date of initial offering, the per share information is
for a capital share outstanding for the period from July 16, 1991 (initial
offering) through December 31, 1991. The International Portfolio, Small Cap
Portfolio, Balanced Portfolio and Limited-Term Bond Portfolio's inception date
is April 28, 1994; however, since these Portfolios did not have any investment
activity or incur expenses prior to the date of initial offering, the per
share information is for a capital share outstanding for the period from May
3, 1994 (initial offering) through December 31, 1994. The Asset Strategy
Portfolio's inception date is February 14, 1995; however, since this Portfolio
did not have any investment activity or incur expenses prior to the date of
initial offering, the per share information is for a capital share outstanding
for the period from May 1, 1995 (initial offering) through September 30, 1995.
Ratios and portfolio turnover rates have been annualized.

**Annualized.

<PAGE>
TMK/United Funds, Inc.

Financial Highlights

(For a share outstanding throughout the period)

THE ASSET STRATEGY PORTFOLIO

For the
period ended
September 30,
1995*
-----------
(Unaudited)
Net asset value,
beginning of
period .. $5.0000
-------
Income from investment
operations:
Net investment
income 0.0416
Net realized and
unrealized gain
on investments 0.0512
-------
Total from investment
operations 0.0928
-------
Net asset value,
end of period $5.0928
=======
Total return 4.49%
Net assets, end of
period (000
omitted) $2,537
Ratio of expenses
to average net
assets ... 0.99%
Ratio of net investment
income to average
net assets 4.50%
Portfolio turnover
rate .... 0.00%

*The Money Market Portfolio, Bond Portfolio, High Income Portfolio and Growth
Portfolio's inception date is December 2, 1986; however, since these
Portfolios did not have any investment activity or incur expenses prior to the
date of initial offering, the per share information is for a capital share
outstanding for the period from July 13, 1987 (initial offering) through
December 31, 1987. The Income Portfolio's inception date is May 16, 1991;
however, since this Portfolio did not have any investment activity or incur
expenses prior to the date of initial offering, the per share information is
for a capital share outstanding for the period from July 16, 1991 (initial
offering) through December 31, 1991. The International Portfolio, Small Cap
Portfolio, Balanced Portfolio and Limited-Term Bond Portfolio's inception date
is April 28, 1994; however, since these Portfolios did not have any investment
activity or incur expenses prior to the date of initial offering, the per
share information is for a capital share outstanding for the period from May
3, 1994 (initial offering) through December 31, 1994. The Asset Strategy
Portfolio's inception date is February 14, 1995; however, since this Portfolio
did not have any investment activity or incur expenses prior to the date of
initial offering, the per share information is for a capital share outstanding
for the period from May 1, 1995 (initial offering) through September 30, 1995.
Ratios and portfolio turnover rates have been annualized.

<PAGE>
TMK/United Funds, Inc.

Financial Highlights

(For a share outstanding throughout each period)

THE MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>

**Annualized.
</TABLE>
<PAGE>
TMK/United Funds, Inc.

Financial Highlights

(For a share outstanding throughout each period)

THE LIMITED-TERM BOND PORTFOLIO

For the six For the
months ended period
June 30, ended
1995 12/31/94*
----------- ----------
(Unaudited)
Net asset value,
beginning of
period .. $4.8611 $5.0000
------- -------
Income from investment
operations:
Net investment
income 0.1450 0.1507
Net realized and
unrealized gain (loss)
on investments 0.2886 (0.1375)
------- -------
Total from investment
operations 0.4336 0.0132
------- -------
Less distributions:
Dividends from net
investment
income (0.0000) (0.1507)
Distribution from
capital gains (0.0000) (0.0014)
------- -------
Total distributions(0.0000) (0.1521)
------- -------
Net asset value,
end of period $5.2947 $4.8611
======= =======
Total return 8.92% 0.26%
Net assets, end of
period (000
omitted) $2,219 $1,645
Ratio of expenses
to average net
assets ... 0.83%** 0.93%
Ratio of net investment
income to average
net assets 6.37%** 5.89%
Portfolio turnover
rate .... 0.00%** 93.83%

*The Money Market Portfolio, Bond Portfolio, High Income Portfolio and Growth
Portfolio's inception date is December 2, 1986; however, since these
Portfolios did not have any investment activity or incur expenses prior to the
date of initial offering, the per share information is for a capital share
outstanding for the period from July 13, 1987 (initial offering) through
December 31, 1987. The Income Portfolio's inception date is May 16, 1991;
however, since this Portfolio did not have any investment activity or incur
expenses prior to the date of initial offering, the per share information is
for a capital share outstanding for the period from July 16, 1991 (initial
offering) through December 31, 1991. The International Portfolio, Small Cap
Portfolio, Balanced Portfolio and Limited-Term Bond Portfolio's inception date
is April 28, 1994; however, since these Portfolios did not have any investment
activity or incur expenses prior to the date of initial offering, the per
share information is for a capital share outstanding for the period from May
3, 1994 (initial offering) through December 31, 1994. The Asset Strategy
Portfolio's inception date is February 14, 1995; however, since this Portfolio
did not have any investment activity or incur expenses prior to the date of
initial offering, the per share information is for a capital share outstanding
for the period from May 1, 1995 (initial offering) through September 30, 1995.
Ratios and portfolio turnover rates have been annualized.

**Annualized.

<PAGE>
TMK/United Funds, Inc.

Financial Highlights

(For a share outstanding throughout each period)

THE BOND PORTFOLIO
<TABLE>
<CAPTION>
For the six
months ended For the fiscal year ended December 31,
June 30, -------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987*
---- ---- ---- ---- ---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period ........... $4.7393 $5.4045 $5.2626 $5.2661 $4.9534 $5.0249 $4.8852 $4.9246 $5.0000
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income ......... 0.1727 0.3507 0.3334 0.3643 0.3867 0.4025 0.4155 0.4088 0.1861
Net realized and
unrealized gain
(loss) on
investments .... 0.4143 (0.6652) 0.3046 0.0216 0.3771 (0.0715) 0.1397 (0.0394) (0.0249)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations ....... 0.5870 (0.3145) 0.6380 0.3859 0.7638 0.3310 0.5552 0.3694 0.1612
------- ------- ------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment
income ......... (0.0000) (0.3507) (0.3334) (0.3643) (0.3867) (0.4025) (0.4155) (0.4088) (0.1861)
Distribution from
capital gains .. (0.0000) (0.0000) (0.1627) (0.0251) (0.0644) (0.0000) (0.0000) (0.0000) (0.0505)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions (0.0000) (0.3507) (0.4961) (0.3894) (0.4511) (0.4025) (0.4155) (0.4088) (0.2366)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value,
end of period .... $5.3263 $4.7393 $5.4045 $5.2626 $5.2661 $4.9534 $5.0249 $4.8852 $4.9246
======= ======= ======= ======= ======= ======= ======= ======= =======
Total return ....... 12.39% -5.90% 12.37% 7.67% 16.19% 7.03% 11.82% 7.74% 7.20%
Net assets, end of
period (000
omitted) ......... $83,689 $74,017 $81,727 $49,428 $29,112 $16,464 $11,530 $6,465 $2,923
Ratio of expenses
to average net
assets ........... 0.62%** 0.62% 0.62% 0.64% 0.72% 0.78% 0.81% 0.96% 0.79%
Ratio of net investment
income to average
net assets ....... 6.95%** 6.73% 6.01% 6.91% 7.65% 8.05% 8.34% 8.17% 8.96%
Portfolio turnover
rate ............. 64.96%** 135.82% 68.75% 44.32% 52.50% 51.50% 42.83% 29.18% 187.93%

**Annualized.
</TABLE>
<PAGE>
TMK/United Funds, Inc.

Financial Highlights

(For a share outstanding throughout each period)

THE HIGH INCOME PORTFOLIO
<TABLE>
<CAPTION>
For the six
months ended For the fiscal year ended December 31,
June 30, -------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987*
---- ---- ---- ---- ---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period ........... $4.1118 $4.6373 $4.2886 $4.0770 $3.4067 $4.1288 $4.8837 $4.7333 $5.0000
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income ......... 0.1967 0.4106 0.3899 0.4050 0.4368 0.4346 0.5810 0.5263 0.2425
Net realized and
unrealized gain
(loss) on
investments .... 0.2225 (0.5255) 0.3487 0.2116 0.6703 (0.7221) (0.7549) 0.1595 (0.2667)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations ....... 0.4192 (0.1149) 0.7386 0.6166 1.1071 (0.2875) (0.1739) 0.6858 (0.0242)
------- ------- ------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from
net investment
income ......... (0.0000) (0.4106) (0.3899) (0.4050) (0.4368) (0.4346) (0.5810) (0.5263) (0.2425)
Distribution from
capital gains .. (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0091) (0.0000)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions (0.0000) (0.4106) (0.3899) (0.4050) (0.4368) (0.4346) (0.5810) (0.5354) (0.2425)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value,
end of period .... $4.5310 $4.1118 $4.6373 $4.2886 $4.0770 $3.4067 $4.1288 $4.8837 $4.7333
======= ======= ======= ======= ======= ======= ======= ======= =======
Total return ....... 10.20% -2.55% 17.90% 15.70% 34.19% -7.44% -4.19% 15.14% -0.99%
Net assets, end of
period (000
omitted) ......... $80,964 $72,644 $71,265 $41,456 $24,394 $13,868 $15,717 $12,779 $4,521
Ratio of expenses
to average net
assets ........... 0.73%** 0.74% 0.75% 0.77% 0.87% 0.90% 0.82% 0.91% 0.79%
Ratio of net investment
income to average
net assets ....... 9.22%** 9.03% 8.66% 9.48% 11.32% 11.55% 12.54% 10.85% 10.70%
Portfolio turnover
rate ............. 33.82%** 37.86% 54.22% 60.79% 34.00% 12.21% 74.97% 46.75% 7.09%

**Annualized.
</TABLE>

Information regarding the performance of the Portfolios is contained in the
Fund's annual report to shareholders which may be obtained without charge by
request to the Fund at the address or phone number shown on the cover of this
Prospectus.

<PAGE>
THE FUND

The Fund is a series fund consisting of ten Portfolios: the Money Market
Portfolio, the Bond Portfolio, the High Income Portfolio, the Growth Portfolio,
the Income Portfolio, the International Portfolio, the Small Cap Portfolio, the
Balanced Portfolio, the Limited-Term Bond Portfolio and the Asset Strategy
Portfolio. The Fund is the funding or investment vehicle for variable life
insurance policies and variable annuity policies (hereinafter collectively
referred to as the "Policies") offered by the separate accounts of certain life
insurance companies ("Participating Insurance Companies"). As of the date of
this Prospectus, the only Participating Insurance Company is United Investors
Life Insurance Company. The Policies are described in the accompanying
prospectus issued by the Participating Insurance Company. The Fund assumes no
responsibility for such prospectus.

The Fund does not perceive any risks to the Policyowners resulting from the
use of the same funding vehicle for both annuity and life insurance policies nor
any disadvantages to Policyowners arising from the fact that the interests of
annuity and life insurance Policyowners may differ. Nevertheless, the Board of
Directors will monitor events in order to identify any material, irreconcilable
conflict in the interests of such Policyowners which may arise.

The individual Policyowners are not direct shareholders of the Fund.
Rather, the Participating Insurance Companies and their separate accounts are
the actual shareholders. To the extent required by law, Policyowners are
entitled to give voting instructions with respect to Fund shares held in the
separate accounts of the Participating Insurance Companies.

Performance Information

From time to time advertisements or information furnished may include
performance data. Performance may be shown by presenting one or more
performance measurements, including yield, total return and performance
rankings. Performance data will be accompanied by or used in calculating
performance data for the respective separate accounts that invest in the
Portfolio.

Bond Portfolio, High Income Portfolio, Growth Portfolio, Income Portfolio,
International Portfolio, Small Cap Portfolio, Balanced Portfolio, Limited-Term
Bond Portfolio, Asset Strategy Portfolio

A Portfolio's total return is its overall change in value for the period
shown including the effect of reinvesting dividends and capital gains
distributions and any change in the net asset value per share. A cumulative
total return reflects the Portfolio's change in value over a stated period of
time. An average annual total return reflects the hypothetical annually
compounded return that would have produced the cumulative total return for a
stated period if the Portfolio's performance had been constant during each year
of that period. Average annual total returns are not actual year-by-year
results and investors should realize that total returns will fluctuate. No
sales charge is required to be paid by the Participating Insurance Companies for
purchase of Portfolio shares. The Fund may also provide non-standardized
performance information.

Money Market Portfolio

The "current yield" of the Money Market Portfolio refers to the income
generated by an investment in the Portfolio over a stated seven-day period.
This income is then "annualized." That is, the amount of income generated by
the investment during that period is assumed to be generated each week 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 the Portfolio is assumed to be reinvested. The "effective yield"
will be slightly higher than the "current yield" because of the compounding
effect of the assumed reinvestment.

General

From time to time, advertisements and information furnished to present or
prospective Policyholders may include performance rankings as published by
recognized independent mutual fund statistical services such as Lipper
Analytical Services, Inc., or by publications of general interest such as
Forbes, Money, The Wall Street Journal, Business Week, Barron's, Fortune or
Morningstar Mutual Fund Values. A Portfolio's performance may also be compared
to that of other selected mutual funds or selected recognized market indicators.
Performance information may be quoted numerically or presented in a table, graph
or other illustration.

All performance information included in advertisements or information
provided to present or prospective Policyholders is historical in nature and is
not intended to represent or guarantee future results. Yield information cannot
necessarily be used to compare Portfolio shares with investment alternatives
which provide fixed yields, such as bank accounts (which accounts may be
insured), or with yields of similar investment companies which may be computed
in a different manner. An investment in Portfolio shares is not insured. The
value of any Portfolio's shares when redeemed may be more or less than their
original cost. See the SAI for total return and yield and methods of
computation.

GOALS AND INVESTMENT POLICIES OF THE PORTFOLIOS

Each of the ten Portfolios has a different goal that it pursues through
separate investment policies that are described below. The different goals of
the Portfolios and the different investment policies utilized by each Portfolio
in attempting to achieve its goal can be expected to affect the degree of market
and financial risk to which each Portfolio is subject as well as the return of
each Portfolio. There can be no assurance that a Portfolio will achieve its
goals; some market risks are inherent in all securities to varying degrees.

The goals, investment policies and restrictions of each Portfolio may,
unless otherwise specifically stated, be changed by the Directors of the Fund
without a vote of the shareholders. In addition to the investment policies for
each Portfolio discussed below, each Portfolio may engage in certain other
investment strategies described under "Investment Policies Common to the Ten
Portfolios." Additional information concerning investment policies may be found
in the SAI.

The Money Market Portfolio

The goal of the Money Market Portfolio is maximum current income consistent
with stability of principal. The Portfolio seeks to achieve this goal by
investing in money market securities such as commercial paper, including
variable amount master demand notes, corporate debt obligations, bank
obligations of domestic and foreign banks and foreign branches of domestic banks
and instruments secured by bank obligations, obligations of the U.S. and
Canadian governments or their respective agencies and instrumentalities and
repurchase agreements.

Investments are limited to those that are dollar denominated and that are
rated in one of the two highest rating categories by the requisite nationally
recognized statistical rating organization(s) or are comparable unrated
securities. See Appendix A to this Prospectus for a description of some of
these ratings. Investments in the securities of any one issuer (except
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities ("U.S. Government Securities")) are limited to no more than 5%
of the Portfolio's assets. Investments in securities rated in the second
highest rating category by the requisite rating organization(s) or comparable
unrated securities are limited to no more than 5% of the Portfolio's assets,
with investments in such securities of any one issuer (except U.S. Government
Securities) being limited to the greater of one percent of the Portfolio's
assets or $1,000,000. The Portfolio may only invest in securities with a
remaining maturity of not more than thirteen months.

The Portfolio seeks to maintain a constant net asset value of $1.00 per
share, although this may not always be possible. It uses the amortized cost
method of securities valuation. The Portfolio's income fluctuates with changes
in prevailing interest rates and there is no assurance that its goal will be
achieved. See the SAI for a discussion of the valuation method.

The Bond Portfolio

The goal of the Bond Portfolio is to provide current income with an
emphasis on preservation of capital. It ordinarily invests at least 65% of its
assets in debt securities of varying yields, quality and maturities.

In selecting debt securities for this Portfolio, the Fund's Manager,
Waddell & Reed Investment Management Company (the "Manager"), considers yield
and relative safety and, in the case of convertible securities, the possibility
of capital growth. The Portfolio may not purchase any securities other than
debt securities if after such purchase more than 10% of its total assets would
be invested in non-debt securities. However, this 10% limit does not include
any non-debt securities held as a result of conversion of a debt security or
exercise of a warrant. The Portfolio may invest in debt securities rated in any
rating category of the established rating services and unrated securities judged
by the Manager to be of equivalent quality. See "Risk Factors of High-Yield
Investing" for a discussion of the risks associated with non-investment grade
debt securities.

The Portfolio may invest a significant, but varying, percentage of its
assets in U.S. Government Securities. See "Investment Policies Common to the
Ten Portfolios" for a further discussion of the Portfolio's ability to invest in
U.S. Government Securities. Under unusual market or economic conditions, for
temporary defensive purposes, the Portfolio may invest up to all of its assets
in cash or cash equivalents. Taking a defensive position might result in a
lower yield.

The Portfolio is actively managed and may have a turnover rate in excess of
200%, which will result in correspondingly high commission expenses and
transaction costs and may result in certain tax consequences. In determining
what proportion of the Portfolio will be invested in what type and quality of
securities the Manager considers what investments will be most effective in
achieving the Portfolio's goal. The proportions may vary depending upon the
outlook for the economy and the securities markets, the quality of available
investments, the level of interest rates, the ability to preserve capital and
other factors.

The Portfolio's income will vary and the net asset value of its shares will
increase or decrease with changes in the market prices of its investments.
Market prices of debt securities will increase or decrease depending in large
part on changes in prevailing interest rates. If interest rates increase, the
value of debt securities is likely to go down; if rates decrease the value may
go up. There is no assurance that the goal of the Bond Portfolio will be
achieved.

The High Income Portfolio

The primary goal of the High Income Portfolio is high current income; as a
secondary goal it seeks capital growth when consistent with the primary goal.
The Portfolio attempts to achieve these goals by investing primarily in a
diversified portfolio of high-yield, high-risk fixed income securities. These
include corporate bonds and notes, convertible securities and preferred stocks
that are rated in the lower rating categories of the established rating services
(Baa or lower by Moody's Investors Service, Inc. ("MIS") or BBB or lower by
Standard and Poor's Ratings Services ("S&P")), or are unrated securities that
are, in the opinion of the Manager, of similar quality to rated bonds in these
categories. The Portfolio may invest in debt securities rated in any rating
category of the established rating services and unrated securities judged by the
Manager to be of equivalent quality. See Appendix A to this Prospectus for a
description of bond ratings. See "Risk Factors of High-Yield Investing" for a
discussion of the risks associated with non-investment grade debt securities.

Under normal market conditions at least 65% of the value of the Portfolio's
total assets will be invested to seek a high level of current income, which
securities may include high-yield, high-risk securities. A portion of the
Portfolio's assets may be invested in common stocks; however, the Portfolio will
not purchase any common stocks if after such purchase more than 20% of the value
of its total assets would be invested in common stocks. This 20% limit includes
common stocks acquired on conversion of convertible securities, on exercise of
warrants or call options or in any other voluntary manner. The Portfolio will
invest in common stocks in order to attempt to achieve either a combination of
its primary and secondary goals, in which case the common stocks will be
dividend-paying, or to achieve its secondary goal, in which case the common
stocks may not pay dividends. The Portfolio does not anticipate investing more
than 4% of its total assets in non-dividend-paying common stocks.

Under unusual market or economic conditions, for temporary defensive
purposes, the Portfolio may invest up to all of its assets in (i) higher-rated
securities if the Manager believes that the risk of loss of income and principal
may be reduced with a relatively small reduction in yield; or (ii) cash or cash
equivalents. Taking a defensive position might result in a lower yield.

The Portfolio may invest in zero coupon securities. Although the Manager
does not believe that investing in such securities results in material risks,
such investing may jeopardize the Portfolio's ability to meet its goals or meet
the requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code").

The Portfolio's income will vary and the net asset value of its shares will
increase or decrease with changes in the market prices of its investments.
There is no assurance that the goals of the High Income Portfolio will be
achieved. The Portfolio is actively managed and may have a turnover rate in
excess of 100%, which will result in correspondingly higher commission expenses
and transaction costs and may result in certain tax consequences.

The Growth Portfolio

The goal of the Growth Portfolio is capital growth with current income as a
secondary goal. It seeks to achieve these goals by investing in common stocks
or securities convertible into common stocks. The Portfolio is free to invest
in a wide range of marketable securities offering the potential for growth.
This enables it to pursue investment values in various sectors of the market.

Under unusual market or economic conditions, for temporary defensive
purposes, the Portfolio may invest up to all of its assets in cash or fixed
income securities or in common stocks chosen for their relative stability rather
than for growth potential. Taking a defensive position might result in a lower
yield.

As an operating (i.e., nonfundamental) policy, the Portfolio does not

intend to invest in non-investment grade debt securities if, as a result of such
investment, more than 5% of its assets would consist of such investments.
Subject to this limitation, the Portfolio may invest in debt securities rated in
any rating category of the established rating services and unrated securities
judged by the Manager to be of equivalent quality.

The net asset value of the shares of the Portfolio will increase or
decrease with changes in the market price of the investments held by the
Portfolio. There is no assurance that the goals of the Portfolio will be
achieved. The Portfolio is actively managed and may have a turnover rate in
excess of 200% which will result in correspondingly higher commission expenses
and transaction costs and may result in certain tax consequences.

The Income Portfolio

The goal of the Income Portfolio is the maintenance of current income,
subject to market conditions. It seeks to achieve this goal by investing
primarily in common stocks, or securities convertible into common stocks, of
companies that have the potential for capital growth or that may be expected to
resist market decline. When investment conditions are such that stocks with
high yields are less attractive than other common stocks, lower yielding common
stocks may be held because of their prospects for appreciation. At other times,
the Portfolio may seek to achieve this goal by holding cash or investing in debt
securities and preferred stocks when the return on these securities is
attractive relative to the return on common stocks. As an operating (i.e.,
nonfundamental) policy, this Portfolio does not intend to invest in non-
investment grade debt securities if, as a result of such investment, more than
5% of its assets would consist of such investments. Subject to this limitation,
the Portfolio may invest in debt securities rated in any rating category of the
established ratings services and unrated securities judged by the Manager to be
of equivalent quality.

The net asset value of the shares of the Portfolio will increase or
decrease with changes in the market price of the investments held by the
Portfolio. There is no assurance that the goal of the Portfolio will be
achieved. The Portfolio may have a portfolio turnover rate in excess of 100%,
which will result in correspondingly greater commission expenses and transaction
costs and may result in certain tax consequences.

The International Portfolio

The primary goal of the International Portfolio is the long-term
appreciation of capital. Current income is a secondary goal. The Portfolio
seeks to achieve these goals by investing primarily in securities issued by
companies or governments of any nation. The securities selected to attempt to
achieve the Portfolio's primary goal are those issued by companies that the
Manager believes have the potential for long-term growth. There are three main
kinds of securities that the Portfolio may own: common stocks, preferred stocks
and debt securities. Securities purchased because they may increase in value
over the long term will usually be common stocks, securities that may be
converted into common stocks or rights for the purchase of common stocks.

Under unusual market or economic conditions, for temporary defensive
purposes, up to all of the Portfolio's assets may be invested in either debt
securities (including commercial paper or short-term U.S. Government Securities)
or preferred stocks or both. Taking a defensive position may result in a lower
yield.

As an operating (i.e., nonfundamental) policy, the Portfolio does not
intend to invest in non-investment grade debt securities if, as a result of such
investment, more than 5% of its assets would consist of such investments.
Subject to this limitation, the Portfolio may invest in debt securities rated in
any rating category of the established ratings services and unrated securities
judged by the Manager to be of equivalent quality. The Portfolio will not
invest more than 5% of its assets, taken at market value at the time of
investment, in companies, including predecessors, with less than three years
continuous operation. This restriction does not apply to any obligation issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, or to
collateralized mortgage obligations ("CMOs"), other mortgage related securities
or indexed securities. The Portfolio may buy shares of other investment
companies that do not redeem their shares, subject to the conditions stated in
the SAI.

All or a substantial portion of the Portfolio's assets may be invested in
foreign securities if, in the opinion of the Manager, doing so might assist in
achieving the Portfolio's goal. The Portfolio may purchase restricted foreign
securities provided that, after such purchase, not more than 5% of its assets
consist of such securities. See "Investment Policies Common to the Ten
Portfolios" for a further discussion of the Portfolio's ability to invest in
foreign securities.

The Portfolio's income will vary and the net asset value of its shares will
increase or decrease with changes in the market prices of its investments.
There is no assurance that the goals of the Portfolio will be achieved. The
Portfolio may have a turnover rate in excess of 100%, which will result in
correspondingly higher commission expenses and transaction costs and may result
in certain tax consequences. The ability to invest all or a substantial amount
of the Portfolio's assets in foreign securities may result in a higher turnover
rate and higher costs.

The Small Cap Portfolio

The goal of the Small Cap Portfolio is to seek the growth of capital. The
Portfolio seeks to achieve this goal through a diversified holding of
securities, primarily in the common stocks of, or securities convertible into
the common stocks of, companies that are relatively new or unseasoned, in their
early stages of development or smaller and positioned in new and emerging
industries where the opportunity for rapid growth is above average. Under
normal market conditions, at least 65% of the Portfolio's total assets will be
invested in those companies that have market capitalization of up to
$500,000,000 as of the company's latest annual report. Subject to such
limitations, the Portfolio may occasionally invest in securities of larger
companies that are being fundamentally changed and revitalized or have a
position that is considered strong relative to the market as a whole or that
otherwise offer unusual opportunities for above-average growth. There are three
main kinds of securities that the Portfolio may own: common stocks, preferred
stocks and debt securities.

Under unusual market or economic conditions, for temporary defensive
purposes, up to all of the assets of the Portfolio may be invested in either
debt securities (including commercial paper or short-term U.S. Government
Securities) or preferred stocks or both. Taking a defensive position may result
in a lower yield.

The Portfolio may buy shares of other investment companies that do not
redeem their shares, subject to the conditions stated in the SAI. The Portfolio
may purchase foreign securities as described in this Prospectus and the SAI.
The Portfolio will not invest more than 5% of its assets, taken at market value
at the time of investment, in companies, including predecessors, with less than
three years continuous operation. This restriction does not apply to any
obligation issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, or to CMOs, other mortgage-related securities or indexed
securities.

As an operating (i.e., nonfundamental) policy, the Portfolio does not
intend to invest in non-investment grade debt securities if, as a result of such
investment, more than 5% of its assets would consist of such investments.
Subject to this limitation, the Portfolio may invest in debt securities rated in
any rating category of the established ratings services. The Portfolio may
borrow money on an unsecured basis in order to purchase securities. Borrowing
for investment increases both investment opportunity and risk. Since
substantially all of the Portfolio's assets fluctuate in value, but borrowing
obligations are fixed, net asset value per share will tend to correspondingly
increase or decrease more when the portfolio assets increase or decrease in
value, a factor known as leveraging. The Portfolio may borrow money only from
banks and only to the extent that the value of its assets, less its liabilities
other than borrowings, is equal to at least 300% of all borrowings including the
proposed borrowing.

The Portfolio is designed for investors who are willing to accept greater
risks than are present with many other mutual funds. It is not intended for
those investors who desire assured income and conservation of capital. The
Portfolio ordinarily invests in securities whose market price often is subject
to rapid and wide fluctuation. In selecting companies, the Manager may look for
such characteristics as aggressive or creative management, technological or
specialized expertise, new or unique products or services, entry into new or
emerging industries and special situations arising out of governmental
priorities and programs. Certain risks are associated with securities of
companies that are relatively new or unseasoned, in their early stages of
development or smaller companies positioned in new or emerging industries where
the opportunity for growth is above average, including potential greater
volatility in share price due to the less established nature of the companies.

The Portfolio's income will vary and the net asset value of its shares will
increase or decrease with changes in the market prices of its investments.
There is no assurance that the goal of the Portfolio will be achieved. The
Portfolio may have a turnover rate in excess of 100%, which will result in
correspondingly higher commission expenses and transaction costs and may result
in certain tax consequences.

The Balanced Portfolio

The primary goal of the Balanced Portfolio is to provide current income to
the extent that, in the opinion of the Manager, market and economic conditions
permit. Secondarily, the Portfolio seeks long-term appreciation of capital.
The Portfolio usually will purchase securities because of the dividends and
interest paid on them and may also purchase securities because they may increase
in value. There are three main kinds of securities that the Portfolio may own:
debt securities, common stocks and preferred stocks. The Portfolio will
ordinarily have at least 25% of its total assets invested in fixed-income senior
securities. Under unusual market or economic conditions, for temporary
defensive purposes, the Portfolio may have up to all of its assets invested in
common stock or other securities that are not fixed-income senior securities or
both. Taking a defensive position may result in a lower yield.

The Portfolio's income will vary and the net asset value of its shares will
increase or decrease with changes in the market prices of its investments.
There is no assurance that the goals of the Portfolio will be achieved. The
Portfolio may have a turnover rate in excess of 100%, which will result in
correspondingly higher commission expenses and transaction costs and may result
in certain tax consequences.

The Limited-Term Bond Portfolio

The goal of the Limited-Term Bond Portfolio is to provide a high level of
current income consistent with preservation of capital by investing primarily in
debt securities of investment grade (subject to the policy regarding non-
investment grade securities described below), including U.S. Government
Securities. "Limited-Term" means that the Portfolio will maintain a dollar-
weighted average maturity of its portfolio of not less than two years and not
more than five years. The maturity of CMOs and other asset-backed securities
will be deemed to be the estimated average life of such securities, as
determined in accordance with certain prescribed models or formulas, such as
those provided by the Public Securities Association. The maturity of other debt
securities will be deemed to be the earlier of the call date or the maturity
date, whichever is appropriate. The debt securities, other than U.S. Government
Securities, in which the Portfolio may invest include, without limitation,
corporate bonds, medium-term notes, asset-backed securities (such as mortgage-
backed securities) and other financial obligations which are commonly considered
debt, all of which securities will be denominated in U.S. dollars. At least 65%
of the Portfolio's total assets during normal market conditions will be invested
in debt securities. The Portfolio intends to invest a significant percentage of
its net assets in CMOs. Subject to the Portfolio's other policies, the two main
kinds of securities that the Portfolio may own are common stocks and debt
securities. It may also own convertible securities, including convertible
preferred stock in certain circumstances.

Under unusual market or economic conditions, for temporary defensive
purposes, the Portfolio may, with respect to up to all of its assets: (i)
shorten the average maturity of the Portfolio's portfolio; (ii) hold cash or
cash equivalents; (iii) emphasize debt securities of a higher quality than those
the Portfolio would ordinarily hold; or (iv) invest in convertible preferred
stock. Taking a defensive position may result in a lower yield.

As an operating (i.e., nonfundamental) policy, the Portfolio does not
intend to invest in non-investment grade debt securities if, as a result of such
investment, more than 5% of its assets would consist of such investments.
Subject to this limitation, the Portfolio may invest in debt securities rated in
any rating category of the established ratings services and unrated securities
judged by the Manager to be of equivalent quality. The Portfolio will not
invest more than 5% of its assets, taken at market value at the time of
investment, in companies, including predecessors, with less than three years
continuous operation. This restriction does not apply to any obligation issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, or to
CMOs, other mortgage-related securities or indexed securities.

The Portfolio's income will vary and the net asset value of its shares will
increase or decrease with changes in the market prices of its investments.
There is no assurance that the goal of the Portfolio will be achieved. The
Portfolio may have a turnover rate in excess of 300%, which will result in
correspondingly higher commission expenses and transaction costs and may result
in certain tax consequences.

The Asset Strategy Portfolio

The goal of the Asset Strategy Portfolio is high total return with reduced
risk over the long term. The Portfolio seeks to achieve this goal by allocating
its assets among stocks, bonds, and short-term instruments.

Allocating assets among different types of investments allows the Portfolio
to take advantage of opportunities wherever they may occur, but also subjects
the Portfolio to the risks of a given investment type. Stock values generally
fluctuate in response to the activities of individual companies and general
market and economic conditions. The value of bonds and short-term instruments
generally fluctuates based on changes in interest rates and in the credit
quality of the issuer.

The Manager regularly reviews Asset Strategy Portfolio's allocation of
assets and makes changes to favor investments that it believes provide the most
favorable outlook for achieving the Portfolio's goal. Although the Manager uses
its expertise and resources in choosing investments and allocating assets, the
Manager's decisions may not always be advantageous to the Portfolio.

The Portfolio allocates its assets among the following classes, or types,
of investments. The stock class includes equity securities of all types. The
bond class includes all varieties of fixed-income instruments with maturities of
more than three years (including adjustable rate preferred stocks). The short-
term class includes all types of short-term instruments with remaining
maturities of three years or less. Within each of these classes, the Portfolio
may invest in both domestic and foreign securities.

The Manager has the ability to allocate the Portfolio's assets within
specified ranges. The Portfolio's mix indicates the benchmark for its
combination of investments in each class over time. The Manager may change the
mix within the specified ranges from time to time. The range and approximate
percentage of the mix for each asset class are shown below. Some types of
investments, such as indexed securities, can fall into more than one asset
class.

Mix Range
------------- ------
Stock class 10-60%
40%
Bond class 20-60%
40%
Short-term class 0-70%
20%

The Portfolio's approach spreads the Portfolio's assets among all three
classes, attempting to moderate the risk potential of stocks, bonds, and short-
term instruments. In pursuit of the Portfolio's goal, the Manager will not try
to pinpoint the precise moment when a major reallocation should be made. Asset
shifts among classes may be made gradually over time. Under normal
circumstances, a single reallocation will not involve more than 10% of the
Portfolio's total assets.

The Portfolio may not invest more than 35% of its assets in lower-quality
debt securities (those rated below BBB by S&P or Baa by MIS and unrated
securities judged by the Manager to be of equivalent quality). However, the
Portfolio does not currently intend to invest more than 20% of its total assets
in securities rated below investment-grade or judged by the Manager to be of
equivalent quality. Subject to these limitations, the Portfolio may invest in
debt securities rated in any rating category of the established rating services
and unrated securities judged by the Manager to be of equivalent quality. See
"Risk Factors of High-Yield Investing" for a discussion of the risks associated
with non-investment grade debt securities. The Portfolio does not currently
intend to invest in money-market instruments rated below A-1 by S&P or Prime 1
by MIS, or judged by the Manager to be of equivalent quality. The Portfolio may
invest in preferred stock rated in any rating category by an established rating
service and unrated preferred stock judged by the Manager to be of equivalent
quality.

The Portfolio may invest in zero coupon bonds. Although the Manager does
not believe that investing in such securities results in material risks, such
investing may jeopardize the Portfolio's ability to meet its investment goals or
meet the requirements of Subchapter M of the Code.

The Portfolio may borrow from banks. As a fundamental policy, the
Portfolio may borrow only for emergency or extraordinary purposes, but not in an
amount exceeding 33 1/3% of its total assets. The Portfolio may not invest more
than 5% of its assets taken at market value at the time of investment in
companies, including predecessors, with less than three years continuous
operation. This restriction does not apply to any obligation issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, or to
CMOs, other mortgage-related securities or indexed securities. The Portfolio
may buy shares of other investment companies that do not redeem their shares,
subject to certain conditions explained in the SAI.

The Manager normally invests the Portfolio's assets according to its
investment strategy; however, as a temporary defensive measure at times when the
Manager believes that stocks, bonds and certain short-term instruments do not
offer a good investment opportunity, it may temporarily invest up to all of the
Portfolio's assets in money market instruments rated A-1 by S&P or Prime 1 by
MIS, or unrated securities judged by the Manager to be of equivalent quality.

The net asset value of the shares of the Portfolio will increase or
decrease with changes in the market price of the investments held by the
Portfolio. There is no assurance that the goals of the Portfolio will be
achieved. The Asset Strategy Portfolio cannot precisely predict what its
portfolio turnover rates will be; however, it is anticipated that the annual
turnover rate for the common stock portion of its portfolio will not exceed 200%
and the annual turnover rate for the other portion of its portfolio will not
exceed 200%. Higher turnover rates result in correspondingly higher commission
expenses and transaction costs and may result in certain tax consequences.

The Asset Strategy Portfolio diversifies across investment types more than
most mutual funds. No one mutual fund, however, can provide an appropriate
balanced investment plan for all investors.

Investment Policies Common to the Ten Portfolios

Except as otherwise noted, the investment policies described below are
applicable to each of the ten Portfolios.

Repurchase Agreements

A repurchase agreement is an instrument under which a Portfolio purchases a
security and the seller of that security agrees, at the time of purchase, that
it will repurchase the security at a specified time and price. The amount by
which the resale price is greater than the purchase price reflects an agreed-
upon market interest rate for the period of the agreement. A Portfolio may enter
into repurchase agreements as a means of increasing income. The primary risk is
that the Portfolio may suffer a loss if the seller fails to pay the agreed-upon
amount on the delivery date and that amount is greater than the resale price of
the underlying securities and other collateral held by the Portfolio.
Repurchase agreements are entered into only with those issuers approved on the
basis of criteria established by the Board of Directors. Each of the Portfolios
may purchase securities subject to repurchase agreements subject to its
limitation on investment in illiquid securities, which include repurchase
agreements not terminable within seven days.

Options, Futures and Other Strategies

As described below, certain of the Portfolios may use certain swaps,
options, futures contracts, forward currency contracts and indexed securities to
attempt to enhance income or yield or may attempt to reduce the overall risk of
their investments by using certain options, futures contracts, forward currency
contracts, swaps, caps, collars and floors and certain other strategies
described herein. The strategies described below may be used in an attempt to
manage the risks of a Portfolio's investments that can affect fluctuation in its
net asset value.

The Asset Strategy Portfolio may also use various techniques to increase or
decrease its exposure to changing security prices, interest rates, currency
exchange rates, commodity prices, or other factors that affect security values.
These techniques may involve derivative transactions such as buying and selling
options and futures contracts, entering into forward currency contracts or swap
agreements, and purchasing indexed securities.

A Portfolio's ability to use these strategies may be limited by market
conditions, regulatory limits and tax considerations. A Portfolio might not use
any of these strategies, and there can be no assurance that any strategy that is
used will succeed. The risks associated with such strategies are described
below. Also see the SAI for more information on these strategies and risk
considerations relating thereto.

Options. A call option gives the purchaser the right to buy, and obligates
the writer to sell, the underlying investment at the agreed upon exercise price
during the option period. A put option gives the purchaser the right to sell,
and obligates the writer to buy, the underlying investment at the agreed upon
exercise price during the option period. Purchasers of options pay an amount,
known as a premium, to the option writer in exchange for the right under the
option contract.

The Bond Portfolio, High Income Portfolio, Growth Portfolio and Income
Portfolio may each write (sell) covered call options on securities on up to 25%
of its assets. The International Portfolio may write (sell) covered call
options on securities on no more than 10% of its total assets. "Covered" means
that the Portfolio owns the securities subject to the call or has the right to
acquire them without additional payment. Each of these Portfolios may purchase
a call option on a security only to close its position in a call it has written.
Calls written by these Portfolios must be listed on a domestic securities
exchange; however, the Bond Portfolio, High Income Portfolio, Growth Portfolio
and Income Portfolio may write over-the-counter ("OTC") calls on U.S. Government
Securities. Writing calls may increase each of these Portfolio's turnover rates
and result in higher brokerage commissions.

The Small Cap Portfolio and Balanced Portfolio may each write (sell)
covered call options on securities on not more than 25% of its total assets and
may each purchase calls and write and purchase puts on securities in which the
Portfolio may invest. Calls written by these Portfolios must be listed on a
domestic securities exchange. Each of these Portfolios may only purchase or
sell options on securities issued by the Options Clearing Corporation (the
"OCC"), except that each may write OTC put options and purchase OTC put and call
options on U.S. Government Securities and may purchase optional delivery standby
commitments.

The Limited-Term Bond Portfolio may write (sell) and purchase listed and
OTC options on domestic debt securities, which securities include, without
limitation, U.S. Government Securities ("Domestic Debt Securities"). The
Limited-Term Bond Portfolio may not write call options having aggregate exercise
prices greater than 25% of its net assets.

Each Portfolio (other than the Money Market Portfolio) may write options on
securities for the purpose of increasing income in the form of premiums paid by
the purchaser of the options. While writing covered calls may result in the
realization of income, the Portfolio will lose the opportunity to profit from an
increase in the price of the security subject to the call over the exercise
price. When one of these Portfolios (other than the Asset Strategy Portfolio)
writes a put, it will maintain designated cash or readily marketable assets
adequate to purchase the related investments should the put be exercised. In
writing puts, the Portfolio assumes the risk of loss should the market value of
the underlying security decline below the exercise price at which the Portfolio
is obligated to purchase the security.

The Small Cap Portfolio, Balanced Portfolio and Limited-Term Bond Portfolio
may each purchase calls to take advantage of an expected rise in the market
value of securities and to close positions in calls it has written. Each may
purchase puts on related investments it owns ("protective puts") or on related
investments it does not own ("nonprotective puts"). Buying a protective put
permits the Portfolio to protect itself during the put period against a decline
in the value of the related investments below the exercise price by selling them
through the exercise of the put. Buying a nonprotective put permits the
Portfolio, if the market price of the related investments is below the put price
during the put period, either to resell the put or to buy the related
investments and sell them at the exercise price. Each of these Portfolios may
also purchase puts to close positions in puts it has written. If an option
purchased by a Portfolio is not exercised or sold, it will become worthless at
its expiration date and the Portfolio will lose the amount of the premium it
paid.

Each of the Small Cap Portfolio and Balanced Portfolio may also write
(sell) and purchase listed options on stock indices that are not limited to
stocks of any industry or group of industries ("broadly-based stock indices").
Each may write options on broadly-based stock indices to generate income. Each
may purchase calls on broadly-based stock indices to hedge against an
anticipated increase in the price of securities it wishes to acquire and may
purchase puts on broadly-based stock indices to hedge against an anticipated
decline in the market value of its portfolio securities. Because stock index
options are settled in cash, a Portfolio cannot provide in advance for its
potential settlement obligations on a call it has written on a stock index by
holding the underlying securities. Each Portfolio bears the risk that the value
of the securities it holds will vary from the value of the index.

There is no limitation on the types of options that the Asset Strategy
Portfolio may purchase and sell. See the SAI for the limitations on the Asset
Strategy Portfolio's use of options.

Options offer large amounts of leverage, which will result in a Portfolio's
net asset value being more sensitive to changes in the value of the related
investment. There is no assurance that a liquid secondary market will exist for
exchange-listed options. The market for options that are not listed on an
exchange may be less active than the market for exchange-listed options. A
Portfolio will be able to close a position in an option it has written only if
there is a market for the put or call. If a Portfolio is not able to enter into
a closing transaction on an option it has written, it will be required to
maintain the securities, or cash in the case of an option on an index, subject
to the call or the collateral underlying the put until a closing transaction can
be entered into or the option expires. Because index options are settled in
cash, a Portfolio cannot provide in advance for its potential settlement
obligations on a call it has written on an index by holding the underlying
securities. The Portfolio bears the risk that the value of the securities it
holds will vary from the value of the index. Option transactions may increase
the portfolio turnover rate creating greater commission expenses, transaction
costs and tax consequences.

When a Portfolio writes an option on a futures contract it becomes
obligated, in return for the premium paid, to assume a position in a futures
contract at a specified exercise price at any time during the term of the
option. If a Portfolio has written a call, it assumes a short futures position.
If it has written a put, it assumes a long futures position. When a Portfolio
purchases an option on a futures contract, it acquires a right in return for the
premium it pays to assume a position in a futures contract (a long position if
the option is a call and a short position if the option is a put).

Each of the Small Cap Portfolio and Balanced Portfolio may buy and sell
futures contracts on debt securities ("Debt Futures"), futures contracts on
broadly-based stock indices ("Stock Index Futures"), and options on Debt Futures
and Stock Index Futures. The Limited-Term Bond Portfolio may buy and sell
futures on Domestic Debt Securities ("Domestic Debt Futures") and options on
Domestic Debt Futures. Each of these Portfolios may purchase or sell futures
contracts and options thereon for the purpose of hedging against changes in the
market value of its portfolio securities or changes in the market value of
securities that the Manager anticipates it may wish to include in the
Portfolio's portfolio. Each of these Portfolios may write options on futures
contracts to increase income.

The Limited-Term Bond Portfolio may not purchase or sell options on
securities, futures contracts or options on futures contracts if the aggregate
value of such options and futures held by that Portfolio would exceed 25% of its
assets.

Neither the Small Cap Portfolio nor the Balanced Portfolio may purchase
options on securities or futures contracts if the aggregate value of the
premiums paid (adjusted for the portion of any premium attributable to the
difference between the "strike price" of the option and the market price of the
underlying security or futures contract at the time of purchase) exceeds 20% of
the Portfolio's total assets. The aggregate amount of the obligations
underlying put options on securities or futures contracts written by each of the
Small Cap Portfolio and Balanced Portfolio may not exceed 25% of its net assets
computed at the time of sale.

See the SAI for the limitations on the Asset Strategy Portfolio's use of
futures contracts and options on futures contracts.

Forward Currency Exchange Contracts. A forward currency contract is an
obligation to purchase or sell a specific currency at a future date at a fixed
price. The International Portfolio may enter into forward currency contracts,
provided that it does not thereafter have more than 15% of the value of its
assets committed to the consummation of all such contracts; however, it will not
enter into forward currency contracts or maintain a net exposure to such forward
currency contracts where the consummation of the forward currency contracts
would obligate the International Portfolio to deliver an amount of foreign
currency in excess of the value of its portfolio securities or other assets
denominated in that currency. The International Portfolio enters into forward
currency contracts to attempt to protect against losses that may result from
changes in the value of currencies but at the same time forward currency
contracts tend to limit any potential gain that might result from currency
changes.

The Asset Strategy Portfolio may enter into forward currency contracts for
the purchase or sale of a specified currency at a specified future date either
with respect to specific transactions or with respect to portfolio positions in
order to minimize the risk to the Portfolio from adverse changes in the
relationship between the U.S. dollar and foreign currencies. For example, when
the Manager anticipates purchasing or selling a security, the Portfolio may
enter into a forward currency contract in order to set the exchange rate at
which the transaction will be made. The Asset Strategy Portfolio also may enter
into a forward currency contract to sell an amount of a foreign currency
approximating the value of some or all of the Portfolio's securities positions
denominated in such currency. The Asset Strategy Portfolio may also use forward
currency contracts in one currency or a basket of currencies to attempt to hedge
against fluctuations in the value of securities denominated in a different
currency if the Manager anticipates that there will be a correlation between the
two currencies.

The Asset Strategy Portfolio may also use forward currency contracts to
shift the Portfolio's exposure to foreign currency exchange rate changes from
one foreign currency to another. For example, if the Portfolio owns securities
denominated in a foreign currency and the Manager believes that currency will
decline relative to another currency, it might enter into a forward contract to
sell the appropriate amount of the first foreign currency with payment to be
made in the second foreign currency. Transactions that use two foreign
currencies are sometimes referred to as "cross hedging." Use of a different
foreign currency magnifies the Portfolio's exposure to foreign currency exchange
rate fluctuations. The Asset Strategy Portfolio may also purchase forward
currency contracts to enhance income when the Manager anticipates that the
foreign currency will appreciate in value, but securities denominated in that
currency do not present attractive investment opportunities.

The Asset Strategy Portfolio does not currently intend to invest more than
5% of its total assets in forward currency contracts.

The Asset Strategy Portfolio may purchase and sell foreign currency and
invest in foreign currency deposits. The other Portfolios (other than the Money
Market Portfolio and the Limited-Term Bond Portfolio) may briefly hold foreign
currencies in connection with the purchase or sale of foreign securities.
Currency conversion involves dealer spreads and other costs, although
commissions usually are not charged.

Successful use of forward currency contracts will depend on the Manager's
skill in analyzing and predicting currency values. Forward currency contracts
may substantially change a Portfolio's investment exposure to changes in
currency exchange rates, and could result in losses to the Portfolio if
currencies do not perform as the Manager anticipates. There is no assurance
that the Manager's use of forward currency contracts will be advantageous to a
Portfolio or that it will hedge at an appropriate time.

See the SAI for further information about these instruments and their
risks.

Swaps, Caps and Floors. The Limited-Term Bond Portfolio may enter into
interest rate swap transactions, and purchase or sell interest rate caps and
floors, with respect to domestic interest rates. These transactions may only be
entered into for hedging purposes. The Limited-Term Bond Portfolio expects to
enter into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Limited-Term Bond Portfolio anticipates
purchasing at a later date.

The Asset Strategy Portfolio is not limited in the type of swap, cap,
collar or floor it may enter into as long as the Manager determines it is
consistent with the Portfolio's goal and investment policies. Depending on how
they are used, the swap, cap, collar and floor agreements used by the Asset
Strategy Portfolio may increase or decrease the overall volatility of its
investments and its share price and yield. The most significant factor in the
performance of these agreements is the change in the specific interest rate,
currency, or other factors that determine the amounts of payments due to and
from the Portfolio.

Swaps involve the exchange by a Portfolio with another party of their
respective commitments to pay or receive cash flows, e.g., an exchange of
floating rate payments for fixed rate payments. The purchase of a cap entitles
the purchaser, to the extent that a specified index exceeds a predetermined
value, to receive payments on a notional principal amount from the party selling
such cap. The purchase of a floor entitles the purchaser, to the extent that a
specified index falls below a predetermined value, to receive payments on a
notional principal amount from the party selling such floor. An interest rate
collar combines elements of buying a cap and selling a floor.

A Portfolio usually will enter into swaps on a net basis, i.e., the two
payment streams are netted out, with the Portfolio receiving or paying, as the
case may be, only the net amount of the two payments. If, however, an agreement
calls for payments by a Portfolio, the Portfolio must be prepared to make such
payments when due. The creditworthiness of firms with which a Portfolio enters
into swaps, caps, collars or floors will be monitored by the Manager in
accordance with procedures adopted by the Board of Directors. If a firm's
creditworthiness declines, the value of an agreement would be likely to decline,
potentially resulting in losses. If a default occurs by the other party to such
transaction, the Portfolio will have contractual remedies pursuant to the
agreements related to the transaction. The swap market has grown substantially
in recent years with a large number of banks and investment banking firms acting
both as principals and as agents utilizing standardized swap documentation.

The Portfolios understand that the position of the staff of the Securities
and Exchange Commission is that assets involved in such transactions are
illiquid securities and are, therefore, subject to the limitations on investment
in illiquid securities as described in the SAI.

See the SAI for further information about these instruments and their
risks.

Indexed Securities. Each Portfolio (other than the Growth Portfolio) may
purchase and sell indexed securities, which are securities whose prices are
indexed to the prices of other securities, securities indices, currencies,
precious metals or other commodities, or other financial indicators, as long as
the Manager determines that it is consistent with the Portfolio's investment
goal and policies. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is determined by
reference to a specific instrument or statistic. The Money Market Portfolio
may, however, only invest in bank obligations if they are obligations of a bank
subject to regulation by the U.S. Government (including foreign branches of
these banks) or obligations of a foreign bank having total assets equal to at
least U.S. $500,000,000, and instruments secured by any such obligation. The
Limited-Term Bond Portfolio may, however, only invest in deposits in banks
(represented by certificates of deposit or other evidence of deposit issued by
such banks of varying maturities) to the extent that the principal of such
deposits is insured by the Federal Deposit Insurance Corporation ("Insured
Deposits"). The performance of indexed securities depends to a great extent on
the performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the U.S. and
abroad. At the same time, indexed securities are subject to the credit risks
associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Indexed securities
may be more volatile than the underlying instruments.

Mortgage-Backed and Asset-Backed Securities

Mortgage-backed and asset-backed securities may include pools of consumer
loans or mortgages, such as CMOs and stripped mortgage-backed securities. The
value of these securities may be significantly affected by changes in interest
rates, the market's perception of the issuers, and the creditworthiness of the
parties involved. The Portfolios (other than the Money Market Portfolio and the
Growth Portfolio) may invest in mortgage-backed securities as long as the
Manager determines that it is consistent with the Portfolio's goal and
investment policies. The Limited-Term Bond Portfolio and the Asset Strategy
Portfolio may invest in asset-backed securities. The Asset Strategy Portfolio
does not currently intend to invest more than 40% of its total assets in
mortgage-backed securities and does not currently intend to invest in any non-
mortgage asset-backed securities.

The yield characteristics of mortgage-backed and asset-backed securities
differ from those of traditional debt securities. Among the major differences
are that interest and principal payments are made more frequently on mortgage-
backed and asset-backed securities and that principal may be prepaid at any time
because the underlying mortgage loans or other assets generally may be prepaid
at any time. As a result, if a Portfolio purchases these securities at a
premium, a prepayment rate that is faster than expected will reduce yield to
maturity while a prepayment rate that is slower than expected will have the
opposite effect of increasing yield to maturity. Conversely, if a Portfolio
purchases these securities at a discount, faster than expected prepayments will
increase, while slower than expected prepayments will reduce, yield to maturity.
Accelerated prepayments on securities purchased by a Portfolio at a premium also
impose a risk of loss of principal because the premium may not have been fully
amortized at the time the principal is repaid in full.

Timely payment of principal and interest on pass-through securities of the
Government National Mortgage Association (but not the Federal Home Loan Mortgage
Corporation or the Federal National Mortgage Association) is guaranteed by the
full faith and credit of the United States Government. This is not a guarantee
against market decline of the value of these securities or shares of a
Portfolio. It is possible that the availability (i.e., liquidity) of these
securities could be adversely affected by actions of the U.S. Government to
tighten the availability of its credit.

Stripped Securities

Stripped securities are the separate income or principal components of a
debt instrument. These involve risks that are similar to those of other debt
securities, although they may be more volatile. The prices of stripped
mortgage-backed securities may be particularly affected by changes in interest
rates. The Portfolios may invest in stripped securities as long as the Manager
determines that it is consistent with the Portfolio's investment goal and
policies. The Asset Strategy Portfolio does not currently intend to invest more
than 5% of its total assets in stripped securities.

Risks of Derivatives Instruments

The use of options, futures contracts, options on futures contracts,
forward contracts, swaps, caps, collars, floors and the investment in mortgage-
backed securities, stripped securities and indexed securities involve special
risks, including (i) possible imperfect or no correlation between price
movements of the portfolio investments (held or intended to be purchased)
involved in the transaction and price movements of the instruments involved in
the transaction; (ii) possible lack of a liquid secondary market for any
particular instrument at a particular time; (iii) the need for additional
portfolio management skills and techniques; (iv) losses due to unanticipated
market price movements; (v) the fact that, while such strategies can reduce the
risk of loss, they can also reduce the opportunity for gain, or even result in
losses, by offsetting favorable price movements in investments involved in the
transaction; (vi) incorrect forecasts by the Manager concerning interest or
currency exchange rates or direction of price fluctuations of the investment
involved in the transaction, which may result in the strategy being ineffective;
(vii) loss of premiums paid by a Portfolio on options it purchases; and (viii)
the possible inability of a Portfolio to purchase or sell a portfolio security
at a time when it would otherwise be favorable for it to do so, or the possible
need for a Portfolio to sell a portfolio security at a disadvantageous time, due
to the need for the Portfolio to maintain "cover" or to segregate securities in
connection with such transactions and the possible inability of a Portfolio to
close out or liquidate its position.

For a hedging strategy to be completely effective, the price change of the
hedging instrument must equal the price change of the investment being hedged.
The risk of imperfect correlation of these price changes increases as the
composition of the Portfolios' respective portfolios diverges from instruments
underlying a hedging instrument. Such equal price changes are not always
possible because the investment underlying the hedging instruments may not be
the same investment that is being hedged. The Manager will attempt to create a
closely correlated hedge but hedging activity may not be completely successful
in eliminating market value fluctuation.

The Manager may use derivative instruments, including securities with
embedded derivatives, for hedging purposes to adjust the risk characteristics of
a Portfolio's portfolio of investments and may use some of these instruments to
adjust the return characteristics of a Portfolio's portfolio of investments.
The use of derivative techniques for speculative purposes can increase
investment risk. If the Manager judges market conditions incorrectly or employs
a strategy that does not correlate well with a Portfolio's investments, these
techniques could result in a loss, regardless of whether the intent was to
reduce risk or increase return. These techniques may increase the volatility of
a Portfolio and may involve a small investment of cash relative to the magnitude
of the risk assumed. In addition, these techniques could result in a loss if
the counterparty to the transaction does not perform as promised or if there is
not a liquid secondary market to close out a position that a Portfolio has
entered into.

The ordinary spreads between prices in the cash and futures markets, due to
the differences in the natures of those markets, are subject to distortion. Due
to the possibility of distortion, a correct forecast of general interest,
foreign currency or stock market trends by the Manager may still not result in a
successful transaction. The Manager may be incorrect in its expectations as to
the extent of various interest or foreign exchange rate movements or stock
market movements or the time span within which the movements take place.

Options and futures transactions may increase portfolio turnover rates,
which results in correspondingly greater commission expenses and transactions
costs and may result in certain tax consequences. See the SAI for further
information regarding these and other risks.

The Portfolios may also invest in derivative mortgage-backed securities.
These securities are subject to significant market risks. See "Mortgage-Backed
and Asset-Backed Securities."

New financial products and risk management techniques continue to be
developed. Each Portfolio may use these instruments and techniques to the
extent consistent with its investment goal and regulatory requirements
applicable to investment companies.

Foreign Securities

The Money Market Portfolio may invest up to 10% of its total assets in
Canadian Government obligations and may also invest in foreign bank obligations
and obligations of foreign branches of domestic banks, subject to the
diversification requirements applicable to the Money Market Portfolio. The
Money Market Portfolio will not invest more than 25% of its assets in a
combination of Canadian Government obligations and foreign bank obligations,
both of which must be denominated in U.S. dollars.

The International Portfolio normally invests at least 80% of its assets in
foreign securities. It may not purchase a particular foreign security if as a
result more than 75% of its assets would be invested in issuers of that foreign
country. For defensive purposes, the Portfolio may at times temporarily invest
completely or substantially in U.S. securities. Under normal market conditions,
the International Portfolio intends to have at least 65% of its assets invested
in issuers of at least three different countries outside of the U.S. The
International Portfolio will not invest more than 25% of its assets in
securities issued by the government of any one foreign country.

The Balanced Portfolio may purchase an unlimited amount of foreign
securities. Normally, however, less than 10% of this Portfolio's total assets
will consist of foreign securities. This percentage might increase in the event
the Manager believed that, in light of U.S. economic conditions, there were
increased investment opportunities in foreign securities.

Under normal conditions, the Asset Strategy Portfolio intends to limit its
investments in foreign securities to no more than 50% of its total assets. The
Asset Strategy Portfolio currently intends to limit its investments in
obligations of any single foreign government to less than 25% of its total
assets.

The other Portfolios, except the Limited-Term Bond Portfolio, may invest up
to 20% of their respective total assets in securities of foreign issuers. The
Limited-Term Bond Portfolio may not invest in foreign securities.

Investments in foreign securities may involve a higher degree of risk than
U.S. securities because of the absence of uniform accounting, auditing and
financial standards, less government regulation, changes in currency rates and
in exchange regulations, political instability, limited publicly available
information, less liquidity and the difficulty of obtaining and enforcing a
judgment against a foreign issuer. These considerations generally are
intensified for investments in developing countries. Developing countries may
have relatively unstable governments, economies based on only a few industries,
and securities markets that trade a small number of securities. See the SAI for
further information regarding the types of and risks associated with foreign
securities in which the Portfolios may invest.

U.S. Government Securities

Securities issued or guaranteed by the U.S. Government include a variety of
Treasury securities and other securities that differ as to interest rates,
maturities and dates of issuance. Except for U.S. Treasury securities,
obligations of U.S. Government agencies and instrumentalities may or may not be
supported by the full faith and credit of the United States. Some are backed by
the right of the issuer to borrow from the Treasury; others by discretionary
authority of the U.S. Government to purchase the agencies' obligations; while
still others are supported only by the credit of the instrumentality. In the
case of securities not backed by the full faith and credit of the United States,
the investor must look principally to the agency issuing or guaranteeing the
obligation for ultimate repayment. A Portfolio (other than the Asset Strategy
Portfolio) will invest in securities of such agencies and instrumentalities only
when the Manager is satisfied that the credit risk is acceptable. Mortgage-
backed securities include pass-through securities, participation certificates
and CMOs. See "Mortgage-Backed and Asset-Backed Securities."

