LEGENDS FUND INC
485BPOS, 1995-10-30
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<PAGE>
 
                                         Registration Nos. 33-50434 and 811-7084
- --------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ----------------------

                                   FORM N-1A

     REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933             [_]
     Pre-Effective Amendment No. ___                                     [_]
     Post-Effective Amendment No.  5                                     [X]
                                  ---                                       
                                                                            
                                     AND/OR                                 
                                                                            
     REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940     [_]
     Amendment No.  6                                                    [X] 
                   ----

                             THE LEGENDS FUND, INC.
                     (formerly INTEGRITY SERIES FUND, INC.)
               (Exact Name of Registrant as Specified in Charter)

                          200 East Wilson Bridge Road
                            Worthington, Ohio  43085
        (Address of Registrant's Principal Executive Offices) (Zip Code)

      Registrant's Telephone Number, including Area Code:  1-800-325-8583


                             Kevin L. Howard, Esq.
                        239 S. Fifth Street, 12th floor
                          Louisville, KY  40202-3271
                    (Name and Address of Agent for Service)
                                        

                                  Copies to: 
                            Joel H. Goldberg, Esq. 
                  Shereff, Friedman, Hoffman & Goodman, LLP 
                               919 Third Avenue 
                           New York, New York 10022
                  
                    ---------------------------------------

It is proposed that this filing will become effective (check appropriate box):

     [_]    immediately upon filing pursuant to paragraph (b)
     [X]    on November 1, 1995 pursuant to paragraph (b)
     [_]    60 days after filing pursuant to paragraph (a)(1)
     [_]    on (date) pursuant to paragraph (a)(1)
     [_]    75 days after filing pursuant to paragraph (a)(2)
     [_]    on (date) pursuant to paragraph (a)(2) of rule 485

If appropriate, check the following box:

     [_]    this post-effective amendment designates a new effective date for a
            previously filed post-effective amendment

Pursuant to Rule 24f-2(a)(1) under the Investment Company Act of 1940, the
Registrant has registered an indefinite number or amount of its securities under
the Securities Act of 1933.  The Rule 24f-2 Notice of the Registrant for the
fiscal year ended June 30, 1995 was filed on August 24, 1995.
<PAGE>

 
 CROSS-REFERENCE SHEET PURSUANT TO RULE 481(a) UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
 
N-IA Item No.
- -------------
<S>              <C>                                                  <C>
              
Part A        
              
     Item 1.     Cover Page ..............................................................................................Cover Page

     Item 2.     Synopsis .......................................................Shareholder Transaction and Operating Expense Table

     Item 3.     Condensed Financial Information ...............................................................Financial Highlights

     Item 4.     General Description of Registrant ........................Cover Page; The Fund; Investment Objectives and Policies;
                                                                         Description of Various Securities and Investment Techniques

     Item 5.     Management of the Fund ...............................Management of the Fund; Portfolio Transactions and Brokerage;
                                                                                                                  Other Information

     Item 5A     Management's Discussion of Fund Performance ...................................................................N/A

     Item 6.     Capital Stock and Other Securities ...................The Fund; Dividends, Distributions and Federal Income Taxes;
                                                                                                          Purchases and Redemptions
     Item 7.     Purchase of Securities Being Offered .......................The Fund; Management of the Fund; Valuation of Shares;
                                                                                                          Purchases and Redemptions

     Item 8.     Redemption of Repurchase ................................................................Purchases and Redemptions

     Item 9.     Legal Proceedings ............................................................................................ N/A
              
Part B        
              
     Item 10.    Cover Page .............................................................................................Cover Page

     Item 11.    Table of Contents ...............................................................................Table of Contents

     Item 12.    General Information and History .................................................................Other Information

     Item 13.    Investment Objectives and Policies ......................Investment Policies and Limitations; Options, Futures and
                                                                                   Other Hedging Strategies; Portfolio Transactions

     Item 14.    Management of the Registrant ...............................................................Directors and Officers

     Item 15.    Control Persons and Principal Holders of Securities ............................................ Other Information

     Item 16.    Investment Advisory and Other Services ..............Directors and Officers; Investment Management Services; Other
                                                                                                                        Information

     Item 17.    Brokerage Allocation .......................................................................Portfolio Transactions

     Item 18.    Capital Stock and Other Securities ..............................................................Other Information

     Item 19.    Purchase, Redemption and Pricing of Securities
                   Being Offered ......................................Additional Purchase and Redemption Information; Valuation of
                                                                                                                             Shares

     Item 20.    Tax Status ..................................................................................................Taxes

     Item 21.    Underwriters ..................................................................................................N/A

     Item 22.    Calculation of Performance Data .................................................Yield and Performance Information

     Item 23.    Financial Statements .........................................................................Financial Statements

Part C
</TABLE> 

     Information required to be included is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
<PAGE>
 
PROSPECTUS
                          THE LEGENDS FUND, INC.(TM)
                           200 EAST WILSON BRIDGE ROAD
                         WORTHINGTON, OHIO  43085     
                          TELEPHONE:  1-800-325-8583

The Legends Fund, Inc. (Fund) is an open-end management investment company with
multiple portfolios available for investment. Shares of the Portfolios are
currently sold only to separate accounts of Integrity Life Insurance Company and
National Integrity Life Insurance Company as an investment medium for variable
annuity certificates and contracts they issue. The Fund's current portfolios and
their investment objectives are:

  -  MORGAN STANLEY ASIAN GROWTH PORTFOLIO seeks long-term capital appreciation.
     It invests primarily in the common stocks of Asian issuers, excluding
     Japan.

  -  MORGAN STANLEY WORLDWIDE HIGH INCOME PORTFOLIO seeks high current income
     consistent with relative stability of principal and, secondarily, capital
     appreciation. It invests primarily in a portfolio of high yielding fixed
     income securities of issuers located throughout the world.

  -  RENAISSANCE BALANCED PORTFOLIO seeks capital appreciation and income in
     rising markets and capital preservation in declining markets. Its assets
     are allocated among common stocks, United States Government and high
     quality corporate debt issues and high quality cash equivalent issues.

  -  ZWEIG ASSET ALLOCATION PORTFOLIO seeks long-term capital appreciation. It
     invests primarily in stocks which are comparable to Blue Chip Stocks (as
     defined in "Investment Objectives and Policies").

  -  NICHOLAS-APPLEGATE BALANCED PORTFOLIO seeks maximum total return in both
     the equity and fixed income portion of its investments. It generally
     allocates 60%-65% of assets to equity securities and 35%-40% of assets to
     U.S. Government securities and cash equivalent issues.

  -  HARRIS BRETALL SULLIVAN & SMITH EQUITY GROWTH PORTFOLIO seeks long-term
     capital appreciation. It invests primarily in stocks of established
     companies with proven records of superior and consistent growth.

  -  DREMAN VALUE PORTFOLIO seeks primarily long-term capital appreciation with
     a secondary objective of current income. It invests primarily in equity
     securities considered by the Sub-Adviser to be undervalued.

  -  ZWEIG EQUITY (SMALL CAP) PORTFOLIO seeks long-term capital appreciation. It
     invests primarily in Small Company Stocks (as defined in "Investment
     Objectives and Policies").
    
  -  MITCHELL HUTCHINS FIXED INCOME PORTFOLIO seeks as high a level of current
     income as is consistent with the preservation of capital. It invests
     primarily in corporate debt securities and U.S. Government securities
     (including mortgage-backed securities (issued by GNMA, FNMA and FHLMC)). 
     
  -  MITCHELL HUTCHINS MONEY MARKET PORTFOLIO seeks maximum current income
     consistent with liquidity and conservation of capital. It invests in high
     grade money market instruments with remaining maturities of 13 months or
     less, and repurchase agreements secured by such instruments. While the
     Portfolio seeks to maintain a stable net asset value of $1.00 per share,
     there is no assurance that it will be able to do so. An investment in the
     Portfolio is neither insured nor guaranteed by the U.S. Government.

Morgan Stanley Worldwide High Income Portfolio invests predominantly in lower
rated and unrated bonds, commonly referred to as "junk bonds." Bonds of this
type are considered to be speculative with regard to the payment of interest and
return of principal and are subject to greater risk of loss of principal and
interest. Purchasers should carefully assess the risks associated with an
investment in this Portfolio. See "Description of Various Securities and
Investment Techniques -- Debt Securities."
    
This Prospectus sets forth information about the Fund that a prospective
investor should know before investing. Please read this Prospectus and retain it
for future reference. A Statement of Additional Information (SAI) dated 
November 1, 1995 (which is incorporated by reference herein) has been filed with
the Securities and Exchange Commission and is available upon request and without
charge. You can obtain a copy by calling or writing to the Fund at the telephone
number and address shown above.      

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.
    
Prospectus dated November 1, 1995      
<PAGE>
 
                              FINANCIAL HIGHLIGHTS
    
The financial highlights presented for the two years ended June 30, 1995 and
1994 (the period from June 15, 1994, commencement of operations, to June 30,
1994 for the Morgan Stanley Asian Growth and Morgan Stanley Worldwide High
Income Portfolios) have been audited by Ernst & Young LLP, independent auditors
for the Fund, and the financial statements of the Fund, along with the report of
Ernst & Young LLP thereon, are set forth in the SAI. The financial highlights
presented for the fiscal period from commencement of operations through June 30,
1993 have been audited by other independent auditors. Per share information is
for a share of capital stock outstanding throughout the respective fiscal
period.

The financial highlights information pertains to the Portfolios of the Fund and
does not reflect charges related to Separate the separate accounts of Integrity
Life Insurance Company or National Integrity Life Insurance Company. You should
refer to the appropriate separate account prospectus for additional information
regarding such charges.
     

    
                         Renaissance Balanced Portfolio

                              Financial Highlights
<TABLE>
<CAPTION>
 
                                                                              December 14, 1992
                                          Year Ended      Year Ended    (commencement of operations)
                                        June 30, 1995   June 30, 1994       through June 30, 1993
                                        --------------  --------------  -----------------------------
<S>                                     <C>             <C>             <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period     $     10.40     $     10.42             $    10.00
Income from investment operations:
 Net investment income                          0.42            0.20                   0.13
 Net realized and unrealized gain
  (loss) on investments                         0.99           (0.11)                  0.29
                                         -----------     -----------             ----------
 Total from investment operations               1.41            0.09                   0.42
Less distributions:
 From net investment income                    (0.17)          (0.11)                    --
 From net realized gain                        (0.03)             --                     --
                                         -----------     -----------             ----------
   Total distributions                         (0.20)          (0.11)                    --
Net asset value, end of period           $     11.61     $     10.40             $    10.42
                                         ===========     ===========             ==========
TOTAL RETURN                                   13.71%           0.73%                  7.70%  (A)
RATIOS AND SUPPLEMENTAL DATA
 Net assets, end of period               $27,032,195     $25,046,394             $7,798,672
 Ratio of expenses to average net
  assets                                        0.96%           1.06%                  1.24%  (B)
 Ratio of net investment income to
  average net assets                            3.53%           2.72%                  2.36%  (B)
 Ratio of expenses to average net
  assets before voluntary expense
  reimbursement                                 0.96%           1.06%                  2.95%  (B)
 Ratio of net investment income
  (loss) to average net assets before
  voluntary expense reimbursement               3.53%           2.72%                  0.65%  (B)
 Portfolio turnover rate                          71%             85%                    29%
</TABLE>
(A)  Total return is not annualized.
(B)  Data expressed as a percentage are annualized.
     
<PAGE>

     
<TABLE>
<CAPTION>
                       Zweig Asset Allocation Portfolio

                             Financial Highlights

                                                                                    December 14, 1992
                                                Year Ended      Year Ended    (commencement of operations)
                                              June 30, 1995   June 30, 1994      through June 30, 1993)
                                              --------------  --------------  -----------------------------
<S>                                           <C>             <C>             <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of
  period                                        $     11.44     $     10.81            $    10.00
Income from investment operations:
  Net investment income                                0.33            0.10                  0.08
  Net realized and unrealized gain
      on investments                                   1.33            0.58                  0.73
                                                -----------     -----------            ----------
  Total from investment operations                     1.66            0.68                  0.81
Less distributions:
  From net investment income (loss)                   (0.08)          (0.05)                   --
Net asset value, end of period                  $     13.02     $     11.44            $    10.81
                                                ===========     ===========            ==========
TOTAL RETURN                                          14.57%           6.27%                14.86% (A)
RATIOS AND SUPPLEMENTAL DATA
  Net assets, end of period                     $36,736,161     $31,563,173            $3,855,544
  Ratio of expenses to average net
      assets                                           1.20%           1.39%                 1.51% (B)
  Ratio of net investment income
      to average net assets
  Ratio of expenses to average net                     2.73%           1.67%                 1.40% (B)
   assets before voluntary expense
   reimbursement                                       1.20%           1.39%                 4.87% (B)
  Ratio of net investment income
      (loss) to average net assets
      before voluntary expense
      reimbursement                                    2.73%           1.67%                (1.17%)(B)
  Portfolio turnover rate                                45%            101%                   12%
</TABLE>

(A)  Total return is not annualized.
(B)  Data expressed as a percentage are annualized.     
<PAGE>

     
<TABLE>
<CAPTION>
                               Nicholas-Applegate Balanced Portfolio

                                        Financial Highlights

                                                                             December 3, 1992
                                        Year Ended      Year Ended     (commencement of operations)
                                      June 30, 1995    June 30, 1994       through June 30, 1993
                                      --------------  ---------------  -----------------------------
<S>                                   <C>             <C>              <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of
  period                                $     11.27     $     11.50             $    10.00
Income from investment operations:
  Net investment income                        0.27            0.09                   0.11
  Net realized and unrealized gain
     (loss) on investments                     1.74           (0.29)                  1.39
                                        -----------     -----------             ----------
    Total from investment operations           2.01           (0.20)                  1.50
Less distributions:
  From net investment income                  (0.11)          (0.03)                    --
                                                                                ----------
Net asset value, end of period          $     13.17     $     11.27             $    11.50
                                        ===========     ===========             ==========
TOTAL RETURN                                  17.92%          (1.70%)                26.07%  (A)
RATIOS AND SUPPLEMENTAL DATA
  Net assets, end of period             $45,780,611     $39,357,996             $5,567,264   (B)
  Ratio of expenses to average net
    assets                                     0.94%           1.03%                  1.25%  (B)
  Ratio of net investment income
    to average net assets                      2.20%           1.69%                  1.70%  (B)
  Ratio of expenses to average net
    assets before voluntary expense
    reimbursement                              0.94%           1.03%                  3.87%  (B)
  Ratio of net investment income
    (loss) to average net assets
    before voluntary expense
    reimbursement                              2.20%           1.69%                 (0.72%) (B)
  Portfolio turnover rate                       108%             56%                    21%
</TABLE>

(A) Total return is not annualized.
(B) Data expressed as a percentage are annualized.
     
<PAGE>
 
    
<TABLE>
<CAPTION>
                        Harris Bretall Sullivan & Smith Equity Growth Portfolio

                                          Financial Highlights

                                                                                 December 8, 1992
                                          Year Ended       Year Ended      (commencement of operations)
                                        June 30, 1995     June 30, 1994        through June 30, 1993
                                        --------------  -----------------  -----------------------------
<S>                                     <C>             <C>                <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of
  period                                  $      9.36     $      9.71               $    10.00
Income from investment operations:
  Net investment income (loss)                   0.01           (0.02) (C)                  --
  Net realized and unrealized gain
     (loss) on investments                       3.48           (0.33)                   (0.29)
                                          -----------     -----------               ----------
    Total from investment operations             3.49           (0.35)                   (0.29)
Net asset value, end of period            $     12.85     $      9.36               $     9.71
                                          ===========     ===========               ==========
TOTAL RETURN                                    37.29%          (3.60%)                  (5.16%) (A)
RATIOS AND SUPPLEMENTAL DATA
  Net assets, end of period               $16,393,276     $10,693,027               $5,143,365
  Ratio of expenses to average net
    assets                                       1.05%           1.29%                    1.34%  (B)
  Ratio of net investment income
    (loss) to average net assets                 0.13%          (0.17%)                  (0.06%) (B)
  Ratio of expenses to average net
    assets before voluntary expense
    reimbursement                                1.05%           1.29%                    3.52%  (B)
  Ratio of net investment income
    (loss) to average net assets
    before voluntary expense
    reimbursement                                0.13%          (0.17%)                  (1.94%) (B)
  Portfolio turnover rate                          31%             38%                       6%
 
</TABLE>

(A)  Total return is not annualized.
(B)  Data expressed as a percentage are annualized.
(C)  Net investment income (loss) per share has been calculated using the
     weighted monthly average number of shares outstanding.     
<PAGE>

     
<TABLE>
<CAPTION>
                                      Dreman Value Portfolio

                                       Financial Highlights

                                                                           December 14, 1992
                                        Year Ended     Year Ended    (commencement of operations)
                                      June 30, 1995   June 30,1994       through June 30, 1993
                                      --------------  -------------  -----------------------------
<S>                                   <C>             <C>            <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of
 period                                 $     10.66     $    10.45            $    10.00
Income from investment operations:
 Net investment income                         0.26           0.12                  0.11
 Net realized and unrealized gain
   on investments                              1.85           0.17                  0.34
                                        -----------     ----------            ----------
   Total from investment operations            2.11           0.29                  0.45
Less distributions:
 From net investment income                   (0.14)         (0.08)                   --
 From net realized gain                       (0.04)            --                    --
                                        -----------     ----------            ----------
   Total distributions                        (0.18)         (0.08)                   --
Net asset value, end of period          $     12.59     $    10.66            $    10.45
                                        ===========     ==========            ==========
TOTAL RETURN                                  19.98%          2.80%                 8.25%  (A)
RATIOS AND SUPPLEMENTAL DATA
 Net assets, end of period              $10,876,910     $8,952,174            $1,671,220
 Ratio of expenses to average net
   assets                                      1.13%          1.40%                 1.24%  (B)
 Ratio of net investment income
   to average net assets                       1.98%          1.98%                 2.00%  (B)
 Ratio of expenses to average net
   assets before voluntary expense
   reimbursement                               1.13%          1.61%                 8.43%  (B)
 Ratio of net investment income
   (loss) to average net assets
   before voluntary expense
   reimbursement                               1.98%          1.76%                (1.49%) (B)
 Portfolio turnover rate                         29%             9%                    5%
 
</TABLE>

(A)  Total return is not annualized.
(B)  Data expressed as a percentage are annualized.
     
<PAGE>
     
                      Zweig Equity (Small Cap) Portfolio

                             Financial Highlights

<TABLE>
<CAPTION>
                                                                             December 14, 1992
                                         Year Ended     Year Ended      (commencement of operations)
                                        June 30 1995   June 30,1994        through June 30, 1993
                                        -------------  -------------  --------------------------------
<S>                                     <C>            <C>            <C>
SELECTED PER-SHARE DATA

Net asset value, beginning of period      $    10.65     $    10.11              $    10.00
Income from investment operations:
 Net investment income                          0.17           0.15                    0.05
 Net realized and unrealized gain on
   investments                                  0.93           0.50                    0.06
                                          ----------     ----------              ----------
   Total from investment operations             1.10           0.65                    0.11
Less distributions:
 From net investment income                    (0.06)         (0.11)                     --
 From net realized gain                        (0.07)            --                      --
                                          ----------     ----------              ----------
   Total distributions                         (0.13)         (0.11)                     --
Net asset value, end of period            $    11.62     $    10.65              $    10.11
                                          ==========     ==========              ==========
TOTAL RETURN                                   10.39%          6.53%                   2.02%  (A)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period                 $8,033,792     $7,590,947              $2,115,634
  ratio of expenses to average net
  assets                                        1.55%          1.72%                   1.61%  (B)
 Ratio of net investment income to
  average net assets                            1.54%          1.75%                   0.84%  (B)
 Ratio of expenses to average net
  assets before voluntary expense
  reimbursement                                 1.59%          2.14%                   7.29%  (B)
 Ratio of net investment income
  (loss) to average net assets before
  voluntary expense reimbursement               1.50%          1.32%                  (1.80%) (B)
 Portfolio turnover rate                          67%           249%                     15%
</TABLE>

(A)  Total return is not annualized.
(B)  Data expressed as a percentage are annualized.
     
<PAGE>

     
<TABLE>
<CAPTION>
 
                              Mitchell Hutchins Fixed Income Portfolio

                                        Financial Highlights

                                                                                        January 5, 1993
                                                  Year Ended      Year Ended     (commencement of operations)
                                                June 30, 1995    June 30, 1994       through June 30, 1993
                                                --------------  ---------------  -----------------------------
<S>                                             <C>             <C>              <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of
 period                                           $    10.00      $    10.43                $  10.00
Income from investment operations:
 Net investment income                                  0.56            0.20                    0.19
 Net realized and unrealized gain
  (loss) on investments                                 0.53           (0.52)                   0.24
                                                  ----------      ----------                --------
   Total from investment operations                     1.09           (0.32)                   0.43
Less distributions:
 From net investment income                            (0.21)          (0.11)                     --
Net asset value, end of period                    $    10.88      $    10.00                $  10.43
                                                  ==========      ==========                ========
TOTAL RETURN                                           11.08%          (3.06%)                  8.67%  (A)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period                         $5,415,497      $4,860,499                $905,836
Ratio of expenses to average net
 assets                                                 1.40%           1.56%                   1.56%  (B)
Ratio of net investment income to
 average net assets                                     5.41%           3.62%                   3.86%  (B)
Ratio of expenses to average net
 assets before voluntary expense
 reimbursement                                          1.59%           2.49%                  15.72%  (B)
Ratio of net investment income (loss)
 to average net assets before
 voluntary expense reimbursement                        5.22%           2.68%                  (1.64%) (B)
Portfolio turnover rate                                  432%            527%                    103%
 
</TABLE>

(A)  Total return is not annualized.
(B)  Data expressed as a percentage are annualized.
     
<PAGE>

     
<TABLE>
<CAPTION>
                              Mitchell Hutchins Money Market Portfolio

                                        Financial Highlights

                                                                             January 12, 1993
                                          Year Ended     Year Ended    (commencement of operations)
                                        June 30, 1995   June 30,1994       through June 30, 1993
                                        --------------  -------------  -----------------------------
<S>                                     <C>             <C>            <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of
  period                                   $     1.00     $     1.00             $   1.00
Income from investment operations:
  Net investment income                          0.04           0.02                 0.01
Less distributions:
  From net investment income                    (0.04)         (0.02)               (0.01)
                                           ----------     ----------             --------
Net asset value, end of period             $     1.00     $     1.00             $   1.00
                                           ==========     ==========             ========
TOTAL RETURN                                     4.30%          2.04%                1.66%  (A)
RATIOS AND SUPPLEMENTAL DATA
  Net assets, end of period                $6,753,095     $5,452,417             $753,585
  Ratio of expenses to average net
     assets                                      1.15%          1.29%                1.34%  (B)
  Ratio of net investment income
     to average net assets                       4.31%          2.19%                1.67%  (B)
  Ratio of expenses to average net
     assets before voluntary expense
     reimbursement                               1.27%          2.08%               22.41%  (B)
  Ratio of net investment income
     (loss) to average net assets
     before voluntary expense
     reimbursement                               4.20%          1.40%               (2.05%) (B)
 
</TABLE>

(A)  Total return is not annualized.
(B)  Data expressed as a percentage are annualized.     
<PAGE>
 
    
<TABLE>
<CAPTION>
                                               Morgan Stanley Asian Growth Portfolio

                                                       Financial Highlights

                                                                                                June 15, 1994
                                                                          Year Ended    (commencement of operations)
                                                                        June 30, 1995       through June 30, 1994
                                                                        --------------  -----------------------------
<S>                                                                     <C>             <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of
  period                                                                  $     10.00               $ 10.00
Income from investment operations:
  Net investment income                                                          0.01                  0.00#
  Net realized and unrealized gain
    on investments                                                               0.17                    --
                                                                          -----------               -------
  Total from investment operations                                               0.18                  0.00
Less distributions:
  From net investment income                                                     0.00#                   --
                                                                          -----------               -------
Net asset value, end of period                                            $     10.18               $ 10.00
                                                                          ===========               =======
TOTAL RETURN                                                                     1.80%                 0.52%  (A)
RATIOS AND SUPPLEMENTAL DATA
   Net assets, end of period                                              $12,824,663             1,905,357   (B)
   Ratio of expenses to average net assets                                       1.92%                 0.75%  (B)
   Ratio of net investment income to average net assets                          0.76%                 0.59%  (B)
   Ratio of expenses to average net assets before voluntary
    expense reimbursement                                                        1.92%                 9.79%  (B)
   Ratio of net investment income (loss) to average net assets
    before voluntary expense reimbursement                                       0.76%                (8.44%) (B)
   Portfolio turnover rate                                                         30%                   --        
</TABLE>
- ---------
(A)  Total return is not annualized.
(B)  Data expressed as a percentage are annualized.
 #  Less than $ .01 per share.     
<PAGE>

     
<TABLE>
<CAPTION>
                Morgan Stanley Worldwide High Income Portfolio

                             Financial Highlights

                                                                                                      June 15, 1994
                                                                                Year Ended    (commencement of operations)
                                                                              June 30, 1995       through June 30, 1994
                                                                              --------------  -----------------------------
<S>                                                                           <C>             <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of
    period                                                                       $    10.00              $  10.00
Income from investment operations:
    Net investment income                                                              0.89                  0.00#
    Net realized and unrealized gain
     (loss) on investments                                                            (0.49)                   --
                                                                                 ----------              --------
    Total from investment operations                                                   0.40                  0.00
Less distributions:
    From net investment income                                                         0.00#                   --
                                                                                 ----------              --------
Net asset value, end of period                                                   $    10.40              $  10.00
                                                                                 ==========              ========
TOTAL RETURN                                                                           4.00%                 0.79%  (A)
RATIOS AND SUPPLEMENTAL DATA
    Net assets, end of period                                                    $6,241,897              $687,484
    Ratio of expenses to average net
     assets                                                                            1.61%                 0.85%  (B)
    Ratio of net investment income to average net assets                               9.28%                 0.80%  (B)
    Ratio of expenses to average net assets before voluntary expense
     reimbursement                                                                     1.61%                24.78%  (B)
    Ratio of net investment income (loss) to average net assets before
     voluntary expense reimbursement                                                   9.28%               (23.13%) (B)
    Portfolio turnover rate                                                             142%                   --
</TABLE>
- ----------
(A)  Total return is not annualized.
(B)  Data expressed as a percentage are annualized.
 #   Less than $ .01 per share.     
<PAGE>

     
                               TABLE OF CONTENTS



THE FUND.................................................................   1

INVESTMENT OBJECTIVES AND POLICIES.......................................   1
   Morgan Stanley Asian Growth Portfolio.................................   1
   Morgan Stanley Worldwide High Income Portfolio........................   2
   Renaissance Balanced Portfolio........................................   6
   Zweig Asset Allocation Portfolio......................................   6
   Nicholas-Applegate Balanced Portfolio.................................   7
   Harris Bretall Sullivan & Smith Equity Growth Portfolio...............   7
   Dreman Value Portfolio................................................   8
   Zweig Equity (Small Cap) Portfolio....................................   9
   Mitchell Hutchins Fixed Income Portfolio..............................   9
   Mitchell Hutchins Money Market Portfolio..............................  10

DESCRIPTION OF VARIOUS SECURITIES AND INVESTMENT TECHNIQUES..............  11

DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAXES........................  20

VALUATION OF SHARES......................................................  21

PURCHASES AND REDEMPTIONS................................................  21

MANAGEMENT OF THE FUND...................................................  22
   Investment Manager, Sub-Advisers and Distributor......................  22
   Expenses..............................................................  25

PORTFOLIO TRANSACTIONS AND BROKERAGE.....................................  26

OTHER INFORMATION........................................................  26

APPENDIX A

   DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS...................... A-1
     
<PAGE>

     
                                   THE FUND     

The Legends Fund, Inc. (Fund) was incorporated in Maryland on July 22, 1992
under the name "Integrity Series Fund, Inc." and is an open-end management
investment company registered under the Investment Company Act of 1940, as
amended (the 1940 Act). It is a series-type investment company consisting of
multiple portfolios. The Board of Directors of the Fund may establish additional
Portfolios at any time.
    
Integrity Life Insurance Company (Integrity) serves as investment manager to all
the Portfolios of the Fund and has entered into a sub-advisory agreement with a
professional adviser for each Portfolio. Such advisers are individually called a
Sub-Adviser, and collectively, the Sub-Advisers. Integrity provides the Fund
with supervisory and management services. ARM Financial Group, Inc. (ARM), is 
the ultimate parent of Integrity. See "Management of the Fund."     
    
Shares of the Portfolios are offered to separate accounts of Integrity and
National Integrity Life Insurance Company (National Integrity) to serve as an
investment vehicle for contributions under certain variable annuity contracts
and certificates (certificates) issued by the companies. See "Purchases and
Redemptions."     

Shareholders have the right to vote on the election of members of the Board of
Directors of the Fund, on any other matters on which by law they may be entitled
to vote, and on any other business which may properly come before a meeting of
shareholders. On any matters affecting only one Portfolio, only the shareholders
of that Portfolio are entitled to vote. On matters relating to all the
Portfolios, but affecting the Portfolios differently, separate votes by
Portfolio are required. The Fund does not hold annual meetings of shareholders.
Each share of a Portfolio has equal voting, dividend and liquidation rights.

    
                      INVESTMENT OBJECTIVES AND POLICIES     

Set forth below is a description of the investment objectives and policies of
each Portfolio. The SAI describes specific investment restrictions which govern
each Portfolio's investments. The objectives, and the policies and restrictions
specifically cited as fundamental in this Prospectus and the SAI, are
fundamental and may not be changed with respect to any Portfolio without a
majority vote of shareholders of that Portfolio. Other investment policies and
practices described in this Prospectus and in the SAI are not fundamental, and
the Board of Directors of the Fund may change them without shareholder approval.
Each Portfolio has its own investment objectives and policies. There is no
assurance that a Portfolio will achieve its investment objectives.
 
MORGAN STANLEY ASIAN GROWTH PORTFOLIO seeks long-term capital appreciation
through investment primarily in common stocks of Asian issuers, excluding Japan.
The production of any current income is incidental to this objective. The
Portfolio seeks to achieve its objective by investing under normal market
conditions at least 65% of the value of its total assets in common stocks which
are traded on recognized stock exchanges of the countries in Asia described
below and in common stocks of companies organized under the laws of an Asian
country whose business is conducted principally in Asia. The Portfolio does not
intend to invest in securities which are traded in markets in Japan or in
companies organized under the laws of Japan. The Portfolio may also invest in
sponsored or unsponsored American Depositary Receipts (ADRs) of Asian issuers
that are traded on stock exchanges in the United States. See "Description of
Various Securities and Investment Techniques." Morgan Stanley Asset Management
Inc. (MSAM) is the Sub-Adviser for the Portfolio. For more information about
MSAM, see "Management of the Fund."
 
The Portfolio will invest in countries having more established markets in the
region. The Asian countries to be represented in the Portfolio will consist of
three or more of the following countries: Hong Kong, Singapore, Malaysia,
Thailand, the Philippines and Indonesia. The Portfolio may also invest in common
stocks traded on markets in China, Taiwan, South Korea, India, Pakistan, Sri
Lanka and other developing markets that are open to foreign investment. There is
no requirement that the Portfolio, at any given time, invest in any one
particular country or in all of the countries listed above or in any other Asian
countries. The Portfolio has no set policy for allocating investments among the
several Asian countries. Allocation of investments among the various countries
will depend on the relative attractiveness of the stocks of issuers in the
respective countries. Government regulation and restrictions in many of the
countries of interest may limit the amount, mode and extent of investment in
companies in such countries.
 
As stated above, at least 65% of the total assets of the Portfolio will be
invested in common stocks of issuers in Asian countries under normal
circumstances. The remaining portion of the Portfolio will be kept in any
combination of debt instruments, bills and bonds of governmental entities in
Asia and the United States, in notes, debentures, and bonds of companies in Asia
and in money market instruments of the United States. Common stocks for this
purpose include common stocks and equivalents, such as securities convertible
into common stocks and securities having common stock characteristics, such as
rights and warrants to purchase common stocks. Debt securities convertible into
common stocks will be investment grade (rated in one of the four highest rating
categories by a nationally recognized statistical rating organization (NRSRO))
or, if unrated, will be of comparable quality as determined by the Sub-Adviser.
See Appendix A.
 
The Sub-Adviser's approach in selecting investments for the Portfolio is
oriented to individual stock selection and is value driven. In selecting stocks
for the Portfolio, the Sub-Adviser initially identifies those stocks which it
believes to be undervalued in relation to the issuer's assets, cash flow,
earnings and revenues, and then evaluates the future value of such stocks by
running the results of an in-depth study of the issuer through a dividend
discount model. The Sub-Adviser utilizes the research of a number of sources,
including its affiliate in Geneva, Morgan Stanley Capital International, in
identifying attractive securities, and applies a number of proprietary screening
criteria to 
<PAGE>
 
identify those securities it believes to be undervalued. Portfolio holdings are
regularly reviewed and subjected to fundamental analysis to determine whether
they continue to conform to the Sub-Adviser's value criteria. Those which no
longer conform are sold. The Sub-Adviser will analyze assets, revenues and
earnings of an issuer. In selecting industries and particular issuers, the Sub-
Adviser will evaluate costs of labor and raw materials, access to technology,
export of products and government regulation. Although the Portfolio seeks to
invest in larger companies, it may invest in small- and medium-sized companies
that, in the Sub-Adviser's view, have potential for growth.
 
The Portfolio may invest in equity securities of smaller capitalized companies,
which are more vulnerable to financial and other risks than larger companies.
Investment in securities of smaller companies may involve a higher degree of
risk and price volatility than in securities of larger companies. The
Portfolio's investments will include securities of issuers located in developing
countries and traded in emerging markets. These securities pose greater
liquidity risks and other risks than securities of companies located in
developed countries and traded in more established markets. For a description of
special considerations and certain risks associated with investment in foreign
issuers, see "Description of Various Securities and Investment Techniques."
 
Although the Portfolio intends to invest primarily in securities listed on stock
exchanges, it will also invest in securities traded in over-the-counter markets
and, to a limited extent, in non-publicity traded securities. Securities traded
in over-the-counter markets and non-publicly traded securities pose liquidity
risks.
 
Pending investment or settlement, and for liquidity purposes, the Portfolio may
invest in domestic, Eurodollar and foreign short-term money market instruments.
As determined by the Sub-Adviser, the Portfolio may also purchase such
instruments to temporarily reduce the Portfolio's equity holdings for defensive
purposes in response to adverse market conditions.
 
Because of the lack of hedging facilities in the currency markets of Asia, no
active currency hedging strategy is anticipated currently. Instead, each
investment will be considered on a total currency adjusted basis with the United
States dollar as a base currency. The Portfolio may engage in foreign currency
exchange contracts. See "Description of Various Securities and Investment
Techniques."
 
MORGAN STANLEY WORLDWIDE HIGH INCOME PORTFOLIO seeks high current income
consistent with relative stability of principal and, secondarily, capital
appreciation, through investing primarily in a portfolio of high yielding fixed
income securities of issuers located throughout the world. The Portfolio seeks
to achieve its investment objective by allocating its assets among any or all of
three investment sectors: U.S. corporate lower rated and unrated debt
securities, emerging country debt securities and global fixed income securities
offering high real yields. The types of securities within each investment sector
in which the Portfolio may invest are described below. MSAM is the Sub-Adviser
for the Portfolio. For more information about MSAM, see "Management of the
Fund."
 
In selecting U.S. corporate lower rated and unrated debt securities for the
Portfolio, the Sub-Adviser will consider, among other things, the price of the
security, and the financial history, condition, prospects and management of an
issuer. The Sub-Adviser intends to invest a portion of the Portfolio's assets in
emerging country debt securities that provide a high level of current income,
while at the same time holding the potential for capital appreciation if the
perceived creditworthiness of the issuer improves due to improving economic,
financial, political, social or other conditions in the country in which the
issuer is located. In addition, the Sub-Adviser will attempt to invest a portion
of the Portfolio's assets in fixed income securities of issuers in global fixed
income markets displaying high real (inflation adjusted) yields. Under normal
conditions, the Portfolio intends to invest between 80% and 100% of its total
assets in some or all of these three categories of higher yielding securities,
some of which may entail increased credit and market risk. See "Description of
Various Securities and Investment Techniques -- Debt Securities."

The Sub-Adviser's approach to multicurrency fixed-income management is strategic
and value-based and designed to produce an attractive real rate of return. The
Sub-Adviser's assessment of the bond markets and currencies is based on an
analysis of real interest rates. Current nominal yields of securities are
adjusted for inflation prevailing in each currency sector using an analysis of
past and projected inflation rates. The Portfolio's aim is to invest in bond
markets which offer the most attractive real returns relative to inflation.
 
A portion of the Portfolio's investments, which may be up to 100% of the
Portfolio's investments, may be considered to have credit quality below
investment grade as determined by internationally recognized credit rating
agency organizations, such as Moody's Investors Service, Inc. (Moody's) and
Standard & Poor's Ratings Group (S&P), or be unrated but determined to be of
comparable quality by the Sub-Adviser. Such lower rated bonds are commonly
referred to as "junk bonds." Securities in the lowest rating categories may have
predominantly speculative characteristics or may be in default. See Appendix A
for a description of Moody's and S&P's corporate bond ratings. Ratings represent
the opinions of rating agencies as to the quality of bonds and other debt
securities they undertake to rate at the time of issuance. However, ratings are
not absolute standards of quality and may not reflect changes in an issuer's
creditworthiness. Accordingly, while the Sub-Adviser will consider ratings, it
will perform its own analysis and will not rely principally on ratings. Emerging
country debt securities in which the Portfolio may invest will be subject to
high risk and will not be required to meet a minimum rating standard and may not
be rated for creditworthiness by any internationally recognized credit rating
organizations. The Portfolio's investments in U.S. corporate lower rated and
unrated debt securities and emerging country debt securities are expected to be
rated in the lower and lowest rating categories of internationally recognized
credit rating organizations or to be unrated securities of comparable quality.
Ratings of a non-U.S. debt instrument, to the extent that those ratings are
undertaken, are related to evaluations of the country in which the issuer of the
instrument is located. Ratings generally take into account the currency in which
a non-U.S. debt instrument is denominated; instruments issued by a foreign
government in other than the local currency, for example, typically have a lower
rating than local 

                                       2
<PAGE>
 
currency instruments due to the existence of an additional risk that the
government will be unable to obtain the required foreign currency to service its
foreign currency-denominated debt. In general, the ratings of debt securities or
obligations issued by a non-U.S. public or private entity will not be higher
than the rating of the currency or the foreign currency debt of the central
government of the country in which the issuer is located, regardless of the
intrinsic creditworthiness of the issuer. To mitigate the risks associated with
investments in such lower rated securities, the Portfolio will diversify its
holdings by market, issuer, industry and credit quality. Investors should
carefully read "Description of Various Securities and Investment Techniques --
Debt Securities."
 
The Portfolio may invest in or own securities of companies in various stages of
financial restructuring, bankruptcy or reorganization which are not currently
paying interest or dividends, provided that the total value, at time of
purchase, of all such securities will not exceed 10% of the value of the
Portfolio's total assets. The Portfolio may have limited recourse in the event
of default on such debt instruments. The Portfolio may invest in loans,
assignments of loans and participations in loans. The Portfolio may also invest
in depositary receipts issued by U.S. or foreign financial institutions. See
"Description of Various Securities and Investment Techniques."
 
The Portfolio is not restricted in the portion of its assets which may be
invested in securities denominated in a particular currency and a substantial
portion of the Portfolio's assets may be invested in non-U.S. dollar-denominated
securities. The portion of the Portfolio's assets invested in securities
denominated in currencies other than the U.S. dollar will vary depending on
market conditions. The analysis of currencies is made independent of the
analysis of markets. Value in foreign exchange is determined by relative
purchasing power parity of a given currency. The Portfolio seeks to invest in
currencies currently undervalued based on purchasing power parity. The Sub-
Adviser analyzes current account and capital account performance and real
interest rates to adjust for shorter-term currency flows. Although the Portfolio
is permitted to engage in a wide variety of investment practices designed to
hedge against currency exchange rate risks with respect to its holdings of non-
U.S. dollar-denominated debt securities, the Portfolio may be limited in its
ability to hedge against these risks. The Portfolio may also write (i.e., sell)
covered call options and may enter into futures contracts and options on futures
and sell indexed financial futures contracts. See "Description of Various
Securities and Investment Techniques."
 
The Portfolio may also invest in zero coupon, pay-in-kind or deferred payment
securities, and in securities that may be collateralized by zero coupon
securities (such as Brady Bonds). Zero coupon securities are securities sold at
a discount to par value and are not entitled to interest payments during the
life of the security. Upon maturity, the holder is entitled to receive the par
value of the security. While interest payments are not made on such securities,
holders of such securities are deemed to receive "phantom income," which the
Portfolio will accrue prior to the receipt of cash payments. Pay-in-kind
securities are securities that have interest payable by delivery of additional
securities. Upon maturity, the holder is entitled to receive the aggregate par
value of the securities. Deferred payment securities are securities that remain
zero coupon securities until a predetermined date, at which time the stated
coupon rate becomes effective and interest becomes payable at regular intervals.
Zero coupon, pay-in-kind and deferred payment securities may be subject to
greater fluctuation in value and lesser liquidity in the event of adverse market
conditions than comparably rated securities paying cash interest at regular
interest payment periods.
 
The Portfolio is authorized to borrow in an amount up to 33-1/3% of its total
assets (including the amount borrowed), less all liabilities and indebtedness
other than the borrowing, for investment purposes to increase the opportunity
for greater return and for payment of dividends. Such borrowings would
constitute leverage, which is a speculative characteristic. Leveraging will
magnify declines as well as increases in the net asset value of the Portfolio's
shares and in the yield on the Portfolio's investments. See "Description of
Various Securities and Investment Techniques."
 
The average time to maturity of the Portfolio's securities will vary depending
upon the Sub-Adviser's perception of market conditions. The Sub-Adviser invests
in medium-term securities (i.e., those with a remaining maturity of
approximately five years) in a market neutral environment. When the Sub-Adviser
believes that real yields are high, the Sub-Adviser lengthens the remaining
maturities of securities held by the Portfolio and, conversely, when the Sub-
Adviser believes real yields are low, it shortens the remaining maturities.
Thus, the Portfolio is not subject to any restrictions on the maturities of the
debt securities it holds, and the Sub-Adviser may vary the average maturity of
the securities held by the Portfolio without limit.
 
The Portfolio may, to a limited extent, invest in non-publicly traded
securities, private placements and restricted securities.
 
For temporary defensive purposes, the Portfolio may invest part or all of its
total assets in cash or in short-term securities, including certificates of
deposit, commercial paper, notes, obligations issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities, and repurchase
agreements involving such government securities.
 
U.S. Corporate High Yield Fixed Income Securities. A portion of the Portfolio's
assets will be invested in U.S. corporate high yield fixed income securities,
which offer a yield above that generally available on U.S. corporate debt
securities in the three highest rating categories of NRSROs and which are
commonly referred to as "junk bonds." The Portfolio may buy unrated securities
that the Sub-Adviser believes are comparable to rated securities that are
consistent with the Portfolio's objectives and policies. The Portfolio may
acquire fixed income securities of U.S. issuers, including debt obligations
(e.g., bonds, debentures, notes, equipment lease certificates, equipment trust
certificates, conditional sales contracts and commercial paper and obligations)
and preferred stock. These fixed income securities may have equity features,
such as conversion rights or warrants, and the Portfolio may invest up to 10% of
its total assets in equity securities other than preferred stock (common stocks,
warrants and rights and limited partnership interests). The Portfolio may not
invest more than 5% of its total assets at time of acquisition in 

                                       3
<PAGE>
 
either of (1) equipment lease certificates, equipment trust certificates and
conditional sales contracts or (2) limited partnership interests.
 
Emerging Country Fixed Income Securities. A portion of the Portfolio's assets
will be invested in emerging country fixed income securities, which are debt
securities of government and government-related issuers located in emerging
countries (including participations in loans between governments and financial
institutions), and of entities organized to restructure outstanding debt of such
issuers, and debt securities of corporate issuers located in or organized under
the laws of emerging countries. As used in this Prospectus, an emerging country
is any country that the International Bank for Reconstruction and Development
(more commonly known as the World Bank) has determined to have a low or middle
income economy. There are currently over 130 countries which are considered to
be emerging countries, approximately 40 of which currently have established
securities markets. These countries generally include every nation in the world
except the United States, Canada, Japan, Australia, New Zealand and most nations
located in Western Europe.
 
In selecting emerging country debt securities for investment by the Portfolio,
the Sub-Adviser will apply a market risk analysis contemplating assessment of
factors such as liquidity, volatility, tax implications, interest rate
sensitivity, counterparty risks and technical market considerations. Currently,
investing in many emerging country securities is not feasible or may involve
unacceptable political risks. Initially, the Portfolio expects that its
investments in emerging country debt securities will be made primarily in some
or all of the following emerging countries:
 
  Algeria                 Egypt            Nicaragua        Slovakia
  Argentina               Greece           Nigeria          South Africa
  Brazil                  Hungary          Pakistan         Thailand
  Bulgaria                India            Panama           Trinidad & Tobago  
  Chile                   Indonesia        Paraguay         Tunisia
  China                   Ivory Coast      Peru             Turkey
  Colombia                Jamaica          Philippines      Uruguay
  Costa Rica              Jordan           Poland           Venezuela
  Czech Republic          Malaysia         Portugal         Zaire
  Dominican Republic      Mexico           Russia
  Ecuador                 Morocco          Singapore
 
As opportunities to invest in debt securities in emerging countries develop, the
Portfolio expects to expand and further diversify the emerging countries in
which it invests. While the Portfolio generally is not restricted in the portion
of its assets which may be invested in a single country or region, it is
anticipated that, under normal circumstances, the Portfolio's assets will be
invested in at least three countries.
 
The Portfolio's investments in government and government-related and
restructured debt securities will consist of (i) debt securities or obligations
issued or guaranteed by governments, governmental agencies or instrumentalities
and political subdivisions located in emerging countries (including
participations in loans between governments and financial institutions), (ii)
debt securities or obligations issued by government owned, controlled or
sponsored entities located in emerging countries, and (iii) interests in issuers
organized and operated for the purpose of restructuring the investment
characteristics of instruments issued by any of the entities described above.
Such type of restructuring involves the deposit with or purchase by an entity of
specific instruments and the issuance by that entity of one or more classes of
securities backed by, or representing interests in, the underlying instruments.
Certain issuers of such structured securities may be deemed to be "investment
companies" as defined in the 1940 Act. As a result, the Portfolio's investment
in such securities may be limited by certain investment restrictions contained
in the 1940 Act.
 
The Portfolio's investments in debt securities of corporate issuers in emerging
countries may include debt securities or obligations issued (i) by banks located
in emerging countries or by branches of emerging country banks located outside
the country or (ii) by companies organized under the laws of an emerging
country. Determinations as to eligibility will be made by the Sub-Adviser based
on publicly available information and inquiries made to the issuer. The
Portfolio may also invest in certain debt obligations customarily referred to as
"Brady Bonds," which are created through the exchange of existing commercial
bank loans to foreign entities for new obligations in connection with debt
restructurings under a plan introduced by former U.S. Secretary of the Treasury
Nicholas F. Brady. See "Investment Policies and Limitations -- Brady Bonds" in
the SAI for further information about Brady Bonds. The Portfolio's investments
in government and government-related and restructured debt instruments are
subject to special risks, including the inability or unwillingness to repay
principal and interest, requests to reschedule or restructure outstanding debt
and requests to extend additional loan amounts. See "Description of Various
Securities and Investment Techniques -- Debt Securities" and "-- Foreign
Government Securities."

                                       4
<PAGE>

Emerging country debt securities held by the Portfolio will take the form of
bonds, notes, bills, debentures, convertible securities, warrants, bank debt
obligations, short-term paper, mortgage- and other asset-backed securities, loan
participations, loan assignments and interests issued by entities organized and
operated for the purpose of restructuring the investment characteristics of
instruments issued by emerging country issuers. U.S. dollar-denominated emerging
country debt securities held by the Portfolio will generally be listed but not
traded on a securities exchange, and non-U.S. dollar-denominated securities held
by the Portfolio may or may not be listed or traded on a securities exchange.
The Portfolio may invest in mortgage-backed securities and in other asset-backed
securities issued by non-governmental entities such as banks and other financial
institutions. Mortgage-backed securities include mortgage pass-through
securities and collateralized mortgage obligations (CMOs). Asset-backed
securities are collateralized by such assets as automobile or credit card
receivables and are securitized either in a pass-through structure or in a pay-
through structure similar to a CMO. Investments in emerging country debt
securities entail special investment risks. See "Description of Various
Securities and Investment Techniques -- Foreign Securities and Depositary
Receipts."
 
Global Fixed Income Securities. The global fixed income securities in which a
portion of the Portfolio's assets may be invested are debt securities
denominated in currencies of countries displaying high real yields. Such
securities include government obligations issued or guaranteed by U.S. or
foreign governments and their political subdivisions, authorities, agencies or
instrumentalities, and by supranational entities (such as the World Bank, The
European Economic Community, The Asian Development Bank and the European Coal
and Steel Community), Eurobonds, and corporate bonds with varying maturities
denominated in various currencies. In this portion of the Portfolio, the Sub-
Adviser seeks to minimize investment risk by investing in a high quality
portfolio of debt securities, the majority of which will be rated in one of the
two highest rating categories by an NRSRO or, if unrated, will be of comparable
quality, as determined by the Sub-Adviser. U.S. Government securities in which
the Portfolio may invest include obligations issued or guaranteed by the U.S.
Government, such as U.S. Treasury securities, as well as those backed by the
full faith and credit of the United States, such as obligations of the
Government National Mortgage Association and the Export-Import Bank. The
Portfolio may also invest in obligations issued or guaranteed by U.S. Government
agencies or instrumentalities where the Portfolio must look principally to the
issuing or guaranteeing agency for ultimate repayment. Investment in foreign
government securities for this portion of the Portfolio will be limited to those
of developed nations which the Sub-Adviser believes pose limited credit risk.
These countries currently include Australia, Austria, Belgium, Canada, Denmark,
Finland, France, Germany, Ireland, Italy, Japan, Luxembourg, the Netherlands,
New Zealand, Norway, Portugal, Spain, Sweden, Switzerland and the United
Kingdom. Corporate and supranational obligations in which the Portfolio will
invest for this portion of its portfolio will be limited to those rated "A" or
better by Moody's, S&P or IBCA Ltd. or, if unrated, determined to be of
comparable quality by the Sub-Adviser.
 
In selecting securities for this portion of the Portfolio, the Sub-Adviser
evaluates the currency, market, and individual features of the securities being
considered for investment. The Sub-Adviser believes that countries displaying
the highest real yields will over time generate a high total return and,
accordingly, the Sub-Adviser's focus for this portion of the Portfolio will be
to analyze the relative rates of real yield of twenty global fixed income
markets. In selecting securities, the Sub-Adviser will first identify the global
markets in which the Portfolio's assets will be invested by ranking such
countries in order of highest real yield. In this portion of the Portfolio, the
Portfolio will invest its assets primarily in fixed income securities
denominated in the currencies of countries within the top quartile of the Sub-
Adviser's ranking.
 
The Sub-Adviser's assessment of the global fixed income markets is based on an
analysis of real interest rates. The Sub-Adviser calculates real yield for each
global market by adjusting current nominal yields of securities in each such
market for inflation prevailing in each country using an analysis of past and
projected (one-year) inflation rates for that country. The Sub-Adviser expects
to review and update on a regular basis its real yield ranking of countries and
market sectors and alter the allocation of this portion of the Portfolio's
investments among markets as necessary when changes to real yields and inflation
estimates significantly alter the relative rankings of the countries and market
sectors.
 
RENAISSANCE BALANCED PORTFOLIO seeks income and capital appreciation in rising
markets and the preservation of capital in adverse market environments by
allocating assets among common stocks of issuers with large capitalizations,
United States Government and high quality corporate debt securities, and high
quality cash equivalent issues, such as commercial paper. Renaissance Investment
Management (Renaissance) is the Sub-Adviser for the Portfolio. For more
information about Renaissance, see "Management of the Fund."
 
The Portfolio is managed by means of an asset allocation process developed by
Renaissance that utilizes the basic asset classes of stocks, bonds and cash
equivalents. The asset allocation process is a quantitative, value-oriented
process that results in periodic asset allocation shifts to reduce risk and/or
increase return. However, under normal market conditions, at least 25% of the
Portfolio will be invested in senior fixed income securities.
 
The Renaissance Balanced Strategy is based upon the premise that asset classes
within the financial markets periodically become mispriced relative to one
another. The Sub-Adviser systematically measures the potential returns from each
asset class and continually shifts away from overvalued assets and toward
undervalued assets. The attractiveness of each asset class is expressed in terms
of a payback methodology, which continually calculates the holding period
required for a given asset to return to the investor its current price in the
form of future earnings, dividends, and/or interest payments.

The period of time for the cumulative return to equal the initial investment is
called the Capital Return Time (CRT). Logically, investment funds should flow
toward those alternatives (assets) with shorter CRTs and away from assets with
longer CRTs. In the capital markets, this means that the prices of assets with
relatively low CRTs tend to rise,

                                       5
<PAGE>
 
and the prices of assets with relatively high CRTs tend to fall as equilibrium
is restored. Measuring and exploiting the difference in CRTs among asset classes
are the objectives of the Renaissance Balanced Strategy.
     
Equity commitments will generally range from 10% to 75% of the total assets of
the Portfolio. The equity portion of the Portfolio will be well-diversified,
with sector and industry weightings similar to those of the Standard & Poor's
500 Index (S&P 500). Selection of individual common stock issues is based upon a
three-part quantitative process which continually evaluates the large
capitalization stocks in the S&P 500. As a result of these selection procedures,
the equity portion of the Portfolio will have a bias toward high quality, liquid
issues. Most equity investments will be in securities of domestic companies;
however, the Portfolio may also invest in securities of foreign companies
through the acquisition of ADRs. The value characteristics of the equity portion
of the Portfolio, such as price/earnings ratios, price/book value ratios and
yield, will generally be more favorable than the characteristics of the market
as a whole. The investment objective of the equity portion of the Portfolio is
to achieve moderately better performance than the S&P 500 without incurring
excessive risk.    
 
The fixed income class will consist of medium to long-term U.S. Treasury and/or
high quality corporate bonds, and the cash equivalents class will consist of
high quality money market instruments, including 90-day U.S. Treasury bills. See
"Mitchell Hutchins Money Market Portfolio" for a description of the type of
money market securities in which the Portfolio may invest. The commercial paper
in which the Portfolio will invest will generally be rated in the highest
category by S&P or Moody's or, if unrated, of comparable quality as determined
by the Sub-Adviser. See Appendix A. The Portfolio may invest up to 10% of its
total assets in foreign government securities. The Portfolio also may invest in
mortgage-backed securities. See "Description of Various Securities and
Investment Techniques."
 
The Portfolio periodically may invest in listed options and futures contracts
and related options. These transactions would be made for the purpose of hedging
the portfolio against the possibility of a general market decline, or for the
purpose of increasing market exposure at minimal cost. See "Description of
Various Securities and Investment Techniques."
 
ZWEIG ASSET ALLOCATION PORTFOLIO seeks long-term capital appreciation through
investment primarily in Blue Chip Stocks, consistent with preservation of
capital and the reduction of portfolio exposure to market risk, as determined by
Zweig/Glaser Advisers (Zweig/Glaser), the Sub-Adviser. Blue Chip Stocks are
stocks which the Sub-Adviser considers comparable to the stocks included in the
S&P 500 that have a minimum of $400 million market capitalization, average daily
trading volume of 50,000 shares or $425 million in total assets, and which are
traded on the New York Stock Exchange (NYSE), American Stock Exchange (AMEX),
over-the-counter (OTC) or on foreign exchanges. For more information about
Zweig/Glaser, see "Management of the Fund."
 
The extent of the Portfolio's investment in Blue Chip Stocks and the selection
of particular securities are determined primarily on the basis of risk
management strategies and stock selection techniques developed by Dr. Martin
Zweig and his staff. In an effort to meet its investment objective, the
Portfolio will use certain specialized techniques. See "Description of Various
Securities and Investment Techniques." The Fund will use stock index futures
and/or options to increase or decrease market exposure, or to entirely eliminate
market exposure, and invest in high quality money market securities and
repurchase agreements in accordance with the Sub-Adviser's risk management
strategies.
 
The Sub-Adviser uses a computer-driven stock selection model currently employed
by Dr. Zweig and his staff. The model ranks approximately 1,400 of the most
liquid stocks as determined by the Sub-Adviser by various measures such as
earnings momentum, relative valuation, changes in analysts' earnings estimates
and price momentum, and, based on the rankings, selects up to 300 stocks for the
Portfolio. The stock selection model used may evolve or be replaced by other
stock selection techniques intended to achieve the Portfolio's investment
objective. Shareholders will be notified in the event of any material change to
the stock selection model.
 
The Portfolio may invest in foreign securities publicly traded in the United
States and in ADRs, which are U.S. dollar denominated receipts issued generally
by domestic banks and representing the deposit of a foreign issuer. For a
discussion of limitations on, and certain risks involved in, investments in
foreign securities, see "Description of Various Securities and Investment
Techniques."
 
NICHOLAS-APPLEGATE BALANCED PORTFOLIO seeks maximum total return in both the
equity and fixed income portions of its investments. Under normal market
conditions, the Portfolio will have 60% to 65% of its assets invested in equity
securities, including common stocks and securities convertible into or
exchangeable for common stocks (such as convertible preferred stocks and
convertible debentures). The remaining 35% to 40% will be invested in U.S.
Government securities or cash equivalent issues. For information about Nicholas-
Applegate Capital Management (Nicholas-Applegate), the Sub-Adviser to the
Portfolio, see "Management of the Fund."
     
The Sub-Adviser follows a growth investment philosophy for equity securities. It
engages in fundamental analysis of companies which it considers to have strong
possibilities for long-term capital appreciation. Equity securities purchased
will generally have the following characteristics: (1) market capitalization in
excess of $500 million, (2) increasing earnings, (3) sustainable growth, and (4)
positive relative price momentum. The Sub-Adviser uses a computer system that
includes a proprietary research and verification system to analyze and rank more
than 3,500 stocks by these characteristics. It is anticipated that the Portfolio
will maintain an equity portfolio of between 75 and 100 issues.    
 
The equity portion of the Portfolio will be diversified and consist of equity
securities such as common stocks, preferred stocks and convertible preferred
stocks, which the Sub-Adviser believes have above-average earnings growth
prospects based on a company-by-company analysis (rather than on broader
analyses of specific industries

                                       6
<PAGE>
 
or sectors of the economy). The Sub-Adviser seeks to identify stocks of
companies which it expects to enter into an accelerating earnings period, to
attract increasing institutional sponsorship or to demonstrate strong price
appreciation relative to their industries and to broad market averages. The
companies in which the Portfolio invests do not necessarily have records of past
high growth. Examples of possible investments include companies with increasing
earnings, companies with new and innovative products or services, companies
facing a changed economic, competitive or regulatory environment, companies with
a new or different management approach and initial public offerings of companies
which the Sub-Adviser believes offer above-average growth potential.
 
The Sub-Adviser utilizes an internal research system to systematically
integrate, weight and evaluate 3,500 companies based upon earnings acceleration,
earnings sustainability and relative price strength. The result is portfolios of
equity securities which the Sub-Adviser believes have above-average earnings
growth prospects. Investments are closely monitored with a view to the sale of
portfolio securities when the reasons for the initial purchases are no longer
valid.
 
The Portfolio may invest up to 20% of its total assets in securities of foreign
issuers and ADRs. See "Description of Various Securities and Investment
Techniques."
 
The fixed income securities in which the Portfolio will invest are U.S.
Government securities. Generally, such securities will have remaining terms to
maturity of approximately 10 years. The Sub-Adviser uses a statistical model
that identifies significant interest rate trends in the bond market. The
Portfolio will react to changes in the trend of interest rates by purchasing or
shifting to longer-term securities when the rates are declining and to shorter-
term securities when the rates are rising. The Sub-Adviser also will consider
such factors as Gross National Product, the inflation rate, fiscal policy and
the currency market in determining maturities to be purchased.
 
The Portfolio may attempt to reduce the overall risk of its investments (hedge)
by investing in options. See "Description of Various Securities and Investment
Techniques."
 
HARRIS BRETALL SULLIVAN & SMITH EQUITY GROWTH PORTFOLIO seeks long-term capital
appreciation. The Portfolio primarily invests in stocks of established companies
with proven records of superior and consistent earnings growth. The Portfolio
may invest all or a portion of its assets in cash and cash equivalents if the
Sub-Adviser considers the securities markets to be overvalued. The Portfolio may
invest in U.S. Government securities when this appears desirable in light of the
Portfolio's investment objective or when market conditions warrant. For more
information about Harris Bretall Sullivan & Smith, Inc. (Harris Bretall Sullivan
& Smith), the Sub-Adviser, see "Management of the Fund."
 
The Sub-Adviser selects growth stocks by ascertaining that the issuing company
has (i) a track record of superior and consistent growth in revenues and
earnings; (ii) management that has successfully brought the company through a
variety of business conditions and business cycles; (iii) product lines,
technologies or franchises that are leaders in their fields; and (iv) a
financial structure that is stronger than average.
 
The Sub-Adviser applies qualitative and quantitative screens, using several on-
line databases to 5,000 publicly-held companies and develops a select universe
of approximately 300 stocks that meet its criteria. The Sub-Adviser's stock
selection process is centered on a proprietary multi-factor model which looks at
the individual companies in the universe from three points of view. First,
companies are ranked based on their intrinsic present value using the Sub-
Adviser's earnings and growth rate outlook. Second, their recent quarterly
earnings are reviewed and individual companies are ranked. Finally, based on
their relative price performance against the universe and the general market, a
third score is calculated. The strategy committee, composed of the principals
and senior portfolio managers of the Sub-Adviser, provide the security analysis
to input the earnings estimates, growth rates and risk factors into the model.
 
The stocks in the universe are then ranked to determine the most attractive,
undervalued companies in the universe. The Portfolio will purchase the top 40 to
50 stocks (Quintile 1), which are the most undervalued, and will continue to
hold them even if their ranking changes. Stocks are sold when they are ranked in
Quintiles 3, 4 and 5 and replaced by an equal number of Quintile 1 stocks.
Stocks are continuously monitored and rotated so the Portfolio will always be
invested in stocks which show the greatest appreciation potential. Industry
sectors expected to be represented in the Portfolio include technology, capital
goods, basic industry, consumer, energy, health care, media, interest sensitive,
utilities and transportation.

When the Sub-Adviser believes unusual circumstances warrant a defensive posture,
the Portfolio temporarily may commit all or a portion of its assets to cash,
U.S. Government securities or money market instruments, including repurchase
agreements.
    
DREMAN VALUE PORTFOLIO seeks primarily long-term capital appreciation with a
secondary objective of current income. The Portfolio will invest principally in
a diversified portfolio of securities believed by Dreman Value Advisors, Inc.
(Dreman), the Sub-Adviser for the Portfolio, to be undervalued. The Sub-
Adviser's philosophy centers on identifying stocks of large, well-known
companies with solid financial strength and generous dividend yields that have
low price-earnings ratios (P/E ratios) and have been generally overlooked by the
market. For more information about Dreman, see "Management of the Fund."    
 
The Sub-Adviser's strategy reflects a contrarian approach, in that the potential
for superior relative performance is highest during down markets when investment
risks are greatest and protecting capital becomes of paramount importance. The
Sub-Adviser seeks to outperform the S&P 500 over a market cycle. There is, of
course, no assurance that this goal will be realized.

                                       7
<PAGE>
 
The Sub-Adviser's basic strategy is to buy low P/E stocks. In addition, the Sub-
Adviser seeks to identify financially strong companies paying above-average
dividends but which are currently out of favor. The Portfolio will normally be
invested in approximately 35 to 45 stocks divided among 16 to 20 industries. The
Sub-Adviser believes that diversification is essential to the low P/E strategy.
After having refined the portfolio candidate universe to a manageable group of
promising stocks, the Sub-Adviser then applies a proprietary fundamental
analysis. Qualifying stocks must generally satisfy certain requirements,
including: a strong financial position, favorable operating and financial
ratios, accelerating earnings growth, and a high dividend yield which a company
can sustain and probably increase.
 
The next factor considered by the Sub-Adviser is the price-to-book value
relationship. The Portfolio's investments will be principally in companies whose
market prices are low in relation to book value, as the Sub-Adviser seeks solid
assets and value rather than paying a high price for a concept or fad. Another
characteristic sought by the Sub-Adviser is low or sharply declining
institutional ownership. The Sub-Adviser believes that this is a sign of a stock
that is falling out of favor from Wall Street's point of view and becoming
relatively cheap.
 
The Sub-Adviser also analyzes debt-to-equity ratios to confirm that there is a
manageable amount of debt on a company's balance sheet, usually no more than
40%. The Sub-Adviser devotes attention to reviewing cash and current ratios to
be certain that the Portfolio's potential investments have strong staying power
and can self-finance should the need arise.
 
Generally, the Sub-Adviser seeks companies with better than average growth rates
in the last five and ten-year periods for both earnings and dividends. Most
investments will be in securities of domestic companies; however, the Portfolio
may also invest in securities of foreign companies through the acquisition of
ADRs.
 
In order to conserve assets during periods when the Sub-Adviser believes that
the market for equity securities is unduly speculative or when interest rates
are abnormally high, the Portfolio may invest in U.S. Government securities and
other high-grade, short-term money market instruments, including repurchase
agreements with respect to such instruments. The Portfolio may also purchase and
sell stock index futures contracts and index options. The Portfolio will invest
in stock index futures contracts and index options solely for the purpose of
hedging against changes resulting from market conditions in the values of the
securities held by the Portfolio or securities which it intends to purchase or
sell where such transactions are economically appropriate for the reduction of
risks inherent in the ongoing management of the Portfolio. See "Description of
Various Securities and Investment Techniques."
    
ZWEIG EQUITY (SMALL CAP) PORTFOLIO seeks long-term capital appreciation through
investment primarily in Small Company Stocks, consistent with preservation of
capital and reduction of portfolio exposure to market risk, as determined by
Zweig/Glaser, the Sub-Adviser. Current income is not an objective. Small Company
Stocks are the 2,500 stocks positioned immediately after the 500 largest stocks
ranked in terms of market capitalization and/or trading volume, and which are
traded on the NYSE, AMEX or OTC. Currently, the market capitalization of the
2,500 stocks ranges between $7.5 billion and $50 million. Trading volume is
determined by multiplying a stock's average daily shares traded over the last
year by the average price of the stock for that same period. Currently, Small
Company Stocks have an average daily trading volume of approximately $3.0
million. For more information about Zweig/Glaser, see "Management of the
Fund."    
 
The extent of the Portfolio's investment in Small Company Stocks and the
selection of particular securities are to be determined primarily on the basis
of risk management strategies and stock selection techniques developed by Dr.
Martin Zweig and his staff. In an effort to meets its investment objective, the
Portfolio will use certain specialized techniques. See "Description of Various
Securities and Investment Techniques." The Portfolio will use stock index
futures and/or options to increase or decrease market exposure, or to entirely
eliminate market exposure, and will invest in high quality money market
securities, repurchase agreements, and U.S. Government securities with remaining
maturities of 5 years or less, in accordance with the Sub-Adviser's risk
management strategies.
 
The Sub-Adviser will use a computer-driven stock selection model developed by
Dr. Zweig and his staff that evaluates approximately 3,000 stocks for their
attractiveness by various measures such as earnings momentum, relative
valuation, changes in analysts' earnings estimates and price momentum. Small
Company Stocks may present greater opportunities for capital appreciation and
greater risk; and they tend to be more volatile than stocks of larger, more
established companies.
 
Although the Portfolio will invest primarily in Small Company Stocks, it may
invest up to 35% of its total assets in stocks that rank among the 500 largest
in terms of market capitalization and/or trading volume. The stock selection
model and risk management strategies used by the Sub-Adviser may evolve or be
replaced by other stock selection techniques or risk management strategies
intended to achieve the Portfolio's investment objective. Shareholders will be
notified in advance of any such material change.

Under normal circumstances, the Portfolio will invest between 50% and 65% of its
net assets in Small Company Stocks.

The Portfolio may invest in foreign securities publicly traded in the U.S. and
in ADRs. For a discussion of limitations on, and certain risks involved in,
investments in foreign securities, see "Descriptions of Various Securities and
Investment Techniques."

MITCHELL HUTCHINS FIXED INCOME PORTFOLIO seeks as high a level of current
income as is consistent with the preservation of capital. It normally invests
exclusively in corporate debt securities; U.S. Government securities

                                       8
<PAGE>
 
(including mortgage-backed securities issued by the Government National Mortgage
Association, the Federal National Mortgage Association, and the Federal Home
Loan Mortgage Corporation); repurchase agreements with respect to securities in
which the Portfolio may invest; and instruments used in certain hedging and
related income strategies. See "Description of Various Securities and Investment
Techniques." The Portfolio will principally invest in securities rated at least
investment grade, or, if not rated, determined by the Sub-Adviser to be of
comparable quality. However, the Portfolio may invest up to 15% of its total
assets in securities rated below investment grade or of equivalent quality, if
not rated, including defaulted securities. Lower rated securities involve
greater risks than do higher rated securities, in that they are especially
subject to adverse changes in general conditions and in the industries in which
the issuers are engaged, to changes in the financial condition of the issuers
and to price fluctuation in response to changes in interest rates. For a more 
in-depth discussion of the risks inherent in investing in lower quality debt
securities, see "Description of Various Securities and Investment Techniques --
Debt Securities." Mitchell Hutchins Institutional Investors, Inc. (MHII) is the
Sub-Adviser to the Portfolio. For more information about MHII, see "Management
of the Fund."

When the Sub-Adviser believes unusual circumstances warrant a defensive posture,
the Portfolio temporarily may commit all or a portion of its assets to cash,
U.S. Government securities or money market instruments, including repurchase
agreements.

The Portfolio may engage in certain strategies involving options (both exchange-
traded and OTC) to attempt to enhance income. The Portfolio also may attempt to
reduce the overall risk of its investments (hedge) by using options and futures
contracts. The Portfolio also may use forward currency contracts and foreign
currency options, futures contracts and options thereon to attempt to hedge
against movements in exchange rates. The Portfolio's ability to use these
strategies may be limited by market conditions, regulatory limits and tax
considerations. For more information about these investment techniques and the
special risks related thereto, see "Description of Various Securities and
Investment Techniques."

The Sub-Adviser's strategy is a systematic, disciplined approach that focuses on
three critical decisions: duration/yield curve positioning, sector allocation
and security selection.
    
The Sub-Adviser is a "controlled duration" manager, making duration shifts
within 20% of a selected benchmark and frequently well within this range. By
restricting duration, they attempt to guard against downside risk and to limit
reliance on exact interest rate forecasting.

Active sector allocation and issue selection are then made in an attempt to
maximize portfolio returns. The yield curve positioning is the final decision
factor and reflects cyclical considerations as well as relative value along the
yield curve.

The duration decision is the first component of the Sub-Adviser's fixed income
strategy. The Sub-Adviser has performed in-depth analysis of the factors that
influence interest rate movements and has identified five key economic/market
variables (some of which are constructed in a proprietary fashion) that are
significant determinants of fixed income performance; monetary policy, level of
economic activity, inflation, real interest rates, and market psychology.
Appropriate data is thoroughly analyzed using both sophisticated modeling
techniques and the accumulated experience of the Sub-Adviser. Based on the
overall reading of these variables, duration is adjusted generally within a
+/-20% around the benchmark.
 
Proper positioning along the yield curve compliments the duration decision.
Extreme yield curve positions (i.e. barbell or bullet) generally reflect
definite interest rate outlooks. Relative value along the curve is ascertained
by comparing a derived theoretical term structure or spot rate curve with an
actual Treasury Strip curve. Anomalies in the forward rate curve are also
analyzed for relative value within different segments of the yield curve.
 
The Sub-Adviser continuously analyzes the risk/reward relationships among the
various sectors of the debt market. They maintain a core portfolio of securities
representative of the portfolio's benchmark and rebalance when a sector of the
bond market, such as corporates or mortgages, offers value versus its historic
average relationship with Treasuries. Care is taken to compare spreads at
comparable points on the business cycle. For each sector, supply/demand factors
are closely scrutinized. In addition, volatility is monitored in order to
properly price the embedded options in corporate and mortgage-backed securities.
For a proper evaluation of the options embedded in mortgage-backed securities,
the Sub-Adviser utilizes both options models as well as scenario analysis to
evaluate both inter-security value and interest rate risk exposure. Sector
weightings are formally reviewed on a weekly basis.    

                                       9
<PAGE>

     
Once the sector weighting decision is made, individual securities are selected
that the Sub-Adviser determines may add the greatest value to the Portfolio. The
Sub-Adviser evaluates credit quality relationships, yields, maturity structure,
coupon differentials, and other key characteristics. Special characteristics
such as call features, sinking funds, and the option-adjusted spread are
considered. The Sub-Adviser then focuses on the impact of the external and
internal environment on issuer credit standing which in turn impacts the quality
and future value of issuer instruments. Among the elements analyzed are
financial risk, event risk and regulatory risk. The Sub-Adviser performs its own
credit research to supplement data from Moody's and S&P. Additional research is
provided by other leading Wall Street investment research oriented brokerage
firms. Those securities not meeting the risk/reward expectations are sold from
the portfolio.    
 
MITCHELL HUTCHINS MONEY MARKET PORTFOLIO seeks maximum current income consistent
with liquidity and conservation of capital. The Portfolio invests in high grade
money market instruments, with remaining maturities of 13 months or less, and
repurchase agreements secured by such instruments, and maintains a dollar-
weighted average portfolio maturity of 90 days or less. These instruments
include (1) U.S. Government securities (which may or may not be backed by the
full faith and credit of the United States), (2) obligations (including
certificates of deposit, bankers' acceptances and similar obligations) of U.S.
banks, including foreign branches of domestic banks and domestic branches of
foreign banks, having total assets in excess of $1.5 billion at the time of
purchase, (3) interest-bearing savings deposits in U.S. commercial and savings
banks having total assets of $1.5 billion or less, provided that the principal
amounts at each such bank are fully insured by the Federal Deposit Insurance
Corporation and the aggregate amount of such deposits (plus interest earned)
does not exceed 5% of the Portfolio's asset value, and (4) commercial paper and
other short-term corporate obligations, corporate bonds and notes with remaining
maturities of 13 months or less, variable and floating rate securities and
participation interests (pro rata interests in securities held by others) or
repurchase agreements involving any of the foregoing securities. For information
about Mitchell Hutchins Asset Management Inc. (Mitchell Hutchins), the Sub-
Adviser to the Portfolio, see "Management of the Fund."

The commercial paper and other short-term corporate obligations purchased by the
Portfolio consist only of obligations that the Sub-Adviser determines, pursuant
to procedures adopted by the Fund's Board of Directors, present minimal credit
risks and are either (1) rated in the highest short-term rating category by at
least two NRSROs, (2) rated in the highest short-term rating category by a
single NRSRO if only that NRSRO has assigned the obligations a short-term rating
or (3) unrated, but determined by the Sub-Adviser to be of comparable quality
(First Tier Securities). The Portfolio generally may invest no more than 5% of
its total assets in the securities of a single issuer (other than securities
issued by the U.S. Government, its agencies or instrumentalities). For a
discussion of U.S. Government securities and repurchase agreements, see
"Description of Various Securities and Investment Techniques."

AN INVESTMENT IN THE MITCHELL HUTCHINS MONEY MARKET PORTFOLIO IS NEITHER INSURED
NOR GUARANTEED BY THE U.S. GOVERNMENT, AND 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.

    
          Description of Various Securities and Investment Techniques     

U.S. GOVERNMENT SECURITIES: Each Portfolio may purchase U.S. Government
securities, which are obligations of, or guaranteed by, the U.S. Government, its
agencies or instrumentalities. These include direct obligations of the U.S.
Treasury (such as Treasury bills, notes and bonds) and obligations issued by
U.S. Government agencies and instrumentalities, including securities that are
supported by the full faith and credit of the United States (such as Government
National Mortgage Association certificates) and securities supported primarily
or solely by the creditworthiness of the issuer (such as securities of the
Federal National Mortgage Association, the Federal Home Loan Mortgage
Corporation and the Tennessee Valley Authority). See "Mortgage-Backed
Securities" below.

MORTGAGE-BACKED SECURITIES: Morgan Stanley Worldwide High Income Portfolio,
Renaissance Balanced Portfolio and Mitchell Hutchins Fixed Income Portfolio may
invest in mortgage-backed securities, some of which are also considered to be
U.S. Government securities. Mortgage-backed securities include:

 . Ginnie Maes -- Ginnie Maes are debt securities issued by a mortgage banker or
  other mortgagee and represent an interest in a pool of mortgages insured by
  the Federal Housing Administration or the Farmers Home Administration or
  guaranteed by the Veterans Administration. The Government National Mortgage
  Association (GNMA) guarantees the timely payment of principal and interest.
  The GNMA guarantee is backed by the full faith and credit of the U.S.
  Government.

 . Fannie Maes -- The Federal National Mortgage Association (FNMA) is a
  government-sponsored corporation owned entirely by private stockholders that
  purchases residential mortgages from a list of approved

                                      10
<PAGE>
 
      seller/servicers. Pass-through securities issued by FNMA are guaranteed as
      to timely payment of principal and interest by FNMA but are not backed by
      the full faith and credit of the U.S. Government.

 .     Freddie Macs -- The Federal Home Loan Mortgage Corporation (FHLMC), a
      corporate instrumentality of the U.S. Government, issues participation
      certificates (PCs) which represent an interest in residential mortgages
      from FHLMC's National Portfolio. FHLMC guarantees the timely payment of
      interest (and, under certain circumstances, principal) and ultimate
      collection of principal, but PCs are not backed by the full faith and
      credit of the U.S. Government.

 .     Government Collateralized Mortgage Obligations -- These are securities 
      issued by a U.S. Government instrumentality or agency which are backed 
      by a portfolio of mortgages or mortgage-backed securities held under an
      indenture. CMOs are described more fully below.
 
Interest and principal payments (including prepayments) on the mortgages
underlying mortgage-backed securities are passed through to the holders of the
mortgage-backed security. Prepayments occur when the mortgagor on an individual
mortgage prepays all or a portion of the remaining principal before the
mortgage's scheduled maturity date. As a result of the pass-through of
prepayments of principal on the underlying securities, mortgage-backed
securities are often subject to more rapid prepayments of principal than their
stated maturity would indicate. Because the prepayment characteristics of the
underlying mortgages vary, it is not possible to predict accurately the realized
yield or average life of a particular issue of pass-through certificates.
Prepayments are important because of their effect on the yield and price of the
securities. During periods of declining interest rates, such prepayments can be
expected to accelerate and a Portfolio might have to reinvest the proceeds at
the lower interest rates then available. In addition, prepayments of mortgages
which underlie securities purchased at a premium could result in capital losses
because the premium may not have been fully amortized at the time the obligation
is repaid. As a result of these principal payment features, mortgage-backed
securities are generally more volatile investments than other U.S. Government
securities.
 
A CMO is a security issued by a private corporation or a U.S. Government
instrumentality which is backed by a portfolio of mortgages or mortgage-backed
securities held under an indenture. The issuer's obligation to make interest and
principal payments is secured by the underlying portfolio of mortgages or
mortgage-backed securities. CMOs are issued with a number of classes or series
which have different maturities and which may represent interests in some or all
of the interest or principal on the underlying collateral or a combination
thereof. CMOs of different classes are generally retired in sequence as the
underlying mortgage loans in the mortgage pool are repaid. In the event of
sufficient early prepayments on such mortgages, the class or series of CMO first
to mature generally will be retired prior to its maturity. Thus, the early
retirement of a particular class or series of CMO held by a Portfolio would have
the same effect as the prepayment of mortgages underlying a mortgage-backed 
pass-through security. Except as described below, the Portfolios may invest in
only those privately-issued CMOs which are collateralized by mortgage-backed
securities issued by GNMA, FHLMC or FNMA, and in CMOs issued by a U.S.
Government agency or instrumentality.
 
Certain issuers of CMOs may be deemed to be investment companies under the 1940
Act. The Portfolios intend to conduct their operations in a manner consistent
with this view, and therefore generally may not invest more than 10% of their
respective total assets in such issuers without obtaining appropriate regulatory
relief. In reliance on recent Securities and Exchange Commission (SEC) staff
interpretations, the Portfolios may invest in those CMOs and other mortgage-
backed securities that are not by definition excluded from the provisions of the
1940 Act, but have obtained exemptive orders from the SEC from such provisions.
 
Morgan Stanley Worldwide High Income Portfolio and Mitchell Hutchins Fixed
Income Portfolio may also invest in a type of mortgage-backed security issued by
a real estate mortgage investment conduit (REMIC), which is a private entity
formed for the purpose of holding a fixed pool of mortgages secured by an
interest in real property and of issuing multiple classes of interests therein
to investors such as the Portfolio.
 
Morgan Stanley Worldwide High Income Portfolio and Mitchell Hutchins Fixed
Income Portfolio may also invest in zero coupon U.S. Government securities which
have been stripped of their unmatured interest coupons and receipts or in
certificates representing undivided interests in such stripped U.S. Government
securities and coupons. Mitchell Hutchins Fixed Income Portfolio may also invest
in certificates representing rights to receive payments of the interest only or
principal only of mortgage-backed securities (IO/PO Strips). Such securities may
also be referred to as derivatives. These securities tend to be more volatile
than other types of U.S. Government securities. IO Strips involve the additional
risk of loss of the entire value of the investment if the underlying mortgages
are prepaid.
 
REPURCHASE AGREEMENTS: Each Portfolio may enter into repurchase agreements. When
a Portfolio acquires a security from a bank or securities broker-dealer, it may
simultaneously enter into a repurchase agreement, wherein the seller agrees to
repurchase the security at a mutually agreed-upon time (generally within seven
days) and price. The repurchase price is in excess of the purchase price by an
amount which reflects an agreed-upon market rate of return, which is not tied to
the coupon rate on the underlying security. Repurchase agreements will be fully
collateralized. If, however, the seller defaults on its obligation to repurchase
the underlying security, the Portfolio may experience delay or difficulty in
exercising its rights to realize upon the security and might incur a loss if the
value of the security has declined. The Portfolio might also incur disposition
costs in liquidating the security.
 
LOANS OF PORTFOLIO SECURITIES: Each Portfolio, other than Mitchell Hutchins
Money Market Portfolio, may lend its portfolio securities, provided: (1) such
loans are secured continuously by collateral consisting of U.S. Government
securities or cash or cash equivalents maintained on a daily marked-to-market
basis in an amount at least equal to the current market value of the securities
loaned; (2) the Portfolio may at any time call such loans and obtain the 

                                       11
<PAGE>
 
return of the securities loaned; (3) the Portfolio will receive an amount in
cash at least equal to any interest or dividends paid on the loaned securities;
and (4) the aggregate market value of securities loaned will not at any time
exceed 10% (33-1/3% in the case of Morgan Stanley Asian Growth Portfolio, Morgan
Stanley Worldwide High Income Portfolio, Zweig Asset Allocation Portfolio, Zweig
Equity (Small Cap) Portfolio and Mitchell Hutchins Fixed Income Portfolio) of
the total assets of the Portfolio.
 
BORROWING: Each of the Morgan Stanley Asian Growth Portfolio, Renaissance
Balanced Portfolio, Nicholas-Applegate Balanced Portfolio, Harris Bretall
Sullivan & Smith Equity Growth Portfolio, Dreman Value Portfolio, Mitchell
Hutchins Fixed Income Portfolio and Mitchell Hutchins Money Market Portfolio may
borrow in an amount up to 10% (33-1/3% in the case of Mitchell Hutchins Fixed
Income Portfolio) of its respective total assets from banks for extraordinary or
emergency purposes such as meeting anticipated redemptions, and may pledge
assets in connection with such borrowing. Morgan Stanley Worldwide High Income
Portfolio may borrow from banks, and engage in transactions deemed to be
borrowings from other entities, in an amount up to 33-1/3% of its total assets
(including the amount borrowed), less all liabilities and indebtedness other
than the borrowing, for extraordinary or emergency purposes such as meeting
anticipated redemptions, as well as for investment purposes and to pay
dividends, and it is expected that all of such borrowings will be made on a
secured basis. Zweig Asset Allocation Portfolio and Zweig Equity (Small Cap)
Portfolio may borrow money from banks on an unsecured basis and may pay interest
thereon in order to raise additional cash for investment or to meet redemption
requests. These two Portfolios may borrow money if immediately after such
borrowing, the amount of all borrowing is not more than 20% of the market value
of the respective Portfolio's assets (including the proceeds of the borrowing),
less liabilities. Each Portfolio is required to maintain continuous asset
coverage of 300% with respect to such borrowings, and to sell (within three
days) sufficient portfolio holdings to restore such coverage if it should
decline to less than 300% due to market fluctuations or otherwise, even if
disadvantageous from an investment standpoint. Leveraging will exaggerate the
effect of any increase or decrease in the value of portfolio securities on the
Portfolios' net asset value, and money borrowed will be subject to interest
costs (which may include commitment fees and/or the cost of maintaining
balances) which may or may not exceed the interest and option premiums received
from the securities purchased with borrowed funds. This restriction does not
prohibit entry into reverse repurchase agreements by Morgan Stanley Worldwide
High Income Portfolio, Renaissance Balanced Portfolio, Mitchell Hutchins Fixed
Income Portfolio and Mitchell Hutchins Money Market Portfolio; provided that
Renaissance Balanced Portfolio, Mitchell Hutchins Fixed Income Portfolio and
Mitchell Hutchins Money Market Portfolio may not enter into a reverse repurchase
agreement if as a result its current obligations under such agreements would
exceed 5% of the current market value of the Portfolio's total assets (less its
liabilities other than obligations under such agreements). The borrowing
restriction also does not apply to the entry into interest rate protection
transactions by Mitchell Hutchins Fixed Income Portfolio. The borrowing policy
is a fundamental policy.
 
   
In addition to the above-referenced limitations, Mitchell Hutchins Fixed Income
Portfolio has agreed with the California Department of Insurance to limit
borrowings as described above so that at all times borrowings outstanding will
not exceed 25% of the Portfolio's net asset value.    
 
PUT, CALL AND INDEX OPTIONS: Morgan Stanley Worldwide High Income Portfolio,
Renaissance Balanced Portfolio, Zweig Asset Allocation Portfolio, Nicholas-
Applegate Balanced Portfolio, Dreman Value Portfolio, Zweig Equity (Small Cap)
Portfolio and Mitchell Hutchins Fixed Income Portfolio may purchase put and call
options listed on a national securities exchange. Put and call options are
traded on the AMEX, Chicago Board Options Exchange, Philadelphia Stock Exchange,
Pacific Stock Exchange and NYSE.
 