Zero Coupon Bonds

Zero coupon bonds do not make interest payments; instead, they are sold at
a deep discount from their face value and are redeemed at face value when they
mature. Because zero coupon bonds do not pay current income, their prices can
be very volatile when interest rates change. In calculating its dividends, a
Portfolio takes into account as income a portion of the difference between a
zero coupon bond's purchase price and its face value.

Direct Debt

The Asset Strategy Portfolio may invest in direct debt instruments. Loans
and other direct debt instruments are interests in amounts owed to another party
by a company, government, or other borrower. They have additional risks beyond
conventional debt securities.

Investments in direct debt instruments may entail less legal protection for
the Asset Strategy Portfolio. Certain types of direct indebtedness purchased by
the Portfolio, such as letters of credit, revolving credit facilities, or other
standby financing commitments, obligate the Portfolio to pay additional cash on
demand. These commitments may have the effect of requiring the Portfolio to
increase its investment in a borrower at a time when it would not otherwise have
done so, even if the borrower's condition makes it unlikely that the amount will
ever be repaid. Other types of direct debt instruments, such as loans through
direct assignment of a financial institution's interest with respect to a loan,
may involve additional risks to the Portfolio. For example, if a loan is
foreclosed, the Portfolio could become part owner of any collateral, and would
bear the costs and liabilities associated with owning and disposing of the
collateral.

Convertible Securities

A convertible security is a bond, debenture, note, preferred stock or other
security that may be converted into or exchanged for a prescribed amount of
common stock of the same or a different issuer within a particular period of
time at a specified price or formula. A convertible security entitles the
holder to receive interest paid or accrued on debt or the dividend paid on
preferred stock until the convertible security matures or is redeemed, converted
or exchanged. Convertible securities have unique investment characteristics in
that they generally (1) have higher yields than those of common stocks of the
same or similar issuers, but lower yields than comparable nonconvertible
securities, (2) are less subject to fluctuation in value than the underlying
stock because they have fixed income characteristics, and (3) provide the
potential for capital appreciation if the market price of the underlying common
stock increases. Convertible securities are usually subordinated to comparable-
tier non-convertible securities but rank senior to common stock in the
corporation's capital structure. The value of a convertible security is a
function of (1) its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege, and (2)
its worth, at market value, if converted into the underlying common stock.

The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value and
generally the conversion value decreases as the convertible security approaches
maturity. To the extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. In addition,
a convertible security generally will sell at a premium over its conversion
value determined by the extent to which investors place value on the right to
acquire the underlying common stock while holding a fixed-income security.

Convertible securities are typically issued by smaller capitalized
companies whose stock prices may be volatile. A convertible security may be
subject to redemption at the option of the issuer at a price established in the
security's governing instrument. If a convertible security held by a Portfolio
is called for redemption, a Portfolio will be required to convert it into the
underlying common stock, sell it to a third party or permit the issuer to redeem
the security. Any of these actions could have an adverse effect on a
Portfolio's ability to achieve its investment objective.

Preferred Stock

Preferred stock is also rated by S&P and MIS, as described in Appendix A to
this Prospectus. Preferred stock rated AAA, AA, A or BBB by S&P or aaa, aa, a
or baa by MIS is considered to be of investment grade. Preferred stock rated BB
or lower by S&P or ba or lower by MIS is considered to have speculative
characteristics. The Portfolios (other than the Money Market Portfolio) may
invest in preferred stock rated in any rating category by an established rating
service and unrated preferred stock judged by the Manager to be of equivalent
quality.

Certain Other Securities

The debt securities in which the Portfolios (other than the Money Market
Portfolio) may invest may include certain instruments whose performance is
linked to a specified equity security or securities index. The preferred stock
in which the Portfolios (other than the Money Market Portfolio) may invest may
include certain preferred stock that converts to common stock either
automatically after a specified period of time or at the option of the issuer.

When-Issued and Delayed-Delivery Transactions

Each Portfolio may without limitation purchase securities on a "when-
issued" or delayed-delivery basis or without limitation sell them on a delayed-
delivery basis in order to secure what is considered to be, at the time of
entering into the transaction, an advantageous price and yield. From the time
of entering into the transaction until delivery and payment is made at a later
date, the securities which are the subject of the transaction are subject to
market fluctuations.

Lending Securities

A Portfolio may lend its securities on a short-term or long-term basis for
the purpose of increasing income. As a fundamental policy, not more than 30% of
the total assets of the Limited-Term Bond Portfolio and no more than 10% of the
total assets of any other Portfolio, will be loaned at any one time, and loans
must be fully collateralized. There are risks associated with loans of
securities including possible loss of, or delay in, recovering the collateral.
If a material event is to be voted upon affecting a Portfolio's investment which
are on loan, the Portfolio will take such action as may be appropriate in order
to vote its shares.

Restricted Securities and Illiquid Investments

Restricted securities are securities that are subject to legal or
contractual restrictions on resale. Restricted securities may be illiquid due
to restrictions on their resale. Subject to their respective limitations on
investment in illiquid investments described in the SAI, each Portfolio may
invest in restricted securities. Restricted securities may be determined to be
liquid pursuant to guidelines established by or under the direction of the
Fund's Board of Directors.

Illiquid investments may be difficult to sell promptly at an acceptable
price. Difficulty in selling securities may result in a loss or may be costly to
a Portfolio.

Warrants and Rights

The Bond Portfolio, the High Income Portfolio, the Growth Portfolio, the
Income Portfolio and the Small Cap Portfolio may invest up to 5% of their
respective net assets, valued at the lower of cost or market, in warrants. The
Asset Strategy Portfolio may invest in warrants and rights to purchase
securities. This Portfolio does not currently intend to purchase warrants,
valued at the lower of cost or market, in excess of 5% of its net assets.
Included in that amount, but not to exceed 2% of its net assets, may be warrants
that are not listed on the New York Stock Exchange or the American Stock
Exchange. Warrants acquired by the Asset Strategy Portfolio in units or
attached to securities are not subject to these restrictions. The International
Portfolio may invest in warrants and rights to purchase securities, provided
that as a result of such investment not more than 5% of its net assets consist
of warrants, rights or a combination thereof.

Risk Factors of High-Yield, High-Risk Investing

The market for high-yield, high-risk debt securities is relatively new and
much of its growth paralleled a long economic expansion, during which this
market involved a significant increase in the use of high-yield debt securities
to fund highly leveraged corporate acquisitions and restructurings. Thereafter,
this market was affected by a relatively high percentage of defaults with
respect to high-yield securities as compared with higher rated securities. An
economic downturn or increase in interest rates is likely to have a greater
negative effect on this market, the value of high-yield debt securities in a
portfolio, a Portfolio's net asset value and the ability of the bonds' issuers
to repay principal and interest, meet projected business goals and obtain
additional financing than on higher rated securities. An investment in a
Portfolio that invests primarily in high-yield debt securities may be considered
more speculative than investment in shares of a fund that invests primarily in
higher rated debt securities.

Prices of high-yield debt securities may be more sensitive to adverse
economic changes or corporate developments than higher rated investments. Debt
securities with longer maturities, which may have higher yields, may increase or
decrease in value more than debt securities with shorter maturities. Market
prices of high-yield debt securities structured as zero coupon or pay-in-kind
securities are affected to a greater extent by interest rate changes and may be
more volatile than securities that pay interest periodically and in cash. Where
it deems it appropriate and in the best interests of Portfolio shareholders, a
Portfolio may incur additional expenses to seek recovery on a debt security on
which the issuer has defaulted and to pursue litigation to protect the interests
of security holders of its portfolio companies.

Because the market for lower-rated securities may be thinner and less
active than for higher-rated securities, there may be market price volatility
for these securities and limited liquidity in the resale market. Unrated
securities are usually not as attractive to as many buyers as rated securities
are, a factor that may make unrated securities less marketable. These factors
may have the effect of limiting the availability of the securities for purchase
by a Portfolio and may also limit the ability of a Portfolio to sell such
securities at their fair value either to meet redemption requests or in response
to changes in the economy or the financial markets. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may decrease
the values and liquidity of high-yield debt securities, especially in a thinly
traded market. To the extent a Portfolio owns or may acquire illiquid or
restricted high-yield securities, these securities may involve special
registration responsibilities, liabilities and costs, and liquidity and
valuation difficulties. Changes in values of debt securities that a Portfolio
owns will affect its net asset value per share. If market quotations are not
readily available for a Portfolio's lower-rated or unrated securities, these
securities will be valued by a method that the Fund's Board of Directors
believes accurately reflects fair value. Valuation becomes more difficult and
judgment plays a greater role in valuing high-yield debt securities than with
respect to securities for which more external sources of quotations and last
sale information are available.

While credit ratings are only one factor the Manager relies on in
evaluating high-yield debt securities, certain risks are associated with using
credit ratings. Credit ratings evaluate the safety of principal and interest
payments, not market value risk. Credit rating agencies may fail to timely
change the credit ratings to reflect subsequent events; however, the Manager
continuously monitors the issuers of high-yield debt securities in its
portfolios in an attempt to determine if the issuers will have sufficient cash
flow and profits to meet required principal and interest payments. Achievement
of a Portfolio's investment goal may be more dependent upon the Manager's credit
analysis than is the case for higher quality debt securities. Credit ratings
for individual securities may change from time to time and a Portfolio may
retain a portfolio security whose rating has been changed.

During the fiscal year ended December 31, 1994, the percentage of the
assets of the Bond Portfolio and High Income Portfolio invested in debt
securities in each of the rating categories of S&P, and the debt securities not
rated by an established rating service, determined on a dollar-weighted average,
were as follows:

Rated by Percentage of
S&P Fund Assets
-------- -------------
Bond Portfolio High Income Portfolio
-------------- ---------------------
AAA 25.2% 0.0%
AA 7.6 0.0
A 15.3 0.0
BBB 28.7 0.0
BB 12.2 6.3
B 3.5 77.6
CCC 0.0 3.1
CC 0.0 0.0
C 0.0 0.0
D 0.0 0.0

Unrated 3.2 2.0

The percentage of assets in each category was calculated on the basis of a
monthly dollar-weighted average. The monthly dollar weighted-average was
calculated using the market value of the securities in the Portfolio's portfolio
at the end of each month in the thirteen-month period ended with the Portfolio's
last fiscal year, averaged over the Portfolio's last fiscal year. The rating
used for each security is that security's rating as of the end of each month
and, as ratings may change over time, does not necessarily indicate past or
future ratings of any particular security or the ratings of securities in the
portfolio in general. Asset composition of a Portfolio by rating categories at
any particular time does not necessarily indicate future asset composition by
rating categories.

MANAGEMENT

Waddell & Reed, Inc. and its predecessors served as investment manager to
the Fund since its inception and to each of the registered investment companies
in the United Group of Mutual Funds, except United Asset Strategy Fund, Inc.,
since 1940 or the inception of the investment company, whichever was later. On
January 8, 1992, subject to the authority of the Fund's Board of Directors,
Waddell & Reed, Inc. assigned its investment management duties (and assigned its
professional staff for investment management services) to Waddell & Reed
Investment Management Company, a wholly-owned subsidiary of Waddell & Reed, Inc.
The Manager has also served as investment manager for Waddell & Reed Funds, Inc.
since its inception in September 1992, Torchmark Government Securities Fund,
Inc. and Torchmark Insured Tax-Free Fund, Inc. since each commenced operations
in February 1993 and United Asset Strategy Fund, Inc. since it commenced
operations in March 1995. Waddell & Reed, Inc. serves as distributor for the
Fund and as underwriter for each of the investment companies in the United Group
of Mutual Funds and Waddell & Reed Funds, Inc. Waddell & Reed, Inc. is an
indirect subsidiary of Torchmark Corporation, a holding company, and United
Investors Management Company, a holding company, and a direct subsidiary of
Waddell & Reed Financial Services, Inc., a holding company.

Subject to the authority of the Fund's Board of Directors, the Manager
provides investment advice and supervises investments for which it is paid a fee
consisting of two elements: (i) a specific fee computed on each Portfolio's net
asset value as of the close of business each day at the following annual rates:
Money Market Portfolio - none; Bond Portfolio - .03 of 1% of net assets; High
Income Portfolio - .15 of 1% of net assets; Growth Portfolio - .20 of 1% of net
assets; Income Portfolio - .20 of 1% of net assets; International Portfolio -
.30 of 1% of net assets; Small Cap Portfolio - .35 of 1% of net assets; Balanced
Portfolio - .10 of 1% of net assets; Limited-Term Bond Portfolio - .05 of 1% of
net assets; Asset Strategy Portfolio - .30 of 1% of net assets; and (ii) a base
fee computed each day on the combined net asset values of all of the Portfolios
and allocated among the Portfolios based on their relative net asset size at the
annual rates shown in the following table.

Base Fee Rate

Group Net Asset Level Annual Base Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 750 .51 of 1%
From $ 750 to $1,500 .49 of 1%
From $1,500 to $2,250 .47 of 1%
Over $2,250 .45 of 1%

Prior to September 1, 1994, the annual base fee was .51 of 1%. Prior to
the above-described assignment to the Manager on January 8, 1992, the fees were
paid to Waddell & Reed, Inc.

As of December 31, 1994, the combined net assets of all of the Portfolios
then in existence were $725,399,035.

For the fiscal year ended December 31, 1994, management fees for each
Portfolio then in existence as a percent of each such Portfolio's average net
assets and total expenses for each such Portfolio as a percent of the
Portfolio's average net assets for that year are as follows:

Management Fees Total Expenses

Money Market Portfolio 0.51% 0.65%

Bond Portfolio 0.54% 0.62%

High Income Portfolio 0.66% 0.74%

Growth Portfolio 0.71% 0.77%

Income Portfolio 0.71% 0.77%

International Portfolio* 0.81% 1.26%

Small Cap Portfolio* 0.86% 1.08%

Balanced Portfolio* 0.61% 0.95%

Limited-Term Bond Portfolio* 0.56% 0.93%

*The International Portfolio, Small Cap Portfolio, Balanced Portfolio and
Limited-Term Bond Portfolio commenced operations April 29, 1994.

The Asset Strategy Portfolio commenced operations in 1995.

Waddell & Reed Services Company, a subsidiary of Waddell & Reed, Inc., acts
as Agent ("Accounting Services Agent") in providing bookkeeping and accounting
services and assistance to the Fund and pricing daily the value of shares of
each Portfolio. For these services, each Portfolio pays the Accounting Services
Agent a monthly fee of one-twelfth of the annual fee shown in the following
table.

Accounting Services Fee

Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Portfolio
- ------------------------- -----------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000

The Fund is responsible for the payment of certain expenses, including the
management fees and accounting services fees described above, fees and expenses
of certain directors, costs of materials sent to shareholders, audit and outside
legal fees, taxes, brokerage commissions, interest, insurance premiums, fees
payable under securities laws and to the Investment Company Institute, costs of
shareholder records, costs of systems or services used to price Portfolio
securities and extraordinary expenses, including litigation and indemnification
relating to litigation.

Richard K. Poettgen is primarily responsible for the day-to-day management
of the portfolio of the Money Market Portfolio. Mr. Poettgen has held his
responsibilities for the Money Market Portfolio since January 1989. He is Vice
President of the Manager. He is Vice President and Assistant Treasurer of the
Fund and Vice President and Assistant Treasurer of other investment companies
for which the Manager serves as investment manager. Mr. Poettgen has served as
the portfolio manager for investment companies managed by Waddell & Reed, Inc.
and its successor, the Manager, since January 1989 and has been an employee of
Waddell & Reed, Inc. and its successor, the Manager, since April 1968.

James C. Cusser is primarily responsible for the day-to-day management of
the portfolio of the Bond Portfolio. Mr. Cusser has held his responsibilities
for the Bond Portfolio since August 1992. He is Vice President of the Manager,
Vice President of the Fund and Vice President of other investment companies for
which the Manager serves as investment manager. Mr. Cusser has served as the
portfolio manager for investment companies managed by the Manager since August
1992 and has been an employee of the Manager since August 1992. Prior to that
date, Mr. Cusser was a fixed income strategist for a major brokerage firm.

Louise D. Rieke is primarily responsible for the day-to-day management of
the portfolio of the High Income Portfolio. Ms. Rieke has held her
responsibilities for the High Income Portfolio since July 1987. She is Vice
President of the Manager and Vice President of Waddell & Reed Asset Management
Company, an affiliate of the Manager. She is Vice President of the Fund and
Vice President of other investment companies for which the Manager serves as
investment manager. Ms. Rieke has served as the portfolio manager for
investment companies managed by Waddell & Reed, Inc. and its successor, the
Manager, since January 1990 and has been an employee of Waddell & Reed, Inc. and
its successor, the Manager, since May 1971.

Antonio Intagliata is primarily responsible for the day-to-day management
of the portfolio of the Growth Portfolio. Mr. Intagliata has held his
responsibilities for the Growth Portfolio since July 1987. He is Senior Vice
President of the Manager. He is Vice President of the Fund and Vice President
of other investment companies for which the Manager serves as investment
manager. Mr. Intagliata has served as the portfolio manager for investment
companies managed by Waddell & Reed, Inc. and its successor, the Manager, since
February 1979 and has been an employee of Waddell & Reed, Inc. and its
successor, the Manager, since June 1973.

Russell E. Thompson is primarily responsible for the day-to-day management
of the portfolio of the Income Portfolio. Mr. Thompson has held his
responsibilities for the Income Portfolio since July 1991, the Portfolio's
inception. He is Senior Vice President of the Manager and Senior Vice President
of Waddell & Reed Asset Management Company, an affiliate of the Manager. He is
Vice President of the Fund and Vice President of other investment companies for
which the Manager serves as investment manager. Mr. Thompson has served as the
portfolio manager for investment companies managed by Waddell & Reed, Inc. and
its successor, the Manager, since January 1976 and has been an employee of
Waddell & Reed, Inc. and its successor, the Manager, since March 1971.

Mark L. Yockey is primarily responsible for the day-to-day management of
the portfolio of the International Portfolio. Mr. Yockey has held his
responsibilities for the International Portfolio since July 1994, the
Portfolio's inception. He is Vice President of the Manager, Vice President of
the Fund and Vice President of other investment companies for which the Manager
serves as investment manager. Mr. Yockey has served as the portfolio manager
for investment companies managed by Waddell & Reed, Inc. and its successor, the
Manager, since January 1990 and has been an employee of Waddell & Reed, Inc. and
its successor, the Manager, since November 1986.

Mark G. Seferovich is primarily responsible for the day-to-day management
of the portfolio of the Small Cap Portfolio. Mr. Seferovich has held his
responsibilities for the Small Cap Portfolio since July 1994, the Portfolio's
inception. He is Vice President of the Manager, Vice President of the Fund and
Vice President of other investment companies for which the Manager serves as
investment manager. Mr. Seferovich has served as the portfolio manager for
investment companies managed by Waddell & Reed, Inc. and its successor, the
Manager, since February 1989 and has been an employee of Waddell & Reed, Inc.
and its successor, the Manager, since February 1989. He previously served as
portfolio manager for a brokerage firm.

Cynthia P. Prince-Fox is primarily responsible for the day-to-day
management of the portfolio of the Balanced Portfolio. Ms. Prince-Fox has held
her responsibilities for the Balanced Portfolio since July 1994, the Portfolio's
inception. She is Vice President of the Manager, Vice President of the Fund and
Vice President of other investment companies for which the Manager serves as
investment manager. Ms. Prince-Fox has served as the portfolio manager for
investment companies managed by the Manager since January 1993 and has been an
investment analyst with Waddell & Reed, Inc. and its successor, the Manager,
since February 1983.

Patrick W. Sterner is primarily responsible for the day-to-day management
of the portfolio of the Limited-Term Bond Portfolio. Mr. Sterner has held his
responsibilities for the Limited-Term Bond Portfolio since July 1994, the
Portfolio's inception. He is Vice President of the Manager, Vice President of
the Fund and Vice President of investment companies for which the Manager serves
as investment manager. Mr. Sterner has served as the portfolio manager for
investment companies managed by the Manager since September 1992 and has been an
employee of the Manager since August 1992. Prior to that date, Mr. Sterner was
Chief Investment Officer of a bank.

James D. Wineland is primarily responsible for the day-to-day management of
the portfolio of the Asset Strategy Portfolio. Mr. Wineland has held his
responsibilities for the Asset Strategy Portfolio since the inception of the
Portfolio. He is Vice President of the Manager, Vice President of the Fund and
Vice President of other investment companies for which the Manager serves as
investment manager. Mr. Wineland has served as the portfolio manager for
investment companies managed by Waddell & Reed, Inc. and its successor, the
Manager, since January 1988 and has been an employee of Waddell & Reed, Inc. and
its successor, the Manager, since November 1984.

Other members of the Manager's investment management department provide
input on market outlook, economic conditions, investment research and other
considerations relating to the investments of the Portfolios.

NET ASSET VALUE

The net asset value of a share of a Portfolio is the value of its assets,
less liabilities, divided by the total number of shares.

The net asset value per share of each Portfolio is computed daily as of the
later of the close of the regular session of the New York Stock Exchange (the
"NYSE") or the close of the regular session of any other securities or
commodities exchange on which an option or future held by a Portfolio is traded
on each day that the NYSE is open for trading. The NYSE's regular session
ordinarily closes at 4:00 P.M. eastern time.

The Money Market Portfolio uses the amortized cost method for valuing its
portfolio securities. See the SAI for discussion of this method. Net asset
value of the Money Market Portfolio is normally fixed at $1.00 per share. See
the SAI for a discussion of extraordinary circumstances which could result in a
change in this fixed share value.

The securities of the other Portfolios that are listed or traded on a U.S.
or foreign stock exchange are valued at the last sales price on that day. OTC
securities traded on Nasdaq are valued at a price which is the mean between the
closing bid and asked prices. Bonds, other than convertible bonds, are valued
using a pricing system provided by a major dealer in bonds. Convertible bonds
are valued using this pricing system only on days when there is no sale
reported. Short-term debt securities with a maturity of 60 days or less are
valued at amortized cost. When market quotations for options and futures
positions or non-exchange traded foreign securities held by a Portfolio are
readily available, those positions and securities will be valued based upon such
quotations. Market quotations generally will not be available for options
traded in the OTC market. When market quotations are not readily available,
securities, options, futures and other assets are valued at fair value in a
manner determined in good faith under procedures established by and under the
general supervision and responsibility of the Board of Directors.

Certain of the Portfolios may invest in securities listed on foreign
exchanges which may trade on Saturdays and on customary U.S. national business
holidays when the NYSE is closed. Consequently, the net asset value of a
Portfolio could be significantly affected on days when the Portfolio does not
price its shares.

PURCHASES AND REDEMPTIONS

Redemptions will be made at the net asset value per share of the Portfolio
next determined after receipt of the request to redeem from the Participating
Insurance Company. Payment is generally made within seven days after receipt of
a proper request to redeem. No fee is charged to shareholders upon redemption
of Portfolio shares. The Fund may suspend the right of redemption of shares of
any Portfolio and may postpone payment for any period if any of the following
conditions exist: (i) the Exchange is closed other than customary weekend and
holiday closings or trading on the Exchange is restricted; (ii) the Securities
and Exchange Commission has determined that a state of emergency exists which
may make payment or transfer not reasonably practicable; (iii) the Securities
and Exchange Commission has permitted suspension of the right of redemption of
shares for the protection of the security holders of the Fund; or (iv)
applicable laws and regulations otherwise permit the Fund to suspend payment on
the redemption of shares. Redemptions are ordinarily made in cash.

Should any conflict between Policyowners arise which would require that a
substantial amount of net assets be withdrawn from the Fund, orderly management
of portfolio securities could be disrupted to the potential detriment of
Policyowners.

DIVIDENDS AND DISTRIBUTIONS

It is the Fund's intention to distribute substantially all the net
investment income, if any, of each Portfolio. For dividend purposes, net
investment income of each Portfolio, other than the Money Market Portfolio,
consists of dividends and interest received by such Portfolio less the estimated
expenses of such Portfolio. The Money Market Portfolio's net investment income
for dividend purposes consists of all interest income accrued on the Portfolio's
securities, plus or minus realized gains or losses on those securities, less the
Portfolio's expenses.

Dividends from the Money Market Portfolio are declared and reinvested daily
in additional full and fractional shares. Dividends from the Growth Portfolio,
Bond Portfolio, High Income Portfolio, Income Portfolio, International
Portfolio, Small Cap Portfolio, Balanced Portfolio, Limited-Term Bond Portfolio
and the Asset Strategy Portfolio usually are declared, paid and reinvested
annually in December in additional full and fractional shares of the respective
Portfolio. Ordinarily, dividends are paid on shares starting on the day after
they are issued and through the day they are redeemed.

All net realized long-term or short-term capital gains of each Portfolio,
if any, other than the Money Market Portfolio, are declared and reinvested
annually in December in additional full and fractional shares of the respective
Portfolio. Short-term capital gains of the Money Market Portfolio--it does not
anticipate realizing any long-term capital gains--are declared and reinvested
daily in additional full and fractional shares of that Portfolio.

TAXES

Each of the Portfolios has qualified or, if a new Portfolio, intends to
qualify for treatment as a "regulated investment company" ("RIC") under
Subchapter M of the Code. So long as a Portfolio qualifies as such, the
Portfolio will be relieved of Federal income tax on the income and gains
distributed to its shareholders.

Each Portfolio intends to comply with the diversification requirements
imposed by section 817(h) of the Code and the regulations thereunder. These
requirements, which are in addition to the diversification requirements imposed
on the Portfolios by the 1940 Act and Subchapter M of the Code, place certain
limitations on the assets of each separate account -- and, because section
817(h) and those regulations treat the assets of each Portfolio as assets of the
related separate account, of each Portfolio -- that may be invested in
securities of a single issuer. Specifically, the regulations provide that,
except as permitted by the "safe harbor" described below, as of the end of each
calendar quarter or within 30 days thereafter, no more than 55% of a Portfolio's
total assets may be represented by any one investment, no more than 70% by any
two investments, no more than 80% by any three investments and no more than 90%
by any four investments. For this purpose, all securities of the same issuer
are considered a single investment, and while each U.S. Government agency and
instrumentality is considered a separate issuer, a particular foreign government
and its agencies, instrumentalities and political subdivisions all will be
considered the same issuer. Section 817(h) provides, as a safe harbor, that a
separate account will be treated as being adequately diversified if the
diversification requirements under Subchapter M are satisfied and no more than
55% of the value of the account's total assets are cash and cash items,
government securities and securities of other RICs. Failure of a Portfolio to
satisfy the section 817(h) requirements would result in taxation of the
Participating Insurance Companies and treatment of the Policyowners other than
as described in the prospectuses for the Policies.

The foregoing is only a summary of some of the important Federal income tax
considerations generally affecting the Portfolios; see the SAI for a more
detailed discussion.

Because the only shareholders of the Portfolios will be the Participating
Insurance Companies and their separate accounts, no discussion is included
herein as to the Federal income tax consequences to the Portfolios'
shareholders. For information concerning the Federal tax consequences to
Policyowners, see the prospectuses for the Policies. Prospective investors are
urged to consult with their tax advisers.

OTHER INFORMATION

The Fund was incorporated in Maryland on December 2, 1986. It has a Board
of Directors which has overall responsibility for the management of its affairs.
Capital stock is currently divided into the ten classes that are designated the
Money Market Portfolio, the Bond Portfolio, the High Income Portfolio, the
Growth Portfolio, the Income Portfolio, the International Portfolio, the Small
Cap Portfolio, the Balanced Portfolio, the Limited-Term Bond Portfolio and the
Asset Strategy Portfolio. The Fund may establish additional portfolios in the
future. Shares of each class are fully paid and nonassessable when issued. The
Fund does not hold annual meetings of shareholders; however, certain significant
corporate matters, such as the approval of a new investment advisory agreement
or a change in a fundamental investment policy, which require shareholder
approval, will be presented to shareholders at an annual meeting or special
meeting called by the Board of Directors for such purpose.

All shares of the Fund have equal voting rights (regardless of the net
asset value per share) except that on matters affecting only one Portfolio, only
shares of the respective Portfolio are entitled to vote. Matters in which the
interests of all the Portfolios are substantially identical are voted on by all
shareholders without regard to the separate Portfolios. Matters that affect all
the Portfolios but where the interests of the Portfolios are not substantially
identical are voted on separately by each Portfolio. Matters affecting only one
Portfolio, such as a change in its fundamental policies, are voted on separately
by the Portfolio.

Shareholder inquiries may be addressed to the Fund or Waddell & Reed, Inc.
at the address that appears on the front cover of this Prospectus.

<PAGE>
APPENDIX A

The following are descriptions of some of the ratings of securities which
the Fund may use. The Fund may also use ratings provided by other nationally
recognized statistical rating organizations in determining the eligibility of
securities for the Portfolios.

DESCRIPTION OF BOND RATINGS

Standard & Poor's Ratings Services. A Standard & Poor's ("S&P") corporate
or municipal bond rating is a current assessment of the creditworthiness of an
obligor with respect to a specific obligation. This assessment of
creditworthiness may take into consideration obligors such as guarantors,
insurers or lessees.

The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.

The ratings are based on current information furnished to S&P by the issuer
or obtained by S&P from other sources it considers reliable. S&P does not
perform any audit in connection with any ratings and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.

The ratings are based, in varying degrees, on the following considerations:

1. Likelihood of default -- capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligation.;.

2. Nature of and provisions of the obligation;

3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.

A brief description of the applicable S&P rating symbols and their meanings
follow:

AAA -- Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA -- Debt rated AA also qualifies as high-quality debt. Capacity to pay
interest and repay principal is very strong, and debt rated AA differs from AAA
issues only in small degree.

A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits 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.

BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded as having
predominantly speculative characteristics 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 C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.

BB -- Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces 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 -- Debt rated B has a greater vulnerability to default but currently has
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.

CCC -- Debt rated CCC has a currently indefinable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.

CC -- The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.

C -- The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.

CI -- The rating CI is reserved for income bonds on which no interest is
being paid.

D -- Debt rated D is in payment default. It is used when interest payments
or principal payments are not made on a due date even if the applicable grace
period has not expired, unless S&P believes that such payments will be made
during such grace periods. The D rating will also be used upon a filing of a
bankruptcy petition if debt service payments are jeopardized.

Plus (+) or Minus (-) -- To provide more detailed indications of credit
quality, the ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.

NR -- Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.

Debt Obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.

Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories (AAA, AA, A, BBB, commonly known as "Investment Grade" ratings)
are generally regarded as eligible for bank investment. In addition, the Legal
Investment Laws of various states governing legal investments may impose certain
rating or other standards for obligations eligible for investment by savings
banks, trust companies, insurance companies and fiduciaries generally.

Moody's Investors Service, Inc. A brief description of the applicable
Moody's Investors Service rating symbols and their meanings follows:

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 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 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. Some bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

NOTE: Bonds within the above categories which possess the strongest investment
attributes are designated by the symbol "1" following the rating.

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 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.

DESCRIPTION OF PREFERRED STOCK RATINGS

Standard & Poor's Ratings Services. A S&P preferred stock rating is an
assessment of the capacity and willingness of an issuer to pay preferred stock
dividends and any applicable sinking fund obligations. A preferred stock rating
differs from a bond rating inasmuch as it is assigned to an equity issue, which
issue is intrinsically different from, and subordinated to, a debt issue.
Therefore, to reflect this difference, the preferred stock rating symbol will
normally not be higher than the debt rating symbol assigned to, or that would be
assigned to, the senior debt of the same issuer.

The preferred stock ratings are based on the following considerations:

1. Likelihood of payment - capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation;

2. Nature of, and provisions of, the issue;

3. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangement under the laws of bankruptcy and other laws affecting
creditors' rights.

AAA -- This is the highest rating that may be assigned by Standard & Poor's
to a preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.

AA -- A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.

A -- An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.

BBB -- An issue rated BBB is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the 'A' category.

BB, B, CCC -- Preferred stock rated BB, B, and CCC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations. BB indicates the lowest degree of speculation
and CCC the highest degree of speculation. While such issues will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.

CC -- The rating CC is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.

C -- A preferred stock rated C is a non-paying issue.

D -- A preferred stock rated D is a non-paying issue with the issuer in
default on debt instruments.

NR -- This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.

Plus (+) or minus (-) -- To provide more detailed indications of preferred
stock quality, the rating from AA to CCC may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.

A preferred stock rating is not a recommendation to purchase, sell, or hold
a security inasmuch as it does not comment as to market price or suitability for
a particular investor. The ratings are based on current information furnished
to S&P by the issuer or obtained by S&P from other sources it considers
reliable. S&P does not perform an audit in connection with any rating and may,
on occasion, rely on unaudited financial information. The ratings may be
changed, suspended, or withdrawn as a result of changes in, or unavailability
of, such information, or based on other circumstances.

Moody's Investors Service, Inc. Note: Moody's applies numerical modifiers
1, 2 and 3 in each rating classification; 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.

Preferred stock rating symbols and their definitions are as follows:

aaa -- An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.

aa -- An issue which is rated aa is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance the earnings
and asset protection will remain relatively well-maintained in the foreseeable
future.

a -- An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the aaa
and aa classification, earnings and asset protection are, nevertheless, expected
to be maintained at adequate levels.

baa -- An issue which is rated baa is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and
asset protection appear adequate at present but may be questionable over any
great length of time.

ba -- An issue which is rated ba is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset protection
may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.

b -- An issue which is rated b generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.

caa -- An issue which is rated caa is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future
status of payments.

ca -- An issue which is rated ca is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payments.

c -- This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

DESCRIPTION OF COMMERCIAL PAPER RATINGS

S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market. Ratings are
graded into several categories, ranging from A-1 for the highest quality
obligations to D for the lowest. Issuers rated A are further referred to by use
of numbers 1, 2 and 3 to indicate the relative degree of safety. Issues
assigned an A rating (the highest rating) are regarded as having the greatest
capacity for timely payment. An A-1 designation indicates that 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. An A-2 rating indicates that capacity for timely payment is
satisfactory; however, the relative degree of safety is not as high as for
issues designated A-1. Issues rated A-3 have adequate capacity for timely
payment; however, they are more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations. Issues rated B
are regarded as having only speculative capacity for timely payment. A C rating
is assigned to short-term debt obligations with a doubtful capacity for payment.
Debt rated D is in payment default, which occurs when interest payments or
principal payments are not made on the date due, even if the applicable grace
period has not expired, unless Standard & Poor's believes that such payments
will be made during such grace period.

Moody's Investors Service, Inc. commercial paper ratings are opinions of
the ability of issuers to repay punctually promissory obligations not having an
original maturity in excess of nine months. Moody's employs the designations of
Prime 1, Prime 2 and Prime 3, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers. Issuers rated Prime 1 have a
superior capacity for repayment of short-term promissory obligations and
repayment capacity will normally be evidenced by (1) leading market positions in
well established industries; (2) high rates of return on funds employed; (3)
conservative capitalization structures with moderate reliance on debt and ample
asset protection; (4) broad margins in earnings coverage of fixed financial
charges and high internal cash generation; and (5) well established access to a
range of financial markets and assured sources of alternate liquidity. Issuers
rated Prime 2 also have a strong capacity for repayment of short-term promissory
obligations as will normally be evidenced by many of the characteristics
described above for Prime 1 issuers, 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; and ample alternate liquidity is maintained. Issuers rated
Prime 3 have an acceptable capacity for repayment of short-term promissory
obligations, as will normally be evidenced by many of the characteristics above
for Prime 1 issuers, but to a lesser degree. The effect of industry
characteristics and market composition may be more pronounced; variability in
earnings and profitability may result in changes in the level of debt protection
measurements and requirement for relatively high financial leverage; and
adequate alternate liquidity is maintained.

DESCRIPTION OF NOTE RATINGS

Standard & Poor's Ratings Services. A S&P note rating reflects the
liquidity factors and market access risks unique to notes. Notes maturing in 3
years or less will likely receive a note rating. Notes maturing beyond 3 years
will most likely receive a long-term debt rating. The following criteria will
be used in making that assessment.

--Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue is to be treated as a note).
--Source of Payment (the more the issue depends on the market for its
refinancing, the more likely it is to be treated as a note.)

The note rating symbols and definitions are as follows:

SP-1 Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term
of the notes.
SP-3 Speculative capacity to pay principal and interest.

Moody's Investors Service, Inc. Moody's Short-Term Loan Ratings -- Moody's
ratings for state and municipal short-term obligations will be designated
Moody's Investment Grade (MIG). This distinction is in recognition of the
differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in short-
term borrowing, while various factors of major importance in bond risk are of
lesser importance over the short run. Rating symbols and their meanings follow:

MIG 1 -- This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.

MIG 2 -- This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.

MIG 3 -- This designation denotes favorable quality. All security elements
are accounted for but this is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.

MIG 4 -- This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.

<PAGE>
TMK/UNITED FUNDS, INC.

6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217

PROSPECTUS
November 1, 1995

Custodian
UMB Bank, n. a.
Kansas City, Missouri

Legal Counsel
Kirkpatrick & Lockhart LLP
1800 M Street NW
Washington, D. C.

Independent Accountants
Price Waterhouse LLP
Kansas City, Missouri

Investment Manager
Waddell & Reed Investment Management Company
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000

Distributor and Underwriter
Waddell & Reed, Inc.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000

Accounting Services Agent
Waddell & Reed Services Company
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000

TABLE OF CONTENTS

Prospectus Summary ..................... 2
Financial Highlights ................... 4
The Fund ............................... 14
Goals and Investment Policies
of the Portfolios .................... 15
Management ............................. 35
Net Asset Value ........................ 38
Purchases and Redemptions .............. 39
Dividends and Distributions ............ 39
Taxes .................................. 40
Other Information ...................... 40
Appendix A ............................. 42

<PAGE>
TMK/UNITED FUNDS, INC.

6300 Lamar Avenue

P. O. Box 29217

Shawnee Mission, Kansas 66201-9217

913/236-2000

November 1, 1995

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information (the "SAI") is not a prospectus.
This SAI should be read in conjunction with the prospectus (the "Prospectus") of
TMK/United Funds, Inc. (the "Fund") dated November 1, 1995, which may be
obtained by request to the Fund or its Distributor and Underwriter, Waddell &
Reed, Inc., at the address or telephone number shown above.

TABLE OF CONTENTS

Performance Information .......................... 2

Goals and Investment Policies .................... 5

Investment Management and Other Services ......... 47

Net Asset Value .................................. 50

Purchases and Redemptions ........................ 53

Shareholder Communications ....................... 54

Taxes ............................................ 54

Dividends and Distributions ...................... 58

Portfolio Transactions and Brokerage ............. 59

Directors and Officers ........................... 61

Other Information ................................ 67

Financial Statements ............................. 70

<PAGE>
PERFORMANCE INFORMATION

From time to time, advertisements and sales materials for one or more of
the Portfolios may include total return information, yield information and/or
performance rankings. Performance data will be accompanied by or used in
calculating performance data for the respective separate accounts that invest in
the Portfolio.

Total Return

The following relates to Bond Portfolio, High Income Portfolio, Growth
Portfolio, Income Portfolio, International Portfolio, Small Cap Portfolio,
Balanced Portfolio, Limited-Term Bond Portfolio and Asset Strategy Portfolio.
An average annual total return quotation is computed by finding the average
annual compounded rates of return over the one-, five-, and ten-year periods
that would equate the initial amount invested to the ending redeemable value.
Total return is calculated by assuming an initial $1,000 investment. No sales
charge is required to be paid by the Participating Insurance Companies for
purchase of shares. All dividends and distributions are assumed to be
reinvested at net asset value as of the day the dividend or distribution is
paid. The formula used to calculate the total return is:

n
P(1 + T) = ERV

Where : P = $1,000 initial payment
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of the $1,000 investment for the
periods shown.

The average annual total return quotations as of June 30, 1995, which is
the most recent balance sheet included in this Statement of Additional
Information, for the periods shown were as follows:

One-year Five-year
period from period from Period from
7-1-94 to 7-1-89 to 7-13-872 to
6-30-951 6-30-95 6-30-95
----------- ----------- -----------
Bond Portfolio 12.40% 9.37% 8.95%
High Income Portfolio 9.43% 12.77% 9.07%
Growth Portfolio 21.91% 15.99%3 14.76%
Income Portfolio 23.76% 14.83%
International Portfolio 10.22% 6.54%4
Small Cap Portfolio 39.44% 33.61%4
Balanced Portfolio 11.13% 9.73%4
Limited-Term Bond Portfolio 9.43% 7.89%4
Asset Strategy Portfolio 4.45%5

1Asset Strategy Portfolio began operations in 1995.
2Date of initial public offering.
3Period from July 16, 1991, date of initial offering, to June 30, 1995.
4Period from May 3, 1994, date of initial offering, to June 30, 1995.
5Period from May 1, 1995, date of initial offering, to September 30, 1995.

Unaveraged or cumulative total return may also be quoted. Such total
return data reflects the change in value of an investment over a stated period
of time. Cumulative total returns will be calculated according to the formula
indicated above but without averaging the rate for the number of years in the
period. The Fund may also provide non-standardized performance information.

Yield

The following relates to the Money Market Portfolio. There are two methods
by which Money Market Portfolio's yield for a specified time is calculated. The
first method, which results in an amount referred to as the "current yield,"
assumes an account containing exactly one share at the beginning of the period.
The net asset value of this share will be $1.00 except under extraordinary
circumstances. The net change in the value of the account during the period is
then determined by subtracting this beginning value from the value of the
account at the end of the period which will include all dividends accrued;
however, capital changes are excluded from the calculation, i.e., realized gains
and losses from the sale of securities and unrealized appreciation and
depreciation. However, so that the change will not reflect the capital changes
to be excluded, the dividends used in the yield computation may not be the same
as the dividends actually declared, as certain realized gains and losses and,
under unusual circumstances, unrealized gains and losses (see "Purchases and
Redemptions"), will be taken into account in the calculation of dividends
actually declared. Instead, the dividends used in the yield calculation will be
those which would have been declared if the capital changes had not affected the
dividends.

This net change in the account value is then divided by the value of the
account at the beginning of the period (i.e., normally $1.00 as discussed above)
and the resulting figure (referred to as the "base period return") is then
annualized by multiplying it by 365 and dividing it by the number of days in the
period with the resulting current yield figure carried to at least the nearest
hundredth of one percent.

The second method results in a figure referred to as the "effective yield."
This represents an annualization of the current yield with dividends reinvested
daily. Effective yield is calculated by compounding the base period return by
adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting
1 from the result and rounding the result to the nearest hundredth of one
percent according to the following formula:

365/7
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)] -1

The Money Market Portfolio's current yield as calculated above for the
seven days ended June 30, 1995, the date of the most recent balance sheet
included in this SAI, was 5.00% and its effective yield calculated for the same
period was 5.12%.

Performance Rankings

The following relates to each of the Portfolios. From time to time,
advertisements and information furnished to present or prospective Policyholders
may include performance rankings as published by recognized independent mutual
fund statistical services such as Lipper Analytical Services, Inc., or by
publications of general interest such as Forbes, Money, The Wall Street Journal,
Business Week, Barron's, Fortune or Morningstar Mutual Fund Values. A
Portfolio's performance may also be compared to that of other selected mutual
funds or recognized market indicators such as the Standard & Poor's 500 Stock
Index and the Dow Jones Industrial Average. Performance information may be
quoted numerically or presented in a table, graph or other illustration.

General

Change in yields primarily reflect different interest rates received by a
Portfolio as its portfolio securities change. Yield is also affected by
portfolio quality, portfolio maturity, type of securities held and operating
expense ratio.

All performance information included in advertisements or sales material is
historical in nature and is not intended to represent or guarantee future
results. The value of a Portfolio's shares when redeemed may be more or less
than their original cost.

GOALS AND INVESTMENT POLICIES

The following information supplements the disclosure in the Prospectus
concerning the goals and investment policies of each Portfolio. Unless
otherwise specified, this information pertains to each of the Portfolios. The
investment policies described may be changed by the Directors of the Fund
without a vote of shareholders, unless otherwise stated.

The Money Market Portfolio

The Money Market Portfolio may invest in the money market obligations and
instruments listed below. Under Rule 2a-7 ("Rule 2a-7") of the Investment
Company Act of 1940, as amended (the "1940 Act"), investments are limited to
those that are denominated in U.S. dollars and that are rated in one of the two
highest rating categories by the requisite nationally recognized statistical
rating organization(s) ("NRSRO(s)"), as defined in Rule 2a-7, or are comparable
unrated securities. See the Prospectus Appendix for a description of some of
these ratings. In addition, Rule 2a-7 limits investments in securities of any
one issuer (except securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities ("U.S. Government Securities")) to no more than 5%
of the Portfolio's assets. Investments in securities rated in the second
highest rating category by the requisite NRSRO(s) or comparable unrated
securities are limited to no more than 5% of the Portfolio's assets, with
investments in such securities of any one issuer (except U.S. Government
Securities) being limited to the greater of one percent of the Portfolio's
assets or $1,000,000. Under the Rule, the Portfolio may only invest in
securities with a remaining maturity of not more than thirteen months, as
further described in the Rule.

(1) U.S. Government Securities: See "U.S. Government Securities."

(2) Bank obligations and instruments secured thereby: Subject to the
limitations described above, time deposits, certificates of deposit, bankers'
acceptances and other bank obligations if they are obligations of a bank subject
to regulation by the U.S. Government (including obligations issued by foreign
branches of these banks) or obligations issued by a foreign bank having total
assets equal to at least U.S. $500,000,000, and instruments secured by any such
obligation. A "bank" includes commercial banks and savings and loan
associations. Time deposits are monies kept on deposit with U.S. banks or other
U.S. financial institutions for a stated period of time at a fixed rate of
interest. At present, bank time deposits are not considered by the Board of
Directors or Waddell & Reed Investment Management Company (the "Manager"), to be
readily marketable. There may be penalties for the early withdrawal of such
time deposits, in which case, the yield of these investments will be reduced.

(3) Commercial Paper Obligations Including Variable Amount Master Demand
Notes: Commercial paper rated as described above. See Appendix A to the
Prospectus for a description of some of these ratings. A variable amount master
demand note represents a borrowing arrangement under a letter agreement between
a commercial paper issuer and an institutional lender.

(4) Corporate Debt Obligations: Corporate debt obligations if they are
rated as described above. See Appendix A to the Prospectus for a description of
some of these bond ratings.

(5) Canadian Government Obligations: Obligations of, or obligations
guaranteed by, the Government of Canada, a Province of Canada or any agency,
instrumentality or political subdivision of that Government or any Province.
The Portfolio will not invest in Canadian Government obligations if more than
10% of the value of its total assets would then be so invested, subject to the
diversification requirements applicable to the Money Market Portfolio.

(6) Certain Other Obligations: Obligations other than those listed in (1)
through (5) above only if such other obligation is guaranteed as to principal
and interest by either a bank or a corporation whose securities the Portfolio is
eligible to hold under the Rule.

The value of the obligations and instruments in which the Portfolio invests
will fluctuate depending in large part on changes in prevailing interest rates.
If these rates go up after the Portfolio buys an obligation or instrument, its
value may go down; if these rates go down, its value may go up. Changes in
interest rates will be more quickly reflected in the yield of a portfolio of
short-term obligations than in the yield of a portfolio of long-term
obligations.

The High Income Portfolio

The High Income Portfolio may invest in certain high-yield, high-risk non-
investment grade debt securities. As discussed in the Prospectus, the market
for such securities may differ from that for investment grade debt securities.
See the Prospectus for a discussion of the risks associated with non-investment
grade debt securities.

The Asset Strategy Portfolio

The Asset Strategy Portfolio allocates its assets among the following
classes, or types, of investments:

The short-term class includes all types of domestic and foreign securities
and money market instruments with remaining maturities of three years or less.
The Manager will seek to maximize total return within the short-term asset class
by taking advantage of yield differentials between different instruments,
issuers, and currencies. Short-term instruments may include corporate debt
securities, such as commercial paper and notes; government securities issued by
U.S. or foreign governments or their agencies or instrumentalities; bank
deposits and other financial institution obligations; repurchase agreements
involving any type of security; and other similar short-term instruments. These
instruments may be denominated in U.S. dollars or foreign currency.

The bond class includes all varieties of domestic and foreign fixed-income
securities with maturities greater than three years. The Manager seeks to
maximize total return within the bond class by adjusting the Portfolio's
investments in securities with different credit qualities, maturities, and
coupon or dividend rates, and by seeking to take advantage of yield
differentials between securities. Securities in this class may include bonds,
notes, adjustable-rate preferred stocks, convertible bonds, mortgage-related and
asset-backed securities, domestic and foreign government and government agency
securities, zero coupon bonds, and other intermediate and long-term securities.
As with the short-term class, these securities may be denominated in U.S.
dollars or foreign currency. The Portfolio may also invest in lower quality,
high-yielding debt securities (commonly referred to as "junk bonds"). The
Portfolio currently intends to limit its investments in these securities to 20%
of its assets.

The stock class includes domestic and foreign equity securities of all
types (other than adjustable rate preferred stocks which are included in the
bond class). The Manager seeks to maximize total return within this asset class
by actively allocating assets to industry sectors expected to benefit from major
trends, and to individual stocks that the Manager believes to have superior
growth potential. Securities in the stock class may include common stocks,
fixed-rate preferred stocks (including convertible preferred stocks), warrants,
rights, depositary receipts, securities of closed-end investment companies, and
other equity securities issued by companies of any size, located anywhere in the
world.

The Manager intends to take advantage of yield differentials by considering
the purchase or sale of instruments when differentials on spreads between
various grades and maturities of such instruments approach extreme levels
relative to long-term norms.

In making asset allocation decisions, the Manager typically evaluates
projections of risk, market conditions, economic conditions, volatility, yields,
and returns.

Foreign Securities

The International Portfolio and Small Cap Portfolio may each purchase
foreign securities only if they are (i) listed or admitted to trading on a
domestic or foreign securities exchange, with the exception of warrants, rights
or restricted securities, which need not be so listed or admitted; or (ii)
represented by American Depositary Receipts (receipts issued against securities
of foreign issuers deposited or to be deposited with an American depository) so
listed or admitted on a domestic securities exchange or traded in the United
States over-the-counter market ("OTC"); or (iii) issued or guaranteed by any
foreign government or any subdivision, agency or instrumentality thereof. The
Asset Strategy Portfolio, the Money Market Portfolio, the Bond Portfolio, the
High Income Portfolio, the Growth Portfolio, the Income Portfolio and the
Balanced Portfolio may invest in foreign securities, subject to the limitations
described in the Prospectus.

In general, depositary receipts are securities convertible into and
evidencing ownership of securities of foreign corporate issuers, although
depositary receipts may not necessarily be denominated in the same currency as
the securities into which they may be converted. American Depositary Receipts,
in registered form, are dollar-denominated receipts typically issued by a U.S.
bank or trust company evidencing ownership of the underlying securities.
International depositary receipts and European depositary receipts, in bearer
form, are foreign receipts evidencing a similar arrangement and are designed for
use by non-U.S. investors and traders in non-U.S. markets. Global depositary
receipts are more recently developed receipts designed to facilitate the trading
of foreign issuers by U.S. and non-U.S. investors and traders.

The Manager believes that there are investment opportunities as well as
risks in investing in foreign securities. Individual foreign economies may
differ favorably or unfavorably from the U.S. economy or each other in such
matters as gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Individual foreign
companies may also differ favorably or unfavorably from domestic companies in
the same industry. Foreign currencies may be stronger or weaker than the U.S.
dollar or than each other. An investment in foreign securities may be affected
by changes in currency rates and in exchange control regulations (i.e., currency
blockage). A Portfolio may bear a transaction charge in connection with the
exchange of currency. There may be less publicly available information about a
foreign company than about a domestic company. Foreign companies are not
generally subject to uniform accounting, auditing and financial reporting
standards comparable to those applicable to domestic companies. Most foreign
stock markets have substantially less volume than the New York Stock Exchange
(the "NYSE") and securities of some foreign companies are less liquid and more
volatile than securities of comparable domestic companies. There is generally
less government regulation of stock exchanges, brokers and listed companies than
in the United States. In addition, with respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, political or
social instability or diplomatic developments that could adversely affect
investments in securities of issuers located in those countries. If it should
become necessary, a Portfolio would normally encounter greater difficulties in
commencing a lawsuit against the issuer of a foreign security than it would
against a U.S. issuer.

A Portfolio (other than the Asset Strategy Portfolio) will not speculate in
foreign currencies, but each Portfolio, except the Money Market Portfolio and
the Limited-Term Bond Portfolio, may briefly hold foreign currencies in
connection with the purchase or sale of foreign securities. The Asset Strategy
Portfolio may purchase and sell foreign currency and invest in foreign currency
deposits as described in the Prospectus and this SAI, and the Asset Strategy
Portfolio and the International Portfolio may enter into forward currency
contracts as described in the Prospectus and this SAI. A Portfolio may incur a
transaction charge in connection with the exchange of currency.

Borrowing

From time to time the Small Cap Portfolio may increase its ownership of
securities by borrowing on an unsecured basis at fixed rates of interest and
investing the borrowed funds. Any such borrowing will be made only from banks
and only to the extent that the value of its assets, less its liabilities other
than borrowings, is equal to at least 300% of all borrowings including the
proposed borrowing.

As a fundamental policy, the Asset Strategy Portfolio may borrow money for
emergency or extraordinary purposes (not for leveraging or investment) in an
amount not exceeding 33 1/3% of the value of its total assets (less liabilities
other than borrowings). This Portfolio may borrow money only from a bank and
this Portfolio will not purchase any security while borrowings representing more
than 5% of its total assets are outstanding.

The 300% asset coverage requirement is contained in the 1940 Act. If the
value of a Portfolio's assets so computed should fail to meet the 300% asset
coverage requirement, it is required within three days to reduce its borrowings
to the extent necessary to meet that requirement and may have to sell a portion
of its investments at a time when independent investment judgment would not
dictate such sale. For purposes of this limitation, "three days" means three
days, exclusive of Sundays and holidays.

Interest on money borrowed is an expense the Portfolio would not otherwise
incur, so that it may have little or no net investment income during periods of
substantial borrowings. Borrowing for investment increases both investment
opportunity and risk.

U.S. Government Securities

U.S. Government Securities include Treasury Bills (which mature within one
year of the date they are issued), Treasury Notes (which have maturities of one
to ten years) and Treasury Bonds (which generally have maturities of more than
10 years). All such Treasury securities are backed by the full faith and credit
of the United States.

U.S. Government agencies and instrumentalities that issue or guarantee
securities include, but are not limited to, the Federal Housing Administration,
Federal National Mortgage Association, Farmers Home Administration, Export-
Import Bank of the United States, Small Business Administration, Government
National Mortgage Association, General Services Administration, Central Bank for
Cooperatives, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation,
Farm Credit Banks, Maritime Administration, the Tennessee Valley Authority, the
Resolution Funding Corporation, and the Student Loan Marketing Association.

Securities issued or guaranteed by U.S. Government agencies and
instrumentalities are not always supported by the full faith and credit of the
United States. Some, such as securities issued by the Federal Home Loan Banks,
are backed by the right of the agency or instrumentality to borrow from the
Treasury. Others, such as securities issued by the Federal National Mortgage
Association, are supported only by the credit of the instrumentality and not by
the Treasury. If the securities are not backed by the full faith and credit of
the United States, the owner of the securities must look principally to the
agency issuing the obligation for repayment and may not be able to assert a
claim against the United States in the event that the agency or instrumentality
does not meet its commitment. A Portfolio (other than Asset Strategy Portfolio)
will invest in securities of such agencies and instrumentalities only if the
Manager is satisfied that the credit risk involved is acceptable.

U.S. Government Securities may include "mortgage-backed securities" of the
Government National Mortgage Association ("Ginnie Mae"), the Federal Home Loan
Mortgage Corporation ("Freddie Mac") and the Federal National Mortgage
Association ("Fannie Mae"). These mortgage-backed securities include "pass-
through" securities and "participation certificates." Another type of mortgage-
backed security is a collateralized mortgage obligation ("CMO"). See "Mortgage-
Backed Securities." Timely payment of principal and interest on Ginnie Mae
pass-throughs is guaranteed by the full faith and credit of the United States.
Freddie Mac and Fannie Mae are both instrumentalities of the U.S. Government,
but their obligations are not backed by the full faith and credit of the United
States. It is possible that the availability and the marketability (i.e.,
liquidity) of the securities discussed in this section could be adversely
affected by actions of the U.S. Government to tighten the availability of its
credit.

The Limited-Term Bond Portfolio may also invest in deposits in banks
(represented by certificates of deposit or other evidence of deposit issued by
such banks of varying maturities) to the extent that the principal of such
deposits is insured by the Federal Deposit Insurance Corporation; such deposits
are referred to as "Insured Deposits." Such insurance (and, accordingly, the
Portfolio's aggregated investments) is currently limited to $100,000 per bank;
any interest above that amount is not insured. Insured Deposits are not
marketable, and this Portfolio may invest in them only within the 10% limit
mentioned below under "Illiquid Investments" unless such obligations are payable
at principal amount plus accrued interest on demand or within seven days after
demand.

Zero Coupon Bonds

A broker-dealer creates a derivative zero by separating the interest and
principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificates of Accrual on Treasury Securities),
TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury Receipts) are
examples of derivative zeros.

A Federal Reserve Bank creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the interest and principal
components of an outstanding U.S. Treasury bond and selling them as individual
securities. Bonds issued by the Resolution Funding Corporation (REFCORP) and
the Financing Corporation (FICO) can also be separated in this fashion.
Original issue zeros are zero coupon securities originally issued by the U.S.
Government, a government agency, or a corporation in zero coupon form.

Mortgage-Backed Securities

A mortgage-backed security may be an obligation of the issuer backed by a
mortgage or pool of mortgages or a direct interest in an underlying pool of
mortgages. Mortgage-backed securities are based on different types of mortgages
including those on commercial real estate or residential properties. Some
mortgage-backed securities, such as CMOs, make payments of both principal and
interest at a variety of intervals; others make semiannual interest payments at
a predetermined rate and repay principal at maturity (like a typical bond).
Pass-through securities and participation certificates represent pools of
mortgages that are assembled, with interests sold in the pool; the assembly is
made by an "issuer," such as a mortgage banker, commercial bank or savings and
loan association, which assembles the mortgages in the pool and passes through
payments of principal and interest for a fee payable to it. Payments of
principal and interest by individual mortgagors are passed through to the
holders of the interest in the pool. Monthly or other regular payments on pass-
through securities and participation certificates include payments of principal
(including prepayments on mortgages in the pool) rather than only interest
payments.

Each Portfolio may purchase mortgage-backed securities issued by both
governmental and non-governmental entities, such as banks, mortgage lenders, or
other financial institutions. Other types of mortgage-backed securities will
likely be developed in the future, and a Portfolio may invest in them if the
Manager determines they are consistent with its investment objective and
policies.

The value of mortgage-backed securities may change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues. Mortgage-backed securities are subject to prepayment risk.
Prepayment, which occurs when unscheduled or early payments are made on the
underlying mortgages, may shorten the effective maturities of these securities
and may lower their total returns.

Stripped Mortgage-Backed Securities

Stripped mortgage-backed securities are created when a U.S. Government
agency or a financial institution separates the interest and principal
components of a mortgage-backed security and sells them as individual
securities. The holder of the "principal-only" security ("PO") receives the
principal payments made by the underlying mortgage-backed security, while the
holder of the "interest-only" security ("IO") receives interest payments from
the same underlying security.

The prices of stripped mortgage-backed securities may be particularly
affected by changes in interest rates. As interest rates fall, prepayment rates
tend to increase, which tends to reduce prices of IOs and increase prices of
POs. Rising interest rates can have the opposite effect.

Asset-Backed Securities

Asset-backed securities represent interests in pools of consumer loans
(generally unrelated to mortgage loans) and most often are structured as pass-
through securities. Interest and principal payments ultimately depend upon
payment of the underlying loans by individuals, although the securities may be
supported by letters of credit or other credit enhancements. The value of
asset-backed securities may also depend on the creditworthiness of the servicing
agent for the loan pool, the originator of the loans, or the financial
institution providing the credit enhancement.