A Portfolio may purchase a call on securities to effect a closing purchase
transaction, which is the purchase of a call covering the same underlying
security and having the same exercise price and expiration date as a call
previously written by the Portfolio on which it wishes to terminate its
obligations. If the Portfolio is unable to effect a closing purchase
transaction, it will not be able to sell the underlying security until the call
previously written by the Portfolio expires (or until the call is exercised and
the Portfolio delivers the underlying security).
 
Morgan Stanley Worldwide High Income Portfolio, Renaissance Balanced Portfolio,
Zweig Asset Allocation Portfolio, Zweig Equity (Small Cap) Portfolio and
Mitchell Hutchins Fixed Income Portfolio may write call options if the calls
written by any of the Portfolios are covered throughout the life of the option.
A call is covered if a Portfolio (i) owns the optioned securities, (ii) has an
immediate right to acquire such securities, without additional consideration,
upon conversion or exchange of securities currently held in the Portfolio or
(iii) in the case of options on certain U.S. Government securities or which are
settled in cash, the Portfolio maintains, in a segregated account with the
custodian, cash or U.S. Government securities or other appropriate high-grade
debt obligations with a value sufficient to meet its obligations under the call.
When a Portfolio writes a call on a security, it receives a premium and gives
the purchaser the right to buy the underlying security at any time during the
call period at a fixed exercise price regardless of market price changes during
the call period. If the call is exercised, the Portfolio loses the opportunity
for any gain from an increase in the market price of the underlying security
over the exercise price.
 
Morgan Stanley Worldwide High Income Portfolio, Renaissance Balanced Portfolio,
Zweig Asset Allocation Portfolio, Zweig Equity (Small Cap) Portfolio and
Mitchell Hutchins Fixed Income Portfolio also may write listed put options. A
Portfolio may write puts only if they are secured. Zweig Equity (Small Cap)
Portfolio also may write OTC put options. A put is secured if a Portfolio (i)
maintains in a segregated account with the custodian, cash or U.S. Government
securities or other appropriate high-grade debt obligations with a value equal
to the exercise price or (ii) holds a put on the same underlying security at an
equal or greater exercise price. When a Portfolio writes a put, it receives a
premium and gives the purchaser of the put the right to sell the underlying
security to the Portfolio at the exercise price at any time during the option
period. The Portfolio may purchase a put on the underlying security to effect a
closing purchase transaction, except in those circumstances, which are believed
by the Sub-Adviser to be rare, when it is unable to do so.

                                       12

<PAGE>
 
A Portfolio will realize a gain (or loss) on a closing purchase transaction with
respect to a call or put previously written by the Portfolio if the premium,
plus commission costs, paid by it to purchase the call or put is less (or
greater) than the premium, less commission costs, received by it on the sale of
a call or put. A gain will be realized if a call or a put which the Portfolio
has written lapses unexercised, because the Portfolio would retain the premium.
 
Morgan Stanley Worldwide High Income Portfolio, Renaissance Balanced Portfolio,
Zweig Asset Allocation Portfolio, Dreman Value Portfolio, Zweig Equity (Small
Cap) Portfolio and Mitchell Hutchins Fixed Income Portfolio may purchase and
sell securities index options. One effect of such transactions is to hedge all
or part of the Portfolio's securities holdings against a general decline in the
securities market or a segment of the securities market. Options on securities
indexes are similar to options on stock except that, rather than the right to
take or make delivery of stock at a specified price, an option on a securities
index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of the securities index upon which the
option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option.
 
A Portfolio's successful use of options on indexes depends upon its ability to
predict the direction of the market and is subject to various additional risks.
The correlation between movements in the index and the price of the securities
being hedged against is imperfect and the risk from imperfect correlation
increases as the composition of the Portfolio diverges from the composition of
the relevant index. Accordingly, a decrease in the value of the securities being
hedged against may not be wholly offset by a gain on the exercise or sale of a
securities index put option held by the Portfolio. For additional discussion of
risks associated with these transactions, see the Statement of Additional
Information.
 
Morgan Stanley Worldwide High Income Portfolio, Zweig Equity (Small Cap)
Portfolio and Mitchell Hutchins Fixed Income Portfolio may purchase and write
options on the OTC market (OTC options). The staff of the SEC has taken the
position that OTC options that are purchased and the assets used as cover for
written OTC options should generally be treated as illiquid securities. However,
if a dealer recognized by the Federal Reserve Bank as a primary dealer in U.S.
Government securities is the other party to an option contract written by a
Portfolio and that Portfolio has the absolute right to repurchase the option
from the dealer at a formula price established in a contract with the dealer,
the SEC staff has agreed that the Portfolio needs to treat as illiquid only that
amount of the cover assets equal to the formula price less the amount by which
the market value of the security subject to the option exceeds the exercise
price of the option (the amount by which the option is in-the-money). Although
the Sub-Advisers do not believe that OTC options are generally illiquid, pending
resolution of this issue, the Portfolios will conduct their operations in
conformity with the views of the SEC staff.
 
New forms of option instruments are continuing to evolve and each of the
Portfolios named above may invest in such new option instruments and variations
of existing option instruments, subject to such Portfolio's investment
restrictions. Each of Morgan Stanley Worldwide High Income Portfolio,
Renaissance Balanced Portfolio, Zweig Asset Allocation Portfolio, Nicholas-
Applegate Balanced Portfolio, Dreman Value Portfolio, Zweig Equity (Small Cap)
Portfolio and Mitchell Hutchins Fixed Income 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. Zweig Asset
Allocation Portfolio and Zweig Equity (Small Cap) Portfolio will each attempt to
limit losses from all options transactions to 5% of its average net assets per
year, or cease options transactions until in compliance with the 5% limitation,
but there can be no absolute assurance of adherence to these limits. The extent
to which each Portfolio may purchase options may be limited by the requirements
for qualification as a regulated investment company under the Internal Revenue
Code of 1986, as amended (the Code), and the Portfolio's intention to qualify as
such.
 
The Fund's custodian, or a securities depository acting for it, will act as
escrow agent as to the securities on which a Portfolio has written puts or
calls, or as to other securities acceptable for such escrow, so that no margin
deposit will be required of the Portfolio. Until the underlying securities are
released from escrow, they cannot be sold by the Portfolio.
 
FUTURES CONTRACTS AND RELATED OPTIONS: Morgan Stanley Worldwide High Income
Portfolio, Renaissance Balanced Portfolio, Zweig Asset Allocation Portfolio,
Dreman Value Portfolio, Zweig Equity (Small Cap) Portfolio and Mitchell Hutchins
Fixed Income Portfolio may purchase and sell interest rate futures contracts as
a hedge against changes in interest rates. Morgan Stanley Worldwide High Income
Portfolio, Renaissance Balanced Portfolio, Zweig Asset Allocation Portfolio,
Dreman Value Portfolio, Zweig Equity (Small Cap) Portfolio and Mitchell Hutchins
Fixed Income Portfolio may purchase and sell stock index futures contracts and
Morgan Stanley Worldwide High Income Portfolio, Renaissance Balanced Portfolio,
Zweig Asset Allocation Portfolio, Zweig Equity (Small Cap) Portfolio and
Mitchell Hutchins Fixed Income Portfolio may purchase options on such contracts
solely for the purpose of hedging against the effect that changes in general
market conditions, interest rates and conditions affecting particular industries
may have on the values of securities held in each such Portfolio's portfolio, or
which it intends to purchase, and not for the purpose of speculation.
 
Generally, if market interest rates increase, the value of outstanding debt
securities declines (and vice versa). Entering into a futures contract for the
sale of securities has an effect similar to the actual sale of securities,
although sale of the futures contract might be accomplished more easily and
quickly. For example, if a Portfolio holds long-term U.S. Government securities
and the Sub-Adviser anticipates a rise in long-term interest rates, it could, in
lieu of disposing of its portfolio securities, enter into futures contracts for
the sale of similar long-term securities. If rates increased and the value of
the Portfolio's securities declined, the value of the Portfolio's futures
contracts would increase, thereby protecting the Portfolio by preventing the net
asset value from declining as much as it otherwise would have. Similarly,
entering into futures contracts for the purchase of securities has an effect
similar to the actual purchase of the underlying securities, but permits the
continued holding of securities other than 

                                       13

<PAGE>
 
the underlying securities. For example, if the Sub-Adviser expects long-term
interest rates to decline, the Sub-Adviser might enter into futures contracts
for the purchase of long-term securities so that it could gain rapid market
exposure that may offset anticipated increases in the costs of securities it
intends to purchase, while continuing to hold higher-yielding short-term
securities or waiting for the long-term market to stabilize.
 
A stock index futures contract is an agreement in which one party agrees to
deliver to the other an amount of cash equal to a specific dollar amount
multiplied by the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of securities is made. The writing of a
put option on a futures contract is similar to the purchase of the futures
contract, except that, if the market price declines, the Portfolio would pay
more than the market price for the underlying securities. The net cost to the
Portfolio would be reduced, however, by the premium received on the sale of the
put, less any transaction costs.
 
There is no assurance that it will be possible, at any particular time, to close
a futures position. In the event that a Portfolio could not close a futures
position and the value of the position declined, the Portfolio would be required
to continue to make daily cash payments of maintenance margin. There can be no
assurance that hedging transactions will be successful, as there may be an
imperfect correlation (or no correlation) between movements in the prices of the
futures contracts and of the securities being hedged, or price distortions due
to conditions in the futures markets because futures markets may have daily
market price movement limits for futures contracts. Where futures contracts are
purchased to hedge against an increase in the price of long-term securities, but
the long-term market declines and a Portfolio does not invest in long-term
securities, the Portfolio would realize a loss on the futures contracts, which
would not be offset by a reduction in the price of securities purchased. Where
futures contracts are sold to hedge against a decline in the price of long-term
securities in a Portfolio, but the long-term market advances, the Portfolio
would lose part or all of the benefit of the advance due to offsetting losses in
its futures positions. Successful use of futures contracts by a Portfolio is
subject to the Sub-Adviser's ability to predict correctly movements in the
direction of interest rates, currency exchange rates, market prices and other
factors affecting markets for debt securities.
 
A Portfolio may not enter into futures contracts or purchase or write related
options unless it complies with rules and interpretations of the Commodity
Futures Trading Commission (CFTC) which require, among other things, that
futures and related options be used solely for bona fide hedging purposes, as
defined in CFTC regulations or, alternatively, that the Portfolio will not enter
into futures and related options transactions if the sum of the aggregate
initial margin deposits on futures contracts and premiums paid for related
options exceeds 5% of the market value of the Portfolio's total assets
(calculated in accordance with CFTC regulations).
 
ILLIQUID SECURITIES: Each Portfolio may invest up to 10% (15% in the case of
Morgan Stanley Asian Growth Portfolio, Morgan Stanley Worldwide High Income
Portfolio, Renaissance Balanced Portfolio, Zweig Asset Allocation Portfolio and
Zweig Equity (Small Cap) Portfolio) of its net assets in illiquid securities,
including securities the disposition of which is restricted under Federal
securities laws, securities which are not readily marketable, OTC options,
repurchase agreements which have a maturity of longer than seven days and, in
the case of Morgan Stanley Worldwide High Income Portfolio, certain loan
participations and assignments and structured financings. Securities that are
freely marketable in the countries where they are principally traded, but that
would not be freely marketable in the United States, will not be considered
illiquid. The Portfolios will not include, for purposes of the percentage
restrictions on illiquid investments described above, securities sold pursuant
to Rule 144A under the Securities Act of 1933 (Rule 144A Securities) so long as
such securities meet liquidity guidelines established by the Fund's Board of
Directors.
 
FOREIGN SECURITIES AND DEPOSITARY RECEIPTS: Morgan Stanley Asian Growth
Portfolio and Morgan Stanley Worldwide High Income Portfolio may each invest
substantially all of their assets in securities of foreign issuers. Zweig Asset
Allocation Portfolio and Zweig Equity (Small Cap) Portfolio may invest up to 15%
of the value of their net assets in securities of foreign issuers. Nicholas-
Applegate Balanced Portfolio may invest up to 20% of its total assets in
securities of foreign issuers. Mitchell Hutchins Fixed Income Portfolio may
invest up to 10% of its net assets in securities of foreign issuers.
 
    
Each Portfolio named above, Renaissance Balanced Portfolio and Dreman
Value Portfolio may purchase ADRs, which are dollar-denominated receipts issued
generally by domestic banks and representing the deposit with the bank of a
security of a foreign issuer. ADRs are not subject to the above percentage
limitations. Morgan Stanley Worldwide High Income Portfolio may also invest in
Global Depositary Receipts (GDRs), European Depositary Receipts (EDRs) and other
Depositary Receipts (which, together with ADRs, GDRs and EDRs, are hereinafter
collectively referred to as Depositary Receipts), to the extent that such
Depositary Receipts become available. GDRs, EDRs and other types of Depositary
Receipts (except ADRs) are typically issued by foreign depositaries, although
they may also be issued by U.S. depositaries, and evidence ownership interests
in a security or pool of securities issued by either a foreign or a U.S.
corporation. ADRs are publicly traded on exchanges or over-the-counter in the
United States. ADRs include American Depositary Shares and New York Shares.
Depositary Receipts may be "sponsored" or "unsponsored." Sponsored Depositary
Receipts are established jointly by a depositary and the underlying issuer,
whereas unsponsored Depositary Receipts may be established by a depositary
without participation by the underlying issuer. Holders of unsponsored
Depositary Receipts generally bear all the costs associated with establishing
the unsponsored Depositary Receipts. The depositary of an unsponsored Depositary
Receipt is under no obligation to distribute shareholder communications received
from the underlying issuer or to pass through to the holders of the unsponsored
Depositary Receipt voting rights with respect to the deposited securities or
pool of securities. The Portfolios may invest in sponsored and unsponsored
Depositary Receipts. For purposes of Morgan Stanley Asian Growth and Morgan
Stanley Worldwide High Income Portfolios' 
     

                                       14
<PAGE>
 
investment policies, the Portfolios' investments in Depositary Receipts will be
deemed to be investments in the underlying securities.
 
Investing in the securities of foreign companies, foreign branches of domestic
banks and foreign governments (see "Foreign Government Securities" and "Foreign
Bank and Foreign Branch Instruments" below) involves special risks and
considerations not typically associated with investing in the United States.
These include differences in accounting, auditing and financial reporting
standards, limited publicly available information with respect to foreign
issuers, generally higher commission rates on foreign portfolio transactions,
the possibility of expropriation or confiscatory taxation, adverse changes in
investment or exchange control regulations, political instability which could
affect U.S. investments in foreign countries, and potential restrictions on the
flow of international capital. There may also be less government supervision and
regulation of foreign securities exchanges, brokers and listed companies than in
the United States. Additionally, dividends payable on foreign securities may be
subject to foreign taxes withheld prior to distribution. Foreign securities
often trade with less frequency and volume than domestic securities and
therefore may exhibit greater price volatility. Changes in foreign exchange
rates will affect the value of those securities which are denominated or quoted
in currencies other than the U.S. dollar.
 
Investing in securities of issuers in emerging countries, including certain
Asian countries, involves certain considerations not typically associated with
investing in securities of U.S. companies, including (1) restrictions on foreign
investment and on repatriation of capital, (2) currency fluctuations, (3) the
cost of converting foreign currency into U.S. dollars, (4) potential price
volatility and lesser liquidity of shares traded on emerging country securities
markets and (5) political and economic risks, including the risk of
nationalization or expropriation of assets and the risk of war. In addition,
accounting, auditing, financial and other reporting standards in emerging
countries may not be equivalent to U.S. standards, and therefore disclosure of
certain material information may not be made and less information may be
available to investors investing in emerging countries than in the United
States. There is also generally less governmental regulation of the securities
industry in emerging countries than in the United States. Many of these
countries may have less stable political environments than western democracies.
Moreover, it may be more difficult to obtain a judgment in a court outside the
United States. For further information concerning emerging country securities,
see "Foreign Government Securities" and "Asian and Emerging Country Debt
Securities" below and "Investment Policies and Limitations -- Brady Bonds" in
the SAI.
 
FOREIGN GOVERNMENT SECURITIES. Morgan Stanley Asian Growth Portfolio and Morgan
Stanley Worldwide High Income Portfolio may each invest without limit, and
Renaissance Balanced Portfolio may invest up to 10% of its total assets, in
obligations supported by national, state or provincial governments or similar
political subdivisions. Foreign government securities also include debt
obligations of supranational entities, which include international organizations
designated or supported by governmental entities to promote economic
reconstruction or development, international banking institutions and related
government agencies. Examples include the World Bank, the European Coal and
Steel Community, the Asian Development Bank and the InterAmerican Development
Bank.
 
Foreign government securities also include debt securities of quasi-governmental
agencies and debt securities denominated in multinational currency units of an
issuer (including supranational issuers). An example of a multinational currency
unit is the European Currency Unit. A European Currency Unit represents
specified amounts of the currencies of certain member states of the European
Economic Community. Debt securities of quasi-governmental agencies are issued by
entities owned by either a national, state or equivalent government or are
obligations of a political unit that is not backed by the national government's
full faith and credit and general taxing powers. Foreign government securities
also include mortgage-related securities issued or guaranteed by national, state
or equivalent governmental instrumentalities, including quasi-governmental
agencies.
 
Investments in emerging country government debt securities involve special
risks. Certain emerging countries have historically experienced, and may
continue to experience, high rates of inflation, high interest rates, exchange
rate fluctuations, large amounts of external debt, balance of payments and trade
difficulties and extreme poverty and unemployment. The issuer or governmental
authority that controls the repayment of an emerging country's debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of such debt. As a result of the foregoing, a government obligor
may default on its obligations. If such an event occurs, the Portfolio may have
limited legal recourse against the issuer and/or guarantor. Remedies must, in
some cases, be pursued in the courts of the defaulting party itself, and the
ability of the holder of foreign government debt securities to obtain recourse
may be subject to the political climate in the relevant country. In addition, no
assurance can be given that the holders of commercial bank debt will not contest
payments to the holders of other foreign government debt obligations in the
event of default under their commercial bank loan agreements.
 
See "Foreign Securities and Depositary Receipts" above for a discussion of
additional risks of investing in foreign government securities.
 
FOREIGN BANK AND FOREIGN BRANCH INSTRUMENTS. Morgan Stanley Asian Growth
Portfolio, Morgan Stanley Worldwide High Income Portfolio and Mitchell Hutchins
Money Market Portfolio may invest in obligations of domestic branches of foreign
banks and foreign branches of domestic banks. Such investments may involve risks
that are different from investments in obligations of U.S. branches of domestic
banks. These risks may include future unfavorable political and economic
developments, possible withholding taxes, seizure of foreign deposits, currency
controls, interest limitations or other governmental restrictions that might
affect the payment of principal or interest on the securities held by the
Portfolio. Additionally, there may be less publicly available information about
foreign banks and foreign branches of U.S. banks, as these institutions may not
be subject to the same regulatory requirements as domestic banks.

                                       15

<PAGE>
 
FOREIGN CURRENCY TRANSACTIONS: Morgan Stanley Asian Growth Portfolio may enter
into foreign currency forward contracts. Morgan Stanley Worldwide High Income
Portfolio and Mitchell Hutchins Fixed Income Portfolio may enter into foreign
currency forward contracts, foreign currency futures contracts and foreign
currency options (as described in additional detail below). These contracts are
used to minimize the risk to the Portfolio from unfavorable changes in the
relationship between the U.S. dollar and foreign currencies.
 
The Portfolios may engage in foreign currency exchange transactions in
connection with the purchase and sale of portfolio securities (transaction
hedging), and to protect the value of specific portfolio positions (position
hedging). They also may engage in cross-hedging by using forward contracts in
one currency to hedge against fluctuations in the value of securities
denominated in a different currency if the Sub-Adviser anticipates that there
will be a correlation between the two currencies.
 
If conditions warrant, all of the Portfolios named above may enter into
contracts to purchase or sell foreign currencies at a future date (forward
contracts) and Morgan Stanley Worldwide High Income Portfolio and Mitchell
Hutchins Fixed Income Portfolio may purchase and sell foreign currency futures
contracts as a hedge against changes in foreign currency exchange rates between
the trade and settlement dates on particular transactions and not for
speculation. A foreign currency forward contract is a negotiated agreement to
exchange currency at a future time at a rate or rates that may be higher or
lower than the spot (i.e. cash) rate. Foreign currency futures contracts are
standardized exchange-traded contracts and have margin requirements.
 
For hedging purposes, Morgan Stanley Worldwide High Income Portfolio and
Mitchell Hutchins Fixed Income Portfolio may also purchase exchange-listed and
OTC call and put options on foreign currency futures contracts and on foreign
currencies. A put option on a foreign currency futures contract gives the
Portfolio the right to assume a short position in the futures contract until
expiration of the option. A put option on currency gives the Portfolio the right
to sell a currency at an exercise price until the expiration of the option. A
call option on a foreign currency futures contract gives the Portfolio the right
to assume a long position in the futures contract until the expiration of the
option. A call option on a currency gives the Portfolio the right to purchase a
currency at the exercise price until the expiration of the option.
 
There can be no assurance that any of these strategies, including cross-hedging
techniques, if used by a Portfolio, will be successful. The strategies entail
special risks, including that (1) the skills needed by the Sub-Adviser to employ
hedging instruments are different from those needed to select the Portfolio's
securities, (2) there may not be any correlation, or an imperfect one, between
price movements of hedging instruments and price movements of the securities
being hedged, (3) while hedging strategies may reduce the risk of loss, they
offset favorable price movements in hedged investments, thereby reducing the
opportunity for gain or even resulting in losses, and (4) the Portfolio may be
unable to sell a security at an opportune time, or may be required to sell a
security at a disadvantageous time, due to the need for the Portfolio to
maintain cover or to segregate securities for hedging transactions or to the
inability of the Portfolio to close out its hedged position.
 
FIRM COMMITMENT AGREEMENTS AND WHEN-ISSUED PURCHASES: Morgan Stanley Asian
Growth Portfolio, Morgan Stanley Worldwide High Income Portfolio, Renaissance
Balanced Portfolio and Mitchell Hutchins Fixed Income Portfolio may purchase
securities under a firm commitment agreement or on a when-issued basis. Firm
commitment agreements and when-issued purchases call for the purchase of
securities at an agreed-upon price on a specified future date, and would be
used, for example, when a decline in the yield of securities of a given issuer
is anticipated. The Portfolio as purchaser assumes the risk of any decline in
value of the security beginning on the date of the agreement or purchase. A
Portfolio will not enter into such transactions for the purpose of leveraging,
and accordingly will segregate U.S. Government securities, cash or cash
equivalents with its custodian equal (on a daily marked-to-market basis) to the
amount of its commitment to purchase the when-issued securities and securities
subject to the firm commitment agreement.
 
DEBT SECURITIES: Renaissance Balanced Portfolio, Nicholas-Applegate Balanced
Portfolio and Mitchell Hutchins Fixed Income Portfolio may invest a substantial
portion of their assets in investment grade debt securities, which are debt
securities rated in one of the four highest grades assigned by S&P or Moody's
or, if unrated, determined by the Sub-Adviser to be of comparable quality to
securities having such a rating. Debt securities rated BBB or higher by S&P or
Baa or higher by Moody's are investment grade, although Moody's considers debt
securities rated Baa to have speculative characteristics. Changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
for issuers of securities rated BBB or Baa to make principal and interest
payments than issuers of higher rated securities. See Appendix A for a
description of ratings assigned by S&P and Moody's.
 
Morgan Stanley Worldwide High Income Portfolio may invest without limit, and
Mitchell Hutchins Fixed Income Portfolio may invest up to 15% of its total
assets, in securities rated below investment grade, including securities rated
in the lowest grades of S&P (D) or Moody's (C) or in unrated securities of
comparable quality. Securities rated BB or Ba or lower (and comparable unrated
securities) are commonly referred to as junk bonds. Securities rated D by S&P
are in default.
 
Debt securities rated below investment grade are considered by the rating
agencies to be predominantly speculative regarding the issuer's ability to pay
interest and repay principal and may also be subject to price volatility due to
such factors as interest rate sensitivity, market perception of the
creditworthiness of the issuer and general market liquidity (market risk).
Ratings of debt securities represent the rating agency's opinion regarding
quality of the securities, but are not a guarantee of quality and may be reduced
after a Portfolio has acquired the security. The Sub-Adviser will consider such
an event in determining whether the Portfolio should continue to hold the
security. Also, rating agencies may fail to make timely changes in response to
subsequent events, so that an issuer's financial condition may be better or
worse than the rating indicates. Lower rated debt securities generally offer a

                                       16

<PAGE>
 
higher current yield than that available from higher grade issues. However,
lower rated securities involve higher risks, in that they are especially subject
to adverse changes in general conditions and in the industries in which the
issuers are engaged, to changes in the financial condition of the issuers and to
price fluctuation in response to changes in interest rates. During periods of
economic downturn or rising interest rates, highly leveraged issuers may
experience financial stress which could adversely affect their ability to make
payments of principal and interest and increase the possibility of default. In
addition, the market for lower rated securities has expanded rapidly in recent
years, and its growth paralleled a long economic expansion. Recently, the prices
of many lower rated debt securities declined substantially, reflecting an
expectation that many issuers of such securities might experience financial
difficulties. As a result, the yields on lower rated debt securities rose
dramatically, but such higher yields did not reflect the value of the income
stream that holders of such securities expected, but rather the risk that
holders of such securities could lose a substantial portion of their value as a
result of the issuers' financial restructuring or default. There can be no
assurance that such declines will not recur. The market for lower rated debt
securities may be thinner and less active than that for higher quality
securities, which may limit a Portfolio's ability to sell such securities at
fair value in response to changes in the economy or the financial markets.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may also decrease the values and liquidity of lower rated securities,
especially in a thinly traded market. In addition, the prices for lower rated
debt securities may be affected by legislative and regulatory developments.
 
ASIAN AND EMERGING COUNTRY SECURITIES: Morgan Stanley Asian Growth Portfolio and
Morgan Stanley Worldwide High Income Portfolio define Asian securities and
emerging country securities, respectively, to include securities of companies
that may have characteristics and business relationships common to companies in
a country or countries other than an Asian or emerging country. As a result, the
value of the securities of such companies may reflect economic and market forces
applicable to other countries, as well as to an Asian or emerging country. Each
Portfolio may invest in companies organized and located in countries other than
an Asian or emerging country, respectively, including companies having their
entire production facilities outside of an Asian or emerging country when
securities of such companies meet one or more elements of the Portfolio's
definition of an Asian or emerging country security and so long as the Sub-
Adviser believes at the time of investment that the value of the company's
securities will reflect principally conditions in such Asian or emerging
country.
 
SHORT SALES: Morgan Stanley Worldwide High Income Portfolio, Renaissance
Balanced Portfolio, Zweig Asset Allocation Portfolio, Nicholas-Applegate
Balanced Portfolio and Zweig Equity (Small Cap) Portfolio may engage in short
sales. When a Portfolio makes a short sale, it sells a security it does not own
in anticipation of a decline in market price. The proceeds from the sale are
retained by the broker until the Portfolio replaces the borrowed security. To
deliver the security to the buyer, the Portfolio must arrange through a broker
to borrow the security and, in so doing, the Portfolio will become obligated to
replace the security borrowed at its market price at the time of replacement,
whatever that price may be. The Portfolio may have to pay a premium to borrow
the security. The Portfolio may, but will not necessarily, receive interest on
such proceeds. The Portfolio must pay to the broker any dividends or interest
payable on the security until it replaces the security.
 
The Portfolio's obligation to replace the security borrowed will be secured by
collateral deposited with the broker, consisting of cash or U.S. Government
securities or other securities acceptable to the broker. In addition, the
Portfolio will be required to deposit cash or U.S. Government securities as
collateral in a segregated account with its custodian in an amount such that the
value of both collateral deposits is at all times equal to at least 100% of the
current market value of the securities sold short. The Portfolio will receive
the interest accruing on any U.S. Government securities held as collateral in
the segregated account with the custodian. The deposits do not necessarily limit
the Portfolio's potential loss on a short sale, which may exceed the entire
amount of the collateral deposits.
 
If the price of a security sold short increases between the time of the short
sale and the time the Portfolio replaces the borrowed security, the Portfolio
will incur a loss, and if the price declines during this period, the Portfolio
will realize a capital gain. Any realized capital gain will be decreased, and
any incurred loss increased, by the amount of transaction costs and any premium,
dividend, or interest which the Portfolio may have to pay in connection with
such short sale.
 
The Portfolios may enter into short sales against the box. A short sale is
against the box when, at all times during which a short position is open, the
Portfolio owns an equal amount of such securities, or owns securities giving it
the right, without payment of future consideration, to obtain an equal amount of
securities sold short.
 
WARRANTS: Morgan Stanley Asian Growth Portfolio, Morgan Stanley Worldwide High
Income Portfolio, Renaissance Balanced Portfolio, Zweig Asset Allocation
Portfolio, Nicholas-Applegate Balanced Portfolio and Zweig Equity (Small Cap)
Portfolio may invest in warrants, which are basically an option to purchase
securities at a specific price valid for a specific period of time. Warrants
have no voting rights, pay no dividends, and have no rights with respect to the
assets of the corporation issuing them. It should also be noted that the prices
of warrants do not necessarily move parallel to the prices of the underlying
securities. A Portfolio may not invest more than 5% of its net assets (at the
time of investment) in warrants (other than those attached to other securities).
It should be noted that if the market price of the underlying security never
exceeds the exercise price, the Portfolio will lose the entire investment in the
warrant. Moreover, if a warrant is not exercised within the specified time
period, it will become worthless and the Portfolio will lose the purchase price
and the right to purchase the underlying security.
 
REVERSE REPURCHASE AGREEMENTS: Morgan Stanley Worldwide High Income Portfolio,
Renaissance Balanced Portfolio, Mitchell Hutchins Fixed Income Portfolio and
Mitchell Hutchins Money Market Portfolio may enter into reverse repurchase
agreements. A reverse repurchase agreement involves the sale of a money market
instrument by the Portfolio, coupled with its agreement to repurchase the
instrument at a specified time and price. The Portfolio 

                                       17

<PAGE>
 
will maintain a segregated account with its custodian consisting of U.S.
Government securities or cash or cash equivalents equal (on a daily marked-to-
market basis) to its obligations under reverse repurchase agreements with 
broker-dealers (but not banks). The Portfolio will invest the proceeds in other
money market instruments or repurchase agreements maturing simultaneously with
or prior to the expiration of the reverse repurchase agreement or which are held
under an agreement to resell maturing as of that time. However, reverse
repurchase agreements involve the risk that the market value of securities
retained by the Portfolio may decline below the repurchase price of the
securities sold by the Portfolio which it is obligated to repurchase. Under the
1940 Act, reverse repurchase agreements may be considered to be borrowings by
the seller. Renaissance Balanced Portfolio, Mitchell Hutchins Fixed Income
Portfolio and Mitchell Hutchins Money Market Portfolio may not enter into a
reverse repurchase agreement if as a result its current obligations under such
agreements would exceed 5% of the current market value of the Portfolio's total
assets (less its liabilities other than obligations under such agreements).
 
CONVERTIBLE SECURITIES: Morgan Stanley Asian Growth Portfolio, Morgan Stanley
Worldwide High Income Portfolio, Renaissance Balanced Portfolio and Mitchell
Hutchins Fixed Income Portfolio may invest in convertible securities. These
securities normally provide a higher yield than the underlying stock but lower
than a fixed-income security without the convertibility feature. Also, the price
of the convertible security will normally vary to some degree with changes in
the price of the underlying stock although the higher yield tends to make the
convertible security less volatile than the underlying common stock. In
addition, the price of the convertible security will also vary to some degree
inversely with interest rates. Convertible securities that are rated below BBB
by S&P or Baa by Moody's or comparable unrated securities as determined by the
Sub-Adviser may share some or all of the risks of debt securities rated below
investment grade. For a description of these risks, see "Debt Securities" above.
 
INTEREST RATE PROTECTION TRANSACTIONS: Mitchell Hutchins Fixed Income Portfolio
may enter into interest rate protection transactions, including interest rate
swaps and interest rate caps, collars and floors. Interest rate swap
transactions involve an agreement between two parties to exchange payments that
are based, respectively, on variable and fixed rates of interest and that are
calculated on the basis of a specified amount of principal (the notional
principal amount) for a specified period of time. Interest rate cap and floor
transactions involve an agreement between two parties in which the first party
agrees to make payments to the counterparty when a designated market interest
rate goes above (in the case of a cap) or below (in the case of a floor) a
designated level on predetermined dates or during a specified time period.
Interest rate collar transactions involve an agreement between two parties in
which the first party makes payments to the counterparty when a designated
market interest rate goes above a designated level of predetermined dates or
during a specified time period, and the counterparty makes payments to the first
party when a designated market interest rate goes below a designated level on
predetermined dates or during a specified time period.
 
Mitchell Hutchins Fixed Income Portfolio expects to enter into interest rate
protection transactions 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 Portfolio anticipates purchasing at a later date. The
Portfolio intends to use these transactions as a hedge and not as a speculative
investment. There can be no assurance that the objective of these strategies and
techniques will be achieved.
 
Mitchell Hutchins Fixed Income Portfolio may enter into interest rate swaps,
caps, collars and floors on either an asset-based or liability-based basis,
depending on whether it is hedging its assets or its liabilities, and will
usually enter into interest rate 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. Inasmuch as these interest rate
protection transactions are entered into for good faith hedging purposes, and
inasmuch as segregated accounts will be established with respect to such
transactions, the Sub-Adviser and the Portfolio believe such obligations do not
constitute senior securities and accordingly, will not treat them as being
subject to its borrowing restrictions. The net amount of the excess, if any, of
the Portfolio's obligations over its entitlements with respect to each interest
rate 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 a segregated account by a custodian that satisfies the
requirements of the 1940 Act. The Portfolio also will establish and maintain
such segregated accounts with respect to its total obligations under any
interest rate swaps that are not entered into on a net basis and with respect to
any interest rate caps, collars and floors that are written by the Portfolio.
 
The Portfolio will enter into interest rate protection transactions only with
banks and recognized securities dealers believed by the Sub-Adviser to present
minimal credit risks in accordance with guidelines established by the Fund's
Board of Directors. If there is a default by the other party to such a
transaction, the Portfolio will have to rely on its contractual remedies (which
may be limited by bankruptcy, insolvency or similar laws) pursuant to the
agreements related to the transaction. There can be no assurance that the
objective of these strategies and techniques will be achieved.
 
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 agent
utilizing standardized swap documentation. Caps, collars and floors are more
recent innovations for which documentation is less standardized, and
accordingly, they are less liquid than swaps.
 
ASSET-BACKED SECURITIES: Morgan Stanley Worldwide High Income Portfolio and
Mitchell Hutchins Fixed Income Portfolio may invest in asset-backed securities
(unrelated to first mortgage loans) which represent fractional interests in
pools of leases, retail installment loans or revolving credit receivables, both
secured (such as Certificates for Automobile Receivables or CARS) and unsecured
(such as Credit Card Receivable Securities or CARDS). These assets are generally
held by a trust and payments of principal and interest or interest only are
passed through 

                                       18

<PAGE>
 
monthly or quarterly to certificate holders and may be guaranteed up to certain
amounts by letters of credit issued by a financial institution affiliated or
unaffiliated with the trustee or originator of the trust.
 
Like mortgages underlying mortgage-backed securities (see "Mortgage-Backed
Securities" above), underlying automobile sales contracts or credit card
receivables are subject to the risk of prepayment, which may reduce the overall
return to certificate holders. Nevertheless, principal repayment rates tend not
to vary much with interest rates and the short-term nature of the underlying car
loans or other receivables tends to dampen the impact of any change in the
prepayment level. Certificate holders may also experience delays in payment on
the certificates if the full amounts due on underlying sales contracts or
receivables are not realized by the trust because of unanticipated legal or
administrative costs of enforcing the contracts or because of depreciation or
damage to the collateral (usually automobiles) securing certain contracts, or
other factors.
 
If consistent with their investment objective and policies, the Portfolios
indicated above may invest in other asset-backed securities that may be
developed in the future.
 
Certain asset-backed securities may be deemed to constitute investment companies
under the 1940 Act. Mitchell Hutchins Fixed Income Portfolio intends to conduct
its operations in a manner consistent with this view, and therefore the
Portfolio generally may not invest more than 10% of its total assets in such
securities without obtaining appropriate regulatory relief.
 
LOAN PARTICIPATIONS AND ASSIGNMENTS: Morgan Stanley Worldwide High Income
Portfolio may invest in fixed and floating rate loans (Loans) arranged through
private negotiations between an issuer of sovereign or corporate debt
obligations and one or more financial institutions (Lenders). The Portfolio's
investments in Loans are expected in most instances to be in the form of
participations in Loans (Participations) and assignments of all or a portion of
Loans (Assignments) from third parties. In the case of Participations, the
Portfolio will have the right to receive payments of principal, interest and any
fees to which it is entitled only from the Lender selling the Participation and
only upon receipt by the Lender of the payments from the borrower. In the event
of the insolvency of the Lender selling a Participation, the Portfolio may be
treated as a general creditor of the Lender and may not benefit from any set-off
between the Lender and the borrower. The Portfolio will acquire Participations
only if the Lender interpositioned between the Portfolio and the borrower is
determined by the Sub-Adviser to be creditworthy. When the Portfolio purchases
Assignments from Lenders it will acquire direct rights against the borrower on
the Loan. Because Assignments are arranged through private negotiations between
potential assignees and potential assignors, however, the rights and obligations
acquired by the Portfolio as the purchaser of an Assignment may differ from, and
be more limited than, those held by the assigning Lender. The lack of a liquid
secondary market may have an adverse impact on the value of such securities and
the Portfolio's ability to dispose of particular Assignments or Participations
when necessary to meet the Portfolio's liquidity needs or in response to a
specific economic event such as a deterioration in the creditworthiness of the
borrower. The lack of a liquid secondary market for Assignments and
Participations also may make it more difficult for the Portfolio to assign a
value to these securities for purposes of valuing the Portfolio and calculating
its net asset value.
 
STRUCTURED INVESTMENTS: Morgan Stanley Worldwide High Income Portfolio may
invest a portion of its assets in entities organized and operated solely for the
purpose of restructuring the investment characteristics of sovereign debt
obligations. This type of restructuring involves the deposit with or purchase by
an entity, such as a corporation or trust, of specified instruments (such as
commercial bank loans or Brady Bonds) and the issuance by that entity of one or
more classes of securities (Structured Securities) backed by, or representing
interests in, the underlying instruments. The cash flow on the underlying
instruments may be apportioned among the newly issued Structured Securities to
create securities with different investment characteristics such as varying
maturities, payment priorities and interest rate provisions, and the extent of
the payments made with respect to Structured Securities is dependent on the
extent of the cash flow on the underlying instruments. Because Structured
Securities of the type in which the Portfolio anticipates it will invest
typically involve no credit enhancement, their credit risk generally will be
equivalent to that of the underlying instruments. The Portfolio is permitted to
invest in a class of Structured Securities that is either subordinated or
unsubordinated to the right of payment of another class. Subordinated Structured
Securities typically have higher yields and present greater risks than
unsubordinated Structured Securities. Structured Securities are typically sold
in private placement transactions, and there currently is no active trading
market for Structured Securities.

    
               DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAXES     

Net investment income from interest and dividends and substantially all of any
net realized capital gains (which are not offset or eliminated for Federal
income tax purposes) will be declared and paid annually by each Portfolio, other
than the Mitchell Hutchins Money Market Portfolio, when results for the fiscal
year are known. Net realized short-term capital gains may be paid annually or
more frequently.

Mitchell Hutchins Money Market Portfolio declares as dividends on each Business
Day on which the NYSE is open for business all of its net investment income.
Such dividends are payable to shareholders of record as of the close of regular
trading on the NYSE on the preceding Business Day and are paid monthly. A
Business Day is any weekday on which the NYSE is open for business. Net
investment income of the Portfolio is accrued interest and earned discount,
inclusive of both original issue and market discounts, minus amortization of
market premium and applicable expenses. Net investment income is determined and
dividends declared immediately before the calculation of net asset value per
share. The Portfolio normally will distribute annually any net short-term
capital gain when results from the previous fiscal year are known, but it may
make more frequent distributions of such gain to 

                                       19
<PAGE>
 
maintain its net asset value per share at $1.00 or to avoid income or excise
taxes. The Portfolio does not expect to realize any long-term capital gain.
 
Dividends from net investment income and net realized capital gains will be
distributed in additional shares of the Portfolio making the distribution.
Dividends or distributions by a Portfolio other than the Money Market Portfolio
(which attempts to maintain a constant $1.00 per share net asset value) reduce
the per share net asset value by the per share amount so paid.
 
Each Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Code. In order to qualify as a regulated investment company,
each Portfolio must, among other things, meet certain source of income and
diversification of asset tests. In any fiscal year in which a Portfolio so
qualifies and distributes at least 90% of its investment company taxable income
(which includes, among other items, dividends, interest and net short-term
capital gain in excess of net long-term capital losses), the Portfolio generally
will be relieved of Federal income tax on amounts distributed to shareholders.
See the Statement of Additional Information for more information about this tax
and its applicability to each Portfolio. The tax implications of an investment
in a certificate are described in the prospectus for the certificates.

    
                           VALUATION OF SHARES     

The net asset value for the shares of each Portfolio will be determined on each
day the NYSE is open for trading. The net assets of each Portfolio are valued as
of the close of business on the NYSE, which currently is 4:00 P.M., New York
City time. Each Portfolio's net asset value per share is calculated separately.
 
For all Portfolios other than the Mitchell Hutchins Money Market Portfolio, the
net asset value per share is computed by dividing the value of the securities
held by the Portfolio plus any cash or other assets, less its liabilities, by
the number of outstanding shares of the Portfolio. Securities holdings which are
traded on a U.S. or foreign securities exchange are valued at the last sale
price on the exchange where they are primarily traded or, if there has been no
sale since the previous valuation, at the mean between the current bid and asked
prices. OTC securities for which market quotations are readily available are
valued at the mean between the current bid and asked prices. Any securities or
other assets for which market quotations are not readily available are valued at
fair market value under the direction of the Board of Directors. Notwithstanding
the above, bonds and other fixed-income securities are valued using market
quotations provided by dealers, including the Sub-Advisers and their affiliates,
and also may be valued on the basis of prices provided by a pricing service when
the Board of Directors believes that such prices reflect the fair market value
of such securities. Money market instruments are valued at market value, except
that instruments maturing in sixty days or less are valued using the amortized
cost method of valuation described below with respect to the Mitchell Hutchins
Money Market Portfolio.
 
For the Mitchell Hutchins Money Market Portfolio, net asset value is computed by
dividing the value of the investments and other assets minus liabilities by the
number of shares outstanding. Securities are valued using the amortized cost
method of valuation, which approximates market value. Under this method of
valuation, the difference between the acquisition cost and value at maturity is
amortized by assuming a constant (straight-line) accretion of a discount or
amortization of a premium to maturity. Cash, receivables and current payables
are generally carried at their face value. See the Statement of Additional
Information for a description of certain conditions and procedures followed by
the Portfolio in connection with amortized cost valuation.
 
When a Portfolio writes a put or call option, the amount of the premium is
included in the Portfolio's assets and an equal amount is included in its
liabilities. The liability thereafter is adjusted to the current market value of
the option. The premium paid for an option purchased by a Portfolio is recorded
as an asset and subsequently adjusted to market value.