Variable or Floating Rate Instruments

Variable or floating rate instruments (including notes purchased directly
from issuers) bear variable or floating interest rates and carry rights that
permit holders to demand payment of the unpaid principal balance plus accrued
interest from the issuers or certain financial intermediaries. Floating rate
securities have interest rates that change whenever there is a change in a
designated base rate, while variable rate instruments provide for a specified
periodic adjustment in the interest rate. These formulas are designed to result
in a market value for the instrument that approximates its par value. Each
Portfolio may invest in variable or floating rate instruments as long as the
Manager determines that it is consistent with the Portfolio's investment goal
and policies.

Loans and Other Direct Debt Instruments

Direct debt instruments are interests in amounts owed by a corporate,
governmental, or other borrower to lenders or lending syndicates (loans and loan
participations), to suppliers of goods or services (trade claims or other
receivables), or to other parties. The Asset Strategy Portfolio's investments
in direct debt instruments are subject to its policies regarding the quality of
debt securities.

Purchasers of loans and other forms of direct indebtedness depend primarily
upon the creditworthiness of the borrower for payment of principal and interest.
Direct debt instruments may not be rated by any nationally recognized rating
service. If the Asset Strategy Portfolio does not receive scheduled interest or
principal payments on such indebtedness, the Portfolio's share price and yield
could be adversely affected. Loans that are fully secured offer the Portfolio
more protections than an unsecured loan in the event of non-payment of scheduled
interest or principal. However, there is no assurance that the liquidation of
collateral from a secured loan would satisfy the borrower's obligation, or that
the collateral could be liquidated. Indebtedness of borrowers whose
creditworthiness is poor involves substantially greater risks, and may be highly
speculative. Borrowers that are in bankruptcy or restructuring may never pay
off their indebtedness, or may pay only a small fraction of the amount owed.
Direct indebtedness of developing countries also involves a risk that the
governmental entities responsible for the repayment of the debt may be unable,
or unwilling, to pay interest and principal when due.

Investments in loans through direct assignment of a financial institution's
interests with respect to a loan may involve additional risks to the Portfolio.
For example, if a loan is foreclosed, the Portfolio could become part owner of
any collateral, and would bear the costs and liabilities associated with owning
and disposing of the collateral. Direct debt instruments may also involve a
risk of insolvency of the lending bank or other intermediary. Direct debt
instruments that are not in the form of securities may offer less legal
protection to the Portfolio in the event of fraud or misrepresentation. In the
absence of definitive regulatory guidance, the Portfolio relies on the Manager's
research in an attempt to avoid situations where fraud or misrepresentation
could adversely affect the Portfolio.

A loan is often administered by a bank or other financial institution that
acts as agent for all holders. The agent administers the terms of the loan, as
specified in the loan agreement. Unless, under the terms of the loan or other
indebtedness, the Portfolio has direct recourse against the borrower, it may
have to rely on the agent to apply appropriate credit remedies against a
borrower. If assets held by the agent for the benefit of the Portfolio were
determined to be subject to the claims of the agent's general creditors, the
Portfolio might incur certain costs and delays in realizing payment on the loan
or loan participation and could suffer a loss of principal or interest.

Direct indebtedness purchased by the Portfolio may include letters of
credit, revolving credit facilities, or other standby financing commitments
obligating the Portfolio to pay additional cash on demand. These commitments
may have the effect of requiring the Portfolio to increase its investment in a
borrower at a time when it would not otherwise have done so, even if the
borrower's condition makes it unlikely that the amount will ever be repaid. A
Portfolio will set aside appropriate liquid assets in a segregated custodial
account to cover its potential obligations under standby financing commitments.

For purposes of the limitations on the amount of total assets that the
Asset Strategy Portfolio will invest in any one issuer or in issuers within the
same industry, the Portfolio generally will treat the borrower as the "issuer"
of indebtedness held by the Portfolio. In the case of loan participations where
a bank or other lending institution serves as financial intermediary between the
Portfolio and the borrower, if the participation does not shift to the Portfolio
the direct debtor-creditor relationship with the borrower, Securities and
Exchange Commission ("SEC") interpretations require the Portfolio, in
appropriate circumstances, to treat both the lending bank or other lending
institution and the borrower as "issuers" for these purposes. Treating a
financial intermediary as an issuer of indebtedness may restrict the Portfolio's
ability to invest in indebtedness related to a single financial intermediary, or
a group of intermediaries engaged in the same industry, even if the underlying
borrowers represent many different companies and industries.

Lending Securities

One of the ways in which a Portfolio may try to increase income is by
lending its securities. If a Portfolio does this, the borrower pays the
Portfolio an amount equal to the dividends or interest on the securities that
the Portfolio would have received if it had not loaned the securities. The
Portfolio also receives additional compensation.

Any securities loans that a Portfolio makes must be collateralized in
accordance with applicable regulatory requirements (the "Guidelines"). Under
the present Guidelines, the collateral must consist of cash or U.S. Government
Securities or bank letters of credit, at least equal in value to the market
value of the securities loaned on each day that the loan is outstanding. If the
market value of the loaned securities exceeds the value of the collateral, the
borrower must add more collateral so that it at least equals the market value of
the securities loaned. If the market value of the securities decreases, the
borrower is entitled to return of the excess collateral.

There are two methods of receiving compensation for making loans. The
first is to receive a negotiated loan fee from the borrower. This method is
available for all three types of collateral. The second method, which is not
available when letters of credit are used as collateral, is for a Portfolio to
receive interest on the investment of the cash collateral or to receive interest
on the U.S. Government Securities used as collateral. Part of the interest
received in either case may be shared with the borrower.

The letters of credit that a Portfolio may accept as collateral are
agreements by banks (other than the borrowers of the Portfolio's securities),
entered into at the request of the borrower and for its account and risk, under
which the banks are obligated to pay to the Portfolio, while the letter is in
effect, amounts demanded by the Portfolio if the demand meets the terms of the
letter. The Portfolio's right to make this demand secures the borrower's
obligations to it. The terms of any such letters and the creditworthiness of
the banks providing them (which might include the Portfolio's custodian bank)
must be satisfactory to the Portfolio.

A Portfolio may lend securities only to broker-dealers and financial
institutions deemed creditworthy by the Manager. The Portfolios will make loans
only under rules of the NYSE, which presently require the borrower to return the
securities to the Portfolio within five business days after the Portfolio
instructs it to do so. The Manager will evaluate the creditworthiness of the
borrower. If a Portfolio loses its voting rights on securities loaned, it will
have the securities returned to it in time to vote them if a material event
affecting the investment is to be voted on. A Portfolio may pay reasonable
finder's, administrative and custodian fees in connection with loans of
securities.

There may be risks of delay in receiving additional collateral from the
borrower if the market value of the securities loaned increases, risks of delay
in recovering the securities loaned or even loss of rights in the collateral
should the borrower fail financially.

Repurchase Agreements

Each of the Portfolios may purchase securities subject to repurchase
agreements, subject to its limitation on investment in illiquid investments.
See "Illiquid Investments." A repurchase agreement is an instrument under which
a Portfolio purchases a security and the seller (normally a commercial bank or
broker-dealer) agrees, at the time of purchase, that it will repurchase the
security at a specified time and price. The amount by which the resale price is
greater than the purchase price reflects an agreed-upon market interest rate
effective for the period of the agreement. The return on the securities subject
to the repurchase agreement may be more or less than the return on the
repurchase agreement.

The majority of repurchase agreements in which a Portfolio would engage are
overnight transactions, and the delivery pursuant to the resale typically will
occur within one to five days of the purchase. The primary risk is that a
Portfolio may suffer a loss if the seller fails to pay the agreed-upon amount on
the delivery date and that amount is greater than the resale price of the
underlying securities and other collateral held by the Portfolio. In the event
of bankruptcy or other default by the seller, there may be possible delays and
expenses in liquidating the underlying securities or other collateral, decline
in their value or loss of interest. A Portfolio's repurchase agreements can be
considered as collateralized loans (such agreements being defined as loans under
and for the purpose of the 1940 Act) and will be structured so as to fully
collateralize the loans. The value of the securities subject to the agreement,
which will be held by the Portfolio's custodian bank or by a third party that
qualifies as a custodian under section 17(f) of the 1940 Act, is and, during the
entire term of the agreement, remains at least equal to the value of the loan,
including the accrued interest earned thereon. A Portfolio's repurchase
agreements are entered into only with those entities approved on the basis of
criteria established by the Fund's Board of Directors.

Options, Futures Contracts and Other Strategies

As discussed in the Prospectus, the Manager may use a variety of financial
instruments ("Financial Instruments"), including certain options, futures
contracts (sometimes referred to as "futures"), options on futures contracts,
forward currency contracts, swaps and indexed securities to attempt to enhance
the Portfolios' income or yield or to attempt to hedge the Portfolios'
portfolios.

Hedging strategies can be broadly categorized as "short hedges" and "long
hedges." A short hedge is a purchase or sale of a Financial Instrument intended
partially or fully to offset potential declines in the value of one or more
investments held in a Portfolio's portfolio. Thus, in a short hedge a Portfolio
takes a position in a Financial Instrument whose price is expected to move in
the opposite direction of the price of the investment being hedged.

Conversely, a long hedge is a purchase or sale of a Financial Instrument
intended partially or fully to offset potential increases in the acquisition
cost of one or more investments that a Portfolio intends to acquire. Thus, in a
long hedge a Portfolio takes a position in a Financial Instrument whose price is
expected to move in the same direction as the price of the prospective
investment being hedged. A long hedge is sometimes referred to as an
anticipatory hedge. In an anticipatory hedge transaction, a Portfolio does not
own a corresponding security and, therefore, the transaction does not relate to
a security the Portfolio owns. Rather, it relates to a security that the
Portfolio intends to acquire. If a Portfolio does not complete the hedge by
purchasing the security it anticipated purchasing, the effect on the Portfolio's
portfolio is the same as if the transaction were entered into for speculative
purposes.

Financial Instruments on securities generally are used to attempt to hedge
against price movements in one or more particular securities positions that a
Portfolio owns or intends to acquire. Financial Instruments on indices, in
contrast, generally are used to attempt to hedge against price movements in
market sectors in which a Portfolio has invested or expects to invest.
Financial Instruments on debt securities may be used to hedge either individual
securities or broad debt market sectors.

The use of Financial Instruments is subject to applicable regulations of
the SEC, the several exchanges on which they are traded, the Commodity Futures
Trading Commission (the "CFTC") and various state regulatory authorities. In
addition, the Portfolios' ability to use these instruments will be limited by
tax considerations. See "Taxes."

In addition to the instruments, strategies and risks described below and in
the Prospectus, the Manager expects to discover additional opportunities in
connection with options, futures contracts, options on futures contracts,
forward currency contracts and other similar or related techniques. These
opportunities may become available as the Manager develops new techniques, as
regulatory authorities broaden the range of permitted transactions and as new
options, futures contracts, options on futures contracts, forward currency
contracts and other techniques are developed. The Manager may utilize these
opportunities to the extent that they are consistent with a Portfolio's
investment goals and are permitted by the Portfolio's investment limitations and
applicable regulatory authorities. The Portfolios' Prospectus or SAI will be
supplemented to the extent that new products or techniques involve materially
different risks than those described below or in the Prospectus.

Special Risks. The use of Financial Instruments involves special
considerations and risks, certain of which are described below. Risks
pertaining to particular Financial Instruments are described in the sections
that follow.

(1) Successful use of most Financial Instruments depends upon the
Manager's ability to predict movements of the overall securities, currency and
interest rate markets, which requires different skills than predicting changes
in the prices of individual securities. There can be no assurance that any
particular strategy will succeed.

(2) There might be imperfect correlation, or even no correlation, between
price movements of a Financial Instrument and price movements of the investments
being hedged. For example, if the value of a Financial Instrument used in a
short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of correlation
might occur due to factors unrelated to the value of the investments being
hedged, such as speculative or other pressures on the markets in which Financial
Instruments are traded. The effectiveness of hedges using Financial Instruments
on indices will depend on the degree of correlation between price movements in
the index and price movements in the securities being hedged.

Because there are a limited number of types of exchange-traded options and
futures contracts, it is likely that the standardized contracts available will
not match a Portfolio's current or anticipated investments exactly. A Portfolio
may invest in options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in which it
typically invests, which involves a risk that the options or futures position
will not track the performance of the Portfolio's other investments.

Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a Portfolio's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interests rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price fluctuation
limits or trading halts. A Portfolio may purchase or sell options and futures
contracts with a greater or lesser value than the securities it wishes to hedge
or intends to purchase in order to attempt to compensate for differences in
volatility between the contract and the securities, although this may not be
successful in all cases. If price changes in a Portfolio's options or futures
positions are poorly correlated with its other investments, the positions may
fail to produce anticipated gains or result in losses that are not offset by
gains in other investments.

(3) If successful, the above-discussed strategies can reduce risk of loss
by wholly or partially offsetting the negative effect of unfavorable price
movements. However, such strategies can also reduce opportunity for gain by
offsetting the positive effect of favorable price movements. For example, if a
Portfolio entered into a short hedge because the Manager projected a decline in
the price of a security in the Portfolio's portfolio, and the price of that
security increased instead, the gain from that increase might be wholly or
partially offset by a decline in the price of the Financial Instrument.
Moreover, if the price of the Financial Instrument declined by more than the
increase in the price of the security, the Portfolio could suffer a loss. In
either such case, the Portfolio would have been in a better position had it not
attempted to hedge at all.

(4) As described below, a Portfolio might be required to maintain assets
as "cover," maintain segregated accounts or make margin payments when it takes
positions in Financial Instruments involving obligations to third parties (i.e.,
Financial Instruments other than purchased options). If a Portfolio were unable
to close out its positions in such Financial Instruments, it might be required
to continue to maintain such assets or accounts or make such payments until the
position expired or matured. These requirements might impair a Portfolio's
ability to sell a portfolio security or make an investment at a time when it
would otherwise be favorable to do so, or require that a Portfolio sell a
portfolio security at a disadvantageous time. A Portfolio's ability to close
out a position in a Financial Instrument prior to expiration or maturity depends
on the existence of a liquid secondary market or, in the absence of such a
market, the ability and willingness of the other party to the transaction
("counterparty") to enter into a transaction closing out the position.
Therefore, there is no assurance that any position can be closed out at a time
and price that is favorable to the Portfolio.

Cover for Financial Instruments. Transactions using Financial Instruments,
other than purchased options, expose the Portfolio to an obligation to another
party. A Portfolio will not enter into any such transactions unless it owns
either (1) an offsetting ("covered") position in securities, currencies, or
other options, futures contracts or forward contracts, or (2) cash, receivables
and short-term debt securities with a value sufficient at all times to cover its
potential obligations not covered as provided in (1) above. Each Portfolio will
comply with SEC guidelines regarding cover for these instruments and, if the
guidelines so require, set aside cash, U.S. Government Securities or other
liquid, high-grade debt securities in a segregated account with its custodian in
the prescribed amount as determined daily on a mark-to-market basis.

Assets used as cover or held in a segregated account cannot be sold while
the position in the corresponding Financial Instrument is open, unless they are
replaced with other appropriate assets. As a result, the commitment of a large
portion of a Portfolio's assets to cover or segregated accounts could impede
portfolio management or the Portfolio's ability to meet redemption requests or
other current obligations.

Certain Limitations. The Limited-Term Bond Portfolio may not purchase or
sell options, futures contracts or options on futures contracts if the aggregate
value of such options and futures held by that Portfolio would exceed 25% of its
assets.

The Asset Strategy Portfolio will not: (a) sell futures contracts, purchase
put options, or write call options if, as a result, more than 50% of the
Portfolio's total assets would be hedged with futures and options under normal
conditions; or (b) purchase futures contracts or write put options if, as a
result, the Portfolio's total obligations upon settlement or exercise of
purchased futures contracts and written put options would exceed 25% of its
total assets. These limitations do not apply to options attached to or acquired
or traded together with their underlying securities, and do not apply to
securities that incorporate features similar to options.

For as long as required by applicable state securities regulation,

(1) the aggregate value of securities underlying put options written by
the Asset Strategy Portfolio, determined as of the date the put options are
written, will not exceed 50% of the Portfolio's net assets,

(2) the Asset Strategy Portfolio will only buy or sell (a) options on
securities, indices or futures contracts, or (b) futures contracts, in each case
that are offered through the facilities of a national securities association or
that are listed on a national securities or commodities exchange, other than the
permitted OTC options described under "Limitations on the Use of Options" below,

(3) the aggregate premiums paid on all options on securities, indices or
futures contracts purchased by the Asset Strategy Portfolio that are held at any
time will not exceed 20% of the Portfolio's total net assets, and

(4) the aggregate margin deposits on all futures and options thereon held
at any time by the Asset Strategy Portfolio will not exceed 5% of the
Portfolio's total assets.

Options. As discussed in the Prospectus and below, certain of the
Portfolios may purchase and/or write (sell) call and put options on equity and
debt securities, foreign currencies, stock indices and bond indices. The
purchase of call options serves as a long hedge, and the purchase of put options
serves as a short hedge. Writing put or call options can enable a Portfolio to
enhance income or yield by reason of the premiums paid by the purchasers of such
options. However, if the market price of the security underlying a put option
declines to less than the exercise price on the option, minus the premium
received, the Portfolio would expect to suffer a loss.

Writing call options can serve as a limited short hedge, because declines
in the value of the hedged instrument would be offset to the extent of the
premium received for writing the option. However, if the security appreciates
to a price higher than the exercise price of the call option, it can be expected
that the option will be exercised and the Portfolio will be obligated to sell
the security at less than its market value. If the call option is an OTC
option, the securities or other assets used as cover would be considered
illiquid to the extent described under "Illiquid Investments."

Writing put options can serve as a limited long hedge because increases in
the value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security or currency
depreciates to a price lower than the exercise price of the put option, it can
be expected that the put option will be exercised and a Portfolio will be
obligated to purchase the security or currency at more than its market value.

The value of an option position will reflect, among other things, a current
market value of the underlying investment, the time remaining until expiration,
the relationship of the exercise price to the market price of the underlying
investment, the historical price volatility of the underlying investment and
general market conditions. Options that expire unexercised have no value.

A Portfolio may purchase calls to close its position in a call that it has
written. To do this, it will make a "closing transaction." As discussed below,
some Portfolios may also purchase calls other than as part of a closing
transaction. This involves buying a call on the same security with the same
exercise price and expiration date as the call it has written. When a Portfolio
sells a security on which it has written a call, it may effect a closing
transaction. (If a Portfolio may only write covered call options, it will
effect a closing transaction when it sells the security on which it has written
the call.) A Portfolio may also effect a closing transaction to avoid having to
sell a security on which it has written a call if the call is exercised. A
Portfolio will have a profit or loss from a closing transaction, depending on
the amount of option transaction costs and on whether the amount it pays to
purchase the call is less or more than the premium it received on the call that
is closed out. A profit will also be realized if the call lapses unexercised
because the Portfolio retains the premium received. There is no assurance that
a Portfolio will be able to effect a closing transaction; if a Portfolio cannot
do so, it may be required to hold the security on which the call was written
until the call expires or is exercised even though it might otherwise be
desirable to sell the security. If a call that a Portfolio wrote is exercised,
it could deliver the securities that it owns (or the securities that it has the
right to get). It could also deliver other securities that it purchases.

A Portfolio's securities will be bought and sold in order to attempt to
achieve the goals of that Portfolio. However, the fact that calls can be
written on a particular security may be a factor in buying or keeping it if it
is otherwise considered suitable for the Portfolio.

A Portfolio's custodian bank, or a securities depository acting for it,
will act as the Portfolio's escrow agent as to the related investments on which
the Portfolio (other than the Asset Strategy Portfolio) has written calls, or as
to other assets held for escrow, so that, pursuant to the rules of the Options
Clearing Corporation (the "OCC") and certain exchanges, no margin deposit will
be required of the Portfolio on such calls. Until the related investments are
released from escrow, they cannot be sold by the Portfolio; this release will
take place on the expiration of the call or when the Portfolio enters into a
closing transaction.

When a Portfolio writes a put, it receives a premium and agrees to purchase
the related investments from the purchaser of the put during the put period at a
fixed exercise price (which may differ from the market price of the related
investments) regardless of market price changes during the put period. If the
put is exercised, the Portfolio must purchase the related investments at the
exercise price. Puts are ordinarily sold when a Portfolio anticipates that,
during the option period, the market price of the underlying security will
decline by less than the amount of the premium. In writing puts, a Portfolio
assumes the risk of loss should the market value of the underlying security
decline below the exercise price of the option. A Portfolio's cost of
purchasing the investments will be adjusted by the amount of the premium it has
received.

To terminate its obligation on a put that it has written, a Portfolio may
purchase a put in a "closing transaction." As discussed below, some Portfolios
may also purchase puts other than as part of a closing transaction. A profit or
loss will be realized depending on the amount of option transaction costs and
whether the premium previously received is more or less than the cost of the put
purchased. A profit will also be realized if the put lapses unexercised because
the Portfolio retains the premium received.

When a Portfolio buys a call, it pays a premium and has the right to buy
the related investments from the seller of the call during the call period at a
fixed exercise price. The Portfolio benefits only if the market price of the
related investments is above the call price prior to the expiration date and the
call is either exercised or sold at a profit. If the call is not exercised or
sold (whether or not at a profit), it will become worthless at its expiration
date and the Portfolio will lose the premium paid and the right to purchase the
related investments.

A Portfolio may purchase a put on a security it owns ("protective put") or
on a security it does not own ("nonprotective put"). When a Portfolio buys a
put, it pays a premium and has the right to sell the related investments to the
seller of the put during the put period at a fixed exercise price. Buying a
protective put permits a Portfolio to protect itself prior to the time the put
expires against a decline in the value of the related investments below the
exercise price by selling them through the exercise of the put. Buying a
nonprotective put permits a Portfolio, if the market price of the related
investments is below the put price during the put period, either to resell the
put or to buy the related investments and sell them at the exercise price. If
the market price of the related investments is above the exercise price and as a
result the put is not exercised or resold (whether or not at a profit), the put
will become worthless at its expiration date.

A type of put that the Small Cap Portfolio, the Balanced Portfolio and the
Asset Strategy Portfolio may each purchase is an "optional delivery standby
commitment," which is entered into by parties selling debt securities to a
Portfolio. An optional delivery standby commitment gives a Portfolio the right
to sell the security back to the seller on specified terms. This right is
provided as an inducement to purchase the security.

Risks of Options on Securities. Certain of the Portfolios may purchase or
write both exchange-traded and OTC options. Exchange markets for options on
debt securities and foreign currencies exist, but these instruments are
primarily traded on the OTC market. Exchange-traded options in the United
States are issued by a clearing organization affiliated with the exchange on
which the option is listed that, in effect, guarantees completion of every
exchange-traded option transaction. In contrast, OTC options are contracts
between a Portfolio and its counterparty (usually a securities dealer or a bank)
with no clearing organization guarantee. Thus, when a Portfolio purchases an
OTC option, it relies on the counterparty from whom it purchased the option to
make or take delivery of the underlying investment upon exercise of the option.
Failure by the counterparty to do so would result in the loss of any premium
paid by the Portfolio as well as the loss of any expected benefit of the
transaction. If a Portfolio were unable to effect a closing transaction for an
option it had purchased, it would have to exercise the option to realize any
profit. The inability to enter into a closing purchase transaction for a
covered call option written by a Portfolio could cause material losses because
the Portfolio would be unable to sell the investment used as cover for the
written option until the option expires or is exercised. The Manager evaluates
the creditworthiness of all such parties and intends to enter into OTC option
transactions for a Portfolio (other than the Asset Strategy Portfolio) only with
major dealers in OTC options. The market for these options may be less active
than the market for exchange-listed options. The Manager evaluates the ability
to enter into closing transactions on OTC options prior to investing in them.

Generally, the OTC foreign currency options used by a Portfolio are
European-style options. This means that the option is only exercisable
immediately prior to its expiration. This is in contrast to American-style
options, which are exercisable at any time prior to the expiration date of the
option.

A Portfolio's ability to establish and close out positions in exchange-
listed options depends on the existence of a liquid market. However, there can
be no assurance that such a market will exist at any particular time. Closing
transactions can be made for OTC options only by negotiating directly with the
counterparty, or by a transaction in the secondary market if any such market
exists. Although a Portfolio will enter into OTC options only with
counterparties that are expected to be capable of entering into closing
transactions with the Portfolio, there is no assurance that the Portfolio will
in fact be able to close out an OTC option position at a favorable price prior
to expiration. In the event of insolvency of the counterparty, the Portfolio
might be unable to close out an OTC option position at any time prior to its
expiration.

Option premiums paid to control an amount of related investments are small
in relation to the market value of related investments and, consequently, put
and call options offer large amounts of leverage. The leverage offered by
trading in options will result in a Portfolio's net asset value being more
sensitive to changes in the value of the related investment.

Options on Indices. Puts and calls on indices are similar to puts and
calls on securities or futures contracts except that all settlements are in cash
and gain or loss depends on changes in the index in question rather than on
price movements in individual securities or futures contracts. When a Portfolio
writes a call on an index, it receives a premium and agrees that, prior to the
expiration date, the purchaser of the call, upon exercise of the call, will
receive from the Portfolio an amount of cash if the closing level of the index
upon which the call is based is greater than the exercise price of the call.
The amount of cash is equal to the difference between the closing price of the
index and the exercise price of the call times a specified multiple
("multiplier"), which determines the total dollar value for each point of such
difference. When a Portfolio buys a call on an index, it pays a premium and has
the same rights as to such call as are indicated above. When a Portfolio buys a
put on an index, it pays a premium and has the right, prior to the expiration
date, to require the seller of the put, upon the Portfolio's exercise of the
put, to deliver to the Portfolio an amount of cash if the closing level of the
index upon which the put is based is less than the exercise price of the put,
which amount of cash is determined by the multiplier, as described above for
calls. When a Portfolio writes a put on an index, it receives a premium and the
purchaser has the right, prior to the expiration date, to require the Portfolio
to deliver to it an amount of cash equal to the difference between the closing
level of the index and the exercise price times the multiplier if the closing
level is less than the exercise price.

Risks of Options on Indices. The risks of investment in options on indices
may be greater than options on securities. Because index options are settled in
cash, when a Portfolio writes a call on an index it cannot provide in advance
for its potential settlement obligations by acquiring and holding the underlying
securities. A Portfolio can offset some of the risk of writing a call index
option by holding a diversified portfolio of securities similar to those on
which the underlying index is based. However, a Portfolio cannot, as a
practical matter, acquire and hold a portfolio containing exactly the same
securities as underlie the index and, as a result, bears a risk that the value
of the securities held will vary from the value of the index.

Even if a Portfolio could assemble a portfolio that exactly reproduced the
composition of the underlying index, it still would not be fully covered from a
risk standpoint because of the "timing risk" inherent in writing index options.
When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level on the date when the option is exercised. As with
other kinds of options, a Portfolio as the call writer will not learn that it
has been assigned until the next business day at the earliest. The time lag
between exercise and notice of assignment poses no risk for the writer of a
covered call on a specific underlying security, such as common stock, because
there the writer's obligation is to deliver the underlying security, not to pay
its value as of a fixed time in the past. So long as the writer already owns
the underlying security, it can satisfy its settlement obligations by simply
delivering it, and the risk that its value may have declined since the exercise
date is borne by the exercising holder. In contrast, even if the writer of an
index call holds securities that exactly match the composition of the underlying
index, it will not be able to satisfy its assignment obligations by delivering
those securities against payment of the exercise price. Instead, it will be
required to pay cash in an amount based on the closing index value on the
exercise date. By the time it learns that it has been assigned, the index may
have declined, with a corresponding decline in the value of its portfolio. This
"timing risk" is an inherent limitation on the ability of index call writers to
cover their risk exposure by holding securities positions.

If a Portfolio has purchased an index option and exercises it before the
closing index value for that day is available, it runs the risk that the level
of the underlying index may subsequently change. If such a change causes the
exercised option to fall out-of-the-money, the Portfolio will be required to pay
the difference between the closing index value and the exercise price of the
option (times the applicable multiplier) to the assigned writer.

Limitations on the Use of Options. The Portfolios' use of options is
governed by the following guidelines, which can be changed by the Fund's Board
of Directors without a shareholder vote:

The Money Market Portfolio may not write call options on securities.

The Small Cap Portfolio and Balanced Portfolio may each write (sell)
covered call options on securities on not more than 25% of its total assets.
These calls must be issued by the OCC and listed on a domestic securities
exchange.

The Small Cap Portfolio and Balanced Portfolio may each write (sell) put
options and purchase calls and puts on securities in which the Portfolio may
invest. Each of these Portfolios may only sell put options on securities issued
by the OCC, except that each may write OTC put options on U.S. Government
Securities. Each of these Portfolios may only purchase options on securities
issued by the OCC, except that each may purchase OTC put and call options on
U.S. Government Securities and may purchase optional delivery standby
commitments.

Each of the Small Cap Portfolio and Balanced Portfolio may write (sell) and
purchase listed options on stock indices that are not limited to stocks of any
industry or group of industries ("broadly-based stock indices"). Each may write
options on broadly-based stock indices to generate income when the Manager
anticipates that the index price will not increase or decrease by more than the
premium received by the Portfolio. Each may purchase calls on broadly-based
stock indices to hedge against an anticipated increase in the price of
securities it wishes to acquire and may purchase puts on broadly-based stock
indices to hedge against an anticipated decline in the market value of its
portfolio securities.

The Asset Strategy Portfolio may purchase a put or call option (including
any straddles or spreads) only if the value of its premium, when aggregated with
the premiums on all other options held by the Portfolio, does not exceed 5% of
the Portfolio's total assets. For so long as required by applicable state
securities regulation, the Asset Strategy Portfolio will only trade OTC options
(a) if exchange-traded options are not available, (b) there is an active OTC
market in such options, and (c) transactions are all through a broker-dealer
with a minimum net worth of $20 million.

For further limitations on certain Portfolios' use of options, see
"Limitations on the Use of Futures Contracts and Options Thereon" below.

Futures Contracts and Options on Futures Contracts. When a Portfolio
purchases a futures contract, it incurs an obligation to take delivery of a
specified amount of the obligation underlying the contract at a specified time
in the future for a specified price. When a Portfolio sells a futures contract,
it incurs an obligation to deliver the specified amount of the underlying
obligation at a specified time in return for an agreed upon price. In the case
of a futures contract on an index, the obligation underlying the futures
contract is an amount of cash equal to a specified dollar amount times the
difference between the index value at the close of the last trading day of the
futures contract and the price at which the futures contract is originally
struck. In the case of a futures contract on a security or currency, the
underlying obligation is the related security or currency.

When a Portfolio writes an option on a futures contract, it becomes
obligated, in return for the premium paid, to assume a position in the futures
contract at a specified exercise price at any time during the term of the
option. If a Portfolio has written a call, it becomes obligated to assume a
"short" position in the futures contract, which means that it is required to
deliver the underlying securities. If it has written a put, it becomes
obligated to assume a "long" position in the futures contract, which means that
it is required to take delivery of the underlying securities. When a Portfolio
purchases an option on a futures contract, it acquires the right, in return for
the premium it paid, to assume a position in the futures contract, a "long"
position if the option is a call and a "short" position if the option is a put.

Each of the Small Cap Portfolio and the Balanced Portfolio may sell futures
contracts on broadly-based stock indices ("Stock Index Futures"), or write a
call or purchase a put on a Stock Index Future, if the Manager anticipates that
a general market or market sector decline may adversely affect the market value
of any or all of the Portfolio's common stock holdings. Each of the Small Cap
Portfolio and the Balanced Portfolio may buy a Stock Index Future, or purchase a
call or sell a put on a Stock Index Future, if the Manager anticipates a
significant market sector advance in the common stock it intends to purchase for
the Portfolio's portfolio. Each of the Small Cap Portfolio and the Balanced
Portfolio may purchase a Stock Index Future, or purchase a call or sell a put
thereon, as a temporary substitute for the purchase of individual stocks that
may then be purchased in an orderly fashion.

In the case of debt securities, each of the Small Cap Portfolio and the
Balanced Portfolio may sell futures contracts on debt securities ("Debt
Futures"), or write a call or purchase a put on a Debt Future, to attempt to
protect against the risk that the value of the debt securities held by the
Portfolio might decline. The Limited-Term Bond Portfolio may sell futures
contracts on domestic debt securities ("Domestic Debt Futures"), or write a call
or purchase a put on a Domestic Debt Future, in the same way. Each of the Small
Cap Portfolio and the Balanced Portfolio could purchase a Debt Future, or
purchase a call or write a put on a Debt Future, to protect against the risk of
an increase in the value of debt securities at a time when the Portfolio is not
invested in debt securities to the extent permitted by its investment policies.
The Limited-Term Bond Portfolio may purchase a Domestic Debt Future, or purchase
a call or write a put on a Domestic Debt Future, in the same way. As securities
are purchased, corresponding futures or options positions would be terminated.

Futures strategies also can be used to manage the average duration of a
Portfolio's portfolio. If the Manager wishes to shorten the average duration of
a Portfolio, the Portfolio may sell a debt futures contract or a call option
thereon, or purchase a put option thereon. If the Manager wishes to lengthen
the average duration of a Portfolio, the Portfolio may purchase a debt futures
contract or a call option thereon, or sell a put option thereon.

No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract a Portfolio is required to deposit "initial
margin" consisting of cash, U.S. Government Securities or other liquid, high-
grade debt securities, in an amount generally equal to 10% or less of the
contract value. Margin must also be deposited when writing a call or put option
on a futures contract, in accordance with applicable exchange rules. Unlike
margin in securities transactions, initial margin on futures contracts does not
represent a borrowing, but rather is in the nature of a performance bond or
good-faith deposit that is returned to the Portfolio at the termination of the
transaction if all contractual obligations have been satisfied. Under certain
circumstances, such as periods of high volatility, the Portfolio may be required
by an exchange to increase the level of its initial margin payment, and initial
margin requirements might be increased generally in the future by regulatory
action.

Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking-to-market." Variation margin does not involve borrowing, but rather
represents a daily settlement of the Portfolio's obligations to or from a
futures broker. When a Portfolio purchases an option on a future, the premium
paid plus transaction costs is all that is at risk. In contrast, when a
Portfolio purchases or sells a futures contract or writes a call or put option
thereon, it is subject to daily variation margin calls that could be substantial
in the event of adverse price movements. If the Portfolio has insufficient cash
to meet daily variation margin requirements, it might need to sell securities at
a time when such sales are disadvantageous.

Purchasers and sellers of futures contracts and options on futures can
enter into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument purchased or sold. Positions in futures and options on futures may
be closed only on an exchange or board of trade that provides a secondary
market. Although futures contracts by their terms call for the actual delivery
or acquisition of the underlying obligation, in most cases the contractual
obligation is fulfilled without having to make or take delivery. The Portfolios
do not generally intend to make or take delivery of the underlying obligation.
All transactions in futures contracts and options thereon are made, offset or
fulfilled through a clearing house associated with the exchange on which the
contracts are traded. Although the Portfolios (other than the Asset Strategy
Portfolio) intend to buy and sell futures contracts and options thereon only on
exchanges where there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular futures
contract or option thereon at any particular time. In such event, it may not be
possible to close a futures contract or options position.

Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract or option thereon can vary
from the previous day's settlement price; once that limit is reached, no trades
may be made that day at a price beyond the limit. Daily price limits do not
limit potential losses because prices could move to the daily limit for several
consecutive days with little or no trading, thereby preventing the liquidation
of unfavorable positions.

If a Portfolio were unable to liquidate a futures contract or option
thereon due to the absence of a liquid secondary market or the imposition of
price limits, it could incur substantial losses. The Portfolio would continue
to be subject to market risk with respect to the position. In addition, except
in the case of purchased options, the Portfolio would be required to make daily
variation margin payments and might be required to maintain the position being
hedged by the futures contract or option or to maintain cash or securities in a
segregated account.

Risks of Futures Contracts and Options Thereon. Since futures contracts
and options thereon can replicate movements in the cash markets for the
securities in which a Portfolio invests without the large cash investments
required for dealing in such markets, they may subject a Portfolio to greater
and more volatile risks than might otherwise be the case. The principal risks
associated with the use of such instruments are (i) imperfect correlation
between movements in the market price of the portfolio investments (held or
intended to be purchased) being hedged and in the price of the futures contract
or option; (ii) possible lack of a liquid secondary market for closing out
futures contracts or options positions; (iii) the need for additional portfolio
management skills and techniques; and (iv) losses due to unanticipated market
price movements.

For a hedge to be completely effective, the price change of the hedging
instrument should equal the price change of the security being hedged. Such
equal price changes are not always possible because the investment underlying
the hedging instrument may not be the same investment that is being hedged. The
Manager will attempt to create a closely correlated hedge, but hedging activity
may not be completely successful in eliminating market value fluctuation. See
below for additional discussion of correlation as it relates to index futures.

The ordinary spreads between prices in the cash and futures markets
(including the options on futures market), due to differences in the natures of
those markets, are subject to the following factors, which may create
distortions. First, all participants in the futures market are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions, which could distort the normal relationship between the
cash and futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may cause temporary
price distortions. Due to the possibility of distortion, a correct forecast of
general interest rate, currency exchange rate or stock market trends by the
Manager may still not result in a successful transaction. The Manager may be
incorrect in its expectations as to the extent of various interest rate,
currency exchange rate or stock market movements or the time span within which
the movements take place.

Index Futures. The risk of imperfect correlation between movements in the
price of an index future and movements in the price of the securities that are
the subject of the hedge increases as the composition of a Portfolio's portfolio
diverges from the securities included in the applicable index. The price of the
index futures may move more than or less than the price of the securities being
hedged. If the price of the index future moves less than the price of the
securities that are the subject of the hedge, the hedge will not be fully
effective but, if the price of the securities being hedged has moved in an
unfavorable direction, the Portfolio would be in a better position than if it
had not hedged at all. If the price of the securities being hedged has moved in
a favorable direction, this advantage will be partially offset by the futures
contract. If the price of the futures contract moves more than the price of the
securities, a Portfolio will experience either a loss or a gain on the futures
contract that will not be completely offset by movements in the price of the
securities that are the subject of the hedge. To compensate for the imperfect
correlation of movements in the price of the securities being hedged and
movements in the price of the index futures, a Portfolio may buy or sell index
futures in a greater dollar amount than the dollar amount of the securities
being hedged if the historical volatility of the prices of such securities being
hedged is more than the historical volatility of the prices of the securities
included in the index. It is also possible that, where a Portfolio has sold
futures contracts to hedge its portfolio against decline in the market, the
market may advance and the value of the securities held in the portfolio may
decline. If this occurred, a Portfolio would lose money on the futures contract
and also experience a decline in value of its portfolio securities. However,
while this could occur for a very brief period or to a very small degree, over
time the value of a diversified portfolio of securities will tend to move in the
same direction as the market indices on which the futures contracts are based.

Where index futures are purchased to hedge against a possible increase in
the price of securities before a Portfolio is able to invest in them in an
orderly fashion, it is possible that the market may decline instead. If the
Portfolio then concludes not to invest in them at that time because of concern
as to possible further market decline or for other reasons, it will realize a
loss on the futures contract that is not offset by a reduction in the price of
the securities it had anticipated purchasing.

Limitations on the Use of Futures Contracts and Options Thereon. The
Portfolios' use of futures is governed by the following guidelines, which can be
changed by the Fund's Board of Directors without a shareholder vote.

Each of the Small Cap Portfolio and Balanced Portfolio may buy and sell
Debt Futures, Stock Index Futures, and options on Debt Futures and Stock Index
Futures. The Limited-Term Bond Portfolio may buy and sell Domestic Debt Futures
and options on Domestic Debt Futures. Each of these Portfolios may purchase or
sell futures contracts and options thereon for the purpose of hedging against
changes in the market value of its portfolio securities or changes in the market
value of securities that the Manager anticipates it may wish to include in the
Portfolio's portfolio. Each of these Portfolios may write options on futures
contracts to increase income.

The Limited-Term Bond Portfolio may purchase futures contracts and options
thereon only if no more than 30% of its total assets would be so invested. The
value of all futures contracts sold by the Limited-Term Bond Portfolio may not
exceed the total market value of its portfolio.

To the extent that a Portfolio enters into futures contracts, options on
futures contracts or options on foreign currencies traded on a CFTC-regulated
exchange, in each case other than for bona fide hedging purposes (as defined by
the CFTC), the aggregate initial margin and premiums required to establish those
positions (excluding the amount by which options are "in-the-money") will not
exceed 5% of the liquidation value of the Portfolio's portfolio, after taking
into account unrealized profits and unrealized losses on any contracts the
Portfolio has entered into. (In general, a call option on a futures contract is
"in-the-money" if the value of the underlying futures contract exceeds the
strike, i.e., exercise, price of the call; a put option on a futures contract is
"in-the-money" if the value of the underlying futures contract is exceeded by
the strike price of the put.) This guideline does not limit to 5% the
percentage of the Portfolio's assets that are at risk in futures contracts and
related options transactions.

Foreign Currency Hedging Strategies--Special Considerations. Certain of
the Portfolios may use options and futures contracts on foreign currencies, as
described above, and foreign currency forward contracts, as described below, to
attempt to hedge against movements in the values of the foreign currencies in
which the Portfolios' securities are denominated. Such currency hedges can
protect against price movements in a security that a Portfolio owns or intends
to acquire that are attributable to changes in the value of the currency in
which it is denominated. Such hedges do not, however, protect against price
movements in the securities that are attributable to other causes.

The Portfolios might seek to hedge against changes in the value of a
particular currency when no Financial Instruments on that currency are available
or such Financial Instruments are more expensive than certain other Financial
Instruments. In such cases, a Portfolio may seek to hedge against price
movements in that currency by entering into transactions using Financial
Instruments on another currency or a basket of currencies, the values of which
the Manager believes will have a high degree of positive correlation to the
value of the currency being hedged. The risk that movements in the price of the
Financial Instrument will not correlate perfectly with movements in the price of
the currency subject to the hedging transaction is magnified when this strategy
is used.

The value of Financial Instruments on foreign currencies depends on the
value of the underlying currency relative to the U.S. dollar. Because foreign
currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such Financial
Instruments, the Portfolios could be disadvantaged by having to deal in the odd
lot market (generally consisting of transactions of less than $1 million) for
the underlying foreign currencies at prices that are less favorable than for
round lots.

There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a
global, round-the-clock market. To the extent the U.S. options or futures
markets are closed while the markets for the underlying currencies remain open,
significant price and rate movements might take place in the underlying markets
that cannot be reflected in the markets for the Financial Instruments until they
reopen.

Settlement of hedging transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency.
Thus, a Portfolio might be required to accept or make delivery of the underlying
foreign currency in accordance with any U.S. or foreign regulations regarding
the maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.

Forward Currency Contracts. The Asset Strategy Portfolio and the
International Portfolio may enter into forward currency contracts to purchase or
sell foreign currencies for a fixed amount of U.S. dollars or another foreign
currency. A forward currency contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
(term) from the date of the forward currency contract agreed upon by the
parties, at a price set at the time of the forward currency contract. These
forward currency contracts are traded directly between currency traders (usually
large commercial banks) and their customers.

Such transactions may serve as long hedges; for example, a Portfolio may
purchase a forward currency contract to lock in the U.S. dollar price of a
security denominated in a foreign currency that the Portfolio intends to
acquire. Forward currency contract transactions may also serve as short hedges;
for example, a Portfolio may sell a forward currency contract to lock in the
U.S. dollar equivalent of the proceeds from the anticipated sale of a security,
dividend or interest payment denominated in a foreign currency.

Each of these Portfolios may also use forward contracts to hedge against a
decline in the value of existing investments denominated in foreign currency.
For example, if a Portfolio owned securities denominated in pounds sterling, it
could enter into a forward contract to sell pounds sterling in return for U.S.
dollars to hedge against possible declines in the pound's value. Such a hedge,
sometimes referred to as a "position hedge," would tend to offset both positive
and negative currency fluctuations, but would not offset changes in security
values caused by other factors. Each of these Portfolios could also hedge the
position by selling another currency expected to perform similarly to the pound
sterling, for example, by entering into a forward contract to sell Deutsche
Marks or European Currency Units in return for U.S. dollars. This type of
hedge, sometimes referred to as a "proxy hedge," could offer advantages in terms
of cost, yield, or efficiency, but generally would not hedge currency exposure
as effectively as a simple hedge into U.S. dollars. Proxy hedges may result in
losses if the currency used to hedge does not perform similarly to the currency
in which the hedged securities are denominated.

The Asset Strategy Portfolio also may use forward currency contracts for
"cross-hedging." Under this strategy, the Portfolio would increase its exposure
to foreign currencies that the Manager believes might rise in value relative to
the U.S. dollar, or shift its exposure to foreign currency fluctuations from one
country to another. For example, if a Portfolio owned securities denominated in
a foreign currency and the Manager believed that currency would decline relative
to another currency, it might enter into a forward contract to sell an
appropriate amount of the first foreign currency, with payment to be made in the
second foreign currency.

The cost to a Portfolio of engaging in forward currency contracts varies
with factors such as the currency involved, the length of the contract period
and the market conditions then prevailing. Because forward currency contracts
are usually entered into on a principal basis, no fees or commissions are
involved. When a Portfolio enters into a forward currency contract, it relies
on the contra party to make or take delivery of the underlying currency at the
maturity of the contract. Failure by the counterparty to do so would result in
the loss of any expected benefit of the transaction.

As is the case with futures contracts, purchasers and sellers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures contracts, by selling or purchasing,
respectively, an instrument identical to the instrument purchased or sold.
Secondary markets generally do not exist for forward currency contracts, with
the result that closing transactions generally can be made for forward currency
contracts only by negotiating directly with the counterparty. Thus, there can
be no assurance that a Portfolio will in fact be able to close out a forward
currency contract at a favorable price prior to maturity. In addition, in the
event of insolvency of the counterparty, a Portfolio might be unable to close
out a forward currency contract at any time prior to maturity. In either event,
the Portfolio would continue to be subject to market risk with respect to the
position, and would continue to be required to maintain a position in securities
denominated in the foreign currency or to maintain cash or securities in a
segregated account.

The precise matching of forward currency contract amounts and the value of
the securities involved generally will not be possible because the value of such
securities, measured in the foreign currency, will change after the foreign
currency contract has been established. Thus, a Portfolio might need to
purchase or sell foreign currencies in the spot (cash) market to the extent such
foreign currencies are not covered by forward contracts. The projection of
short-term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.

The International Portfolio does not intend to enter into forward currency
contracts on a regular basis.

Normally, consideration of the prospect for currency parities will be
incorporated into the longer term investment decisions made with respect to
overall diversification strategies. However, the Manager believes that it is
important to have flexibility to enter into forward currency contracts when it
determines that the best interests of a Portfolio may be served.

Limitations on the Use of Forward Currency Contracts. The International
Portfolio may enter into forward currency contracts, provided that it does not
thereafter have more than 15% of the value of its assets committed to the
consummation of all such forward currency contracts; however, it will not enter
into forward currency contracts or maintain a net exposure to such forward
currency contracts where the consummation of the forward currency contracts
would obligate the International Portfolio to deliver an amount of foreign
currency in excess of the value of its portfolio securities or other assets
denominated in that currency. The International Portfolio may hold foreign
currency only in connection with forward currency contracts, only up to four
business days, as well as in connection with the purchase or sale of foreign
securities, but not otherwise. Generally, the International Portfolio will not
enter into a Forward Contract with a term greater than one year.

The Asset Strategy Portfolio does not currently intend to invest more than
5% of its total assets in forward currency contracts.

Combined Positions. A Portfolio may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of its overall
position. For a example, a Portfolio may purchase a put option and write a call
option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a futures
contract. Another possible combined position would involve writing a call
option at one strike price and buying a call option at a lower price, in order
to reduce the risk of the written call option in the event of a substantial
price increase. Because combined options positions involve multiple trades,
they result in higher transaction costs and may be more difficult to open and
close out.

Turnover. A Portfolio's options and futures activities may affect its
turnover rate and brokerage commission payments. The exercise of calls or puts
written by a Portfolio, and the sale or purchase of futures contracts, may cause
it to sell or purchase related investments, thus increasing its turnover rate in
a manner beyond its control. Once a Portfolio has received an exercise notice
on an option it has written, it cannot effect a closing transaction in order to
terminate its obligation under the option and must deliver or receive the
underlying securities at the exercise price. The exercise of puts purchased by
a Portfolio may also cause the sale of related investments, also increasing
turnover; although such exercise is within a Portfolio's control, holding a
protective put might cause it to sell the related investments for reasons that
would not exist in the absence of the put. A Portfolio will pay a brokerage
commission each time it buys or sells a put or call or purchases or sells a
futures contract. Such commissions may be higher than those that would apply to
direct purchases or sales.

Swaps, Caps, Collars and Floors. Swap agreements, including caps, collars
and floors, can be individually negotiated and structured to include exposure
to a variety of different types of investments or market factors. Depending on
their structure, swap agreements may increase or decrease a Portfolio's
exposure to long- or short-term interest rates (in the U.S. or abroad), foreign
currency values, mortgage-backed security values, corporate borrowing rates, or
other factors such as security prices or inflation rates.

Swap agreements will tend to shift a Portfolio's investment exposure from
one type of investment to another. For example, if a Portfolio agrees to
exchange payments in dollars for payments in foreign currency, the swap
agreement would tend to decrease the Portfolio's exposure to U.S. interest rates
and increase its exposure to foreign currency and interest rates. Caps and
floors have an effect similar to buying or writing options.

The net amount of the excess, if any, of a Portfolio's obligations over its
entitlements with respect to each swap will be accrued on a daily basis and an
amount of cash, U.S. Government Securities or other liquid high-grade debt
obligations having an aggregate net asset value at least equal to the accrued
excess will be maintained in an account by the Portfolio's custodian that
satisfies the requirements of the 1940 Act. Each Portfolio will also establish
and maintain such segregated accounts with respect to its total obligations
under any swaps that are not entered into on a net basis and with respect to any
caps or floors that are written by the Portfolio. The Manager and the Portfolio
believe that such obligations do not constitute senior securities under the 1940
Act and, accordingly, will not treat them as being subject to a Portfolio's
borrowing restrictions.

Indexed Securities. Each Portfolio (other than Growth Portfolio) may
purchase securities whose prices are indexed to the prices of other securities,
securities indices, currencies, precious metals or other commodities, or other
financial indicators, as long as the Manager determines that it is consistent
with the Portfolio's investment goal and policies. Indexed securities
typically, but not always, are debt securities or deposits whose value at
maturity or coupon rate is determined by reference to a specific instrument or
statistic. Gold-indexed securities, for example, typically provide for a
maturity value that depends on the price of gold, resulting in a security whose
price tends to rise and fall together with gold prices. Currency-indexed
securities typically are short-term to intermediate-term debt securities whose
maturity values or interest rates are determined by reference to the values of
one or more specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities of equivalent issuers. Currency-indexed
securities may be positively or negatively indexed; that is, their maturity
value may increase when the specified currency value increases, resulting in a
security that performs similarly to a foreign-denominated instrument, or their
maturity value may decline when foreign currencies increase, resulting in a
security whose price characteristics are similar to a put on the underlying
currency. Currency-indexed securities may also have prices that depend on the
values of a number of different foreign currencies relative to each other.

Recent issuers of indexed securities have included banks, corporations, and
certain U.S. government agencies. The Manager will use its judgment in
determining whether indexed securities should be treated as short-term
instruments, bonds, stocks, or as a separate asset class for purposes of Asset
Strategy Portfolio's investment allocations, depending on the individual
characteristics of the securities. Certain indexed securities that are not
traded on an established market may be deemed illiquid.

Warrants and Rights

Each Portfolio except the Money Market Portfolio, the Limited-Term Bond
Portfolio, and the Balanced Portfolio may purchase warrants. The Bond
Portfolio, the High Income Portfolio, the Growth Portfolio, the Income Portfolio
and the Small Cap Portfolio may purchase warrants provided that such purchase
will not cause more than 5% of their respective net assets, valued at the lower
of cost or market, to be invested in warrants. The Asset Strategy Portfolio
does not currently intend to purchase warrants, valued at the lower of cost or
market, in excess of 5% of the Portfolio's net assets. Included in that amount,
but not to exceed 2% of the Asset Strategy Portfolio's net assets, may be
warrants that are not listed on the NYSE or the American Stock Exchange.
Warrants acquired by the Asset Strategy Portfolio in units or attached to
securities are not subject to these restrictions. The International Portfolio
may purchase warrants and rights to purchase securities, provided that as a
result of such purchase not more than 5% of its net assets will consist of
warrants, rights or a combination thereof. Warrants are options to purchase
equity securities at specific prices valid for a specific period of time. Their
prices do not necessarily move parallel to the prices of the underlying
securities. Rights are similar to warrants but normally have a shorter duration
and are distributed directly by the issuer to its shareholders. Warrants and
rights have no voting rights, receive no dividends and have no rights with
respect to the assets of the issuer. Warrants and rights acquired in units or
attached to other securities are not considered for purposes of computing the 5%
limitation. Certain states may impose a lower percentage limit on investments
in warrants and rights.

When-Issued and Delayed-Delivery Transactions

Each Portfolio may purchase securities on a when-issued or delayed-delivery
basis or sell them on a delayed-delivery basis. Delivery may take place a month
or more after the date of the transaction. The purchase or sale price is fixed
on the transaction date. A Portfolio will enter into when-issued or delayed-
delivery transactions in order to secure what is considered to be an
advantageous price and yield at the time of entering into the transaction. The
securities so purchased by a Portfolio are subject to market fluctuation. The
value of when-issued or delayed-delivery securities may be less or more when
delivered than the purchase price paid or received. Typically, no interest
accrues to a Portfolio until delivery and payment are completed. When a
Portfolio makes a commitment to purchase securities on a when-issued or delayed-
delivery basis, it will record the transaction and thereafter reflect the value
of the securities in determining its net asset value per share. The securities
sold by a Portfolio on a delayed-delivery basis are also subject to market
fluctuation. Therefore, their value when a Portfolio delivers them may be more
than the purchase price the Portfolio receives. When a Portfolio makes a
commitment to sell securities on a delayed basis, it will record the transaction
and thereafter value the securities at the sales price in determining the
Portfolio's net asset value per share.

Ordinarily, a Portfolio purchases securities on a when-issued or delayed-
delivery basis with the intention of actually taking delivery of the securities.
However, before the securities are delivered and before it has paid for them
(the "settlement date"), a Portfolio may sell the securities for investment
reasons. The Portfolio will segregate cash or high-quality debt obligations at
least equal in value to the amount it will have to pay on the settlement date;
these segregated securities may, however, be sold at or before the settlement
date to pay the purchase price of the when-issued or delayed-delivery
securities.

Restricted Securities

The Portfolios may purchase commercial paper that is issued in reliance on
the exemption from registration that is afforded by Section 4(2) of the
Securities Act of 1933, as amended ("Section 4(2) paper"). Section 4(2) paper
is subject to legal or contractual restrictions on resale under the federal
securities laws. It is generally sold to institutional investors who agree that
they are purchasing the paper for investment and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) paper is normally resold to other institutional investors through
or with the assistance of investment dealers who make a market in the Section
4(2) paper, thus providing liquidity. Section 4(2) paper may be determined to
be liquid in accordance with procedures adopted by the Fund's Board of
Directors. Although there is no assurance that a market will exist for Section
4(2) paper that a Portfolio may own, purchased Section 4(2) paper must meet the
credit, maturity and other criteria that apply to other securities in which the
Portfolios invest. These restricted securities will be valued in the same
manner as other commercial paper held by the Portfolios is valued. See "Net
Asset Value."

The High Income Portfolio, the Growth Portfolio, the Income Portfolio and
the Asset Strategy Portfolio may also invest in other securities that are
subject to restrictions on resale because they have not been registered under
the Securities Act of 1933, as amended (the "1933 Act") or are otherwise subject
to contractual restrictions on resale. These securities are generally referred
to as private placements or restricted securities. Restricted securities
generally can be sold in privately negotiated transactions, pursuant to an
exemption from registration under the 1933 Act, or in a registered public
offering. Where registration is required, a Portfolio may be obligated to pay
all or part of the registration expense and a considerable period may elapse
between the time it decides to seek registration and the time the Portfolio may
be permitted to sell a security under an effective registration statement. If,
during such a period, adverse market conditions were to develop, a Portfolio
might obtain a less favorable price than prevailed when it decided to seek
registration of the security.

The International Portfolio and the Asset Strategy Portfolio may also
purchase foreign restricted securities; provided that the International
Portfolio will not purchase restricted securities if as a result of such
purchase more than 5% of its total assets would consist of restricted
securities. Restricted securities in which the International Portfolio seeks to
invest need not be listed or admitted to trading on a foreign or domestic
exchange and may be less liquid than listed securities.

The Bond Portfolio, the Small Cap Portfolio, the Balanced Portfolio and the
Limited-Term Bond Portfolio do not intend to invest in restricted securities.

Limitations on the resale of such securities may have an adverse effect on
their marketability and may prevent a Portfolio from disposing of them promptly
at reasonable prices. Restricted securities may be determined to be liquid in
accordance with guidelines established by or under the direction of the Fund's
Board of Directors. A Portfolio may have to bear the expense of registering
such securities for resale and the risk of substantial delays in effecting such
registration.

The Portfolios do not anticipate adjusting for any diminution in value of
these securities on account of their restrictive feature if there is an active
market which creates liquidity and if actual market quotations for these
restricted securities are available. In the event that there should cease to be
an active market for these securities or actual market quotations become
unavailable, the securities will be valued at fair value as determined in good
faith under procedures established by and under the general supervision and
responsibility of the Board of Directors.

Certain Other Securities

The Portfolios (other than the Money Market Portfolio) may purchase debt
securities whose principal amount at maturity is dependent upon the performance
of a specified equity security. The issuer of such debt securities, typically
an investment banking firm, is unaffiliated with the issuer of the equity
security to whose performance the debt security is linked. Equity-linked debt
securities differ from ordinary debt securities in that the principal amount
received at maturity is not fixed, but is based on the price of the linked
equity security at the time the debt security matures. The performance of
equity-linked debt securities depends primarily on the performance of the linked
equity security and may also be influenced by interest rate changes. In
addition, although the debt securities are typically adjusted for diluting
events such as stock splits, stock dividends and certain other events affecting
the market value of the linked equity security, the debt securities are not
adjusted for subsequent issuances of the linked equity security for cash. Such
an issuance could adversely affect the price of the debt security. In addition
to the equity risk relating to the linked equity security, such debt securities
are also subject to credit risk with regard to the issuer of the debt security.
In general, however, such debt securities are less volatile than the equity
securities to which they are linked.

The Portfolios (other than the Money Market Portfolio) may also invest in a
type of convertible preferred stock that pays a cumulative, fixed dividend that
is senior to, and expected to be in excess of, the dividends paid on the common
stock of the issuer. At the mandatory conversion date, the preferred stock is
converted into not more than one share of the issuer's common stock at the "call
price" that was established at the time the preferred stock was issued. If the
price per share of the related common stock on the mandatory conversion date is
less than the call price, the holder of the preferred stock will nonetheless
receive only one share of common stock for each share of preferred stock (plus
cash in the amount of any accrued but unpaid dividends). At any time prior to
the mandatory conversion date, the issuer may redeem the preferred stock upon
issuing to the holder a number of shares of common stock equal to the call price
of the preferred stock in effect on the date of redemption divided by the market
value of the common stock, with such market value typically determined one or
two trading days prior to the date notice of redemption is given. The issuer
must also pay the holder of the preferred stock cash in an amount equal to any
accrued but unpaid dividends on the preferred stock. This convertible preferred
stock is subject to the same market risk as the common stock of the issuer,
except to the extent that such risk is mitigated by the higher dividend paid on
the preferred stock. The opportunity for equity appreciation afforded by an
investment in such convertible preferred stock, however, is limited, because in
the event the market value of the issuer's common stock increases to or above
the call price of the preferred stock, the issuer may (and would be expected to)
call the preferred stock for redemption at the call price. This convertible
preferred stock is also subject to credit risk with regard to the ability of the
issuer to pay the dividend established upon issuance of the preferred stock.
Generally, convertible preferred stock is less volatile than the related common
stock of the issuer.

Illiquid Investments

A Portfolio (other than the Asset Strategy Portfolio) may not make illiquid
investments if thereafter more than 10% of its net assets would consist of such
investments. The Asset Strategy Portfolio does not currently intend to purchase
any security if, as a result, more than 15% of its net assets would be invested
in illiquid investments. The investments currently considered by the Portfolios
to be illiquid include: (i) repurchase agreements not terminable within seven
days; (ii) fixed time deposits subject to withdrawal penalties other than
overnight deposits; (iii) securities for which market quotations are not readily
available; (iv) restricted securities not determined to be liquid pursuant to
guidelines established by or under the direction of the Fund's Board of
Directors; (v) unlisted purchased options and collateral relating to options
written by a Portfolio (see discussion below); (vi) securities involved in swap,
cap, collar and floor transactions; (vii) non-government stripped fixed-rate
mortgage-backed securities; and (viii) direct debt instruments. Illiquid
investments do not include any obligations payable at principal amount plus
accrued interest on demand or within seven days after demand. Certain
Portfolios may sell OTC options and, in connection therewith, segregate assets
or cover its obligations with respect to OTC options written by the Portfolio.
The assets used as cover for OTC options written by a Portfolio will be
considered illiquid unless the OTC options are sold to qualified dealers who
agree that the Portfolio may repurchase any OTC option it writes at a maximum
price to be calculated by a formula set forth in the option agreement. The
cover for an OTC option written subject to this procedure would be considered
illiquid only to the extent that the maximum repurchase price under the formula
exceeds the intrinsic value of the option.

Shares of Investment Companies

The International Portfolio, Small Cap Portfolio and Balanced Portfolio may
buy shares of investment companies that do not redeem their shares if it does it
in a regular transaction in the open market and then does not have more than 10%
of its total assets in these shares; however, these Portfolios do not have any
current intent to invest more than 5% of their respective assets in such
securities in the foreseeable future. These Portfolios may also buy these
shares as part of a merger or consolidation.

The Asset Strategy Portfolio does not currently intend to (i) purchase
securities of other investment companies, except in the open market where no
commission except the ordinary broker's commission is paid and if, as a result
of such purchase, the Portfolio does not have more than 10% of its total assets
invested in such securities, or (ii) purchase or retain securities issued by
other open-end investment companies. Limitations (i) and (ii) do not apply to
securities received as dividends, through offers of exchange, or as a result of
a reorganization, consolidation, or merger.

As a shareholder in an investment company, a Portfolio would bear its pro
rata share of that investment company's expenses, which could result in
duplication of certain fees, including management and administrative fees.

Investment Restrictions

The following investment restrictions are fundamental policies of each
Portfolio other than the Asset Strategy Portfolio and may not be changed without
shareholder approval. A Portfolio (other than the Asset Strategy Portfolio) may
not:

(i) Issue senior securities (except that each Portfolio may borrow money as
described below);

(ii) Buy or sell commodities or commodity contracts except that each
Portfolio may use options, futures contracts, forward currency
contracts and interest rate swaps, caps and floors, and purchase and
sell foreign currencies, in the manner described in the Prospectus and
SAI;

(iii) Buy real estate or any nonliquid interests in real estate investment
trusts;

(iv) Make loans, except loans of portfolio securities and except to the
extent that investment in debt securities may be deemed to be a loan;

(v) Invest for the purpose of exercising control or management of other
companies;

(vi) Sell securities short, buy securities on margin or engage in arbitrage
transactions;

(vii) Engage in the underwriting of securities, except insofar as it may be
deemed an underwriter in selling shares of a Portfolio and except as it
may be deemed such in the sale of restricted securities;

(viii) Except for the Small Cap Portfolio (see "Borrowing"), borrow money
except from banks as a temporary measure or for extraordinary or
emergency purposes and not for investment purposes, and only up to 5%
of the value of a Portfolio's total assets;

(ix) Pledge, mortgage or hypothecate assets as security for indebtedness
except to secure permitted borrowings;

(x) Buy a security if, as a result, a Portfolio would own more than 10% of
the issuer's voting securities, or if more than five percent of its
total assets would be invested in securities of that issuer, or if more
than twenty-five percent of its assets would then be invested in
securities of companies in any one industry (U.S. Government securities
are not included in these restrictions.

The following are fundamental policies of the Asset Strategy Portfolio and
may not be changed without shareholder approval. The Asset Strategy Portfolio
may not:

(i) with respect to 75% of the Portfolio's total assets, purchase the
securities of any issuer (other than obligations issued or guaranteed
by the United States government, or any of its agencies or
instrumentalities) if, as a result thereof, (a) more than 5% of the
Portfolio's total assets would be invested in the securities of such
issuer, or (b) the Portfolio would hold more than 10% of the
outstanding voting securities of such issuer;

(ii) issue bonds or any other class of securities preferred over shares of
the Portfolio in respect of the Portfolio's assets or earnings,
provided that the Portfolio may issue additional classes of shares in
accordance with the Fund's Articles of Incorporation;

(iii) sell securities short, provided that transactions in futures
contracts, options and other financial instruments are not deemed to
constitute short sales;

(iv) purchase securities on margin, except that the Portfolio may obtain
such short-term credits as are necessary for the clearance of
transactions, and provided that the Portfolio may make initial and
variation margin payments in connection with transactions in futures
contracts, options and other financial instruments;

(v) borrow money, except that the Portfolio may borrow money for emergency
or extraordinary purposes (not for leveraging or investment) in an
amount not exceeding 33 1/3% of the value of its total assets (less
liabilities other than borrowings). Any borrowings that come to
exceed 33 1/3% of the value of the Portfolio's total assets by reason
of a decline in net assets will be reduced within three days to the
extent necessary to comply with the 33 1/3% limitation. For purposes
of this limitation, "three days" means three days, exclusive of
Sundays and holidays;

(vi) underwrite securities issued by others, except to the extent that the
Portfolio may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities;

(vii) purchase the securities of any issuer (other than obligations issued
or guaranteed by the United States government or any of its agencies
or instrumentalities) if, as a result, more than 25% of the
Portfolio's total assets (taken at current value) would be invested in
the securities of issuers having their principal business activities
in the same industry;

(viii) invest in real estate limited partnerships or purchase or sell real
estate unless acquired as a result of ownership of securities (but
this shall not prevent the Portfolio from purchasing and selling
securities issued by companies or other entities or investment
vehicles that deal in real estate or interests therein, nor shall this
prevent the Portfolio from purchasing interests in pools of real
estate mortgage loans);

(ix) purchase or sell physical commodities unless acquired as a result of
ownership of securities (but this shall not prevent the Portfolio from
purchasing and selling currencies, futures contracts, options, forward
currency contracts or other financial instruments);

(x) make loans, except (a) by lending portfolio securities provided that
no securities loan will be made if, as a result thereof, more than 10%
of the Portfolio's total assets (taken at current value) would be lent
to another party; (b) through the purchase of a portion of an issue of
debt securities in accordance with its investment objective, policies,
and limitations; and (c) by engaging in repurchase agreements with
respect to portfolio securities; or

(xi) purchase or retain the securities of an issuer if the officers and
directors of the Portfolio and of the Manager owning beneficially more
than .5 of 1% of the securities of an issuer together own beneficially
more than 5% of the securities of that issuer.

In addition to the fundamental policies described above, the Portfolios
indicated below have adopted the following investment policies which, unlike the
fundamental policies, may be changed without shareholder approval.

(i) A Portfolio (other than the Asset Strategy Portfolio) may not buy
shares of other investment companies which redeem their shares.
Certain Portfolios may buy shares of other investment companies which
do not redeem their shares as described in the Prospectus and the SAI.

(ii) A Portfolio may not participate on a joint, or a joint and several,
basis in any trading account in any securities; (but this does not
prohibit the "bunching" of orders for the sale or purchase of
Portfolio securities with any other Portfolio or with other advisory
accounts of the Manager or any of its affiliates to reduce brokerage
commissions or otherwise to achieve best execution).

(iii) The Asset Strategy Portfolio does not currently intend to lend assets
other than securities to other parties, except by acquiring loans,
loan participations, or other forms of direct debt instruments. (This
limitation does not apply to purchases of debt securities or to
repurchase agreements.)

(iv) The Asset Strategy Portfolio does not currently intend to purchase the
securities of any issuer (other than securities issued or guaranteed
by domestic or foreign governments or political subdivision thereof)
if, as a result, more than 5% of its total assets would be invested in
the securities of business enterprises that, including predecessors,
have a record of less than three years of continuous operation. This
restriction does not apply to any obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, or to CMO's,
other mortgage-related securities, asset-backed securities or indexed
securities.

(v) The Asset Strategy Portfolio does not currently intend to invest in
oil, gas, or other mineral exploration or development programs or
leases.

Portfolio Turnover

A Portfolio turnover rate is, in general, the percentage computed by taking
the lesser of purchases or sales of portfolio securities for a year and dividing
it by the monthly average of the market value of such securities during the
year, excluding certain short-term securities. A Portfolio's turnover rate may
vary greatly from year to year as well as within a particular year.

The portfolio turnover rates for the fiscal years ended December 31, 1994
and December 31, 1993 for each of the Portfolios then in existence were as
follows:

1994 1993
---- ----

Money Market Portfolio 0.00% 0.00%
Bond Portfolio 135.82 68.75
High Income Portfolio 37.86 54.22
Growth Portfolio 277.36 297.81
Income Portfolio 23.32 18.38

The International Portfolio, Small Cap Portfolio, Balanced Portfolio and
Limited-Term Bond Portfolio began operations April 29, 1994. These Portfolios
cannot accurately predict what their respective portfolio turnover rates will
be, but it is anticipated that the annual turnover rate will not exceed 200% for
any of these Portfolios, except that Limited-Term Bond Portfolio may have an
annual turnover rate in excess of 300%. The Asset Strategy Portfolio began
operations in 1995. The Asset Strategy Portfolio cannot precisely predict what
its portfolio turnover rate will be, but it is anticipated that the annual
turnover rate for the common stock portion of its portfolio will not exceed 200%
and that the annual turnover rate for the other portion of its portfolio will
not exceed 200%.

The high portfolio turnover rate for the Growth Portfolio was due to the
active management of the portfolio and the volatility of the stock market during
this period. A high turnover rate will increase transaction costs and
commission costs that will be borne by the Fund and may generate taxable income
or loss. Because short-term securities are generally excluded from computation
of the turnover rate, a rate will not be computed for the Money Market
Portfolio.

INVESTMENT MANAGEMENT AND OTHER SERVICES

The Management Agreement

The Fund has an Investment Management Agreement (the "Management
Agreement") with Waddell & Reed, Inc. On January 8, 1992, subject to the
authority of the Fund's Board of Directors, Waddell & Reed, Inc. assigned the
Management Agreement and all related investment management duties (and related
professional staff) to Waddell & Reed Investment Management Company, a wholly-
owned subsidiary of Waddell & Reed, Inc. Under the Management Agreement, the
Manager is employed to supervise the investments of each Portfolio and provide
investment advice to each Portfolio. The address of the Manager and Waddell &
Reed, Inc. is 6300 Lamar Avenue, P. O. Box 29217, Shawnee Mission, Kansas
66201-9217. Waddell & Reed, Inc. is the Fund's distributor and underwriter.

The Management Agreement permits Waddell & Reed, Inc. or an affiliate of
Waddell & Reed, Inc. to enter into a separate agreement for accounting services
("Accounting Services Agreement") with the Fund. The Management Agreement
contains detailed provisions as to the matters to be considered by the Fund's
Directors prior to approving any Accounting Services Agreement.

Accounting Services

Under the Accounting Services Agreement entered into between the Fund and
Waddell & Reed Services Company (the "Agent"), a subsidiary of Waddell & Reed,
Inc., the Agent provides the Fund with bookkeeping and accounting services and
assistance including maintenance of the Fund's records, pricing of the
Portfolios' shares, and preparation of prospectuses, proxy statements and
certain reports. A new Accounting Services Agreement, or amendments to an
existing one, may be approved by the Fund's Board of Directors without
shareholder approval.

Torchmark Corporation and United Investors Management Company

The Manager is a wholly-owned subsidiary of Waddell & Reed, Inc. Waddell &
Reed, Inc. is a wholly-owned subsidiary of Waddell & Reed Financial Services,
Inc., a holding company. Waddell & Reed Financial Services, Inc. is a wholly-
owned subsidiary of United Investors Management Company which in turn is a
wholly-owned subsidiary of Torchmark Corporation. Torchmark Corporation is a
publicly held company. The address of Torchmark Corporation and United
Investors Management Company is 2001 Third Avenue South, Birmingham, Alabama
35233.

Waddell & Reed, Inc. and its predecessors served as investment manager to
the Fund and to each of the registered investment companies in the United Group
of Mutual Funds, except United Asset Strategy Fund, Inc., since 1940 or the
company's inception date, whichever was later, until January 8, 1992, when it
assigned its duties as investment manager for these funds (and the related
professional staff) to the Manager. The Manager has also served as investment
manager for Waddell & Reed Funds, Inc. since its inception in September 1992,
Torchmark Government Securities Fund, Inc. and Torchmark Insured Tax-Free Fund,
Inc. since they each commenced operations in February 1993 and United Asset
Strategy Fund, Inc. since it began operations in March 1995. Waddell & Reed,
Inc. serves as distributor for the Fund and as underwriter for the investment
companies in the United Group of Mutual Funds and Waddell & Reed Funds, Inc.

Payments by the Fund for Management and Accounting Services

Under the Management Agreement, for the Manager's management services, the
Fund pays the Manager a fee as described in the Prospectus. Prior to the above-
described assignment from Waddell & Reed, Inc. to Waddell & Reed Investment
Management Company, all fees were paid to Waddell & Reed, Inc. The management
fees paid to the investment manager, during the fiscal years ended December 31,
1994, 1993 and 1992, for each Portfolio then in existence were as follows:

Periods ended December 31,**
----------------------------
1994 1993 1992
---- ---- ----

Bond Portfolio $424,370 $357,307 $208,351
High Income Portfolio $494,237 367,396 221,169
Growth Portfolio $1,813,171 1,179,870 650,038
Money Market Portfolio $116,644 122,205 108,092
Income Portfolio $1,374,533 747,849 268,089
International Portfolio* $63,291
Small Cap Portfolio* $36,355
Balanced Portfolio* $15,489
Limited-Term Bond Portfolio* $4,712

*Began operations April 29, 1994.
**The Asset Strategy Portfolio began operations in 1995.

The Fund accrues and pays this fee daily.

Under the Accounting Services Agreement, the Fund pays Waddell & Reed
Services Company a fee for accounting services as described in the Prospectus.
Fees paid to the Agent for the fiscal years ended December 31, 1994, 1993 and
1992 for each Portfolio then in existence were as follows:

Periods ended December 31,**
----------------------------
1994 1993 1992
---- ---- ----

Bond Portfolio $30,000 $30,000 $20,000
High Income Portfolio 30,000 26,667 20,000
Growth Portfolio 50,000 40,833 32,500
Money Market Portfolio 10,833 12,500 10,000
Income Portfolio 44,167 35,833 19,167
International Portfolio* 3,333
Small Cap Portfolio* 1,667
Balanced Portfolio* ---
Limited-Term Bond Portfolio* ---

*Began operations April 29, 1994.
**The Asset Strategy Portfolio began operations in 1995.

Since the Fund pays a management fee for investment supervision and an
accounting services fee for accounting services as discussed above, the Manager
and Waddell & Reed Services Company, respectively, pay all of their own expenses
in providing these services. Waddell & Reed, Inc. and affiliates pay the Fund's
Directors and officers who are affiliated with the Manager and Waddell & Reed,
Inc. The Fund pays the fees and expenses of the Fund's other Directors. The
Fund pays all of its other expenses. These include the costs of printing and
mailing materials sent to shareholders, audit and outside legal fees, taxes,
brokerage commissions, interest, insurance premiums, fees payable under
securities laws and to the Investment Company Institute, cost of processing and
maintaining shareholder records, cost of systems or services used to price
Portfolio securities and nonrecurring and extraordinary expenses, including
litigation and indemnification relating to litigation.

Custodial and Auditing Services

The Custodian for each Portfolio is UMB Bank, n.a., Kansas City, Missouri.
In general, the Custodian is responsible for holding the Portfolios' cash and
securities. If a Portfolio's assets are held in foreign countries, the
Portfolio will comply with Rule 17f-5 of the 1940 Act. Price Waterhouse LLP,
Kansas City, Missouri, the Fund's independent accountants, audits the Fund's
financial statements.

NET ASSET VALUE

The net asset value of one of the shares of a Portfolio is the value of the
Portfolio's assets, less liabilities, divided by the total number of shares
outstanding. For example, if on a particular day a Portfolio owned securities
worth $100 and held cash of $15, the total value of the assets would be $115.
If it had a liability of $5, the net asset value would be $110 ($115 minus $5).
If it had 11 shares outstanding, the net asset value of one share would be $10
($110 divided by 11).

The net asset value per share of each Portfolio is computed on each day
that the NYSE is open for trading as of the later of the close of the regular
session of the NYSE or the close of the regular session of any other securities
or commodities exchange on which an option or future held by a Portfolio is
traded. The NYSE ordinarily closes at 4:00 P.M. Eastern time. The NYSE
annually announces the days on which it will not be open for trading. The most
recent announcement indicates that it will not be open on the following days:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. However, it is possible that the
NYSE may close on other days.

Under Rule 2a-7, the Money Market Portfolio uses the "amortized cost
method" for valuing its portfolio securities provided it meets certain
conditions. The conditions imposed under Rule 2a-7 relating to the Portfolio's
investments include the following: (i) the Portfolio must not maintain a
dollar-weighted average portfolio maturity in excess of 90 days; (ii) it must
limit its investments, including repurchase agreements, to those instruments
which are denominated in U.S. dollars and which the Fund's Board of Directors
determines present minimal credit risks and which are rated in one of the two
highest rating categories by the requisite NRSRO(s), as defined in Rule 2a-7;
or, in the case of any instrument that is not rated, of comparable quality as
determined under procedures established by and under the general supervision and
responsibility of the Fund's Board of Directors; (iii) it must limit its
investments in the securities of any one issuer (except U.S. Government
Securities) to no more than 5% of its assets; (iv) it must limit its investments
in securities rated in the second highest rating category by the requisite
NRSRO(s) or comparable unrated securities to no more than 5% of its assets; (v)
it must limit its investments in the securities of any one issuer which are
rated in the second highest rating category by the requisite NRSRO(s) or
comparable unrated securities to the greater of 1% of its assets or $1,000,000;
and (vi) it must limit its investments to securities with a remaining maturity
of not more than thirteen months. Rule 2a-7 sets forth the method by which the
maturity of a security is determined. The amortized cost method involves
valuing an instrument at its cost and thereafter assuming a constant
amortization rate to maturity of any discount or premium, and does not reflect
the impact of fluctuating interest rates on the market value of the security.
This method does not take into account unrealized gains or losses.

While the amortized cost method provides some degree of certainty in
valuation, there may be periods during which value, as determined by amortized
cost, is higher or lower than the price the Portfolio would receive if it sold
the instrument. During periods of declining interest rates, the daily yield on
the Portfolio's shares 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 and changing its dividends based on these changing prices. 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 Portfolio's
shares would be able to obtain a somewhat higher yield than would result from
investment in such a fund, and existing investors in the Portfolio's shares
would receive less investment income. The converse would apply in a period of
rising interest rates.

Under Rule 2a-7, the Fund's Board of Directors must establish procedures
designed to stabilize, to the extent reasonably possible, the Portfolio's price
per share as computed for the purpose of sales and redemptions at $1.00. Such
procedures must include review of the portfolio holdings by the Board at such
intervals as it may deem appropriate and at such intervals as are reasonable in
light of current market conditions to determine whether the Portfolio's net
asset value calculated by using available market quotations (see below) deviates
from the per share value based on amortized cost.

For the purpose of determining whether there is any deviation between the
value of the Portfolio based on amortized cost and that determined on the basis
of available market quotations, if there are readily available market
quotations, investments are valued at the mean between the bid and asked prices.
If such market quotations are not available, the investments will be valued at
their fair value as determined in good faith under procedures established by and
under the general supervision and responsibility of the Fund's Board of
Directors, including being valued at prices based on market quotations for
investments of similar type, yield and duration.

Under Rule 2a-7, if the extent of any deviation between the net asset value
per share based upon available market quotations and the net asset value per
share based on amortized cost exceeds one-half of 1%, the Board must promptly
consider what action, if any, will be initiated. When the Board believes that
the extent of any deviation may result in material dilution or other unfair
results, it is required to take such action as it deems appropriate to eliminate
or reduce to the extent reasonably practicable such dilution or unfair results.
Such actions could include the sale of portfolio securities prior to maturity to
realize capital gains or losses or to shorten average portfolio maturity,
withholding dividends or payment of distributions from capital or capital gains,
redemptions of shares in kind, or establishing a net asset value per share using
available market quotations.

The portfolio securities of the Portfolios (other than the Money Market
Portfolio) that are listed or traded on U.S. or foreign stock exchanges are
valued at the last sales price on that day or, lacking any sales on such day, at
the mean of the last bid and asked prices available. In cases where securities
or other instruments are traded on more than one exchange, such securities or
other instruments generally are valued on the exchange designated by the Manager
(under procedures established by and under the general supervision and
responsibility of the Board of Directors) as the primary market. Securities
traded in the OTC market and included in the National Association of Securities
Dealers Automated Quotation System ("Nasdaq") are valued at the last available
sale price on Nasdaq prior to the time of valuation; other OTC securities and
instruments are valued at the mean of the closing bid and asked prices.

Bonds, other than convertible bonds, are valued using a pricing system
provided by a major dealer in bonds. Convertible bonds are valued using this
pricing system only on days when there is no sale reported. Short-term debt
securities held by the Portfolios (other than the Money Market Portfolio) are
valued at amortized cost. When market quotations for options and futures
positions and non-exchange traded foreign securities held by a Portfolio are
readily available, those positions and securities will be valued based upon such
quotations. Market quotations generally will not be available for options
traded in the OTC market. Warrants and rights to purchase securities are valued
at market value. When market quotations are not readily available, securities,
options, futures and other assets are valued at fair value as determined in good
faith under procedures established by and under the general supervision and
responsibility of the Board of Directors.

When a Portfolio writes a call or a put option, an amount equal to the
premium received is included in that Portfolio's Statement of Assets and
Liabilities as an asset, and an equivalent deferred credit is included in the
liability section. The deferred credit is "marked-to-market" to reflect the
current market value of the option. If an option a Portfolio wrote is
exercised, the proceeds received on the sale of the related investment are
increased by the amount of the premium that the Portfolio received. If an
option written by a Portfolio expires, it has a gain in the amount of the
premium; if it enters into a closing transaction, it will have a gain or loss
depending on whether the premium was more or less than the cost of the closing
transaction.

All securities and other assets quoted in foreign currency and forward
currency contracts are valued weekly in U.S. dollars on the basis of the foreign
currency exchange rate prevailing at the time such valuation is determined by
the Portfolio's Custodian. Foreign currency exchange rates are generally
determined prior to the close of the NYSE. Occasionally, events affecting the
value of foreign securities and such exchange rates occur between the time at
which they are determined and the close of the NYSE, which events will not be
reflected in a computation of the Portfolio's net asset value. If events
materially affecting the value of such securities or assets or currency exchange
rates occurred during such time period, the securities or assets would be valued
at their fair value as determined in good faith under procedures established by
and under the general supervision and responsibility of the Board of Directors.
The foreign currency exchange transactions of a Portfolio conducted on a spot
basis are valued at the spot rate for purchasing or selling currency prevailing
on the foreign exchange market. Under normal market conditions this rate
differs from the prevailing exchange rate by an amount generally less than one-
tenth of one percent due to the costs of converting from one currency to
another.

Optional delivery standby commitments are valued at fair value under the
general supervision and responsibility of the Fund's Board of Directors. They
are accounted for in the same manner as exchange-listed puts.

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 the number of surrender and
transfer requests to be effected on any day according to the terms of the
Policies. Shares of a Portfolio are sold at their net asset value per share.
No sales charge is paid by the Participating Insurance Company for purchase of
shares. Redemptions will be made at the net asset value per share of the
Portfolio. Payment is generally made within seven days after receipt of a
proper request to redeem. The Fund may suspend the right of redemption of
shares of any Portfolio and may postpone payment for any period if any of the
following conditions exist: (i) the NYSE is closed other than customary weekend
and holiday closings or trading on the NYSE is restricted; (ii) the SEC has
determined that a state of emergency exists which may make payment or transfer
not reasonably practicable; (iii) the SEC has permitted suspension of the right
of redemption of shares for the protection of the shareholders of the Fund; or
(iv) applicable laws and regulations otherwise permit the Fund to suspend
payment on the redemption of shares. Redemptions are ordinarily made in cash
but under extraordinary conditions the Fund's Board may determine that the
making of cash payments is undesirable. In such case, redemption payments may
be made in Portfolio securities. The redeeming shareholders would incur
brokerage costs in selling such securities. The Fund has elected to be governed
by Rule 18f-1 under the 1940 Act, pursuant to which it is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of its net asset value
during any 90-day period for any one shareholder.

Should any conflict between Policyowners arise which would require that a
substantial amount of net assets be withdrawn from a Portfolio, orderly
portfolio management could be disrupted to the potential detriment of
Policyowners. The Fund need not accept any purchase order and it may
discontinue offering the shares of any Portfolio.

SHAREHOLDER COMMUNICATIONS

Policyowners will receive from the Participating Insurance Companies
financial statements of the Fund as required under the 1940 Act. Each report
shows the investments owned by the Portfolio and the market values thereof and
provides other information about the Fund and its operations.

TAXES

General

Shares of the Portfolios are offered only to insurance company separate
accounts that fund variable annuity contracts ("Contracts"). See the applicable
Contract prospectus for a discussion of the special taxation of insurance
companies with respect to such accounts and of the Contract holders.

Each Portfolio is treated as a separate corporation for Federal income tax
purposes. In order to qualify or continue to qualify for treatment as a
regulated investment company ("RIC") under the Internal Revenue Code of 1986, as
amended (the "Code"), each Portfolio must distribute to its shareholders for
each taxable year at least 90% of its investment company taxable income
(consisting generally of net investment income, net short-term capital gain and,
for each Portfolio other than the Money Market Portfolio, net gains from certain
foreign currency transactions) and must meet several additional requirements.
With respect to each Portfolio, these requirements include the following:
(1) the Portfolio must derive at least 90% of its gross income each taxable year
from dividends, interest, payments with respect to securities loans and gains
from the sale or other disposition of securities or foreign currencies, or other
income (including gains from options, futures or forward currency contracts)
derived with respect to its business of investing in securities or those
currencies ("Income Requirement"); (2) the Portfolio must derive less than 30%
of its gross income each taxable year from the sale or other disposition of
securities, or any of the following, that were held for less than three months -
- - options or futures, foreign currencies or forward currency contracts that are
not directly related to the Fund's principal business of investing in securities
(or options and futures with respect to securities) ("Short-Short Limitation");
(3) at the close of each quarter of the Portfolio's taxable year, at least 50%
of the value of its total assets must be represented by cash and cash items,
U.S. Government Securities, securities of other RICs and other securities that
are limited, in respect of any one issuer, to an amount that does not exceed 5%
of the value of the Fund's total assets and that does not represent more than
10% of the issuer's outstanding voting securities; and (4) at the close of each
quarter of the Portfolio's taxable year, not more than 25% of the value of its
total assets may be invested in securities (other than U.S. Government
Securities or the securities of other RICs) of any one issuer.

As noted in the Prospectus, each Portfolio must, and intends to, comply or
continue to comply with the diversification requirements imposed by section
817(h) of the Code and the regulations thereunder. These requirements, which
are in addition to the diversification requirements mentioned in (3) and (4)
above, place certain limitations on the proportion of each Portfolio's assets
that may be represented by any single investment (which includes all securities
of the same issuer). For these purposes, each U.S. Government agency or
instrumentality is treated as a separate issuer, while a particular foreign
government and its agencies, instrumentalities and political subdivisions all
are considered the same issuer.

Income from Foreign Securities

Dividends and interest received by a Portfolio (other than the Limited-Term
Bond Portfolio) may be subject to income, withholding or other taxes imposed by
foreign countries and U.S. possessions that would reduce the yield on its
securities. Tax conventions between certain countries and the United States may
reduce or eliminate these foreign taxes, however, and many foreign countries do
not impose taxes on capital gains in respect of investments by foreign
investors.

Foreign Currency Gains and Losses

For each Portfolio (other than the Money Market Portfolio and Limited-Term
Bond Portfolio), gains or losses (1) from the disposition of foreign currencies,
(2) from the disposition of debt securities denominated in foreign currency that
are attributable to fluctuations in the value of the foreign currency between
the date of acquisition of each security and the date of disposition, and
(3) that are attributable to fluctuations in exchange rates that occur between
the time a Portfolio accrues interest, dividends or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time the
Portfolio actually collects the receivables or pays the liabilities, generally
are treated as ordinary income or loss. Gains or losses from these transactions,
referred to in the Code as "section 988 transactions," may increase or decrease
the amount of a Portfolio's investment company taxable income to be distributed
to its shareholders.

Income from Options, Futures Contracts and Currencies

The use of hedging strategies, such as writing (selling) and purchasing
options and futures in a designated hedging transaction and entering into
forward currency contracts, involves complex rules that will determine for
income tax purposes the character and timing of recognition of the gains and
losses a Portfolio realizes in connection therewith. Income from foreign
currencies (except certain gains therefrom that may be excluded by future
regulations), and income from transactions in options, futures and forward
currency contracts derived by a Portfolio with respect to its business of
investing in securities, will qualify as permissible income under the Income
Requirement. However, income from the disposition of options and futures, and
income from the disposition of foreign currencies and forward currency contracts
that are not directly related to a Portfolio's principal business of investing
in securities (or options and futures with respect to securities), will be
subject to the Short-Short Limitation if they are held for less than three
months.

If a Portfolio satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Portfolio satisfies
the Short-Short Limitation. Thus, only the net gain (if any) from the
designated hedge will be included in gross income for purposes of that
limitation. Each Portfolio authorized to engage in hedging transactions intends
that, when it does so engage, the hedging transactions will qualify for this
treatment, but at the present time it is not clear whether this treatment will
be available for all of each such Portfolio's hedging transactions. To the
extent this treatment is not available, such a Portfolio may be forced to defer
the closing out of certain options, futures and forward currency contracts
beyond the time when it otherwise would be advantageous to do so, in order for
the Portfolio to qualify or continue to qualify as a RIC.

Any income a Portfolio earns from writing options is taxed as short-term
capital gains. If a Portfolio enters into a closing purchase transaction, it
will have a short-term capital gain or loss based on the difference between the
premium it receives for the option it wrote and the premium it pays for the
option it buys. If an option written by a Portfolio expires without being
exercised, the premium it receives also will be a short-term gain. If such an
option is exercised and thus the Portfolio sells the securities subject to the
option, the premium the Portfolio receives will be added to the exercise price
to determine the gains or losses on the sale. A Portfolio will not write so
many options that it could fail to continue to qualify as a RIC.

Certain options and futures in which a Portfolio may invest will be
"section 1256 contracts." Section 1256 contracts held by a Portfolio at the end
of each taxable year, other than section 1256 contracts that are part of a
"mixed straddle" with respect to which the Portfolio has made an election not to
have the following rules apply, are "marked-to-market" (that is, treated as sold
for their fair market value) for Federal income tax purposes, with the result
that unrealized gains or losses are treated as though they were realized. Sixty
percent of any net gains or losses recognized on these deemed sales, and 60% of
any net realized gains or losses from any actual sales of section 1256
contracts, are treated as long-term capital gains or losses, and the balance is
treated as short-term capital gains or losses. Section 1256 contracts also may
be marked-to-market for purposes of the Excise Tax and for other purposes.

Code section 1092 (dealing with straddles) may also affect the taxation of
options and futures contracts in which a Portfolio may invest. Section 1092
defines a "straddle" as offsetting positions with respect to personal property;
for these purposes, options and futures contracts are personal property.
Section 1092 generally provides that any loss from the disposition of a position
in a straddle may be deducted only to the extent the loss exceeds the unrealized
gain on the offsetting position(s) of the straddle. Section 1092 also provides
certain "wash sale" rules, which apply to transactions where a position is sold
at a loss and a new offsetting position is acquired within a prescribed period,
and "short sale" rules applicable to straddles. If a Portfolio makes certain
elections, the amount, character and timing of the recognition of gains and
losses from the affected straddle positions will be determined under rules that
vary according to the elections made. Because only a few of the regulations
implementing the straddle rules have been promulgated, the tax consequences of
straddle transactions to a Portfolio are not entirely clear.

Zero Coupon and Payment-in-Kind Securities

As the holder of zero coupon or other securities issued with original issue
discount, a Portfolio must include in its income the original issue discount
that accrues on the securities during the taxable year, even if the Portfolio
receives no corresponding payment on the securities during the year. Similarly,
a Portfolio must include in its gross income securities it receives as
"interest" on payment-in-kind securities. Because a Portfolio annually must
distribute substantially all of its investment company taxable income, including
any original issue discount and other non-cash income, in order to satisfy the
distribution requirement described above and to avoid imposition of the Excise
Tax, it may be required in a particular year to distribute as a dividend an
amount that is greater than the total amount of cash it actually receives.
Those distributions will be made from a Portfolio's cash assets or from the
proceeds of sales of portfolio securities, if necessary. A Portfolio may
realize capital gains or losses from those sales, which would increase or
decrease its investment company taxable income and/or net capital gains. In
addition, any such gains may be realized on the disposition of securities held
for less than three months. Because of the Short-Short Limitation, any such
gains would reduce a Portfolio's ability to sell other securities, or options or
futures, held for less than three months that it might wish to sell in the
ordinary course of its portfolio management.

The foregoing is only a general summary of some of the important Federal
income tax considerations generally affecting the Portfolios. No attempt is
made to present a complete explanation of the Federal tax treatment of their
activities, and this discussion is not intended as a substitute for careful tax
planning. Accordingly, potential investors are urged to consult with their own
tax advisers for more detailed information and for information regarding any
state, local or foreign taxes applicable to the Portfolios and to dividends and
other distributions therefrom.

DIVIDENDS AND DISTRIBUTIONS

It is the Fund's intention to distribute substantially all the net
investment income, if any, of each Portfolio. For dividend purposes, net
investment income of each Portfolio, other than the Money Market Portfolio, will
consist of all payments of dividends or interest received by such Portfolio less
the estimated expenses of such Portfolio. The Money Market Portfolio's net
investment income for dividend purposes consists of all interest income accrued
on the Portfolio, plus or minus realized gains or losses on portfolio
securities, less the Portfolio's expenses.

Dividends on the Money Market Portfolio are declared and reinvested daily
in additional full and fractional shares. Dividends from investment income of
the Growth Portfolio, the Bond Portfolio, the High Income Portfolio, the Income
Portfolio, the International Portfolio, the Small Cap Portfolio, the Balanced
Portfolio, the Limited-Term Bond Portfolio and the Asset Strategy Portfolio will
usually be declared, paid and reinvested annually in December in additional full
and fractional shares of the respective Portfolio. Ordinarily, dividends are
paid on shares starting on the day after they are issued and on shares the day
they are redeemed. Under the amortized cost procedures which pertain to the
Money Market Portfolio in certain circumstances dividends of the Money Market
Portfolio might be eliminated or reduced.

All net realized long-term or short-term capital gains of the Portfolios,
if any, other than short-term capital gains of the Money Market Portfolio, are
declared and distributed annually in December to the shareholders of the
Portfolios to which such gains are attributable.

PORTFOLIO TRANSACTIONS AND BROKERAGE

One of the duties undertaken by the Manager in the Management Agreement is
the purchase and sale of securities for the Portfolios. Purchases and sales of
securities for the Money Market Portfolio and of securities for the other
Portfolios, other than those for which an exchange is the primary market, are
generally done with underwriters, dealers acting as principals ("dealers") or
directly with issuers. Purchases from underwriters include a commission or
concession paid by the issuer to the underwriter and purchases from dealers will
include the spread between the bid and the asked prices. If the execution and
price offered by more than one dealer are equal, the order may be allocated to a
dealer which has provided research advice, quotations on portfolio securities or
other services. Brokerage commissions are paid on such transactions only if it
appears likely that a better price or execution can be obtained.

To effect the portfolio transactions of each Portfolio in securities traded
on an exchange, the Manager is authorized to engage broker-dealers ("brokers")
which, in its best judgment based on all relevant factors, will implement the
policy of the Portfolio to achieve "best execution" (prompt and reliable
execution at the best price obtainable) for reasonable and competitive
commissions. The Manager need not seek competitive commission bidding but is
expected to minimize the commissions paid to the extent consistent with the
interests and policies of the Portfolio. Subject to review by the Board of
Directors, such policies include the selection of brokers which provide
execution and/or research services and other services, including pricing or
quotation services directly or through others ("brokerage services") considered
by the Manager to be useful or desirable for its investment management of the
Portfolio and/or the other funds and accounts over which the Manager or its
affiliates has investment discretion.

Brokerage services are, in general, defined by reference to Section 28(e)
of the Securities Exchange Act of 1934 as including (i) advice, either directly
or through publications or writings, as to the value of securities, the
advisability of investing in, purchasing or selling securities and the
availability of securities and purchasers or sellers, (ii) furnishing analyses
and reports, or (iii) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody). "Investment
discretion" is, in general, defined as having authorization to determine what
securities shall be purchased or sold for an account, or making those decisions
even though someone else has responsibility.

The commissions paid to brokers that provide such brokerage services may be
higher than another qualified broker would charge if a good faith determination
is made by the Manager that the commission is reasonable in relation to the
services provided. No allocation of brokerage or principal business is made to
provide any other benefits to the Manager or its affiliates.

The investment research provided by a particular broker may be useful only
to one or more of the other advisory accounts of the Manager or its affiliates
and investment research received for the commissions of those other accounts may
be useful both to a Portfolio and one or more of such other accounts. To the
extent that electronic or other products provided by such brokers to assist the
Manager in making investment management decisions are used for administration or
other non-research purposes, a reasonable allocation of the cost of the product
attributable to its non-research use is made by the Manager.

Such investment research, which may be supplied by a third party at the
instance of a broker, includes information on particular companies and
industries as well as market, economic or institutional activity areas. It
serves to broaden the scope and supplement the research activities of the
Manager; serves to make available additional views for consideration and
comparisons; and enables the Manager to obtain market information on the price
of securities held in a Portfolio or being considered for purchase.

The individual who manages a Portfolio may manage other advisory accounts
with similar investment objectives. It can be anticipated that the Manager will
frequently place concurrent orders for all or most accounts for which the
Manager has responsibility. Combining purchases and sales in that manner may
result in a lower negotiated commission being paid for the transaction.
However, large transactions could affect the price of the securities by driving
the price up in the case of a purchase by the accounts or driving the price down
in the case of a sale.

The table below sets forth the brokerage commissions paid during the fiscal
years ended December 31, 1994, 1993 and 1992:

Periods ended December 31,**
-------------------------------
1994 1993 1992
---- ---- ----
Bond Portfolio $ --- $ --- $ ---
High Income Portfolio 1,268 1,580 ---
Growth Portfolio 1,567,746 1,163,320 433,732
Money Market Portfolio --- --- ---
Income Portfolio 199,012 150,525 70,663
International Portfolio* 49,880
Small Cap Portfolio* 3,450
Balanced Portfolio* 6,437
Limited-Term Bond Portfolio* ---
---------- -------- --------
$1,827,793 $1,315,425 $504,395
========== ========== ========

*Began operations April 29, 1994.
**The Asset Strategy Portfolio began operations in 1995.

The next table shows the transactions, other than principal transactions,
which were directed to broker-dealers who provided research as well as execution
and the brokerage commissions paid for the fiscal year ended December 31, 1994.
These transactions were allocated to these broker-dealers by the internal
allocation procedures described above.

Amount of Brokerage
Transactions** Commissions
------------ -----------
Bond Portfolio $ --- $ ---
High Income Portfolio 378,965 1,220
Growth Portfolio 795,585,108 1,210,170
Money Market Portfolio --- ---
Income Portfolio 101,528,224 162,569
International Portfolio* 9,766,844 31,002
Small Cap Portfolio* 386,396 660
Balanced Portfolio* 676,809 1,401
Limited-Term Bond Portfolio* --- ---
------------ ----------
$908,322,346 $1,407,022
============ ==========

*Began operations April 29, 1994.
**The Asset Strategy Portfolio began operations in 1995.

DIRECTORS AND OFFICERS

The day-to-day affairs of the Fund are handled by outside organizations
selected by the Board of Directors. The Board of Directors has responsibility
for establishing broad corporate policies for the Fund and for overseeing
overall performance of the selected experts. It has the benefit of advice and
reports from independent counsel and independent auditors.

The principal occupation of each Director and officer during at least the
past five years is given below. Each of the persons listed through and
including Mr. Wright is a member of the Fund's Board of Directors. The other
persons are officers but not Board members. For purposes of this section, the
term "Fund Complex" includes the Fund, each of the funds in the United Group of
Mutual Funds, Waddell & Reed Funds, Inc., Torchmark Government Securities Fund,
Inc. and Torchmark Insured Tax-Free Fund, Inc.

Each of the Fund's Directors is also a Director of each of the funds in the
Fund Complex and each of the Fund's officers is also an officer of one or more
of the funds in the Fund Complex.

RONALD K. RICHEY*
2001 Third Avenue South
Birmingham, Alabama 35233
Chairman of the Board of Directors of the Fund and each of the other funds
in the Fund Complex; Chairman of the Board of Directors of Waddell & Reed
Financial Services, Inc., United Investors Management Company and United
Investors Life Insurance Company; Chairman of the Board of Directors and Chief
Executive Officer of Torchmark Corporation; Chairman of the Board of Directors
of Vesta Insurance Group, Inc., formerly, Chairman of the Board of Directors of
Waddell & Reed, Inc. Father of Linda Graves, Director of the Fund and each of
the other funds in the Fund Complex.

KEITH A. TUCKER*
President of the Fund and each of the other funds in the Fund Complex;
President, Chief Executive Officer and Director of Waddell & Reed Financial
Services, Inc.; Chairman of the Board of Directors of WRIMCO, Waddell & Reed,
Inc., Waddell & Reed Services Company, Waddell & Reed Asset Management Company
and Torchmark Distributors, Inc., an affiliate of Waddell & Reed, Inc.; Vice
Chairman of the Board of Directors, Chief Executive Officer and President of
United Investors Management Company; Vice Chairman of the Board of Directors of
Torchmark Corporation; Director of Southwestern Life Corporation; formerly,
partner in Trivest, a private investment concern; formerly, Director of Atlantis
Group, Inc., a diversified company.

HENRY L. BELLMON
Route 1
P. O. Box 26
Red Rock, Oklahoma 74651
Rancher; Professor, Oklahoma State University; formerly, Governor of
Oklahoma; prior to his current service as Director of the funds in the United
Group, TMK/United Funds, Inc., Waddell & Reed Funds, Inc., Torchmark Government
Securities Fund, Inc. and Torchmark Insured Tax-Free Fund, Inc., he served in
such capacity for the funds in the United Group and TMK/United Funds, Inc.

DODDS I. BUCHANAN
905 13th Street
Boulder, Colorado 80302
Advisory Director, The Hand Companies; President, Buchanan Ranch Corp.;
formerly, Senior Vice President and Director of Marketing Services, The Meyer
Group of Management Consultants; formerly, Chairman, Department of Marketing,
Transportation and Tourism, University of Colorado; formerly, Professor of
Marketing, College of Business, University of Colorado.

JAY B. DILLINGHAM
926 Livestock Exchange Building
Kansas City, Missouri 64102
Formerly, President and Director of Kansas City Stock Yards Company;
formerly, Partner in Dillingham Farms, a farming operation.

LINDA GRAVES*
1 South West Cedar Crest Road
Topeka, Kansas 66606
First Lady of Kansas; formerly, partner, Levy and Craig, P.C., a law firm.
Daughter of Ronald K. Richey, Chairman of the Board of the Fund and each of the
other funds in the Fund Complex.

JOHN F. HAYES*
335 N. Washington
Suite 260
Hutchinson, Kansas 67504-2977
Director of Central Bank and Trust; formerly, President of Gilliland &
Hayes, P.A., a law firm.

GLENDON E. JOHNSON
7300 Corporate Center Drive
P. O. Box 020270
Miami, Florida 33126-1208
Director and Chief Executive Officer of John Alden Financial Corporation
and subsidiaries.

JAMES B. JUDD
No. 1 Ward Parkway
Suite 138
Kansas City, Missouri 64112
Retired; formerly, partner, KPMG Peat Marwick. A petition relating to Mr.
Judd's property was filed under the Federal bankruptcy laws and is now final.

WILLIAM T. MORGAN*
1799 Westridge Road
Los Angeles, California 90049
Retired; formerly, Chairman of the Board of Directors and President of the
Fund and each fund in the Fund Complex then in existence (Mr. Morgan retired as
Chairman of the Board of Directors and President of the funds in the Fund
Complex then in existence on April 30, 1993); formerly, President, Director and
Chief Executive Officer of WRIMCO and Waddell & Reed, Inc.; formerly, Chairman
of the Board of Directors of Waddell & Reed Services Company; formerly, Director
of Waddell & Reed Asset Management Company, United Investors Management Company
and United Investors Life Insurance Company, affiliates of Waddell & Reed, Inc.

DOYLE PATTERSON
1030 West 56th Street
Kansas City, Missouri 64113
Associated with Republic Real Estate, engaged in real estate management and
investment; formerly, Director of The Vendo Company, a manufacturer and
distributor of vending machines.

ELEANOR B. SCHWARTZ
5100 Rockhill Road
Kansas City, Missouri 64110
Chancellor, University of Missouri-Kansas City; formerly, Interim
Chancellor, University of Missouri-Kansas City; formerly, Vice Chancellor for
Academic Affairs, University of Missouri-Kansas City.

FREDERICK VOGEL III
1805 West Bradley Road
Milwaukee, Wisconsin 53217
Retired.

PAUL S. WISE
P. O. Box 5248
8648 Silver Saddle Drive
Carefree, Arizona 85377
Director of Potash Corporation of Saskatchewan.

LESLIE S. WRIGHT
2302 Brookshire Place
Birmingham, Alabama 35213
Chancellor of Samford University; formerly, Director of City Federal
Savings and Loan Association; formerly, President of Samford University.

Robert L. Hechler
Vice President and Principal Financial Officer of the Fund and each of the
other funds in the Fund Complex; Vice President, Chief Operations Officer,
Director and Treasurer of Waddell & Reed Financial Services, Inc.; Executive
Vice President, Principal Financial Officer, Director and Treasurer of WRIMCO;
President, Chief Executive Officer, Principal Financial Officer, Director and
Treasurer of Waddell & Reed, Inc.; Director and Treasurer of Waddell & Reed
Asset Management Company; President, Director and Treasurer of Waddell & Reed
Services Company; Vice President, Treasurer and Director of Torchmark
Distributors, Inc.

Henry J. Herrmann
Vice President of the Fund and each of the other funds in the Fund Complex;
Vice President, Chief Investment Officer and Director of Waddell & Reed
Financial Services, Inc.; Director of Waddell & Reed, Inc.; President, Chief
Executive Officer, Chief Investment Officer and Director of WRIMCO and Waddell &
Reed Asset Management Company; Senior Vice President and Chief Investment
Officer of United Investors Management Company.

Theodore W. Howard
Vice President, Treasurer and Principal Accounting Officer of the Fund and
each of the other funds in the Fund Complex; Vice President of Waddell & Reed
Services Company.

Sharon K. Pappas
Vice President, Secretary and General Counsel of the Fund and each of the
other funds in the Fund Complex; Vice President, Secretary and General Counsel
of Waddell & Reed Financial Services, Inc.; Senior Vice President, Secretary and
General Counsel of WRIMCO and Waddell & Reed, Inc.; Director, Senior Vice
President, Secretary and General Counsel of Waddell & Reed Services Company;
Director, Secretary and General Counsel of Waddell & Reed Asset Management
Company; Vice President, Secretary and General Counsel of Torchmark
Distributors, Inc.; formerly, Assistant General Counsel of WRIMCO, Waddell &
Reed Financial Services, Inc., Waddell & Reed, Inc., Waddell & Reed Asset
Management Company and Waddell & Reed Services Company.

James C. Cusser
Vice President of the Fund and two other funds in the Fund Complex; Vice
President of the Manager; formerly, Vice President of Kidder Peabody & Company.

Antonio Intagliata
Vice President of the Fund and one other fund in the Fund Complex; Senior
Vice President of the Manager; formerly, Senior Vice President of Waddell &
Reed, Inc.

Richard K. Poettgen
Vice President of the Fund and one other fund in the Fund Complex; Vice
President of the Manager; formerly, Vice President of Waddell & Reed, Inc.

Cynthia P. Prince-Fox
Vice President of the Fund and one other fund in the Fund Complex; Vice
President of the Manager; Vice President of Waddell & Reed Asset Management
Company; employee of Waddell & Reed, Inc.

Louise D. Rieke
Vice President of the Fund and two other funds in the Fund Complex; Vice
President of the Manager; Vice President of Waddell & Reed Asset Management
Company; formerly, Vice President of Waddell & Reed, Inc.

Mark G. Seferovich
Vice President of the Fund and two other funds in the Fund Complex; Vice
President of the Manager; formerly, a fund manager with Securities Management
Company, a brokerage firm; formerly, Vice President of Waddell & Reed, Inc.

W. Patrick Sterner
Vice President of the Fund and one other fund in the Fund Complex; Vice
President of the Manager; Vice President of Waddell & Reed Asset Management
Company; formerly, Chief Investment Officer of the Merchants Bank.

Carl E. Sturgeon
Vice President of the Fund and eleven other funds in the Fund Complex; Vice
President of the Manager; formerly, Vice President of Waddell & Reed, Inc.

Russell E. Thompson
Vice President of the Fund and two other funds in the Fund Complex; Senior
Vice President of the Manager; Vice President of Waddell and Reed Asset
Management Company; formerly, Senior Vice President of Waddell & Reed, Inc.

James D. Wineland
Vice President of the Fund and three other funds in the Fund Complex; Vice
President of the Manager; formerly, Vice President of Waddell & Reed, Inc.

Mark L. Yockey
Vice President of the Fund and one other fund in the Fund Complex; Vice
President of the Manager.

The address of each person is 6300 Lamar Avenue, P. O. Box 29217, Shawnee
Mission, Kansas 66201-9217 unless a different address is given.

As of the date of this SAI, five of the Funds' Directors may be deemed to
be "interested persons" as defined in the 1940 Act of the Manager and Waddell &
Reed, Inc. The Directors who may be deemed to be "interested persons" are
indicated as such by an asterisk.

The Board has created an honorary position of Director Emeritus, which
position a Director may elect after resignation from the Board provided the
Director has attained the age of 75 and has served as a Director of the Funds
for a total of at least five years. A Director Emeritus receives fees in
recognition of his past services whether or not services are rendered in his
capacity as Director Emeritus, but has no authority or responsibility with
respect to management of the Fund. Currently, no person serves as Director
Emeritus.

The Fund, the Funds in the United Group of Mutual Funds and Waddell & Reed
Funds, Inc. pay to each Director $40,000 per year, plus $1,000 for each meeting
of the Board of Directors attended (prior to January 1, 1995 each Director
received $500 for each meeting of the Board of Directors attended) and $500 for
each committee meeting attended which is not in conjunction with a Board of
Directors meeting, other than Directors who are affiliates of Waddell & Reed,
Inc. The fees are divided among the Portfolios, the funds in the United Group
and the series of Waddell & Reed Funds, Inc. based on their relative net asset
size. During the Fund's fiscal year ended December 31, 1994, the Fund's
Directors received the following fees for service as a director:

COMPENSATION TABLE
Pension
or Retirement Total
Aggregate Benefits Compensation
Compensation Accrued As From Fund
From Part of Fund and Fund
Director Fund Expenses Complex
- -------- ------------ -------------- ------------
Ronald K. Richey $ 0 $0 $ 0
Keith A Tucker 0 0 0
Henry L. Bellmon 2,140 0 43,000
Dodds I. Buchanan 2,140 0 43,000
Jay B. Dillingham 2,140 0 43,000
John F. Hayes 2,140 0 43,000
Glendon E. Johnson 2,140 0 43,000
William T. Morgan 1,653 0 32,000
Doyle Patterson 2,140 0 43,000
Frederick Vogel III 2,140 0 43,000
Paul S. Wise 2,118 0 42,500
Leslie S. Wright 2,063 0 41,500

Ms. Graves, Ms. Schwartz and Mr. Judd were elected as Directors on July 12,
1995. The officers are paid by the Manager or its affiliates.

OTHER INFORMATION

Capital Stock

The Fund was incorporated in Maryland on December 2, 1986. Capital stock
is currently divided into the following classes which are a type of class
designated a "series" as that term is defined in the Articles of Incorporation
of the Fund: the Money Market Portfolio, the Bond Portfolio, the High Income
Portfolio, the Growth Portfolio, the Income Portfolio, the International
Portfolio, the Small Cap Portfolio, the Balanced Portfolio, and the Limited-Term
Bond Portfolio and the Asset Strategy Portfolio.

The balance of shares authorized but not divided into classes may be issued
to an existing Portfolio, or to new series having the number of shares and
descriptions, powers, and rights, and the qualifications, limitations, and
restrictions as the Board of Directors may determine. The Board of Directors
may also change the designation of any Portfolio and may increase or decrease
the numbers of shares of any Portfolio but may not decrease the number of shares
of any Portfolio below the number of shares then outstanding.

Each issued and outstanding share in a Portfolio is entitled to participate
equally in dividends and distributions declared by the respective Portfolio and,
upon liquidation or dissolution, in net assets of such Portfolio remaining after
satisfaction of outstanding liabilities. The shares of each Portfolio when
issued are fully paid and nonassessable.

Voting Rights

All shares of the Fund have equal voting rights (regardless of the net
asset value per share) except that on matters affecting only one Portfolio, only
shares of the respective Portfolio are entitled to vote. The shares do not have
cumulative voting rights. Accordingly, the holders of more than 50% of the
shares of the Fund voting for the election of directors can elect all of the
directors of the Fund if they choose to do so, and in such event the holders of
the remaining shares would not be able to elect any directors.

Matters in which the interests of all the Portfolios are substantially
identical (such as the election of Directors or the approval of independent
public accountants) will be voted on by all shareholders without regard to the
separate Portfolios. Matters that affect all the Portfolios but where the
interests of the Portfolios are not substantially identical (such as approval of
the Investment Management Agreement) will be voted on separately by each
Portfolio. Matters affecting only one Portfolio, such as a change in its
fundamental policies, will be voted on separately by the Portfolio.

Matters requiring separate shareholder voting by a Portfolio shall have
been effectively acted upon with respect to any Portfolio if a majority of the
outstanding voting securities of that Portfolio votes for approval of the
matter, notwithstanding that: (1) the matter has not been approved by a
majority of the outstanding voting securities of any other Series; or (2) the
matter has not been approved by a majority of the outstanding voting securities
of the Fund.

The phrase "a majority of the outstanding voting securities" of a series
(or of a Fund) means the vote of the lesser of: (1) 67% of the shares of a
series (or the Fund) present at a meeting if the holders of more than 50% of the
outstanding shares are present in person or by proxy; or (2) more than 50% of
the outstanding shares of a series (or a Fund).

To the extent required by law, Policyholders are entitled to give voting
instructions with respect to Fund shares held in the separate accounts of
Participating Insurance Companies. Participating Insurance Companies will vote
the shares in accordance with such instructions unless otherwise legally
required or permitted to act with respect to such instructions.