    
                        PURCHASES AND REDEMPTIONS     

Shares of Portfolios of the Fund are offered to separate accounts of Integrity
and National Integrity in connection with certain certificates they issue. Some
Portfolios may not be available in certain states due to applicable state
insurance law and regulations, and not all Portfolios may be available for all
certificates issued by Integrity and National Integrity.

The separate accounts purchase shares of the Portfolios without a sales charge
at the net asset value per share next determined after receipt of the complete
purchase order. Shares of each Portfolio are redeemed at net asset value without
any redemption charge. Payment upon redemption of Fund shares is normally made
within seven days of receipt of such request (unless redemption is suspended or
payment is delayed as permitted in accordance with SEC regulations).

    
                          MANAGEMENT OF THE FUND     

INVESTMENT MANAGER, SUB-ADVISERS AND DISTRIBUTOR

Under Maryland law and the Fund's Articles of Incorporation and By-Laws, the
business and affairs of the Fund are managed under the direction of the Fund's
Board of Directors.

INTEGRITY LIFE INSURANCE COMPANY, whose executive offices are located at 239 S.
Fifth Street, 12th Floor, Louisville, Kentucky 40202, serves as investment
manager to all the Portfolios of the Fund. National Integrity is a wholly-owned

                                       20
<PAGE>

     
subsidiary of Integrity. ARM, the parent of Integrity, is a financial services
company providing retail and institutional products and services to the long-
term savings and retirement market. The Morgan Stanley Leveraged Equity Fund II,
L.P., Morgan Stanley Capital Partners III, L.P., Morgan Stanley Capital
Investors, L.P. and MSCP III 892 Investors, L.P., investment funds sponsored by
Morgan Stanley Group, Inc. ("Morgan Stanley"), own approximately 91% of the
outstanding shares of voting stock of ARM. The address of each of Integrity and
ARM is 239 S. Fifth Street, Louisville, Kentucky 40202. The address of each of
Morgan Stanley and the investment funds sponsored by it is 1221 Avenue of the
Americas, New York, New York 10020. 
 
On August 25, 1994, Integrity purchased for its own account approximately
450,000 shares of the Morgan Stanley Worldwide High Income Portfolio, at net
asset value, for an aggregate purchase price of $4.5 million. Accordingly,
Integrity may be deemed to control the Portfolio within the meaning of the 1940
Act. Integrity has indicated that it will vote all of the shares that it owns
for its own account in the Portfolio on any matter requiring the vote of
shareholders in the same proportion as votes are cast by certificate holders
relating to the Portfolio. Integrity has also indicated that it intends to
redeem its shares on a dollar-for-dollar basis to the extent, and at the same
time as, the Portfolio has sales in respect of certificate holders. As of
September 29, 1995, approximately 151,487 shares, having a fair value of
approximately $1.65 million and constituting approximately 25.9% of the
outstanding shares of the Portfolio, were held by Integrity for its own account.
 
MORGAN STANLEY ASSET MANAGEMENT INC., 1221 Avenue of the Americas, New York, New
York 10020, serves as the Sub-Adviser to Morgan Stanley Asian Growth Portfolio
and Morgan Stanley Worldwide High Income Portfolio. MSAM, a wholly-owned
subsidiary of Morgan Stanley Group, Inc., conducts a worldwide portfolio
management business. It provides a broad range of portfolio management services
to customers in the United States and abroad. At June 30, 1995, MSAM had
investments totaling approximately $52.2 billion under management and fiduciary
advisory control.     
 
James Cheng, Ean Wah Chin and Seah Kiat Seng have primary responsibility for the
Morgan Stanley Asian Growth Portfolio. James Cheng joined MSAM in 1988 as a
portfolio manager for Asian markets and is a Vice President of MSAM, currently
responsible for investments in Hong Kong, China, Taiwan, and South Korea. Mr.
Cheng is also a Principal of Morgan Stanley & Co. Incorporated. Prior to joining
Morgan Stanley, he was affiliated with American Express and with Arthur
Andersen, where he spent three years as an auditor/consultant. Mr. Cheng holds
an M.B.A. from the University of Michigan, Ann Arbor. Ean Wah Chin is a Managing
Director of Morgan Stanley & Co. Incorporated, and is responsible for MSAM's
regional Asia ex-Japan operations based in Singapore. Prior to joining Morgan
Stanley in 1986, Ms. Chin spent eight years with the Monetary Authority of
Singapore and the Government of Singapore Investment Corporation, where she was
a portfolio manager of one of the largest portfolios in Asia. Ms. Chin was an
ASEAN scholar educated at the University of Singapore. Seah Kiat Seng joined
MSAM's Singapore office in 1990 as a portfolio manager/analyst specializing in
the Southeast Asian markets. He is currently a Vice President, responsible for
investments in Thailand. Previously, Mr. Seng worked at Barclays de Zoete Wedd
(BZW), where he was a senior investment analyst who helped pioneer BZW's
research effort in Singapore. Mr. Seng is a Chartered Financial Analyst and a
qualified real estate valuer who has worked for the Singapore Ministry of
Finance. He was a Colombo Plan Scholar educated in New Zealand.
     
Robert Angevine and Paul Ghaffari have primary responsibility for the Morgan
Stanley Worldwide High Income Portfolio. Robert Angevine is a Principal of
Morgan Stanley & Co. Incorporated and the portfolio manager for high yield
investments. Prior to joining Morgan Stanley in October 1988, he spent over
eight years at Prudential Insurance, where he was responsible for the largest
open-end high yield mutual fund in the country. Mr. Angevine also manages high
yield assets for one of the largest corporate pension funds in the country. His
other experience includes international treasury operations at a major
pharmaceutical company and commercial banking. Mr. Angevine received an M.B.A.
from Fairleigh Dickinson University and a B.A. in Economics from Lafayette
College. He served two years as a Lieutenant in the U.S. Army. Paul Ghaffari is
a Principal of Morgan Stanley & Co. Incorporated and portfolio manager for
Morgan Stanley Emerging Markets Debt Fund (a closed-end investment company).
Prior to joining MSAM, he was a Vice President in the Fixed Income Division of
the Emerging Markets Sales and Trading Department at Morgan Stanley. From 1983
to 1992, Mr. Ghaffari worked in the LDC Sales and Trading Department and the
Mortgage-Backed Securities Department at J.P. Morgan & Co., Inc. and worked in
the Treasury department at the Morgan Guaranty Trust Co. He holds a B.A. in
International Relations from Pomona College and a M.S. in Foreign Service from
Georgetown University.

RENAISSANCE INVESTMENT MANAGEMENT, 1700 Young Street, Cincinnati, Ohio 45210,
serves as the Sub-Adviser to the Renaissance Balanced Portfolio. Renaissance is
a recognized leader in providing quantitatively-based investment management
strategies to individual and institutional clients of all types, including
corporate, endowment, religious, foundation, public and Taft-Hartley funds. As
of June 30, 1995, the firm managed in excess of $1.5 billion in assets.

Michael E. Schroer, Managing Director, is responsible for the day-to-day
management of the Renaissance Balanced Portfolio and has been since the
Portfolio's inception. Mr. Schroer has served as Director of Research and as a
portfolio manager at Renaissance since January 1984.     

                                       21
<PAGE>

     
Affiliated Managers Group, Inc. (AMG), a Delaware corporation, is the
Managing General Partner of Renaissance and may be deemed the parent of
Renaissance. AMG was established in December 1993 to obtain investment interests
in high quality investment management firms. AMG may be deemed to be controlled
by Advent VII, L.P., a Delaware limited partnership which is the largest single
stockholder of AMG. The sole general partner of Advent VII, L.P. is TA
Associates VII, L.P., a Delaware limited partnership, and the sole general
partner of TA Associates VII, L.P. is TA Associates, Inc., a Delaware
corporation which, together with its predecessors, has directly or indirectly
invested in more than 200 enterprises prior to its investment in AMG.
 
ZWEIG/GLASER ADVISERS, 5 Hanover Square, New York, New York 10004, serves as the
Sub-Adviser for the Zweig Asset Allocation Portfolio and Zweig Equity (Small
Cap) Portfolio. Glaser Corp., a Delaware corporation formed by Eugene J. Glaser,
and Zweig Management Corp., a Delaware corporation controlled by Dr. Martin E.
Zweig, are the general partners of Zweig/Glaser. Dr. Zweig is also Chairman of
Zweig/Glaser. He has provided investment advisory and portfolio management
services for 24 years and is currently affiliated with investment advisers,
which, as of June 30, 1995 managed over $9.5 billion in assets, including Avatar
Associates, manager of over $2.3 billion of institutional and pension accounts,
of which Dr. Zweig is Director of Research. Dr. Zweig is also President and
Director of The Zweig Fund, Inc. and the Zweig Total Return Fund, Inc., closed-
end funds traded on the NYSE with combined assets of over $1.1 billion. He is
also author of various investment advisory newsletters, including The Zweig
Forecast, a regular panelist on PBS' television program Wall Street Week with
Louis Rukeyser for 20 years, and an author of three books: Winning on Wall
Street, The ABC's of Market Forecasting, and Winning with New IRAs. Zweig/Glaser
also manages Zweig Series Trust, an open-end investment company with aggregate
assets as of June 30, 1995 of $2.3 billion (consisting of Zweig Strategy Fund,
Zweig Appreciation Fund, Zweig Managed Assets, Priority Selection List Series,
Government Securities Series and Zweig Cash Fund, Inc.).     
 
Dr. Zweig, who determines the asset allocation strategy for each Portfolio, and
David Katzen, who serves as portfolio manager for each Portfolio, are primarily
responsible for the day-to-day management of the Zweig Asset Allocation
Portfolio and Zweig Equity (Small Cap) Portfolio. Dr. Zweig and Mr. Katzen have
managed the Portfolios since inception. Mr. Katzen is First Vice President of
Zweig/Glaser Advisers and has held various positions with the Zweig organization
during the past six years.
     
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT, 600 West Broadway, 30th Floor, San Diego,
California 92101, serves as Sub-Adviser to the Nicholas-Applegate Balanced
Portfolio. Founded in 1984, Nicholas-Applegate is a California limited
partnership. The general partner of Nicholas-Applegate is Nicholas-Applegate
Capital Management, Holdings, L.P., a California limited partnership controlled
by Arthur E. Nicholas. Nicholas-Applegate provides investment management
services to institutional and individual clients. It serves as sub-adviser for
Nicholas-Applegate Growth Equity Fund and Harbor Growth Fund and as adviser of
Nicholas-Applegate Mutual Funds, open-end investment companies. At June 30,
1995, Nicholas-Applegate had assets under management of $26.1 billion.
 
The Nicholas-Applegate Balanced Portfolio is managed primarily by John Wylie,
Partner, and Nicholas-Applegate's systems-driven management team. Mr. Wylie
joined Nicholas-Applegate as head of institutional marketing activities in 1987
and has managed fixed income and convertible securities since 1989. He has been
responsible for the management of the fixed income portion of the Portfolio
since its inception. The systems-driven investment management team which manages
the equity portion of the Portfolio has been under the supervision of Lawrence
S. Speidell since March 1994. In overseeing the activities of the entire
Global/Systematic team, Mr. Speidell is responsible for portfolio management and
the development, enhancement and application of the firm's quantitative
disciplines. He also guides the firm's international, domestic and global
research efforts. Prior to joining Nicholas-Applegate in 1994, Mr. Speidell
spent ten years with Batterymarch Financial Management, where his wide-ranging
responsibilities for portfolio management included development of domestic and
international portfolio strategies, portfolio optimization, trading techniques
and client relationships. Mr. Speidell was also Senior Vice President and
Portfolio Manager at Putnam Management Company from 1971 to 1983, and served as
a member of that firm's Investment Policy Committee. He is a past president of
the Boston Securities Analysts Society and a past director of the Investor
Responsibility Research Center in Washington, D.C. Mr. Speidell earned his B.E.
in Mechanical Engineering from Yale University and his M.B.A. from Harvard
University.
 
HARRIS BRETALL SULLIVAN & SMITH, INC., One Sansone Street, Suite 3300, San
Francisco, California 94104, serves as the Sub-Adviser to the Harris Bretall
Sullivan & Smith Equity Growth Portfolio. Harris Bretall Sullivan & Smith was
founded in 1971 and is owned equally by W. Graeme Bretall, President, John J.
Sullivan, Treasurer, and Henry B. Dunlap Smith. The firm provides investment
management services to institutions and individuals, and at June 30, 1995, had
assets under management of approximately $2.6 billion.
 
W. Graeme Bretall, CFA, a Principal of Harris Bretall Sullivan & Smith, is the
Partner in charge of the Portfolio. Joseph Calderazzo, Vice President, Portfolio
Manager and Co-Chair of the Investment Committee, is the portfolio manager who
is primarily responsible for the day-to-day management of the assets in the
Harris Bretall Sullivan & Smith Equity Growth Portfolio, and has served in this
function since 1994. During the past five year period, Mr. Bretall has served as
President of Harris Bretall Sullivan & Smith. Mr. Calderazzo joined Harris
Bretall Sullivan & Smith as a Portfolio Manager in 1990, and also serves as the
firm's analyst for Political and Governmental Affairs. While Mr. Calderazzo will
make the final investment buy and sell decisions for the Portfolio, there are
never any deviations from the firm's strategic guidelines. A team approach is
utilized at Harris Bretall Sullivan & Smith so that the consensus decisions made
in the firm's weekly Investment Committee meeting are simultaneously implemented
in all tax-exempt and fully discretionary portfolios.     

                                       22
<PAGE>
 
    
DREMAN VALUE ADVISORS, INC., 10 Exchange Place, 20th Floor, Jersey City, New
Jersey 07302, serves as the Sub-Adviser to the Dreman Value Portfolio. As of
June 30, 1995, Dreman managed over $1.5 billion. Clients include public funds,
corporate benefit funds, college endowments and foundations, Taft-Hartley funds,
and other institutional accounts. In addition, Dreman serves as investment
adviser to the Kemper-Dreman Mutual Group, Inc., which consists of three
portfolios, Kemper-Dreman Contrarian Fund, Kemper-Dreman High Return Fund and
Kemper-Dreman Small Cap Value Fund.
 
All investment decisions by Dreman for the Dreman Value Portfolio are made by an
investment committee, which includes a group of senior investment professionals.
 
Dreman, a Delaware corporation, an indirect wholly owned subsidiary of Zurich
Insurance Company (Zurich), was formed in August, 1995 in order to purchase
substantially all of the assets of Dreman Value Management, L.P., Dreman's
predecessor organization. Founded in 1872, Zurich is a multinational, public
corporation organized under the laws of Switzerland. Zurich's primary business
is as an insurer. Together with its predecessor organizations, Dreman has been
in the investment management business since 1977.
 
MITCHELL HUTCHINS INSTITUTIONAL INVESTORS, INC., 1285 Avenue of the Americas,
New York, New York, 10019, serves as the Sub-Adviser for the Mitchell Hutchins
Fixed Income Portfolio. MHII is a wholly owned subsidiary of Mitchell Hutchins.
MHII provides investment management services to institutional and corporate
clients. As of June 30, 1995, total assets under MHII's management were
approximately $10.2 billion. Of that amount, approximately $5.1 billion
represented assets invested in U.S. Government or U.S. corporate debt or other
fixed income securities.    

The day-to-day management of the Mitchell Hutchins Fixed Income Portfolio is the
responsibility of members of the Fixed Income Group of MHII, including Craig M.
Varrelman, CFA, a vice president of MHII who has assisted with the management of
the Portfolio since May 1993. Mr. Varrelman has been with MHII as a portfolio
manager since 1988, and has managed fixed income assets using indexation,
immunization and dedication strategies.
     
MITCHELL HUTCHINS ASSET MANAGEMENT INC., 1285 Avenue of the Americas, New York,
New York 10019, serves as the Sub-Adviser to the Mitchell Hutchins Money Market
Portfolio. Mitchell Hutchins is a wholly-owned subsidiary of PaineWebber
Incorporated, which is a wholly-owned subsidiary of PaineWebber Group Inc., a
publicly owned financial services holding company. At June 30, 1995, Mitchell
Hutchins was the adviser or sub-adviser to 41 investment companies having 86
separate portfolios and aggregate assets of over $27.9 billion. At June 30,
1995, Mitchell Hutchins managed discretionary and non-discretionary accounts
with assets in excess of $43.6 billion.    

                                      23
<PAGE>
 
Each Portfolio pays Integrity a fee based on an annual percentage of the average
daily net assets of such Portfolio. The management fees are deducted from the
assets of each Portfolio and paid monthly, but are accrued daily for purposes of
determining the value of a share of each Portfolio on each day the NYSE is open
for trading. (See "Valuation of Shares".) For the services provided to each of
the Portfolios, Integrity (and not the Fund) pays each Sub-Adviser a monthly fee
based on an annual percentage of the average daily net assets of the respective
Portfolio. The annual percentage of average daily net assets payable by each
Portfolio to Integrity and by Integrity to each Sub-Adviser is set forth below.
The fees paid by certain of the Portfolios may be higher than those paid by
other investment companies.

    
<TABLE> 
<CAPTION> 
                                                             Annual Percentage of         Annual Percentage of
                                                            Average Net Assets Paid      Average Net Assets Paid
                                                           By Portfolio to Integrity   By Integrity to Sub-Adviser
                                                           -------------------------   ---------------------------
<S>                                                        <C>                         <C>
Morgan Stanley Asian Growth Portfolio                               1.00%                         .85%
Morgan Stanley Worldwide High Income Portfolio                       .85%                         .70%
Renaissance Balanced Portfolio                                       .65%                         .50%
Zweig Asset Allocation Portfolio                                     .90%                         .75%
Nicholas-Applegate Balanced Portfolio                                .65%                         .50%
Harris Bretall Sullivan & Smith Equity Growth Portfolio              .65%                         .50%
Dreman Value Portfolio                                               .65%                         .50%
Zweig Equity (Small Cap) Portfolio                                  1.05%                         .90%
Mitchell Hutchins Fixed Income Portfolio                             .90%                         .75%
Mitchell Hutchins Money Market Portfolio                             .65%                         .50%
</TABLE>     

    
SBM Financial Services, Inc. (SBMFS), a wholly-owned subsidiary of ARM, acts as
Distributor of the Portfolios' shares without remuneration from the Fund or the
Portfolios. SBMFS is registered with the SEC as a broker-dealer and is a member
of the National Association of Securities Dealers, Inc. SBMFS's address is 100
North Minnesota Street, P.O. Box 69, New Ulm, Minnesota 56073-0069.    

EXPENSES
    
The Fund bears all expenses of its operations other than those borne by
Integrity as investment manager or SBMFS as distributor. In particular, the Fund
pays (and allocates among the respective Portfolios): investment management
fees; transaction costs, including brokerage commissions; record keeping agent
fees; custodian fees; legal fees; audit fees; shareholder reports expenses;
registration fees; proxy and shareholder meeting expenses; and the fees and
expenses of Directors who are not interested persons of the Fund, within the
meaning of the 1940 Act. In addition, a portion of the expenses of organizing
the Fund and of the initial registration of its shares under federal securities
laws will be charged to the Fund's operations, as an expense, over a period not
exceeding five years.

Integrity has agreed to reimburse the respective Portfolio on a pro rata basis
up to the amount of their respective fees to the extent that the total expenses
of a Portfolio in a given year (excluding interest, taxes, brokerage
commissions, and extraordinary expenses) exceed any applicable state expense
limitations.     

Integrity voluntarily limits the expenses of each Portfolio, other than for
brokerage commissions and the management fee, to .50% of average net assets on
an annualized basis, except that Integrity voluntarily limits the expenses of
Morgan Stanley Asian Growth Portfolio and Morgan Stanley Worldwide High Income
Portfolio, other than for brokerage commissions and the management fee, to 1.00%
of average net assets on an annualized basis. Integrity's reimbursement of
Portfolio expenses results in an increase to each Portfolio's yield or total
return. Integrity has reserved the right to withdraw or modify its policy of
expense reimbursement for the Portfolios.

                                      24
<PAGE>
 
    
                     Portfolio Transactions and Brokerage     

As a general matter, each Sub-Adviser arranges for the purchase and sale of the
respective Portfolio's securities and selects broker-dealers which, in its best
judgment, provide prompt and reliable execution at favorable security prices and
reasonable commission rates. The Sub-Advisers may select broker-dealers which
provide them with research services and may cause a Portfolio to pay such 
broker-dealers commissions which exceed those other broker-dealers may have
charged if, in their view, the commissions are reasonable in relation to the 
value of the brokerage and/or research services provided by the broker-dealer.
Brokerage arrangements may take into account the distribution of certificates by
broker-dealers, subject to best price and execution.
 
Brokerage arrangements with affiliates of Integrity or the Sub-Advisers, if any,
will be in accordance with the 1940 Act and the rules and regulations
promulgated thereunder. No transactions may be effected by a Portfolio with an
affiliate of Integrity or a Sub-Adviser acting as principal for its own account,
except to the extent permitted by law.
 
Transactions in money market securities, other government securities and most
other fixed income securities are principal transactions, on which no brokerage
commission is paid. These transactions are normally effected with major dealers
in money market instruments, government securities or such fixed income
securities. Purchases from or sales to dealers serving as market-makers include
the spread between the bid and asked prices. OTC purchases and sales are
normally made with principal market-makers, except where, in the opinion of the
Sub-Adviser, the best executions are available elsewhere.

The Portfolios described in "Description of Various Securities and Investment
Techniques--Futures Contracts and Related Options" may incur transaction costs
in connection with the acquisition of futures contracts and options thereon.
    
For reporting purposes, a Portfolio's portfolio turnover rate is calculated by
dividing the lesser of purchases or sales of portfolio securities for the fiscal
year by the monthly average of the value of the portfolio securities owned by
the Portfolio during the fiscal year. In determining such portfolio turnover,
securities whose maturities at the time of acquisition were one year or less are
excluded. Each Sub-Adviser will adjust the Portfolio's assets as it deems
advisable in view of current or anticipated market conditions, and portfolio
turnover will not be a limiting factor should the Sub-Adviser deem it advisable
for a Portfolio to purchase or sell securities. Options activities may increase
the turnover rate for a Portfolio, because the exercise of calls written by the
Portfolio and puts owned by the Portfolio would cause the Portfolio to sell the
underlying securities. Increased portfolio turnover may result in greater
brokerage commissions. See "Financial Highlights" for information as to the
Portfolios' portfolio turnover rates for the periods from commencement of
operations through June 30, 1993 and the fiscal years ended June 30, 1994 and
1995. It is anticipated that the annual portfolio turnover rate for each of
Morgan Stanley Asian Growth Portfolio and Morgan Stanley Worldwide High Income
Portfolio will not exceed 100% under normal circumstances.    
    
                               Other Information     

CUSTODIAN: Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City,
Missouri 64105, acts as custodian of the assets of all of the Portfolios and may
employ sub-custodians approved by the Board of Directors of the Fund in
accordance with the regulations of the Securities and Exchange Commission.

TRANSFER AGENT, DIVIDEND AGENT AND RECORDKEEPING AGENT: Investors Fiduciary
Trust Company also acts as transfer agent, dividend disbursing agent and
recordkeeping agent.

PERFORMANCE INFORMATION: The Fund may, from time to time, calculate the yield
and effective yield of the Mitchell Hutchins Money Market Portfolio, the yield
of other Portfolios or total return of all Portfolios and may include such
information in reports to shareholders. Performance information should be
considered in light of the Portfolio's investment objectives and policies,
characteristics and quality of the portfolios, and the market conditions during
the given time period, and should not be considered as a representation of what
may be achieved in the future.
    
Performance information for the Portfolios is contained in the Fund's annual
reports to shareholders, which may be obtained without charge.     

Current yield for Mitchell Hutchins Money Market Portfolio will be based on
income received by a hypothetical investment over a given 7-day period (less
expenses accrued during the period), and then annualized (i.e., assuming that
the 7-day yield would be received for 52 weeks, stated in terms of an annual
percentage return on the investment). Effective yield for the Mitchell Hutchins
Money Market Portfolio is calculated in a manner similar to that used to
calculate yield, but reflects the compounding effect of earnings on reinvested
dividends. For the remaining Portfolios, any quotations of yield will be based
on all investment income per share earned during a given 30-day period
(including dividends and interest), less expenses accrued during the period (net
investment income), and will be computed by dividing net investment income by
the maximum public offering price per share on the last day of the period.
Quotations of average annual total return for a Portfolio will be expressed in
terms of the average annual compounded rate of return on a hypothetical
investment in the Portfolio over certain periods that will include periods of 1,
5, and 10 years (up to the life of the Portfolio), will reflect the deduction of
a proportional share of Portfolio expenses (on an annual basis), and will assume
that all dividends and distributions are reinvested when paid.

                                      25
<PAGE>
 



For a description of the methods used to determine yield and total return for
the Portfolios, see the Statement of Additional Information.












                                       26
<PAGE>
 
                                                                   Appendix A

               DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS

COMMERCIAL PAPER

Description of relevant commercial paper ratings of Standard & Poor's Ratings
Group ("S&P") are as follows:

A-1:      This highest category 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.

A-2:      Capacity for timely payment on issues with this designation is
          satisfactory. However, the relative degree of safety is not as high as
          for issues designated A-1.

A-3:      Issues carrying this designation have an adequate capacity for timely
          payment. They are, however, somewhat more vulnerable to the adverse
          effects of changes in circumstances than obligations carrying the
          higher designations.

Description of the relevant commercial paper ratings of Moody's Investors
Service, Inc. ("Moody's") are as follows:

PRIME-1:  Issuers rated Prime-1 (or supporting institutions) have a superior
          ability for repayment of senior short-term debt obligations. Prime-1
          repayment ability will often be evidenced by many of the following
          characteristics:

          --   Leading market positions in well-established industries.

          --   High rates of return on funds employed.

          --   Conservative capitalization structure with moderate reliance on
               debt and ample asset protection.

          --   Broad margins in earnings coverage of fixed financial charges
               and high internal cash generation.

          --   Well-established access to a range of financial markets and
               assured sources of alternate liquidity.

PRIME-2:  Issuers rated Prime-2 (or supporting institutions) have a strong
          ability for repayment of senior short-term debt obligations. This will
          normally be evidenced by many of the characteristics cited above but
          to a lesser degree. Capitalization characteristics, while still
          appropriate, may be more affected by external conditions. Ample
          alternate liquidity is maintained.

PRIME-3:  Issuers rated Prime-3 (or supporting institutions) have an acceptable
          ability for repayment of senior short-term obligations. The effect of
          industry characteristics and market compositions may be more
          pronounced. Variability in earnings and profitability may result in
          changes in the level of debt protection measurement and may require
          relatively high financial leverage. Adequate alternate liquidity is
          maintained.

CORPORATE BONDS

Descriptions of the bond ratings of S&P are:

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 has a very strong capacity to pay interest and repay
          principal and differs from the higher rated issues only in small
          degree.

A --      Debt rated A has a strong capacity to pay interest and repay principal
          although it is somewhat more higher rated categories. 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 for debt
          in higher rated categories. 
 
BB, B, CCC, CC or C--Debt rated BB, B, CCC, CC or C is regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse debt
conditions.
 
C1 --     The rating C1 is reserved for income bonds on which no interest is
          being paid.

                                      A-1
<PAGE>
 


D --      Debt rated D is in default and payment of interest and/or repayment of
          principal is in arrears.

The ratings from AA to CC may be modified by the addition of a plus (+) or minus
(-) sign to show relative standing within the major rating categories.
 
Descriptions of the bond ratings of Moody's are as 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 more 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 fluctuation of protective elements may be of greater
          amplitude or there may be other elements present which make the long-
          term risks appear somewhat greater than the 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
          some time in the future.                        
 
Baa --    Bonds which are rated Baa are considered as medium grade obligations,
          i.e., they are neither highly protected nor poorly secured. Interest
          payments and principal security appear adequate for the present, but
          certain protective elements may be lacking or may be
          characteristically unreliable over any great length of time. Such
          bonds lack outstanding investment characteristics and in fact have
          speculative characteristics as well.
           
Ba --     Bonds which are rated Ba are judged to have speculative elements;
          their future cannot be considered as well assured. Often the
          protection of interest and principal payments may be very moderate and
          thereby not well safeguarded during both good and bad times over the
          future. Uncertainty of position characterizes bonds in this class.

B --      Bonds which are rated B generally lack characteristics of the
          desirable investment. Assurance of interest and principal payments or
          of maintenance of other terms of the contract over any long period of
          time may be small.

Caa --    Bonds which are rated Caa are of poor standing. Such issues may be in
          default or there may be present elements of danger with respect to
          principal or interest.

Ca --     Bonds which are rated Ca represent obligations which are speculative
          to a high degree. Such issues are often in default or have other
          marked shortcomings.

C --      Bonds which are rated C are the lowest class of bonds and issues so
          rated can be regarded as having extremely poor prospects of ever
          attaining any real investment standing.

Moody's applies modifiers to each rating classification from Aa through B to
indicate relative ranking within its rating categories. The modifier "1"
indicates that a security ranks in the higher end of its 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 rating category.

                                      A-2
<PAGE>
 
STATEMENT OF ADDITIONAL INFORMATION
===================================
                                                                                
THE LEGENDS FUND, INC.(TM)                           200 East Wilson Bridge Road
                                                        Worthington, Ohio  43085
                                                       Telephone: 1-800-325-8583
                                                                                
The Legends Fund, Inc. (Fund) is an open-end management investment company with
multiple portfolios available for investment.  Shares of the Portfolios are
currently sold only to separate accounts of Integrity Life Insurance Company
(Integrity) and National Integrity Life Insurance Company (National Integrity)
as an investment medium for variable annuity certificates and contracts
(certificates) they issue.  The Fund's current portfolios and their investment
objectives are:

  .  MORGAN STANLEY ASIAN GROWTH PORTFOLIO seeks long-term capital appreciation.
     It invests primarily in the common stocks of Asian issuers, excluding
     Japan.

  .  MORGAN STANLEY WORLDWIDE HIGH INCOME PORTFOLIO seeks high current income
     consistent with relative stability of principal and, secondarily, capital
     appreciation.  It invests primarily in a portfolio of high yielding fixed
     income securities of issuers located throughout the world.

  .  RENAISSANCE BALANCED PORTFOLIO seeks capital appreciation and income in
     rising markets and capital preservation in declining markets.  Its assets
     are allocated among equity issues, United States government issues and 
     high-quality cash equivalent issues.

  .  ZWEIG ASSET ALLOCATION PORTFOLIO seeks long-term capital appreciation.  It
     invests primarily in stocks which are comparable to Blue Chip Stocks (as
     defined in "Investment Objective and Policies" in the Fund's Prospectus).

  .  NICHOLAS-APPLEGATE BALANCED PORTFOLIO seeks maximum total return in both
     the equity and fixed income portion of its investments.  It generally
     allocates 60%-65% of assets to equity securities and 35%-40% of assets to
     U.S. government securities and cash equivalent issues.

  .  HARRIS BRETALL SULLIVAN & SMITH EQUITY GROWTH PORTFOLIO seeks long-term
     capital appreciation.  It invests primarily in stocks of established
     companies with proven records of superior and consistent growth.

  .  DREMAN VALUE PORTFOLIO seeks primarily long-term capital appreciation with
     a secondary objective of current income.  It invests primarily in equity
     securities considered by the Sub-Adviser to be undervalued.

  .  ZWEIG EQUITY (SMALL CAP) PORTFOLIO seeks long-term capital appreciation.
     It invests primarily in Small Company Stocks (as defined in "Investment
     Objective and Policies" in the Fund's Prospectus).
    
  .  MITCHELL HUTCHINS FIXED INCOME PORTFOLIO seeks as high a level of current
     income as is consistent with the preservation of capital.  It invests
     primarily in corporate debt securities and U.S. Government securities
     (including mortgage-backed securities issued by GNMA, FNMA and FHLMC).     

  .  MITCHELL HUTCHINS MONEY MARKET PORTFOLIO seeks maximum current income
     consistent with liquidity and conservation of capital.  It invests in high-
     grade money market instruments with remaining maturities of 13 months or
     less, and repurchase agreements secured by such instruments.  While the
     Portfolio seeks to maintain a stable net asset value of $1.00 per share,
     there is no assurance that it will be able to do so.  AN INVESTMENT IN THE
     PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT.

Morgan Stanley Worldwide High Income Portfolio invests predominately in lower
rated and unrated bonds, commonly referred to as "junk bonds."  Bonds of this
type are considered to be speculative with regard to the payment of interest and
return of principal and are subject to greater risk of loss of principal and
interest. Purchasers should carefully assess the risks associated with an
investment in this Portfolio.  See "Description of Various Securities and
Investment Techniques -- Debt Securities" in the Fund's Prospectus.
    
This Statement of Additional Information (SAI) is not a prospectus and should be
read only in conjunction with the Fund's current Prospectus, dated  November 1,
1995.  A copy of the Prospectus may be obtained by calling or writing to the
Fund at the telephone number or address shown above.  This SAI is incorporated
by reference into the Prospectus.

                      Statement of Additional Information dated November 1, 1995
                                                                                
<PAGE>
 
                               TABLE OF CONTENTS

 
INVESTMENT POLICIES AND LIMITATIONS.....................................   B-3

OPTIONS, FUTURES AND OTHER HEDGING STRATEGIES...........................   B-9

DIRECTORS AND OFFICERS..................................................  B-16

INVESTMENT MANAGEMENT SERVICES..........................................  B-17

PORTFOLIO TRANSACTIONS..................................................  B-20

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..........................  B-23

VALUATION OF SHARES.....................................................  B-24

TAXES...................................................................  B-25

YIELD AND PERFORMANCE INFORMATION.......................................  B-26

OTHER INFORMATION.......................................................  B-29

FINANCIAL STATEMENTS OF THE FUND........................................  B-31

OPTIONS AND FUTURES.....................................................   A-1



                                      B-2
<PAGE>
 
                      INVESTMENT POLICIES AND LIMITATIONS

The following supplements the information contained in the Fund's Prospectus
concerning the investment policies and limitations of its ten Portfolios.  For
information relating to the Sub-Adviser (each, a Sub-Adviser, and collectively,
the Sub-Advisers) to each Portfolio, see "Management of the Fund" in the
Prospectus and "Investment Management Services" in this Statement of Additional
Information.  For information relating to the use of options, futures and other
hedging strategies, see "Description of Various Securities and Investment
Techniques -- Put, Call and Index Options; Futures Contracts and Related
Options" in the Prospectus and "Options, Futures and Other Hedging Strategies"
in this Statement of Additional Information.

SPECIAL CONSIDERATIONS RELATING TO FOREIGN SECURITIES AND DEPOSITORY RECEIPTS.
As noted in the Prospectus, Morgan Stanley Asian Growth Portfolio and Morgan
Stanley Worldwide High Income Portfolio each may invest substantially all of its
assets in securities of foreign issuers.  Zweig Asset Allocation Portfolio and
Zweig Equity (Small Cap) Portfolio each may invest up to 15% of its net assets
in securities of foreign issuers.  Nicholas-Applegate Balanced Portfolio may
invest up to 20% of its total assets in securities of foreign issuers.  Mitchell
Hutchins Fixed Income Portfolio may invest up to 10% of its net assets in
securities issued by foreign issuers.  Many of the foreign securities held by
these Portfolios are not registered with the Securities and Exchange Commission
(SEC), nor are the issuers thereof subject to its reporting requirements.
Accordingly, there may be less publicly available information concerning foreign
issuers of securities held by these Portfolios than is available concerning U.S.
companies.  Foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards or to other regulatory requirements
comparable to those applicable to U.S. companies.
    
Each of the Portfolios named above, Renaissance Balanced Portfolio and Dreman
Value Portfolio may invest in American Depository Receipts (ADRs).  Generally,
ADRs, in registered form, are denominated in U.S. dollars and are designed for
use in the U.S. securities markets.  ADRs are receipts typically issued by a
U.S. bank or trust company evidencing ownership of the underlying securities.
For purposes of the Fund's investment policies, ADRs are deemed to have the same
classification as the underlying securities they represent.  Thus, an ADR
evidencing ownership of common stock will be treated as common stock.
     
Investment income on certain foreign securities may be subject to foreign
withholding or other taxes that could reduce the return on these securities.
Tax treaties between the United States and foreign countries, however, may
reduce or eliminate the amount of foreign taxes to which a Portfolio would be
subject.

SOVEREIGN DEBT.  Morgan Stanley Asian Growth Portfolio and Morgan Stanley
Worldwide High Income Portfolio each may invest without limit, and Renaissance
Balanced Portfolio may invest up to 10% of its total assets, in obligations
supported by national, state or provincial governments or similar political
subdivisions.  Foreign government securities also include debt obligations of
supranational entities, which include international organizations designated or
supported by government entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
These obligations are hereinafter referred to as Sovereign Debt.  Investment by
a Portfolio in Sovereign Debt involves special risks.  The issuer of the debt or
the governmental authorities that control the repayment of the debt may be
unable or unwilling to repay principal and/or interest when due in accordance
with the terms of such debt, and the Portfolio may have limited legal recourse
in the event of a default.

Sovereign Debt differs from debt obligations issued by private entities in that,
generally, remedies for defaults must be pursued in the courts of the defaulting
party.  Legal recourse is therefore somewhat diminished. Political conditions,
especially a sovereign entity's willingness to meet the terms of its debt
obligations, are of considerable significance.  Also, there can be no assurance
that the holders of commercial bank debt issued by the same sovereign entity may
not contest payments to the holders of Sovereign Debt in the event of default
under commercial bank loan agreements.

A sovereign debtor's willingness or ability to repay principal and interest due
in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
principal international lenders and the political constraints to which a
sovereign debtor may be subject.  Increased protectionism on the part of a
country's trading partners, or political changes in those countries, could also
adversely affect its exports.  Such events could diminish a country's trade
account surplus, if any, or the credit standing of a particular local government
or agency.

The occurrence of political, social or diplomatic changes in one or more of the
countries issuing Sovereign Debt could adversely affect a Portfolio's
investments.  Political changes or a deterioration of a country's domestic
economy or balance of trade may affect the willingness of countries to service
their Sovereign Debt.  While the Sub-Adviser manages the respective Portfolio's
investments in a manner that is intended to minimize the exposure to such risks,
there can be no assurance that adverse political changes will not cause a
Portfolio to suffer a loss of interest or principal on any of its holdings.


                                      B-3
<PAGE>
 
BRADY BONDS.  Morgan Stanley Worldwide High Income Portfolio may invest in
certain debt obligations customarily referred to as "Brady Bonds," which are
created through the exchange of existing commercial bank loans to foreign
entities for new obligations in connection with debt restructurings under a plan
introduced by former U.S. Secretary of the Treasury Nicholas F. Brady (the
"Brady Plan").  Brady Bonds have been issued only recently and, accordingly, do
not have a long payment history.  They may be collateralized or uncollateralized
and issued in various currencies (although most are U.S. dollar-denominated) and
they are actively traded in the over-the-counter secondary market.  The
Portfolio may purchase Brady Bonds either in the primary or secondary markets.
The price and yield of Brady Bonds purchased in the secondary market will
reflect the market conditions at the time of purchase, regardless of the stated
face amount and the stated interest rate.  With respect to Brady Bonds with no
or limited collateralization, the Portfolio will rely for payment of interest
and principal primarily on the willingness and ability of the issuing government
to make payment in accordance with the terms of the bonds.

U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed rate par
bonds or floating rate discount bonds, are generally collateralized in full as
to principal due at maturity by U.S. Treasury zero coupon obligations which have
the same maturity as the Brady Bonds.  Interest payments on these Brady Bonds
generally are collateralized by cash or securities in an amount that, in the
case of fixed rate bonds, is equal to at least one year of rolling interest
payments or, in the case of floating rate bonds, initially is equal to at least
one year's rolling interest payments based on the applicable interest rate at
that time and is adjusted at regular intervals thereafter.  Certain Brady Bonds
are entitled to "value recovery payments" in certain circumstances, which in
effect constitute supplemental interest payments but generally are not
collateralized.  Brady Bonds are often viewed as having three or four valuation
components: (i) the collateralized repayment of principal at final maturity;
(ii) the collateralized interest payments; (iii) the uncollateralized interest
payments; and (iv) any uncollateralized repayment of principal at maturity
(these uncollateralized amounts constitute the "residual risk").  In the event
of a default with respect to collateralized Brady Bonds as a result of which the
payment obligations of the issuer are accelerated, the U.S. Treasury zero coupon
obligations held as collateral for the payment of principal will not be
distributed to investors, nor will such obligations be sold and the proceeds
distributed.  The collateral will be held to the scheduled maturity of the
defaulted Brady Bonds by the collateral agent, at which time the face amount of
the collateral will equal the principal payments which would have then been due
on the Brady Bonds in the normal course.  In addition, in light of the residual
risk of the Brady Bonds and, among other factors, the history of defaults with
respect to commercial bank loans by public and private entities of countries
issuing Brady Bonds, investments in Brady Bonds should be viewed as speculative.

FOREIGN CURRENCY TRANSACTIONS.  Although Morgan Stanley Asian Growth Portfolio,
Morgan Stanley Worldwide High Income Portfolio and Mitchell Hutchins Fixed
Income Portfolio value their assets daily in U.S. dollars, they do not intend to
convert its holdings of foreign currencies to U.S. dollars on a daily basis.
The Portfolios' foreign currencies may be held as foreign currency call accounts
at foreign branches of foreign or domestic banks.  These accounts bear interest
at negotiated rates and are payable upon relatively short demand periods.  If a
bank became insolvent, the Portfolios could suffer a loss of some or all of the
amounts deposited.  The Portfolios may convert foreign currency to U.S. dollars
from time to time.  Although foreign exchange dealers generally do not charge a
stated commission or fee for conversion, the prices posted generally include a
spread which is the difference between the prices at which the dealers are
buying and selling foreign currencies.

ILLIQUID SECURITIES.  Each Portfolio may invest up to 10% (15% in the case of
Morgan Stanley Asian Growth Portfolio, Morgan Stanley Worldwide High Income
Portfolio, Renaissance Balanced Portfolio, Zweig Asset Allocation Portfolio and
Zweig Equity (Small Cap) Portfolio) of its net assets in illiquid securities.
The term illiquid securities for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which a Portfolio has valued the securities and
includes, among other things, purchased over-the-counter (OTC) options,
repurchase agreements maturing in more than seven days and restricted securities
other than Rule 144A securities (see below) that the respective Sub-Adviser has
determined are liquid pursuant to guidelines established by the Fund's Board of
Directors.  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 will be considered
illiquid only to the extent that the maximum repurchase price under the option
formula exceeds the intrinsic value of the option.  Restricted securities may be
sold only in privately negotiated transactions or in public offerings with
respect to which a registration statement is in effect under the Securities Act
of 1933 (1933 Act).  Restricted securities acquired by a Portfolio include those
that are subject to restrictions contained in the securities laws of other
countries.  Securities that are freely marketable in the country where they are
principally traded, but that would not be freely marketable in the United
States, will not be considered illiquid.  Where registration is required, a
Portfolio may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell 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, the Portfolio might obtain a less favorable price than
prevailed when it decided to sell.











In recent years a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including securities sold
in private placements, repurchase agreements, commercial paper, 


                                      B-4
<PAGE>
 
foreign securities and corporate bonds and notes.  These instruments are often
restricted securities because the securities are sold in transactions not
requiring registration.  Institutional investors generally will not seek to sell
these instruments to the general public, but instead will often depend either on
an efficient institutional market in which such unregistered securities can be
readily resold or on an issuer's ability to honor a demand for repayment.
Therefore, the fact that there are contractual or legal restrictions on resale
to the general public or certain institutions is not dispositive of the
liquidity of such investments.