<PAGE>
THE INVESTMENTS OF THE GROWTH PORTFOLIO
DECEMBER 31, 1994

Shares Value

COMMON STOCKS
Banks and Savings and Loans - 3.54%
Bank of Boston Corporation ............. 100,000 $ 2,587,500
City National Corporation .............. 100,000 1,062,500
First Chicago Corporation .............. 60,000 2,865,000
Grupo Financiero Bancomer, S.A. de
C.V., C (A)............................ 1,000,000 550,000
Midlantic Corporation .................. 75,000 1,992,150
Roosevelt Financial Group, Inc. ........ 50,000 746,850
Total ................................. 9,804,000

Biotechnology and Medical Services - 0.59%
Centocor, Inc.* ........................ 100,000 1,631,200

Building - 0.52%
United Dominion Realty Trust, Inc. ..... 100,000 1,437,500

Chemicals Major - 3.24%
Air Products & Chemicals, Inc. ......... 75,000 3,346,875
du Pont (E.I.) de Nemours and Company .. 100,000 5,625,000
Total ................................. 8,971,875

Computers and Office Equipment - 5.99%
Cerner Corporation* .................... 18,200 805,350
Compuware Corporation* ................. 100,000 3,587,500
General Motors Corporation, Class E .... 90,000 3,465,000
HBO & Company .......................... 50,000 1,718,750
Informix Corporation* .................. 100,000 3,206,200
International Business Machines
Corporation ........................... 40,000 2,940,000
Parametric Technology Corporation* ...... 25,000 859,375
Total ................................. 16,582,175

Domestic Oil - 0.28%
Seagull Energy Corporation* ............ 40,000 765,000

Drugs and Hospital Supply - 4.96%
Abbott Laboratories .................... 150,000 4,893,750
Baxter International Inc. .............. 100,000 2,825,000
Schering-Plough Corporation ............ 50,000 3,700,000
Warner-Lambert Company ................. 30,000 2,310,000
Total ................................. 13,728,750

Electrical Equipment - 5.30%
Emerson Electric Co. ................... 100,000 6,250,000
General Electric Company ............... 165,000 8,415,000
Total ................................. 14,665,000

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE GROWTH PORTFOLIO
DECEMBER 31, 1994

Shares Value

COMMON STOCKS (Continued)
Electronics - 5.31%
cisco Systems, Inc.* ................... 85,000 $ 2,980,270
Hewlett-Packard Company ................ 50,000 4,993,750
Level One Communications, Incorporated* 50,000 762,500
Micron Technology, Inc. ................ 50,000 2,206,250
Texas Instruments Incorporated ......... 50,000 3,743,750
Total ................................. 14,686,520

Financial - 1.01%
American Express Company ............... 75,000 2,212,500
Grupo Financiero Banamex Accival, S.A.
de C.V., C (A) ........................ 200,000 576,000
Total ................................. 2,788,500

Food and Related - 2.96%
CPC International Inc. ................. 60,000 3,195,000
Pet Incorporated ....................... 125,000 2,468,750
Sara Lee Corporation ................... 100,000 2,525,000
Total ................................. 8,188,750

Hospital Management - 6.20%
American Medical Holdings, Inc.* ...... 100,000 2,412,500
Columbia/HCA Healthcare Corporation .... 150,000 5,475,000
National Medical Enterprises, Inc.* .... 300,000 4,237,500
Sierra Health Services, Inc.* .......... 73,600 2,327,600
United HealthCare Corporation .......... 60,000 2,707,500
Total ................................. 17,160,100

Insurance - 6.40%
American General Corporation ........... 150,000 4,237,500
American Re Corporation* ............... 75,000 2,418,750
First Colony Corporation ............... 100,000 2,237,500
NWNL Companies, Inc. (The) ............. 50,000 1,450,000
National Re Corporation ................ 45,900 1,204,875
PartnerRe Holding, Ltd. ................ 100,000 2,075,000
Presidential Life Corporation .......... 100,000 518,700
TIG Holdings, Inc. ..................... 125,000 2,343,750
USLIFE Corporation ..................... 35,000 1,220,625
Total ................................. 17,706,700

Leisure Time - 3.42%
Comcast Corporation, Class A ........... 150,000 2,353,050
Tele-Communications, Inc., Class A* .... 125,000 2,726,500
Time Warner Incorporated ............... 125,000 4,390,625
Total ................................. 9,470,175

Machinery - 0.40%
Ingersoll-Rand Company ................. 35,000 1,102,500

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE GROWTH PORTFOLIO
DECEMBER 31, 1994

Shares Value

COMMON STOCKS (Continued)
Metals and Mining - 1.12%
Phelps Dodge Corporation ............... 50,000 $ 3,093,750

Multi-Industry - 2.40%
ITT Corporation ........................ 75,000 6,646,875

Public Utilities - Electric - 3.49%
Peco Energy Company .................... 100,000 2,450,000
Unicom Corporation ..................... 300,000 7,200,000
Total ................................. 9,650,000

Railroads - 4.99%
Chicago and North Western Transportation
Company* .............................. 100,000 1,925,000
Kansas City Southern Industries, Inc. .. 76,000 2,346,500
Norfolk Southern Corporation ........... 75,000 4,546,875
Southern Pacific Rail Corporation* ..... 125,000 2,265,625
Union Pacific Corporation .............. 60,000 2,737,500
Total ................................. 13,821,500

Retailing - 0.85%
Charming Shoppes Inc. .................. 100,000 656,200
Family Dollar Stores, Inc. ............. 135,000 1,687,500
Total ................................. 2,343,700

Steel - 1.16%
National Steel Corporation, Class B* ... 100,000 1,450,000
USX Corporation - U.S. Steel Group ..... 50,000 1,775,000
Total ................................. 3,225,000

Telecommunications - 8.49%
AT&T Corporation ....................... 150,000 7,537,500
LDDS Communications, Inc.* ............. 40,000 780,000
MCI Communications Corporation ......... 200,000 3,687,400
Motorola, Inc. ......................... 50,000 2,893,750
Ortel Corporation* ..................... 117,000 3,071,250
Sprint Corporation ..................... 50,000 1,381,250
Telefonaktiebolaget LM Ericsson,
ADR, Class B .......................... 75,000 4,143,750
Total ................................. 23,494,900

TOTAL COMMON STOCKS - 72.62% $200,964,470
(Cost: $210,483,893)

PREFERRED STOCKS
Hospital Management - 0.76%
National Health Investors,
Convertible ........................... 90,000 2,103,750

Telecommunications - 0.81%
Nokia Corporation* ..................... 30,000 2,250,000

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE GROWTH PORTFOLIO
DECEMBER 31, 1994

Principal
Amount in
Thousands Value

TOTAL PREFERRED STOCKS - 1.57% $ 4,353,750
(Cost: $4,451,929)

SHORT-TERM SECURITIES
Banks and Savings and Loans - 2.86%
ANZ (Delaware) Inc.,
6.02%, 1-4-95 ......................... $ 7,000 6,996,488
U.S. Bancorp,
Master Note ........................... 918 918,000
Total ................................. 7,914,488

Chemicals Specialty and Miscellaneous
Technology - 3.65%
Minnesota Mining and Manufacturing
Company,
5.8%, 1-6-95 .......................... 10,105 10,096,860

Computers and Office Equipment - 1.80%
Honeywell Inc.,
6.05%, 1-19-95 ........................ 5,000 4,984,875

Consumer Electronics and Appliances - 1.74%
TDK (USA) Corp.,
6.03%, 1-20-95 ........................ 4,835 4,819,612

Drugs and Hospital Supply - 1.65%
Baxter International Inc.,
6.2%, 1-31-95 ......................... 4,600 4,576,233

Financial - 1.99%
Textron Financial Corp.,
6.25%, 1-12-95 ........................ 2,800 2,794,653
USAA Capital Corp.,
5.95%, 1-19-95 ........................ 2,715 2,706,923
Total ................................. 5,501,576

Food and Related - 2.91%
ConAgra, Inc.,
6.0%, 1-11-95 ......................... 2,495 2,490,842
General Mills, Inc.,
Master Note ........................... 855 855,000
Heinz (H.J.) Company,
5.9%, 1-23-95 ......................... 4,200 4,184,857
Sara Lee Corporation,
Master Note............................ 531 531,392
Total ................................. 8,062,091

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE GROWTH PORTFOLIO
DECEMBER 31, 1994

Principal
Amount in
Thousands Value

SHORT-TERM SECURITIES (Continued)
Paper - 1.14%
Champion International Corporation,
6.15%, 1-9-95 ......................... $ 3,145 $ 3,140,702

Public Utilities - Electric - 5.29%
PS Colorado Credit Corp.,
6.18%, 1-13-95 ........................ 3,250 3,243,305
Pacificorp,
6.05%, 1-13-95 ........................ 2,000 1,995,967
Potomac Electric Power Co.,
6.03%, 1-13-95 ........................ 3,395 3,388,176
Western Resources Inc.,
6.18%, 1-6-95 ......................... 6,000 5,994,850
Total ................................. 14,622,298

Public Utilities - Gas - 1.39%
Bay State Gas Co.,
5.98%, 1-13-95 ........................ 3,850 3,842,326

Public Utilities - Pipeline - 1.42%
Enron Corp.,
6.0%, 1-31-95 ......................... 3,950 3,930,250

TOTAL SHORT-TERM SECURITIES - 25.84% $ 71,491,311
(Cost: $71,491,311)

TOTAL INVESTMENT SECURITIES - 100.03% $276,809,531
(Cost: $286,427,133)

LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.03%) (72,896)

NET ASSETS - 100.00% $276,736,635

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE INCOME PORTFOLIO
DECEMBER 31, 1994

Shares Value

COMMON STOCKS
Aerospace - 0.96%
Boeing Company (The) ................... 24,500 $ 1,145,375
Sundstrand Corporation ................. 21,000 955,500
Total ................................. 2,100,875

Airlines - 1.51%
AMR Corporation* ....................... 28,000 1,491,000
Southwest Airlines Co. ................. 108,000 1,809,000
Total ................................. 3,300,000

Automotive - 6.73%
Chrysler Corporation ................... 75,500 3,699,500
Daimler-Benz AG, ADS ................... 10,460 515,155
Dana Corporation ....................... 53,000 1,238,875
Eaton Corporation ...................... 35,000 1,732,500
Ford Motor Company ..................... 130,500 3,654,000
General Motors Corporation ............. 69,500 2,936,375
Magna Group, Inc., Class A ............. 24,500 940,188
Total ................................. 14,716,593

Banks and Savings and Loans - 2.50%
Citicorp ............................... 52,000 2,151,500
First Bank Systems, Inc. ............... 35,000 1,163,750
First Interstate Bancorp ............... 21,000 1,420,125
Midlantic Corporation .................. 28,000 743,736
Total ................................. 5,479,111

Beverages - 1.12%
PepsiCo, Inc. .......................... 67,500 2,446,875

Biotechnology and Medical Services - 1.81%
Medtronic, Inc. ........................ 28,000 1,557,500
Ventritex, Inc.* ....................... 89,000 2,397,393
Total ................................. 3,954,893

Building - 5.84%
Armstrong World Industries, Inc. ....... 62,500 2,406,250
Centex Corporation ..................... 82,000 1,865,500
Georgia-Pacific Corporation ............ 29,500 2,109,250
Louisiana-Pacific Corporation .......... 47,000 1,280,750
Pulte Corporation ...................... 89,200 2,051,600
Temple-Inland Inc. ..................... 24,500 1,105,563
Weyerhaeuser Company ................... 52,000 1,950,000
Total ................................. 12,768,913

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE INCOME PORTFOLIO
DECEMBER 31, 1994

Shares Value

COMMON STOCKS (Continued)
Chemicals Major - 6.60%
Air Products & Chemicals, Inc. ......... 70,000 $ 3,123,750
Albemarle Corporation .................. 72,800 1,010,100
du Pont (E.I.) de Nemours and Company .. 68,500 3,853,125
PPG Industries, Inc. ................... 87,000 3,229,875
Praxair, Inc. .......................... 69,500 1,424,750
Union Carbide Corporation .............. 61,000 1,791,875
Total ................................. 14,433,475

Chemicals Specialty and Miscellaneous Technology - 5.15%
Betz Laboratories, Inc. ................ 35,000 1,548,750
Geon Company (The) ..................... 100,600 2,753,925
Minnesota Mining and Manufacturing
Company ............................... 35,000 1,868,125
Polaroid Corporation ................... 97,500 3,168,750
Xerox Corporation ...................... 19,500 1,930,500
Total ................................. 11,270,050

Computers and Office Equipment - 3.55%
General Motors Corporation, Class E .... 69,500 2,675,750
International Business Machines
Corporation ........................... 35,000 2,572,500
Microsoft Corporation* ................. 21,000 1,286,250
Oracle Systems Corporation* ............ 28,000 1,239,000
Total ................................. 7,773,500

Consumer Electronics and Appliances - 1.62%
Harman International Industries,
Incorporated .......................... 23,000 851,000
Whirlpool Corporation .................. 53,500 2,688,375
Total ................................. 3,539,375

Electrical Equipment - 2.72%
Emerson Electric Co. ................... 28,000 1,750,000
General Electric Company ............... 82,500 4,207,500
Total ................................. 5,957,500

Electronics - 8.38%
AMP Incorporated ....................... 38,500 2,800,875
Analog Devices, Inc.* .................. 101,000 3,547,625
Applied Materials, Inc.* ............... 60,000 2,520,000
cisco Systems, Inc.* ................... 69,500 2,436,809
Intel Corporation ...................... 52,500 3,346,875
LSI Logic Corporation* ................. 67,200 2,713,200
Molex Inc., Class A .................... 31,250 976,563
Total ................................. 18,341,947

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE INCOME PORTFOLIO
DECEMBER 31, 1994

Shares Value

COMMON STOCKS (Continued)
Engineering and Construction - 0.93%
Fluor Corporation ...................... 28,000 $ 1,207,500
Foster Wheeler Corporation ............. 28,000 833,000
Total ................................. 2,040,500

Financial - 2.20%
Federal Home Loan Mortgage Corporation . 35,000 1,767,500
Federal National Mortgage Association .. 20,500 1,493,938
Household International, Inc. .......... 42,000 1,559,250
Total ................................. 4,820,688

Food and Related - 1.33%
CPC International Inc. ................. 35,000 1,863,750
Pet Incorporated ....................... 53,500 1,056,625
Total ................................. 2,920,375

Hospital Management - 0.93%
United Healthcare Corp. ................ 45,000 2,030,625

Household Products - 3.60%
Colgate-Palmolive Company .............. 42,000 2,661,750
Gillette Company (The) ................. 35,000 2,616,250
Procter & Gamble Company (The) ......... 42,000 2,604,000
Total.................................. 7,882,000

Leisure Time - 2.34%
Walt Disney Company (The) .............. 49,000 2,260,125
McDonald's Corporation ................. 97,500 2,851,875
Total ................................. 5,112,000

Machinery - 6.61%
Caterpillar Inc. ....................... 109,500 6,036,188
Clark Equipment Company ................ 35,000 1,898,750
Deere & Company ........................ 47,500 3,146,875
Ingersoll-Rand Company ................. 28,000 882,000
Parker Hannifin Corporation ............ 28,000 1,274,000
Trinova Corporation .................... 42,000 1,233,750
Total ................................. 14,471,563

Metals and Mining - 0.55%
Phelps Dodge Corporation ............... 19,500 1,206,563

Multi-Industry - 2.05%
ITT Corporation ........................ 50,500 4,475,563

Paper - 2.15%
International Paper Company ............ 40,500 3,052,688
Union Camp Corporation ................. 35,000 1,649,375
Total ................................. 4,702,063

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE INCOME PORTFOLIO
DECEMBER 31, 1994

Shares Value

COMMON STOCKS (Continued)
Railroads - 3.33%
CSX Corporation ........................ 24,500 $ 1,705,813
Conrail, Inc. .......................... 42,000 2,121,000
Norfolk Southern Corporation ........... 21,000 1,273,125
Southern Pacific Rail Corporation* ..... 32,000 580,000
Union Pacific Corporation .............. 35,000 1,596,875
Total ................................. 7,276,813

Retailing - 10.68%
Circuit City Stores, Inc. .............. 111,500 2,480,875
Dayton Hudson Corporation .............. 32,500 2,299,375
Dillard Department Stores, Inc.,
Class A ............................... 66,000 1,765,500
Gap, Inc. (The) ........................ 49,000 1,494,500
Home Depot, Inc. (The) ................. 53,500 2,461,000
Limited, Inc. (The) .................... 52,000 942,500
May Department Stores Company (The) .... 67,500 2,278,125
Nordstrom, Inc. ........................ 26,000 1,095,250
OfficeMax, Inc.* ....................... 46,500 1,232,250
Penney (J.C.) Company, Inc. ............ 47,000 2,097,375
Sears, Roebuck and Co. ................. 14,000 644,000
Tommy Hilfiger Corporation* ............ 54,400 2,454,800
Toys "R" Us Inc.* ...................... 21,000 640,500
Wal-Mart Stores, Inc. .................. 69,500 1,476,875
Total ................................. 23,362,925

Telecommunications - 9.02%
AT&T Corporation ....................... 35,000 1,758,750
BellSouth Corporation .................. 22,000 1,190,750
General Instrument Corporation* ........ 69,500 2,085,000
MCI Communications Corporation ......... 130,000 2,396,810
MFS Communications Company, Inc.* ...... 29,900 986,700
Motorola, Inc. ......................... 115,500 6,684,563
Telefonaktiebolaget LM Ericsson,
Class B, ADR ......................... 35,000 1,933,750
Vanguard Cellular Systems, Inc.,
Class A* .............................. 105,000 2,690,625
Total ................................. 19,726,948

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE INCOME PORTFOLIO
DECEMBER 31, 1994

Shares Value

COMMON STOCKS (Continued)
Tire and Rubber - 1.07%
Goodyear Tire & Rubber Company (The) ... 69,500 $ 2,336,938

TOTAL COMMON STOCKS - 95.28% $208,448,671
(Cost: $192,074,625)

TOTAL SHORT-TERM SECURITIES - 4.75% $ 10,395,856
(Cost: $10,395,856)

TOTAL INVESTMENT SECURITIES - 100.03% $218,844,527
(Cost: $202,470,481)

LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.03%) (70,925)

NET ASSETS - 100.00% $218,773,602

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE INTERNATIONAL PORTFOLIO
DECEMBER 31, 1994

Shares Value

COMMON STOCKS
Australia - 2.14%
Westpac Banking Corp. (A) .............. 165,500 $ 556,742

Finland - 8.88%
Enso-Gutzeit Oy (A) .................... 40,400 347,036
Kymmene (A) ............................ 13,000 353,964
Metsa Serla Oy, Class B (A) ............ 20,000 878,080
Nokia Corporation (A) .................. 2,950 435,874
Tampella Oy (A)* ....................... 100,000 295,500
Total ................................. 2,310,454

France - 5.52%
Credit Lyonnais SA (A)* ................ 4,700 389,245
Lapeyre (A) ............................ 6,625 333,913
Societe Industrielle de Transports
Automobiles S.A. (A) .................. 2,700 351,095
Television Francaise 1-TF1 (A) ......... 4,000 362,900
Total ................................. 1,437,153

Germany - 7.37%
Dorries Scharmann AG (A)* .............. 1,000 122,620
Mannesman AG (A) ....................... 2,000 544,690
TRAUB AG (A)* .......................... 4,000 552,436
VEBA AG (A) ............................ 2,000 696,998
Total ................................. 1,916,744

Japan - 3.82%
Hitachi (A) ............................ 30,000 297,420
NEC (A) ................................ 16,000 182,848
NKK (A)* ............................... 120,000 331,920
Sharp (A) .............................. 10,000 180,450
Total ................................. 992,638

Mexico - 3.65%
Cemex, S.A., CPO Shares (A) ............ 41,500 204,180
Desc-Sociedad de Fomento Industrial,
S.A. de C.V., B (A) ................... 43,000 215,000
Grupo Carso, S.A. de C.V., Class 1 (A)* 29,000 213,150
Grupo Financiero Bancomer, S.A. de
C.V., C (A) ........................... 286,000 157,300
Grupo Iusacell S.A. de C.V., D, ADS* ... 1,400 22,400
Grupo Iusacell S.A. de C.V., L, ADS* ... 1,400 26,075
Telefonos de Mexico S.A. de C.V., ADR .. 2,700 110,700
Total ................................. 948,805

Norway - 2.29%
Den Norske Luftfartselskap A/S,
Class B (A)* .......................... 18,900 594,972

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE INTERNATIONAL PORTFOLIO
DECEMBER 31, 1994

Shares Value

COMMON STOCKS (Continued)
Sweden - 10.77%
ASTRA AB A (A) ......................... 14,000 $ 361,592
Avesta Sheffield AB (A)* ............... 20,000 197,740
Kinnevik (A) ........................... 21,500 711,478
Skandia Enskilda Banken, Class A (A)* .. 91,000 520,247
Trelleburg AB, Series B (A)* ........... 30,000 437,850
AB Volvo (A) ........................... 30,500 574,407
Total ................................. 2,803,314

United Kingdom - 6.79%
AMEC (A) ............................... 210,000 226,800
BTR PLC (A) ............................ 40,000 183,880
House of Fraser PLC (A) ................ 111,000 303,363
Next plc (A) ........................... 131,000 527,275
Pilkington PLC (A) ..................... 104,000 270,400
United Biscuits (Holdings) Public
Limited Co. (A) ....................... 50,000 256,100
Total ................................. 1,767,818

TOTAL COMMON STOCKS - 51.23% $ 13,328,640
(Cost: $13,979,307)

PREFERRED STOCK - 1.15%
Germany
Hornbach-Baumarkt-AG (A) ............... 300 $ 300,097
(Cost: $313,526)

Principal
Amount in
Thousands

SHORT-TERM SECURITIES
Banks and Savings and Loans - 3.57%
U.S. Bancorp,
Master Note ........................... $ 930 930,000

Consumer Electronics and Appliances - 2.68%
TDK (USA) Corp.,
6.03%, 1-20-95 ........................ 700 697,772

Financial - 20.69%
BHP Finance (USA) Inc.,
6.02%, 1-31-95 ........................ 1,000 994,983
International Business Machines Credit
Corporation,
7.25%, 1-3-95 ......................... 600 599,758
Kerr-McGee Credit Corp.,
6.2%, 1-11-95 ......................... 600 598,967

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE INTERNATIONAL PORTFOLIO
DECEMBER 31, 1994

Principal
Amount in
Thousands Value

SHORT-TERM SECURITIES (Continued)
Financial (Continued)
Nestle Capital Corp.,
5.9%, 1-31-95 ......................... $ 700 $ 696,558
PHH Corp.,
6.02%, 1-27-95 ........................ 700 696,957
Textron Financial Corp.,
6.25%, 1-12-95 ........................ 700 698,663
USAA Capital Corp.,
5.95%, 1-19-95 ........................ 600 598,215
USL Capital Corp.,
6.0%, 1-17-95 ......................... 500 498,667
Total ................................. 5,382,768

Food and Related - 9.80%
ConAgra, Inc.,
6.0%, 1-11-95 ......................... 700 698,833
General Mills, Inc.,
Master Note ........................... 950 950,000
Sara Lee Corporation,
Master Note............................ 900 900,402
Total ................................. 2,549,235

Paper - 3.07%
Champion International Corporation,
6.0%, 1-19-95 ......................... 800 797,600

Public Utilities - Electric - 4.22%
Potomac Electric Power Co.,
6.0%, 1-13-95 ......................... 600 598,794
Public Service Co. of Colorado,
6.18%, 1-13-95 ........................ 500 498,970
Total ................................. 1,097,764

Public Utilities - Gas - 2.68%
Questar Corp.,
6.05%, 1-20-95 ........................ 700 697,765

TOTAL SHORT-TERM SECURITIES - 46.71% $12,152,904
(Cost: $12,152,904)

TOTAL INVESTMENT SECURITIES - 99.09% $25,781,641
(Cost: $26,445,737)

CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.91% 237,993

NET ASSETS - 100.00% $26,019,634

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE SMALL CAP PORTFOLIO
DECEMBER 31, 1994

Shares Value

COMMON STOCKS
Biotechnology and Medical Services - 5.05%
EP Technologies, Inc.* ................. 50,000 $ 453,100
Protocol Systems, Inc.* ................ 16,000 144,000
Pyxis Corp.* ........................... 5,000 95,310
St. Jude Medical, Inc. ................. 1,000 39,500
Ventritex, Inc.* ....................... 3,000 80,811
Total ................................. 812,721

Computers and Office Equipment - 15.65%
Affiliated Computer Services, Inc.,
Class A* .............................. 10,000 217,500
America Online, Inc.*. ................. 2,000 112,000
Broderbund Software, Inc.* ............. 2,000 94,000
Cerner Corporation* .................... 1,000 44,250
Learning Company (The)* ................ 3,000 74,250
Macromedia, Inc.* ...................... 7,500 193,125
MapInfo Corporation* ................... 5,000 126,875
Minnesota Educational Computing
Corporation* .......................... 10,000 160,000
Parametric Technology Corporation* ..... 12,000 412,500
Shiva Corporation* ..................... 10,000 398,750
Synopsys, Inc.* ........................ 5,000 217,500
Wall Data Incorporated* ................ 10,000 398,750
Wonderware Corporation* ................ 2,000 67,000
Total ................................. 2,516,500

Drugs and Hospital Supply - 4.22%
LUNAR CORPORATION* ..................... 25,000 459,375
OmniCare, Inc. ......................... 5,000 219,375
Total ................................. 678,750

Electronics - 0.52%
Micro Linear Corporation* .............. 10,000 83,750

Hospital Management - 1.28%
Inphynet Medical Management Inc.* ...... 8,000 98,000
Quorum Health Group, Inc.* ............. 1,000 19,125
Sierra Health Services, Inc.* .......... 2,800 88,550
Total ................................. 205,675

Leisure Time - 2.18%
Cannondale Corporation* ................ 25,000 262,500
Longhorn Steaks, Inc.* ................. 10,000 87,500
Total ................................. 350,000

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE SMALL CAP PORTFOLIO
DECEMBER 31, 1994

Shares Value

COMMON STOCKS (Continued)
Retailing - 5.95%
BABY SUPERSTORE, INC.* ................. 7,500 $ 344,063
Central Tractor Farm & Ctry* ........... 10,000 147,500
Hollywood Entertainment Corporation* ... 6,000 180,000
Just for Feet, Inc.* ................... 9,000 155,250
Movie Gallery, Inc.* ................... 5,000 129,375
Total ................................. 956,188

Services, Consumer and Business - 0.19%
Stewart Enterprises, Inc., Class A ..... 1,300 31,525

Telecommunications - 5.05%
Mobile Telecommunication Technologies
Corp.* ................................ 3,000 58,686
Ortel Corporation* ..................... 16,400 430,500
TESSCO Technologies Incorporated ....... 20,000 322,500
Total ................................. 811,686

Textiles and Apparel - 1.98%
Department 56, Inc.* ................... 8,000 318,000

Trucking - 0.89%
Knight Transportation, Inc.* ........... 10,000 143,750

TOTAL COMMON STOCKS - 42.96% $ 6,908,545
(Cost: $5,600,266)

Principal
Amount in
Thousands

SHORT-TERM SECURITIES
Banks and Savings and Loans - 2.84%
U.S. Bancorp,
Master Note ........................... $ 457 457,000

Chemicals Specialty and Miscellaneous
Technology - 1.86%
Minnesota Mining and Manufacturing
Company,
5.8%, 1-6-95 .......................... 300 299,758

Consumer Electronics and Appliances - 3.10%
TDK (USA) Corp.,
6.03%, 1-20-95 ........................ 500 498,409

Drugs and Hospital Supply - 3.56%
Baxter International Inc.,
6.2%, 1-31-95 ......................... 575 572,029

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE SMALL CAP PORTFOLIO
DECEMBER 31, 1994

Principal
Amount in
Thousands Value

SHORT-TERM SECURITIES (Continued)
Financial - 23.54%
BHP Finance (USA) Inc.,
6.02%, 1-31-95 ........................ $ 400 $ 397,993
Block Financial Corp.,
5.97%, 1-23-95 ........................ 450 448,358
Kerr-McGee Credit Corp.,
6.2%, 1-11-95 ......................... 350 349,397
Merrill Lynch & Co., Inc.,
6.1%, 2-1-95 .......................... 500 497,374
Nestle Capital Corp.,
5.9%, 1-31-95 ......................... 600 597,050
PHH Corp.,
6.02%, 1-27-95 ........................ 500 497,826
Textron Financial Corp.,
6.25%, 1-12-95 ........................ 500 499,045
USAA Capital Corp.,
5.95%, 1-19-95 ........................ 500 498,513
Total ................................. 3,785,556

Food and Related - 6.94%
ConAgra, Inc.,
6.0%, 1-11-95 ......................... 300 299,500
General Mills, Inc.,
Master Note ........................... 492 492,000
Sara Lee Corporation,
Master Note............................ 324 323,678
Total ................................. 1,115,178

Paper - 3.10%
Champion International Corporation,
6.0%, 1-19-95 ......................... 500 498,500

Public Utilities - Electric - 6.21%
PS Colorado Credit Corp.,
6.18%, 1-13-95 ........................ 500 498,970
Potomac Electric Power Co.,
6.03%, 1-13-95 ........................ 500 498,995
Total ................................. 997,965

Public Utilities - Gas - 2.48%
Questar Corp.,
6.05%, 1-20-95 ........................ 400 398,723

Public Utilities - Pipelines - 3.09%
Enron Corp.,
6.0%, 1-31-95 ......................... 500 497,500

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE SMALL CAP PORTFOLIO
DECEMBER 31, 1994

Value

TOTAL SHORT-TERM SECURITIES - 56.72% $ 9,120,618
(Cost: $9,120,618)

TOTAL INVESTMENT SECURITIES - 99.68% $16,029,163
(Cost: $14,720,884)

CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.32% 50,999

NET ASSETS - 100.00% $16,080,162

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE BALANCED PORTFOLIO
DECEMBER 31, 1994

Shares Value

COMMON STOCKS
Aerospace - 1.83%
TRW Inc. ............................... 2,400 $ 158,400

Automotive - 3.45%
Eaton Corporation ...................... 1,800 89,100
General Motors Corporation ............. 2,700 114,075
AB Volvo, ADR, Series B ................ 5,100 96,263
Total ................................. 299,438

Banks and Savings and Loans - 0.59%
Norwest Corporation .................... 2,200 51,425

Biotechnology and Medical Services - 1.00%
St. Jude Medical, Inc. ................. 2,200 86,900

Building - 2.95%
Simon Property Group, Inc. ............. 3,900 94,575
Temple-Inland Inc. ..................... 800 36,100
York International Corporation ......... 3,400 125,375
Total ................................. 256,050

Chemicals Major - 2.72%
Air Products and Chemicals, Inc. ....... 1,900 84,788
du Pont (E.I.) de Nemours and Company .. 1,200 67,500
Praxair, Inc. .......................... 1,200 24,600
Union Carbide Corporation .............. 2,000 58,750
Total ................................. 235,638

Chemicals Specialty and Miscellaneous
Technology - 1.28%
Betz Laboratories, Inc. ................ 2,500 110,625

Domestic Oil - 2.24%
Amoco Corporation ....................... 1,600 94,600
Apache Corporation ..................... 4,000 100,000
Total ................................. 194,600

Electronics - 0.67%
AMP Incorporated ....................... 800 58,200

Engineering and Construction - 0.86%
Foster Wheeler Corporation ............. 2,500 74,375

Financial - 1.34%
Federal National Mortgage Association .. 1,600 116,600

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE BALANCED PORTFOLIO
DECEMBER 31, 1994

Shares Value

COMMON STOCKS (Continued)
Food and Related - 4.13%
CPC International Inc. ................. 1,200 $ 63,900
Deans Foods Company .................... 3,600 104,400
Hormel Foods Corporation ............... 4,200 103,950
Sara Lee Corporation ................... 3,400 85,850
Total ................................. 358,100

Hospital Management - 4.06%
LTC Properties Inc. .................... 9,000 119,250
National Medical Enterprises, Inc.* .... 8,600 121,475
Sierra Health Services, Inc.* .......... 1,800 56,925
United HealthCare Corporation .......... 1,200 54,150
Total ................................. 351,800

Insurance - 2.95%
SAFECO Corporation ..................... 1,500 78,188
St. Paul Companies, Inc. (The) ......... 2,200 98,450
UNUM Corporation ....................... 2,100 79,275
Total ................................. 255,913

Machinery - 4.00%
Caterpillar Inc. ....................... 1,200 66,150
Cleveland-Cliffs Inc. .................. 500 18,500
Deere & Company ........................ 2,000 132,500
Timken Company (The) ................... 1,000 35,250
Trinova Corporation .................... 3,200 94,000
Total ................................. 346,400

Multi-Industry - 1.12%
ITT Corporation ........................ 1,100 97,488

Paper - 2.11%
Union Camp Corporation ................. 1,800 84,825
Westvaco Corporation ................... 2,500 98,125
Total ................................. 182,950

Publishing and Advertising - 1.00%
McGraw-Hill, Inc. ...................... 1,300 86,938

Railroads - 3.52%
Burlington Northern Inc. ............... 400 19,250
CSX Corp. .............................. 1,900 132,288
ConRail, Inc. .......................... 1,600 80,800
Norfolk Southern Corporation ........... 1,200 72,750
Total ................................. 305,088

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE BALANCED PORTFOLIO
DECEMBER 31, 1994

Shares Value

COMMON STOCKS (Continued)
Retailing - 5.33%
Kohl's Corporation* ..................... 2,000 $ 79,500
Limited, Inc. (The) .................... 4,000 72,500
May Department Stores Company (The) .... 1,900 64,125
Mercantile Stores Company, Inc. ........ 1,000 39,500
Penney (J.C.) Company, Inc. ............ 2,000 89,250
Tommy Hilfiger Corporation* ............ 2,600 117,325
Total ................................. 462,200

Steel - 0.94%
Bethlehem Steel Corporation* ........... 4,500 81,000

Telecommunications - 3.02%
BellSouth Corporation .................. 1,200 64,950
MCI Communications Corporation ......... 6,000 110,622
Telefonos de Mexico S.A. de C.V., ADR .. 2,100 86,100
Total ................................. 261,672

Textiles and Apparel - 0.93%
Cygne Designs, Inc.* ................... 6,000 81,000

TOTAL COMMON STOCKS - 52.04% $ 4,512,800
(Cost: $4,737,268)

PREFERRED STOCKS
Airlines - 0.30%
Delta Air Lines, Inc., Depository Shares,
Convertible, Series C ................. 600 26,250

Computers and Office Equipment - 0.73%
General Motors Corporation, Class E,
Depository Shares, Convertible ........ 1,100 63,113

Telecommunications - 0.35%
Nokia Corporation, ADS* ................ 400 30,000

TOTAL PREFERRED STOCKS - 1.38% $ 119,363
(Cost: $106,718)

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE BALANCED PORTFOLIO
DECEMBER 31, 1994

Principal
Amount in
Thousands Value

UNITED STATES GOVERNMENT SECURITIES - 6.18%
United States Treasury:
6.875%, 8-31-99 ....................... $250 $ 240,625
6.375%, 8-15-2002 ..................... 100 91,562
6.25%, 8-15-2023 ...................... 250 203,243
Total ................................. $ 535,430
(Cost: $559,041)

SHORT-TERM SECURITIES
Banks and Savings and Loans - 4.31%
U.S. Bancorp,
Master Note ........................... 374 374,000

Consumer Electronics and Appliances - 3.45%
TDK (USA) Corp.,
6.03%, 1-20-95 ........................ 300 299,045

Financial - 10.69%
BHP Finance (USA) Inc.,
6.02%, 1-31-95 ........................ 250 248,746
Kerr-McGee Credit Corp.,
6.2%, 1-11-95 ......................... 230 229,604
PHH Corp.,
6.02%, 1-27-95 ........................ 250 248,913
USAA Capital Corp.,
5.95%, 1-19-95 ........................ 200 199,405
Total ................................. 926,668

Food and Related - 10.68%
ConAgra, Inc.,
6.0%, 1-11-95 ......................... 300 299,500
General Mills, Inc.,
Master Note ........................... 375 375,000
Sara Lee Corporation,
Master Note............................ 252 251,592
Total ................................. 926,092

Paper - 3.45%
Champion International Corporation,
6.0%, 1-19-95 ......................... 300 299,100

Public Utilities - Electric - 6.90%
Potomac Electric Power Co.,
6.03%, 1-13-95 ........................ 300 299,397
Public Service Co. of Colorado,
6.18%, 1-13-95 ........................ 300 299,382
Total ................................. 598,779

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE BALANCED PORTFOLIO
DECEMBER 31, 1994

Value

TOTAL SHORT-TERM SECURITIES - 39.48% $3,423,684
(Cost: $3,423,684)

TOTAL INVESTMENT SECURITIES - 99.08% $8,591,277
(Cost: $8,826,711)

CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.92% 79,791

NET ASSETS - 100.00% $8,671,068

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE MONEY MARKET PORTFOLIO
DECEMBER 31, 1994

Principal
Amount in
Thousands Value

BANK OBLIGATIONS
Certificates of Deposit
Domestic - 1.62%
PNC Bank, N.A.,
5.7%, 4-20-95 ......................... $ 500 $ 499,401

Eurodollar - 1.62%
NationsBank Corp. Europe,
5.4%, 5-19-95 ......................... 500 499,999

Total Certificates of Deposit - 3.24% 999,400

Notes - 3.25%
Abbey National Treasury Services plc,
7.4%, 12-15-95 ........................ 500 500,000
Comerica Bank,
5.83%, 1-3-95 ......................... 500 500,000
Total ................................. 1,000,000

TOTAL BANK OBLIGATIONS - 6.49% $ 1,999,400
(Cost: $1,999,400)

CORPORATE OBLIGATIONS
Commercial Paper
Building - 2.59%
Weyerhaeuser Company,
5.9%, 1-23-95 ......................... 800 797,116

Financial - 19.49%
AT&T Capital Corp.,
5.88%, 1-3-95 ......................... 800 799,739
B.A.T. Capital Corp.,
5.9%, 1-25-95 ......................... 500 498,033
BHP Finance (USA) Inc.,
6.02%, 1-31-95 ........................ 700 696,488
Block Financial Corp.,
5.97%, 1-23-95 ........................ 600 597,811
General Electric Capital Corp.,
6.0%, 2-17-95 ......................... 800 793,733
Merrill Lynch & Co., Inc.,
5.72%, 1-17-95 ........................ 600 598,475
Nestle Capital Corp.,
5.9%, 1-31-95 ......................... 630 626,902
PHH Corp.,
6.02%, 1-27-95 ........................ 800 796,522
Philip Morris Capital Corp.,
5.9%, 1-25-95 ......................... 600 597,640
Total ................................. 6,005,343

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE MONEY MARKET PORTFOLIO
DECEMBER 31, 1994

Principal
Amount in
Thousands Value
CORPORATE OBLIGATIONS (Continued)
Commercial Paper (Continued)
Food and Related - 12.17%
General Mills, Inc.,
Master Note ........................... $1,060 $ 1,060,000
Heinz (H.J.) Company,
5.9%, 1-23-95 ......................... 800 797,115
Quaker Oats Co.,
5.95%, 1-17-95 ........................ 800 797,884
Sara Lee Corporation,
Master Note ........................... 1,094 1,093,781
Total ................................. 3,748,780

Paper - 2.59%
Kimberly-Clark Corp.,
5.9%, 1-23-95 ......................... 800 797,115

Public Utilities - Electric - 9.39%
Pacific Gas and Electric Co.,
6.0%, 1-13-95 ......................... 800 798,400
Pacificorp,
5.72%, 1-11-95 ........................ 500 499,206
Potomac Electric Power Co.,
6.03%, 1-13-95 ........................ 800 798,392
Southern California Edison Company,
6.05%, 1-20-95 ........................ 800 797,446
Total ................................. 2,893,444

Public Utilities - Gas - 4.85%
Bay State Gas Co.,
5.9%, 1-25-95 ......................... 800 796,853
Questar Corp.,
5.75%, 1-13-95 ........................ 700 698,658
Total ................................. 1,495,511

Publishing and Advertising - 2.59%
Times Mirror Company (The),
6.05%, 1-11-95 ........................ 800 798,656

Telecommunications - 1.61%
Southwestern Bell Capital Corp.,
6.04%, 2-2-95 ......................... 500 497,316

Total Commercial Paper - 55.28% 17,033,281

Commercial Paper (backed by irrevocable
bank letter of credit)
Financial - 1.62%
Spiegel Funding Corp. (Dresdner
Bank A.G.),
5.75%, 1-17-95 ........................ 500 498,722

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE MONEY MARKET PORTFOLIO
DECEMBER 31, 1994

Principal
Amount in
Thousands Value

CORPORATE OBLIGATIONS (Continued)
Commercial Paper (backed by irrevocable
bank letter of credit) (Continued)
Public Utilities - Electric - 2.59%
AES Barbers Point Inc. (Bank of
America N.T. & S.A.),
6.03%, 1-19-95 ........................ $ 800 $ 797,588

Total Commercial Paper (backed by
irrevocable bank letter of credit) - 4.21% 1,296,310

Notes
Beverages - 1.62%
PepsiCo, Inc.,
5.845%, 1-3-95 ........................ 500 500,000

Financial - 1.62%
AVCO Financial Services Inc.,
5.87%, 1-3-95 ......................... 500 500,000

Public Utilities - Electric - 1.62%
Georgia Power Co.,
5.125%, 9-1-95 ........................ 500 497,889

Total Notes - 4.86% 1,497,889

TOTAL CORPORATE OBLIGATIONS - 64.35% $19,827,480
(Cost: $19,827,480)

MUNICIPAL OBLIGATIONS
California - 2.60%
City of Anaheim, California, Certificates
of Participation (1993 Arena Financing
Project), Municipal Adjustable Rate
Taxable Securities (Credit Suisse),
5.78%, 2-1-95 ......................... 800 800,000

Georgia - 2.60%
Development Authority of Richmond
County (Georgia), Taxable Industrial
Revenue Bonds (NutraSweet Project),
Series 1990 (Union Bank of Switzerland),
5.71, 6-2-95 .......................... 800 800,000

Michigan - 2.27%
Michigan Underground Storage Tank Financial
Assurance Authority, State of Michigan,
Series 1 (Canadian Imperial Bank of Commerce),
6.4%, 1-11-95 ......................... 700 698,756

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE MONEY MARKET PORTFOLIO
DECEMBER 31, 1994

Principal
Amount in
Thousands Value

MUNICIPAL OBLIGATIONS (Continued)
New Hampshire - 1.62%
The Industrial Development Authority
of the State of New Hampshire,
Pollution Control Revenue Bonds
(Public Service Company of New
Hampshire Project-1991 Taxable
Series D and E) (Barklays Bank),
6.45%, 2-14-95 ........................ $ 500 $ 500,000

Texas - 1.61%
Metrocrest Hospital Authority, Series 1989A
(The Bank of New York),
6.118%, 1-20-95 ....................... 500 498,385

TOTAL MUNICIPAL OBLIGATIONS - 10.70% $ 3,297,141
(Cost: $3,297,141)

UNITED STATES GOVERNMENT
OBLIGATIONS
Federal Home Loan Banks,
5.9%, 1-9-95 .......................... 1,000 1,000,000
Federal Home Loan Mortgage Corporation,
5.95%, 3-7-95 ......................... 1,000 1,000,000
Federal National Mortgage Association,
5.9%, 3-20-95 ......................... 500 500,000

TOTAL UNITED STATES GOVERNMENT
OBLIGATIONS - 8.11% $ 2,500,000
(Cost: $2,500,000)

TOTAL INVESTMENT SECURITIES - 89.65% $27,624,021
(Cost: $27,624,021)

CASH AND OTHER ASSETS,
NET OF LIABILITIES - 10.35% 3,188,242

NET ASSETS - 100.00% $30,812,263

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE LIMITED-TERM BOND PORTFOLIO
DECEMBER 31, 1994

Principal
Amount in
Thousands Value

CORPORATE DEBT SECURITIES
Airlines - 3.10%
Federal Express Corporation,
9.75%, 5-15-96 ........................ $ 50 $ 51,010

Automotive - 2.98%
General Motors Corporation,
7.625%, 2-15-97 ....................... 50 49,011

Banks and Savings and Loans - 12.38%
BankAmerica Corporation,
9.7%, 8-1-2000 ........................ 50 52,361
Boatmen's Bancshares, Inc.,
9.25%, 11-1-2001 ...................... 50 51,396
NCNB Corporation,
10.5%, 3-15-99 ........................ 50 51,375
Norwest Financial, Inc.,
7.75%, 8-15-2001 ...................... 50 48,476
Total ................................. 203,608

Chemicals Major - 8.33%
Dow Chemical Company, Inc. (The),
4.625%, 10-15-95 ...................... 60 58,650
ICI Welmington, Inc.,
9.5%, 11-15-2000 ...................... 75 78,438
Total ................................. 137,088

Chemicals Specialty and Miscellaneous
Technology - 5.98%
Waste Management, Inc.,
6.25%, 12-15-96 ....................... 50 49,247
Xerox Credit Corporation,
6.25%, 1-15-96 ........................ 50 49,138
Total ................................. 98,385

Domestic Oil - 3.13%
BP America Inc.,
9.5%, 1-1-98 .......................... 50 51,490

Drugs and Hospital Supply - 3.09%
Baxter International Inc.,
9.25%, 9-15-96 ........................ 50 50,802

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE LIMITED-TERM BOND PORTFOLIO
DECEMBER 31, 1994

Principal
Amount in
Thousands Value

CORPORATE DEBT SECURITIES (Continued)
Financial - 11.76%
Associates Corporation of North America,
8.8%, 8-1-98 .......................... $ 50 $ 50,452
Avco Financial Services, Inc.,
5.5%, 4-1-2000 ........................ 50 44,137
Ford Motor Credit Company,
8.0%, 1-15-99 ......................... 50 49,390
Household Finance Corporation,
7.75%, 6-15-97 ........................ 50 49,447
Total ................................. 193,426

Insurance - 6.06%
ITT Hartford,
7.25%, 12-1-96 ........................ 50 49,099
Transamerica Finance Corporation,
8.75%, 10-1-99 ........................ 50 50,583
Total ................................. 99,682

International Oil - 6.09%
Chevron Corporation,
8.11%, 12-1-2004 ...................... 50 48,734
Texaco Capital Inc.,
9.0%, 12-15-99 ........................ 50 51,433
Total ................................. 100,167

Multi-Industry - 3.12%
ITT Financial Corporation,
8.875%, 6-15-2003 ..................... 50 51,336

Public Utilities - Pipelines - 6.14%
Consolidated Natural Gas Company,
8.75%, 6-1-99 ......................... 50 50,642
Tenneco Credit Corporation,
9.0%, 7-15-95 ......................... 50 50,345
Total ................................. 100,987

Retailing - 6.28%
Penney (J.C.) Company, Inc.,
10.0%, 10-15-97 ....................... 50 52,140
Sears, Roebuck and Co.,
9.25%, 4-15-98 ........................ 50 51,273
Total ................................. 103,413

TOTAL CORPORATE DEBT SECURITIES - 78.44% $1,290,405
(Cost: $1,324,967)

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE LIMITED-TERM BOND PORTFOLIO
DECEMBER 31, 1994

Principal
Amount in
Thousands Value

UNITED STATES GOVERNMENT SECURITIES
United States Treasury:
5.125%, 11-30-98 ...................... $100 $ 90,969
6.375%, 8-15-2002...................... 100 91,562
6.25%, 2-15-2003 ...................... 100 90,437

TOTAL UNITED STATES GOVERNMENT SECURITIES - 16.59% $ 272,968
(Cost: $286,093)

TOTAL SHORT-TERM SECURITIES - 2.86% $ 47,000
(Cost: $47,000)

TOTAL INVESTMENT SECURITIES - 97.89% $1,610,373
(Cost: $1,658,060)

CASH AND OTHER ASSETS, NET OF LIABILITIES - 2.11% 34,773

NET ASSETS - 100.00% $1,645,146

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIO
DECEMBER 31, 1994

Principal
Amount in
Thousands Value

CORPORATE DEBT SECURITIES
Aerospace - 1.39%
McDonnell Douglas Corporation,
9.25%, 4-1-2002 ....................... $1,000 $ 1,026,960

Airlines - 1.26%
Federal Express Corporation,
7.89%, 9-23-2008 ...................... 1,000 935,770

Automotive - 5.70%
General Motors Corporation,
8.8%, 3-1-2021 ........................ 2,600 2,661,958
Toyota Motor Credit Corporation, Medium Term,
Three Year Basket Inverse Floating Rate,
3.02%, 8-5-96 (B) ..................... 1,750 1,557,500
Total ................................. 4,219,458

Banks and Savings and Loans - 13.77%
BankAmerica Corporation,
8.125%, 8-15-2004 ..................... 1,000 950,710
BarclaysAmericanCorporation,
9.125%, 12-1-97 ....................... 225 229,478
Bayerische Landesbank Girozentale, NY
Branch, CD, Currency Protected Deutschemark
Swap Rate Inverse Floating Rate,
3.06%, 3-28-97 (C) .................... 1,000 890,000
Central Fidelity Banks,
8.15%, 11-15-2002 ..................... 500 483,140
Chevy Chase Savings Bank, F.S.B.,
9.25%, 12-1-2005 ...................... 500 420,000
Citicorp,
7.75%, 6-15-2006 ...................... 1,000 929,430
First Union Corporation,
8.0%, 11-15-2002 ...................... 1,000 958,460
Great Western Financial Corporation,
8.6%, 2-1-2002 ........................ 1,500 1,489,380
Kansallis-Osake-Pankki,
10.0%, 5-1-2002 ....................... 1,000 1,073,220
Riggs National Corporation,
8.5%, 2-1-2006 ........................ 1,000 925,000
Skandia Enskilda Banken, NY Branch
Certificate of Deposit Dollarized
Australian Dollar Reset,
6.125%, 4-5-99 (D) .................... 1,000 840,000
Wells Fargo & Company,
8.75%, 5-1-2002 ....................... 1,000 1,005,950
Total ................................. 10,194,768

Building - 7.93%
Canadian Pacific Forest Products Ltd.,
9.25%, 6-15-2002 ...................... 1,000 932,840

See Notes to Schedules of Investments on page 110.
<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIO
DECEMBER 31, 1994

Principal
Amount in
Thousands Value

CORPORATE DEBT SECURITIES (Continued)
Building (Continued)
Cemex, S.A.,
8.875%, 6-10-98 ....................... $1,000 $ 870,000
Doman Industries Limited,
8.75%, 3-15-2004 ...................... 500 441,250
Noranda Forest Inc.,
7.5%, 7-15-2003 ....................... 1,000 921,820
Noranda Inc.,
8.625%, 7-15-2002 ..................... 950 942,524
Owens-Corning Fiberglas Corporation,
8.875%, 6-1-2002 ...................... 1,000 999,330
Del Webb Corporation,
10.875%, 3-31-2000 .................... 800 760,000
Total ................................. 5,867,764

Chemicals Major - 1.37%
Dow Capital BV,
9.0%, 5-15-2010 ....................... 1,000 1,014,920

Domestic Oil - 4.96%
Apache Corporation,
9.25%, 6-1-2002 ....................... 500 509,670
LASMO (USA) INC.,
7.125%, 6-1-2003 ...................... 1,000 889,720
Seagull Energy Corporation,
7.875%, 8-1-2003 ...................... 1,500 1,297,500
Union Texas Petroleum Holdings, Inc.,
8.25%, 11-15-99 ....................... 1,000 971,680
Total ................................. 3,668,570

Electrical Equipment - 3.29%
General Electric Capital Corporation:
8.3%, 9-20-2009 ....................... 1,500 1,528,515
8.65%, 5-1-2018 ....................... 895 902,769
Total ................................. 2,431,284

Financial - 10.48%
Banc One Credit Card Master Trust,
7.55%, 12-15-99 ....................... 1,000 985,930
Chrysler Financial Corporation,
12.75%, 11-1-99 ....................... 1,000 1,161,360
Countrywide Mortgage Backed Securities,
Inc.,
6.5%, 4-25-2024 ....................... 2,000 1,839,720
DLJ Mortgage Acceptance Corp., 1994-3 A13,
6.5%, 4-25-2024 ....................... 980 849,216
General Motors Acceptance Corporation,
8.875%, 6-1-2010 ...................... 1,000 1,038,310
Greyhound Financial Corporation,
8.79%, 11-15-2001 ..................... 1,000 1,002,150

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIO
DECEMBER 31, 1994

Principal
Amount in
Thousands Value

CORPORATE DEBT SECURITIES (Continued)
Financial (Continued)
JCP Master Credit Card Trust,
9.625%, 6-15-2000 ..................... $ 500 $ 524,685
National Credit Card Trust 1989-4,
9.45%, 12-31-97 ....................... 350 355,796
Total ................................. 7,757,167

Hospital Management - 1.36%
HealthTrust Inc.:
10.75%, 5-1-2002 ...................... 500 531,250
8.75%, 3-15-2005 ...................... 500 477,500
Total ................................. 1,008,750

Household Products - 2.68%
Proctor & Gamble Company (The),
8.0%, 9-1-2024 ........................ 2,000 1,983,760

International Oil - 0.49%
YPF Sociedad Anoima,
8.0%, 2-15-2004 ....................... 500 360,000

Leisure Time - 4.91%
Marriott International, Inc.,
6.75%, 12-15-2003 ..................... 1,000 881,960
Tele-Communications, Inc.,
9.8%, 2-1-2012 ........................ 1,000 1,000,210
Time Warner Incorporated,
7.95%, 2-1-2000 ....................... 1,000 937,460
Turner Broadcasting System, Inc.,
8.375%, 7-1-2013 ...................... 1,000 813,080
Total ................................. 3,632,710

Machinery - 0.72%
Caterpillar, Inc.,
9.375%, 8-15-2011 ..................... 500 534,840

Multi-Industry - 1.22%
Mark IV Industries, Inc.,
8.75%, 4-1-2003 ....................... 1,000 905,000

Public Utilities - Electric - 1.28%
Kansas Gas & Electric Company,
7.6%, 12-15-2003 ...................... 1,000 943,500

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIO
DECEMBER 31, 1994

Principal
Amount in
Thousands Value

CORPORATE DEBT SECURITIES (Continued)
Public Utilities - Pipelines - 2.76%
Arkla, Inc.,
8.875%, 7-15-99 ....................... $1,000 $ 975,000
Coastal Corporation (The),
10.375%, 10-1-2000 .................... 500 531,595
Tenneco Inc.,
10.375%, 11-15-2000 ................... 500 536,825
Total ................................. 2,043,420

Publishing and Advertising - 1.86%
News America Holdings Incorporated:
9.125%, 10-15-99 ...................... 500 503,975
8.25%, 8-10-2018 ...................... 1,000 875,610
Total ................................. 1,379,585

Railroad Equipment - 0.01%
Union Tank Car Co.,
9.5%, 12-15-95 ........................ 9 9,131

Railroads - 1.42%
Louisville & Nashville Railroad
Equipment Trust Certificates, Series 10,
12.3%, 2-1-95 ......................... 8 8,008
Penn Central Corporation (The),
10.625%, 4-15-2000 .................... 1,000 1,045,170
Total ................................. 1,053,178

Steel - 1.33%
USX Corporation,
8.21%, 1-21-2000 ...................... 1,000 980,750

Telecommunications - 4.74%
New England Telephone & Telegraph Company,
7.875%, 11-15-2029 .................... 2,000 2,081,560
Southwestern Bell Telephone Company,
7.0%, 8-26-2002 ....................... 1,000 930,980
US WEST Financial Services, Inc.,
8.4%, 9-15-99 ......................... 500 498,625
Total ................................. 3,511,165

TOTAL CORPORATE DEBT SECURITIES - 74.93% $55,462,450
(Cost: $59,389,451)

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIO
DECEMBER 31, 1994

Principal
Amount in
Thousands Value

OTHER GOVERNMENT SECURITIES
Argentina - 0.48%
Republic of Argentina,
8.375%, 12-20-2003 .................... $ 500 $ 356,250

Canada - 4.24%
Hydro Quebec,
8.05%, 7-7-2024 ....................... 1,000 961,420
Province of Manitoba,
9.125%, 1-15-2018 ..................... 2,000 2,179,440
Total ................................. 3,140,860

Supernationals - 1.41%
Inter-American Development Bank,
8.4%, 9-1-2009 ........................ 1,000 1,039,730

TOTAL OTHER GOVERNMENT SECURITIES - 6.13% $ 4,536,840
(Cost: $4,789,818)

UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
7.5%, 11-15-2017 ...................... 1,538 1,439,953
7.5%, 4-15-2019 ....................... 1,190 1,019,068
7.0%, 1-15-2021 ....................... 500 440,000
Federal National Mortgage Association,
7.5%, 9-1-2009 ........................ 1,000 956,926
United States Treasury:
6.5%, 5-15-97 ......................... 1,000 972,340
5.75%, 10-31-97 ....................... 2,500 2,369,925
11.25%, 2-15-2015 ..................... 1,000 1,321,250
8.875%, 8-15-2017 ..................... 2,000 2,178,740
7.5%, 11-15-2024 ...................... 1,000 956,560

TOTAL UNITED STATES GOVERNMENT
SECURITIES - 15.75% $11,654,762
(Cost: $12,071,117)

TOTAL SHORT-TERM SECURITIES - 1.24% $ 922,000
(Cost: $922,000)

TOTAL INVESTMENT SECURITIES - 98.05% $72,576,052
(Cost: $77,172,386)

CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.95% 1,440,798

NET ASSETS - 100.00% $74,016,850

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1994

Shares Value

COMMON STOCKS AND WARRANTS
Leisure Time - 0.98%
Infinity Broadcasting Corporation,
Class A* .............................. 22,500 $ 711,563

Miscellaneous - 0.91%
Dial Page Inc., Warrants ............... 1,000 1,250
LTC Properties, Inc. ................... 50,000 662,500
Total ................................. 663,750

TOTAL COMMON STOCKS AND WARRANTS - 1.89% $1,375,313
(Cost: $967,468)

PREFERRED STOCKS - 0.69%
Banks and Savings and Loans
California Federal Bank, F.S.B. ........ 5,000 $ 501,250
(Cost: $500,000)
Principal
Amount in
Thousands

CORPORATE DEBT SECURITIES
Automotive - 2.53%
Aftermarket Technology Corp.,
12.0%, 8-1-2004 (E).................... $ 500 516,250
Lear Seating Corporation,
8.25%, 2-1-2002 ....................... 1,500 1,320,000
Total ................................. 1,836,250

Beverages - 1.69%
Dr Pepper Bottling Holdings, Inc.,
0.0%, 2-15-2003 (F).................... 500 345,000
ROYAL CROWN CORPORATION,
9.75%, 8-1-2000 ....................... 1,000 880,000
Total ................................. 1,225,000

Biotechnology and Medical Services - 2.08%
Abbey Healthcare Group, Incorporated,
9.5%, 11-1-2022 ....................... 500 450,000
Quorum Health Group, Inc.,
11.875%, 12-15-2002 ................... 1,000 1,060,000
Total ................................. 1,510,000

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1994

Principal
Amount in
Thousands Value

CORPORATE DEBT SECURITIES (Continued)
Building - 7.66%
American Standard Inc.:
9.875%, 6-1-2001 ...................... $1,000 $ 970,000
9.25%, 12-1-2016 ...................... 500 457,500
Beazer Homes USA, Inc.,
9.0%, 3-1-2004 ........................ 750 615,000
Eagle Industries, Inc.,
0.0%, 7-15-2003 (F) ................... 1,500 975,000
Hillsborough Company,
17.0%, 1-1-96 (G) ..................... 500 305,000
NVR L.P.,
11.0%, 4-15-2003 ...................... 1,000 840,000
Nortek, Inc.,
9.875%, 3-1-2004 ...................... 500 445,000
Triangle Pacific Corp.,
10.5%, 8-1-2003 ....................... 1,000 957,500
Total ................................. 5,565,000

Chemicals Specialty and Miscellaneous Technology - 5.34%
Buckeye Cellulose Corporation,
10.25%, 5-15-2001 ..................... 1,250 1,168,750
Carlisle Plastics Inc.,
10.25%, 6-15-97 ....................... 500 492,500
Envirotest Systems Corp.,
9.125%, 3-15-2001 ..................... 1,000 840,000
LaRoche Industries Inc.,
13.0%, 8-15-2004 ...................... 1,000 920,000
OSi Specialties, Inc.,
9.25%, 10-1-2003 ...................... 500 457,500
Total ................................. 3,878,750

Computers and Office Equipment - 0.60%
Mail-Well Corporation,
10.5%, 2-15-2004 ...................... 500 435,000

Consumer Electronics and Appliances - 1.07%
Sealy Corporation,
9.5%, 5-1-2003 ........................ 825 779,625

Domestic Oil - 1.57%
Clark R&M Holdings, Inc.,
0.0%, 2-15-2000 ....................... 2,000 1,140,000

Drugs and Hospital Supply - 2.79%
Amerisource Distribution Corporation,
11.25%, 7-15-2005 ..................... 1,112 1,059,788
General Medical Corporation,
12.125%, 8-15-2005 .................... 1,000 969,202
Total ................................. 2,028,990

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1994

Principal
Amount in
Thousands Value

CORPORATE DEBT SECURITIES (Continued)
Electronics - 1.29%
Essex Group, Inc.,
10.0%, 5-1-2003 ....................... $1,000 $ 940,000

Food and Related - 2.21%
General Nutrition, Incorporated,
11.375%, 3-1-2000 ..................... 393 433,774
Pilgrim's Pride Corporation,
10.875%, 8-1-2003 ..................... 300 282,750
Specialty Foods Corporation,
10.25%, 8-15-2001 ..................... 1,000 890,000
Total ................................. 1,606,524

Hospital Management - 3.30%
LTC Properties, Inc.,
8.5%, 1-1-2000 ........................ 1,000 1,005,000
Pathmark Stores, Inc.,
9.625%, 5-1-2003 ...................... 1,000 890,000
Surgical Health Corporation,
11.5%, 7-15-2004 ...................... 500 500,000
Total ................................. 2,395,000

Household Products - 1.66%
Exide Corporation:
10.75%, 12-15-2002 .................... 750 750,000
0.0%, 12-15-2004 (F) .................. 500 352,500
MacAndrews & Forbes Group Incorporated,
13.0%, 3-1-99 ......................... 100 100,250
Total ................................. 1,202,750

Leisure Time - 16.50%
Argosy Gaming Company,
12.0%, 6-1-2001 ....................... 908 860,330
Cablevision Industries Corporation,
10.75%, 1-30-2002 ..................... 500 497,500
California Hotel Finance Corporation,
11.0%, 12-1-2002 ...................... 1,000 920,000
Comcast Corporation,
0.0%, 3-5-2000 ........................ 1,000 670,000
Continental Cablevision, Inc.:
10.625%, 6-15-2002 .................... 500 503,750
8.875%, 9-15-2005 ..................... 500 452,500
11.0%, 6-1-2007 ....................... 500 507,500

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1994

Principal
Amount in
Thousands Value

CORPORATE DEBT SECURITIES (Continued)
Leisure Time (Continued)
Family Restaurants, Inc.,
9.75%, 2-1-2002 ....................... $ 500 $ 392,500
FLAGSTAR COMPANIES, INC.:
10.75%, 9-15-2001 ..................... 1,000 937,500
11.25%, 11-1-2004 ..................... 1,000 825,000
GNS Finance Corp.,
9.25%, 3-15-2003 ...................... 1,500 1,440,000
Infinity Broadcasting Corporation,
10.375%, 3-15-2002 .................... 1,000 1,010,000
Plitt Theatres, Inc.,
10.875%, 6-15-2004 .................... 1,000 930,000
Showboat, Inc.,
9.25%, 5-1-2008 ....................... 1,000 835,000
Sinclair Broadcast Group Inc.,
10.0%, 12-15-2003 ..................... 375 348,750
Viacom International, Inc.,
8.0%, 7-7-2006 ........................ 1,000 857,500
Total ................................. 11,987,830

Multi-Industry - 3.74%
Federal Industries Ltd.,
10.25%, 6-15-2000 ..................... 500 468,750
Jordan Industries, Inc.,
10.375%, 8-1-2003 ..................... 1,000 890,000
Mark IV Industries, Inc.,
8.75%, 4-1-2003 ....................... 1,500 1,357,500
Total ................................. 2,716,250

Oil Services - 1.40%
Wainoco Oil Corporation,
12.0%, 8-1-2002 ....................... 1,000 1,020,000

Packaging and Containers - 7.02%
Anchor Glass Container Corporation,
9.875%, 12-15-2008 .................... 500 430,000
Container Corporation of America,
11.25%, 5-1-2004 ...................... 1,500 1,537,500
Gaylord Container Corporation,
11.5%, 5-15-2001 ...................... 1,000 1,030,000
Owens-Illinois, Inc.,
10.25%, 4-1-99 ........................ 1,000 990,000
Silgan Corporation,
0.0%, 12-15-2002 (F)................... 500 420,000
Sweetheart Cup Company, Inc.,
10.5%, 9-1-2003 ....................... 750 690,000
Total ................................. 5,097,500

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1994

Principal
Amount in
Thousands Value

CORPORATE DEBT SECURITIES (Continued)
Paper - 3.73%
Fort Howard Corporation:
11.0%, 1-2-2002 ....................... $ 475 $ 474,484
14.125%, 11-1-2004 .................... 500 503,750
Stone Container Corporation,
10.75%, 10-1-2002 ..................... 1,000 995,000
Williamhouse-Regency of Delaware, Inc.,
11.5%, 6-15-2005 ..................... 800 736,000
Total ................................. 2,709,234

Publishing and Advertising - 3.94%
American Media Operations, Inc.,
11.625%, 11-15-2004 ................... 1,000 1,025,000
Big Flower Press, Inc.,
10.75%, 8-1-2003 ...................... 1,000 935,000
Outdoor Systems, Inc.,
10.75%, 8-15-2003 ..................... 1,000 900,000
Total ................................. 2,860,000

Retailing - 9.97%
Barnes & Noble, Inc.,
11.875%, 1-15-2003 ................... 500 535,000
Big V Supermarkets, Inc.,
11.0%, 2-15-2004 ...................... 500 395,000
Bradlees, Inc.,
9.25%, 3-1-2003 ...................... 1,000 825,000
Color Tile, Inc.,
10.75%, 12-15-2001 .................... 1,000 880,000
Kroger Co. (The),
9.75%, 2-15-2004 ...................... 1,000 1,011,250
Musicland Stores, Inc.,
9.0%, 6-15-2003 ....................... 1,500 1,245,000
Penn Traffic Company,
10.375%, 10-1-2004 .................... 1,500 1,447,500
WestPoint Stevens Inc.,
9.375%, 12-15-2005 .................... 1,000 905,000
Total ................................. 7,243,750

Services, Consumer and Business - 0.98%
Bell & Howell Company,
10.75%, 10-1-2002 ..................... 750 712,500

See Notes to Schedules of Investments on page 110.

<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1994

Principal
Amount in
Thousands Value

CORPORATE DEBT SECURITIES (Continued)
Steel - 2.10%
AK Steel,
10.75%, 4-1-2004 ...................... $1,000 $ 990,000
Inland Steel,
12.75%, 12-15-2002 .................... 500 538,125
Total ................................. 1,528,125

Telecommunications - 3.60%
Dial Call Communications, Inc.,
0.0%, 4-15-2004 (F) ................... 1,000 345,000
MFS Communications Company, Inc.,
0.0%, 1-15-2004 (F) ................... 500 295,000
PanAmSat, L.P.:
9.75%, 8-1-2000 ....................... 1,000 942,500
0.0%, 8-1-2003 (F) .................... 1,000 625,000
USA Mobile Communications, Inc.,
9.5%, 2-1-2004 ........................ 500 405,000
Total ................................. 2,612,500

Textiles and Apparel - 1.27%
CONSOLTEX GROUP INC.,
11.0%, 10-1-2003 ...................... 1,000 925,000

TOTAL CORPORATE DEBT SECURITIES - 88.04% $63,955,578
(Cost: $68,357,699)

SHORT-TERM SECURITIES
Banks and Savings and Loans - 1.96%
U.S. Bancorp,
Master Note ........................... 1,423 1,423,000

Food and Related - 4.95%
General Mills, Inc.,
Master Note ........................... 2,267 2,267,000
Sara Lee Corporation,
Master Note ........................... 1,326 1,326,000
Total ................................. 3,593,000

TOTAL SHORT-TERM SECURITIES - 6.91% $ 5,016,000
(Cost: $5,016,000)

TOTAL INVESTMENT SECURITIES - 97.53% $70,848,141
(Cost: $74,841,167)

CASH AND OTHER ASSETS, NET OF LIABILITIES - 2.47% 1,795,534

NET ASSETS - 100.00% $72,643,675

See Notes to Schedules of Investments on page 110.

<PAGE>
Notes to Schedules of Investments

*No income dividends were paid during the preceding 12 months.

(A) Listed on an exchange outside of the United States.

(B) Coupon resets semiannually based on the arithmetic mean of two year swap
rates in four nations: Italy, France, Spain and the United Kingdom,
determined by the following formula (minimum coupon of 0%):
19.65% - 2 x (average two year swap rate in the aforementioned nations).

(D) Coupon resets on 4-5-95 based on the greater of 4% and 4% + 5 x (6.65% - 3
year Australian Dollar swap rate). After 4-5-95 the coupon becomes fixed.
Minimum coupon is 4% and the maximum coupon is 7.5%.

(E) As of December 31, 1994, the following restricted security was owned in the
High Income Portfolio:

Principal
Acquisition Amount Acquisition Market
Security Date (in 000's) Cost Value
---------------- --------------------------------------------
Aftermarket Technology
Corp.,
12.0%, 8-1-2004 7/21/94 $500 $500,000 $516,250
======== ========
The total market value of restricted securities represents approximately
0.71% of the total net assets in the High Income Portfolio at December 31,
1994.

(F) The security does not bear interest for an initial period of time and
subsequently becomes interest bearing.

(G) Non-income producing as the issuer has either missed its most recent
interest payment or declared bankruptcy:

See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.

See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.

<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
Growth IncomeInternational
Portfolio Portfolio Portfolio
Assets ----------- ---------- -----------
Investment securities--at
value (Notes 1 and 3) $276,809,531$218,844,527 $25,781,641
Cash .............. 6,687 4,431 1,384
Receivables:
Dividends and interest 567,231 332,243 42,859
Fund shares sold .. 113,778 177,059 210,565
Investment securities
sold ............ --- 203,448 ---
Prepaid insurance
premium ........... 3,991 2,819 182
------------------------ -----------
Total assets .... 277,501,218 219,564,527 26,036,631
Liabilities ------------------------ -----------
Payable for investment
securities purchased 548,125 610,437 ---
Payable for Fund shares
redeemed .......... 199,058 169,428 5,151
Accrued accounting
services fee ...... 4,167 4,167 833
Other .............. 13,233 6,893 11,013
------------------------ -----------
Total liabilities 764,583 790,925 16,997
------------------------ -----------
Total net assets $276,736,635$218,773,602 $26,019,634
Net Assets ======================== ===========
$0.01 par value capital stock
Capital stock ..... $ 469,159$ 323,206 $ 52,116
Additional paid-in
capital ......... 285,885,078 202,539,201 26,652,623
Accumulated undistributed
gain (loss):
Accumulated undistributed
net investment income --- --- ---
Accumulated undistributed
net realized loss on
investment transactions
and foreign currency
transactions ..... --- (462,851) (21,009)
Net unrealized appreciation
(depreciation) of investments
at end of period . (9,617,602) 16,374,046 (664,096)
------------------------ -----------
Net assets applicable to
outstanding units
of capital ..... $276,736,635$218,773,602 $26,019,634
======================== ===========
Net asset value, redemption
and offering price per share $5.8986 $6.7689 $4.9926
======= ======= =======
Capital shares outstanding 46,915,868 32,320,625 5,211,592
Capital shares authorized 100,000,000 100,000,000 100,000,000
See notes to financial statements.

<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
Small Cap BalancedMoney Market
Portfolio Portfolio Portfolio
Assets ---------- ---------- -----------
Investment securities--at
value (Notes 1 and 3) $16,029,163 $8,591,277 $27,624,021
Cash .............. 7,362 6,057 18,970
Receivables:
Dividends and interest 6,098 29,433 64,604
Fund shares sold .. 110,867 69,600 3,480,604
Investment securities
sold ............ --- --- ---
Prepaid insurance
premium ........... 182 182 1,506
----------- ---------- -----------
Total assets .... 16,153,672 8,696,549 31,189,705
Liabilities ----------- ---------- -----------
Payable for investment
securities purchased 66,102 --- ---
Payable for Fund shares
redeemed .......... 4,142 23,625 373,894
Accrued accounting
services fee ...... 833 --- 1,667
Other .............. 2,433 1,856 1,881
----------- ---------- -----------
Total liabilities 73,510 25,481 377,442
----------- ---------- -----------
Total net assets $16,080,162 $8,671,068 $30,812,263
Net Assets =========== ========== ===========
$0.01 par value capital stock
Capital stock ..... $ 26,837 $ 17,567 $ 308,123
Additional paid-in
capital ......... 14,745,046 8,892,153 30,504,140
Accumulated undistributed
gain (loss):
Accumulated undistributed
net investment income --- --- ---
Accumulated undistributed
net realized loss on
investment transactions
and foreign currency
transactions ..... --- (3,218) ---
Net unrealized appreciation
(depreciation) of investments
at end of period . 1,308,279 (235,434) ---
----------- ---------- -----------
Net assets applicable to
outstanding units
of capital ..... $16,080,162 $8,671,068 $30,812,263
=========== ========== ===========
Net asset value, redemption
and offering price per share $5.9918 $4.9359 $1.0000
======= ======= =======
Capital shares outstanding 2,683,680 1,756,720 30,812,263
Capital shares authorized 100,000,000 100,000,000 200,000,000
See notes to financial statements.

<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
Limited-Term Bond High Income
Bond Portfolio Portfolio Portfolio
Assets ------------------------- -----------
Investment securities--at
value (Notes 1 and 3) $1,610,373 $72,576,052 $70,848,141
Cash .............. 4,791 7,680 5,708
Receivables:
Dividends and interest 32,608 1,432,762 1,553,672
Fund shares sold .. --- 21,190 69,923
Investment securities
sold ............ --- --- 261,345
Prepaid insurance
premium ........... 182 2,062 2,200
---------- ----------- -----------
Total assets .... 1,647,954 74,039,746 72,740,989
Liabilities ---------- ----------- -----------
Payable for investment
securities purchased --- --- ---
Payable for Fund shares
redeemed .......... 2,439 17,625 92,213
Accrued accounting
services fee ...... --- 2,500 2,500
Other .............. 369 2,771 2,601
---------- ----------- -----------
Total liabilities 2,808 22,896 97,314
---------- ----------- -----------
Total net assets $1,645,146 $74,016,850 $72,643,675
Net Assets ========== =========== ===========
$0.01 par value capital stock
Capital stock ..... $ 3,384 $ 156,178 $ 176,670
Additional paid-in
capital ......... 1,689,449 81,936,702 78,205,135
Accumulated undistributed
gain (loss):
Accumulated undistributed
net investment income --- --- ---
Accumulated undistributed
net realized loss on
investment transactions
and foreign currency
transactions ..... --- (3,479,696) (1,745,104)
Net unrealized appreciation
(depreciation) of investments
at end of period . (47,687) (4,596,334) (3,993,026)
---------- ----------- -----------
Net assets applicable to
outstanding units
of capital ..... $1,645,146 $74,016,850 $72,643,675
========== =========== ===========
Net asset value, redemption
and offering price per share $4.8611 $4.7393 $4.1118
======= ======= =======
Capital shares outstanding 338,428 15,617,757 17,667,001
Capital shares authorized 100,000,000 100,000,000 100,000,000
See notes to financial statements.

<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Period Ended DECEMBER 31, 1994

Growth IncomeInternational
Portfolio Portfolio Portfolio
---------- ---------- ----------
Investment Income
Income:
Interest .......... $ 1,893,626 $ 382,961 $158,020
Dividends ......... 5,347,449 3,354,791 47,329
----------- ---------- --------
Total income .... 7,241,075 3,737,752 205,349
----------- ---------- --------
Expenses (Note 2):
Investment management
fee ............. 1,813,171 1,374,533 63,291
Accounting services
fee ............. 50,000 44,167 3,333
Custodian fees .... 38,479 21,378 30,318
Audit fees ........ 7,101 5,540 ---
Legal fees ........ 5,105 8,638 1,502
Other ............. 40,985 35,239 288
----------- ---------- --------
Total expenses .. 1,954,841 1,489,495 98,732
----------- ---------- --------
Net investment income 5,286,234 2,248,257 106,617
----------- ---------- --------
Realized and Unrealized Gain (Loss)
on Investments
Realized net gain (loss)
on investments .... 14,371,377 684,147 (21,009)
Unrealized appreciation
(depreciation)in value
of investments during
the period ........ (13,761,465) (6,030,073) (664,096)
----------- ---------- --------
Net gain (loss) on
investments..... 609,912 (5,345,926) (685,105)
----------- ---------- --------
Net increase (decrease)
in net assets
resulting from
operations ... $ 5,896,146 $(3,097,669) $(578,488)
=========== ========== ========

See notes to financial statements.

<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Period Ended DECEMBER 31, 1994

Small Cap BalancedMoney Market
Portfolio Portfolio Portfolio
---------- ---------- ----------
Investment Income
Income:
Interest .......... $ 144,765 $ 64,909 $999,857
Dividends ......... 292 38,828 ---
---------- -------- --------
Total income .... 145,057 103,737 999,857
---------- -------- --------
Expenses (Note 2):
Investment management
fee ............. 36,355 15,489 116,644
Accounting services
fee ............. 1,667 --- 10,833
Custodian fees .... 5,953 7,174 11,635
Audit fees ........ --- --- 4,635
Legal fees ........ 1,452 1,421 696
Other ............. 283 43 3,980
---------- -------- --------
Total expenses .. 45,710 24,127 148,423
---------- -------- --------
Net investment income 99,347 79,610 851,434
---------- -------- --------
Realized and Unrealized Gain (Loss)
on Investments
Realized net gain (loss)
on investments .... 44,381 (3,218) ---
Unrealized appreciation
(depreciation) in value
of investments during
the period ........ 1,308,279 (235,434) ---
---------- -------- --------
Net gain (loss) on
investments..... 1,352,660 (238,652) ---
---------- -------- --------
Net increase (decrease)
in net assets
resulting from
operations ... $1,452,007 $(159,042) $851,434
========== ======== ========

See notes to financial statements.

<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Period Ended DECEMBER 31, 1994

Limited-Term Bond High Income
Bond Portfolio Portfolio Portfolio
--------------- ---------- ----------
Investment Income
Income:
Interest .......... $57,386 $ 5,773,265 $7,220,542
Dividends ......... --- --- 92,656
------- ----------- ----------
Total income .... 57,386 5,773,265 7,313,198
------- ----------- ----------
Expenses (Note 2):
Investment management
fee ............. 4,712 424,370 494,237
Accounting services
fee ............. --- 30,000 30,000
Custodian fees .... 1,531 10,046 7,962
Audit fees ........ --- 4,977 4,766
Legal fees ........ 1,404 1,595 1,511
Other ............. 207 15,304 13,039
------- ----------- ----------
Total expenses .. 7,854 486,292 551,515
------- ----------- ----------
Net investment income 49,532 5,286,973 6,761,683
------- ----------- ----------
Realized and Unrealized Gain (Loss)
on Investments
Realized net gain (loss)
on investments .... 455 (3,479,696) (1,428,391)
Unrealized appreciation
(depreciation) in value
of investments during
the period ........ (47,687) (6,740,515) (7,299,167)
------- ----------- ----------
Net gain (loss) on
investments..... (47,232)(10,220,211) (8,727,558)
------- ----------- ----------
Net increase (decrease)
in net assets
resulting from
operations ... $ 2,300$( 4,933,238)$(1,965,875)
======= =========== ==========

See notes to financial statements.

<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended DECEMBER 31, 1994

Growth IncomeInternational
Portfolio Portfolio Portfolio
----------- ----------- -----------
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 5,286,234$ 2,248,257 $ 106,617
Realized net gain (loss)
on investments .. 14,371,377 684,147 (21,009)
Unrealized appreciation
(depreciation) .. (13,761,465) (6,030,073) (664,096)
------------------------ -----------
Net increase (decrease)
in net assets resulting
from operations. 5,896,146 (3,097,669) (578,488)
------------------------ -----------
Dividends to shareholders from:*
Net investment income (5,286,234) (2,248,257) (106,617)
Realized gains on securities
transactions .... (14,154,374) --- ---
------------------------ -----------
(19,440,608) (2,248,257) (106,617)
------------------------ -----------
Capital share
transactions** .... 69,690,925 69,027,272 26,704,739
------------------------ -----------
Total increase
(decrease)...... 56,146,463 63,681,346 26,019,634
Net Assets
Beginning of period 220,590,172 155,092,256 ---
------------------------ -----------
End of period ...... $276,736,635$218,773,602 $26,019,634
======================== ===========
Undistributed net
investment income $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages 122-130.
**Shares issued from sale
of shares .......... 11,752,596 11,914,285 5,355,035
Shares issued from reinvest-
ment of dividends and/or
distributions ...... 3,295,800 332,145 21,355
Shares redeemed ...... (3,733,563) (2,344,370) (164,798)
---------- ---------- ---------
Increase in outstanding
capital shares ...... 11,314,833 9,902,060 5,211,592
========== ========== =========
Value issued from sale
of shares .......... $73,683,884 $83,060,254 $27,436,654
Value issued from reinvest-
ment of dividends and/or
distributions ...... 19,440,608 2,248,256 106,617
Value redeemed ....... (23,433,567)(16,281,238) (838,532)
----------- ----------- -----------
Increase in
outstanding capital $69,690,925 $69,027,272 $26,704,739
=========== =========== ===========

See notes to financial statements.

<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended DECEMBER 31, 1994

Small Cap BalancedMoney Market
Portfolio Portfolio Portfolio
----------- ----------- -----------
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 99,347 $ 79,610 $ 851,434
Realized net gain (loss)
on investments .. 44,381 (3,218) ---
Unrealized appreciation
(depreciation) .. 1,308,279 (235,434) ---
----------- ---------- -----------
Net increase (decrease)
in net assets resulting
from operations. 1,452,007 (159,042) 851,434
----------- ---------- -----------
Dividends to shareholders from:*
Net investment income (99,347) (79,610) (851,434)
Realized gains on securities
transactions .... (44,381) --- ---
----------- ---------- -----------
(143,728) (79,610) (851,434)
----------- ---------- -----------
Capital share
transactions** .... 14,771,883 8,909,720 4,812,395
----------- ---------- -----------
Total increase
(decrease) .... 16,080,162 8,671,068 4,812,395
Net Assets
Beginning of period --- --- 25,999,868
----------- ---------- -----------
End of period ...... $16,080,162 $8,671,068 $30,812,263
=========== ========== ===========
Undistributed net
investment income $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages 122-130.
**Shares issued from sale
of shares .......... 2,722,519 1,795,318 183,043,231
Shares issued from reinvest-
ment of dividends and/or
distributions ...... 23,987 16,128 851,433
Shares redeemed ...... (62,826) (54,726)(179,082,269)
--------- --------- -----------
Increase in outstanding
capital shares..... 2,683,680 1,756,720 4,812,395
========= ========= ==========
Value issued from sale
of shares .......... $14,980,266 $9,104,454$183,043,231
Value issued from reinvest-
ment of dividends and/or
distributions ...... 143,729 79,610 851,433
Value redeemed ....... (352,112) (274,344)(179,082,269)
----------- ----------------------
Increase in
outstanding capital $14,771,883 $8,909,720$ 4,812,395
=========== ======================

See notes to financial statements.

<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended DECEMBER 31, 1994

Limited-Term Bond High Income
Bond Portfolio Portfolio Portfolio
-------------- ----------- -----------
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 49,532 $ 5,286,973 $ 6,761,683
Realized net gain (loss)
on investments .. 455 (3,479,696) (1,428,391)
Unrealized appreciation
(depreciation) .. (47,687) (6,740,515) (7,299,167)
---------- ----------- -----------
Net increase (decrease)
in net assets resulting
from operations. 2,300 (4,933,238) (1,965,875)
---------- ----------- -----------
Dividends to shareholders
from:*
Net investment income (49,532) (5,286,973) (6,761,683)
Realized gains on securities
transactions .... (455) --- ---
---------- ----------- -----------
(49,987) (5,286,973) (6,761,683)
---------- ----------- -----------
Capital share
transactions**..... 1,692,833 2,510,419 10,105,884
---------- ----------- -----------
Total increase
(decrease) ..... 1,645,146 (7,709,792) 1,378,326
Net Assets
Beginning of period --- 81,726,642 71,265,349
---------- ----------- -----------
End of period ...... $1,645,146 $74,016,850 $72,643,675
========== =========== ===========
Undistributed net
investment income $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages 122-130.
**Shares issued from sale
of shares .......... 331,301 3,002,124 3,768,168
Shares issued from reinvest-
ment of dividends and/or
distributions ...... 10,283 1,081,257 1,593,245
Shares redeemed ...... (3,156) (3,587,525) (3,062,321)
------- --------- ---------
Increase in outstanding
capital shares ..... 338,428 495,856 2,299,092
======= ========= =========
Value issued from sale
of shares .......... $1,658,566 $15,437,912 $16,942,683
Value issued from reinvest-
ment of dividends and/or
distributions ...... 49,987 5,286,973 6,761,683
Value redeemed ....... (15,720)(18,214,466)(13,598,482)
---------- ----------- -----------
Increase in
outstanding capital $1,692,833 $ 2,510,419 $10,105,884
========== =========== ===========

See notes to financial statements.

<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year Ended DECEMBER 31, 1993

Growth Income
Portfolio Portfolio
----------- -----------
Increase in Net Assets
Operations:
Net investment income $ 1,680,381$ 1,435,262
Realized net gain (loss)
on investments .. 23,645,698 (1,146,998)
Unrealized appreciation
(depreciation) .. (3,724,710) 16,703,139
------------------------
Net increase in net
assets resulting
from operations. 21,601,369 16,991,403
------------------------
Dividends to shareholders:*
From net investment
income ........... (1,680,381) (1,435,262)
From realized net gain on
investment transactions(23,645,698) ---
In excess of realized net
gain from investment
transactions .... (217,003) ---
------------------------
(25,543,082) (1,435,262)
------------------------
Capital share
transactions**..... 102,168,632 74,508,737
------------------------
Total increase .. 98,226,919 90,064,878
Net Assets
Beginning of period 122,363,253 65,027,378
------------------------
End of period ...... $220,590,172$155,092,256
========================
Undistributed net
investment income $--- $---
==== ====
*See "Financial Highlights" on pages 122-130.
**Shares issued from sale
of shares .......... 13,254,238 12,309,850
Shares issued from reinvest-
ment of dividends and/or
distributions ....... 4,122,379 207,468
Shares redeemed ...... (1,670,417) (1,022,164)
---------- ----------
Increase in outstanding
capital shares ...... 15,706,200 11,495,154
========== ==========
Value issued from sale
of shares .......... $ 87,620,284 $79,652,858
Value issued from reinvest-
ment of dividends and/or
distributions ....... 25,543,082 1,435,262
Value redeemed ....... (10,994,734) (6,579,383)
------------ -----------
Increase in outstanding
capital ............ $102,168,632 $74,508,737
============ ===========

See notes to financial statements.

<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year Ended DECEMBER 31, 1993

Money Market Bond High Income
Portfolio Portfolio Portfolio
----------- ----------- -----------
Increase in Net Assets
Operations:
Net investment income $ 624,768 $ 3,976,047 $ 4,820,553
Realized net gain (loss)
on investments .. --- 2,377,676 776,421
Unrealized appreciation
(depreciation) .. --- 584,399 3,303,758
----------- ----------- -----------
Net increase in net
assets resulting
from operations. 624,768 6,938,122 8,900,732
----------- ----------- -----------
Dividends to shareholders:*
From net investment income (624,768) (3,976,047) (4,820,553)
From realized net gain on
investment transactions --- (2,377,676) ---
In excess of realized net
gain from investment
transactions .... --- --- ---
----------- ----------- -----------
(624,768) (6,353,723) (4,820,553)
----------- ----------- -----------
Capital share transactions**2,004,876 31,714,436 25,728,675
----------- ----------- -----------
Total increase .. 2,004,876 32,298,835 29,808,854
Net Assets
Beginning of period 23,994,992 49,427,807 41,456,495
----------- ----------- -----------
End of period ...... $25,999,868 $81,726,642 $71,265,349
=========== =========== ===========
Undistributed net
investment income $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages 122-130.
**Shares issued from sale
of shares .......... 188,336,077 5,709,768 6,007,488
Shares issued from reinvest-
ment of dividends and/or
distributions ....... 624,768 1,156,980 1,068,165
Shares redeemed ...... (186,955,969) (1,137,054) (1,374,357)
----------- --------- ---------
Increase in outstanding
capital shares ...... 2,004,876 5,729,694 5,701,296
=========== ========= =========
Value issued from sale
of shares .......... $188,336,077 $31,672,885 $27,116,169
Value issued from reinvest-
ment of dividends and/or
distributions ....... 624,768 6,353,723 4,820,553
Value redeemed ....... (186,955,969) (6,312,172) (6,208,047)
------------ ----------- -----------
Increase in outstanding
capital ............ $ 2,004,876 $31,714,436 $25,728,675
============ =========== ===========

See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
THE GROWTH PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:

For the fiscal year ended December 31,
-------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987*
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period ........... $6.1962 $6.1505 $5.5973 $4.9479 $5.4025 $4.9837 $4.7846 $5.0000
------- ------- ------- ------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income ......... 0.1211 0.0537 0.1013 0.1229 0.1661 0.1611 0.1539 0.0523
Net realized and
unrealized gain
(loss) on
investments .... 0.0268 0.8087 1.0653 1.6636 (0.4546) 1.2150 0.4944 (0.2154)
------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations ....... 0.1479 0.8624 1.1666 1.7865 (0.2885) 1.3761 0.6483 (0.1631)
------- ------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment
income .......... (0.1211) (0.0537) (0.1013) (0.1229) (0.1661) (0.1611) (0.1539) (0.0523)
Distribution from
capital gains ... (0.3244) (0.7569) (0.5121) (1.0142) (0.0000) (0.7962) (0.2953) (0.0000)
Distribution in
excess of capital
gains ........... (0.0000) (0.0061) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000)
------- ------- ------- ------- ------- ------- ------- -------
Total distributions . (0.4455) (0.8167) (0.6134) (1.1371) (0.1661) (0.9573) (0.4492) (0.0523)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value,
end of period ..... $5.8986 $6.1962 $6.1505 $5.5973 $4.9479 $5.4025 $4.9837 $4.7846
======= ======= ======= ======= ======= ======= ======= =======
Total return ........ 2.39% 14.02% 20.84% 36.10% -5.34% 27.61% 13.55% -6.86%
Net assets, end of
period (000
omitted) .......... $276,737 $220,590 $122,363 $69,044 $37,440 $28,510 $14,521 $5,636
Ratio of expenses
to average net
assets ............ 0.77% 0.78% 0.80% 0.86% 0.86% 0.85% 0.96% 0.91%
Ratio of net investment
income to average
net assets ........ 2.07% 1.01% 2.00% 2.43% 3.58% 3.40% 3.79% 4.92%
Portfolio turnover
rate .............. 277.36% 297.81% 225.87% 316.72% 331.15% 344.71% 278.57% 127.80%

*The Money Market Portfolio, Bond Portfolio, High Income Portfolio and Growth Portfolio's inception date is December
2, 1986; however, since these Portfolios did not have any investment activity or incur expenses prior to the date of
initial offering, the per share information is for a capital share outstanding for the period from July 13, 1987
(initial offering) through December 31, 1987. The Income Portfolio's inception date is May 16, 1991; however, since
this Portfolio did not have any investment activity or incur expenses prior to the date of initial offering, the per
share information is for a capital share outstanding for the period from July 16, 1991 (initial offering) through
December 31, 1991. The International Portfolio, Small Cap Portfolio, Balanced Portfolio and Limited-Term Bond
Portfolio's inception date is April 28, 1994; however, since these Portfolios did not have any investment activity or
incur expenses prior to the date of initial offering, the per share information is for a capital share outstanding for
the period from May 3, 1994 (initial offering) through December 31, 1994. Ratios and portfolio turnover rates have
been annualized.

See notes to financial statements.

</TABLE>

<PAGE>
FINANCIAL HIGHLIGHTS OF
THE INCOME PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:

For the fiscal year ended
December 31,
-------------------------------
1994 1993 1992 1991*
------- ------- ------- -------
Net asset value,
beginning of
period ........... $6.9180 $5.9530 $5.3158 $5.0000
------- ------- ------- -------
Income from investment
operations:
Net investment
income .......... 0.0702 0.0651 0.0803 0.0633
Net realized and
unrealized gain (loss)
on investments .. (0.1490) 0.9650 0.6496 0.3158
------- ------- ------- -------
Total from investment
operations ....... (0.0788) 1.0301 0.7299 0.3791
------- ------- ------- -------
Less distributions:
Dividends from net
investment
income .......... (0.0703)(0.0651) (0.0803)(0.0633)
Distribution from
capital gains.... (0.0000)(0.0000) (0.0124)(0.0000)
------- ------- ------- -------
Total distributions. (0.0703)(0.0651) (0.0927)(0.0633)
------- ------- ------- -------
Net asset value,
end of period .... $6.7689 $6.9180 $5.9530 $5.3158
======= ======= ======= =======
Total return........ -1.14% 17.30% 13.78% 17.43%
Net assets, end of
period (000
omitted) ......... $218,774$155,092 $65,027 $15,640
Ratio of expenses
to average net
assets ............ 0.77% 0.79% 0.85% 0.89%
Ratio of net investment
income to average
net assets ....... 1.16% 1.36% 1.78% 2.47%
Portfolio turnover
rate ............. 23.32% 18.38% 15.74% 4.41%

*The Income Portfolio's inception date is May 16, 1991; however, since this
Portfolio did not have any investment activity or incur expenses prior to the
date of initial offering, the per share information is for a capital share
outstanding for the period from July 16, 1991 (initial offering) through
December 31, 1991. Ratios and the portfolio turnover rate have been
annualized.
See notes to financial statements.

<PAGE>
FINANCIAL HIGHLIGHTS OF
THE INTERNATIONAL PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:

Less dividends from net
investment
income .......... (0.0207)
-------
Net asset value,
end of period .... $4.9926
=======
Total return........ 0.26%
Net assets, end of
period (000
omitted) ......... $26,020
Ratio of expenses
to average net
assets ............ 1.26%
Ratio of net investment
income to average
net assets ....... 1.37%
Portfolio turnover
rate ............. 23.23%

*The International Portfolio's inception date is April 28, 1994; however, since
this Portfolio did not have any investment activity or incur expenses prior
to the date of initial offering, the per share information is for a capital
share outstanding for the period from May 3, 1994 (initial offering) through
December 31, 1994. Ratios and the portfolio turnover rate have been
annualized.

See notes to financial statements.

<PAGE>

FINANCIAL HIGHLIGHTS OF
THE SMALL CAP PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:

For the
period
ended
12/31/94*
----------
Net asset value,
beginning of
period ........... $5.0000
-------
Income from investment
operations:
Net investment
income .......... 0.0376
Net realized and
unrealized gain
on investments .. 1.0086
-------
Total from investment
operations ....... 1.0462
-------
Less distributions:
Dividends from net
investment income (0.0376)
Distribution from
capital gains.... (0.0168)
-------
Total distributions (0.0544)
-------
Net asset value,
end of period .... $5.9918
=======
Total return........ 20.92%
Net assets, end of
period (000
omitted) ......... $16,080
Ratio of expenses
to average net
assets ............ 1.08%
Ratio of net investment
income to average
net assets ....... 2.35%
Portfolio turnover
rate ............. 21.61%

*The Small Cap Portfolio's inception date is April 28, 1994; however, since
this Portfolio did not have any investment activity or incur expenses prior
to the date of initial offering, the per share information is for a capital
share outstanding for the period from May 3, 1994 (initial offering) through
December 31, 1994. Ratios and the portfolio turnover rate have been
annualized.

See notes to financial statements.

<PAGE>
FINANCIAL HIGHLIGHTS OF
THE BALANCED PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:

For the
period
ended
12/31/94*
----------
Net asset value,
beginning of
period ........... $5.0000
-------
Income from investment
operations:
Net investment
income .......... 0.0460
Net realized and
unrealized loss
on investments .. (0.0641)
-------
Total from investment
operations ....... (0.0181)
Less dividends from net
investment
income .......... (0.0460)
-------
Net asset value,
end of period .... $4.9359
=======
Total return........ -0.37%
Net assets, end of
period (000
omitted) ......... $8,671
Ratio of expenses
to average net
assets ............ 0.95%
Ratio of net investment
income to average
net assets ....... 3.14%
Portfolio turnover
rate ............. 19.74%

*The Balanced Portfolio's inception date is April 28, 1994; however, since
this Portfolio did not have any investment activity or incur expenses prior
to the date of initial offering, the per share information is for a capital
share outstanding for the period from May 3, 1994 (initial offering) through
December 31, 1994. Ratios and the portfolio turnover rate have been
annualized.

See notes to financial statements.

<PAGE>
FINANCIAL HIGHLIGHTS OF
THE MONEY MARKET PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:

*The Money Market Portfolio, Bond Portfolio, High Income Portfolio and Growth Portfolio's inception date is December
2, 1986; however, since these Portfolios did not have any investment activity or incur expenses prior to the date of
initial offering, the per share information is for a capital share outstanding for the period from July 13, 1987
(initial offering) through December 31, 1987. The Income Portfolio's inception date is May 16, 1991; however, since
this Portfolio did not have any investment activity or incur expenses prior to the date of initial offering, the per
share information is for a capital share outstanding for the period from July 16, 1991 (initial offering) through
December 31, 1991. The International Portfolio, Small Cap Portfolio, Balanced Portfolio and Limited-Term Bond
Portfolio's inception date is April 28, 1994; however, since these Portfolios did not have any investment activity
or incur expenses prior to the date of initial offering, the per share information is for a capital share outstanding
for the period from May 3, 1994 (initial offering) through December 31, 1994. Ratios and portfolio turnover rates
have been annualized.

</TABLE>

See notes to financial statements.

<PAGE>
FINANCIAL HIGHLIGHTS OF
THE LIMITED-TERM BOND PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:

For the
period
ended
12/31/94*
----------
Net asset value,
beginning of
period ........... $5.0000
-------
Income from investment
operations:
Net investment
income .......... 0.1507
Net realized and
unrealized loss
on investments .. (0.1375)
-------
Total from investment
operations ....... 0.0132
-------
Less distributions:
Dividends from net
investment
income .......... (0.1507)
Distribution from
capital gains ... (0.0014)
-------
Total distributions (0.1521)
-------
Net asset value,
end of period .... $4.8611
=======
Total return........ 0.26%
Net assets, end of
period (000
omitted) ......... $1,645
Ratio of expenses
to average net
assets ............ 0.93%
Ratio of net investment
income to average
net assets ....... 5.89%
Portfolio turnover
rate ............. 93.83%

*The Limited-Term Bond Portfolio's inception date is April 28, 1994; however,
since this Portfolio did not have any investment activity or incur expenses
prior to the date of initial offering, the per share information is for a
capital share outstanding for the period from May 3, 1994 (initial offering)
through December 31, 1994. Ratios and the portfolio turnover rate have been
annualized.

See notes to financial statements.

<PAGE>
FINANCIAL HIGHLIGHTS OF
THE BOND PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:

<TABLE>
<CAPTION>
For the fiscal year ended December 31,
-------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987*
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period ........... $5.4045 $5.2626 $5.2661 $4.9534 $5.0249 $4.8852 $4.9246 $5.0000
------- ------- ------- ------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income ......... 0.3507 0.3334 0.3643 0.3867 0.4025 0.4155 0.4088 0.1861
Net realized and
unrealized gain
(loss) on
investments .... (0.6652) 0.3046 0.0216 0.3771 (0.0715) 0.1397 (0.0394) (0.0249)
------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations ....... (0.3145) 0.6380 0.3859 0.7638 0.3310 0.5552 0.3694 0.1612
------- ------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment
income ......... (0.3507) (0.3334) (0.3643) (0.3867) (0.4025) (0.4155) (0.4088) (0.1861)
Distribution from
capital gains .. (0.0000) (0.1627) (0.0251) (0.0644) (0.0000) (0.0000) (0.0000) (0.0505)
------- ------- ------- ------- ------- ------- ------- -------
Total distributions (0.3507) (0.4961) (0.3894) (0.4511) (0.4025) (0.4155) (0.4088) (0.2366)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value,
end of period .... $4.7393 $5.4045 $5.2626 $5.2661 $4.9534 $5.0249 $4.8852 $4.9246
======= ======= ======= ======= ======= ======= ======= =======
Total return ....... -5.90% 12.37% 7.67% 16.19% 7.03% 11.82% 7.74% 7.20%
Net assets, end of
period (000
omitted) ......... $74,017 $81,727 $49,428 $29,112 $16,464 $11,530 $6,465 $2,923
Ratio of expenses
to average net
assets ........... 0.62% 0.62% 0.64% 0.72% 0.78% 0.81% 0.96% 0.79%
Ratio of net investment
income to average
net assets ....... 6.73% 6.01% 6.91% 7.65% 8.05% 8.34% 8.17% 8.96%
Portfolio turnover
rate ............. 135.82% 68.75% 44.32% 52.50% 51.50% 42.83% 29.18% 187.93%

*The Money Market Portfolio, Bond Portfolio, High Income Portfolio and Growth Portfolio's inception date is December
2, 1986; however, since these Portfolios did not have any investment activity or incur expenses prior to the date of
initial offering, the per share information is for a capital share outstanding for the period from July 13, 1987
(initial offering) through December 31, 1987. The Income Portfolio's inception date is May 16, 1991; however, since
this Portfolio did not have any investment activity or incur expenses prior to the date of initial offering, the per
share information is for a capital share outstanding for the period from July 16, 1991 (initial offering) through
December 31, 1991. The International Portfolio, Small Cap Portfolio, Balanced Portfolio and Limited-Term Bond
Portfolio's inception date is April 28, 1994; however, since these Portfolios did not have any investment activity or
incur expenses prior to the date of initial offering, the per share information is for a capital share outstanding for
the period from May 3, 1994 (initial offering) through December 31, 1994. Ratios and portfolio turnover rates have
been annualized.

</TABLE>

See notes to financial statements.

<PAGE>
FINANCIAL HIGHLIGHTS OF
THE HIGH INCOME PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:

<TABLE>
<CAPTION>
For the fiscal year ended December 31,
-------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987*
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period ........... $4.6373 $4.2886 $4.0770 $3.4067 $4.1288 $4.8837 $4.7333 $5.0000
------- ------- ------- ------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income ......... 0.4106 0.3899 0.4050 0.4368 0.4346 0.5810 0.5263 0.2425
Net realized and
unrealized gain
(loss) on
investments .... (0.5255) 0.3487 0.2116 0.6703 (0.7221) (0.7549) 0.1595 (0.2667)
------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations ....... (0.1149) 0.7386 0.6166 1.1071 (0.2875) (0.1739) 0.6858 (0.0242)
------- ------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from
net investment
income ......... (0.4106) (0.3899) (0.4050) (0.4368) (0.4346) (0.5810) (0.5263) (0.2425)
Distribution from
capital gains .. (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0091) (0.0000)
------- ------- ------- ------- ------- ------- ------- -------
Total distributions (0.4106) (0.3899) (0.4050) (0.4368) (0.4346) (0.5810) (0.5354) (0.2425)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value,
end of period .... $4.1118 $4.6373 $4.2886 $4.0770 $3.4067 $4.1288 $4.8837 $4.7333
======= ======= ======= ======= ======= ======= ======= =======
Total return ....... -2.55% 17.90% 15.70% 34.19% -7.44% -4.19% 15.14% -0.99%
Net assets, end of
period (000
omitted) ......... $72,644 $71,265 $41,456 $24,394 $13,868 $15,717 $12,779 $4,521
Ratio of expenses
to average net
assets ........... 0.74% 0.75% 0.77% 0.87% 0.90% 0.82% 0.91% 0.79%
Ratio of net investment
income to average
net assets ....... 9.03% 8.66% 9.48% 11.32% 11.55% 12.54% 10.85% 10.70%
Portfolio turnover
rate ............. 37.86% 54.22% 60.79% 34.00% 12.21% 74.97% 46.75% 7.09%

*The Money Market Portfolio, Bond Portfolio, High Income Portfolio and Growth Portfolio's inception date is December
2, 1986; however, since these Portfolios did not have any investment activity or incur expenses prior to the date of
initial offering, the per share information is for a capital share outstanding for the period from July 13, 1987
(initial offering) through December 31, 1987. The Income Portfolio's inception date is May 16, 1991; however, since
this Portfolio did not have any investment activity or incur expenses prior to the date of initial offering, the per
share information is for a capital share outstanding for the period from July 16, 1991 (initial offering) through
December 31, 1991. The International Portfolio, Small Cap Portfolio, Balanced Portfolio and Limited-Term Bond
Portfolio's inception date is April 28, 1994; however, since these Portfolios did not have any investment activity
or incur expenses prior to the date of initial offering, the per share information is for a capital share outstanding
for the period from May 3, 1994 (initial offering) through December 31, 1994. Ratios and portfolio turnover rates
have been annualized.

</TABLE>

See notes to financial statements.

<PAGE>
TMK/UNITED FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994

NOTE 1 -- Significant Accounting Policies

TMK/United Funds, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
Capital stock is currently divided into the nine classes that are designated the
Growth Portfolio, the Income Portfolio, the International Portfolio, the Small
Cap Portfolio, the Balanced Portfolio, the Money Market Portfolio, the Limited-
Term Bond Portfolio, the Bond Portfolio and the High Income Portfolio. The
assets belonging to each Portfolio are held separately by the Custodian. The
capital shares of each Portfolio represent a pro rata beneficial interest in the
principal, net income, and realized and unrealized capital gains or losses of
its respective investments and other assets. The following is a summary of
significant accounting policies consistently followed by the Fund in the
preparation of its financial statements. The policies are in conformity with
generally accepted accounting principles.

A. Security valuation -- Each stock and convertible bond is valued at the
latest sale price thereof on the last business day of the fiscal period as
reported by the principal securities exchange on which the issue is traded
or, if no sale is reported for a stock, the average of the latest bid and
asked prices. Bonds, other than convertible bonds, are valued using a
pricing system provided by a major dealer in bonds. Convertible bonds are
valued using this pricing system only on days when there is no sale
reported. Stocks which are traded over-the-counter are priced using NASDAQ
(National Association of Securities Dealers Automated Quotations) which
provides information on bid and asked or closing prices quoted by major
dealers in such stocks. Securities for which quotations are not readily
available are valued as determined in good faith in accordance with
procedures established by and under the general supervision of the Fund's
Board of Directors. Short-term debt securities are valued at amortized
cost, which approximates market.

B. Security transactions and related investment income -- Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Securities gains and losses are calculated on the
identified cost basis. Original issue discount (as defined in the Internal
Revenue Code), premiums on the purchase of bonds and post-1984 market
discount are amortized for both financial and tax reporting purposes over
the remaining lives of the bonds. Dividend income is recorded on the ex-
dividend date except that certain dividends from foreign securities are
recorded as soon as the Fund is informed of the ex-dividend date. Interest
income is recorded on the accrual basis. See Note 3 -- Investment
Securities Transactions.

C. Foreign currency translations -- All assets and liabilities denominated in
foreign currencies are translated into U.S. dollars daily. Purchases and
sales of investment securities and accruals of income and expenses are
translated at the rate of exchange prevailing on the date of the
transaction. For assets and liabilities other than investments in
securities, net realized and unrealized gains and losses from foreign
currency translations arise from changes in currency exchange rates. The
Fund combines fluctuations from currency exchange rates and fluctuations in
market value when computing net realized and unrealized gain or loss from
investments.

D. Federal income taxes -- It is the Fund's policy to distribute all of its
taxable income and capital gains to its shareholders and otherwise qualify
as a regulated investment company under the Internal Revenue Code. In
addition, the Fund intends to pay distributions as required to avoid
imposition of excise tax. Accordingly, provision has not been made for
Federal income taxes. See Note 4 -- Federal Income Tax Matters.

E. Dividends and distributions -- Dividends and distributions to shareholders
are recorded by each Portfolio on the record date. Net investment income
distributions and capital gains distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences are due to differing treatments
for items such as deferral of wash sales and post-October losses, foreign
currency transactions, net operating losses and expiring capital loss
carryforwards.

NOTE 2 -- Investment Management And Payments To Affiliated Persons

The Fund pays a fee for investment management services. The fee is
computed daily based on the net asset value at the close of business. The fee
consists of two elements: (i) a "Specific" fee computed on net asset value as of
the close of business each day at the following annual rates: Growth Portfolio
- - .20% of net assets; Income Portfolio - .20% of net assets; International
Portfolio - .30% of net assets; Small Cap Portfolio - .35% of net assets;
Balanced Portfolio - .10% of net assets; Money Market Portfolio - none; Limited-
Term Bond Portfolio - .05% of net assets; Bond Portfolio - .03% of net assets;
High Income Portfolio - .15% of net assets and (ii) a base fee computed each day
on the combined net asset values of all of the Portfolios (approximately $725.4
million of combined net assets at December 31, 1994) and allocated among the
Portfolios based on their relative net asset size at the annual rates of .51% of
the first $750 million dollars of combined net assets, .49% on that amount
between $750 million and $1.5 billion, .47% between $1.5 billion and $2.25
billion, and .45% of that amount over $2.25 billion. The Fund accrues and pays
this fee daily.

Pursuant to assignment of the Investment Management Agreement between the
Fund and Waddell & Reed, Inc. (W&R), Waddell & Reed Investment Management
Company ("WRIMCO"), a wholly-owned subsidiary of W&R, serves as the Fund's
investment manager.

The Fund has an Accounting Services Agreement with Waddell & Reed Services
Company ("WARSCO"), a wholly-owned subsidiary of W&R. Under the agreement,
WARSCO acts as the agent in providing accounting services and assistance to the
Fund and pricing daily the value of shares of each Portfolio. For these
services, each Portfolio pays WARSCO a monthly fee of one-twelfth of the annual
fee shown in the following table.

Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Portfolio
-------------------------- -----------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000

The Fund paid Directors' fees of $21,273.

W&R is an indirect subsidiary of Torchmark Corporation, a holding company,
and United Investors Management Company, a holding company, and a direct
subsidiary of Waddell & Reed Financial Services, Inc., a holding company.

NOTE 3 -- Investment Security Transactions

Investment securities transactions for the year ended December 31, 1994,
are summarized as follows:

Growth Income International
Portfolio Portfolio Portfolio
----------- --------- ---------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities $610,720,993 $110,216,798 $15,533,923
Purchases of U.S. Government
securities --- --- ---
Purchases of short-term
securities 587,088,754 122,085,281 123,647,756
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities 599,584,276 43,252,090 1,220,081
Proceeds from maturities
and sales of U.S.
Government securities --- --- ---
Proceeds from maturities
and sales of short-term
securities 541,578,604 119,015,514 111,641,229

Small Cap BalancedMoney Market
Portfolio Portfolio Portfolio
----------- --------- ---------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities $5,949,448 $5,205,411 $---
Purchases of U.S. Government
securities --- 558,734 ---
Purchases of short-term
securities 97,663,698 42,037,927 301,240,425
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities 393,563 358,207 ---
Proceeds from maturities
and sales of U.S.
Government securities --- --- ---
Proceeds from maturities
and sales of short-term
securities 88,681,760 38,660,425 303,613,144

Limited- High
Term Bond Bond Income
Portfolio Portfolio Portfolio
----------- --------- ---------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities $1,272,587$68,447,930 $32,290,564
Purchases of U.S. Government
securities 972,063 39,942,617 ---
Purchases of short-term
securities 3,157,000 62,965,209 51,306,202
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities 52,702 61,694,962 26,035,941
Proceeds from maturities
and sales of U.S.
Government securities 688,031 40,410,384 ---
Proceeds from maturities
and sales of short-term
securities 3,111,930 66,437,462 48,207,575

For Federal income tax purposes, cost of investments owned at December 31,
1994 and the related unrealized appreciation (depreciation) were as follows:
Aggregate
Cost Appreciation Depreciation Appreciation
------------ ------------ ------------ ------------
Growth Portfolio $286,427,133 $5,310,898 $(14,928,500) $(9,617,602)
Income Portfolio 202,473,404 22,487,056 (6,115,933) 16,371,123
International Portfolio 26,445,737 529,294 (1,193,390) (664,096)
Small Cap Portfolio 14,720,884 1,448,308 (140,029) 1,308,279
Balanced Portfolio 8,826,711 98,975 (334,409) (235,434)
Money Market Portfolio 27,624,021 0 0 0
Limited-Term Bond Portfolio 1,658,060 0 (47,687) (47,687)
Bond Portfolio 77,172,386 68,638 (4,664,972) (4,596,334)
High Income Portfolio 74,841,167 852,083 (4,845,109) (3,993,026)

NOTE 4 -- Federal Income Tax Matters

The Fund's income and expenses attributed to each Portfolio and the gains
and losses on security transactions of each Portfolio have been attributed to
that Portfolio for Federal income tax purposes as well as for accounting
purposes. For Federal income tax purposes, Growth, Small Cap and Limited-Term
Bond Portfolios realized capital gain net income of $14,154,374, $44,381 and
$455, respectively, during the year ended December 31, 1994. The capital gain
net income was paid to shareholders during the year ended December 31, 1994.
For Federal income tax purposes the Income Portfolio realized capital gain net
income of $685,306 during the year ended December 31, 1994. These capital gains
were entirely offset by utilization of capital loss carryforwards. Remaining
prior year capital loss carryforwards of Income Portfolio aggregated $459,928 at
December 31, 1994, and are available to offset future realized capital gain net
income through December 31, 2001. For Federal income tax purposes, Bond, High
Income, Balanced and International Portfolios realized capital losses of
$3,479,696, $1,428,392, $3,218 and $21,009, respectively, during the year ended
December 31, 1994. These amounts are available to offset future realized
capital gain net income through December 31, 2002. In addition, the High Income
Portfolio has $316,713 in capital loss carryforwards from prior years, which are
available to offset future realized capital gain net income through December 31,
1999.

Note 5 -- Organization

The inception date of the International Portfolio, the Small Cap Portfolio,
the Balanced Portfolio, and the Limited-Term Bond Portfolio is April 28, 1994;
however, these Portfolios did not have any investment activity or incur expenses
prior to the date of initial offering, May 3, 1994. The statement of operations
and the statement of changes in net assets for the remaining Portfolios are for
the fiscal year ended December 31, 1994.

<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
TMK/United Funds, Inc.

In our opinion, the accompanying statement of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the nine portfolios
comprising TMK/United Funds, Inc., issuer of the respective nine classes of
capital shares (Growth Portfolio, Income Portfolio, International Portfolio,
Small Cap Portfolio, Balanced Portfolio, Money Market Portfolio, Limited-Term
Bond Portfolio, Bond Portfolio and High Income Portfolio) at December 31, 1994,
the results of their operations, and the changes in their net assets and the
financial highlights for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1994 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP
Kansas City, Missouri
January 31, 1995

<PAGE>
THE INVESTMENTS OF THE GROWTH PORTFOLIO
JUNE 30, 1995

Shares Value

COMMON STOCKS
Banks and Savings and Loans - 14.85%
Ahmanson (H. F.) & Company ............. 75,000 $ 1,650,000
Bank of Boston Corporation ............. 50,000 1,875,000
BankAmerica Corporation ................ 75,000 3,946,875
Barnett Banks, Inc. .................... 50,000 2,562,500
BayBanks, Inc. ......................... 25,000 1,984,375
Boatmen's Bancshares, Inc. ............. 100,000 3,518,700
Brooklyn Bancorp, Inc.* ................ 79,200 2,653,200
California Federal Bank, F.S.B.* ....... 150,000 1,968,750
Calumet Bancorp, Inc.* ................. 25,000 671,875
Chemical Banking Corporation ........... 80,000 3,780,000
City National Corporation .............. 125,000 1,421,875
Compass Bancshares, Inc. ............... 75,000 2,151,525
Crestar Financial Corporation .......... 50,000 2,450,000
Dime Bancorp, Inc.* ..................... 100,000 1,000,000
First Fidelity Bancorporation .......... 50,000 2,950,000
Great Western Financial Corporation .... 75,000 1,546,875
Midlantic Corporation .................. 200,000 7,975,000
Northern Trust Corporation ............. 75,000 3,000,000
Roosevelt Financial Group, Inc. ........ 200,000 3,325,000
Total ................................. 50,431,550

Biotechnology and Medical Services - 1.50%
Centocor, Inc.* ........................ 200,000 2,875,000
Ventritex, Inc.* ....................... 35,600 598,507
Zoll Medical Corporation* .............. 125,000 1,609,375
Total ................................. 5,082,882

Building - 0.43%
United Dominion Realty Trust, Inc. ..... 100,000 1,475,000

Chemicals Major - 2.02%
du Pont (E.I.) de Nemours and Company .. 100,000 6,875,000

Chemicals Specialty and Miscellaneous Technology - 1.90%
Geon Company (The) ..................... 130,000 3,737,500
IMC Global, Inc. ....................... 50,000 2,706,250
Total ................................. 6,443,750

Computers and Office Equipment - 10.07%
Adobe Systems Incorporated ............. 70,000 4,077,500
America Online, Inc.* .................. 85,000 3,718,750
Automatic Data Processing, Inc. ........ 70,000 4,401,250
Broderbund Software, Inc.* ............. 40,000 2,545,000
General Motors Corporation, Class E .... 185,000 8,047,500
HBO & Company .......................... 50,000 2,731,250

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE GROWTH PORTFOLIO
JUNE 30, 1995

Shares Value

COMMON STOCKS (Continued)
Computers and Office Equipment (Continued)
Inference Corporation, Class A* ......... 10,500 $ 148,313
NETCOM On-Line Communication Services,
Inc.* ................................. 30,000 770,610
Oracle Systems Corporation* ............. 125,000 4,820,250
Seagate Technology, Inc.* ............... 75,000 2,943,750
Total ................................. 34,204,173

Drugs and Hospital Supply - 8.31%
Baxter International Inc. .............. 100,000 3,637,500
Bristol-Myers Squibb Company ........... 70,000 4,768,750
Merck & Co., Inc. ...................... 150,000 7,350,000
Schering-Plough Corporation ............ 83,600 3,688,850
SmithKline Beecham plc, ADR ............ 100,000 4,525,000
United States Surgical Corporation ..... 100,000 2,087,500
Warner-Lambert Company ................. 25,000 2,159,375
Total ................................. 28,216,975

Electrical Equipment - 1.05%
Emerson Electric Co. ................... 50,000 3,575,000

Electronics - 11.90%
Analog Devices, Inc.* .................. 75,000 2,550,000
Applied Materials, Inc.* ............... 40,000 3,460,000
Cascade Communications Corp.* .......... 40,000 1,725,000
cisco Systems, Inc.* ................... 75,000 3,792,150
Digital Link Corporation* .............. 75,000 2,146,875
Hewlett-Packard Company ................ 50,000 3,725,000
Intel Corporation ...................... 120,000 7,597,440
LSI Logic Corporation* ................. 45,000 1,760,625
Micron Technology, Inc. ................ 75,000 4,115,625
Silicon Valley Group, Inc.* ............ 75,000 2,723,400
Summa Four, Inc.* ...................... 125,000 3,484,375
Texas Instruments Incorporated ......... 25,000 3,346,875
Total ................................. 40,427,365

Financial - 2.15%
Federal National Mortgage Association .. 30,000 2,831,250
First USA, Inc. ........................ 40,000 1,775,000
Regional Acceptance Corporation* ....... 150,000 2,700,000
Total ................................. 7,306,250

Food and Related - 1.01%
Ralcorp Holdings* ...................... 150,000 3,431,250

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE GROWTH PORTFOLIO
JUNE 30, 1995

Shares Value

COMMON STOCKS (Continued)
Hospital Management - 2.51%
Columbia/HCA Healthcare Corporation .... 100,000 $ 4,325,000
Quorum Health Group, Inc.* ............. 100,000 2,006,200
Sierra Health Services, Inc.* .......... 89,300 2,187,850
Total ................................. 8,519,050

Household Products - 1.35%
Procter & Gamble Company (The) ......... 25,000 1,796,875
Rubbermaid Incorporated ................ 100,000 2,775,000
Total ................................. 4,571,875

Insurance - 6.13%
Chubb Corporation (The) ................ 50,000 4,006,250
First Colony Corporation ............... 125,000 3,000,000
National Re Corporation ................ 93,100 3,118,850
PMI Group, Inc. (The) .................. 40,600 1,761,025
St. Paul Companies, Inc. (The) ......... 100,000 4,925,000
TIG Holdings, Inc. ..................... 175,000 4,025,000
Total ................................. 20,836,125

Leisure Time - 7.79%
Boston Chicken, Inc.* .................. 75,000 1,814,025
Capital Cities/ABC, Inc. ............... 25,000 2,700,000
Comcast Corporation, Class A ........... 300,000 5,568,600
Tele-Communications, Inc., Class A* .... 200,000 4,687,400
Time Warner Incorporated ............... 100,000 4,112,500
Viacom Inc., Class B* .................. 125,000 5,796,875
Wendy's International, Inc. ............ 100,000 1,787,500
Total ................................. 26,466,900

Machinery - 0.72%
Keystone International, Inc. ........... 125,000 2,453,125

Multi-Industry - 3.53%
Berkshire Hathaway Inc.* ............... 10 234,500
ITT Corporation ........................ 100,000 11,750,000
Total ................................. 11,984,500

Paper - 4.33%
Bowater Incorporated ................... 150,000 6,731,250
Champion International Corporation ..... 30,000 1,563,750
James River Corporation of Virginia .... 125,000 3,453,125
Mead Corporation (The)* ................ 50,000 2,968,750
Total ................................. 14,716,875

Publishing and Advertising - 0.67%
News Corporation Limited (The), ADR .... 100,000 2,262,500

Railroads - 1.92%
Conrail Inc. ........................... 75,000 4,171,875
Southern Pacific Rail Corporation* ..... 150,000 2,362,500
Total ................................. 6,534,375

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE GROWTH PORTFOLIO
JUNE 30, 1995

Shares Value

COMMON STOCKS (Continued)
Retailing - 2.82%
Borders Group, Inc.* ................... 236,000 $ 3,392,500
Charming Shoppes Inc. .................. 100,000 531,200
Family Dollar Stores, Inc. ............. 225,000 3,318,750
Mercantile Stores Company, Inc. ........ 50,000 2,325,000
Total ................................. 9,567,450

Services, Consumer and Business - 0.91%
Block (H & R), Inc. .................... 75,000 3,084,375

Telecommunications - 8.50%
ADC Telecommunications, Inc.* .......... 31,500 1,122,187
AirTouch Communications* ............... 125,000 3,562,500
Ascend Communications, Inc.* ........... 40,000 2,025,000
AT&T Corporation ....................... 150,000 7,968,750
MCI Communications Corporation ......... 200,000 4,387,400
MFS Communications Company, Inc.* ...... 125,000 4,000,000
Nokia Corporation, ADS ................. 50,000 2,981,250
Ortel Corporation* ..................... 190,200 2,805,450
Total ................................. 28,852,537

TOTAL COMMON STOCKS - 96.37% $327,318,882
(Cost: $306,926,055)

PREFERRED STOCKS - 0.90%
Building
National Health Investors, Inc.,
Convertible ........................... 125,000 $ 3,062,500
(Cost: $3,048,040)

TOTAL SHORT-TERM SECURITIES - 2.59% $ 8,791,976
(Cost: $8,791,976)

TOTAL INVESTMENT SECURITIES - 99.86% $339,173,358
(Cost: $318,766,071)

CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.14% 460,500

NET ASSETS - 100.00% $339,633,858

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE INCOME PORTFOLIO
JUNE 30, 1995

Shares Value

COMMON STOCKS
Aerospace - 1.42%
Boeing Company (The) ................... 44,500 $ 2,786,813
Sundstrand Corporation ................. 21,000 1,254,750
Total ................................. 4,041,563

Airlines - 2.66%
AMR Corporation* ....................... 28,000 2,089,500
Southwest Airlines Co. ................. 162,000 3,867,750
USAir Group, Inc.* ..................... 139,000 1,615,875
Total ................................. 7,573,125

Automotive - 5.40%
Chrysler Corporation ................... 75,500 3,614,563
Dana Corporation ....................... 53,000 1,517,125
Eaton Corporation ...................... 35,000 2,034,375
Ford Motor Company ..................... 130,500 3,882,375
General Motors Corporation ............. 69,500 3,257,813
Magna International Inc., Class A ...... 24,500 1,081,062
Total ................................. 15,387,313

Banks and Savings and Loans - 2.55%
Citicorp ............................... 52,000 3,009,500
First Bank System, Inc. ................ 35,000 1,435,000
First Interstate Bancorp ............... 21,000 1,685,250
Midlantic Corporation .................. 28,000 1,116,500
Total ................................. 7,246,250