Rule 144A under the 1933 Act establishes a safe harbor from the registration
requirements of the 1933 Act for resales of certain securities to qualified
institutional buyers.  Institutional markets for restricted securities that
might develop as a result of Rule 144A could provide both readily ascertainable
values for restricted securities and the ability to liquidate an investment to
satisfy share redemption orders.  Such markets might include automated systems
for the trading, clearance and settlement of unregistered securities of domestic
and foreign issuers, such as the PORTAL System sponsored by the National
Association of Securities Dealers, Inc. (NASD).  An insufficient number of
qualified buyers interested in purchasing Rule 144A-eligible restricted
securities held by a Portfolio, however, could affect adversely the
marketability of such portfolio securities and a Portfolio might be unable to
dispose of such securities promptly or at favorable prices.

The Board of Directors has delegated the function of making day-to-day
determinations of liquidity to each Sub-Adviser pursuant to guidelines approved
by the Board.  Each Sub-Adviser takes into account a number of factors in
reaching liquidity decisions, including but not limited to (1) the frequency of
trades for the security, (2) the number of dealers that make quotes for the
security, (3) the number of dealers that have undertaken to make a market in the
security, (4) the number of other potential purchasers and (5) the nature of the
security and how trading is effected (e.g., the time needed to sell the
security, how bids are solicited and the mechanics of transfer).  Each Sub-
Adviser monitors the liquidity of restricted securities in each Portfolio and
reports periodically on such decisions to the Board of Directors.

SECTION 4(2) PAPER.  Commercial paper issues in which the Portfolios may invest
include securities issued by major corporations without registration under the
1933 Act in reliance on the exemption from such registration afforded by Section
3(a)(3) thereof, and commercial paper issued in reliance on the so-called
private placement exemption from registration which is afforded by Section 4(2)
of the 1933 Act (Section 4(2) paper).  Section 4(2) paper is restricted as to
disposition under the federal securities laws in that any resale must similarly
be made 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 Section 4(2) paper, thus providing liquidity.
Section 4(2) paper that is issued by a company that files reports under the
Securities Exchange Act of 1934 is generally eligible to be sold in reliance on
the safe harbor of Rule 144A described under "Illiquid Securities" above.  The
Portfolios' percentage limitations on investments in illiquid securities include
Section 4(2) paper other than Section 4(2) paper that the Sub-Adviser has
determined to be liquid pursuant to guidelines established by the Fund's Board
of Directors.  The Board has delegated to the Sub-Advisers the function of
making day-to-day determinations of liquidity with respect to Section 4(2)
paper, pursuant to guidelines approved by the Board that require the Sub-
Advisers to take into account the same factors described under "Illiquid
Securities" above for other restricted securities and require the Sub-Advisers
to perform the same monitoring and reporting functions.

GNMA, FNMA AND FHLMC CERTIFICATES.  As described in the Prospectus, certain
Portfolios may invest in mortgage-backed securities, such as GNMA, FNMA and
FHLMC certificates (as defined below), which represent an undivided ownership
interest in a pool of mortgages.  The mortgages backing these securities include
conventional thirty-year fixed-rate mortgages, fifteen-year fixed-rate
mortgages, graduated payment mortgages and adjustable rate mortgages.  These
certificates are in most cases pass-through instruments, through which the
holder receives a share of all interest and principal payments, including
prepayments, on the mortgages underlying the certificate, net of certain fees.

Prepayments on mortgages underlying mortgage-backed securities occur when a
mortgagor prepays the remaining principal before the mortgage's scheduled
maturity date.  As a result of the pass-through of prepayments of principal on
the underlying mortgages, mortgage-backed securities are often subject to more
rapid prepayment of principal than their stated maturity would indicate.  In
general, prepayments on mortgage-backed securities will be a function of the
relative coupon of the mortgages, the age of the mortgages, and the general
level of interest rates in the market.  To a limited extent, prepayment rates
and, consequently, the average life of an anticipated yield to be realized from
a mortgage-backed security can be estimated using statistical models. However,
because the actual prepayments of the underlying mortgages vary, it is
impossible to predict exactly the yield and average life of a mortgage-backed
security.

During periods of declining interest rates, prepayment of mortgages underlying
mortgage-backed securities can be expected to accelerate.  When a Portfolio
receives prepayments on mortgage-backed securities, it may reinvest the prepaid
amounts in securities the yields of which will reflect interest rates prevailing
at the time.  Therefore, a Portfolio's ability to maintain a portfolio of high-
yielding mortgage-backed securities will be adversely affected to the extent
that prepayments of mortgages must be reinvested in securities which have lower
yields than the mortgage-backed security on which the prepayment is received.
In addition, since payments on the underlying mortgages are passed through to
the holders of the mortgage-backed securities, 

                                      B-5
<PAGE>
 
if a Portfolio purchases mortgage-backed securities at a premium or a discount,
unless it makes certain elections, it will recognize a capital loss or gain when
payments of principal are passed through to the Portfolio as a result of regular
payments or prepayments on the mortgages in the underlying pool.

The following is a description of GNMA, FHLMC and FNMA certificates, the most
widely available mortgage-backed securities:

GNMA Certificates.  Certificates of the Government National Mortgage Association
(GNMA Certificates) are mortgage-backed securities which evidence an undivided
interest in a pool or pools of mortgages.  GNMA Certificates that the Portfolios
may purchase are the modified pass-through type, which entitle the holder to
receive timely payment of all interest and principal payments due on the
mortgage pool, net of fees paid to the issuer and GNMA, regardless of whether or
not the mortgagor actually makes the payment.

GNMA guarantees the timely payment of principal and interest on securities
backed by a pool of mortgages insured by the Federal Housing Administration
(FHA) or the Farmers' Home Administration (FMHA), or guaranteed by the Veterans
Administration (VA).  The GNMA guarantee is authorized by the National Housing
Act and is backed by the full faith and credit of the United States.  The GNMA
is also empowered to borrow without limitation from the U.S. Treasury if
necessary to make any payments required under its guarantee.

The average life of a GNMA Certificate is likely to be substantially shorter
than the original maturity of the mortgages underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosure will usually
result in the return of the greater part of principal investment long before the
maturity of the mortgages in the pool.  Foreclosures impose no risk to principal
investment because of the GNMA guarantee, except to the extent that the
Portfolio has purchased the certificates above par in the secondary market.

FHLMC Securities.  The Federal Home Loan Mortgage Corporation (FHLMC) was
created in 1970 through enactment of Title III of the Emergency Home Finance Act
of 1970.  Its purpose is to promote development of a nationwide secondary market
in conventional residential mortgages.

The FHLMC issues two types of mortgage pass-through securities:  mortgage
participation certificates (PCs) and guaranteed mortgage certificates (GMCs).
PCs resemble GNMA Certificates in that each PC represents a pro rata share of
all interest and principal payments made and owed on the underlying pool.  The
FHMLC guarantees timely monthly payment of interest (and, under certain
circumstances, principal) of PCs and the ultimate payment of principal.

GMCs also represent a pro rata interest in a pool of mortgages.  However, these
instruments pay interest semi-annually and return principal once a year in
guaranteed minimum payments.  The expected average life of these securities is
approximately ten years.

FNMA Securities.  The Federal National Mortgage Association (FNMA) was
established in 1938 to create a secondary market in mortgages insured by the
FHA.

FNMA issues guaranteed mortgage pass-through certificates (FNMA Certificates).
FNMA Certificates represent a pro rata share of all interest and principal
payments made and owed on the underlying pool. FNMA guarantees timely payment of
interest and principal on FNMA Certificates.

REPURCHASE AGREEMENTS.  Repurchase agreements carry certain risks not associated
with direct investments in securities, including possible declines in the market
value of the underlying securities and delays and costs to a Portfolio if the
other party to a repurchase agreement becomes bankrupt.  Each Portfolio intends
to enter into repurchase agreements only with banks and dealers in transactions
believed by the Sub-Adviser to present minimum credit risks in accordance with
guidelines established by the Fund's Board of Directors.  The Sub-Adviser will
review and monitor the creditworthiness of those institutions under the Board's
general supervision.

LENDING OF PORTFOLIO SECURITIES.  Each Portfolio (other than the Mitchell
Hutchins Money Market Portfolio) is authorized to lend up to 10% (33-1/3% in the
case of Morgan Stanley Asian Growth Portfolio, Morgan Stanley Worldwide High
Income Portfolio, Zweig Asset Allocation Portfolio, Zweig Equity (Small Cap)
Portfolio and Mitchell Hutchins Fixed Income Portfolio) of the value of its
total assets to broker-dealers or institutional investors that the Sub-Adviser
deems qualified, but only when the borrower maintains with the Portfolio's
custodian bank collateral either in cash or money market instruments in an
amount at least equal to the market value of the securities loaned, plus accrued
interest and dividends, determined on a daily basis and adjusted accordingly.
There may be risks of delay in recovery of the securities or even loss of rights
in the collateral should the borrower of the securities fail financially.
However, loans will only be made to borrowers deemed by the Sub-Adviser to be of
good standing and when, in the judgment of the Sub-Adviser, the consideration
which can be earned currently from such securities loans justifies the attendant
risk.  All relevant facts and circumstances, including the creditworthiness of
the broker, dealer or institution, will be considered in making decisions with
respect to the lending of securities, subject to review by the Fund's Board of
Directors.  During the period of the loan the Sub-Adviser will monitor all
relevant facts and circumstances, including the 

                                      B-6
<PAGE>
 
creditworthiness of the borrower. The Portfolio will retain authority to
terminate any loan at any time. A Portfolio may pay reasonable administrative
and custodial fees in connection with a loan and may pay a negotiated portion of
the interest earned on the cash or money market instruments held as collateral
to the borrower or placing broker. A Portfolio will receive reasonable interest
on the loan or a flat fee from the borrower and amounts equivalent to any
dividends, interest or other distributions on the securities loaned. A Portfolio
will regain record ownership of loaned securities to exercise beneficial rights,
such as voting and subscription rights and rights to dividends, interest or
other distributions, when regaining such rights is considered to be in the
Portfolio's interest.

INVESTMENT LIMITATIONS.  The investment restrictions set forth below are
fundamental policies of each Portfolio, which cannot be changed with respect to
a Portfolio without the approval of the holders of a majority of the outstanding
voting securities of that Portfolio, as defined in the Investment Company Act of
1940, as amended (the 1940 Act), as the lesser of: (1) 67% or more of the
Portfolio's voting securities present at a meeting of shareholders, if the
holders of more than 50% of the Portfolio's outstanding shares are present in
person or by proxy, or (2) more than 50% of the outstanding shares.  Unless
otherwise indicated, all percentage limitations apply to each Portfolio on an
individual basis, and apply only at the time an investment is made; a later
increase or decrease in percentage resulting from changes in values or net
assets will not be deemed to be an investment that is contrary to these
restrictions.  Pursuant to such restrictions and policies, no Portfolio may:

     (1)   make an investment in any one industry if the investment would cause
           the aggregate value of the Portfolio's investment in such industry to
           exceed 25% of the Portfolio's total assets, except that this policy
           does not apply to obligations issued or guaranteed by the U.S.
           Government, its agencies or instrumentalities (U.S. Government
           securities), certificates of deposit and bankers' acceptances. This
           limitation does not apply to investments by Mitchell Hutchins Money
           Market Portfolio in certificates of deposit or banker's acceptances
           issued by domestic branches of U.S. banks. In addition, for the
           Mitchell Hutchins Money Market Portfolio, gas, electric, water and
           telephone companies are considered separate industries, and with
           respect to finance companies, the following categories are considered
           separate industries: (a) captive automotive finance; (b) captive
           equipment finance; (c) retail finance; (d) consumer loan; and (e)
           diversified finance;

     (2)   purchase securities of any one issuer (except U.S. Government
           securities), if as a result at the time of purchase more than 5% of
           the Portfolio's total assets would be invested in such issuer, or the
           Portfolio would own or hold 10% or more of the outstanding voting
           securities of that issuer, except that 25% of the total assets of the
           Portfolio may be invested without regard to this limitation;

     (3)   purchase securities on margin, except for short-term credit necessary
           for clearance of portfolio transactions and except that a Portfolio
           that may use options or futures strategies and may make margin
           deposits in connection with its use of options, futures contracts and
           options on futures contracts;

     (4)   mortgage, pledge, hypothecate or in any manner transfer, as security
           for indebtedness, any securities owned or held by the Portfolio
           except as may be necessary in connection with permitted borrowings
           and then not in excess of 5% of the Portfolio's total assets taken at
           cost (10% in the case of Morgan Stanley Asian Growth Portfolio, Zweig
           Asset Allocation Portfolio and Zweig Equity (Small Cap) Portfolio and
           33-1/3% in the case of Morgan Stanley Worldwide High Income
           Portfolio), provided that this does not prohibit escrow, collateral
           or margin arrangements in connection with the use of options, futures
           contracts and options on futures contracts by a Portfolio that may
           use options or futures strategies;

     (5)   make short sales of securities or maintain a short position, except
           to the extent described in the Prospectus;

     (6)   purchase or sell real estate, provided that a Portfolio may invest in
           securities secured by real estate or interests therein or issued by
           companies which invest in real estate or interests therein;

     (7)   purchase or sell commodities or commodity contracts, except to the
           extent described in the Prospectus and this Statement of Additional
           Information with respect to futures and related options;

     (8)   invest in oil, gas or mineral-related programs or leases;

     (9)   make loans, except through loans of portfolio securities and
           repurchase agreements, provided that for purposes of this restriction
           the acquisition of bonds, debentures or other corporate debt
           securities and investment in government obligations, short-term
           commercial paper, certificates of deposit, bankers' acceptances and
           other fixed income securities as described in the Prospectus and
           Statement of Additional Information shall not be deemed to be the
           making of a loan;

                                      B-7
<PAGE>
 
     (10)  purchase any securities issued by any other investment company except
           (i) by purchase in the open market where no commission or profit,
           other than a customary broker's commission, is earned by any sponsor
           or dealer associated with the investment company whose shares are
           acquired as a result of such purchase, (ii) in connection with the
           merger, consolidation or acquisition of all the securities or assets
           of another investment company and (iii) purchases of collateralized
           mortgage obligations or asset-backed securities, the issuers of which
           are investment companies; or

     (11)  borrow money or issue senior securities, except that each of Morgan
           Stanley Asian Growth Portfolio, Renaissance Balanced Portfolio,
           Harris Bretall Sullivan & Smith Equity Growth Portfolio, Dreman Value
           Portfolio, Mitchell Hutchins Fixed Income Portfolio and Mitchell
           Hutchins Money Market Portfolio may borrow in an amount up to 10%
           (33-1/3% in the case of Mitchell Hutchins Fixed Income Portfolio)
           of its respective total assets from banks for extraordinary or 
           emergency purposes such as meeting anticipated redemptions, and may
           pledge its assets in connection with such borrowing. Morgan Stanley
           Worldwide High Income Portfolio may borrow from banks, and engage in
           transactions deemed to be borrowings from other entities, in an
           amount up to 33-1/3% of its total assets (including the amount
           borrowed), less all liabilities and indebtedness other than the
           borrowing, for extraordinary or emergency purposes such as meeting
           anticipated redemptions as well as for investment purposes and to pay
           dividends. Zweig Asset Allocation Portfolio and Zweig Equity (Small
           Cap) Portfolio may borrow money from banks on an unsecured basis and
           may pay interest thereon in order to raise additional cash for
           investment or to meet redemption requests. Each of these two
           Portfolios may not borrow amounts in excess of 20% of its total
           assets taken at cost or at market value, whichever is lower, and then
           only from banks as a temporary measure for extraordinary or emergency
           purposes. If such borrowings exceed 5% of a Portfolio's total assets,
           the Portfolio will make no further investments until such borrowing
           is repaid. It is the current intention of each of these two
           Portfolios not to borrow money in excess of 5% of its assets. A
           Portfolio may pledge up to 5% (10% in the case of Morgan Stanley
           Asian Growth Portfolio, Zweig Asset Allocation Portfolio and Zweig
           Equity (Small Cap) Portfolio and 33-1/3% in the case of Morgan
           Stanley Worldwide High Income Portfolio) of its total assets as
           security for such borrowing. For purposes of this restriction, the
           deposit of initial or maintenance margin in connection with futures
           contracts will not be deemed to be a pledge of the assets of a
           Portfolio. This restriction does not prohibit entry into reverse
           repurchase agreements by the Morgan Stanley Worldwide High Income
           Portfolio, Renaissance Balanced Portfolio, Mitchell Hutchins Fixed
           Income Portfolio and Mitchell Hutchins Money Market Portfolio,
           provided that Renaissance Balanced Portfolio, Mitchell Hutchins Fixed
           Income Portfolio and Mitchell Hutchins Money Market Portfolio may not
           enter into a reverse repurchase agreement if as a result its current
           obligations under such agreements would exceed 5% of the current
           market value of the Portfolio's total assets (less its liabilities
           other than obligations under such agreements). The borrowing
           restriction also does not apply to the entry into interest rate
           protection transactions by Mitchell Hutchins Fixed Income Portfolio.

The following investment restriction may be changed by the vote of the Fund's
Board of Directors without shareholder approval:

           No Portfolio will hold assets of any issuers, at the end of any
           calendar quarter (or within 30 days thereafter), to the extent such
           holdings would cause the Portfolio to fail to comply with the
           diversification requirements imposed by Section 817(h) of the
           Internal Revenue Code of 1986, as amended (the Code), and the
           Treasury regulations issued thereunder, on segregated asset accounts
           used to fund variable annuity contracts.
    
In addition to the above-referenced limitations, Mitchell Hutchins Fixed Income
Portfolio has agreed with the California Department of Insurance to limit
borrowings under paragraph (11) above so that at all times borrowings
outstanding will not exceed 25% of the Portfolio's net asset value.     

                 OPTIONS, FUTURES AND OTHER HEDGING STRATEGIES

As discussed in the Prospectus, each of Morgan Stanley Worldwide High Income
Portfolio, Renaissance Balanced Portfolio, Zweig Asset Allocation Portfolio,
Dreman Value Portfolio, Zweig Equity (Small Cap) Portfolio and Mitchell Hutchins
Fixed Income Portfolio may use a variety of financial instruments (Hedging
Instruments), including certain options, futures contracts (sometimes referred
to as futures) and options on futures contracts, to attempt to hedge the
Portfolio's investments or attempt to enhance the Portfolio's income. Nicholas-
Applegate Balanced Portfolio may purchase listed put and call options.  Mitchell
Hutchins Fixed Income Portfolio and Morgan Stanley Worldwide High Income
Portfolio also may use foreign currency forward contracts, foreign currency
futures contracts and foreign currency options, and Morgan Stanley Asian Growth
Portfolio may use foreign currency forward contracts, for hedging purposes.  The
particular Hedging Instruments are described in Appendix A to this Statement of
Additional Information.

Hedging strategies can be broadly categorized as short hedges and long hedges.
A short hedge is a purchase or sale of a Hedging Instrument intended partially
or fully to offset potential declines in the value of one or more 

                                      B-8
<PAGE>
 
investments held by a Portfolio. Thus, in a short hedge a Portfolio takes a
position in a Hedging Instrument whose price is expected to move in the opposite
direction of the price of the investment being hedged. For example, a Portfolio
might purchase a put option on a security to hedge against a potential decline
in the value of that security. If the price of the security declined below the
exercise price of the put, the Portfolio could exercise the put and thus limit
its loss below the exercise price to the premium paid plus transaction costs. In
the alternative, because the value of the put option can be expected to increase
as the value of the underlying security declines, the Portfolio might be able to
close out the put option and realize a gain to offset the decline in the value
of the security.

Conversely, a long hedge is a purchase or sale of a Hedging 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 Hedging Instrument whose price is expected to
move in the same direction as the price of the prospective investment being
hedged.  For example, a Portfolio might purchase a call option on a security it
intends to purchase in order to hedge against an increase in the cost of the
security.  If the price of the security increased above the exercise price of
the call, the Portfolio could exercise the call and thus limit its acquisition
cost to the exercise price plus the premium paid and transaction costs.
Alternatively, the Portfolio might be able to offset the price increase by
closing out an appreciated call option and realizing a gain.

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

The use of Hedging Instruments is subject to applicable regulations of the SEC,
the several options and futures exchanges upon which they are traded, the
Commodity Futures Trading Commission (CFTC) and various state regulatory
authorities.  In addition, a Portfolio's ability to use Hedging Instruments will
be limited by tax considerations.  See "Taxes."

In addition to the products, strategies and risks described below and in the
Prospectus, the Sub-Advisers that utilize these techniques expect to discover
additional opportunities in connection with options, future contracts, foreign
currency forward contracts and other hedging techniques.  These new
opportunities may become available as a particular Sub-Adviser develops new
techniques, as regulatory authorities broaden the range of permitted
transactions and as new options, futures contracts, foreign currency forward
contracts or other techniques are developed.  The Sub-Advisers may utilize these
opportunities to the extent that they are consistent with the respective
Portfolio's investment objectives and permitted by the respective Portfolio's
investment limitations and applicable regulatory authorities.  The Fund's
Prospectus or Statement of Additional Information 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 OF HEDGING STRATEGIES.  The use of Hedging Instruments involves
special considerations and risks, as described below.  Risks pertaining to
particular Hedging Instruments are described in the sections that follow.

     (1)   Successful use of most Hedging Instruments depends upon the Sub-
           Adviser's ability to predict movements of the overall securities,
           currency and interest rate markets, which requires different skills
           than predicting changes in the price of individual securities. While
           the Sub-Advisers that utilize these techniques are experienced in the
           use of Hedging Instruments, there can be no assurance that any
           particular hedging strategy adopted will succeed.

     (2)   There might be imperfect correlation, or even no correlation, between
           price movements of a Hedging Instrument and price movements of the
           investments being hedged. For example, if the value of a Hedging
           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 Hedging
           Instruments are traded. The effectiveness of hedges using Hedging
           Instruments on indices will depend on the degree of correlation
           between price movements in the index and price movements in the
           securities being hedged.

     (3)   Hedging strategies, if successful, can reduce risk of loss by wholly
           or partially offsetting the negative effect of unfavorable price
           movements in the investments being hedged. However, hedging
           strategies can also reduce opportunity for gain by offsetting the
           positive effect of favorable price movements in the hedged
           investments. For example, if a Portfolio entered into a short hedge
           because the Sub-Adviser projected a decline in the price of a
           security held by a 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 Hedging Instrument.
           Moreover, if the price of the Hedging Instrument declined by more
           than the increase in the price of the security, the Portfolio could
           suffer
                                      B-9
<PAGE>
 
           a loss. In either such case, the Portfolio would have been in a
           better position had it not hedged 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 Hedging Instruments involving obligations to
           third parties (i.e., Hedging Instruments other than purchased
           options). If a Portfolio were unable to close out its positions in
           such Hedging 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 Hedging 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 a contra party to enter into
           a transaction closing out the position. Therefore, there is no
           assurance that any hedging position can be closed out at a time and
           price that is favorable to the Portfolio.

COVER FOR HEDGING STRATEGIES.  Transactions using Hedging Instruments, other
than purchased options, expose a 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 or
futures contracts or (2) cash, receivables and short-term debt securities, with
a value sufficient at all times to cover its potential obligations to the extent
not covered as provided in (1) above.  Each Portfolio will comply with SEC
guidelines regarding cover for hedging transactions and will, 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.

Assets used as cover or held in a segregated account cannot be sold while the
position in the corresponding Hedging Instrument is open, unless they are
replaced with similar 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.

OPTIONS.  The Portfolios that may use options may purchase put and/or call
options, and write (sell) covered put and call options on equity and debt
securities, stock indices, and/or foreign currencies are identified in the
Prospectus.  The purchase of call options serves as a long hedge, and the
purchase of put options serves as a short hedge.  Writing covered put or call
options can enable a Portfolio to enhance income by reason of the premiums paid
by the purchasers of such options.  However, if the market price of the security
underlying a covered put option declines to less than the exercise price of the
option, minus the premium received, the Portfolio would expect to suffer a loss.
Writing covered call options serves as a limited short hedge, because declines
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 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 covered call option is an OTC
option, the securities or other assets used as cover would be considered
illiquid to the extent described under "Investment Policies and Restrictions --
Illiquid Securities."

The value of an option position will reflect, among other things, the 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 normally have expiration dates of up to nine
months.  Options that expire unexercised have no value.

A Portfolio may effectively terminate its right or obligation under an option by
entering into a closing transaction.  For example, a Portfolio may terminate its
obligation under a call option that it had written by purchasing an identical
call option; this is known as a closing purchase transaction.  Conversely, a
Portfolio may terminate a position in a put or call option it had purchased by
writing an identical put or call option;  this is known as a closing sale
transaction.

The Portfolios identified in the Prospectus may purchase or write exchange-
traded and/or OTC options. Currently, many options on equity securities are
exchange-traded.  Exchange markets for options on debt securities and foreign
currencies exist but are relatively new, and 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 which, in effect, guarantees completion of every exchange-
traded option transaction.  In contrast, OTC options are contracts between the
Portfolio and its contra party (usually a securities dealer or a bank) with no
clearing organization guarantee.  Thus, when the Portfolio purchases or writes
an OTC option, it relies on the party from whom it purchased the option or to
whom it has written the option (the contra party) to make or take delivery of
the underlying investment upon exercise of the option.  Failure by the contra
party to do so would result in the loss of any premium paid by the Portfolio as
well as the loss of any expected benefits of the transaction.

                                     B-10
<PAGE>
Generally, the OTC debt and foreign currency options used by the Portfolios 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.  Each Portfolio intends to
purchase or write only those exchange-traded options for which there appears to
be a liquid secondary 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 contra party, or by a
transaction in the secondary market if any such market exists.  Although a
Portfolio will enter into OTC options only with contra parties 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 contra party, the Portfolio might be unable to close out an OTC option
position at any time prior to its expiration.

If the 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.

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 shareholder vote:

  (1)  Morgan Stanley Worldwide High Income Portfolio, Renaissance Balanced
       Portfolio, Zweig Asset Allocation Portfolio, Nicholas-Applegate Balanced
       Portfolio, Dreman Value Portfolio, Zweig Equity (Small Cap) Portfolio and
       Mitchell Hutchins Fixed Income 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; and

  (2)  Zweig Asset Allocation Portfolio and Zweig Equity (Small Cap) Portfolio
       will attempt to limit losses from all options transactions to 5% of its
       average net assets per year, or cease options transactions until in
       compliance with the 5% limitation, but there can be no absolute assurance
       of adherence to these limits.

FUTURES.  The purchase of futures or call options thereon can serve as a long
hedge, and the sale of futures or the purchase of put options thereon can serve
as a short hedge.  Writing covered call options on futures contracts can serve
as a limited short hedge, using a strategy similar to that used for writing
covered call options on securities and indices.

Futures strategies also can be used to manage the average duration of a
Portfolio.  If the Sub-Adviser wishes to shorten the average duration of a
Portfolio, the Portfolio may sell a futures contract or a call option thereon,
or purchase a put option on that futures contract.  If the Sub-Adviser wishes to
lengthen the average duration of a Portfolio, the Portfolio may buy a futures
contract or a call 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 in a
segregated account with its custodian, in the name of the futures broker through
whom the transaction was effected, 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 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, a 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 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.

Holders and writers of futures positions 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
held or written.  Positions in futures and options on futures may be closed only
on an exchange or board of trade that provides a secondary market.  Each
Portfolio intends to enter into futures transactions only

                                     B-11
<PAGE>
 

on exchanges or boards of trade where there appears to be a liquid secondary
market. However, there can be no assurance that such a market will exist for a
particular contract at a particular time. Secondary markets for options on
futures are currently in the development stage, and no Portfolio will trade
options on futures on any exchange or board of trade unless, in the Sub-
Adviser's opinion, the markets for such options have developed sufficiently that
the liquidity risks for such options are not greater than the corresponding
risks for futures.

Under certain circumstances, futures exchanges may establish daily limits on the
amount that the price of a future or related option 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 liquidation of unfavorable
positions.

If a Portfolio were unable to liquidate a futures or related options position
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 continue to be required to make
daily variation margin payments and might be required to maintain the position
being hedged by the future or option or to maintain cash or securities in a
segregated account.

Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or related options might not
correlate perfectly with movements in the prices of the investments being
hedged.  For example, all participants in the futures and related options
markets are subject to daily variation margin calls and might be compelled to
liquidate futures or related options positions whose prices are moving
unfavorably to avoid being subject to further calls.  These liquidations could
increase price volatility of the instruments and distort the normal price
relationship between the futures or options and the investments being hedged.
Also, because initial margin deposit requirements in the futures market are less
onerous than margin requirements in the securities markets, there might be
increased participation by speculators in the futures markets.  This
participation also might cause temporary price distortions.  In addition,
activities of large traders in both the futures and securities markets involving
arbitrage, program trading and other investment strategies might result in
temporary price distortions.

LIMITATIONS ON THE USE OF FUTURES.  A Portfolio will not purchase or sell
futures contracts or related options if, immediately thereafter, the sum of the
amount of initial margin deposits on the Portfolio's existing futures positions
and margin and premiums paid for related options would exceed 5% of the market
value of the Portfolio's total assets.  This guideline can be changed by the
Fund's Board of Directors without shareholder vote.  This guideline does not
limit to 5% the percentage of the Portfolio's assets that are at risk in futures
and related options transactions.  For purposes of this guideline, options on
futures contracts and foreign currency options traded on a commodities exchange
will be considered related options.

In addition, the Fund has represented to the CFTC that it:  (1) will use future
contracts, options thereon and foreign currency options traded on a commodities
exchange solely in bona fide hedging transactions or, alternatively (2) will not
enter into futures contracts, options thereon or foreign currency options traded
on a commodities exchange for which the aggregate initial margin and premiums
exceed 5% of a Portfolio's total assets (calculated in accordance with CFTC
regulations).

FOREIGN CURRENCY HEDGING STRATEGIES -- SPECIAL CONSIDERATIONS.  The Portfolios
noted in the Prospectus may use options and futures on foreign currencies, and
foreign currency forward contracts as described below 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 Hedging Instruments on that currency are available or such
Hedging Instruments are more expensive than certain other Hedging Instruments.
In such cases, a Portfolio may hedge against price movements in that currency by
entering into transactions using Hedging Instruments on other currencies, the
values of which the Sub-Adviser 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 Hedging Instrument will not correlate perfectly with
movements in the price of the currency being hedged is magnified when this
strategy is used.

The value of Hedging 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 Hedging 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.

                                     B-12
<PAGE>
 

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 Hedging 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.

FOREIGN CURRENCY FORWARD CONTRACTS.  The Portfolios noted in the Prospectus may
enter into foreign currency forward contracts  to purchase or sell foreign
currencies for a fixed amount of U.S. dollars or another foreign currency.
These Portfolios also may use foreign currency forward contracts for cross-
hedging.  Under this strategy, a Portfolio would increase its exposure to
foreign currencies that the Sub-Adviser 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 Sub-Adviser 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 the Portfolios engaging in foreign currency forward contracts varies
with factors such as the currency involved, the length of the contract period
and the market conditions then prevailing.  Because foreign currency forward
contracts are usually entered into on a principal basis, no fees or commissions
are involved.  When a Portfolio enters into a foreign currency forward 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 contra party to do so
would result in the loss of any expected benefit of the transaction.

As is the case with futures contracts, holders and writers of foreign currency
forward contracts can enter into offsetting closing transactions, similar to
closing transactions on futures, by selling or purchasing, respectively, an
instrument identical to the instrument held or written.  Secondary markets
generally do not exist for foreign currency forward contracts, with the result
that closing transactions generally can be made for foreign currency forward
contracts only by negotiating directly with the contra party.  Thus, there can
be no assurance that a Portfolio will in fact be able to close out a foreign
currency forward contract at a favorable price prior to maturity.  In addition,
in the event of insolvency of the contra party, the Portfolio might be unable to
close out a foreign currency forward 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 foreign currency forward 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 forward 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.

LIMITATIONS ON THE USE OF FOREIGN CURRENCY FORWARD CONTRACTS.  A Portfolio may
enter into foreign currency forward contracts or maintain a net exposure to such
contracts only if (1) the consummation of the contracts would not obligate the
Portfolio to deliver an amount of foreign currency in excess of the value of its
portfolio securities or other assets denominated in that currency or (2) the
Portfolio maintains cash, U.S. Government securities or liquid, high-grade debt
securities in a segregated account in an amount not less than the value of its
total assets committed to the consummation of the contract and not covered as
provided in (1) above, as marked to market daily.  Under normal circumstances,
consideration of the prospect for currency parities will be incorporated into
the longer term investment decisions made with regard to overall diversification
strategies.  However, the Sub-Adviser of the Portfolios that engage in these
strategies believes that it is important to have the flexibility to enter into
such forward contracts when it determines that the best interests of a Portfolio
will be served.

                                     B-13
<PAGE>
 

                            DIRECTORS AND OFFICERS

The Directors and officers of the Fund, their business addresses and principal
occupations during the past five years are listed below.  Unless otherwise
indicated, each person's address is 239 S. Fifth Street, Louisville, KY.
    
<TABLE>
<CAPTION>
Name, Age and Address            Position with the Fund       Other Business Activities in Past 5 Years
- ---------------------            ----------------------       -----------------------------------------
<S>                              <C>                          <C>
John R. Lindholm(46)*            Director                     President of Integrity and Vice
                                                              President-Chief Marketing Officer of
                                                              National Integrity since November 26,
                                                              1993; Executive Vice President-Chief
                                                              Marketing Officer of ARM Financial
                                                              Group, Inc. since July 27, 1993; since
                                                              March 1992 Chief Marketing Officer of
                                                              Analytical Risk Management, L.P.  From
                                                              June 1990 to February 1992, Chief
                                                              Marketing Officer and a Managing
                                                              Director of the ICH Capital Management
                                                              Group, ICH Corporation, Louisville,
                                                              Kentucky; prior thereto, Chief Marketing
                                                              Officer and Managing Director for
                                                              Capital Holding Corporation's
                                                              Accumulation and Investment Group.
                                                              Director of the mutual funds in the State
                                                              Bond Group of mutual funds.
                                                         
Arthur J. Gartland, Jr. (48)     Director                     President and a founder of Benedetto,
1330 Avenue of the Americas                                   Gartland & Greene, Inc. (an investment
New York, NY                                                  banking firm). Director of the mutual
                                                              funds in the State Bond Group of mutual
                                                              funds.
                                                         
John Katz (56)                   Director                     Investment banker since January 1991;
10 Hemlock Road                                               Chairman and Chief Executive Officer,
Hartsdale, NY                                                 Sam's Restaurant Group, Inc. (a
                                                              restaurant holding company), from June
                                                              1991 to August 1992; Executive Vice
                                                              President (from January 1989 to January
                                                              1991) and Senior Vice President (from
                                                              December 1985 to January 1989),
                                                              Equitable Investment Corporation (an
                                                              indirect wholly-owned subsidiary of The
                                                              Equitable Life Assurance Society of the
                                                              United States, through which it owns and
                                                              manages its investment operations).
                                                              Director of the mutual funds in the State
                                                              Bond Group of mutual funds.
                                                         
Theodore S. Rosky (57)           Director                     Retired since April 1992; Executive Vice
2304 Speed Avenue                                             President, Capital Holding Corporation
Louisville, KY                                                (from December 1991 to April 1992); prior
                                                              thereto, Executive Vice President and
                                                              Chief Financial Officer, Capital Holding
                                                              Corporation. Director of the mutual funds
                                                              in the State Bond Group of mutual funds.
                                                         
Edward J. Haines (48)            President                    Vice President, Marketing of ARM
                                                              Financial Group, Inc. since December 16,
                                                              1993; Director of Retail Marketing and
                                                              Vice President of the National Home Life
                                                              Assurance Company subsidiary of Capital
                                                              Holding Corporation from 1987 to
                                                              December 1993.
</TABLE>     

                                     B-14
<PAGE>
 

    
<TABLE>
<CAPTION>
Name, Age and Address            Position with the Fund       Other Business Activities in Past 5 Years
- ---------------------            ----------------------       -----------------------------------------
<S>                              <C>                          <C>
Don W. Cummings (32)             Controller                   Controller of ARM Financial Group, Inc.
                                                              since July 15, 1993, and Integrity and
                                                              National Integrity since November 26,
                                                              1993.  Prior to November 26, 1993 he
                                                              served as Controller of ARM, Ltd., a
                                                              position he held from July 1992.  From
                                                              1985 to June 1992, Mr. Cummings
                                                              served in various positions within Ernst &
                                                              Young LLP's Insurance Industry
                                                              Accounting and Auditing Practice, the last
                                                              of which was Manager. Controller of the
                                                              mutual funds in the State Bond Group of
                                                              mutual funds.

Peter S. Resnik (34)             Treasurer                    Treasurer of ARM Financial Group, Inc.,
                                                              Integrity and National Integrity since
                                                              December 1993; employed in various
                                                              financial and operational capacities by
                                                              Analytical Risk Management Ltd. since
                                                              December 14, 1992; Assistant Vice
                                                              President of the Commonwealth Life
                                                              Insurance Company subsidiary of Capital
                                                              Holding Corporation from 1986 to
                                                              December 1992. Treasurer of the mutual
                                                              funds in the State Bond Group of mutual
                                                              funds.

Kevin L. Howard (31)             Secretary                    Assistant General Counsel of ARM
                                                              Financial Group, Inc. since January 31,
                                                              1994; Assistant General Counsel of
                                                              Capital Holding Corporation from April
                                                              1992 to January 1994; Attorney
                                                              Greenebaum Doll & McDonald, 1989 to
                                                              April 1992.  Vice President and Secretary
                                                              of the mutual funds in the State Bond
                                                              Group of mutual funds.
</TABLE>      
- --------------- 
*  Mr. Lindholm is an interested person, as defined in the 1940 Act, by virtue
   of his positions with ARM Financial Group, Inc. and Oldarm, L.P.

                                     B-15
<PAGE>
 

    
The Fund pays Directors who are not interested persons of the Fund fees for
serving as Directors. During the fiscal year ended June 30, 1995, the Fund paid
the Directors who are not interested persons of the Fund $22,750 exclusive of
expenses. Because Integrity and the Sub-Advisers perform substantially all of
the services necessary for the operation of the Fund, the Fund requires no
employees. No officer, director or employee of Integrity, National Integrity or
a Sub-Adviser receives any compensation from the Fund for acting as a Director
or officer.

The following table sets forth for the fiscal year ended June 30, 1995,
compensation paid by the Fund to the Directors who are not interested persons 
of the Fund.

<TABLE>
<CAPTION>
                                           Aggregate Compensation
     Name of Director                            from Fund*
     ----------------                            ----------
     <S>                                   <C>
     Arthur J. Gartland, Jr.                       $7,250

     John Katz                                     $7,750

     Theodore S. Rosky                             $7,750
</TABLE>

*    Messrs. Gartland, Katz and Rosky have also been directors of the mutual
     funds in the State Bond Group since June 14, 1995. Those funds are advised
     by ARM Capital Advisors, Inc., an affiliate of ARM, and may be deemed to be
     a part of the same fund complex as the Fund. Such directors were not
     compensated by the mutual funds in the State Bond Group during the twelve-
     month period ended June 30, 1995.

On August 25, 1994, Integrity purchased for its own account approximately
450,000 shares of the Morgan Stanley Worldwide High Income Portfolio, at net
asset value, for an aggregate purchase price of $4.5 million. Accordingly,
Integrity may be deemed to control the Portfolio within the meaning of the 1940
Act.  Integrity has indicated that it will vote all of the shares that it owns
for its own account in the Portfolio on any matter requiring the vote of
shareholders in the same proportion as votes are cast by certificate holders
relating to the Portfolio.  Integrity has also indicated that it intends to
redeem its shares on a dollar-for-dollar basis to the extent, and at the same
time as, the Portfolio has sales in respect of certificate holders.  As of
September 29, 1995, approximately 151,487 shares, having a fair value of
approximately $1.65 million and constituting approximately 25.9% of the
outstanding shares of the Portfolio, were held by Integrity for its own account.

                        INVESTMENT MANAGEMENT SERVICES

Integrity Life Insurance Company acts as the investment manager of each
Portfolio pursuant to a management agreement with the Fund dated as of November
26, 1993 (Management Agreement). The Management Agreement was amended on March
31, 1994 to provide for management services for Morgan Stanley Asian Growth
Portfolio and Morgan Stanley Worldwide High Income Portfolio. Under the
Management Agreement, the Fund pays Integrity a fee for each Portfolio, computed
daily and payable monthly, according to the schedule set forth in the
Prospectus. Integrity is then responsible under the Management Agreement for
paying each Sub-Adviser the sub-advisory fees payable. For the fiscal period
from the commencement of operations through June 30, 1993 and the fiscal years
ended June 30, 1994 and 1995, each Portfolio paid Integrity management fees in
the amounts set forth below:     

                                     B-16
<PAGE>
 
    
<TABLE>
<CAPTION>
                                             Management Fee for      Management      Management
                                             Fiscal Period From        Fee for         Fee for
                                              Commencement of           Fiscal          Fiscal
                                             Operations Through      Year Ended      Year Ended
Portfolio                                       June 30, 1993       June 30, 1994   June 30, 1995
- ---------                                    ------------------     -------------   -------------
<S>                                          <C>                    <C>             <C>
Renaissance Balanced Portfolio                     $10,267             $114,543        $167,365

Zweig Asset Allocation Portfolio                     8,900              161,251         312,227

Nicholas-Applegate Balanced Portfolio                8,620              166,007         276,766

Harris Bretall Sullivan & Smith Equity              10,116               57,483          86,434
 Growth Portfolio

Dreman Value Portfolio                               2,954               40,945          62,310

Zweig Equity (Small Cap) Portfolio                   6,347               57,434          81,405

Mitchell Hutchins Fixed Income Portfolio             2,147               27,836          45,180

Mitchell Hutchins Money Market Portfolio             1,000               22,086          40,612

Morgan Stanley Asian Growth Portfolio*                  --                  295          97,281

Morgan Stanley Worldwide High Income                    --                  111          48,816
 Portfolio*
</TABLE> 
      
- -----------------------------

*  Morgan Stanley Asian Growth Portfolio and Morgan Stanley Worldwide High
   Income Portfolio commenced operations on June 15, 1994.

Pursuant to the Management Agreement with the Fund, Integrity is responsible for
general supervision of the Sub-Advisers, subject to general oversight by the
Fund's Board of Directors.  In addition, Integrity is obligated to keep certain
books and records of the Fund and administers the Fund's corporate affairs.  In
connection therewith, Integrity furnishes the Fund with office facilities,
together with those ordinary clerical and bookkeeping services which are not
being furnished by the Fund's custodians or transfer and dividend disbursing
agent.
    
Under the terms of the Management Agreement, each Portfolio bears all expenses
incurred in its operation that are not specifically assumed by Integrity, as
investment manager, or SBM Financial Services, Inc., as distributor.  General
expenses of the Fund not readily identifiable as belonging to one of the
Portfolios are allocated among the Portfolios by or under the direction of the
Fund's Board of Directors in such manner as the Board determines to be fair and
equitable.  Expenses borne by each Portfolio include, but are not limited to,
the following (or the Portfolio's allocated share of the following): (1) the
cost (including brokerage commissions, if any) of securities purchased or sold
by the Portfolio and any losses incurred in connection therewith; (2) investment
management fees; (3) organizational expenses; (4) filing fees and expenses
relating to the registration and qualification of the Fund or the shares of a
Portfolio under federal or state securities laws and maintenance of such
registrations and qualifications; (5) fees and expenses payable to the Directors
who are not interested persons of the Fund or Integrity, National Integrity or
any Sub-Adviser; (6) taxes (including any income or franchise taxes) and
governmental fees; (7) costs of any liability, directors' and officers'
uncollectible items of deposit and other insurance and fidelity bonds; (8)
legal, accounting and auditing expenses; (9) charges of custodians, transfer
agents and other agents; (10) expenses of setting in type and providing a
camera-ready copy of prospectuses and supplements thereto, expenses of setting
in type and printing or otherwise reproducing statements of additional
information and supplements thereto and reports and proxy materials for existing
shareholders; (11) any extraordinary expenses (including fees and disbursements
     

                                     B-17
<PAGE>
 
of counsel) incurred by the Fund or Portfolio; (12) fees, voluntary assessments
and other expenses incurred in connection with membership in investment company
organizations; and (13) costs of meetings of shareholders.
    
Integrity voluntarily limits the expenses of each Portfolio, other than for
brokerage commissions and the investment management fee, to .50% of average net
assets on an annualized basis, except that Integrity voluntarily limits the
expenses of Morgan Stanley Asian Growth Portfolio and Morgan Stanley Worldwide
High Income Portfolio, other than for brokerage commissions and the investment
management fee, to 1.00% of average net assets on an annualized basis.
Integrity's reimbursement of Portfolio expenses results in an increase to each
Portfolio's yield or total return. Integrity has reserved the right to withdraw
or modify its policy of expense reimbursement for the Portfolios. For the fiscal
period from the commencement of operations through June 30, 1993 and the fiscal
years ended June 30, 1994 and 1995, Integrity reimbursed the Portfolios'
expenses in the amounts indicated:     

<TABLE>
<CAPTION>
     
 
                                                       Amount
                                                     Reimbursed for
                                                   Fiscal Period From      Amount            Amount
                                                    Commencement        Reimbursed        Reimbursed
                                                   of Operations        for Fiscal Year   for Fiscal Year
                                                      Through              Ended             Ended
Portfolio                                           June 30, 1993      June 30, 1994     June 30, 1995
- ---------                                         -------------------  ----------------  ----------------
<S>                                              <C>                  <C>               <C>
Renaissance Balanced Portfolio                          $28,491              $  --             $  --

Zweig Asset Allocation Portfolio                         33,402                 --                --

Nicholas-Applegate Balanced Portfolio                    35,950                 --                --

Harris Bretall Sullivan & Smith Equity Growth            32,507                 --                --
 Portfolio

Dreman Value Portfolio                                   34,465               13,413              --

Zweig Equity (Small Cap) Portfolio                       35,211               22,832            2,773

Mitchell Hutchins Fixed Income Portfolio                 33,404               28,698            9,482

Mitchell Hutchins Money Market Portfolio                 31,768               26,954            6,639

Morgan Stanley Asian Growth Portfolio*                     --                  7,074              --

Morgan Stanley Worldwide High Income                       --                  6,760              --
 Portfolio*
        
</TABLE>
     
- ------------------------
*  Morgan Stanley Asian Growth Portfolio and Morgan Stanley Worldwide High
Income Portfolio commenced operations on June 15, 1994.


Under the Management Agreement, Integrity will not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the performance of the Management Agreement, except 

                                     B-18
<PAGE>
 
a loss resulting from willful misfeasance, bad faith or gross negligence on the
part of Integrity in the performance of its duties or from reckless disregard of
its duties and obligations thereunder.

The Management Agreement may be renewed from year to year so long as such
continuance is specifically approved at least annually in accordance with the
requirements of the 1940 Act.  The Management Agreement provides that it will
terminate in the event of its assignment (as defined in the 1940 Act).  The
Management Agreement may be terminated by the Fund or Integrity upon 60 days'
prior written notice.
    
Integrity has entered into a Sub-Advisory Agreement with each of the Sub-
Advisers.  A description of each Sub-Adviser is included in the Prospectus.  See
"Management of the Fund -- Investment Manager, Sub-Advisers and Distributor."
Each Sub-Advisory Agreement provides that the Sub-Adviser will furnish
investment advisory services in connection with the management of the Portfolio.
In connection therewith, the Sub-Adviser is obligated to keep certain books and
records of the Fund.  Integrity supervises each Sub-Adviser's performance of
such services.  Each Sub-Adviser is paid by Integrity and not the Fund in
accordance with the schedule set forth in the Prospectus.  For the fiscal period
from the commencement of operations through June 30, 1993 and the fiscal years
ended June 30, 1994 and 1995, Integrity paid the Sub-Advisers sub-advisory fees
in respect of each Portfolio in the amounts set forth below:     

                                     B-19
<PAGE>
 
<TABLE>
<CAPTION>
    
                                                     Amount of
                                                  Sub-Advisory Fee
                                                 for Fiscal Period       Amount of    
                                                       From            Sub-Advisory       Amount of
                                                  Commencement of     Fee for Fiscal     Sub-Advisory
                                                    Operations         Year Ended       Fee for Fiscal
                                                      Through           June 30,          Year Ended
Portfolio                                          June 30, 1993           1994          June 30, 1995
- ---------                                        -----------------    --------------    --------------
<S>                                              <C>                   <C>               <C>
Renaissance Balanced Portfolio                         $7,898            $ 88,110          $128,742

Zweig Asset Allocation Portfolio                        7,417             134,376           260,189

Nicholas-Applegate Balanced Portfolio                   6,631             127,698           212,897

Harris Bretall Sullivan & Smith Equity Growth           7,782              44,218            66,488
 Portfolio

Dreman Value Portfolio                                  2,272              31,496            47,931

Zweig Equity (Small Cap) Portfolio                      5,440              49,323            69,776

Mitchell Hutchins Fixed Income Portfolio                1,789              23,197            37,650

Mitchell Hutchins Money Market Portfolio                  769              16,989            31,240

Morgan Stanley Asian Growth Portfolio*                   --                   251            82,689

Morgan Stanley Worldwide High Income                     --                    20            40,201
 Portfolio*

 
</TABLE>
                                                          
- -----------
*Morgan Stanley Asian Growth Portfolio and Morgan Stanley Worldwide High
Income Portfolio commenced operations on June 15, 1994.

Each Sub-Advisory Agreement may be renewed from year to year, so long as such
continuance is specifically approved at least annually in accordance with the
requirements of the 1940 Act.  Each Sub-Advisory Agreement provides that it will
terminate in the event of its assignment (as defined in the 1940 Act) or upon
the termination of the Management Agreement.  Each Sub-Advisory Agreement may be
terminated by the Fund, Integrity or the respective Sub-Adviser upon 60 days'
prior written notice.


                             PORTFOLIO TRANSACTIONS

Subject to policies established by the Fund's Board of Directors, each Sub-
Adviser is responsible for the execution of portfolio transactions and the
allocation of brokerage transactions for the respective Portfolio. As a general
matter in executing portfolio transactions, each Sub-Adviser may employ or deal
with such brokers or dealers as may, in the Sub-Adviser's best judgment, provide
prompt and reliable execution of the transaction at favorable security prices
and reasonable commission rates.  In selecting brokers or dealers, the Sub-
Adviser will consider all relevant factors, including the price (including the
applicable brokerage commission or dealer spread), size of the order, nature of
the market for the security, timing of the transaction, the reputation,
experience and financial stability of the broker-dealer, the quality of service,
difficulty of execution and 

                                     B-20
<PAGE>
 
operational facilities of the firm involved and in the case of securities, the
firm's risk in positioning a block of securities. Prices paid to dealers in
principal transactions through which most debt securities and some equity
securities are traded generally include a spread, which is the difference
between the prices at which the dealer is willing to purchase and sell a
specific security at that time. Each Portfolio that invests in securities traded
in the OTC markets will engage primarily in transactions with the dealers who
make markets in such securities, unless a better price or execution could be
obtained by using a broker. The Fund has no obligation to deal with any broker
or group of brokers in the execution of portfolio transactions. Brokerage
arrangements may take into account the distribution of certificates by broker-
dealers, subject to best price and execution.

    
Integrity and certain of the Sub-Advisers are affiliated with registered broker-
dealers, including Morgan Stanley & Co. Incorporated, PaineWebber Incorporated
and its affiliates, and Zweig Securities Corp.  From time to time, a portion of
one or more Portfolios' brokerage transactions may be conducted with such
broker-dealers, subject to the criteria for allocation of brokerage described
above.  The Fund's Board of Directors has adopted procedures pursuant to Rule
17e-1 under the 1940 Act to ensure that all brokerage commissions paid to such
broker-dealers by any Portfolio with which they are affiliated are fair and
reasonable.  Also, due to securities law limitations, the Portfolios will limit
purchases of securities in a public offering if an affiliated broker-dealer is a
member of the syndicate for that offering.  No transactions may be effected by a
Portfolio with an affiliate of Integrity, National Integrity or a Sub-Adviser
acting as principal for its own account.     

    
For the fiscal period from the commencement of operations through June 30, 1993
and the fiscal years ended June 30, 1994 and 1995, the Fund paid the following
brokerage commissions with respect to each of the Portfolios:      

<TABLE>
<CAPTION>
                                    
                                                   Brokerage                                      
                                               Commissions Paid                                   
                                                    During            Brokerage      Brokerage    
                                                  the Fiscal         Commissions    Commissions     
                                                  Period From        Paid During    Paid During    
                                                Commencement of       the Fiscal     the Fiscal    
                                               Operation Through      Year Ended     Year Ended    
Portfolio                                         June 30, 1993     June 30, 1994   June 30, 1995  
- ---------                                      -----------------    -------------   -------------       
<S>                                             <C>                   <C>            <C>
Renaissance Balanced Portfolio                      $ 6,762            $41,548         $ 37,905

Zweig Asset Allocation Portfolio                      3,301             24,573           25,232

Nicholas-Applegate Balanced Portfolio                 6,265             75,213          105,607

Harris Bretall Sullivan & Smith Equity               17,256             21,448           13,202
 Growth Portfolio

Dreman Value Portfolio                                4,430             13,413            8,300

Zweig Equity (Small Cap) Portfolio                    6,970             18,081           14,849

Morgan Stanley Asian Growth Portfolio*                  --                --             96,653

 
</TABLE>                                              
     
- --------------------------
*  Morgan Stanley Asian Growth Portfolio commenced operations on June 15, 1994.

                                     B-21
<PAGE>

     
For the fiscal period from commencement of operations through June 30, 1993 and
the fiscal years ended June 30, 1994 and 1995, the Fund paid the following
brokerage commissions with respect to each of the Portfolios to broker-dealers
who are affiliated persons of such Portfolios.  Also presented below for the
fiscal year ended June 30, 1995, are the brokerage commissions paid to such
broker-dealers as a percentage of the aggregate brokerage commissions paid by
each Portfolio and as a percentage of the aggregate dollar amount of portfolio
transactions involving the payment of commissions engaged in by such
Portfolio.     

                                     B-22
<PAGE>
    
<TABLE>
<CAPTION>
                                                                        Fiscal Year Ended June 30, 1995
                                                                    ---------------------------------------

                                                                             Brokerage Commissions
                                                                    ---------------------------------------
                                 Brokerage                                                                  
                                Commissions
                                Paid During the                                                            
                               Fiscal Period                                                       As a     
                                   from              Brokerage                                Percentage of
                               Commencement       Commissions Paid                As a          Portfolio    
Affiliated                     of Operations     During the Fiscal           Percentage of     Transactions
 Broker-                          Through          Year Ended                  Aggregate        Involving  
 Dealer          Portfolio     June 30, 1993      June 30, 1994      Paid     Commissions      Commissions
 ------          ---------     -------------      -------------      ----     -----------      -----------
<S>             <C>           <C>               <C>                <C>       <C>              <C> 
Morgan          Zweig            $   *               $18,868       $16,394        65%              78%
 Stanley        Asset
                Allocation
                Portfolio

                Zweig                *                13,079         7,589        51%              69%
                Equity
                (Small Cap)
                Portfolio

                Morgan                                               8,453         9%               9%
                Stanley
                Asian
                Growth
                Portfolio

Zweig           Zweig
 Securities     Asset               44                 1,156           594         2%               2%
 Corporation    Allocation
                Portfolio
 
                Zweig
                Equity              22                   407           537         4%               1%
                (Small Cap)
                Portfolio
</TABLE>

* Morgan Stanley did not become an affiliated person of an affiliated person of
  the Fund until November 1993.     

Transactions in futures contracts are executed through futures commission
merchants (FCMs) who receive brokerage commissions for their services. The
procedures in selecting FCMs to execute the Portfolios' transactions in futures
contracts, including procedures permitting the use of certain broker-dealers
that are affiliated with the Sub-Advisers, are similar to those in effect with
respect to brokerage transactions in securities.

                                     B-23
<PAGE>




The Sub-Advisers may select broker-dealers which provide them with research
services and may cause a Portfolio to pay such broker-dealers commissions which
exceed those other broker-dealers may have charged, if in their view the
commissions are reasonable in relation to the value of the brokerage and/or
research services provided by the broker-dealer. Research services furnished by
brokers through which a Portfolio effects securities transactions may be used by
the Sub-Adviser in advising other funds or accounts and, conversely, research
services furnished to the Sub-Adviser by brokers in connection with other funds
or accounts the Sub-Adviser advises may be used by the Sub-Adviser in advising
such Portfolio. Information and research received from such brokers will be in
addition to, and not in lieu of, the services required to be performed by each
Sub-Adviser under the Sub-Advisory Contracts. The Portfolios may purchase and
sell portfolio securities to and from dealers who provide the Portfolio with
research services. Portfolio transactions will not be directed to dealers solely
on the basis of research services provided.

Investment decisions for each Portfolio and for other investment accounts
managed by each Sub-Adviser are made independently of each other in light of
differing considerations for the various accounts. However, the same investment
decision may be made for a Portfolio and one or more of such accounts. In such
cases, simultaneous transactions are inevitable. Purchases or sales are then
allocated between the Portfolio and such other account(s) as to amount according
to a formula deemed equitable to the Portfolio and such account(s). While in
some cases this practice could have a detrimental effect upon the price or value
of the security as far as a Portfolio is concerned, or upon its ability to
complete its entire order, in other cases it is believed that coordination and
the ability to participate in volume transactions will be beneficial to the
Portfolio.

PORTFOLIO TURNOVER. For reporting purposes, a Portfolio's portfolio turnover
rate is calculated by dividing the lesser of purchases or sales of portfolio
securities for the fiscal year by the monthly average of the value of the
portfolio securities owned by the Portfolio during the fiscal year. In
determining such portfolio turnover, securities with maturities at the time of
acquisition of one year or less are excluded. Each Sub-Adviser will adjust the
Portfolio's assets as it deems advisable in view of current or anticipated
market conditions, and portfolio turnover will not be a limiting factor should
the Sub-Adviser deem it advisable for a Portfolio to purchase or sell
securities.

The options activities of a Portfolio may affect its turnover rate, the amount
of brokerage commissions paid by a Portfolio and the realization of net short-
term capital gains. High portfolio turnover involves correspondingly greater
brokerage commissions, other transaction costs, and a possible increase in 
short-term capital gains or losses. See "Valuation of Shares" and "Taxes."

The exercise of calls written by a Portfolio may cause the Portfolio to sell
portfolio securities, thus increasing its turnover rate. The exercise of puts
also may cause a sale of securities and increase turnover; although such
exercise is within the Portfolio's control, holding a protective put might cause
the Portfolio to sell the underlying securities for reasons which would not
exist in the absence of the put. A Portfolio will pay a brokerage commission
each time it buys or sells a security in connection with the exercise of a put
or call. Some commissions may be higher than those which would apply to direct
purchases or sales of portfolio securities.



                ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

The separate accounts of Integrity and National Integrity purchase and redeem
shares of each Portfolio on each day on which the New York Stock Exchange, Inc.
(NYSE) is open for trading (Business Day) based on, among other things, the
amount of premium payments to be invested and surrendered and transfer requests
to be effected on that day pursuant to the contracts. Currently, the NYSE is
closed on New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Such purchases
and redemptions of the shares of each Portfolio are effected at their respective
net asset values per share determined as of the close of trading (currently 4:00
p.m., New York City time) on that Business Day. Payment for redemptions is made
by the Fund within seven days thereafter. No fee is charged the separate
accounts when they purchase or redeem Portfolio shares.

The Fund may suspend redemption privileges of shares of any Portfolio or
postpone the date of payment during any period (1) when the NYSE is closed or
trading on the NYSE is restricted as determined by the SEC, (2) when an
emergency exists, as defined by the SEC, that makes it not reasonably
practicable for the Fund to dispose of securities owned by it or fairly to
determine the value of its assets or (3) as the SEC may otherwise permit. The
redemption price may be more or less than the shareholder's cost, depending on
the market value of the Portfolio's securities at the time.



                              VALUATION OF SHARES

The net asset value for the shares of each Portfolio will be determined on each
day the NYSE is open for trading. The net assets of each Portfolio are valued as
of the close of the NYSE, which currently is 4:00 P.M., New York City time, on
each Business Day. Each Portfolio's net asset value per share is calculated
separately.

For all Portfolios other than the Mitchell Hutchins Money Market Portfolio, the
net asset value per share is computed by dividing the value of the securities
held by the Portfolio plus any cash or other assets, less its liabilities, by
the number of outstanding shares of the Portfolio. Securities holdings which are
traded on a U.S. or foreign securities exchange are valued at the last sale
price on the exchange where they are primarily traded or, if there has been no
sale since the previous valuation, at the mean between the current bid and asked



                                     B-24
<PAGE>





prices. OTC securities for which market quotations are readily available are
valued at the mean between the current bid and asked prices. Bonds and other
fixed-income securities are valued using market quotations provided by dealers,
including the Sub-Advisers and their affiliates, and also may be valued on the
basis of prices provided by a pricing service when the Board of Directors
believes that such prices reflect the fair market value of such securities.
Money market instruments are valued at market value, except that instruments
maturing in sixty days or less are valued using the amortized cost method of
valuation described below with respect to the Mitchell Hutchins Money Market
Portfolio. When market quotations for options and futures positions held by the
Portfolios are readily available, those positions are valued based upon such
quotations. Market quotations are not generally available for options traded in
the OTC market. When market quotations for options and futures positions, or any
other securities or assets of the Portfolios, are not available, they are valued
at fair value as determined in good faith by or under the direction of the
Fund's Board of Directors. When practicable, such determinations are based upon
appraisals received from a pricing service using a computerized matrix system or
appraisals derived from information concerning the security or similar
securities received from recognized dealers in those securities.

When a Portfolio writes a put or call option, the amount of the premium is
included in the Portfolio's assets and an equal amount is included in its
liabilities. The liability thereafter is adjusted to the current market value of
the option. The premium paid for an option purchased by a Portfolio is recorded
as an asset and subsequently adjusted to market value.

All securities quoted in foreign currencies are valued daily in U.S. dollars on
the basis of the foreign currency exchange rates prevailing at the time such
valuation is determined. Foreign currency exchange rates generally are
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 would not be
reflected in the computation of a Portfolio's net asset value. If events
materially affecting the value of such securities or currency exchange rates
occurred during such time period, the securities will be valued at their fair
value as determined in good faith by or under the direction of the Board of
Directors. The foreign currency exchange transactions of Morgan Stanley Asian
Growth Portfolio, Morgan Stanley Worldwide High Income Portfolio and Mitchell
Hutchins Fixed Income Portfolio conducted on a spot (i.e., cash) basis are
valued at the spot rate for purchasing or selling currency prevailing on the
foreign exchange market. This rate under normal market conditions differs from
the prevailing exchange rate in an amount generally less than one-tenth of one
percent due to the costs of converting from one currency to another.

For the Mitchell Hutchins Money Market Portfolio, net asset value is computed by
dividing the value of the investments and other assets minus liabilities by the
number of shares outstanding. Securities are valued using the amortized cost
method of valuation, pursuant to Rule 2a-7 under the 1940 Act. To use amortized
cost to value its portfolio securities, the Portfolio must adhere to certain
conditions under that Rule relating to its investments, some of which are
discussed in the Prospectus. Amortized cost is an approximation of market value,
whereby the difference between acquisition cost and value at maturity is
amortized on a straight-line basis over the remaining life of the instrument.
The effect of changes in the market value of a security as a result of
fluctuating interest rates is not taken into account and thus the amortized cost
method of valuation may result in the value of a security being higher or lower
than its actual market value. In the event that a large number of redemptions
take place at a time when interest rates have increased, the Portfolio might
have to sell portfolio securities prior to maturity and at a price that might
not be as desirable as the value at maturity. Cash, receivables and current
payables are generally carried at their face value.

The Fund's Board of Directors has established procedures for the purpose of
maintaining a constant net asset value of $1.00 per share for the Mitchell
Hutchins Money Market Portfolio, which include a review of the extent of any
deviation of net asset value per share, based on available market quotations,
from the $1.00 amortized cost per share. Should that deviation exceed 1/2 of 1%,
the Directors will promptly consider whether any action should be initiated to
eliminate or reduce material dilution or other unfair results to shareholders.
Such action may include redeeming shares in kind, selling portfolio securities
prior to maturity, reducing or withholding dividends and utilizing a net asset
value per share as determined by using available market quotations. The Mitchell
Hutchins Money Market Portfolio will maintain a dollar weighted average
portfolio maturity of 90 days or less and will not purchase any instrument with
a remaining maturity greater than 13 months, will limit portfolio investments,
including repurchase agreements, to those U.S. dollar-denominated instruments
that are of high quality and that the Directors determine present minimal credit
risks as advised by the Sub-Adviser and will comply with certain reporting and
recordkeeping procedures. There is no assurance that constant net asset per
share value will be maintained. In the event amortized cost ceases to represent
fair value, the Board will take appropriate action.



                                     TAXES

Shares of the Portfolios are currently offered only to Integrity and National
Integrity separate accounts that fund variable annuity contracts. See the
Prospectus for the certificates 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 to continue to qualify) for treatment as a
regulated investment company (RIC) under the Code, each Portfolio must
distribute to its shareholders each taxable year at least 90% of its investment
company taxable income (consisting generally of net investment income, net 
short-term capital gain and net gains from certain foreign



                                     B-25
<PAGE>
currency transactions) for such taxable year 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 stock or securities or foreign
currencies, or other income (including gains from options, futures or forward
contracts) derived with respect to its business of investing in stock or
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 stock or securities, or any of the following, that were
held for less than three months -- options, futures or forward contracts (other
than those on foreign currencies), or foreign currencies (or options, futures or
forward contracts thereon) that are not directly related to the Portfolio'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, with these other securities
limited, in respect of any one issuer, to an amount that does not exceed 5% of
the value of the Portfolio's total assets and that does not represent more than
10% of the outstanding voting securities of the issuer; (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; and (5) the
Portfolio must distribute during its taxable year at least 90% of its investment
company taxable income plus 90% of its net tax-exempt interest income, if any.

The use of hedging and related income strategies, such as writing and purchasing
options and futures contracts and entering into forward contracts, involves
complex rules that will determine for income tax purposes the character and
timing of recognition of the income received in connection therewith by each
Portfolio eligible to use such strategies. Income from the disposition of
foreign currencies (except certain gains therefrom that may be excluded by
future regulations), and income from transactions in options, futures and
forward contracts derived by a Portfolio with respect to its business of
investing in securities or foreign currencies, will qualify as permissible
income under the Income Requirement. However, income from the disposition of
options and futures contracts (other than those on foreign currencies) will be
subject to the Short-Short Limitation if they are held for less than three
months. Income from the disposition of foreign currencies, and options, futures
and forward contracts on foreign currencies, that are not directly related to a
Portfolio's principal business of investing in securities (or options and
futures with respect to securities) also 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 on 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 will consider whether it should seek to qualify for this treatment for
its hedging transactions. To the extent a Portfolio does not qualify for this
treatment, it may be forced to defer the closing out of certain options and
futures 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.

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

The foregoing is only a general summary of some of the important federal income
tax considerations generally affecting the Portfolios and their shareholders. No
attempt is made to present a complete explanation of the federal tax treatment
of the Portfolios' activities. See the Prospectus for the certificates for
further tax information.

                       YIELD AND PERFORMANCE INFORMATION

Performance information is computed separately for each Portfolio in accordance
with the formulas described below. At any time in the future, total return and
yields may be higher or lower than in the past and there can be no assurance
that any historical results will continue.

CALCULATION OF TOTAL RETURN AND AVERAGE ANNUAL TOTAL RETURN. Total Return with
respect to the shares of a Portfolio is a measure of the change in value of an
investment in a Portfolio over the period covered, which assumes that any
dividends or capital gains distributions are reinvested in that Portfolio's
shares immediately rather than paid to the investor in cash. The formula for
Total Return with respect to a Portfolio's shares used herein includes four
steps: (1) adding to the total number of shares purchased by a hypothetical
$1,000 investment the number of shares which would have been purchased if all
dividends and distributions paid or distributed during the period had been
immediately reinvested; (2) calculating the value of the hypothetical initial
investment of $1,000 as of the end of the period by multiplying the total number
of shares on the last trading day of the period by the net asset value per share
on the last trading day of the period; (3) assuming redemption at the end of the
period; and (4) dividing this account value for the hypothetical investor by the
initial $1,000 investment. Average Annual Total Return is measured by
annualizing Total Return over the period.

                                     B-26
<PAGE>
 
YIELD OF MORGAN STANLEY WORLDWIDE HIGH INCOME PORTFOLIO AND MITCHELL HUTCHINS
FIXED INCOME PORTFOLIO.  Yield of the shares of each Portfolio will be computed
by annualizing net investment income, as determined by the SEC's formula,
calculated on a per share basis, for a recent 30-day period and dividing that
amount by the net asset value per share of the Portfolio on the last trading day
of that period.  Net investment income will reflect amortization of any market
value premium or discount of fixed income securities (except for obligations
backed by mortgages or other assets) over such period and may include
recognition of a pro rata portion of the stated dividend rate of dividend paying
portfolio securities. The Yield of the Portfolio will vary from time to time
depending upon market conditions, the composition of the portfolio and operating
expenses allocated to the Portfolio.

YIELD OF MITCHELL HUTCHINS MONEY MARKET PORTFOLIO.  The Mitchell Hutchins Money
Market Portfolio's Yield quotation is based on a seven-day period and is
computed by determining the net change, exclusive of capital changes, in the
value of a hypothetical account having a balance of one share at the beginning
of the period, subtracting a hypothetical charge reflecting deductions from
shareholder accounts, and dividing the difference by the value of the account at
the beginning of the base period.  The result is a base period return, which is
then annualized.  That is, the amount of income generated during the seven-day
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 of the Mitchell Hutchins Money Market Portfolio is
calculated similarly, but the base period return is assumed to be reinvested.
The assumed reinvestment is calculated by adding 1 to the base period return,
raising the sum to a power equal to 365 divided by 7 and subtracting 1 from the
result, according to the following formula:  Effective Yield = [(Base Period
Return + 1)365/7] - 1.   The Portfolio's yield figures will be based on
historical earnings and are not intended to indicate future performance.

PERFORMANCE COMPARISONS.  Each Portfolio may from time to time include the Total
Return, the Average Annual Total Return and Yield of its shares in
advertisements or in information furnished to shareholders.  The Mitchell
Hutchins Money Market Portfolio may also from time to time include the Yield and
Effective Yield of its shares in information furnished to shareholders.  Any
statements of a Portfolio's performance will also disclose the performance of
the respective separate account issuing the certificates.

Each Portfolio may from time to time also include the ranking of its performance
figures relative to such figures for groups of mutual funds categorized by
Lipper Analytical Services (Lipper) as having the same or similar investment
objectives or by similar services that monitor the performance of mutual funds.
Each Portfolio may also from time to time compare its performance to average
mutual fund performance figures compiled by Lipper in Lipper Performance
Analysis.  Advertisements or information furnished to present shareholders or
prospective investors may also include evaluations of a Portfolio published by
nationally recognized ranking services and by financial publications that are
nationally recognized such as Barron's, Business Week, CDA Technologies, Inc.,
Changing Times, Consumer's Digest, Dow Jones Industrial Average, Financial
Planning, Financial Times, Financial World, Forbes, Fortune, Global Investor,
Hulbert's Financial Digest, Institutional Investor, Investors Daily,  Money,
Morningstar Mutual Funds, The New York Times, Personal Investor, Stanger's
Investment Adviser, Value Line, The Wall Street Journal, Wiesenberger Investment
Company Service and USA Today.

The performance figures described above may also be used to compare the
performance of a Portfolio's shares against certain widely recognized standards
or indices for stock and bond market performance.  The following are the indices
against which the Portfolios may compare performance:

The Standard & Poor's Composite Index of 500 Stocks (the S&P 500 Index) is a
market value-weighted and unmanaged index showing the changes in the aggregate
market value of 500 stocks relative to the base period 1941-43.  The S&P 500
Index is composed almost entirely of common stocks of companies listed on the
NYSE, although the common stocks of a few companies listed on the American Stock
Exchange or traded OTC are included.  The 500 companies represented include 400
industrial, 60 transportation and 50 financial services  concerns.  The S&P 500
Index represents about 80% of the market value of all issues traded on the NYSE.

The Dow Jones Composite Average (or its component averages) is an unmanaged
index composed of 30 blue-chip industrial corporation stocks (Dow Jones
Industrial Average), 15 utilities company stocks and 20 transportation stocks.
Comparisons of performance assume reinvestment of dividends.

The New York Stock Exchange composite or component indices are unmanaged indices
of all industrial, utilities, transportation and finance company stocks listed
on the New York Stock Exchange.

The Wilshire 5000 Equity Index (or its component indices) represents the return
on the market value of all common equity securities for which daily pricing is
available.  Comparisons of performance assume reinvestment of dividends.

The Morgan Stanley Capital International EAFE Index is an arithmetic, market
value-weighted average of the performance of over 900 securities on the stock
exchanges of countries in Europe, Australia and the Far East.

The Morgan Stanley Capital International World Index - An arithmetic, market
value-weighted average of the performance of over 1,470 securities listed on the
stock exchanges of countries in Europe, Australia, the Far East, Canada and the
United States.

                                     B-27
<PAGE>
 
The Goldman Sachs 100 Convertible Bond Index currently includes 67 bonds and 33
preferred stocks.  The original list of names was generated by screening for
convertible issues of $100 million or greater in market capitalization.  The
index is priced monthly.

The Lehman Brothers Government Bond Index (the Lehman Government Index) is a
measure of the market value of all public obligations of the U.S. Treasury; all
publicly issued debt of all agencies of the U.S. Government and all quasi-
federal corporations; and all corporate debt guaranteed by the U.S. Government.
Mortgage-backed securities, flower bonds and foreign targeted issues are not
included in the Lehman Government Index.

The Lehman Brothers Government/Corporate Bond Index (the Lehman
Government/Corporate Index) is a measure of the market value of approximately
5,300 bonds with a face value currently in excess of $1 million, which have at
least one year to maturity and are rated "Baa" or higher (investment grade) by a
nationally recognized statistical rating agency.

The Lehman Brothers Government/Corporate Intermediate Bond Index (the Lehman
Government/Corporate Intermediate Index) is composed of all bonds covered by the
Lehman Brothers Government/Corporate Bond Index with maturities between one and
9.99 years.  Total return comprises price appreciation/depreciation and income
as a percentage of the original investment.  Indexes are rebalanced monthly by
market capitalization.

The Lehman Brothers Intermediate Treasury Bond Index includes bonds with
maturities between one and ten years with a face value currently in excess of $1
million, that are rated investment grade or higher by a nationally recognized
statistical rating agency.

The Shearson Lehman Long-Term Treasury Bond Index is composed of all bonds
covered by the Shearson Lehman Hutton Treasury Bond Index with maturities of 10
years or greater.

The National Association of Securities Dealers Automated Quotation System
(NASDAQ) Composite Index covers 4,500 stocks traded over the counter.  It
represents many small company stocks but is heavily influenced by about 100 of
the largest NASDAQ stocks.  It is a value-weighted index calculated on price
change only and does not include income.

The NASDAQ Industrial Index is composed of more than 3,000 industrial issues.
It is a value-weighted index calculated on price change only and does not
include income.

The Value Line (Geometric) Index is an unweighted index of the approximately
1,700 stocks followed by the Value Line Investment Survey.

The Salomon Brothers GNMA Index includes pools of mortgages originated by
private lenders and guaranteed by the mortgage pools of the Government National
Mortgage Association.

The Salomon Brothers' World Market Index is a measure of the return of an
equally weighted basket of short-term (three month U.S. Government securities
and bank deposits) investments in eight major currencies: the U.S. dollar,
British pound, Canadian dollar, Japanese yen, Swiss franc, French franc,
Deutsche mark and Dutch guilder.

The Salomon Brothers Broad Investment-Grade Bond Index contains approximately
3,800 Treasury and agency, corporate and mortgage bonds with a rating of BBB or
higher, a stated maturity of at least one year, and a par value outstanding of
$25 million or more.  The index is weighted according to the market value of all
bond issues included in the index.

The Salomon Brothers High Grade Corporate Bond Index consists of publicly
issued, non-convertible corporate bonds rated AA or AAA.  It is a value-
weighted, total return index, including approximately 800 issues with maturities
of 12 years or greater.

    
The Salomon Brothers World Bond Index measures the total return performance of
high-quality securities in major sectors of the international bond market.  The
index covers approximately 600 bonds from 10 currencies: Australian dollars,
Canadian dollars, European Currency Units, French francs, Japanese yen,
Netherlands guilder, Swiss francs, UK pounds sterling, U.S. dollars, and German
Deutsche marks.                                                            

The J.P. Morgan Global Government Bond Index is a total return, market
capitalization weighted index, rebalanced monthly consisting of the following
countries: Australia, Belgium, Canada, Denmark, France, Germany, Italy, Japan,
Netherlands, Spain, Sweden, United Kingdom and United States.

The 50/50 Index assumes a static mix of 50% of the S&P 500 Index and 50% of the
Lehman Government Corporate Index.

    
Other Composite Indices: 70% S&P 500 Index and 30% NASDAQ Industrial Index; 35%
S&P 500 Index and 65% Salomon Brothers High Grade Bond Index;  65% S&P Index and
35% Salomon Brothers High Grade Bond Index; 60% of the S&P 500, 30% of Lehman
Brothers Government/Corporate Bond Index, and 10% of                      

                                     B-28
<PAGE>

     
90-Day Treasury Bill Yield; 60% of the S&P 500 and 40% of Lehman Brothers
Intermediate Treasury Bond Index; and 50% JP Morgan Emerging Market Bond Index
and 50% of Lehman Brothers Aggregate Bond Index.                        

The SEI Median Balanced Fund Universe measures a group of funds with an average
annual equity commitment and an average annual bond - plus - private - placement
commitment greater than 5% each year. SEI must have at least two years of data
for a fund to be considered for the population.

The Russell 2000/Small Stock Index comprises the smallest 2000 stocks in the
Russell 3000 Index, and represents approximately 11% of the total U.S. equity
market capitalization.  The Russell 3000 Index comprises the 3,000 largest U.S.
companies by market capitalization.  The smallest company has a market value of
roughly $20 million.

The Russell  2500 Index is comprised of the bottom 500 stocks in the Russell
1000 Index which represents the universe of stocks from which most active money
managers typically select; and all the stocks in the Russell 2000 Index.  The
largest security in the index has a market capitalization of approximately 1.3
billion.

The Consumer Price Index (or Cost of Living Index), published by the United
States Bureau of Labor Statistics is a statistical measure of change, over time,
in the price of goods and services in major expenditure groups.

    
JP Morgan Emerging Markets Bond Index is a market weighted index composed of all
Brady bonds outstanding and includes Argentina, Brazil, Bulgaria, Mexico,
Nigeria, the Philippines, Poland and Venezuela.                        

Stocks, Bonds, Bills and Inflation, published by Hobson Associates, presents a
historical measure of yield, price and total return for common and small company
stocks, long-term government bonds, Treasury bills and inflation.

Savings and Loan Historical Interest Rates as published in the United States
Savings & Loan League Fact Book.

Historical data supplied by the research departments of First Boston
Corporation, the J.P. Morgan companies, Salomon Brothers, Merrill Lynch, Pierce,
Fenner & Smith, Shearson Lehman Hutton and Bloomberg L.P.

The MSCI Combined Far East Free ex Japan Index is a market-capitalization
weighted index comprising stocks in Hong Kong, Indonesia, Korea, Malaysia,
Philippines, Singapore and Thailand. Korea is included in the MSCI Combined Far
East Free ex Japan Index at 20% of its market capitalization.

The First Boston High Yield Index generally includes over 180 issues with an
average maturity range of seven to ten years with a minimum capitalization of
$100 million.  All issues are individually trader-priced monthly.

    
90-Day Treasury Bill Yield                       

In reports or other communications to shareholders, the Fund may also describe
general economic and market conditions affecting the Portfolios and may compare
the performance of the Portfolios with (1) that of mutual funds included in the
rankings prepared by Lipper or similar investment services that monitor the
performance of insurance company separate accounts or mutual funds, (2)
IBC/Donoghue's Money Fund Report, (3) other appropriate indices of investment
securities and averages for peer universe of funds which are described in this
Statement of Additional Information, or (4) data developed by Integrity or any
of the Sub-Advisers derived from such indices or averages.


                               OTHER INFORMATION

The Portfolios are organized as separate series of the Fund, a Maryland
corporation which was incorporated on July 22, 1992 under the name "Integrity
Series Fund, Inc."

The Fund's Articles of Incorporation authorize the Board of Directors to
classify and reclassify any and all shares which are then unissued into any
number of classes, each class consisting of such number of shares and having
such designations, powers, preferences, rights, qualifications, limitations, and
restrictions, as shall be determined by the Board, subject to the 1940 Act and
other applicable law, and provided that the authorized shares of any class shall
not be decreased below the number then outstanding and the authorized shares of
all classes shall not exceed the amount set forth in the Articles of
Incorporation, as in effect from time to time.

All of the outstanding shares of common stock of each Portfolio are owned by
Integrity's Separate Account SF and by National Integrity's Separate Account
SFN.

REGISTRATION STATEMENT.  This Statement of Additional Information and the
Prospectus do not contain all the information included in the Registration
Statement filed with the Commission under the 1933 Act with respect to the
securities offered by the Prospectus.  The Registration Statement, including the
exhibits filed therewith, may be examined at the office of the Commission in
Washington, D.C.

                                     B-29
<PAGE>
 
Statements contained in this Statement of Additional Information and the
Prospectus as to the contents of any contract or other document are not complete
and, in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement of which this
Statement of Additional Information and the Prospectus form a part, each such
statement being qualified in all respects by such reference.

COUNSEL.  The law firm of Shereff, Friedman, Hoffman & Goodman, LLP, 919 Third
Avenue, New York, New York  10022, counsel to the Fund, has passed upon the
legality of the shares offered by the Fund's Prospectus.

    
AUDITORS.  Ernst & Young LLP, One Kansas City Place, 1200 Main Street, Kansas
City, Missouri  64105, serves as independent auditors for the Fund.         

                                     B-30
<PAGE>
 
                        FINANCIAL STATEMENTS OF THE FUND

    
Ernst & Young LLP, One Kansas City Place, 1200 Main Street, Kansas City,
Missouri  64105, serves as independent auditors of the Fund.  Ernst & Young LLP
on an annual basis audits the financial statements prepared by Fund management
and expresses an opinion on such financial statements based on their audits.

The financial statements for the fiscal year ended June 30, 1995 included in
this SAI have been audited by Ernst & Young LLP independent auditors as stated
in their report appearing herein, and are included in reliance upon the report
of such firm given upon their authority as experts in accounting and auditing.


 
     Report of Ernst & Young LLP, independent auditors     

     Financial Statements, Financial Highlights, and Schedules of Investments:

           Statements of Assets and Liabilities as of June 30, 1995

           Statements of Operations for the fiscal year ended June 30, 1995

           Statements of Changes in Net Assets for the fiscal periods ended
             June 30, 1995 and 1994

           Financial Highlights for fiscal periods since 1993

           Schedules of Investments as of June 30, 1995
<TABLE> 
<CAPTION> 


<S>                         <C> 

                 Renaissance Balanced Portfolio......................   B-32

                 Zweig Asset Allocation Portfolio....................   B-39

                 Nicholas-Applegate Balanced Portfolio...............   B-52

                 Harris Bretall Sullivan & Smith Equity Growth
                   Portfolio.........................................   B-61

                 Dreman Value Portfolio..............................   B-69

                 Zweig Equity (Small Cap) Portfolio..................   B-77

                 Mitchell Hutchins Fixed Income Portfolio............  B-103

                 Mitchell Hutchins Money Market Portfolio............  B-110

                 Morgan Stanley Asian Growth Portfolio...............  B-117

                 Morgan Stanley Worldwide High Income Portfolio......  B-122

     Notes to Financial Statements...................................  B-127
</TABLE>      
 

          

 

                                     B-31
<PAGE>
 
                         Report of Independent Auditors



The Shareholders and Board of Directors
The Legends Fund, Inc.

We have audited the accompanying statements of assets and liabilities of The
Legends Fund, Inc. (the "Fund") (comprised of the Renaissance Balanced, Zweig
Asset Allocation, Nicholas-Applegate Balanced, Harris Bretall Sullivan & Smith
Equity Growth, Dreman Value, Zweig Equity (Small Cap), Mitchell Hutchins Fixed
Income, Mitchell Hutchins Money Market, Morgan Stanley Asian Growth and Morgan
Stanley Worldwide High Income portfolios), including the schedules of
investments, as of June 30, 1995, the related statements of operations for the
year then ended and statements of changes in net assets and financial highlights
for the periods indicated therein and financial highlights for fiscal periods
since 1993. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit. The financial highlights for the period ended June 30, 1993, were audited
by other auditors whose report thereon dated August 30, 1993, expressed an
unqualified opinion.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at June 30,
1995, by correspondence with the custodian. As to uncompleted securities
transactions, we performed other auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights for the years
ended June 30, 1995 and 1994, referred to above present fairly, in all material
respects, the financial position of each of the portfolios constituting The
Legends Fund, Inc. at June 30, 1995, and the results of their operations,
changes in their net assets, and financial highlights for the periods since June
30, 1993, in conformity with generally accepted accounting principles.


                                                          /s/ Ernst & Young LLP

Kansas City, Missouri
August 14, 1995

                                       2
<PAGE>
 
                         Renaissance Balanced Portfolio

                      Statement of Assets and Liabilities

                                 June 30, 1995


<TABLE>
<S>                                                                                     <C>
ASSETS
Investment in securities, at value (cost $23,959,147)
  (NOTE 1)-See accompanying schedule                                                    $ 25,651,072
Cash                                                                                           5,235
Receivable for investment securities sold                                                  1,167,555
Dividends, interest and other receivables                                                    238,247
                                                                                        ------------
TOTAL ASSETS                                                                              27,062,109

LIABILITIES
Accounts payable and accrued expenses                                                         29,914
                                                                                        ------------
TOTAL LIABILITIES                                                                             29,914
                                                                                        ------------

NET ASSETS                                                                              $ 27,032,195
                                                                                        ============

Net Assets consist of:
  Paid-in capital                                                                       $ 24,724,767
  Undistributed net investment income                                                        914,654
  Undistributed net realized loss on investments                                            (299,151)
  Net unrealized appreciation on investment securities                                     1,691,925
                                                                                        ------------

NET ASSETS, for 2,327,611 shares outstanding                                            $ 27,032,195
                                                                                        ============

NET ASSET VALUE, offering and redemption price per share                                $      11.61
                                                                                        ============
</TABLE>

SEE ACCOMPANYING NOTES.