Beverages - 1.08%
PepsiCo, Inc. .......................... 67,500 3,079,687

Biotechnology and Medical Services - 1.35%
Centocor, Inc.* ........................ 14,000 201,250
Medtronic, Inc. ........................ 28,000 2,159,500
Ventritex, Inc.* ....................... 89,000 1,496,268
Total ................................. 3,857,018

Building - 6.71%
Armstrong World Industries, Inc. ....... 62,500 3,132,813
Centex Corporation ..................... 134,400 3,796,800
Georgia-Pacific Corporation ............ 29,500 2,559,125
Louisiana-Pacific Corporation .......... 70,000 1,837,500
Pulte Corporation ...................... 148,900 4,169,200
Temple-Inland Inc. ..................... 24,500 1,166,812
Weyerhaeuser Company ................... 52,000 2,450,500
Total ................................. 19,112,750

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE INCOME PORTFOLIO
JUNE 30, 1995

Shares Value

COMMON STOCKS (Continued)
Chemicals Major - 6.51%
Air Products and Chemicals, Inc. ....... 70,000 $ 3,902,500
Albemarle Corporation .................. 72,800 1,137,500
Dow Chemical Company (The) ............. 17,500 1,257,812
du Pont (E.I.) de Nemours and Company .. 68,500 4,709,375
PPG Industries, Inc. ................... 87,000 3,741,000
Praxair, Inc. .......................... 69,500 1,737,500
Union Carbide Corporation .............. 61,000 2,035,875
Total ................................. 18,521,562

Chemicals Specialty and Miscellaneous Technology - 3.77%
Geon Company (The) ..................... 100,600 2,892,250
IMC Global, Inc. ....................... 29,400 1,591,275
Polaroid Corporation ................... 97,500 3,973,125
Xerox Corporation ...................... 19,500 2,286,375
Total ................................. 10,743,025

Computers and Office Equipment - 4.57%
Computer Associates International, Inc. 17,500 1,185,625
General Motors Corporation, Class E .... 75,800 3,297,300
International Business Machines
Corporation ........................... 35,000 3,360,000
Microsoft Corporation* ................. 21,000 1,899,177
Oracle Systems Corporation* ............ 84,700 3,266,201
Total ................................. 13,008,303

Consumer Electronics and Appliances - 1.36%
Harman International Industries,
Incorporated .......................... 23,000 931,500
Whirlpool Corporation .................. 53,500 2,942,500
Total ................................. 3,874,000

Drugs and Hospital Supply - 0.95%
Bristol-Myers Squibb Company ........... 19,500 1,328,438
Merck & Co., Inc. ...................... 28,000 1,372,000
Total ................................. 2,700,438

Electrical Equipment - 2.34%
Emerson Electric Co. ................... 28,000 2,002,000
General Electric Company ............... 82,500 4,650,937
Total ................................. 6,652,937

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE INCOME PORTFOLIO
JUNE 30, 1995

Shares Value

COMMON STOCKS (Continued)
Electronics - 11.98%
AMP Incorporated ....................... 77,000 $ 3,253,250
Analog Devices, Inc.* .................. 193,200 6,568,800
Applied Materials, Inc.* ............... 60,000 5,190,000
cisco Systems, Inc.* ................... 69,500 3,514,059
Intel Corporation ...................... 105,000 6,647,760
LSI Logic Corporation* ................. 134,400 5,258,400
Linear Technology Corporation .......... 21,300 1,400,475
Molex Incorporated, Class A ............ 62,550 2,275,256
Total ................................. 34,108,000

Engineering and Construction - 0.86%
Fluor Corporation ...................... 28,000 1,456,000
Foster Wheeler Corporation ............. 28,000 987,000
Total ................................. 2,443,000

Financial - 1.52%
Federal Home Loan Mortgage Corporation . 35,000 2,406,250
Federal National Mortgage Association .. 20,500 1,934,688
Total ................................. 4,340,938

Food and Related - 0.76%
CPC International Inc. ................. 35,000 2,161,250

Hospital Management - 1.40%
Columbia/HCA Healthcare Corporation .... 26,000 1,124,500
Tenet Healthcare Corporation* .......... 69,500 999,062
United HealthCare Corporation .......... 45,000 1,861,875
Total ................................. 3,985,437

Household Products - 3.24%
Colgate-Palmolive Company .............. 42,000 3,071,250
Gillette Company (The) ................. 70,000 3,123,750
Procter & Gamble Company (The) ......... 42,000 3,018,750
Total.................................. 9,213,750

Leisure Time - 2.30%
Walt Disney Company (The) .............. 49,000 2,725,625
McDonald's Corporation ................. 97,500 3,814,687
Total ................................. 6,540,312

Machinery - 6.86%
Case Corporation ....................... 97,500 2,900,625
Caterpillar Inc. ....................... 109,500 7,035,375
Cooper Industries, Inc. ................ 37,000 1,461,500
Deere & Company ........................ 47,500 4,067,187
Ingersoll-Rand Company ................. 28,000 1,071,000
Parker Hannifin Corporation ............ 42,000 1,522,500
Trinova Corporation .................... 42,000 1,470,000
Total ................................. 19,528,187

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE INCOME PORTFOLIO
JUNE 30, 1995

Shares Value

COMMON STOCKS (Continued)
Multi-Industry - 2.08%
ITT Corporation ........................ 50,500 $ 5,933,750

Paper - 2.44%
Bowater Incorporated ................... 32,000 1,436,000
International Paper Company ............ 40,500 3,472,875
Union Camp Corporation ................. 35,000 2,025,625
Total ................................. 6,934,500

Railroads - 2.82%
CSX Corporation ........................ 24,500 1,840,563
Conrail Inc. ........................... 42,000 2,336,250
Norfolk Southern Corporation ........... 21,000 1,414,875
Southern Pacific Rail Corporation* ..... 32,000 504,000
Union Pacific Corporation .............. 35,000 1,938,125
Total ................................. 8,033,813

Retailing - 8.37%
Circuit City Stores, Inc. .............. 111,500 3,526,188
Dayton Hudson Corporation .............. 32,500 2,331,875
Gap, Inc. (The) ........................ 49,000 1,708,875
Home Depot, Inc. (The) ................. 53,500 2,173,438
Limited, Inc. (The) .................... 52,000 1,144,000
May Department Stores Company (The) .... 67,500 2,809,688
Nordstrom, Inc. ........................ 26,000 1,074,112
OfficeMax, Inc.* ....................... 46,500 1,296,187
Penney (J.C.) Company, Inc. ............ 47,000 2,256,000
Tommy Hilfiger Corporation* ............ 108,800 3,046,400
Toys "R" Us, Inc.* ..................... 21,000 614,250
Wal-Mart Stores, Inc. .................. 69,500 1,859,125
Total ................................. 23,840,138

Steel - 0.39%
Nucor Corporation ...................... 21,000 1,123,500

Telecommunications - 8.39%
ADC Telecommunications, Inc.* .......... 16,000 570,000
AT&T Corporation ....................... 35,000 1,859,375
BellSouth Corporation .................. 22,000 1,397,000
General Instrument Corporation* ........ 69,500 2,667,063
General Motors Corporation, Class H .... 12,300 485,850
MCI Communications Corporation ......... 130,000 2,851,810
MFS Communications Company, Inc.* ...... 29,900 956,800
Motorola, Inc. ......................... 115,500 7,752,937
Telefonaktiebolaget LM Ericsson,
Class B, ADR ......................... 140,000 2,808,680
Vanguard Cellular Systems, Inc.* ....... 105,000 2,533,125
Total ................................. 23,882,640

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE INCOME PORTFOLIO
JUNE 30, 1995

Shares Value

COMMON STOCKS (Continued)
Tire and Rubber - 1.01%
Goodyear Tire & Rubber Company (The) ... 69,500 $ 2,866,875

TOTAL COMMON STOCKS - 95.09% $270,734,061
(Cost: $208,154,290)

TOTAL SHORT-TERM SECURITIES - 4.14% $ 11,788,766
(Cost: $11,788,766)

TOTAL INVESTMENT SECURITIES - 99.23% $282,522,827
(Cost: $219,943,056)

CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.77% 2,187,966

NET ASSETS - 100.00% $284,710,793

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE INTERNATIONAL PORTFOLIO
JUNE 30, 1995

Shares Value

COMMON STOCKS
Australia - 1.79%
Westpac Banking Corp. .................. 200,000 $ 723,594

Finland - 7.57%
Enso-Gutzeit Oy ........................ 40,400 365,897
Kymmene Oy ............................. 13,000 404,634
Metsa-Serla Oy, Series B ............... 20,000 889,305
Nokia Corporation, Series K ............ 15,000 891,645
Tampella OY* ........................... 200,000 505,500
Total ................................. 3,056,981

France - 6.55%
Credit Lyonnais SA* .................... 8,000 460,742
Lapeyre S.A. ........................... 6,625 435,631
Pechiney International ................. 30,000 757,529
Societe Industrielle de Transports
Automobiles S.A. ...................... 3,500 497,805
Television Francaise 1-TF1 S.A. ........ 5,000 492,136
Total ................................. 2,643,843

Germany - 18.14%
APCOA Parking Aktiengesellschaft* ...... 9,000 473,034
Computer 2000 AG ....................... 700 242,409
Durr Beteiligungs AG ................... 3,500 1,239,879
Fag Kugelfischer AG .................... 6,000 817,669
GILDEMEISTER Aktiengesellschaft* ....... 11,000 890,688
Mannesmann AG .......................... 3,300 1,007,989
Rheinelektra AG ........................ 550 421,487
Tarkett Aktiengesellschaft, ADS (A)* .... 12,000 312,000
TRAUB AG* .............................. 8,500 1,136,857
VEBA AG ................................ 2,000 785,859
Total ................................. 7,327,871

Hong Kong - 4.90%
First Pacific Company Limited .......... 750,000 663,948
Guangdong Corporation Limited .......... 1,000,000 546,021
HSBC Holdings Plc ...................... 60,000 769,599
Total ................................. 1,979,568

Indonesia - 2.98%
PT Bukaka Teknik Utama, F* ............. 250,000 482,712
PT Matahari Putra Prima, F ............. 347,500 553,940
PT Matahari Putra Prima Rts* ........... 173,750 167,742
Total ................................. 1,204,394

Japan - 1.67%
Hitachi ................................ 50,000 498,584
NEC .................................... 16,000 175,407
Total ................................. 673,991

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE INTERNATIONAL PORTFOLIO
JUNE 30, 1995

Shares Value

COMMON STOCKS (Continued)
Korea - 2.50%
Samsung Electronics Co., Ltd., GDR (A)* 19,000 $ 1,009,470

Mexico - 7.57%
Cemex, S.A., CPO Shares, Series A ...... 150,000 508,800
Desc-Sociedad de Fomento Industrial,
S.A. de C.V., Class B* ................ 150,000 498,000
Grupo Carso, S.A. de C.V.,
Series 1A* ............................ 150,000 820,800
Grupo Financiero Bancomer, S.A. de
C.V., B, CPO Shares* .................. 1,746,000 508,435
Telefonos de Mexico S.A. de C.V., ADR .. 24,400 722,850
Total ................................. 3,058,885

Netherlands - 1.59%
Philips Electronics N.V. NY Shares ..... 15,000 641,250

Norway - 4.57%
Den Norske Luftfartselskap A/S,
Series B .............................. 25,000 1,075,225
Kvaerner a.s. .......................... 17,000 772,539
Total ................................. 1,847,764

Phillipines - 1.51%
Universal Robina Corporation ........... 1,200,000 610,807

Spain - 1.85%
Telefonica de Espana, S.A. ............. 58,000 746,997

Sweden - 8.21%
ASTRA AB, Class A ...................... 35,000 1,078,660
Kinnevik AB ............................ 21,500 655,227
Skandia Enskilda Banken, Class A ....... 91,000 472,208
Trelleborg AB, Series B ................ 30,000 350,058
AB Volvo ............................... 40,000 760,519
Total ................................. 3,316,672

United Kingdom - 8.58%
AMEC ................................... 160,000 157,837
BTR PLC ................................ 150,000 762,535
House of Fraser PLC .................... 111,000 224,297
Next plc ............................... 150,000 815,041

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE INTERNATIONAL PORTFOLIO
JUNE 30, 1995

Shares Value

COMMON STOCKS (Continued)
United Kingdom (Continued)
Pilkington PLC ......................... 104,000 $ 288,753
United Biscuits (Holdings) Public
Limited Co. ........................... 75,000 383,057
Vodafone Group Plc ..................... 225,000 835,924
Total ................................. 3,467,444

TOTAL COMMON STOCKS - 79.98% $32,309,531
(Cost: $31,086,924)

PREFERRED STOCKS - 4.92%
Germany
Hornbach-Baumarkt-AG ................... 700 946,356
Marschollek, Lautenschlager und
Partner AG* ........................... 800 520,532
STO AG ................................. 841 519,849
Total ................................. $ 1,986,737
(Cost: $1,673,544)

Principal
Amount in
Thousands

SHORT-TERM SECURITIES
Banks and Savings and Loans - 3.24%
U.S. Bancorp,
Master Note ........................... $ 1,310 1,310,000

Chemicals Major - 2.48%
Olin Corporation,
6.07%, 7-5-95 ......................... 1,000 999,326

Financial - 5.45%
General Motors Acceptance Corporation,
6.08%, 7-17-95 ........................ 1,010 1,007,271
Textron Financial Corp.,
6.05%, 7-26-95 ........................ 1,200 1,194,958
Total ................................. 2,202,229

Food and Related - 2.46%
General Mills, Inc.,
Master Note ........................... 706 706,000
Sara Lee Corporation,
Master Note............................ 287 287,000
Total ................................. 993,000

TOTAL SHORT-TERM SECURITIES - 13.63% $ 5,504,555
(Cost: $5,504,555)

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE INTERNATIONAL PORTFOLIO
JUNE 30, 1995

Value

TOTAL INVESTMENT SECURITIES - 98.53% $39,800,823
(Cost: $38,265,023)

CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.47% 595,440

NET ASSETS - 100.00% $40,396,263

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE SMALL CAP PORTFOLIO
JUNE 30, 1995

Shares Value

COMMON STOCKS
Biotechnology and Medical Services - 5.80%
EP Technologies, Inc.* ................. 50,000 $ 500,000
OmniCare, Inc. ......................... 10,000 271,250
Pyxis Corporation* ..................... 20,000 451,240
St. Jude Medical, Inc. ................. 3,000 150,186
Tecnol Medical Products, Inc.* ......... 10,000 221,250
Ventritex, Inc.* ....................... 12,000 201,744
VidaMed, Inc.* ......................... 30,000 187,500
Total ................................. 1,983,170

Computers and Office Equipment - 19.22%
ACT Networks, Inc.* .................... 12,500 212,500
Adobe Systems Incorporated ............. 10,000 582,500
America Online, Inc.*. ................. 8,000 350,000
ArcSys, Inc.* .......................... 7,300 250,937
Broderbund Software, Inc.* ............. 2,000 127,250
Cerner Corporation* .................... 1,000 60,750
Eagle Point Software Corporation* ...... 20,000 337,500
Electronic Arts Inc.* .................. 8,000 217,496
Integrated Silicon Solution, Inc.* ..... 10,000 521,250
Learning Company (The)* ................ 3,000 107,250
Macromedia, Inc.* ...................... 7,500 325,313
MapInfo Corporation* ................... 5,000 176,875
Medic Computer Systems, Inc.* .......... 1,400 54,250
MicroTouch Systems, Inc.* .............. 25,000 521,875
Minnesota Educational Computing
Corporation* .......................... 10,000 360,000
Parametric Technology Corporation* ..... 12,000 595,500
PHAMIS, Inc.* .......................... 20,000 496,240
Shiva Corporation* ..................... 10,000 430,000
Synopsys, Inc.* ........................ 5,000 312,500
UUNET Technologies, Inc.* .............. 5,300 145,750
Wall Data Incorporated* ................ 20,000 307,500
Wonderware Corporation* ................ 2,000 81,250
Total ................................. 6,574,486

Drugs and Hospital Supply - 3.42%
Circa Pharmaceuticals, Inc.* ........... 15,000 478,125
LUNAR CORPORATION* ..................... 25,000 693,750
Total ................................. 1,171,875

Electronics - 5.35%
Information Storage Devices, Inc.* ..... 5,000 123,750
LSI Logic Corporation* ................. 7,000 273,875
SDL, Inc.* ............................. 36,000 1,071,000
Silicon Valley Group, Inc.* ............ 10,000 363,120
Total ................................. 1,831,745

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE SMALL CAP PORTFOLIO
JUNE 30, 1995

Shares Value

COMMON STOCKS (Continued)
Hospital Management - 4.76%
Hillhaven Corporation (The)* ........... 5,000 $ 141,250
Inphynet Medical Management Inc.* ...... 8,000 150,000
PacifiCare Health Systems, Inc.* ....... 9,000 457,875
Quorum Health Group, Inc.* ............. 11,000 220,682
Sierra Health Services, Inc.* .......... 15,000 367,500
United HealthCare Corporation .......... 7,000 289,625
Total ................................. 1,626,932

Leisure Time - 0.82%
Longhorn Steaks, Inc.* ................. 20,000 280,000

Retailing - 2.78%
Central Tractor Farm & Country, Inc.* .. 15,000 155,625
Hollywood Entertainment Corporation* ... 6,000 270,750
Movie Gallery, Inc.* ................... 15,000 525,000
Total ................................. 951,375

Services, Consumer and Business - 2.89%
CMG Information Services, Inc.* ........ 20,000 382,500
Stewart Enterprises, Inc., Class A ..... 18,000 605,250
Total ................................. 987,750

Telecommunications - 5.83%
MFS Communications Company, Inc.* ...... 22,000 704,000
Mobile Telecommunication Technologies
Corp.* ................................ 20,000 546,240
Ortel Corporation* ..................... 26,400 389,400
TESSCO Technologies Incorporated* ...... 20,000 355,000
Total ................................. 1,994,640

Textiles and Apparel - 1.45%
Department 56, Inc.* ................... 13,000 497,250

Trucking - 0.39%
Knight Transportation, Inc.* ........... 10,000 132,500

TOTAL COMMON STOCKS - 52.71% $18,031,723
(Cost: $14,165,148)

Principal
Amount in
Thousands

SHORT-TERM SECURITIES
Commercial Paper
Automotive - 2.10%
Echlin, Inc.,
6.05%, 7-27-95 ........................ $ 720 716,854

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE SMALL CAP PORTFOLIO
JUNE 30, 1995

Principal
Amount in
Thousands Value

SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Banks and Savings and Loans - 2.82%
U.S. Bancorp,
Master Note ........................... $ 966 $ 966,000

Chemicals Major - 1.80%
Olin Corporation,
6.07%, 7-5-95 ......................... 615 614,585

Financial - 11.43%
B.A.T. Capital Corp.,
5.92%, 7-5-95 ......................... 1,000 999,342
Merrill Lynch & Co., Inc.,
5.97%, 7-26-95 ........................ 820 816,600
Textron Financial Corp.,
6.05%, 7-26-95 ........................ 1,000 995,799
UBS Finance, Inc.,
5.95%, 7-5-95 ......................... 1,100 1,099,273
Total ................................. 3,911,014

Food and Related - 10.63%
ConAgra, Inc.,
6.05%, 7-17-95 ........................ 1,000 997,311
General Mills, Inc.,
Master Note ........................... 1,445 1,445,000
Sara Lee Corporation,
Master Note ........................... 1,193 1,193,000
Total ................................. 3,635,311

Multi-Industry - 2.92%
Alco Standard Corporation,
6.02%, 7-12-95 ........................ 1,000 998,161

Public Utilities - Electric - 4.37%
Idaho Power Company,
6.0%, 7-12-95 ......................... 500 499,083
Western Resources Inc.,
6.03%, 7-19-95 ........................ 1,000 996,985
Total ................................. 1,496,068

Retailing - 2.92%
Rite Aid Corp.,
6.02%, 7-10-95 ........................ 1,000 998,495

Total Commercial Paper - 38.99% 13,336,488

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE SMALL CAP PORTFOLIO
JUNE 30, 1995

Principal
Amount in
Thousands Value

SHORT-TERM SECURITIES (Continued)
Commercial Paper (backed by irrevocable
bank letter of credit) - 4.35%
International Oil
Petroleo Brasileiro S.A. - Petrobras
(Barclays Bank PLC),
5.98%, 8-17-95 ........................ $1,500 $ 1,488,289

Municipal Obligations - 3.50%
Michigan
Michigan Underground Storage Tank Financial
Assurance Authority, State of Michigan,
Series 1 (Canadian Imperial Bank of Commerce),
6.12%, 7-10-95 ........................ 1,200 1,198,164

TOTAL SHORT-TERM SECURITIES - 46.84% $16,022,941
(Cost: $16,022,941)

TOTAL INVESTMENT SECURITIES - 99.55% $34,054,664
(Cost: $30,188,089)

CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.45% 152,729

NET ASSETS - 100.00% $34,207,393

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE BALANCED PORTFOLIO
JUNE 30, 1995

Shares Value

COMMON STOCKS
Airlines - 1.21%
Southwest Airlines Co. ................. 8,000 $ 191,000

Automotive - 0.61%
AB Volvo, ADR, Series B ................ 5,100 96,900

Banks and Savings and Loans - 3.46%
Ahmanson (H. F.) & Company ............. 14,500 319,000
Great Western Financial Corporation .... 11,000 226,875
Total ................................. 545,875

Beverages - 1.79%
PepsiCo, Inc. .......................... 6,200 282,875

Biotechnology and Medical Services - 0.70%
St. Jude Medical, Inc. ................. 2,200 110,136

Building - 3.29%
National Health Investors, Inc. ........ 12,000 327,000
Temple-Inland Inc. ..................... 800 38,100
York International Corporation ......... 3,400 153,000
Total ................................. 518,100

Chemicals Major - 4.08%
Air Products and Chemicals, Inc. ....... 2,900 161,675
du Pont (E.I.) de Nemours and Company .. 1,200 82,500
PPG Industries, Inc. ................... 6,500 279,500
Praxair, Inc. .......................... 4,800 120,000
Total ................................. 643,675

Chemicals Specialty and Miscellaneous
Technology - 3.32%
Browning-Ferris Industries, Inc. ....... 7,000 252,875
Crompton & Knowles Corporation ......... 14,300 201,987
Minnesota Mining and Manufacturing
Company ............................... 1,200 68,700
Total ................................. 523,562

Computers and Office Equipment - 3.89%
Compaq Computer Corporation* ........... 4,600 208,725
Global DirectMail Corp.* ............... 10,800 213,300
International Business Machines
Corporation ........................... 2,000 192,000
Total ................................. 614,025

Domestic Oil - 3.25%
Amoco Corporation ....................... 2,100 139,913
Apache Corporation ..................... 6,000 164,250
Atlantic Richfield Company ............. 1,900 208,525
Total ................................. 512,688

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE BALANCED PORTFOLIO
JUNE 30, 1995

Shares Value

COMMON STOCKS (Continued)
Drugs and Hospital Supply - 1.72%
American Home Products Corporation ..... 3,500 $ 270,813

Electrical Equipment - 1.36%
Emerson Electric Co. ................... 3,000 214,500

Electronics - 3.54%
AMP Incorporated ....................... 1,600 67,600
Applied Materials, Inc.* ............... 4,500 389,250
Intel Corporation ...................... 1,600 101,299
Total ................................. 558,149

Engineering and Construction - 1.23%
Foster Wheeler Corporation ............. 5,500 193,875

Financial - 1.56%
Federal National Mortgage Association .. 2,600 245,375

Hospital Management - 2.78%
LTC Properties, Inc. ................... 9,000 118,125
Tenet Healthcare Corporation* .......... 9,600 138,000
United HealthCare Corporation .......... 4,400 182,050
Total ................................. 438,175

Household Products - 1.90%
Colgate-Palmolive Company .............. 4,100 299,812

Insurance - 6.42%
Chubb Corporation (The) ................ 3,100 248,387
PMI Group, Inc. (The) .................. 10,000 433,750
SAFECO Corporation ..................... 3,000 171,936
St. Paul Companies, Inc. (The) ......... 3,200 157,600
Total ................................. 1,011,673

Leisure Time - 2.97%
Walt Disney Company (The) .............. 4,500 250,313
Time Warner Incorporated ............... 5,300 217,962
Total ................................. 468,275

Machinery - 2.58%
Deere & Company ........................ 2,000 171,250
Keystone International, Inc. ........... 12,000 235,500
Total ................................. 406,750

Multi-Industry - 1.57%
ITT Corporation ........................ 2,100 246,750

Oil Services - 1.50%
Schlumberger Limited ................... 3,800 236,075

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE BALANCED PORTFOLIO
JUNE 30, 1995

Shares Value

COMMON STOCKS (Continued)
Paper - 1.62%
Champion International Corporation ..... 2,900 $ 151,163
Union Camp Corporation ................. 1,800 104,175
Total ................................. 255,338

Publishing and Advertising - 2.09%
American Greetings Corporation,
Class A ............................... 4,500 131,904
McGraw-Hill, Inc. ...................... 2,600 197,275
Total ................................. 329,179

Railroads - 0.56%
Conrail Inc. ........................... 1,600 89,000

Retailing - 2.33%
May Department Stores Company (The) .... 1,900 79,087
Mercantile Stores Company, Inc. ........ 1,000 46,500
Penney (J.C.) Company, Inc. ............ 2,000 96,000
Tommy Hilfiger Corporation* ............ 5,200 145,600
Total ................................. 367,187

Services, Consumer and Business - 1.49%
Block (H & R), Inc. .................... 5,700 234,413

Telecommunications - 7.36%
AT&T Corporation ....................... 4,100 217,813
BellSouth Corporation .................. 2,400 152,400
GTE Corporation ........................ 5,300 180,863
General Motors Corporation, Class H .... 6,600 260,700
MCI Communications Corporation ......... 6,000 131,622
Motorola, Inc. ......................... 1,600 107,400
Nokia Corporation, ADR, Series A ....... 800 47,700
Telefonos de Mexico S.A. de C.V., ADR .. 2,100 62,212
Total ................................. 1,160,710

Textiles and Apparel - 0.67%
Liz Claiborne, Inc. .................... 5,000 106,250

TOTAL COMMON STOCKS - 70.85% $11,171,135
(Cost: $10,477,934)

PREFERRED STOCKS
Airlines - 0.22%
Delta Air Lines, Incorporated, Depository Shares,
Convertible, Series C ................. 600 35,100

Computers and Office Equipment - 0.44%
General Motors Corporation, Class E,
Depository Shares, Convertible ........ 1,100 69,300

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE BALANCED PORTFOLIO
JUNE 30, 1995

Shares Value

PREFERRED STOCKS (Continued)
Drugs and Hospital Supply - 1.78%
United States Surgical Corporation,
Convertible, Series A ................. 11,000 $ 280,500

TOTAL PREFERRED STOCKS - 2.44% $ 384,900
(Cost: $374,906)

Principal
Amount in
Thousands Value

UNITED STATES GOVERNMENT SECURITIES - 20.69%
United States Treasury:
6.875%, 8-31-99 ....................... $ 250 257,930
7.75%, 11-30-99 ....................... 1,500 1,599,840
7.125%, 2-29-2000 ..................... 500 522,265
6.375%, 8-15-2002 ..................... 100 101,187
7.5%, 2-15-2005 ....................... 500 544,455
6.25%, 8-15-2023 ...................... 250 236,133
Total ................................. $ 3,261,810
(Cost: $3,071,712)

TOTAL SHORT-TERM SECURITIES - 9.52% $ 1,500,342
(Cost: $1,500,342)

TOTAL INVESTMENT SECURITIES - 103.50% $16,318,187
(Cost: $15,424,894)

LIABILITIES, NET OF CASH AND OTHER ASSETS - (3.50%) (551,744)

NET ASSETS - 100.00% $15,766,443

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE ASSET STRATEGY PORTFOLIO
JUNE 30, 1995

Principal
Amount in
Thousands Value

SHORT-TERM SECURITIES
Commercial Paper - 0.24%
Food and Related
Sara Lee Corporation,
Master Note............................ $ 2 $ 2,000

United States Treasury - 97.41%
United States Treasury Bills:
5.3%, 7-27-95 ......................... 20 19,923
5.35%, 7-27-95 ........................ 105 104,595
5.38%, 7-27-95 ........................ 20 19,922
5.45%, 7-27-95 ........................ 100 99,606
5.54%, 7-27-95 ........................ 115 114,540
5.56%, 7-27-95 ........................ 45 44,819
5.6%, 7-27-95 ......................... 55 54,778
5.67%, 7-27-95 ........................ 40 39,839
5.18%, 8-24-95 ........................ 40 39,689
5.28%, 8-24-95 ........................ 50 49,604
5.3%, 8-24-95 ......................... 70 69,444
5.32%, 8-24-95 ........................ 40 39,681
5.35%, 8-24-95 ........................ 100 99,197
Total ................................. 795,637

TOTAL SHORT-TERM SECURITIES - 97.65% $797,637
(Cost: $797,637)

CASH AND OTHER ASSETS, NET OF LIABILITIES - 2.35% 19,164

NET ASSETS - 100.00% $816,801

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE MONEY MARKET PORTFOLIO
JUNE 30, 1995

Principal
Amount in
Thousands Value

BANK OBLIGATIONS
Certificates of Deposit
Domestic - 3.23%
First National Bank of Chicago,
6.24%, 6-3-96 ......................... $1,000 $ 1,000,646

Yankee - 3.22%
Societe Generale - New York,
6.19%, 6-3-96 ......................... 1,000 1,000,000
Total Certificates of Deposit - 6.45% 2,000,646

Commercial Paper
Abbey National North America Corporation,
5.95%, 7-21-95 ........................ 735 731,356
Svenska Handelsbanken,
5.98%, 8-7-95 ......................... 800 795,083
U.S. Bancorp,
Master Note ........................... 1,287 1,287,000
Total Commercial Paper - 9.06% 2,813,439

Notes
Abbey National Treasury Services plc,
7.4%, 12-15-95 ........................ 500 500,000
Bank One Milwaukee, N.A.,
7.25%, 2-9-96 ......................... 500 500,000
Comerica Bank,
5.62%, 7-5-95 ......................... 500 499,905
Total Notes - 4.83% 1,499,905

TOTAL BANK OBLIGATIONS - 20.34% $ 6,313,990
(Cost: $6,313,990)

CORPORATE OBLIGATIONS
Commercial Paper
Automotive - 1.92%
Echlin, Inc.,
6.0%, 7-27-95 ......................... 600 597,400

Chemicals Major - 1.68%
Air Products and Chemicals, Inc.,
5.62%, 11-30-95 ....................... 535 522,305

Consumer Electronics and Appliances - 2.57%
TDK (USA) Corp.,
5.93%, 7-17-95 ........................ 800 797,892

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE MONEY MARKET PORTFOLIO
JUNE 30, 1995

Principal
Amount in
Thousands Value

CORPORATE OBLIGATIONS (Continued)
Commercial Paper (Continued)
Electrical Equipment - 3.18%
General Electric Capital Corp.,
5.85%, 9-15-95 ........................ $1,000 $ 987,650

Financial - 9.03%
BHP Finance (U.S.A.) Inc.,
6.0%, 8-1-95 .......................... 850 845,608
Bell Atlantic Financial Services, Inc.,
6.0%, 7-25-95 ......................... 500 498,000
Merrill Lynch & Co., Inc.,
5.96%, 7-17-95 ........................ 665 663,238
Sony Capital Corp.,
5.93%, 8-14-95 ........................ 800 794,202
Total ................................. 2,801,048

Food and Related - 10.21%
General Mills, Inc.,
Master Note ........................... 1,180 1,180,000
Heinz (H.J.) Company,
5.93%, 7-14-95 ........................ 800 798,287
Sara Lee Corporation,
Master Note ........................... 1,190 1,190,000
Total ................................. 3,168,287

Public Utilities - Electric - 7.53%
Baltimore Gas and Electric Company,
5.94%, 8-14-95 ........................ 950 943,103
Idaho Power Company,
5.97%, 7-26-95 ........................ 700 697,098
Tampa Electric Company,
5.97%, 8-11-95 ........................ 700 695,241
Total ................................. 2,335,442

Retailing - 1.01%
Toys "R" Us, Inc.,
5.97%, 7-10-95 ........................ 315 314,530

Telecommunications - 5.14%
AT&T Corporation,
5.95%, 7-10-95 ........................ 900 898,661
GTE Southwest, Inc.,
6.0%, 8-8-95 .......................... 700 695,567
Total ................................. 1,594,228

Tobacco - 2.24%
Philip Morris Companies,
5.9%, 8-22-95 ......................... 700 694,034

Total Commercial Paper - 44.51% 13,812,816

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE MONEY MARKET PORTFOLIO
JUNE 30, 1995

Principal
Amount in
Thousands Value

CORPORATE OBLIGATIONS (Continued)

Commercial Paper (backed by irrevocable
bank letter of credit) - 3.21%
Financial
Omnicom Finance Inc. (Swiss Bank Corp.),
5.95%, 7-28-95 ........................ $1,000 $ 995,538

Notes
Financial - 1.61%
Merrill Lynch & Co., Inc.,
6.185%, 8-21-95 ....................... 500 500,030

Public Utilities - Electric - 1.61%
Georgia Power Co.,
5.125%, 9-1-95 ........................ 500 499,377

Total Notes - 3.22% 999,407

TOTAL CORPORATE OBLIGATIONS - 50.94% $15,807,761
(Cost: $15,807,761)

MUNICIPAL OBLIGATIONS
California - 5.77%
Modesto Irrigation District Finance
Authority (Bank of America),
6.02%, 8-18-95 ........................ 1,000 991,973
City of Anaheim, California, Certificates
of Participation (1993 Arena Financing
Project), Municipal Adjustable Rate
Taxable Securities (Credit Suisse),
6.2675%, 8-2-95 ....................... 800 800,000
Total ................................. 1,791,973

Michigan - 3.22%
Michigan Underground Storage Tank Financial
Assurance Authority, State of Michigan,
Series 1 (Canadian Imperial Bank of Commerce),
6.12%, 7-10-95 ........................ 1,000 998,470

New Hampshire - 1.61%
The Industrial Development Authority
of the State of New Hampshire,
Pollution Control Revenue Bonds
(Public Service Company of New
Hampshire Project-1991 Taxable
Series D and E) (Barclays Bank),
6.125%, 7-5-95 ........................ 500 500,000

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE MONEY MARKET PORTFOLIO
JUNE 30, 1995

Principal
Amount in
Thousands Value

MUNICIPAL OBLIGATIONS (Continued)
Texas - 1.60%
Metrocrest Hospital Authority, Series 1989A
(The Bank of New York),
6.1216%, 8-1-95 ....................... $ 500 $ 497,364

TOTAL MUNICIPAL OBLIGATIONS - 12.20% $ 3,787,807
(Cost: $3,787,807)

UNITED STATES GOVERNMENT OBLIGATIONS
Federal Home Loan Banks,
6.4%, 7-10-95 ......................... 1,000 1,000,000
Federal Home Loan Mortgage Corporation,
6.45%, 9-7-95 ......................... 1,000 1,000,000
Federal National Mortgage Association,
6.4%, 9-20-95 ......................... 500 500,000
Student Loan Management Association,
5.81%, 7-5-95 ......................... 1,000 1,000,000

TOTAL UNITED STATES GOVERNMENT
OBLIGATIONS - 11.28% $ 3,500,000
(Cost: $3,500,000)

TOTAL INVESTMENT SECURITIES - 94.76% $29,409,558
(Cost: $29,409,558)

CASH AND OTHER ASSETS, NET OF LIABILITIES - 5.24% 1,625,570

NET ASSETS - 100.00% $31,035,128

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE LIMITED-TERM BOND PORTFOLIO
JUNE 30, 1995

Principal
Amount in
Thousands Value

CORPORATE DEBT SECURITIES
Airlines - 2.32%
Federal Express Corporation,
9.75%, 5-15-96 ........................ $ 50 $ 51,367

Automotive - 2.29%
General Motors Corporation,
7.625%, 2-15-97 ....................... 50 50,923

Banks and Savings and Loans - 9.74%
BankAmerica Corporation,
9.7%, 8-1-2000 ........................ 50 56,140
Boatmen's Bancshares, Inc.,
9.25%, 11-1-2001 ...................... 50 55,790
NCNB Corporation,
10.5%, 3-15-99 ........................ 50 51,410
Norwest Financial, Inc.,
7.75%, 8-15-2001 ...................... 50 52,793
Total ................................. 216,133

Chemicals Major - 6.51%
Dow Chemical Company (The),
4.625%, 10-15-95 ...................... 60 59,736
ICI Wilmington, Inc.,
9.5%, 11-15-2000 ...................... 75 84,612
Total ................................. 144,348

Chemicals Specialty and Miscellaneous
Technology - 8.49%
Polaroid Corporation,
8.0%, 3-15-99 ......................... 85 88,500
Waste Management, Inc.,
6.25%, 12-15-95 ....................... 50 49,998
Xerox Credit Corporation,
6.25%, 1-15-96 ........................ 50 49,976
Total ................................. 188,474

Domestic Oil - 2.42%
BP America Inc.,
9.5%, 1-1-98 .......................... 50 53,667

Drugs and Hospital Supply - 4.69%
American Home Products Corporation,
7.7%, 2-15-2000 ....................... 50 52,334
Baxter International Inc.,
9.25%, 9-15-96 ........................ 50 51,686
Total ................................. 104,020

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE LIMITED-TERM BOND PORTFOLIO
JUNE 30, 1995

Principal
Amount in
Thousands Value

CORPORATE DEBT SECURITIES (Continued)
Financial - 12.76%
American General Finance Corporation,
8.25%, 1-15-98 ........................ $ 50 $ 52,191
Associates Corporation of North America,
8.8%, 8-1-98 .......................... 50 53,211
Avco Financial Services, Inc.,
5.5%, 4-1-2000 ........................ 50 47,751
Ford Motor Credit Company,
8.0%, 1-15-99 ......................... 75 78,631
Household Finance Corporation,
7.75%, 6-15-97 ........................ 50 51,331
Total ................................. 283,115

Insurance - 4.71%
ITT Hartford,
7.25%, 12-1-96 ........................ 50 50,578
Transamerica Finance Corporation,
8.75%, 10-1-99 ........................ 50 53,961
Total ................................. 104,539

International Oil - 4.89%
Chevron Corporation,
8.11%, 12-1-2004 ...................... 50 53,695
Texaco Capital Inc.,
9.0%, 12-15-99 ........................ 50 54,882
Total ................................. 108,577

Machinery - 2.30%
Ingersoll-Rand Company,
8.25%, 11-1-96 ........................ 50 51,111

Multi-Industry - 2.58%
ITT Corporation,
8.875%, 6-15-2003 ..................... 50 57,241

Public Utilities - Pipelines - 4.69%
Consolidated Natural Gas Company,
8.75%, 6-1-99 ......................... 50 53,934
Tenneco Credit Corporation,
9.0%, 7-15-95 ......................... 50 50,029
Total ................................. 103,963

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE LIMITED-TERM BOND PORTFOLIO
JUNE 30, 1995

Principal
Amount in
Thousands Value

CORPORATE DEBT SECURITIES (Continued)
Retailing - 4.85%
Penney (J.C.) Company, Inc.,
10.0%, 10-15-97 ....................... $ 50 $ 53,951
Sears, Roebuck and Co.,
9.25%, 4-15-98 ........................ 50 53,591
Total ................................. 107,542

TOTAL CORPORATE DEBT SECURITIES - 73.24% $1,625,020
(Cost: $1,582,094)

UNITED STATES GOVERNMENT SECURITIES
Government National Mortgage Association,
7.0%, 6-15-2010 ....................... 100 100,468
United States Treasury:
5.125%, 11-30-98 ...................... 100 97,437
6.375%, 8-15-2002...................... 100 101,187
6.25%, 2-15-2003 ...................... 100 100,266

TOTAL UNITED STATES GOVERNMENT SECURITIES - 18.00% $ 399,358
(Cost: $386,972)

SHORT-TERM SECURITIES
Banks and Savings and Loans - 3.38%
U.S. Bancorp,
Master Note ........................... 75 75,000

Financial - 4.50%
UBS Finance, Inc.,
5.95%, 7-5-95 ......................... 100 99,934

Food and Related - 4.96%
General Mills, Inc.,
Master Note ........................... 20 20,000
Sara Lee Corporation,
Master Note ........................... 90 90,000
Total ................................. 110,000

TOTAL SHORT-TERM SECURITIES - 12.84% $ 284,934
(Cost: $284,934)

TOTAL INVESTMENT SECURITIES - 104.08% $2,309,312
(Cost: $2,254,000)

LIABILITIES, NET OF CASH AND OTHER ASSETS - (4.08%) (90,600)

NET ASSETS - 100.00% $2,218,712

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIO
JUNE 30, 1995

Principal
Amount in
Thousands Value

CORPORATE DEBT SECURITIES
Aerospace - 1.35%
McDonnell Douglas Corporation,
9.25%, 4-1-2002 ....................... $1,000 $ 1,128,780

Airlines - 1.25%
Federal Express Corporation,
7.89%, 9-23-2008 ...................... 1,000 1,049,750

Automotive - 5.49%
General Motors Corporation,
8.8%, 3-1-2021 ........................ 2,600 2,944,968
Toyota Motor Credit Corporation, Medium Term,
Three Year Basket Inverse Floating Rate,
0.74%, 8-5-96 (B) ..................... 1,750 1,652,088
Total ................................. 4,597,056

Banks and Savings and Loans - 8.90%
BarclaysAmericanCorporation,
9.125%, 12-1-97 ....................... 225 238,367
Bayerische Landesbank Girozentale, NY
Branch, CD, Currency Protected Deutschemark
Swap Rate Inverse Floating Rate,
3.85%, 3-28-97 (C) .................... 1,000 958,750
Chevy Chase Savings Bank, F.S.B.,
9.25%, 12-1-2005 ...................... 500 485,000
Citicorp,
7.75%, 6-15-2006 ...................... 1,000 1,048,390
Kansallis-Osake-Pankki,
10.0%, 5-1-2002 ....................... 1,000 1,159,370
Riggs National Corporation,
8.5%, 2-1-2006 ........................ 1,000 1,020,000
Skandia Enskilda Banken, NY Branch
Certificate of Deposit Dollarized
Australian Dollar Reset,
4.0%, 4-5-99 .......................... 1,000 910,000
SouthTrust Bank of Alabama, N.A.,
7.69%, 5-15-2025 ...................... 500 531,525
Wells Fargo & Company,
8.75%, 5-1-2002 ....................... 1,000 1,100,310
Total ................................. 7,451,712

Beverages - 0.97%
Coca-Cola Enterprises Inc.,
0%, 6-20-2020 ......................... 5,000 812,500

Building - 6.55%
Canadian Pacific Forest Products Ltd.,
9.25%, 6-15-2002 ...................... 1,000 1,045,320

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIO
JUNE 30, 1995

Principal
Amount in
Thousands Value

CORPORATE DEBT SECURITIES (Continued)
Building (Continued)
Doman Industries Limited,
8.75%, 3-15-2004 ...................... $ 500 $ 475,000
Noranda Forest Inc.,
7.5%, 7-15-2003 ....................... 1,000 1,017,560
Noranda Inc.,
8.625%, 7-15-2002 ..................... 950 1,034,731
Owens-Corning Fiberglas Corporation,
8.875%, 6-1-2002 ...................... 1,000 1,088,090
Del Webb Corporation,
10.875%, 3-31-2000 .................... 800 820,000
Total ................................. 5,480,701

Chemicals Major - 1.41%
Dow Capital BV,
9.0%, 5-15-2010 ....................... 1,000 1,179,110

Computers and Office Equipment - 1.25%
Unisys Corporation:
9.75%, 9-15-96 ........................ 500 511,250
10.625%, 10-1-99 ...................... 500 537,500
Total ................................. 1,048,750

Domestic Oil - 4.19%
Apache Corporation,
9.25%, 6-1-2002 ....................... 500 555,990
LASMO (USA) INC.,
7.125%, 6-1-2003 ...................... 1,000 1,000,700
Seagull Energy Corporation,
7.875%, 8-1-2003 ...................... 1,500 1,425,000
Union Texas Petroleum Holdings, Inc.,
8.25%, 11-15-99 ....................... 500 520,190
Total ................................. 3,501,880

Drugs and Hospital Supply - 1.25%
American Home Products Corporation,
7.7%, 2-15-2000 ....................... 1,000 1,046,680

Electrical Equipment - 3.11%
General Electric Capital Corporation:
8.3%, 9-20-2009 ....................... 1,500 1,686,600
8.65%, 5-1-2018 ....................... 895 912,077
Total ................................. 2,598,677

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIO
JUNE 30, 1995

Principal
Amount in
Thousands Value

CORPORATE DEBT SECURITIES (Continued)
Financial - 9.80%
Banc One Credit Card Master Trust,
7.55%, 12-15-99 ....................... $1,000 $ 1,025,620
Chrysler Financial Corporation,
12.75%, 11-1-99 ....................... 1,000 1,221,970
Countrywide Mortgage Backed Securities,
Inc.,
6.5%, 4-25-2024 ....................... 2,000 1,948,740
DLJ Mortgage Acceptance Corp., 1994-3 A13,
6.5%, 4-25-2024 ....................... 975 923,881
General Motors Acceptance Corporation,
8.875%, 6-1-2010 ...................... 1,000 1,150,910
Greyhound Financial Corporation,
8.0%, 1-15-97 ......................... 1,000 1,023,240
JCP Master Credit Card Trust,
9.625%, 6-15-2000 ..................... 500 550,310
National Credit Card Trust 1989-4,
9.45%, 12-31-97 ....................... 350 359,842
Total ................................. 8,204,513

Food and Related - 2.10%
Nabisco, Inc.,
8.625%, 3-15-2017 ..................... 1,669 1,755,371

Hospital Management - 0.59%
Columbia/HCA Healthcare Corporation,
7.69%, 6-15-2025 ...................... 500 497,120

Household Products - 2.75%
Procter & Gamble Company (The),
8.0%, 9-1-2024 ........................ 2,000 2,298,460

Insurance - 1.28%
Penn Central Corporation (The),
10.625%, 4-15-2000 .................... 1,000 1,073,340

International Oil - 0.52%
YPF Sociedad Anoima,
8.0%, 2-15-2004 ....................... 500 435,000

Leisure Time - 5.66%
Jones Intercable, Inc.,
9.625%, 3-15-2002 ..................... 500 522,500
Marriott International, Inc.,
6.75%, 12-15-2003 ..................... 1,000 980,630
Tele-Communications, Inc.,
9.8%, 2-1-2012 ........................ 750 824,670
Time Warner Incorporated,
7.75%, 6-15-2005 ...................... 1,000 992,750

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIO
JUNE 30, 1995

Principal
Amount in
Thousands Value

CORPORATE DEBT SECURITIES (Continued)
Leisure Time (Continued)
Turner Broadcasting System, Inc.,
8.375%, 7-1-2013 ...................... $1,000 $ 914,900
Viacom International, Inc.,
7.75%, 6-1-2005 ....................... 500 504,820
Total ................................. 4,740,270

Machinery - 0.72%
Caterpillar Inc.,
9.375%, 8-15-2011 ..................... 500 601,640

Multi-Industry - 2.61%
ITT Corporation,
8.85%, 7-15-2005 ...................... 1,000 1,166,660
Mark IV Industries, Inc.,
8.75%, 4-1-2003 ....................... 1,000 1,020,000
Total ................................. 2,186,660

Public Utilities - Electric - 1.25%
Kansas Gas & Electric Company,
7.6%, 12-15-2003 ...................... 1,000 1,043,780

Public Utilities - Pipelines - 1.94%
Arkla, Inc.,
8.875%, 7-15-99 ....................... 1,000 1,050,000
Coastal Corporation (The),
10.375%, 10-1-2000 .................... 500 571,245
Total ................................. 1,621,245

Publishing and Advertising - 1.88%
News America Holdings Incorporated:
9.125%, 10-15-99 ...................... 500 542,325
8.25%, 8-10-2018 ...................... 1,000 1,026,900
Total ................................. 1,569,225

Railroad Equipment - 0.01%
Union Tank Car Co.,
9.5%, 12-15-95 ........................ 9 9,126

Steel - 1.26%
USX Corporation,
8.21%, 1-21-2000 ...................... 1,000 1,053,780

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIO
JUNE 30, 1995

Principal
Amount in
Thousands Value

CORPORATE DEBT SECURITIES (Continued)
Telecommunications - 4.46%
New England Telephone & Telegraph Company,
7.875%, 11-15-2029 .................... $2,000 $ 2,166,300
Southwestern Bell Telephone Company,
7.0%, 8-26-2002 ....................... 1,000 1,031,460
US WEST, Inc.,
8.4%, 9-15-99 ......................... 500 533,255
Total ................................. 3,731,015

TOTAL CORPORATE DEBT SECURITIES - 72.55% $60,716,141
(Cost: $59,329,164)

OTHER GOVERNMENT SECURITIES
Australia - 0.82%
New South Wales Treasury,
7.0%, 8-15-98 (D) ..................... $A1,000 688,154

Canada - 4.20%
Hydro Quebec,
8.05%, 7-7-2024 ....................... $1,000 1,092,930
Province of Manitoba,
9.125%, 1-15-2018 ..................... 2,000 2,421,780
Total ................................. 3,514,710

Supranational - 1.40%
Inter-American Development Bank,
8.4%, 9-1-2009 ........................ 1,000 1,167,880

TOTAL OTHER GOVERNMENT SECURITIES - 6.42% $ 5,370,744
(Cost: $4,979,210)

UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Banks,
7.83%, 6-27-2005 ...................... 500 500,500
Federal Home Loan Mortgage Corporation:
6.83%, 7-3-2002 ....................... 500 496,170
7.5%, 11-15-2017 ...................... 1,538 1,574,528
7.5%, 4-15-2019 ....................... 1,236 1,226,678
7.0%, 1-15-2021 ....................... 500 490,155
8.0%, 11-1-2024 ....................... 978 996,634
8.0%, 4-1-2025 ........................ 980 998,007
Federal National Mortgage Association:
7.09%, 4-1-2004 ....................... 500 499,000
7.5%, 9-1-2009 ........................ 974 990,339

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIO
JUNE 30, 1995

Principal
Amount in
Thousands Value

UNITED STATES GOVERNMENT SECURITIES (Continued)
United States Treasury:
8.875%, 8-15-2017 ..................... $2,000 $ 2,490,000

TOTAL UNITED STATES GOVERNMENT
SECURITIES - 12.26% $10,262,011
(Cost: $9,865,716)

TOTAL SHORT-TERM SECURITIES - 7.77% $ 6,506,372
(Cost: $6,506,372)

TOTAL INVESTMENT SECURITIES - 99.00% $82,855,268
(Cost: $80,680,462)

CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.00% 833,957

NET ASSETS - 100.00% $83,689,225

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
JUNE 30, 1995

Shares Value

COMMON STOCKS
Hospital Management - 0.81%
LTC Properties, Inc. ................... 50,000 $ 656,250

Leisure Time - 1.51%
Infinity Broadcasting Corporation* ..... 33,750 1,126,406
Sinclair Broadcast Group, Inc.* ........ 500 13,844
Trump Hotels & Casino Resorts, Inc.* ... 6,250 83,594
Total ................................. 1,223,844

Miscellaneous - 0.32%
Bell & Howell Holdings Company* ........ 12,500 253,125
Foodbrands America, Inc.* .............. 176 2,299
Total ................................. 255,424

TOTAL COMMON STOCKS - 2.64% $2,135,518
(Cost: $1,259,218)

PREFERRED STOCK - 0.66%
Banks and Savings and Loans
California Federal Bank, F.S.B. ........ 5,000 $ 535,000
(Cost: $500,000)

Principal
Amount in
Thousands

CORPORATE DEBT SECURITIES
Automotive - 1.76%
Lear Seating Corporation,
8.25%, 2-1-2002 ....................... $1,500 1,425,000

Beverages - 0.46%
Dr Pepper Bottling Holdings, Inc.,
0.0%, 2-15-2003 (E).................... 500 375,000

Biotechnology and Medical Services - 1.99%
Abbey Healthcare Group Incorporated,
9.5%, 11-1-2022 ....................... 500 515,000
Quorum Health Group, Inc.,
11.875%, 12-15-2002 ................... 1,000 1,095,000
Total ................................. 1,610,000

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
JUNE 30, 1995

Principal
Amount in
Thousands Value

CORPORATE DEBT SECURITIES (Continued)
Building - 7.48%
American Standard Inc.:
9.875%, 6-1-2001 ...................... $1,000 $ 1,030,000
9.25%, 12-1-2016 ...................... 500 500,000
Beazer Homes USA, Inc.,
9.0%, 3-1-2004 ........................ 750 661,875
Eagle Industries, Inc.,
0.0%, 7-15-2003 (E) ................... 1,500 1,110,000
Hillsborough Company,
17.0%, 1-1-96 (F) ..................... 500 373,630
NVR L.P.,
11.0%, 4-15-2003 ...................... 1,000 910,000
Nortek, Inc.,
9.875%, 3-1-2004 ...................... 500 450,000
Triangle Pacific Corp.,
10.5%, 8-1-2003 ....................... 1,000 1,017,500
Total ................................. 6,053,005

Chemicals Specialty and Miscellaneous Technology - 3.44%
Buckeye Cellulose Corporation,
10.25%, 5-15-2001 ..................... 1,250 1,243,750
LaRoche Industries Inc.,
13.0%, 8-15-2004 ...................... 500 515,000
OSi Specialties, Inc.,
9.25%, 10-1-2003 ...................... 500 505,000
Pioneer Americas Acquisition Corp.,
13.375%, 4-1-2005 (A) ................. 500 517,500
Total ................................. 2,781,250

Computers and Office Equipment - 1.18%
Mail-Well Corporation,
10.5%, 2-15-2004 ...................... 500 445,000
United Stationers Supply Co.,
12.75%, 5-1-2005 (A) .................. 500 508,750
Total ................................. 953,750

Consumer Electronics and Appliances - 0.39%
Sealy Corporation,
9.5%, 5-1-2003 ........................ 325 318,500

Domestic Oil - 1.53%
Clark R&M Holdings, Inc.,
0.0%, 2-15-2000 ....................... 2,000 1,240,000

Drugs and Hospital Supply - 1.81%
AmeriSource Distribution Corporation,
11.25%, 7-15-2005 ..................... 368 388,492
General Medical Corporation,
12.125%, 8-15-2005 .................... 1,060 1,075,265
Total ................................. 1,463,757

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
JUNE 30, 1995

Principal
Amount in
Thousands Value

CORPORATE DEBT SECURITIES (Continued)
Electronics - 1.19%
Essex Group, Inc.,
10.0%, 5-1-2003 ....................... $1,000 $ 965,000

Food and Related - 2.07%
General Nutrition, Incorporated,
11.375%, 3-1-2000 ..................... 393 434,756
Pilgrim's Pride Corporation,
10.875%, 8-1-2003 ..................... 300 282,750
Specialty Foods Corporation,
10.25%, 8-15-2001 ..................... 1,000 960,000
Total ................................. 1,677,506

Hospital Management - 3.72%
LTC Properties, Inc., Convertible,
8.5%, 1-1-2000 ........................ 1,000 985,000
National Medical Enterprises, Inc.,
9.625%, 9-1-2002 ...................... 1,000 1,055,000
Pathmark,
9.625%, 5-1-2003 ...................... 1,000 975,000
Total ................................. 3,015,000

Household Products - 2.18%
Exide Corporation:
10.75%, 12-15-2002 .................... 750 793,125
0.0%, 12-15-2004 (E) .................. 500 357,500
10.0%, 4-15-2005 (A) .................. 500 513,750
MacAndrews & Forbes Group, Incorporated,
13.0%, 3-1-99 ......................... 100 100,500
Total ................................. 1,764,875

Leisure Time - 17.83%
Cablevision Industries Corporation,
10.75%, 1-30-2002 ..................... 500 546,250
California Hotel Finance Corporation,
11.0%, 12-1-2002 ...................... 1,000 1,025,000
COMCAST CORPORATION,
0.0%, 3-5-2000 ........................ 1,000 710,000
Continental Cablevision, Inc.:
10.625%, 6-15-2002 .................... 500 525,000
8.875%, 9-15-2005 ..................... 500 510,000
11.0%, 6-1-2007 ....................... 500 555,000

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
JUNE 30, 1995

Principal
Amount in
Thousands Value

CORPORATE DEBT SECURITIES (Continued)
Leisure Time (Continued)
FLAGSTAR COMPANIES, INC.:
10.75%, 9-15-2001 ..................... $1,000 $ 940,000
11.25%, 11-1-2004 ..................... 1,000 780,000
GNS Finance Corp.,
9.25%, 3-15-2003 ...................... 1,500 1,605,000
Granite Broadcasting Corporation,
10.375%, 5-15-2005 (A) ................ 500 500,000
Heartland Wireless Communications, Inc., Units,
13.0%, 4-15-2003 (A)(G) ............... 500 530,000
Infinity Broadcasting Corporation,
10.375%, 3-15-2002 .................... 1,000 1,060,000
Plitt Theatres, Inc.,
10.875%, 6-15-2004 .................... 1,000 990,000
Showboat, Inc.,
9.25%, 5-1-2008 ....................... 1,000 917,500
Sinclair Broadcast Group, Inc.,
10.0%, 12-15-2003 ..................... 375 375,000
Trump Hotels & Casino Resorts
Holdings, L.P.,
15.5%, 6-15-2005 ...................... 1,000 977,500
Turner Broadcasting System, Inc.,
8.375%, 7-1-2013 ...................... 1,000 914,900
Viacom International, Inc.,
8.0%, 7-7-2006 ........................ 1,000 973,750
Total ................................. 14,434,900

Metals and Mining - 0.67%
UCAR Global Enterprises Inc.,
12.0%, 1-15-2005 ...................... 500 540,000

Multi-Industry - 3.61%
Federal Industries Ltd.,
10.25%, 6-15-2000 ..................... 500 468,750
Jordan Industries, Inc.,
10.375%, 8-1-2003 ..................... 1,000 922,500
Mark IV Industries, Inc.,
8.75%, 4-1-2003 ....................... 1,500 1,530,000
Total ................................. 2,921,250

Oil Services - 1.27%
Wainoco Oil Corporation,
12.0%, 8-1-2002 ....................... 1,000 1,030,000

Packaging and Containers - 5.27%
Container Corporation of America,
11.25%, 5-1-2004 ...................... 1,500 1,560,000
Gaylord Container Corporation,
0.0%, 5-15-2005 (E) ................... 500 490,000

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
JUNE 30, 1995

Principal
Amount in
Thousands Value

CORPORATE DEBT SECURITIES (Continued)
Packaging and Containers (Continued)
Owens-Illinois, Inc.,
10.25%, 4-1-99 ........................ $1,000 $ 1,020,000
Silgan Corporation,
0.0%, 12-15-2002 (E)................... 500 457,500
Sweetheart Cup Company, Inc.,
10.5%, 9-1-2003 ....................... 750 742,500
Total ................................. 4,270,000

Paper - 3.17%
Fort Howard Corporation,
11.0%, 1-2-2002 ....................... 468 482,358
Repap New Brunswick Inc.,
10.625%, 4-15-2005 .................... 500 505,000
Stone Container Corporation,
10.75%, 10-1-2002 ..................... 750 785,625
Williamhouse - Regency of Delaware, Inc.,
11.5%, 6-15-2005 ..................... 800 796,000
Total ................................. 2,568,983

Public Utilities - Gas - 0.64%
AmeriGas Partners, L.P.,
10.125%, 4-15-2007 (A) ................ 500 520,000

Publishing and Advertising - 3.71%
American Media Operations, Inc.,
11.625%, 11-15-2004 ................... 1,000 1,070,000
Big Flower Press, Inc.,
10.75%, 8-1-2003 ...................... 1,000 985,000
Outdoor Systems, Inc.,
10.75%, 8-15-2003 ..................... 1,000 950,000
Total ................................. 3,005,000

Railroad Equipment - 0.63%
Westinghouse Air Brake Company,
9.375%, 6-15-2005 ..................... 500 506,250

Retailing - 8.51%
Barnes & Noble, Inc.,
11.875%, 1-15-2003 ................... 500 546,250
Big V Supermarkets, Inc.,
11.0%, 2-15-2004 ...................... 500 420,000
Kroger Co. (The),
9.75%, 2-15-2004 ...................... 1,000 1,070,000
Musicland Stores Corporation,
9.0%, 6-15-2003 ....................... 1,500 1,350,000
Penn Traffic Company,
10.375%, 10-1-2004 .................... 1,500 1,541,250

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
JUNE 30, 1995

Principal
Amount in
Thousands Value

CORPORATE DEBT SECURITIES (Continued)
Retailing (Continued)
Ralphs Grocery Company,
10.45%, 6-15-2004 ..................... $1,000 $ 1,000,000
WestPoint Stevens Inc.,
9.375%, 12-15-2005 .................... 1,000 962,500
Total ................................. 6,890,000

Services, Consumer and Business - 0.99%
Bell & Howell Company,
10.75%, 10-1-2002 ..................... 750 798,750

Steel - 1.01%
AK Steel Corporation,
10.75%, 4-1-2004 ...................... 250 262,500
Inland Steel Industries, Inc.,
12.75%, 12-15-2002 .................... 500 557,500
Total ................................. 820,000

Telecommunications - 3.55%
MFS Communications Company, Inc.,
0.0%, 1-15-2004 (E) ................... 1,000 695,000
PanAmSat, L.P.:
9.75%, 8-1-2000 ....................... 1,000 1,020,000
0.0%, 8-1-2003 (E) .................... 1,000 715,000
USA Mobile Communications, Inc.,
9.5%, 2-1-2004 ........................ 500 440,000
Total ................................. 2,870,000

Textiles and Apparel - 1.13%
CONSOLTEX GROUP INC.,
11.0%, 10-1-2003 ...................... 1,000 915,000

TOTAL CORPORATE DEBT SECURITIES - 81.19% $65,732,776
(Cost: $65,517,852)

SHORT-TERM SECURITIES
Banks and Savings and Loans - 4.24%
U.S. Bancorp,
Master Note ........................... 3,432 3,432,000

Food and Related - 3.75%
General Mills, Inc.,
Master Note ........................... 1,095 1,095,000
Sara Lee Corporation,
Master Note ........................... 1,940 1,940,000
Total ................................. 3,035,000

See Notes to Schedules of Investments on page 179.