                                       3
<PAGE>
 
                         Renaissance Balanced Portfolio

                            Statement of Operations

                            Year Ended June 30, 1995


<TABLE>
<S>                                                                                     <C>
INVESTMENT INCOME
  Dividends                                                                             $  201,586
  Interest                                                                                 963,029
                                                                                        ----------
    Total investment income                                                              1,164,615

EXPENSES (NOTE 2)
  Investment advisory and management fees                                                  167,365
  Custody and accounting fees                                                               57,934
  Professional fees                                                                         14,202
  Directors' fees and expenses                                                               4,950
  Other expenses                                                                             4,556
                                                                                        ----------
    Total expenses                                                                         249,007
                                                                                        ----------  
Net investment income                                                                      915,608

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 1)
  Net realized loss on investments                                                        (299,151)
  Change in unrealized appreciation on investment securities                             2,638,834
                                                                                        ----------
Net realized and unrealized gain on investments                                          2,339,683
                                                                                        ----------

Net increase in net assets resulting from operations                                    $3,255,291
                                                                                        ==========
</TABLE>

SEE ACCOMPANYING NOTES.


                                       4
<PAGE>
 
                         Renaissance Balanced Portfolio

                      Statements of Changes in Net Assets

<TABLE>
<CAPTION>
                                                                           YEAR ENDED JUNE 30,
                                                                        1995                 1994
                                                                   --------------------------------
<S>                                                                <C>                  <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
  Net investment income                                            $   915,608          $   478,067
  Net realized gain (loss) on investments                             (299,151)             150,527
  Net unrealized appreciation (depreciation)                         2,638,834           (1,119,019)
                                                                   --------------------------------
    Net increase (decrease) in net assets resulting from
      operations                                                     3,255,291             (490,425)

Distributions to shareholders from:
  Net investment income                                               (423,397)            (164,000)
  Net realized gain                                                    (82,603)                   -
                                                                   --------------------------------
    Total distributions to shareholders                               (506,000)            (164,000)

Capital share transactions:
  Proceeds from sales of shares                                      6,487,456           19,755,941
  Proceeds from reinvested distributions                               506,000              164,000
  Cost of shares redeemed                                           (7,756,946)          (2,017,794)
                                                                   --------------------------------
    Net increase (decrease) in net assets resulting from
      share transactions                                              (763,490)          17,902,147
                                                                   --------------------------------
Total increase in net assets                                         1,985,801           17,247,722

NET ASSETS
Beginning of year                                                   25,046,394            7,798,672
                                                                   --------------------------------
End of year (including undistributed net investment income of
  $914,654 and $353,424, respectively)                             $27,032,195          $25,046,394
                                                                   ================================

OTHER INFORMATION
Shares:
  Sold                                                                 603,427            1,835,792
  Issued through reinvestment of distributions                          47,019               14,925
  Redeemed                                                            (731,529)            (190,244)
                                                                   --------------------------------
    Net increase (decrease)                                            (81,083)           1,660,473
                                                                   ================================
</TABLE>

SEE ACCOMPANYING NOTES.

                                       5
<PAGE>
 
                         Renaissance Balanced Portfolio

                              Financial Highlights

<TABLE>
<CAPTION>
                                                                                         DECEMBER 14,
                                                                                             1992
                                                                                       (COMMENCEMENT OF
                                                 YEAR ENDED          YEAR ENDED           OPERATIONS)
                                                  JUNE 30,            JUNE 30,         THROUGH JUNE 30,
                                                    1995                1994                1993(B)
                                             -----------------------------------------------------------

<S>                                            <C>                <C>                  <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period           $     10.40        $      10.42         $      10.00
Income from investment operations:
  Net investment income                               0.42                0.20                 0.13
  Net realized and unrealized gain
    (loss) on investments                              .99               (0.11)                0.29
                                             -----------------------------------------------------------
  Total from investment operations                    1.41                0.09                 0.42
Less distributions:
  From net investment income                          (.17)              (0.11)                   -
  From net realized gain                              (.03)                  -                    -
                                             -----------------------------------------------------------
    Total distributions                               (.20)              (0.11)                   -
                                             -----------------------------------------------------------

Net asset value, end of period                 $     11.61        $      10.40         $      10.42
                                             ===========================================================

TOTAL RETURN(A)                                      13.71%               0.73%                7.70%

RATIOS AND SUPPLEMENTAL DATA
  Net assets, end of period                    $27,032,195        $ 25,046,394         $  7,798,672
  Ratio of expenses to average net
    assets(C)                                         0.96%               1.06%                1.24%
  Ratio of net investment income to
    average net assets(C)                             3.53%               2.72%                2.36%
  Portfolio turnover rate                               71%                 85%                  29%
</TABLE>

(A) Total returns are not annualized.

(B) Data expressed as a percentage are annualized as appropriate.

(C) The ratios of expenses and net investment income to average net assets
    before voluntary expense reimbursement were 2.95% and 0.65%, respectively,
    for the period December 14, 1992 (commencement of operations) through June
    30, 1993. (NOTE 2)


                                       6
<PAGE>
 
                         Renaissance Balanced Portfolio

                            Schedule of Investments

                                 June 30, 1995


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      --------------------------------

<S>                                                                         <C>            <C>
COMMON STOCKS (43.5%)

APPAREL AND OTHER TEXTILE PRODUCTS (2.4%)
  Nike, Inc.                                                                 7,200         $  604,800

CHEMICAL AND ALLIED PRODUCTS (4.2%)
  Eastman Chemical Company                                                   9,000            535,500
  Praxair, Inc.                                                             22,000            550,000
                                                                                           ----------
                                                                                            1,085,500

DEPOSITORY INSTITUTIONS (2.1%)
  NBD Bancorp, Inc.                                                         16,500            528,000

ELECTRONIC AND OTHER ELECTRICAL EQUIPMENT (4.3%)
  General Instrument Corporation*                                           18,200            698,425
  Maytag Corporation                                                        25,500            408,000
                                                                                           ----------
                                                                                            1,106,425

FOOD AND KINDRED PRODUCTS (4.3%)
  Archer Daniels Midland                                                    28,900            538,261
  Conagra, Inc.                                                             15,900            554,512
                                                                                           ----------
                                                                                            1,092,773

FURNITURE AND HOME FURNISHINGS STORES (2.7%)
  Circuit City Stores, Inc.                                                 21,600            683,100

HEALTH SERVICES (2.2%)
  Columbia/HCA Healthcare Corporation                                       13,100            566,575

INDUSTRIAL MACHINERY AND EQUIPMENT (2.3%)
  Dell Computer Corporation*                                                 9,600            577,800

INSTRUMENTS AND RELATED PRODUCTS (2.4%)
  Medtronic, Inc.                                                            8,000            617,000

INSURANCE CARRIERS (3.8%)
  Loews Corporation                                                          5,350            647,350
  US Healthcare, Inc.                                                       11,000            338,250
                                                                                           ----------
                                                                                              985,600
</TABLE>

                                       7
<PAGE>
 
                         Renaissance Balanced Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES
                                                                         OR PRINCIPAL
                                                                            AMOUNT            VALUE
                                                                      ---------------------------------

<S>                                                                     <C>                <C>
COMMON STOCKS (CONTINUED)

MOTION PICTURES (2.0%)
  Walt Disney Company                                                        9,600         $   534,000

NONDEPOSITORY INSTITUTION (2.2%)
  First USA, Inc.                                                           12,900             572,438

OIL AND GAS EXTRACTION (4.0%)
  Exxon Corporation                                                          7,700             543,813
  Halliburton Company                                                       13,700             489,775
                                                                                           -----------
                                                                                             1,033,588
RAILROAD TRANSPORTATION (2.1%)
  Illinois Central Corporation                                              15,500             534,750

RUBBER AND MISCELLANEOUS PLASTICS PRODUCTS (2.5%)
  Illinois Tool Works, Inc.                                                 11,500             632,500
                                                                                           -----------

TOTAL COMMON STOCKS (Cost $9,701,192)                                                       11,154,849

LONG-TERM DEBT SECURITIES (49.8%)

U.S. GOVERNMENT OBLIGATIONS (36.6%)
  U.S. Treasury Notes, 7.875%, due 11/15/2004                           $  745,000             829,744
  U.S. Treasury Notes, 7.25%, due 8/15/2004                              2,475,000           2,644,760
  U.S. Treasury Notes, 7.25%, due 5/15/2004                              1,835,000           1,959,156
  U.S. Treasury Notes, 5.875%, due 2/15/2004                             1,035,000           1,009,611
  U.S. Treasury Notes, 5.75%, due 8/15/2003                                735,000             712,605
  U.S. Treasury Notes, 6.25%, due 2/15/2003                              2,227,042           2,236,086
                                                                                           -----------
                                                                                             9,391,962

U.S. GOVERNMENT AGENCY-COLLATERALIZED MORTGAGE OBLIGATIONS
  (13.2%)
    Fed. Home Loan Mort. Corp., Var. Rate 4.75% (effective
      6/30/95), due 10/4/96                                              3,400,000           3,378,886
                                                                                           -----------

TOTAL LONG-TERM DEBT SECURITIES (Cost $12,532,580)                                          12,770,848
</TABLE>

                                       8
<PAGE>
 
                         Renaissance Balanced Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                           PRINCIPAL
                                                                            AMOUNT            VALUE
                                                                      ---------------------------------

<S>                                                                    <C>               <C> 
SHORT-TERM SECURITIES (6.7%)

TIME DEPOSITS (6.7%)
  State Street Bank, 4.90%, due 7/3/95                                 $   1,725,375     $  1,725,375
                                                                                         ------------

TOTAL SHORT-TERM SECURITIES (Cost $1,725,375)
                                                                                            1,725,375
                                                                                         ------------

TOTAL INVESTMENTS (100.0%) (Cost $23,959,147)                                            $ 25,651,072
                                                                                         ============
</TABLE>

* Non-income producing

OTHER INFORMATION:
   Purchases and sales of securities, excluding short-term securities, for the
   year ended June 30, 1995, aggregated $17,145,871 and $19,088,119,
   respectively. Net unrealized appreciation for tax purposes aggregated
   $1,691,925, of which $1,915,475 related to appreciated investment securities
   and $223,550 related to depreciated investment securities. The aggregate cost
   of securities is the same for book and tax purposes.

SEE ACCOMPANYING NOTES.


                                       9
<PAGE>
 
                        Zweig Asset Allocation Portfolio

                      Statement of Assets and Liabilities

                                 June 30, 1995


<TABLE>
<S>                                                                                    <C>
ASSETS
Investment in securities, at value (cost $32,587,902)
  (NOTE 1)-See accompanying schedule                                                   $  36,764,428
Dividends, interest and other receivables                                                     32,148
                                                                                       -------------
TOTAL ASSETS                                                                              36,796,576

LIABILITIES
Cash overdraft                                                                                16,812
Accounts payable and accrued expenses                                                         43,603
                                                                                       -------------
TOTAL LIABILITIES                                                                             60,415
                                                                                       -------------

NET ASSETS                                                                             $  36,736,161
                                                                                       =============

Net Assets consist of:
  Paid-in capital                                                                      $  31,852,476
  Undistributed net investment income                                                        946,985
  Undistributed net realized loss on investments                                            (244,106)
  Net unrealized appreciation on investment securities and futures
    contracts                                                                              4,180,806
                                                                                       -------------

NET ASSETS, for 2,820,443 shares outstanding                                           $  36,736,161
                                                                                       =============

NET ASSET VALUE, offering and redemption price per share                               $       13.02
                                                                                       =============
</TABLE>

SEE ACCOMPANYING NOTES.

                                       10
<PAGE>
 
                        Zweig Asset Allocation Portfolio

                            Statement of Operations

                            Year Ended June 30, 1995


<TABLE>
<S>                                                                                     <C>
INVESTMENT INCOME
  Dividends                                                                             $  340,252
  Interest                                                                               1,021,521
                                                                                        ----------
    Total investment income                                                              1,361,773

EXPENSES (NOTE 2)
  Investment advisory and management fees                                                  312,227
  Custody and accounting fees                                                               78,057
  Professional fees                                                                         14,202
  Directors' fees and expenses                                                               4,950
  Other expenses                                                                             5,186
                                                                                        ----------
    Total expenses                                                                         414,622
                                                                                        ----------
Net investment income                                                                      947,151

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 1)
  Net realized gain (loss) on:
    Investment securities                                                                  241,845
    Futures and options contracts                                                         (322,322)
                                                                                        ----------
      Net realized loss                                                                    (80,477)

  Change in unrealized appreciation (depreciation) on:
    Investment securities                                                                3,988,636
    Futures contracts                                                                      (44,095)
                                                                                        ----------
      Change in unrealized appreciation (depreciation)                                   3,944,541
                                                                                        ----------
Net realized and unrealized gain on investments                                          3,864,064
                                                                                        ----------

Net increase in net assets resulting from operations                                    $4,811,215
                                                                                        ==========
</TABLE>

SEE ACCOMPANYING NOTES.

                                       11
<PAGE>
 
                        Zweig Asset Allocation Portfolio

                      Statements of Changes in Net Assets

<TABLE>
<CAPTION>
                                                                           YEAR ENDED JUNE 30,
                                                                        1995                 1994
                                                                      -----------------------------

<S>                                                                   <C>               <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
  Net investment income                                               $   947,151       $   298,043
  Net realized loss on investments                                        (80,477)         (161,851)
  Net unrealized appreciation                                           3,944,541            85,735
                                                                      -----------------------------
    Net increase in net assets resulting from operations
                                                                        4,811,215           221,927

Distributions to shareholders from:
  Net investment income                                                  (248,100)          (64,000)

Capital share transactions:
  Proceeds from sales of shares                                         7,443,090        29,026,779
  Proceeds from reinvested dividends                                      248,100            64,000
  Cost of shares redeemed                                              (7,081,317)       (1,541,077)
                                                                      -----------------------------
    Net increase in net assets resulting from share
      transactions                                                        609,873        27,549,702
                                                                      -----------------------------

Total increase in net assets                                            5,172,988        27,707,629

NET ASSETS
Beginning of year                                                      31,563,173         3,855,544
                                                                      -----------------------------

End of year (including undistributed net investment income of
  $946,985 and $247,934, respectively)                                $36,736,161       $31,563,173
                                                                      =============================

OTHER INFORMATION
Shares:
  Sold                                                                    640,047         2,528,990
  Issued through reinvestment of dividends                                 21,399             5,620
  Redeemed                                                               (598,871)         (133,338)
                                                                      -----------------------------
    Net increase                                                           62,575         2,401,272
                                                                      =============================
</TABLE>

SEE ACCOMPANYING NOTES.

                                       12
<PAGE>
 
                        Zweig Asset Allocation Portfolio

                              Financial Highlights


<TABLE>
<CAPTION>
                                                                                         DECEMBER 14,
                                                                                             1992
                                                                                       (COMMENCEMENT OF
                                                 YEAR ENDED          YEAR ENDED           OPERATIONS)
                                                  JUNE 30,            JUNE 30,         THROUGH JUNE 30,
                                                    1995                1994                1993(B)
                                             ------------------------------------------------------------

<S>                                            <C>                <C>                  <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period           $     11.44        $      10.81         $      10.00
Income from investment operations:
  Net investment income                               0.33                0.10                 0.08
  Net realized and unrealized gain on
    investments                                       1.33                0.58                 0.73
                                             ------------------------------------------------------------
  Total from investment operations                    1.66                0.68                 0.81
Less distributions:
  From net investment income                         (0.08)              (0.05)                   -
                                             ------------------------------------------------------------

Net asset value, end of period                 $     13.02        $      11.44         $      10.81
                                             ============================================================

TOTAL RETURN(A)                                      14.57%               6.27%               14.86%

RATIOS AND SUPPLEMENTAL DATA
  Net assets, end of period                    $36,736,161        $ 31,563,173         $  3,855,544
  Ratio of expenses to average net
    assets(C)                                         1.20%               1.39%                1.51%
  Ratio of net investment income to
    average net assets(C)                             2.73%               1.67%                1.40%
  Portfolio turnover rate                               45%                101%                  12%
</TABLE>

(A) Total returns are not annualized.

(B) Data expressed as a percentage are annualized as appropriate.

(C) The ratios of expenses and net investment income to average net assets
    before voluntary expense reimbursement were 4.87% and (1.17%), respectively,
    for the period December 14, 1992 (commencement of operations) through June
    30, 1993. (NOTE 2)


                                       13
<PAGE>
 
                        Zweig Asset Allocation Portfolio

                            Schedule of Investments

                                 June 30, 1995


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ----------------------------------

<S>                                                                          <C>           <C> 
COMMON STOCKS (68.2%)

AMUSEMENT AND RECREATION SERVICES (0.7%)
  Grand Casinos, Inc.*                                                       3,800         $  134,425
  Players International*                                                     5,750            115,719
                                                                                           ---------- 
                                                                                              250,144

AUTO REPAIR, SERVICES, AND PARKING (0.3%)
  Ryder System, Inc.                                                         4,700            112,213

BUSINESS SERVICES (0.7%)
  Filenet Corporation*                                                       2,100             84,788
  Pitson Services Group                                                      2,800             67,200
  Sun Microsystems, Inc.*                                                    1,900             92,269
                                                                                           ----------
                                                                                              244,257

CHEMICALS AND ALLIED PRODUCTS (3.4%)
  Cabot Corporation                                                          3,300            174,075
  Cytec Industries, Inc.*                                                    2,200             89,925
  First Mississippi Corporation                                              2,800             95,550
  Geon Company                                                               4,800            138,000
  Georgia Gulf Corporation                                                     900             29,363
  IMC Global Inc.                                                            2,800            151,550
  Methanex Corporation*                                                      1,800             15,075
  Monsanto Company                                                             900             81,113
  Norsk Hydro                                                                4,400            183,700
  Olin Corporation                                                           2,000            103,000
  Sterling Chemicals, Inc.                                                   2,600             30,225
  Union Carbide Corporation                                                  5,000            166,875
                                                                                           ----------
                                                                                            1,258,451

COMMUNICATIONS (0.03%)
  Telefonica de Espana                                                         300             11,625

DEPOSITORY INSTITUTIONS (10.9%)
  Bank of Boston Corporation                                                 8,000            299,500
  Bank of New York Company, Inc.                                             9,000            363,350
  Bankamerica Corporation                                                    2,100            110,513
  Baybanks, Inc.                                                             2,500            198,438
</TABLE>

                                       14
<PAGE>
 
                        Zweig Asset Allocation Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      --------------------------------

<S>                                                                         <C>           <C>
COMMON STOCKS (CONTINUED)

DEPOSITORY INSTITUTIONS (10.9%) (CONTINUED)
  Boatmen's Bancshares, Inc.                                                 2,400        $   84,450
  Chase Manhattan Corporation                                                2,300           108,100
  Chemical Banking Corporation                                               5,104           241,164
  Comerica, Inc.                                                             4,500           144,563
  Crestar Financial Corporation                                              1,800            88,200
  Dime Bancorp, Inc.*                                                        1,500            15,000
  First American Corp-Tennessee*                                             3,300           118,594
  First Bank System, Inc.                                                    4,300           176,300
  First Chicago Corporation                                                  2,600           155,675
  First Fidelity Bancorp                                                       100             5,900
  First Interstate Bancorp                                                   3,000           240,750
  First of America Bankcorp                                                  1,900            70,538
  First Tennessee National Corporation                                         700            32,419
  First Union Corporation                                                    4,600           208,150
  Fleet Financial Group, Inc.                                                5,300           196,763
  Hibernia Corporation                                                      14,200           126,025
  Michigan National Corporation                                                920            97,750
  Midatlantic Corporation, Inc.                                              5,500           219,313
  Nationsbank Corporation                                                    1,000            53,625
  NBD Bancorp, Inc.                                                          3,400           108,800
  Republic New York Corporation                                              2,600           145,600
  Southtrust Corporation                                                     2,000            46,500
  Standard Federal Bancorp                                                   5,400           181,575
  UJB Financial Corporation                                                  1,700            51,638
  Wells Fargo & Company                                                        500            90,125
  West One Bankcorp                                                            400            13,300
                                                                                          ----------
                                                                                           3,992,618

ELECTRIC, GAS AND SANITARY SERVICE (5.8%)
  American Electric Power                                                    2,700            94,838
  Baltimore Gas & Electric                                                   3,000            75,000
  Centerior Energy Corporation                                              11,100           106,838
  Coastal Corporation                                                        5,400           164,025
  Columbia Gas System*                                                       7,500           238,125
  Illinova Corporation                                                       5,700           144,638
  New England Electric System                                                1,900            65,550
</TABLE>

                                       15
<PAGE>
 
                        Zweig Asset Allocation Portfolio

                      Schedule of Investments (continued)

<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ---------------------------------

<S>                                                                         <C>             <C>
COMMON STOCKS (CONTINUED)

ELECTRIC, GAS AND SANITARY SERVICE (5.8%) (CONTINUED)
  Niagra Mohawk Power Corporation                                            9,900          $  146,025
  Northeast Utilities                                                        3,000              67,500
  Pacific Enterprises                                                        5,300             129,850
  Pacific Gas & Electric                                                     4,900             142,100
  Pinnacle West Corporation                                                 13,000             318,500
  Portland General Corporation                                               3,100              68,588
  Scecorp                                                                    7,900             135,288
  Unicom Corporation                                                         5,000             133,125
  Western Resource                                                           3,000              92,625
                                                                                            ----------
                                                                                             2,122,615
ELECTRONIC AND OTHER ELECTRIC EQUIPMENT (8.6%)
  Advanced Micro Devices*                                                    6,100             221,888
  Cypress Semiconductor Corporation*                                         2,500             101,250
  Electro Scientific Industries, Inc.*                                       4,100             136,838
  Integrated Device Tech, Inc.*                                              2,200             101,613
  LSI Logic Corporation*                                                     8,600             336,475
  Maytag Corporation                                                         5,700              91,200
  Micron Technology, Inc.                                                   11,900             653,013
  National Semiconductor Corporation*                                       10,600             294,150
  OPTI, Inc.*                                                                8,100             185,288
  Philips Electronics                                                       11,200             478,800
  Standard Microsystems Corporation*                                         5,700              87,281
  Texas Instruments, Inc.                                                    2,400             321,300
  Vishay Intertechnology*                                                      926              33,452
  Zitel Corporation*                                                        11,400             127,538
                                                                                            ----------
                                                                                             3,170,086
FABRICATED METAL (1.0%)
  Ball Corporation                                                           3,000             104,625
  Parker-Hannifin Corporation                                                2,850             103,313
  Phelps Dodge                                                               2,400             141,600
                                                                                            ----------
                                                                                               349,538
FOOD AND KINDRED PRODUCTS (1.6%)
  Archer Daniels Midland                                                     6,850             127,581
  IBP, Inc.                                                                  9,000             391,500
  Smithfield Foods, Inc.*                                                    3,700              78,856
                                                                                            ----------
                                                                                               597,937

FOOD STORES (0.3%)
  Kroger Company*                                                              800              21,500
  Safeway, Inc.*                                                             2,200              82,225
                                                                                            ----------
                                                                                               103,725
</TABLE>

                                       16
<PAGE>
 
                        Zweig Asset Allocation Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ---------------------------------

<S>                                                                          <C>           <C>
COMMON STOCKS (CONTINUED)

HEALTH SERVICES (1.0%)
  Maxicare Health Plans, Inc.*                                               7,600         $  116,850
  Ornda Healthcorp.*                                                         7,600            130,625
  Sun Healthcare Group, Inc.*                                                6,800            107,100
                                                                                           ----------
                                                                                              354,575

HOLDING COMPANIES AND OTHER INVESTMENT OFFICES (1.3%)
  Citicorp                                                                   8,500            491,938

INDUSTRIAL MACHINERY AND EQUIPMENT (7.7%)
  AGCO Corporation                                                           4,350            163,125
  Amdahl Corporation                                                         9,300            103,463
  Apple Computer                                                               700             32,550
  BJ Services Company-WTS                                                      340              1,445
  Black & Decker Corporation                                                 3,800            117,325
  Briggs & Stratton                                                          3,300            113,850
  Compaq Computer Corporation*                                               3,700            167,888
  Cummins Engine Company, Inc.                                               5,300            231,213
  Deere & Company                                                            1,000             85,625
  Dell Computer Corporation*                                                 2,200            132,413
  Digital Equipment*                                                         2,500            101,875
  Dynatech Corporation*                                                      5,900            112,100
  Exabyte Corporation*                                                         900             12,431
  Harris Corporation                                                         3,900            201,338
  International Business Machines Corporation                                3,000            288,000
  Kulicke and Soffa Industries*                                                500             33,188
  Novellus Systems, Inc.*                                                      600             40,650
  Printronix, Inc.*                                                          3,400             94,350
  Proxima Corporation*                                                       4,200            100,800
  Quantum Corporation*                                                       4,200             96,600
  Seagate Technology, Inc.*                                                  5,300            208,025
  Sequent Computer, Inc.*                                                    1,700             30,281
  Smith International, Inc.*                                                 3,600             60,300
  Tandem Computers, Inc.*                                                    9,200            148,350
  Tecumseh Products Company                                                    800             35,000
  Western Digital Corporation*                                               7,200            125,100
                                                                                           ----------
                                                                                            2,837,285
</TABLE>

                                       17
<PAGE>
 
                        Zweig Asset Allocation Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ---------------------------------

<S>                                                                          <C>           <C>
COMMON STOCKS (CONTINUED)

INSTRUMENTS AND RELATED PRODUCTS (2.4%)
  General Motors                                                             6,200         $  244,900
  Johnson Controls, Inc.                                                       700             39,550
  Loral Corporation                                                          3,300            170,775
  Sci Systems, Inc.*                                                         5,400            134,663
  Tektronix, Inc.                                                            3,900            192,075
  Teradyne, Inc.*                                                            1,600            104,600
                                                                                           ----------
                                                                                              886,563
INSURANCE CARRIERS (3.4%)
  Aetna Life & Casualty Company                                              2,000            125,750
  Allstate Corporation                                                       4,400            130,350
  AMBAC, Inc.                                                                2,500            100,313
  Cigna Corporation                                                          1,800            139,725
  Exel Limited                                                               1,600             83,200
  Loews Corporation                                                          1,100            133,100
  Old Republic International Corporation                                       400             10,450
  Partnerre Holdings                                                         5,700            148,556
  Reliastar Financial Corporation                                              700             26,775
  St. Paul Companies                                                         2,700            132,975
  United Companies Financial Corporation                                       990             44,426
  USLife Corporation                                                         1,900             76,475
  USF&G Corporation                                                          6,500            105,625
                                                                                           ----------
                                                                                            1,257,720
LUMBER AND WOOD PRODUCTS (0.5%)
  Georgia -Pacific Corporation                                                 400             34,700
  Willamette Industries                                                      2,600            143,650
                                                                                           ----------
                                                                                              178,350
METAL MINING (0.7%)
  Asaro, Inc.                                                                2,600             79,300
  Cyprus Amax Minerals Company                                               2,400             68,400
  Magma Copper Company*                                                      7,400            120,250
                                                                                           ----------
                                                                                              267,950
MISCELLANEOUS MANUFACTURING INDUSTRIES (0.7%)
  Cobra Golf, Inc.*                                                          4,200            132,825
  First Team Sports*                                                         4,700            108,981
                                                                                           ----------
                                                                                              241,806
</TABLE>


                                       18
<PAGE>
 
                        Zweig Asset Allocation Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ----------------------------------

<S>                                                                         <C>             <C>
COMMON STOCKS (CONTINUED)

MISCELLANEOUS RETAIL (1.1%)
  Federated Department Stores*                                               4,600          $  118,450
  Good Guys, Inc.*                                                           5,400              59,738
  Sears Roebuck and Company                                                  2,400             143,700
  Waban, Inc.*                                                               5,700              84,788
                                                                                            ----------
                                                                                               406,676

NONDEPOSITORY INSTITUTIONS (2.5%)
  American Express Company                                                   1,100              38,638
  Astoria Financial Corporation*                                             3,800             136,325
  Bay Ridge Bancorp, Inc.*                                                   7,200             149,850
  Finova Group                                                                 300              10,500
  Green Tree Financial Corporation                                           1,000              44,375
  Greenpoint Financial Corporation                                           4,000              94,500
  Household International, Inc.                                              4,200             207,900
  Sunamerica, Inc.                                                           1,000              51,000
  Transamerica Corporation                                                   2,000             116,500
  Travelers, Inc.                                                            1,600              70,000
                                                                                            ----------
                                                                                               919,588

NONDURABLE GOODS WHOLESALE (0.4%)
  Terra Industries, Inc.                                                    11,500             139,438

NONMETALLIC MINERALS (0.4%)
  Potash Corporation Sask, Inc.                                              2,500             139,688

OIL AND GAS EXTRACTION (0.1%)
  Chesapeake Energy Corporation*                                               600              15,450
  Petroleum Geo-Services*                                                    1,300              37,375
                                                                                            ----------
                                                                                                52,825
PAPER AND ALLIED PRODUCTS (3.2%)
  Boise Cascade Corporation                                                  3,300             133,650
  Bowater, Inc.                                                              3,100             139,113
  Champion International Corporation                                         2,300             119,888
  Chesapeake Corporation                                                     3,300             102,713
  Federal Paper Board Company                                                3,500             123,813
  International Paper Company                                                1,700             145,775
  James River Corporation of Virginia                                        3,700             102,213
</TABLE>

                                       19
<PAGE>
 
                        Zweig Asset Allocation Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ----------------------------------

<S>                                                                          <C>            <C>
COMMON STOCKS (CONTINUED)

PAPER AND ALLIED PRODUCTS (3.2%) (CONTINUED)
  Mead Corporation                                                           3,500          $  207,813
  Premark International, Inc.                                                2,000             103,750
                                                                                            ----------
                                                                                             1,178,728

PETROLEUM AND COAL PRODUCTS (0.3%)
  British Petroleum                                                          1,100              94,188

PRIMARY METAL INDUSTRIES (1.4%)
  Alcan Aluminum Ltd.                                                        3,500             105,875
  Alumax, Inc.*                                                              4,800             149,400
  Aluminum Company of America                                                  800              40,100
  LTV Corporation*                                                           4,900              71,663
  USX-U.S. Steel Company                                                     2,500              85,938
  WHX Corporation*                                                           6,200              72,850
                                                                                            ----------
                                                                                               525,826

PRINTING AND PUBLISHING (0.2%)
  Reynolds & Reynolds                                                        2,600              76,700

RAILROAD TRANSPORTATION (0.7%)
  Burlington Northern, Inc.                                                    700              44,363
  Conrail, Inc.                                                              2,500             139,063
  Santa Fe Pacific Corporation                                               2,786              71,043
                                                                                            ----------
                                                                                               254,469

RUBBER AND MISCELLANEOUS PLASTICS PRODUCTS (0.3%)
  Goodyear Tire & Rubber Company                                             2,802             115,583

STONE, CLAY, GLASS, AND CONCRETE PRODUCTS (0.8%)
  Lafarge Corporation                                                        2,900              54,375
  National Gypsum*                                                           2,300             120,463
  USG Corporation*                                                           5,500             130,625
                                                                                            ----------
                                                                                               305,463
</TABLE>

                                       20
<PAGE>
 
                        Zweig Asset Allocation Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      --------------------------------

<S>                                                                          <C>         <C>
COMMON STOCKS (CONTINUED)

TEXTILE MILL PRODUCTS (0.1%)
  Fieldcrest Cannon*                                                         1,800       $    38,925

TRANSPORTATION BY AIR (1.6%)
  AMR Corporation*                                                           1,600           119,400
  British Airways                                                              600            40,350
  Delta Air Lines, Inc.                                                      2,100           154,875
  Federal Express Corporation*                                               4,300           261,225
                                                                                         -----------
                                                                                             575,850

TRANSPORTATION EQUIPMENT (4.1%)
  Chrysler Corporation                                                       2,500           119,688
  Dana Corporation                                                           1,400            40,075
  Ford Motor Company                                                         9,000           267,750
  Magna International, Inc.                                                  1,300            57,363
  McDonnell Douglas Corporation                                              5,300           406,775
  Navistar International*                                                    7,900           119,488
  Northrop Grumman Corporation                                               2,600           135,525
  Paccar, Inc.                                                               2,900           135,575
  Teledyne, Inc.                                                             5,000           122,500
  Textron, Inc.                                                              1,500            87,188
                                                                                         -----------
                                                                                           1,491,927

TOTAL COMMON STOCKS (Cost $20,869,300)                                                    25,045,270

PREFERRED STOCKS (0.002%)

TRANSPORTATION EQUIPMENT (0.002%)
  Teledyne, Inc.                                                                38               556
                                                                                         -----------

TOTAL PREFERRED STOCKS (Cost $0)                                                                 556
</TABLE>

                                       21
<PAGE>
 
                        Zweig Asset Allocation Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                           PRINCIPAL
                                                                            AMOUNT            VALUE
                                                                      ----------------------------------

<S>                                                                     <C>              <C>
SHORT-TERM SECURITIES (31.8%)

U.S. GOVERNMENT AGENCY DISCOUNT NOTES (29.6%)
  Federal National Mortgage Assoc., 5.88%, due 7/3/95                   $  2,800,000     $  2,799,085
  Federal National Mortgage Assoc., 5.87%, due 7/10/95                     2,500,000        2,496,344
  Federal National Mortgage Assoc., 5.87%, due 7/14/95                     2,000,000        1,995,761
  Federal National Mortgage Assoc., 5.84%, due 7/19/95                     2,000,000        1,994,160
  Federal National Mortgage Assoc. 5.85%, due 7/28/95                      1,000,000          995,612
  Federal National Mortgage Assoc., 5.86%, due 7/31/95                       600,000          597,070
                                                                                         ------------
                                                                                           10,878,032

U.S. GOVERNMENT OBLIGATIONS (1.3%)
  U.S. Treasury Bills, 5.37%, due 9/21/95                                    500,000          493,884

TIME DEPOSITS (0.9%)
  State Street Bank, 4.90%, due 7/3/95                                       346,686          346,686
                                                                                         ------------

TOTAL SHORT-TERM SECURITIES (Cost $11,718,602)                                             11,718,602
                                                                                         ------------

TOTAL INVESTMENTS (100.0%) (Cost $32,587,902)                                            $ 36,764,428
                                                                                         ============
</TABLE>

FUTURES CONTRACTS

<TABLE>
<CAPTION>
                                                                           CONTRACT
                                       COLLATERAL        EXPIRATION         AMOUNT          UNREALIZED
                                       (PAR VALUE)          DATE           AT VALUE            GAIN
                                   ----------------------------------------------------------------------

<S>                                 <C>                    <C>            <C>                  <C>
3 S&P 500 Futures                   U.S. Treasury
  Contracts-Long                    Bill: $500,000,
                                    due 9/21/95            9/15/95        $  820,725           $  4,280
                                                                          =============================
</TABLE>

* Non-income producing

                                       22
<PAGE>
 
                        Zweig Asset Allocation Portfolio

                      Schedule of Investments (continued)


OTHER INFORMATION:
   Purchases and sales of securities, excluding short-term securities, for the
   year ended June 30, 1995, aggregated $15,133,567 and $7,265,527,
   respectively. Net unrealized appreciation for tax purposes aggregated
   $4,176,526, of which $4,495,866 related to appreciated investment securities
   and $319,340 related to depreciated investment securities. The aggregate cost
   of securities is the same for book and tax purposes.

SEE ACCOMPANYING NOTES.

                                       23
<PAGE>
 
                     Nicholas-Applegate Balanced Portfolio

                      Statement of Assets and Liabilities

                                 June 30, 1995


<TABLE>
<S>                                                                                    <C>
ASSETS
Investment in securities, at value (cost $39,943,879)
  (NOTE 1)-See accompanying schedule                                                   $  45,943,315
Receivable for investment securities sold                                                    613,413
Dividends, interest and other receivables                                                    246,412
                                                                                       -------------
TOTAL ASSETS                                                                              46,803,140

LIABILITIES
Payable for investment securities purchased                                                  963,210
Cash overdraft                                                                                16,762
Accounts payable and accrued expenses                                                         42,557
                                                                                       -------------
TOTAL LIABILITIES                                                                          1,022,529
                                                                                       -------------

NET ASSETS                                                                             $  45,780,611
                                                                                       =============

Net Assets consist of:
  Paid-in capital                                                                      $  40,464,534
  Undistributed net investment income                                                        935,896
  Undistributed net realized loss on investments                                          (1,619,255)
  Net unrealized appreciation on investment securities                                     5,999,436
                                                                                       -------------

NET ASSETS, for 3,475,691 shares outstanding                                           $  45,780,611
                                                                                       =============

NET ASSET VALUE, offering and redemption price per share                               $       13.17
                                                                                       =============
</TABLE>

SEE ACCOMPANYING NOTES.

                                       24
<PAGE>
 
                     Nicholas-Applegate Balanced Portfolio

                            Statement of Operations

                            Year Ended June 30, 1995


<TABLE>
<S>                                                                                     <C>
INVESTMENT INCOME
  Dividends                                                                             $  337,189
  Interest                                                                                 998,730
                                                                                        ----------
    Total investment income                                                              1,335,919

EXPENSES (NOTE 2)
  Investment advisory and management fees                                                  276,766
  Custody and accounting fees                                                               95,804
  Professional fees                                                                         14,202
  Directors' fees and expenses                                                               4,950
  Other expenses                                                                             7,631
                                                                                        ----------
    Total expenses                                                                         399,353
                                                                                        ----------
Net investment income                                                                      936,566

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 1)
  Net realized loss on investments                                                        (283,310)
  Change in unrealized appreciation on investment securities                             6,479,460
                                                                                        ----------
Net realized and unrealized gain on investments                                          6,196,150
                                                                                        ----------

Net increase in net assets resulting from operations                                    $7,132,716
                                                                                        ==========
</TABLE>

SEE ACCOMPANYING NOTES.

                                       25
<PAGE>
 
                     Nicholas-Applegate Balanced Portfolio

                      Statements of Changes in Net Assets

<TABLE>
<CAPTION>
                                                                           YEAR ENDED JUNE 30,
                                                                        1995                 1994
                                                                      -----------------------------

<S>                                                                   <C>                   <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
  Net investment income                                                $   936,566     $   428,990
  Net realized loss on investments                                        (283,310)     (1,298,166)
  Net unrealized appreciation (depreciation)                             6,479,460        (848,815)
                                                                      ----------------------------
    Net increase (decrease) in net assets resulting from
      operations                                                         7,132,716      (1,717,991)

Distributions to shareholders from:
  Net investment income                                                   (386,000)        (67,000)

Capital share transactions:
  Proceeds from sales of shares                                          7,522,637      38,482,355
  Proceeds from reinvested dividends                                       386,000          67,000
  Cost of shares redeemed                                               (8,232,738)     (2,973,632)
                                                                      ----------------------------
    Net increase (decrease) in net assets resulting from
      share transactions                                                  (324,101)     35,575,723
                                                                      ----------------------------

Total increase in net assets                                             6,422,615      33,790,732

NET ASSETS
Beginning of year                                                       39,357,996       5,567,264
                                                                      ----------------------------

End of year (including undistributed net investment income of
  $935,896 and $385,330, respectively)                                 $45,780,611     $39,357,996
                                                                      ============================

OTHER INFORMATION
Shares:
  Sold                                                                     641,113       3,254,137
  Issued through reinvestment of dividends                                  32,590           5,700
  Redeemed                                                                (689,568)       (252,432)
                                                                      ----------------------------
    Net increase (decrease)                                                (15,865)      3,007,405
                                                                      ============================
</TABLE>

SEE ACCOMPANYING NOTES.

                                       26
<PAGE>
 
                     Nicholas-Applegate Balanced Portfolio

                              Financial Highlights


<TABLE>
<CAPTION>
                                                                                          DECEMBER 3,
                                                                                             1992
                                                                                       (COMMENCEMENT OF
                                                 YEAR ENDED          YEAR ENDED           OPERATIONS)
                                                  JUNE 30,            JUNE 30,         THROUGH JUNE 30,
                                                    1995                1994                1993(B)
                                             --------------------------------------------------------------

<S>                                            <C>                <C>                  <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period           $     11.27        $      11.50         $      10.00
Income from investment operations:
  Net investment income                               0.27                0.09                 0.11
  Net realized and unrealized gain (loss)
    on investments                                    1.74               (0.29)                1.39
                                             --------------------------------------------------------------
  Total from investment operations                    2.01               (0.20)                1.50
Less distributions:
  From net investment income                         (0.11)              (0.03)                   -
                                             --------------------------------------------------------------

Net asset value, end of period                 $     13.17        $      11.27         $      11.50
                                             ==============================================================

TOTAL RETURN(A)                                      17.92%              (1.70%)              26.07%

RATIOS AND SUPPLEMENTAL DATA
  Net Assets, end of period                    $45,780,611        $ 39,357,996         $  5,567,264
  Ratio of expenses to average net
    assets(C)                                         0.94%               1.03%                1.25%
  Ratio of net investment income to
    average net assets (C)                            2.20%               1.69%                1.70%
  Portfolio turnover rate                              108%                 56%                  21%
</TABLE>

(A) Total returns are not annualized.

(B) Data expressed as a percentage are annualized as appropriate.