<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
JUNE 30, 1995

Principal
Amount in
Thousands Value

SHORT-TERM SECURITIES (Continued)
Railroads - 4.21%
Burlington Northern Railroad Co.,
6.1%, 8-4-95 .......................... $3,430 $ 3,410,239

Retailing - 1.60%
Rite Aid Corp.,
6.02%, 7-10-95 ........................ 1,300 1,298,044

TOTAL SHORT-TERM SECURITIES - 13.80% $11,175,283
(Cost: $11,175,283)

TOTAL INVESTMENT SECURITIES - 98.29% $79,578,577
(Cost: $78,452,353)

CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.71% 1,385,012

NET ASSETS - 100.00% $80,963,589

See Notes to Schedules of Investments on page 179.

<PAGE>
Notes to Schedules of Investments

*No income dividends were paid during the preceding 12 months.

(A) As of June 30, 1995, the following restricted securities were owned in the
International Portfolio:

Acquisition Acquisition Market
Security Date Shares Cost Value
---------------- --------------------------------------------
Samsung Electronics Co.,
Ltd., GDR 05/17/95 15,000$ 777,750$ 796,950
05/25/95 4,000 206,500 212,520

Tarkett Aktiengesellschaft,
ADS 06/27/95 12,000 275,760 312,000
--------------------
$1,260,010$1,321,470
====================

The total market value of restricted securities represents approximately
3.27% of the total net assets in the International Portfolio at June 30,
1995.

As of June 30, 1995, the following restricted securities were owned in the
High Income Portfolio:

Principal
Acquisition Amount Acquisition Market
Security Date in 000's Cost Value
---------------- --------------------------------------------
AmeriGas Partners, L.P.,
10.125%, 4-15-2007 04/12/95 $500$ 500,000$ 520,000

Exide Corporation,
10.0%, 4-15-2005 04/21/95 500 500,000 513,750

Granite Broadcasting
Corporation,
10.375%, 5-15-2005 05/12/95 500 500,000 500,000

Heartland Wireless
Communications, Inc., Units,
13.0%, 4-15-2003 04/20/95 500 500,000 530,000

Pioneer Americas
Acquisition Corp.,
13.375%, 4-1-2005 04/13/95 500 500,000 517,500

United Stationers
Supply Co.,
12.75%, 5-1-2005 04/26/95 500 500,000 508,750
--------------------
$3,000,000$3,090,000
====================

The total market value of restricted securities represents approximately
3.82% of the total net assets in the High Income Portfolio at June 30,
1995.

(B) Coupon resets semiannually based on the arithmetic mean of two year swap
rates in four nations: Italy, France, Spain, and the United Kingdom,
determined by the following formula (minimum coupon of 0%):
19.65% - 2X(Average two year swap rate in the aforementioned nations).

(D) Principal amounts are denominated in the indicated foreign currency where
applicable ($A - Australian dollar).

(E) The security does not bear interest for an initial period of time and
subsequently becomes interest bearing.

(F) Non-income producing as the issuer has either missed its most recent
interest payment or declared bankruptcy.

(G) Each unit consists of one thousand face value corporate bond and six
warrants expiring 4-15-2003.

See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.

See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.

<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1995
(Unaudited) Growth IncomeInternational
Portfolio Portfolio Portfolio
Assets ----------- ---------- -----------
Investment securities--at
value (Notes 1 and 3) $339,173,358$282,522,827 $39,800,823
Cash .............. 3,070 2,523 3,397
Receivables:
Investment securities
sold ............ 11,058,592 1,776,922 213,713
Dividends and interest 564,740 323,354 203,821
Fund shares sold .. 220,318 186,427 217,627
Prepaid insurance
premium ........... 8,320 6,105 1,694
------------------------ -----------
Total assets .... 351,028,398 284,818,158 40,441,075
Liabilities ------------------------ -----------
Payable for investment
securities purchased 11,228,407 --- ---
Payable for Fund shares
redeemed .......... 150,352 94,861 11,623
Accrued accounting
services fee ...... 4,167 4,167 1,667
Dividends payable .. --- --- ---
Other .............. 11,614 8,337 31,522
------------------------ -----------
Total liabilities 11,394,540 107,365 44,812
------------------------ -----------
Total net assets $339,633,858$284,710,793 $40,396,263
Net Assets ======================== ===========
$0.01 par value capital stock
Capital stock ..... $ 489,848$ 345,709 $ 75,375
Additional paid-in
capital ......... 298,721,086 219,022,178 38,324,552
Accumulated undistributed gain (loss):
Accumulated undistributed
net investment income 2,282,675 1,474,449 452,705
Accumulated undistributed
net realized gain (loss)
on investment
transactions .... 17,732,962 1,288,604 7,144
Net unrealized appreciation
of investments at end of
period .......... 20,407,287 62,579,853 1,536,487
------------------------ -----------
Net assets applicable to
outstanding units
of capital ..... $339,633,858$284,710,793 $40,396,263
======================== ===========
Net asset value, redemption
and offering price per share $6.9334 $8.2356 $5.3593
======= ======= =======
Capital shares outstanding 48,984,830 34,570,896 7,537,534
Capital shares authorized 100,000,000 100,000,000 100,000,000
See notes to financial statements.

<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1995
(Unaudited) Small Cap BalancedAsset Strategy
Portfolio Portfolio Portfolio
Assets ---------- ---------- -----------
Investment securities--at
value (Notes 1 and 3) $34,054,664 $16,318,187 $797,637
Cash .............. 7,178 2,701 1,317
Receivables:
Investment securities
sold ............ --- --- ---
Dividends and interest 18,635 81,680 192
Fund shares sold .. 134,192 92,044 32,949
Prepaid insurance
premium ........... 1,606 990 176
----------- ----------- --------
Total assets .... 34,216,275 16,495,602 832,271
Liabilities ----------- ----------- --------
Payable for investment
securities purchased --- 724,540 ---
Payable for Fund shares
redeemed .......... 5,291 2,871 15,404
Accrued accounting
services fee ...... 1,667 833 ---
Dividends payable .. --- --- ---
Other .............. 1,924 915 66
----------- ----------- --------
Total liabilities 8,882 729,159 15,470
----------- ----------- --------
Total net assets $34,207,393 $15,766,443 $816,801
Net Assets =========== =========== ========
$0.01 par value capital stock
Capital stock ..... $ 49,340 $ 28,577 $ 1,622
Additional paid-in
capital ......... 29,052,186 14,620,331 813,035
Accumulated undistributed gain (loss):
Accumulated undistributed
net investment income 296,064 209,195 2,144
Accumulated undistributed
net realized gain (loss)
on investment transactions
and foreign currency
transactions .... 943,228 15,047 ---
Net unrealized appreciation
of investments at end of
period .......... 3,866,575 893,293 ---
----------- ----------- --------
Net assets applicable to
outstanding units
of capital ..... $34,207,393 $15,766,443 $816,801
=========== =========== ========
Net asset value, redemption
and offering price per share $6.9330 $5.5171 $5.0360
======= ======= =======
Capital shares outstanding 4,934,027 2,857,735 162,194
Capital shares authorized 100,000,000 50,000,000 100,000,000
See notes to financial statements.

<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1995
(Unaudited) Money MarketLimited-Term Bond
PortfolioBond Portfolio Portfolio
Assets ------------------------- -----------
Investment securities--at
value (Notes 1 and 3) $29,409,558 $2,309,312 $82,855,268
Cash .............. 16,639 3,317 5,066
Receivables:
Investment securities
sold ............ --- --- 552,099
Dividends and interest 108,359 40,967 1,371,078
Fund shares sold .. 2,046,883 500 85,447
Prepaid insurance
premium ........... 2,209 539 3,426
----------- ---------- -----------
Total assets .... 31,583,648 2,354,635 84,872,384
Liabilities ----------- ---------- -----------
Payable for investment
securities purchased --- 99,875 992,169
Payable for Fund shares
redeemed .......... 541,661 35,459 184,087
Accrued accounting
services fee ...... 1,667 --- 2,500
Dividends payable .. 4,378 --- ---
Other .............. 814 589 4,403
----------- ---------- -----------
Total liabilities 548,520 135,923 1,183,159
----------- ---------- -----------
Total net assets $31,035,128 $2,218,712 $83,689,225
Net Assets =========== ========== ===========
$0.01 par value capital stock
Capital stock ..... $ 310,351 $ 4,190 $ 157,125
Additional paid-in
capital ......... 30,724,777 2,098,456 82,402,140
Accumulated undistributed gain (loss):
Accumulated undistributed
net investment income --- 60,754 2,712,910
Accumulated undistributed
net realized gain (loss)
on investment transactions
and foreign currency
transactions .... --- --- (3,757,250)
Net unrealized appreciation
of investments at end of
period .......... --- 55,312 2,174,300
----------- ---------- -----------
Net assets applicable to
outstanding units
of capital ..... $31,035,128 $2,218,712 $83,689,225
=========== ========== ===========
Net asset value, redemption
and offering price per share $1.0000 $5.2947 $5.3263
======= ======= =======
Capital shares outstanding 31,035,128 419,040 15,712,505
Capital shares authorized 200,000,000 50,000,000 100,000,000
See notes to financial statements.

<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1995
(Unaudited) High Income
Portfolio
Assets -------------
Investment securities--at
value (Notes 1 and 3) $79,578,577
Cash .............. 2,599
Receivables:
Investment securities
sold ............ 490,000
Dividends and interest 1,459,478
Fund shares sold .. 61,962
Prepaid insurance
premium ........... 3,606
-----------
Total assets .... 81,596,222
Liabilities -----------
Payable for investment
securities purchased 490,000
Payable for Fund shares
redeemed .......... 132,670
Accrued accounting
services fee ...... 2,500
Dividends payable .. ---
Other .............. 7,463
-----------
Total liabilities 632,633
-----------
Total net assets $80,963,589
Net Assets ===========
$0.01 par value capital stock
Capital stock ..... $ 178,688
Additional paid-in
capital ......... 79,067,098
Accumulated undistributed gain (loss):
Accumulated undistributed
net investment income 3,514,260
Accumulated undistributed
net realized gain (loss)
on investment transactions
and foreign currency
transactions .... (2,922,681)
Net unrealized appreciation
of investments at end of
period .......... 1,126,224
-----------
Net assets applicable to
outstanding units
of capital ..... $80,963,589
===========
Net asset value, redemption
and offering price per share $4.5310
=======
Capital shares outstanding 17,868,806
Capital shares authorized 100,000,000
See notes to financial statements.

<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Period Ended JUNE 30, 1995
(Unaudited)
Growth IncomeInternational
Portfolio Portfolio Portfolio
---------- ---------- ----------
Investment Income
Income:
Interest .......... $ 1,202,238 $ 413,932 $ 373,372
Dividends ......... 2,230,866 2,008,061 355,378
----------- ----------- ----------
Total income .... 3,433,104 2,421,993 728,750
----------- ----------- ----------
Expenses (Note 2):
Investment management
fee ............. 1,068,022 869,634 131,775
Accounting services
fee ............. 25,000 25,000 10,000
Registration fees . 17,376 23,065 9,177
Custodian fees .... 12,633 6,968 16,624
Audit fees ........ 15,088 12,281 2,556
Legal fees ........ 2,690 2,183 300
Other ............. 10,232 8,860 206
----------- ----------- ----------
Total expenses .. 1,151,041 947,991 170,638
----------- ----------- ----------
Net investment income 2,282,063 1,474,002 558,112
----------- ----------- ----------
Realized and Unrealized Gain (Loss)
on Investments
Realized net gain (loss)
on securities ..... 17,732,962 1,751,455 28,153
Realized net gain (loss)
on foreign currency
transactions ...... 612 447 (105,407)
----------- ----------- ----------
Realized net gain (loss)
on investments .. 17,733,574 1,751,902 (77,254)
Unrealized appreciation
in value of investments
during the period . 30,024,889 46,205,807 2,200,583
----------- ----------- ----------
Net gain on
investments .... 47,758,463 47,957,709 2,123,329
----------- ----------- ----------
Net increase in net
assets resulting
from operations $50,040,526 $49,431,711 $2,681,441
=========== =========== ==========

See notes to financial statements.

<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Period Ended JUNE 30, 1995
(Unaudited)
Small Cap BalancedAsset Strategy
Portfolio Portfolio Portfolio
---------- ---------- ----------
Investment Income
Income:
Interest .......... $ 421,796 $ 149,056 $2,587
Dividends ......... 630 106,653 ---
---------- ---------- ------
Total income .... 422,426 255,709 2,587
---------- ---------- ------
Expenses (Note 2):
Investment management
fee ............. 107,924 35,969 375
Accounting services
fee ............. 7,500 4,167 ---
Registration fees . 5,048 3,047 ---
Custodian fees .... 2,803 571 ---
Audit fees ........ 2,083 1,658 ---
Legal fees ........ 238 121 ---
Other ............. 766 981 68
---------- ---------- ------
Total expenses .. 126,362 46,514 443
---------- ---------- ------
Net investment income 296,064 209,195 2,144
---------- ---------- ------
Realized and Unrealized Gain (Loss)
on Investments
Realized net gain (loss)
on securities ..... 943,228 18,265 ---
Realized net gain (loss)
on foreign currency
transactions ...... --- --- ---
---------- ---------- ------
Realized net gain (loss)
on investments .. 943,228 18,265 ---
Unrealized appreciation
in value of investments
during the period . 2,558,296 1,128,727 ---
---------- ---------- ------
Net gain on
investments..... 3,501,524 1,146,992 ---
---------- ---------- ------
Net increase in net
assets resulting
from operations $3,797,588 $1,356,187 $2,144
========== ========== ======

See notes to financial statements.

<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Period Ended JUNE 30, 1995
(Unaudited)
Money MarketLimited-Term Bond
PortfolioBond Portfolio Portfolio
--------------- ---------- ----------
Investment Income
Income:
Interest .......... $807,623 $ 68,664 $2,955,579
Dividends ......... --- --- ---
-------- -------- ----------
Total income .... 807,623 68,664 2,955,579
-------- -------- ----------
Expenses (Note 2):
Investment management
fee ............. 67,037 5,325 211,321
Accounting services
fee ............. 10,000 --- 15,000
Registrations fees 1,370 567 13
Custodian fees .... 1,654 16 6,085
Audit fees ........ 2,503 1,283 4,898
Legal fees ........ 226 17 697
Other ............. 2,449 702 4,053
-------- -------- ----------
Total expenses .. 85,239 7,910 242,067
-------- -------- ----------
Net investment income 722,384 60,754 2,713,512
-------- -------- ----------
Realized and Unrealized Gain (Loss)
on Investments
Realized net gain (loss)
on securities ..... --- --- (277,554)
Realized net gain (loss)
on foreign currency
transactions ...... --- --- (602)
-------- -------- ----------
Realized net gain (loss)
on investments .. --- --- (278,156)
Unrealized appreciation
in value of investments
during the period . --- 102,999 6,770,634
-------- -------- ----------
Net gain on
investments .... --- 102,999 6,492,478
-------- -------- ----------
Net increase in net
assets resulting
from operations $722,384 $163,753 $9,205,990
======== ======== ==========

See notes to financial statements.

<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Period Ended JUNE 30, 1995
(Unaudited)
High Income
Portfolio
---------------
Investment Income
Income:
Interest .......... $3,738,490
Dividends ......... 55,562
----------
Total income .... 3,794,052
----------
Expenses (Note 2):
Investment management
fee ............. 252,307
Accounting services
fee ............. 15,000
Registration fees . 1,165
Custodian fees .... 1,790
Audit fees ........ 4,805
Legal fees ........ 684
Other ............. 4,041
----------
Total expenses .. 279,792
----------
Net investment income 3,514,260
----------
Realized and Unrealized Gain (Loss)
on Investments
Realized net gain (loss)
on securities ..... (1,177,577)
Realized net gain (loss)
on foreign currency
transactions ...... ---
----------
Realized net gain (loss)
on investments .. (1,177,577)
Unrealized appreciation
in value of investments
during the period . 5,119,250
----------
Net gain on
investments .... 3,941,673
----------
Net increase in net
assets resulting
from operations $7,455,933
==========

See notes to financial statements.

<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended JUNE 30, 1995
(Unaudited)
Growth IncomeInternational
Portfolio Portfolio Portfolio
----------- ----------- -----------
Increase in Net Assets
Operations:
Net investment
income .......... $ 2,282,063$ 1,474,002 $ 558,112
Realized net gain (loss)
on investments .. 17,733,574 1,751,902 (77,254)
Unrealized
appreciation .... 30,024,889 46,205,807 2,200,583
------------------------------------
Net increase in net
assets resulting
from operations. 50,040,526 49,431,711 2,681,441
------------------------ -----------
Dividends to shareholders from
net investment income* --- --- ---
------------------------ -----------
Capital share
transactions** .... 12,856,697 16,505,480 11,695,188
------------------------ -----------
Total increase . 62,897,223 65,937,191 14,376,629
Net Assets
Beginning of period 276,736,635 218,773,602 26,019,634
------------------------ -----------
End of period ...... $339,633,858$284,710,793 $40,396,263
======================== ===========
Undistributed net
investment income $2,282,675 $1,474,449 $452,705
========== ========== ========
*See "Financial Highlights" on pages 196 - 205.
**Shares issued from sale
of shares .......... 4,145,291 3,730,935 2,818,241
Shares issued from reinvest-
ment of dividends .. --- --- ---
Shares redeemed ...... (2,076,329) (1,480,664) (492,299)
--------- --------- ---------
Increase in outstanding
capital shares ...... 2,068,962 2,250,271 2,325,942
========= ========= =========
Value issued from sale
of shares .......... $25,923,536 $27,319,404 $14,153,273
Value issued from reinvest-
ment of dividends .. --- --- ---
Value redeemed ....... (13,066,839)(10,813,924) (2,458,085)
----------- ----------- -----------
Increase in
outstanding capital $12,856,697 $16,505,480 $11,695,188
=========== =========== ===========

See notes to financial statements.

<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended JUNE 30, 1995
(Unaudited)
Small Cap BalancedAsset Strategy
Portfolio Portfolio Portfolio
----------- ----------- -----------
Increase in Net Assets
Operations:
Net investment income $ 296,064 $ 209,195 $ 2,144
Realized net gain (loss)
on investments .. 943,228 18,265 ---
Unrealized
appreciation .... 2,558,296 1,128,727 ---
----------- ----------- --------
Net increase in net
assets resulting
from operations. 3,797,588 1,356,187 2,144
----------- ----------- --------
Dividends to shareholders from
net investment income* --- --- ---
Capital share
transactions** .... 14,329,643 5,739,188 814,657
----------- ----------- --------
Total increase . 18,127,231 7,095,375 816,801
Net Assets
Beginning of period 16,080,162 8,671,068 ---
----------- ----------- --------
End of period ...... $34,207,393 $15,766,443 $816,801
=========== =========== ========
Undistributed net
investment income $296,064 $209,195 $2,144
======== ======== ======
*See "Financial Highlights" on pages 196 - 205.
**Shares issued from sale
of shares .......... 2,532,540 1,194,969 162,692
Shares issued from reinvest-
ment of dividends .. --- --- ---
Shares redeemed ...... (282,193) (93,954) (498)
--------- --------- -------
Increase in outstanding
capital shares..... 2,250,347 1,101,015 162,194
========= ========= =======
Value issued from sale
of shares .......... $16,152,071 $6,221,023 $817,163
Value issued from reinvest-
ment of dividends .. --- --- ---
Value redeemed ....... (1,822,428) (481,835) (2,506)
----------- ---------- --------
Increase in
outstanding capital $14,329,643 $5,739,188 $814,657
=========== ========== ========

See notes to financial statements.

<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended JUNE 30, 1995
(Unaudited)
Money MarketLimited-Term Bond
PortfolioBond Portfolio Portfolio
-------------- ----------- -----------
Increase in Net Assets
Operations:
Net investment income $ 722,384 $ 60,754 $ 2,713,512
Realized net gain (loss)
on investments .. --- --- (278,156)
Unrealized
appreciation .... --- 102,999 6,770,634
----------- ---------- -----------
Net increase in net
assets resulting
from operations. 722,384 163,753 9,205,990
----------- ---------- -----------
Dividends to shareholders
from net investment
income*............ (722,384) --- ---
----------- ---------- -----------
Capital share
transactions**..... 222,865 409,813 466,385
----------- ---------- -----------
Total increase .. 222,865 573,566 9,672,375
Net Assets
Beginning of period 30,812,263 1,645,146 74,016,850
----------- ---------- -----------
End of period ...... $31,035,128 $2,218,712 $83,689,225
=========== ========== ===========
Undistributed net
investment income $--- $60,754 $2,712,910
==== ======= ==========
*See "Financial Highlights" on pages 196 - 205.
**Shares issued from sale
of shares .......... 76,522,981 103,619 1,067,979
Shares issued from reinvest-
ment of dividends .. 722,384 --- ---
Shares redeemed ...... (77,022,500) (23,007) (973,231)
------- ------ ------
Increase in outstanding
capital shares ..... 222,865 80,612 94,748
======= ====== ======
Value issued from sale
of shares .......... $76,522,981 $526,097 $5,337,558
Value issued from reinvest-
ment of dividends .. 722,384 --- ---
Value redeemed ....... (77,022,500) (116,284) (4,871,173)
-------- -------- --------
Increase in
outstanding capital $222,865 $409,813 $466,385
======== ======== ========

See notes to financial statements.

<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended JUNE 30, 1995
(Unaudited)
High Income
Portfolio
-----------
Increase in Net Assets
Operations:
Net investment income $ 3,514,260
Realized net gain (loss)
on investments .. (1,177,577)
Unrealized
appreciation .... 5,119,250
-----------
Net increase in net
assets resulting
from operations. 7,455,933
-----------
Dividends to shareholders
from net investment
income*............ ---
-----------
Capital share
transactions**..... 863,981
-----------
Total increase .. 8,319,914
Net Assets
Beginning of period 72,643,675
-----------
End of period ...... $80,963,589
===========
Undistributed net
investment income $3,514,260
==========
*See "Financial Highlights" on pages 196 - 205.
**Shares issued from sale
of shares .......... 1,367,697
Shares issued from reinvest-
ment of dividends .. ---
Shares redeemed ...... (1,165,892)
-------
Increase in outstanding
capital shares ..... 201,805
=======
Value issued from sale
of shares .......... $5,904,797
Value issued from reinvest-
ment of dividends .. ---
Value redeemed ....... (5,040,816)
--------
Increase in
outstanding capital $863,981
========

See notes to financial statements.

<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended DECEMBER 31, 1994
(Unaudited)
Growth IncomeInternational
Portfolio Portfolio Portfolio
----------- ----------- -----------
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 5,286,234$ 2,248,257 $ 106,617
Realized net gain (loss)
on investments .. 14,371,377 684,147 (21,009)
Unrealized appreciation
(depreciation) .. (13,761,465) (6,030,073) (664,096)
------------------------ -----------
Net increase (decrease)
in net assets resulting
from operations. 5,896,146 (3,097,669) (578,488)
------------------------ -----------
Dividends to shareholders from:*
Net investment income (5,286,234) (2,248,257) (106,617)
Realized gains on securities
transactions .... (14,154,374) --- ---
------------------------ -----------
(19,440,608) (2,248,257) (106,617)
------------------------ -----------
Capital share
transactions** .... 69,690,925 69,027,272 26,704,739
------------------------ -----------
Total increase
(decrease)...... 56,146,463 63,681,346 26,019,634
Net Assets
Beginning of period 220,590,172 155,092,256 ---
------------------------ -----------
End of period ...... $276,736,635$218,773,602 $26,019,634
======================== ===========
Undistributed net
investment income $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages 196 - 205.
**Shares issued from sale
of shares .......... 11,752,596 11,914,285 5,355,035
Shares issued from reinvest-
ment of dividends and/or
distributions ...... 3,295,800 332,145 21,355
Shares redeemed ...... (3,733,563) (2,344,370) (164,798)
---------- ---------- ---------
Increase in outstanding
capital shares ...... 11,314,833 9,902,060 5,211,592
========== ========== =========
Value issued from sale
of shares .......... $73,683,884 $83,060,254 $27,436,654
Value issued from reinvest-
ment of dividends and/or
distributions ...... 19,440,608 2,248,256 106,617
Value redeemed ....... (23,433,567)(16,281,238) (838,532)
----------- ----------- -----------
Increase in
outstanding capital $69,690,925 $69,027,272 $26,704,739
=========== =========== ===========
See notes to financial statements.

<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended DECEMBER 31, 1994
(Unaudited)
Small Cap BalancedMoney Market
Portfolio Portfolio Portfolio
----------- ----------- -----------
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 99,347 $ 79,610 $ 851,434
Realized net gain (loss)
on investments .. 44,381 (3,218) ---
Unrealized appreciation
(depreciation) .. 1,308,279 (235,434) ---
----------- ---------- -----------
Net increase (decrease)
in net assets resulting
from operations. 1,452,007 (159,042) 851,434
----------- ---------- -----------
Dividends to shareholders from:*
Net investment income (99,347) (79,610) (851,434)
Realized gains on securities
transactions .... (44,381) --- ---
----------- ---------- -----------
(143,728) (79,610) (851,434)
----------- ---------- -----------
Capital share
transactions** .... 14,771,883 8,909,720 4,812,395
----------- ---------- -----------
Total increase
(decrease) .... 16,080,162 8,671,068 4,812,395
Net Assets
Beginning of period --- --- 25,999,868
----------- ---------- -----------
End of period ...... $16,080,162 $8,671,068 $30,812,263
=========== ========== ===========
Undistributed net
investment income $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages 196 - 205.
**Shares issued from sale
of shares .......... 2,722,519 1,795,318 183,043,231
Shares issued from reinvest-
ment of dividends and/or
distributions ...... 23,987 16,128 851,433
Shares redeemed ...... (62,826) (54,726)(179,082,269)
--------- --------- -----------
Increase in outstanding
capital shares..... 2,683,680 1,756,720 4,812,395
========= ========= ==========
Value issued from sale
of shares .......... $14,980,266 $9,104,454$183,043,231
Value issued from reinvest-
ment of dividends and/or
distributions ...... 143,729 79,610 851,433
Value redeemed ....... (352,112) (274,344)(179,082,269)
----------- ----------------------
Increase in
outstanding capital $14,771,883 $8,909,720$ 4,812,395
=========== =====================+
See notes to financial statements.

<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended DECEMBER 31, 1994
(Unaudited)
Limited-Term Bond High Income
Bond Portfolio Portfolio Portfolio
-------------- ----------- -----------
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 49,532 $ 5,286,973 $ 6,761,683
Realized net gain (loss)
on investments .. 455 (3,479,696) (1,428,391)
Unrealized appreciation
(depreciation) .. (47,687) (6,740,515) (7,299,167)
---------- ----------- -----------
Net increase (decrease)
in net assets resulting
from operations. 2,300 (4,933,238) (1,965,875)
---------- ----------- -----------
Dividends to shareholders
from:*
Net investment income (49,532) (5,286,973) (6,761,683)
Realized gains on securities
transactions .... (455) --- ---
---------- ----------- -----------
(49,987) (5,286,973) (6,761,683)
---------- ----------- -----------
Capital share
transactions**..... 1,692,833 2,510,419 10,105,884
---------- ----------- -----------
Total increase
(decrease) ..... 1,645,146 (7,709,792) 1,378,326
Net Assets
Beginning of period --- 81,726,642 71,265,349
---------- ----------- -----------
End of period ...... $1,645,146 $74,016,850 $72,643,675
========== =========== ===========
Undistributed net
investment income $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages 196 - 205.
**Shares issued from sale
of shares .......... 331,301 3,002,124 3,768,168
Shares issued from reinvest-
ment of dividends and/or
distributions ...... 10,283 1,081,257 1,593,245
Shares redeemed ...... (3,156) (3,587,525) (3,062,321)
------- --------- ---------
Increase in outstanding
capital shares ..... 338,428 495,856 2,299,092
======= ========= =========
Value issued from sale
of shares .......... $1,658,566 $15,437,912 $16,942,683
Value issued from reinvest-
ment of dividends and/or
distributions ...... 49,987 5,286,973 6,761,683
Value redeemed ....... (15,720)(18,214,466)(13,598,482)
---------- ----------- -----------
Increase in
outstanding capital $1,692,833 $ 2,510,419 $10,105,884
========== =========== ===========
See notes to financial statements.

<PAGE>
FINANCIAL HIGHLIGHTS OF
THE GROWTH PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:
(Unaudited)
For the
six months For the fiscal year ended December 31,
ended -----------------------------------------
6/30/95 1994 1993 1992 1991 1990
---------- ------- ------- ------- ------- -------
Net asset value,
beginning of
period ........... $5.8986 $6.1962 $6.1505 $5.5973 $4.9479 $5.4025
------- ------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income .......... 0.0466 0.1211 0.0537 0.1013 0.1229 0.1661
Net realized and
unrealized gain
(loss) on
investments ..... 0.9882 0.0268 0.8087 1.0653 1.6636 (0.4546)
------- ------- ------- ------- ------- -------
Total from investment
operations ....... 1.0348 0.1479 0.8624 1.1666 1.7865 (0.2885)
------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment
income .......... (0.0000) (0.1211)(0.0537) (0.1013)(0.1229) (0.1661)
Distribution from
capital gains ... (0.0000) (0.3244)(0.7569) (0.5121)(1.0142) (0.0000)
Distribution in
excess of capital
gains ........... (0.0000) (0.0000)(0.0061) (0.0000)(0.0000) (0.0000)
------- ------- ------- ------- ------- -------
Total distributions. (0.0000) (0.4455)(0.8167) (0.6134)(1.1371) (0.1661)
------- ------- ------- ------- ------- -------
Net asset value,
end of period .... $6.9334 $5.8986 $6.1962 $6.1505 $5.5973 $4.9479
======= ======= ======= ======= ======= =======
Total return ....... 17.54% 2.39% 14.02% 20.84% 36.10% -5.34%
Net assets, end of
period (000
omitted) .........$339,634$276,737$220,590 $122,363 $69,044 $37,440
Ratio of expenses
to average net
assets ............ 0.77%* 0.77% 0.78% 0.80% 0.86% 0.86%
Ratio of net investment
income to average
net assets ....... 1.52%* 2.07% 1.01% 2.00% 2.43% 3.58%
Portfolio turnover
rate ............. 234.38%* 277.36% 297.81% 225.87% 316.72% 331.15%

*Annualized.

See notes to financial statements.

<PAGE>
FINANCIAL HIGHLIGHTS OF
THE INCOME PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:
(Unaudited)
For the
six months For the fiscal year ended December 31,
ended -----------------------------------------
6/30/95 1994 1993 1992 1991
---------- ------- ------- ------- -------
Net asset value,
beginning of
period ........... $6.7689 $6.9180 $5.9530 $5.3158 $5.0000
------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income .......... 0.0426 0.0703 0.0651 0.0803 0.0633
Net realized and
unrealized gain (loss)
on investments .. 1.4241 (0.1491) 0.9650 0.6496 0.3158
------- ------- ------- ------- -------
Total from investment
operations ....... 1.4667 (0.0788) 1.0301 0.7299 0.3791
------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment
income .......... (0.0000) (0.0703)(0.0651) (0.0803)(0.0633)
Distribution from
capital gains.... (0.0000) (0.0000)(0.0000) (0.0124)(0.0000)
------- ------- ------- ------- -------
Total distributions. (0.0000) (0.0703)(0.0651) (0.0927)(0.0633)
------- ------- ------- ------- -------
Net asset value,
end of period .... $8.2356 $6.7689 $6.9180 $5.9530 $5.3158
======= ======= ======= ======= =======
Total return........ 21.67% -1.14% 17.30% 13.78% 17.43%
Net assets, end of
period (000
omitted) .........$284,711$218,774$155,092 $65,027 $15,640
Ratio of expenses
to average net
assets ............ 0.78%** 0.77% 0.79% 0.85% 0.89%
Ratio of net investment
income to average
net assets ....... 1.21%** 1.16% 1.36% 1.78% 2.47%
Portfolio turnover
rate ............. 13.78%** 23.32% 18.38% 15.74% 4.41%

<PAGE>
FINANCIAL HIGHLIGHTS OF
THE INTERNATIONAL PORTFOLIO
For a Share of Capital Stock Outstanding Throughout The Period:
(Unaudited)
For the For the
six months period
ended ended
6/30/95 12/31/94*
---------- ----------
Net asset value,
beginning of
period ........... $4.9926 $5.0000
------- -------
Income from investment
operations:
Net investment
income .......... 0.0740 0.0207
Net realized and
unrealized gain (loss)
on investments... 0.2927 (0.0074)
------- -------
Total from investment
operations ....... 0.3667 0.0133

Less dividends from net
investment
income .......... (0.0000) (0.0207)
------- -------
Net asset value,
end of period .... $5.3593 $4.9926
======= =======
Total return........ 7.34% 0.26%
Net assets, end of
period (000
omitted) ......... $40,396 $26,020
Ratio of expenses
to average net
assets ............ 1.05%** 1.26%
Ratio of net investment
income to average
net assets ....... 3.44%** 1.36%
Portfolio turnover
rate ............. 27.66%** 23.23%

See notes to financial statements.

<PAGE>
FINANCIAL HIGHLIGHTS OF
THE SMALL CAP PORTFOLIO
For a Share of Capital Stock Outstanding Throughout The Period:
(Unaudited)
For the For the
six months period
ended ended
6/30/95 12/31/94*
---------- ----------
Net asset value,
beginning of
period ........... $5.9918 $5.0000
------- -------
Income from investment
operations:
Net investment
income .......... 0.0600 0.0376
Net realized and
unrealized gain
on investments .. 0.8812 1.0086
------- -------
Total from investment
operations ....... 0.9412 1.0462
------- -------
Less distributions:
Dividends from net
investment income (0.0000) (0.0376)
Distributions from
capital gains.... (0.0000) (0.0168)
------- -------
Total distributions (0.0000) (0.0544)
------- -------
Net asset value,
end of period .... $6.9330 $5.9918
======= =======
Total return........ 15.71% 20.92%
Net assets, end of
period (000
omitted) ......... $34,207 $16,080
Ratio of expenses
to average net
assets ............ 1.01%** 1.08%
Ratio of net investment
income to average
net assets ....... 2.36%** 2.35%
Portfolio turnover
rate ............. 56.10%** 21.61%

See notes to financial statements.

<PAGE>
FINANCIAL HIGHLIGHTS OF
THE BALANCED PORTFOLIO
For a Share of Capital Stock Outstanding Throughout The Period:
(Unaudited)
For the For the
six months period
ended ended
6/30/95 12/31/94*
---------- ----------
Net asset value,
beginning of
period ........... $4.9359 $5.0000
------- -------
Income from investment
operations:
Net investment
income .......... 0.0732 0.0460
Net realized and
unrealized gain (loss)
on investments .. 0.5080 (0.0641)
------- -------
Total from investment
operations ....... 0.5812 (0.0181)
Less dividends from net
investment
income .......... (0.0000) (0.0460)
------- -------
Net asset value,
end of period .... $5.5171 $4.9359
======= =======
Total return........ 11.78% -0.37%
Net assets, end of
period (000
omitted) ......... $15,766 $8,671
Ratio of expenses
to average net
assets ............ 0.79%** 0.95%
Ratio of net investment
income to average
net assets ....... 3.54%** 3.14%
Portfolio turnover
rate ............. 78.58%** 19.74%

See notes to financial statements.

<PAGE>
FINANCIAL HIGHLIGHTS OF
THE ASSET STRATEGY PORTFOLIO
For a Share of Capital Stock Outstanding Throughout The Period:
(Unaudited)
For the
period
ended
6/30/95*
----------
Net asset value,
beginning of
period ........... $5.0000
-------
Income from investment
operations:
Net investment
income .......... 0.0132
Net realized and
unrealized gain
on investments .. 0.0228
-------
Total from investment
operations ....... 0.0360
-------
Net asset value,
end of period .... $5.0360
=======
Total return........ 0.72%
Net assets, end of
period (000
omitted) ......... $817
Ratio of expenses
to average net
assets ............ 0.95%
Ratio of net investment
income to average
net assets ....... 4.61%
Portfolio turnover
rate ............. 0.00%

*The Asset Strategy Portfolio's inception date is February 14, 1995; however,
since this Portfolio did not have any investment activity or incur expenses
prior to the date of initial offering, the per share information is for a
capital share outstanding for the period from May 1, 1995 (initial offering)
through June 30, 1995. Ratios and the portfolio turnover rate have been
annualized.

See notes to financial statements.

<PAGE>
FINANCIAL HIGHLIGHTS OF
THE MONEY MARKET PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:
(Unaudited)
For the
six months For the fiscal year ended December 31,
ended -----------------------------------------
6/30/95 1994 1993 1992 1991 1990
---------- ------- ------- ------- ------- -------
Net asset value,
beginning of
period ........... $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- ------- -------
Net investment
income .......... 0.0273 0.0368 0.0260 0.0324 0.0536 0.0753
Less dividends
declared ......... (0.0273) (0.0368)(0.0260) (0.0324)(0.0536) (0.0753)
------- ------- ------- ------- ------- -------
Net asset value,
end of period .... $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= ======= =======
Total return ....... 2.76% 3.72% 2.63% 3.29% 5.49% 7.82%
Net assets, end of
period (000
omitted) .........$31,035 $30,812 $26,000 $23,995 $19,797 $16,870
Ratio of expenses
to average net
assets ............ 0.65%* 0.65% 0.65% 0.65% 0.76% 0.79%
Ratio of net investment
income to average
net assets ....... 5.51%* 3.72% 2.61% 3.17% 5.33% 7.52%

*Annualized.

See notes to financial statements.

<PAGE>
FINANCIAL HIGHLIGHTS OF
THE LIMITED-TERM BOND PORTFOLIO
For a Share of Capital Stock Outstanding Throughout The Period:
(Unaudited)
For the For the
six months period
ended ended
6/30/95 12/31/94*
---------- ----------
Net asset value,
beginning of
period ........... $4.8611 $5.0000
------- -------
Income from investment
operations:
Net investment
income .......... 0.1450 0.1507
Net realized and
unrealized gain (loss)
on investments .. 0.2886 (0.1375)
------- -------
Total from investment
operations ....... 0.4336 0.0132
------- -------
Less distributions:
Dividends from net
investment
income .......... (0.0000) (0.1507)
Distribution from
capital gains ... (0.0000) (0.0014)
------- -------
Total distributions (0.0000) (0.1521)
------- -------
Net asset value,
end of period .... $5.2947 $4.8611
======= =======
Total return........ 8.92% 0.26%
Net assets, end of
period (000
omitted) ......... $2,219 $1,645
Ratio of expenses
to average net
assets ............ 0.83%** 0.93%
Ratio of net investment
income to average
net assets ....... 6.37%** 5.89%
Portfolio turnover
rate ............. 0.00%** 93.83%

<PAGE>
FINANCIAL HIGHLIGHTS OF
THE BOND PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:
(Unaudited)
For the
six months For the fiscal year ended December 31,
ended -----------------------------------------
6/30/95 1994 1993 1992 1991 1990
---------- ------- ------- ------- ------- -------
Net asset value,
beginning of
period ........... $4.7393 $5.4045 $5.2626 $5.2661 $4.9534 $5.0249
------- ------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income .......... 0.1727 0.3507 0.3334 0.3643 0.3867 0.4025
Net realized and
unrealized gain
(loss) on
investments ..... 0.4143 (0.6652) 0.3046 0.0216 0.3771 (0.0715)
------- ------- ------- ------- ------- -------
Total from investment
operations ....... 0.5870 (0.3145) 0.6380 0.3859 0.7638 0.3310
------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment
income .......... (0.0000) (0.3507)(0.3334) (0.3643)(0.3867) (0.4025)
Distribution from
capital gains ... (0.0000) (0.0000)(0.1627) (0.0251)(0.0644) (0.0000)
------- ------- ------- ------- ------- -------
Total distributions. (0.0000) (0.3507)(0.4961) (0.3894)(0.4511) (0.4025)
------- ------- ------- ------- ------- -------
Net asset value,
end of period .... $5.3263 $4.7393 $5.4045 $5.2626 $5.2661 $4.9534
======= ======= ======= ======= ======= =======
Total return ....... 12.39% -5.90% 12.37% 7.67% 16.19% 7.03%
Net assets, end of
period (000
omitted) .........$83,689 $74,017 $81,727 $49,428 $29,112 $16,464
Ratio of expenses
to average net
assets ............ 0.62%* 0.62% 0.62% 0.64% 0.72% 0.78%
Ratio of net investment
income to average
net assets ....... 6.95%* 6.73% 6.01% 6.91% 7.65% 8.05%
Portfolio turnover
rate ............. 64.96%* 135.82% 68.75% 44.32% 52.50% 51.50%

*Annualized.

See notes to financial statements.

<PAGE>
FINANCIAL HIGHLIGHTS OF
THE HIGH INCOME PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:
(Unaudited)
For the
six months For the fiscal year ended December 31,
ended -----------------------------------------
6/30/95 1994 1993 1992 1991 1990
---------- ------- ------- ------- ------- -------
Net asset value,
beginning of
period ........... $4.1118 $4.6373 $4.2886 $4.0770 $3.4067 $4.1288
------- ------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income .......... 0.1967 0.4106 0.3899 0.4050 0.4368 0.4346
Net realized and
unrealized gain
(loss) on
investments ..... 0.2225 (0.5255) 0.3487 0.2116 0.6703 (0.7221)
------- ------- ------- ------- ------- -------
Total from investment
operations ....... 0.4192 (0.1149) 0.7386 0.6166 1.1071 (0.2875)
------- ------- ------- ------- ------- -------
Less dividends from
net investment
income ........... (0.0000) (0.4106)(0.3899) (0.4050)(0.4368) (0.4346)
------- ------- ------- ------- ------- -------
Net asset value,
end of period .... $4.5310 $4.1118 $4.6373 $4.2886 $4.0770 $3.4067
======= ======= ======= ======= ======= =======
Total return ....... 10.20% -2.55% 17.90% 15.70% 34.19% -7.44%
Net assets, end of
period (000
omitted) .........$80,964 $72,644 $71,265 $41,456 $24,394 $13,868
Ratio of expenses
to average net
assets ............ 0.73%* 0.74% 0.75% 0.77% 0.87% 0.90%
Ratio of net investment
income to average
net assets ....... 9.22%* 9.03% 8.66% 9.48% 11.32% 11.55%
Portfolio turnover
rate ............. 33.82%* 37.86% 54.22% 60.79% 34.00% 12.21%

*Annualized.

See notes to financial statements.

<PAGE>
TMK/UNITED FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995

NOTE 1 -- Significant Accounting Policies

TMK/United Funds, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
Capital stock is currently divided into the ten classes that are designated the
Growth Portfolio, the Income Portfolio, the International Portfolio, the Small
Cap Portfolio, the Balanced Portfolio, the Asset Strategy Portfolio, the Money
Market Portfolio, the Limited-Term Bond Portfolio, the Bond Portfolio and the
High Income Portfolio. The assets belonging to each Portfolio are held
separately by the Custodian. The capital shares of each Portfolio represent a
pro rata beneficial interest in the principal, net income, and realized and
unrealized capital gains or losses of its respective investments and other
assets. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.

A. Security valuation -- Each stock and convertible bond is valued at the
latest sale price thereof on the last business day of the fiscal period as
reported by the principal securities exchange on which the issue is traded
or, if no sale is reported for a stock, the average of the latest bid and
asked prices. Bonds, other than convertible bonds, are valued using a
pricing system provided by a major dealer in bonds. Convertible bonds are
valued using this pricing system only on days when there is no sale
reported. Stocks which are traded over-the-counter are priced using Nasdaq
(National Association of Securities Dealers Automated Quotations) which
provides information on bid and asked or closing prices quoted by major
dealers in such stocks. Securities for which quotations are not readily
available are valued as determined in good faith in accordance with
procedures established by and under the general supervision of the Fund's
Board of Directors. Short-term debt securities are valued at amortized
cost, which approximates market.

NOTE 2 -- Investment Management And Payments To Affiliated Persons

The Fund pays a fee for investment management services. The fee is
computed daily based on the net asset value at the close of business. The fee
consists of two elements: (i) a "Specific" fee computed on net asset value as of
the close of business each day at the following annual rates: Growth Portfolio
- - .20% of net assets; Income Portfolio - .20% of net assets; International
Portfolio - .30% of net assets; Small Cap Portfolio - .35% of net assets;
Balanced Portfolio - .10% of net assets; Asset Strategy Portfolio - .30% of net
assets; Money Market Portfolio - none; Limited-Term Bond Portfolio - .05% of net
assets; Bond Portfolio - .03% of net assets; High Income Portfolio - .15% of net
assets and (ii) a base fee computed each day on the combined net asset values of
all of the Portfolios (approximately $913.4 million of combined net assets at
June 30, 1995) and allocated among the Portfolios based on their relative net
asset size at the annual rates of .51% of the first $750 million dollars of
combined net assets, .49% on that amount between $750 million and $1.5 billion,
.47% between $1.5 billion and $2.25 billion, and .45% of that amount over $2.25
billion. The Fund accrues and pays this fee daily.

The Fund paid Directors' fees of $12,528.

NOTE 3 -- Investment Security Transactions

Investment securities transactions for the period ended June 30, 1995, are
summarized as follows:

Growth Income International
Portfolio Portfolio Portfolio
----------- --------- ---------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities $383,940,220 $30,274,539 $21,331,023
Purchases of U.S. Government
securities --- --- ---
Purchases of short-term
securities 307,948,586 66,383,589 59,716,875
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities 306,613,991 15,946,372 2,892,515
Proceeds from maturities
and sales of U.S.
Government securities --- --- ---
Proceeds from maturities
and sales of short-term
securities 371,710,022 65,185,771 66,654,849

Small Cap BalancedAsset Strategy
Portfolio Portfolio Portfolio
----------- --------- ---------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities $10,866,216 $9,964,318 $---
Purchases of U.S. Government
securities --- 2,512,968 ---
Purchases of short-term
securities 78,453,779 13,121,833 883,252
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities 3,244,562 3,973,732 ---
Proceeds from maturities
and sales of U.S.
Government securities --- --- ---
Proceeds from maturities
and sales of short-term
securities 71,896,446 15,078,329 88,000

Money Limited-
Market Term Bond Bond
Portfolio Portfolio Portfolio
----------- --------- ---------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities --- $262,833 $12,249,933
Purchases of U.S. Government
securities --- 99,875 11,882,444
Purchases of short-term
securities $127,300,639 642,686 26,906,380
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities --- --- 11,352,528
Proceeds from maturities
and sales of U.S.
Government securities --- --- 14,441,065
Proceeds from maturities
and sales of short-term
securities 125,966,093 405,000 21,341,800

High
Income
Portfolio
-----------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities $11,456,949
Purchases of U.S. Government
securities ---
Purchases of short-term
securities 26,154,865
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities 13,100,319
Proceeds from maturities
and sales of U.S.
Government securities ---
Proceeds from maturities
and sales of short-term
securities 20,001,000

For Federal income tax purposes, cost of investments owned at June 30, 1995
and the related unrealized appreciation (depreciation) were as follows:

Aggregate
Cost Appreciation Depreciation Appreciation
------------ ------------ ------------ ------------
Growth Portfolio $318,766,071 $27,993,456 $7,586,169 $20,407,287
Income Portfolio 219,943,056 65,032,099 2,452,328 62,579,771
International Portfolio 38,265,023 2,864,023 1,328,223 1,535,800
Small Cap Portfolio 30,188,089 4,596,210 729,635 3,866,575
Balanced Portfolio 15,424,894 1,079,020 185,727 893,293
Asset Strategy Portfolio 797,637 --- --- ---
Money Market Portfolio 29,409,558 --- --- ---
Limited-Term Bond Portfolio 2,254,000 55,819 507 55,312
Bond Portfolio 80,680,462 2,812,728 637,922 2,174,806
High Income Portfolio 78,452,353 2,832,692 1,706,468 1,126,224

NOTE 4 -- Federal Income Tax Matters

The Fund's income and expenses attributed to each Portfolio and the gains
and losses on security transactions of each Portfolio have been attributed to
that Portfolio for Federal income tax purposes as well as accounting purposes.
For Federal income tax purposes, Growth, Small Cap and Limited-Term Bond
Portfolios realized capital gain net income of $14,154,374, $44,381 and $455,
respectively, during the year ended December 31, 1994. The capital gain net
income was paid to shareholders during the year ended December 31, 1994. For
Federal income tax purposes the Income Portfolio realized capital gain net
income of $685,306 during the year ended December 31, 1994. These capital gains
were entirely offset by utilization of capital loss carryforwards. Remaining
prior year capital loss carryforwards of Income Portfolio aggregated $459,928 at
December 31, 1994, and are available to offset future realized capital gain net
income through December 31, 2001. For Federal income tax purposes, Bond, High
Income, Balanced and International Portfolios realized capital losses of
$3,479,696, $1,428,392, $3,218 and $21,009, respectively, during the year ended
December 31, 1994. These amounts are available to offset future realized
capital gain net income through December 31, 2002. In addition, the High Income
Portfolio has $316,713 in capital loss carryforwards from prior years, which are
available to offset future realized capital gain net income through December 31,
1999.

Note 5 -- Organization

The inception date of the International Portfolio, the Small Cap Portfolio,
the Balanced Portfolio, and the Limited-Term Bond Portfolio is April 28, 1994;
however, these Portfolios did not have any investment activity or incur expenses
prior to the date of initial offering, May 3, 1994. The inception date of the
Asset Strategy Portfolio is February 14, 1995; however, this Portfolio did not
have any investment activity or incur expenses prior to the date of initial
offering, May 1, 1995. The accompanying financial statements reflect activity
for these periods.

<PAGE>
THE INVESTMENTS OF THE ASSET STRATEGY PORTFOLIO
SEPTEMBER 30, 1995

Principal
Amount in
Thousands Value

UNITED STATES GOVERNMENT SECURITY - 63.19%
United States Treasury Notes,
5.125%, 11-15-95 ...................... $1,604 $1,602,989
(Cost: $1,602,986)

SHORT-TERM SECURITIES
Commercial Paper
Banks and Savings and Loans - 4.38%
U.S. Bancorp,
Master Note ........................... 111 111,000

Consumer Electronics and Appliances - 3.93%
TDK (USA) Corp.,
5.74%, 10-17-95 ....................... 100 99,745

Food and Related - 5.91%
General Mills, Inc.,
Master Note ........................... 43 43,000
Sara Lee Corporation,
Master Note............................ 107 107,000
Total ................................. 150,000

Public Utilities - Electric - 3.94%
Southern California Edison Co.,
5.75%, 10-5-95 ........................ 100 99,936

Telecommunications - 7.86%
BellSouth Telecommunications Inc.,
5.71%, 10-11-95 ....................... 100 99,841
GTE Corporation,
5.84%, 10-31-95 ....................... 100 99,514
Total ................................. 199,355

Total Commercial Paper - 26.02% 660,036

United States Treasury - 9.24%
United States Treasury Bills:
5.17%, 10-12-95 ....................... 35 34,945
5.25%, 10-12-95 ....................... 60 59,904
5.2%, 10-19-95 ........................ 100 99,740
5.23%, 10-19-95 ....................... 40 39,895
Total.................................. 234,484

TOTAL SHORT-TERM SECURITIES - 35.26% $ 894,520
(Cost: $894,520)

TOTAL INVESTMENT SECURITIES - 98.45% $2,497,509
(Cost: $2,497,506)

CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.55% 39,254

NET ASSETS - 100.00% $2,536,763

See Notes to Schedules of Investments on page 213.

<PAGE>
THE INVESTMENTS OF THE ASSET STRATEGY PORTFOLIO
SEPTEMBER 30, 1995

Notes to Schedules of Investments
See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.

See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.

<PAGE>
THE ASSET STRATEGY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1995
(Unaudited)

Assets
Investment securities -- at value
(Notes 1 and 3) ................................. $2,497,509
Cash ............................................ 7,672
Receivables for dividends and interest ........... 32,063
Prepaid insurance premium ........................ 128
----------
Total assets .................................. 2,537,372
----------
Liabilities
Other liabilities ................................ 609
----------
Total liabilities ............................. 609
----------
Total net assets ............................. $2,536,763
==========

Net Assets
$0.01 par value capital stock, authorized --
100,000,000; shares outstanding -- 498,104
Capital stock ................................... $ 4,981
Additional paid-in capital ...................... 2,511,046
Accumulated undistributed income:
Accumulated undistributed net investment
income ......................................... 20,733
Net unrealized appreciation in value of
investments at end of period ................... 3
----------
Net assets applicable to outstanding
units of capital ............................. $2,536,763
==========
Net asset value per share (net assets divided
by shares outstanding) ........................... $5.0928
=======

See notes to financial statements.

<PAGE>
ASSET STRATEGY PORTFOLIO
STATEMENT OF OPERATIONS
For the Period Ended SEPTEMBER 30, 1995
(Unaudited)

Investment Income
Income:
Interest ........................................ $25,276
-------
Total income .................................. 25,276
-------
Expenses (Note 2):
Investment management fee ....................... 3,715
Custodian fees .................................. 259
Legal fee ....................................... 4
Other ........................................... 565
-------
Total expenses ................................ 4,543
-------
Net investment income ........................ 20,733
-------
Unrealized Gain on Investments
Unrealized appreciation in value of investments
during the period ............................... 3
-------
Net increase in net assets resulting
from operations ............................ $20,736
=======

See notes to financial statements.

<PAGE>
THE ASSET STRATEGY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
(Unaudited)

For the
period
ended
September 30,
1995
------------
Increase in Net Assets
Operations:
Net investment income ............ $ 20,733
Unrealized appreciation........... 3
----------
Net increase in net assets
resulting from operations ..... 20,736
----------
Dividends to shareholders from
net investment income* ........... ---
----------
Capital share transactions:
Proceeds from sale of shares
(508,142 shares) ............... 2,566,796
Proceeds from reinvestment of
dividends (0 shares) ........... ---
Payments for shares redeemed
(10,038 shares) ................ (50,769)
----------
Net increase in net assets
resulting from capital
share transactions ............ 2,516,027
----------
Total increase ................ 2,536,763
Net Assets
Beginning of period ............... ---
----------
End of period, including undistributed
net investment income of $20,733 . $2,536,763
==========

*See "Financial Highlights" on page 217.

See notes to financial statements.

<PAGE>
FINANCIAL HIGHLIGHTS OF
THE ASSET STRATEGY PORTFOLIO
For a Share of Capital Stock Outstanding Throughout The Period:
(Unaudited)
For the
period
ended
9/30/95*
----------
Net asset value,
beginning of
period ........... $5.0000
-------
Income from investment
operations:
Net investment
income .......... .0416
Net realized and
unrealized gain
on investments .. .0512
-------
Total from investment
operations ....... .0928
-------
Net asset value,
end of period .... $5.0928
=======
Total return........ ????%
Net assets, end of
period (000
omitted) ......... $2,537
Ratio of expenses
to average net
assets ............ 0.99%
Ratio of net investment
income to average
net assets ....... 4.50%
Portfolio turnover
rate ............. 0.00%

*The Asset Strategy Portfolio's inception date is February 14, 1995; however,
since this Portfolio did not have any investment activity or incur expenses
prior to the date of initial offering, the per share information is for a
capital share outstanding for the period from May 1, 1995 (initial offering)
through September 30, 1995. Ratios and the portfolio turnover rate have been
annualized.

See notes to financial statements.

<PAGE>
TMK/UNITED FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(Unaudited)

NOTE 1 -- Significant Accounting Policies

TMK/United Funds, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
Capital stock is currently divided into the ten classes that are designated the
Growth Portfolio, the Income Portfolio, the International Portfolio, the Small
Cap Portfolio, the Balanced Portfolio, the Asset Strategy Portfolio, the Money
Market Portfolio, the Limited-Term Bond Portfolio, the Bond Portfolio and the
High Income Portfolio. The assets belonging to each Portfolio are held
separately by the Custodian. The capital shares of each Portfolio represent a
pro rata beneficial interest in the principal, net income, and realized and
unrealized capital gains or losses of its respective investments and other
assets. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.

A. Security valuation -- Each stock and convertible bond is valued at the
latest sale price thereof on the last business day of the fiscal period as
reported by the principal securities exchange on which the issue is traded
or, if no sale is reported for a stock, the average of the latest bid and
asked prices. Bonds, other than convertible bonds, are valued using a
pricing system provided by a major dealer in bonds. Convertible bonds are
valued using this pricing system only on days when there is no sale
reported. Stocks which are traded over-the-counter are priced using Nasdaq
(National Association of Securities Dealers Automated Quotations) which
provides information on bid and asked or closing prices quoted by major
dealers in such stocks. Securities for which quotations are not readily
available are valued as determined in good faith in accordance with
procedures established by and under the general supervision of the Fund's
Board of Directors. Short-term debt securities are valued at amortized
cost, which approximates market.

NOTE 2 -- Investment Management And Payments To Affiliated Persons

The Fund pays a fee for investment management services. The fee is
computed daily based on the net asset value at the close of business. The fee
consists of two elements: (i) a "Specific" fee computed on net asset value as of
the close of business each day at the following annual rates: Growth Portfolio
- - .20% of net assets; Income Portfolio - .20% of net assets; International
Portfolio - .30% of net assets; Small Cap Portfolio - .35% of net assets;
Balanced Portfolio - .10% of net assets; Asset Strategy Portfolio - .30% of net
assets; Money Market Portfolio - none; Limited-Term Bond Portfolio - .05% of net
assets; Bond Portfolio - .03% of net assets; High Income Portfolio - .15% of net
assets and (ii) a base fee computed each day on the combined net asset values of
all of the Portfolios (approximately $1.0 billion of combined net assets at
September 30, 1995) and allocated among the Portfolios based on their relative
net asset size at the annual rates of .51% of the first $750 million dollars of
combined net assets, .49% on that amount between $750 million and $1.5 billion,
.47% between $1.5 billion and $2.25 billion, and .45% of that amount over $2.25
billion. The Fund accrues and pays this fee daily.

The Asset Strategy Portfolio (the "Portfolio") paid no Directors' fees.

NOTE 3 -- Investment Security Transactions

The Portfolio, for the period ending September 30, 1995, had purchases of
short-term securities, including short-term government securities aggregated
$4,837,978 while proceeds from maturities and sales aggregated $2,355,000.

For Federal income tax purposes, cost of investments owned at September 30,
1995 was $2,497,506, resulting in net unrealized appreciation of $3, all of
which was due to appreciation on securitites.