(C) The ratios of expenses and net investment income to average net assets
    before voluntary expense reimbursement were 3.87% and (0.72%), respectively,
    for the period December 3, 1992 (commencement of operations) through June
    30, 1993. (NOTE 2)

                                       27
<PAGE>
 
                     Nicholas-Applegate Balanced Portfolio

                            Schedule of Investments

                                 June 30, 1995


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ----------------------------------

<S>                                                                         <C>             <C>
COMMON STOCKS (62.5%)

APPAREL AND ACCESSORY STORES (0.5%)
  Nike, Inc.                                                                 2,900          $  243,600

BUSINESS SERVICES (8.2%)
  3Com Corporation*                                                         13,800             924,600
  Adaptec Inc.*                                                              7,200             265,500
  BMC Software, Inc.*                                                        4,700             361,900
  Broderbund Software, Inc.*                                                 4,200             267,225
  Computer Associates International, Inc.                                   12,240             829,260
  Gartner Group, Inc.*                                                      10,800             311,850
  Healthcare Compare Corporation*                                            6,900             207,000
  Manpower, Inc.                                                            16,900             430,950
  Medaphis Corporation*                                                      7,400             159,100
                                                                                            ----------
                                                                                             3,757,385

CHEMICALS AND ALLIED PRODUCTS (6.1%)
  Amgen, Inc.*                                                               3,300             265,238
  Eastman Chemical Company                                                   7,200             428,400
  FMC Corporation*                                                           3,700             248,825
  Geon Company                                                              12,000             345,000
  Lyondell Petrochemical                                                    12,800             328,000
  Mylan Laboratories                                                         7,500             230,625
  Olin Corporation                                                           6,600             339,900
  Sterling Chemicals, Inc.                                                  15,800             183,675
  Union Carbide Corporation                                                 13,400             447,225
                                                                                            ----------
                                                                                             2,816,888

COMMUNICATIONS (1.0%)
  Infinity Broadcasting*                                                     7,400             246,975
  King World Productions, Inc.*                                              5,600             226,800
                                                                                            ----------
                                                                                               473,775

DEPOSITORY INSTITUTIONS (0.7%)
  Union Bank San Francisco                                                   7,500             314,063

ELECTRIC, GAS AND SANITARY SERVICE (1.2%)
  Boston Scientific Corporation*                                            17,100             545,063
  Citizens Utility Company*                                                    268               3,188
                                                                                            ----------
                                                                                               548,251
</TABLE>

                                       28
<PAGE>
 
                     Nicholas-Applegate Balanced Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ---------------------------------

<S>                                                                         <C>            <C>
COMMON STOCKS (CONTINUED)

ELECTRONICS, AND OTHER ELECTRICAL EQUIPMENT (7.9%)
  Intel Corporation                                                          4,800         $  303,900
  KLA Instruments Corporation*                                              10,500            812,438
  Matsushita Electric Industrial                                             1,300            201,500
  Micron Technology, Inc.                                                   12,600            691,425
  Tencor Instrument                                                          5,700            239,400
  Texas Instruments, Inc.                                                    4,600            615,825
  Varian Associates, Inc.                                                    9,800            541,450
  Xilinx                                                                     2,500            241,875
                                                                                           ----------
                                                                                            3,647,813

FOOD AND KINDRED PRODUCTS (1.5%)
  Archer Daniels Midland                                                    10,300            191,838
  Coca Cola Enterprises, Inc.                                               11,200            245,000
  IBP, Inc.                                                                  6,000            261,000
                                                                                           ----------
                                                                                              697,838

FOOD STORES (1.2%)
  Safeway, Inc.*                                                            15,300            571,838

GENERAL MERCHANDISE STORES (0.5%)
  Sears Roebuck and Company                                                  4,100            245,488

INDUSTRIAL MACHINERY AND EQUIPMENT (4.7%)
  Altera Corporation*                                                        6,600            286,275
  Amdahl Corporation                                                         8,400             93,450
  Bay Networks, Inc.*                                                        5,900            243,375
  Cummins Engine Company, Inc.                                               4,600            200,675
  Dell Computer Corporation*                                                 5,200            312,975
  Digital Equipment*                                                         5,300            215,975
  International Business Machines Corporation                                2,800            268,800
  Sun Microsystems, Inc.*                                                    6,200            301,088
  US Robotics Corporations                                                   2,500            241,875
                                                                                           ----------
                                                                                            2,164,488
</TABLE>


                                       29
<PAGE>
 
                     Nicholas-Applegate Balanced Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ---------------------------------

<S>                                                                         <C>            <C>
COMMON STOCKS (CONTINUED)

INSTRUMENTS AND RELATED PRODUCTS (1.3%)
  Teradyne, Inc.*                                                            4,900         $  320,338
  Vishay Intertechnology*                                                    7,600            274,550
                                                                                           ----------
                                                                                              594,888

INSURANCE CARRIERS (5.2%)
  Ace Limited                                                                8,900            258,100
  American National Insurance                                                7,260            440,138
  Cigna Corporation                                                          3,000            232,875
  Exel Limited                                                               4,900            254,800
  Loews Corporation                                                          2,000            242,000
  Old Republic International Corporation                                     9,000            235,125
  Oxford Health Plans*                                                       5,000            235,000
  Pacificare Health Systems, Inc.*                                           5,300            266,988
  St. Paul Companies                                                         4,700            231,475
                                                                                           ----------
                                                                                            2,396,501

LUMBER AND WOOD PRODUCTS (0.6%)
  Weyenhaeuser Company                                                       5,600            263,900

METAL MINING (0.9%)
  Asarco, Inc.                                                              14,300            436,150


NONDURABLE GOODS, WHOLESALE (0.9%)
  Bergen Brunswig Corporation                                                9,000            205,875
  Fleming Companies, Inc.                                                    8,700            230,550
                                                                                           ----------
                                                                                              436,425
NONMETALLIC MINERALS (1.5%)
  Potash Corporation Sask, Inc.                                             12,000            670,500

OIL AND GAS EXTRACTION (4.0%)
  Atlantic Richfield Company                                                 2,000            219,500
  Exxon Corporation                                                          3,400            240,125
  Louisiana Land & Exploration                                               5,800            231,275
  Mobil Corporation                                                          2,600            249,600
  Occidental Petroleum Corporation                                           9,700            221,888
  Oryx Energy Company                                                       16,600            228,250
  Sonat Offshore Drilling, Inc.                                              8,100            232,875
  Union Texas Petro Holdings, Inc.                                          10,200            215,475
                                                                                           ----------
                                                                                            1,838,988
</TABLE>

                                       30
<PAGE>
 
                     Nicholas-Applegate Balanced Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ---------------------------------

<S>                                                                         <C>            <C>
COMMON STOCKS (CONTINUED)

PAPER AND ALLIED PRODUCTS (6.3%)
  Boise Cascade Corporation                                                 13,000        $   526,500
  Bowater, Inc.                                                              8,000            359,000
  Champion International Corporation                                         6,100            317,963
  Chesapeake Corporation                                                     6,000            186,750
  Jefferson Smurfit Corporation*                                            12,400            162,750
  Potlatch Corporation                                                       5,500            229,625
  Scott Paper Company                                                       12,000            594,000
  Union Camp Corporation                                                     4,500            260,438
  Westvaco Corporation                                                       6,000            265,500
                                                                                          -----------
                                                                                            2,902,526

PETROLEUM AND COAL INDUSTRIES (0.5%)
  USX-Marathon Group                                                        12,200            240,950

PRIMARY METAL INDUSTRIES (4.1%)
  Alcan Aluminum Limited                                                     8,000            242,000
  Alumax, Inc.*                                                             12,300            382,828
  Aluminum Company of America                                                5,000            250,625
  Crane Company                                                              7,800            282,750
  Phelps Dodge                                                               6,200            365,800
  Reynolds Metals Company                                                    7,100            367,425
                                                                                          -----------
                                                                                            1,891,428

SECURITY AND COMMODITY BROKERS (1.1%)
  Bear Stearns Companies, Inc.                                              11,500            245,813
  Lehman Brothers Holdings                                                  11,000            239,250
                                                                                          -----------
                                                                                              485,063

TOBACCO PRODUCTS (0.6%)
  Philip Morris Company, Inc.                                                3,700            275,188

TRANSPORTATION EQUIPMENT (1.7%)
  Breed Technologies                                                        10,300            247,200
  Harsco Corporation                                                         4,600            242,650
  McDonnell Douglas Corporation                                              3,900            299,325
                                                                                          -----------
                                                                                              789,175
                                                                                          -----------

TOTAL COMMON STOCKS (Cost $23,608,368)                                                     28,703,109
</TABLE>

                                       31
<PAGE>
 
                     Nicholas-Applegate Balanced Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                           PRINCIPAL
                                                                            AMOUNT            VALUE
                                                                      ----------------------------------

<S>                                                                     <C>               <C>    
LONG-TERM DEBT SECURITIES (29.6%)

U.S. GOVERNMENT OBLIGATIONS (29.6%)
  U.S. Treasury Notes, 0%, due 11/15/2004                               $  2,300,000      $  1,274,844
  U.S. Treasury Notes, 6.5%, due 5/15/97                                     750,000           758,558
  U.S. Treasury Notes, 7.5%, due 5/15/2002                                   750,000           807,420
  U.S. Treasury Notes, 9.25%, due 1/15/96                                  1,850,000         1,882,949
  U.S. Treasury Notes, 6.25%, due 2/15/2003                                  750,000           751,995
  U.S. Treasury Notes, 7.25%, due 5/15/2004                                3,850,000         4,110,491
  U.S. Treasury Notes, 7.875%, due 11/15/2004                              3,600,000         4,009,500
                                                                                          ------------


TOTAL LONG-TERM DEBT SECURITIES
  (Cost $12,696,648)                                                                       13,595,757

SHORT-TERM SECURITIES (7.9%)

U.S. GOVERNMENT OBLIGATIONS (7.9%)
  U.S. Treasury Notes, 8.625%, due 10/15/95                                1,850,000         1,864,449

TIME DEPOSITS
  State Street Bank, 4.90%, due 7/3/95                                                       1,780,000
                                                                                          ------------

TOTAL SHORT-TERM SECURITIES
  (Cost $3,638,863)                                                                         3,644,449
                                                                                          ------------

TOTAL INVESTMENTS (100.0%) (Cost $39,943,879)                                             $ 45,943,315
                                                                                          ============
</TABLE>

* Non-income producing

OTHER INFORMATION:
   Purchases and sales of securities, excluding short-term securities, for the
   year ended June 30, 1995, aggregated $44,663,577 and $45,029,278,
   respectively. Net unrealized appreciation for tax purposes aggregated
   $5,999,436, of which $6,698,745 related to appreciated investment securities
   and $699,309 related to depreciated investment securities. The aggregate cost
   of securities is the same for book and tax purposes.

SEE ACCOMPANYING NOTES.

                                       32
<PAGE>
 
            Harris Bretall Sullivan & Smith Equity Growth Portfolio

                      Statement of Assets and Liabilities

                                 June 30, 1995


<TABLE>
<S>                                                                                    <C>
ASSETS
Investment in securities, at value (cost $12,423,742)
  (NOTE 1)-See accompanying schedule                                                   $16,094,433
Cash                                                                                       308,901
Dividends, interest and other receivables                                                   12,026
                                                                                       -----------
TOTAL ASSETS                                                                            16,415,360

LIABILITIES
Accounts payable and accrued expenses                                                       22,084
                                                                                       -----------
TOTAL LIABILITIES                                                                           22,084
                                                                                       -----------

NET ASSETS                                                                             $16,393,276
                                                                                       ===========

Net Assets consist of:
  Paid-in capital                                                                      $12,552,547
  Undistributed net investment income                                                       17,603
  Undistributed net realized gain on investments                                           152,435
  Net unrealized appreciation on investment securities                                   3,670,691
                                                                                       -----------

NET ASSETS, for 1,275,266 shares outstanding                                           $16,393,276
                                                                                       ===========

NET ASSET VALUE, offering and redemption price per share                               $     12.85
                                                                                       ===========
</TABLE>

SEE ACCOMPANYING NOTES.

                                       33
<PAGE>
 
            Harris Bretall Sullivan & Smith Equity Growth Portfolio

                            Statement of Operations

                            Year Ended June 30, 1995


<TABLE>
<S>                                                                                     <C>
INVESTMENT INCOME
  Dividends                                                                             $  118,410
  Interest                                                                                  39,734
                                                                                        ----------
    Total investment income                                                                158,144

EXPENSES (NOTE 2)
  Investment advisory and management fees                                                   86,434
  Custody and accounting fees                                                               29,920
  Professional fees                                                                         14,202
  Directors' fees and expenses                                                               4,950
  Other expenses                                                                             5,035
                                                                                        ----------
    Total expenses                                                                         140,541
                                                                                        ----------
Net investment income                                                                       17,603

REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 1)
  Net realized gain on investments                                                         311,876
  Change in unrealized appreciation on investment securities                             3,972,691
                                                                                        ----------
Net realized and unrealized gain on investments                                          4,284,567
                                                                                        ----------

Net increase in net assets resulting from operations                                    $4,302,170
                                                                                        ==========
</TABLE>

SEE ACCOMPANYING NOTES.

                                       34
<PAGE>
 
            Harris Bretall Sullivan & Smith Equity Growth Portfolio

                      Statements of Changes in Net Assets


<TABLE>
<CAPTION>
                                                                           YEAR ENDED JUNE 30,
                                                                        1995                 1994
                                                                      -----------------------------

<S>                                                                     <C>             <C>
INCREASE IN NET ASSETS
Operations:
  Net investment income (loss)                                        $    17,603     $   (15,087)
  Net realized gain (loss) on investments                                 311,876        (144,782)
  Net unrealized appreciation (depreciation)                            3,972,691        (261,470)
                                                                      ---------------------------
    Net increase (decrease) in net assets resulting from
      operations                                                        4,302,170        (421,339)

Capital share transactions:
  Proceeds from sales of shares                                         5,228,036       8,728,014
  Cost of shares redeemed                                              (3,829,957)     (2,757,013)
                                                                      ---------------------------
    Net increase in net assets resulting from share
      transactions                                                      1,398,079       5,971,001
                                                                      ---------------------------

Total increase in net assets                                            5,700,249       5,549,662

NET ASSETS
Beginning of year                                                      10,693,027       5,143,365
                                                                      ---------------------------

End of year (including undistributed net investment income of
  $17,603 in 1995)                                                    $16,393,276     $10,693,027
                                                                      ===========================

OTHER INFORMATION
Shares:
  Sold                                                                    485,092         887,285
  Redeemed                                                               (352,447)       (274,544)
                                                                      ---------------------------
    Net increase                                                          132,645         612,741
                                                                      ===========================          
</TABLE>

SEE ACCOMPANYING NOTES.

                                       35
<PAGE>
 
            Harris Bretall Sullivan & Smith Equity Growth Portfolio

                              Financial Highlights


<TABLE>
<CAPTION>
                                                                                          DECEMBER 8,
                                                                                             1992
                                                                                       (COMMENCEMENT OF
                                                 YEAR ENDED          YEAR ENDED          OPERATIONS)
                                                  JUNE 30,            JUNE 30,         THROUGH JUNE 30,
                                                    1995                1994                1993(B)
                                             -------------------------------------------------------------

<S>                                             <C>                <C>                   <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period            $      9.36        $       9.71          $     10.00
Income from investment operations:
  Net investment income (loss)                         0.01               (0.02)(C)                -
  Net realized and unrealized gain (loss)
    on investments                                     3.48               (0.33)               (0.29)
                                             -------------------------------------------------------------
  Total from investment operations                     3.49               (0.35)               (0.29)
                                             -------------------------------------------------------------

Net asset value, end of period                  $     12.85        $       9.36          $      9.71
                                             =============================================================

TOTAL RETURN(A)                                       37.29%              (3.60%)              (5.16%)

RATIOS AND SUPPLEMENTAL DATA
  Net Assets, end of period                     $16,393,276        $ 10,693,027          $ 5,143,365
  Ratio of expenses to average net
    assets(D)                                          1.05%               1.29%                1.34%
  Ratio of net investment income (loss)
    to average net assets(D)                           0.13%              (0.17%)              (0.06%)
  Portfolio turnover rate                                31%                 38%                   6%
</TABLE>


(A) Total returns are not annualized.

(B) Data expressed as a percentage are annualized as appropriate.

(C) Net investment loss per share has been calculated using the weighted monthly
    average number of shares outstanding.

(D) The ratios of expenses and net investment income to average net assets
    before voluntary expense reimbursement were 3.52% and (1.94%), respectively,
    for the period ended December 8, 1992 (commencement of operations) through
    June 30, 1993. (NOTE 2)


                                       36
<PAGE>
 
            Harris Bretall Sullivan & Smith Equity Growth Portfolio

                            Schedule of Investments

                                 June 30, 1995


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ---------------------------------

<S>                                                                         <C>            <C>
COMMON STOCKS (99.6%)

APPAREL AND ACCESSORY STORES (2.2%)
  Gap, Inc.                                                                  9,800         $  341,775

BUILDING MATERIAL AND GARDEN SUPPLIES (2.1%)
  Home Depot, Inc.                                                           8,133            330,403

BUSINESS SERVICES (25.8%)
  Adobe Systems, Inc.                                                        6,400            372,800
  Autodesk, Inc.                                                             9,600            410,400
  Automatic Data Processing                                                  5,200            326,950
  Cabletron Systems*                                                         7,000            372,750
  Cisco Systems, Inc.*                                                       8,300            419,669
  Electronic Arts, Inc.*                                                    13,000            353,438
  Equifax                                                                    9,800            327,075
  First Financial Management Corporation                                     4,900            418,950
  Microsoft Corporation*                                                     4,700            425,056
  Silicon Graphics, Inc.*                                                   10,200            406,725
  Sybase, Inc.*                                                             11,100            322,594
                                                                                           ----------
                                                                                            4,156,407

CHEMICALS AND ALLIED PRODUCTS (10.8%)
  Amgen, Inc.*                                                               4,700            377,763
  Genzyme Corporation*                                                       8,400            337,050
  Great Lakes Chemical Corporation                                           5,800            349,450
  Merck & Company, Inc.                                                      7,300            357,700
  Morton International, Inc.                                                10,800            315,900
                                                                                           ----------
                                                                                            1,737,863

COMMUNICATIONS (2.4%)
  Capital Cities/ABC, Inc.                                                   3,550            383,400

DEPOSITORY INSTITUTIONS (4.5%)
  Bankamerica Corporation                                                    7,100            373,638
  Nationsbank Corporation                                                    6,500            348,563
                                                                                           ----------
                                                                                              722,201

EATING AND DRINKING PLACES (2.0%)
  Brinker International, Inc.*                                              19,000            327,750
</TABLE>

                                       37
<PAGE>
 
            Harris Bretall Sullivan & Smith Equity Growth Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ---------------------------------

<S>                                                                         <C>           <C>
COMMON STOCKS (CONTINUED)

ELECTRONIC AND OTHER ELECTRICAL EQUIPMENT (9.6%)
  American Power Conversion*                                                16,950        $   388,791
  Intel Corporation                                                          6,200            392,534
  Motorola, Inc.                                                             5,900            396,038
  Sensormatic Electronics Corporation                                       10,500            372,750
                                                                                          -----------
                                                                                            1,550,113

FURNITURE AND HOME FURNISHINGS STORES (2.4%)
  Circuit City Stores, Inc.                                                 12,000            379,500

GENERAL MERCHANDISE STORES (2.0%)
  Albertson's, Inc.                                                         10,600            315,350

HOLDING COMPANIES AND OTHER INVESTMENT OFFICES (2.3%)
  Norwest Corporation                                                       12,800            368,000

INDUSTRIAL MACHINERY AND COMPUTER EQUIPMENT (9.7%)
  Apple Computer                                                             7,300            339,450
  Applied Materials, Inc.*                                                   4,950            428,175
  Hewlett-Packard Company                                                    6,200            461,900
  Tyco International Limited                                                 6,250            337,500
                                                                                          -----------
                                                                                            1,567,025

INSURANCE CARRIERS (4.5%)
  American International Group                                               3,200            364,800
  United Healthcare Corporation                                              8,800            364,100
                                                                                          -----------
                                                                                              728,900
MISCELLANEOUS RETAIL (4.1%)
  Office Depot, Inc.*                                                       13,500            379,688
  Toys R Us, Inc.*                                                           9,600            280,800
                                                                                          -----------
                                                                                              660,488
MOTION PICTURES (2.1%)
  Walt Disney Company                                                        6,200            344,875

NONDEPOSITORY INSTITUTION (2.2%)
  Dean Witter Discover & Company                                             7,600            357,200
</TABLE>

                                       38
<PAGE>
 
            Harris Bretall Sullivan & Smith Equity Growth Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES
                                                                         OR PRINCIPAL
                                                                            AMOUNT            VALUE
                                                                      ---------------------------------

<S>                                                                         <C>           <C>
COMMON STOCKS (CONTINUED)

NONDURABLE GOODS, WHOLESALE (2.4%)
  Staples, Inc.*                                                            13,500        $   390,656

PRINTING AND PUBLISHING (4.2%)
  Gannett Company                                                            6,300            341,775
  Tribune Company                                                            5,500            337,563
                                                                                          -----------
                                                                                              679,338

SECURITY AND COMMODITY BROKERS (2.3%)
  Charles Schwab Corporation                                                 8,350            362,181

TRANSPORTATION EQUIPMENT (2.0%)
  General Electric Company                                                   5,700            321,338
                                                                                          -----------

TOTAL COMMON STOCKS (Cost $12,354,072)                                                     16,024,763

SHORT-TERM SECURITIES (0.4%)

TIME DEPOSITS (0.4%)
  State Street Bank, 4.90%, due 7/3/95                                   $  69,670             69,670
                                                                                          -----------

TOTAL SHORT-TERM SECURITIES (Cost $69,670)                                                     69,670
                                                                                          -----------

TOTAL INVESTMENTS (100.0%) (Cost $12,423,742)                                             $16,094,433
                                                                                          ===========
</TABLE>

* Non-income producing

                                       39
<PAGE>
 
            Harris Bretall Sullivan & Smith Equity Growth Portfolio

                      Schedule of Investments (continued)


OTHER INFORMATION:
   Purchases and sales of securities, excluding short-term securities, for the
   year ended June 30, 1995, aggregated $5,726,616 and $3,896,340, respectively.
   Net unrealized appreciation for tax purposes aggregated $3,670,691, of which
   $3,851,706 related to appreciated investment securities and $181,015 related
   to depreciated investment securities. The aggregate cost of securities is the
   same for book and tax purposes.

SEE ACCOMPANYING NOTES.


                                       40
<PAGE>
 
                             Dreman Value Portfolio

                      Statement of Assets and Liabilities

                                 June 30, 1995


<TABLE>
<S>                                                                                    <C>
ASSETS
Investment in securities, at value (cost $9,456,354)
  (NOTE 1)-See accompanying schedule                                                   $  10,857,283
Cash                                                                                          16,062
Dividends, interest and other receivables                                                     21,503
                                                                                       -------------
TOTAL ASSETS                                                                              10,894,848

LIABILITIES
Accounts payable and accrued expenses                                                         17,938
                                                                                       -------------
TOTAL LIABILITIES                                                                             17,938
                                                                                       -------------

NET ASSETS                                                                             $  10,876,910
                                                                                       =============

Net Assets consist of:
  Paid-in capital                                                                      $   9,174,881
  Undistributed net investment income                                                        190,236
  Undistributed net realized gain on investments                                             110,864
  Net unrealized appreciation on investment securities                                     1,400,929
                                                                                       -------------

NET ASSETS, for 863,732 shares outstanding                                             $  10,876,910
                                                                                       =============

NET ASSET VALUE, offering and redemption price per share                               $       12.59
                                                                                       =============
</TABLE>

SEE ACCOMPANYING NOTES.

                                       41
<PAGE>
 
                             Dreman Value Portfolio

                            Statement of Operations

                            Year Ended June 30, 1995


<TABLE>
<S>                                                                                     <C>
INVESTMENT INCOME
  Dividends                                                                             $  288,949
  Interest                                                                                  10,105
                                                                                        ----------
    Total investment income                                                                299,054

EXPENSES (NOTE 2)
  Investment advisory and management fees                                                   62,310
  Custody and accounting fees                                                               21,569
  Professional fees                                                                         14,202
  Directors' fees and expenses                                                               4,950
  Other expenses                                                                             5,505
                                                                                        ----------
    Total expenses                                                                         108,536
                                                                                        ----------
Net investment income                                                                      190,518

REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 1)
  Net realized gain on investments                                                         110,922
  Change in unrealized appreciation on investment securities                             1,497,538
                                                                                        ----------
Net realized and unrealized gain on investments                                          1,608,460
                                                                                        ----------

Net increase in net assets resulting from operations                                    $1,798,978
                                                                                        ==========
</TABLE>

SEE ACCOMPANYING NOTES.

                                       42
<PAGE>
 
                             Dreman Value Portfolio

                      Statements of Changes in Net Assets

<TABLE>
<CAPTION>
                                                                           YEAR ENDED JUNE 30,
                                                                        1995                 1994
                                                                      -----------------------------

<S>                                                                   <C>               <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
  Net investment income                                               $   190,518       $  123,355
  Net realized gain on investments                                        110,922           62,521
  Net unrealized appreciation (depreciation)                            1,497,538         (121,663)
                                                                      ----------------------------
    Net increase in net assets resulting from operations                1,798,978           64,213

Distributions to shareholders from:
  Net investment income                                                  (115,316)         (45,000)
  Net realized gain                                                       (33,184)               -
                                                                      ----------------------------
    Total distributions to shareholders                                  (148,500)         (45,000)

Capital share transactions:
  Proceeds from sales of shares                                         2,443,372        8,184,724
  Proceeds from reinvested distributions                                  148,500           45,000
  Cost of shares redeemed                                              (2,317,614)        (967,983)
                                                                      ----------------------------
    Net increase in net assets resulting from share
      transactions                                                        274,258        7,261,741
                                                                      ----------------------------

Total increase in net assets                                            1,924,736        7,280,954

NET ASSETS
Beginning of year                                                       8,952,174        1,671,220
                                                                      ----------------------------

End of year (including undistributed net investment income
  $190,236 and $87,937, respectively)                                 $10,876,910       $8,952,174
                                                                      ============================

OTHER INFORMATION
Shares:
  Sold                                                                    218,818          764,808
  Issued through reinvestment of distributions                             13,171            4,223
  Redeemed                                                               (208,122)         (89,144)
                                                                      ----------------------------
    Net increase                                                           23,867          679,887
                                                                      ============================
</TABLE>

SEE ACCOMPANYING NOTES.

                                       43
<PAGE>
 
                             Dreman Value Portfolio

                              Financial Highlights

<TABLE>
<CAPTION>
                                                                                         DECEMBER 14,
                                                                                             1992
                                                                                       (COMMENCEMENT OF
                                                 YEAR ENDED          YEAR ENDED           OPERATIONS)
                                                  JUNE 30,            JUNE 30,         THROUGH JUNE 30,
                                                    1995                1994                1993(B)
                                             -------------------------------------------------------------

<S>                                            <C>                <C>                  <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period           $     10.66        $      10.45         $      10.00
Income from investment operations:
  Net investment income                               0.26                0.12                 0.11
  Net realized and unrealized gain on
    investments                                       1.85                0.17                 0.34
                                             -------------------------------------------------------------
  Total from investment operations                    2.11                0.29                 0.45
Less distributions:
  From net investment income                          (.14)              (0.08)                   -
  From net realized gain                              (.04)                  -                    -
                                             -------------------------------------------------------------
    Total distributions                              (0.18)              (0.08)                   -
                                             -------------------------------------------------------------

Net asset value, end of period                 $     12.59        $      10.66         $      10.45
                                             =============================================================

TOTAL RETURN(A)                                      19.98%               2.80%                8.25%

RATIOS AND SUPPLEMENTAL DATA
  Net assets, end of period                    $10,876,910        $  8,952,174         $  1,671,220
  Ratio of expenses to average net
    assets(C)                                         1.13%               1.40%                1.24%
  Ratio of net investment income to
    average net assets(C)                             1.98%               1.98%                2.00%
  Portfolio turnover rate                               29%                  9%                   5%
</TABLE>

(A) Total returns are not annualized.

(B) Data expressed as a percentage are annualized as appropriate.

(C) The ratios of expenses and net investment income to average net assets
    before voluntary expense reimbursement were 1.61% and 1.76%, respectively,
    for the year ended June 30, 1994 and were 8.43% and (1.49%), respectively,
    for the period December 14, 1992 (commencement of operations) through June
    30, 1993. (NOTE 2)

                                       44
<PAGE>
 
                             Dreman Value Portfolio

                            Schedule of Investments

                                 June 30, 1995


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ----------------------------------

<S>                                                                         <C>            <C>
COMMON STOCKS (99.4%)

APPAREL AND ACCESSORY STORES (0.8%)
  Burlington Coat Factory Warehouse*                                         8,500         $   88,184

APPAREL AND OTHER TEXTILE PRODUCTS (3.8%)
  Liz Claiborne, Inc.                                                       11,400            242,250
  VF Corporation                                                             3,100            166,625
                                                                                           ----------
                                                                                              408,875

CHEMICALS AND ALLIED PRODUCTS (10.4%)
  Bristol-Myers Squibb Company                                               2,200            149,875
  Eli Lilly & Company                                                        3,800            298,300
  Glaxo Holdings PLC                                                         5,200            126,750
  Marion Merrell Dow, Inc.                                                   5,300            135,150
  Merck & Company Inc.                                                       4,100            200,900
  Upjohn Company                                                             5,700            215,888
                                                                                           ----------
                                                                                            1,126,863
DEPOSITORY INSTITUTIONS (19.9%)
  Ahmanson (H.F.) & Company                                                 10,000            220,000
  Bankamerica Corporation                                                    4,000            210,500
  Barnett Banks, Inc.                                                        4,800            246,000
  First Chicago Corporation                                                  4,600            275,425
  First Union Corporation                                                    3,800            171,950
  Fleet Financial Group, Inc.                                                1,700             63,113
  Great Western Financial                                                   11,000            226,875
  J.P. Morgan & Company                                                      1,500            105,188
  Midatlantic Corporation, Inc.                                              4,200            167,475
  Nationsbank Corporation                                                    2,500            134,063
  PNC Bank Corporation                                                       6,800            179,350
  Wells Fargo & Company                                                        900            162,225
                                                                                           ----------
                                                                                            2,162,164

ELECTRIC, GAS AND SANITARY SERVICE (5.3%)
  Columbia Gas System*                                                      18,100            574,675

FOOD AND KINDRED PRODUCTS (2.3%)
  Nestle SA                                                                  4,700            244,988
</TABLE>


                                       45
<PAGE>
 
                             Dreman Value Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ---------------------------------

<S>                                                                         <C>            <C>
COMMON STOCKS (CONTINUED)

FOOD STORES (1.6%)
  Giant Food, Inc.                                                           6,000         $  170,250

GENERAL MERCHANDISE STORES (4.9%)
  Dayton-Hudson Corporation                                                  5,000            358,750
  TJX Companies, Inc.                                                       13,300            176,225
                                                                                           ----------
                                                                                              534,975

HEALTH SERVICES (1.3%)
  Tenet Health Care*                                                         9,500            136,563

HOLDING COMPANIES AND OTHER INVESTMENT OFFICES (3.1%)
  Bankers Trust New York Corporation                                         5,300            328,600
  U.S. Industries, Inc.*                                                       450              6,131
                                                                                           ----------
                                                                                              334,731

INDUSTRIAL MACHINERY AND COMPUTER EQUIPMENT (6.2%)
  Apple Computer                                                             5,300            246,450
  Compaq Computer Corporation*                                               4,200            190,575
  Hewlett-Packard Company                                                    3,200            238,400
                                                                                           ----------
                                                                                              675,425

INSTRUMENTS AND RELATED PRODUCTS (3.3%)
  Baxter International, Inc.                                                 3,000            109,125
  Becton Dickinson & Company                                                 2,500            145,625
  US Surgical Corporation                                                    5,000            104,375
                                                                                           ----------
                                                                                              359,125

INSURANCE CARRIERS (6.2%)
  American General Corporation                                               6,800            229,500
  American International Group                                               1,500            171,000
  Kemper Corporation                                                         4,000            186,500
  Ohio Casualty Corporation                                                  3,000             95,250
                                                                                           ----------
                                                                                              682,250
</TABLE>

                                       46
<PAGE>
 
                             Dreman Value Portfolio

                      Schedule of Investments (continued)

<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES
                                                                         OR PRINCIPAL
                                                                            AMOUNT            VALUE
                                                                      --------------------------------

<S>                                                                       <C>             <C>
COMMON STOCKS (CONTINUED)

LUMBER AND WOOD PRODUCTS (2.5%)
  Louisiana-Pacific Corporation                                             10,200        $   267,750

NONDEPOSITORY INSTITUTION (10.3%)
  Federal National Mortgage Association                                      5,400            509,625
  Federal Home Loan Mortgage Corporation                                     8,200            563,750
  Travelers, Inc.                                                            1,200             52,500
                                                                                          -----------
                                                                                            1,125,875

STONE, CLAY, GLASS, AND CONCRETE PRODUCTS (1.5%)
  Hanson PLC                                                                 9,000            158,625

TEXTILE MILL PRODUCTS (1.5%)
  Fruit of the Loom, Inc.*                                                   7,500            158,438

TOBACCO PRODUCTS (4.9%)
  Philip Morris Company, Inc.                                                7,200            535,500

TRANSPORTATION EQUIPMENT (9.6%)
  Boeing Company                                                               700             43,838
  Ford Motor Company                                                        19,900            592,025
  General Electric Company                                                   7,200            405,900
                                                                                          -----------
                                                                                            1,041,763
                                                                                          -----------

TOTAL COMMON STOCKS (Cost $9,386,090)                                                      10,787,019

SHORT-TERM SECURITIES (0.6%)

TIME DEPOSITS (0.6%)
  State Street Bank, 4.90%, due 7/3/95                                    $ 70,264             70,264
                                                                                          -----------

TOTAL SHORT-TERM SECURITIES (Cost $70,264)                                                     70,264
                                                                                          -----------

TOTAL INVESTMENTS (100.0%) (Cost $9,456,354)                                              $10,857,283
                                                                                          ===========
</TABLE>

* Non-income producing

                                       47
<PAGE>
 
                             Dreman Value Portfolio

                      Schedule of Investments (continued)


OTHER INFORMATION:
   Purchases and sales of securities, excluding short-term securities, for the
   year ended June 30, 1995, aggregated $2,963,897 and $2,710,082, respectively.
   Net unrealized appreciation for tax purposes aggregated $1,400,929, of which
   $1,672,314 related to appreciated investment securities and $271,385 related
   to depreciated investment securities. The aggregate cost of securities is the
   same for book and tax purposes.

SEE ACCOMPANYING NOTES.


                                       48
<PAGE>
 
                       Zweig Equity (Small Cap) Portfolio

                      Statement of Assets and Liabilities

                                 June 30, 1995


<TABLE>
<S>                                                                                    <C>
ASSETS
Investment in securities, at value (cost $6,888,020)
  (NOTE 1)-See accompanying schedule                                                   $  8,022,663
Cash                                                                                         14,483
Dividends, interest and other receivables                                                    14,935
                                                                                       ------------
TOTAL ASSETS                                                                              8,052,081

LIABILITIES
Accounts payable and accrued expenses                                                        18,289
                                                                                       ------------
TOTAL LIABILITIES                                                                            18,289
                                                                                       ------------

NET ASSETS                                                                             $  8,033,792
                                                                                       ============

Net Assets consist of:
  Paid-in capital                                                                      $  7,256,655
  Undistributed net investment income                                                       119,325
  Undistributed net realized loss on investment securities, and futures and
    options contracts                                                                      (461,002)
  Net unrealized appreciation on investment securities and futures
    contracts                                                                             1,118,814
                                                                                       ------------

NET ASSETS, for 691,384 shares outstanding                                             $  8,033,792
                                                                                       ============

NET ASSET VALUE, offering and redemption price per share                               $      11.62
                                                                                       ============
</TABLE>

SEE ACCOMPANYING NOTES.

                                       49
<PAGE>
 
                       Zweig Equity (Small Cap) Portfolio

                            Statement of Operations

                            Year Ended June 30, 1995


<TABLE>
<S>                                                                                   <C>
INVESTMENT INCOME
  Dividends                                                                           $     105,415
  Interest                                                                                  134,610
                                                                                      -------------
    Total investment income                                                                 240,025

EXPENSES (NOTE 2)
  Investment advisory and management fees                                                    81,405
  Custody and accounting fees                                                                17,444
  Professional fees                                                                          14,202
  Directors' fees and expenses                                                                4,950
  Other expenses                                                                              5,373
                                                                                      -------------
    Total expenses before reimbursement                                                     123,374
    Less:  expense reimbursement (Note 2)                                                    (2,773)
                                                                                      -------------
    Net expenses                                                                            120,601
                                                                                      -------------
Net investment income                                                                       119,424

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 1)
  Net realized loss on:
    Investment securities                                                                  (101,145)
    Futures and options contracts                                                          (288,630)
                                                                                      -------------
      Net realized loss                                                                    (389,775)
  Change in unrealized appreciation (depreciation) on:
    Investment securities                                                                 1,130,943
    Futures contracts                                                                       (87,154)
                                                                                      -------------
      Change in unrealized appreciation (depreciation)                                    1,043,789
                                                                                      -------------
Net realized and unrealized gain on investments                                             654,014
                                                                                      -------------

Net increase in net assets resulting from operations                                  $     773,438
                                                                                      =============
</TABLE>

SEE ACCOMPANYING NOTES.
                                       50
<PAGE>
 
                       Zweig Equity (Small Cap) Portfolio

                      Statements of Changes in Net Assets

<TABLE>
<CAPTION>
                                                                           YEAR ENDED JUNE 30,
                                                                        1995                 1994
                                                                      -----------------------------

<S>                                                                    <C>              <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
  Net investment income                                                $   119,424      $    94,020
  Net realized loss on investments                                        (389,775)         (33,622)
  Net unrealized appreciation                                            1,043,789           75,374
                                                                       ----------------------------
    Net increase in net assets resulting from operations                   773,438          135,772

Distributions to shareholders from:
  Net investment income                                                    (40,100)         (55,000)
  Net realized gains                                                       (50,400)               -
                                                                       ----------------------------
    Total distributions to shareholders                                    (90,500)         (55,000)

Capital share transactions:
  Proceeds from sales of shares                                          1,913,641        6,145,556
  Proceeds from reinvested distributions                                    90,500           55,000
  Cost of shares redeemed                                               (2,244,234)        (806,015)
                                                                       ----------------------------
    Net increase (decrease) in net assets resulting from
      share transactions                                                  (240,093)       5,394,541
                                                                       ----------------------------

Total increase in net assets                                               442,845        5,475,313

NET ASSETS
Beginning of year                                                        7,590,947        2,115,634
                                                                       ----------------------------

End of year (including undistributed net investment income of
  $119,325 and $44,194, respectively)                                  $ 8,033,792      $ 7,590,947
                                                                       ============================

OTHER INFORMATION
Shares:
  Sold                                                                     178,821          572,867
  Issued through reinvestment of distributions                               8,378            5,123
  Redeemed                                                                (208,320)         (74,812)
                                                                       ----------------------------
    Net increase (decrease)                                                (21,121)         503,178
                                                                       ============================
</TABLE>

SEE ACCOMPANYING NOTES.

                                       51
<PAGE>
 
                       Zweig Equity (Small Cap) Portfolio

                              Financial Highlights

<TABLE>
<CAPTION>
                                                                                         DECEMBER 14,
                                                                                             1992
                                                                                        (COMMENCEMENT
                                                 YEAR ENDED          YEAR ENDED         OF OPERATIONS)
                                                  JUNE 30,            JUNE 30,         THROUGH JUNE 30,
                                                    1995                1994                1993(B)
                                             ---------------------------------------------------------------

<S>                                            <C>                <C>                   <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period           $     10.65        $      10.11          $      10.00
Income from investment operations:
  Net investment income                               0.17                0.15                  0.05
  Net realized and unrealized gain on
    investments                                       0.93                0.50                  0.06
                                             ---------------------------------------------------------------
  Total from investment operations                    1.10                0.65                  0.11
Less distributions:
  From net investment income                         (0.06)              (0.11)                    -
  From net realized gain                             (0.07)                  -                     -
                                             ---------------------------------------------------------------
    Total distributions                              (0.13)              (0.11)                    -
                                             ---------------------------------------------------------------

Net asset value, end of period                 $     11.62        $      10.65          $      10.11
                                             ===============================================================

TOTAL RETURN(A)                                      10.39%               6.53%                 2.02%

RATIOS AND SUPPLEMENTAL DATA
  Net assets, end of period                    $ 8,033,792        $  7,590,947          $  2,115,634
  Ratio of expenses to average net assets             1.55%               1.72%                 1.61%
  Ratio of net investment income to
    average net assets                                1.54%               1.75%                 0.84%
  Ratio of expenses to average net assets
    before voluntary expense
    reimbursement (NOTE 2)                            1.59%               2.14%                 7.29%
  Ratio of net investment income (loss)
    to average net assets before
    voluntary expense reimbursement
    (NOTE 2)                                          1.50%               1.32%                (1.80%)
  Portfolio turnover rate                               67%                249%                   15%
</TABLE>

(A) Total returns are not annualized.

(B) Data expressed as a percentage are annualized as appropriate.

                                       52
<PAGE>
 
                       Zweig Equity (Small Cap) Portfolio

                            Schedule of Investments

                                 June 30, 1995


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      --------------------------------

<S>                                                                          <C>            <C>
COMMON STOCKS (87.2%)

AMUSEMENT AND RECREATION SERVICES (0.4%)
  Grand Casinos, Inc.*                                                         200          $  7,075
  Players International*                                                     1,350            27,169
                                                                                            --------
                                                                                              34,244

APPAREL AND ACCESSORY STORES (0.1%)
  Weyco Group, Inc.                                                            200             7,200

APPAREL AND OTHER TEXTILE PRODUCTS (0.3%)
  Hartmarx Corporation*                                                      1,000             5,000
  Quiksilver, Inc.*                                                            600            15,750
                                                                                            --------
                                                                                              20,750

BUSINESS SERVICES (4.1%)
  ADT, Limited*                                                              1,400            16,450
  American List Corporation                                                    660            19,470
  Amplicon, Inc.                                                               500             8,000
  CDI Corporation*                                                             200             4,100
  Comdisco, Inc.                                                               300             9,113
  Computer Language Research                                                 2,000            19,500
  Computer Task Group, Inc.                                                    200             2,800
  Computervision Corporation                                                 1,300             8,613
  Electro Rent Corporation*                                                  1,200            27,300
  Heritage Media Corporation*                                                  100             2,888
  Innerdyne*                                                                 1,900             5,344
  McGrath Rentcorp                                                           1,000            17,125
  Norstan, Inc.*                                                             1,000            23,750
  Orbotech Limited                                                             700             8,619
  Phoenix Technologies*                                                      2,500            26,875
  Pitson Services Group                                                        500            12,000
  Proteon, Inc.*                                                             1,200             7,125
  Regis Corporation*                                                           400             7,550
  Sterling Software, Inc.*                                                     200             7,700
  Sun Microsystems, Inc.*                                                      900            43,706
</TABLE>

                                       53
<PAGE>
 
                       Zweig Equity (Small Cap) Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ---------------------------------

<S>                                                                          <C>            <C>
COMMON STOCKS (CONTINUED)

BUSINESS SERVICES (4.1%) (CONTINUED)
  Triad Systems Corporation*                                                 2,800          $  20,125
  Union Corporation*                                                           300              4,763
  Volt Info Sciences, Inc.*                                                    300              9,000
  Xtra Corporation                                                             300             13,875
                                                                                            ---------
                                                                                              325,791
CHEMICALS AND ALLIED PRODUCTS (3.3%)
  Akzo Nobel NV                                                                300             17,925
  Cabot Corporation                                                            200             10,550
  Cambrex Corporation                                                          200              6,750
  Cytec Industries, Inc.*                                                      200              8,175
  Electrochemical Industries*                                                  400              1,550
  First Mississippi Corporation                                                800             27,300
  Geon Company                                                                 300              8,625
  Georgia Gulf Corporation                                                     300              9,788
  IMC Global, Inc.                                                             200             10,825
  Lilly Industries, Inc.                                                       600              7,200
  MacDermid, Inc.                                                              300             13,650
  Methanex Corporation*                                                        700              5,863
  Monsanto Company                                                             100              9,013
  Norsk Hydro                                                                1,000             41,750
  Nova Corporation                                                           3,400             28,900
  Olin Corporation                                                             200             10,300
  Rexene Corporation*                                                          700              8,663
  Sterling Chemicals, Inc.                                                     800              9,300
  Union Carbide Corporation                                                    800             26,700
  Virgoro Corporation                                                          100              4,150
                                                                                            ---------
                                                                                              266,977

COMMUNICATIONS (0.6%)
  Komag, Inc.*                                                                 300             15,638
  Telefonica de Espana                                                         400             15,500
  US Long Distance Corporation*                                                200              3,238
  Vtel Corporation*                                                            800             10,600
                                                                                            ---------
                                                                                               44,976
</TABLE>

                                       54
<PAGE>
 
                       Zweig Equity (Small Cap) Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ----------------------------------

<S>                                                                          <C>            <C>
COMMON STOCKS (CONTINUED)

DEPOSITORY INSTITUTIONS (12.0%)
  Bank of Boston Corporation                                                 1,100          $  41,181
  Bank of New York Company, Inc.                                               900             36,338
  Bankamerica Corporation                                                      600             31,575
  Barclays PLC                                                                 400             17,400
  Barnett Banks, Inc.                                                          700             35,875
  Baybanks, Inc.                                                               200             15,875
  Boatmen's Bancshares, Inc.                                                   900             31,669
  Centura Banks, Inc.                                                          300              8,363
  Charter One Financial, Inc.                                                  300              7,369
  Chase Manhattan Corporation                                                  600             28,200
  Chemical Banking Corporation                                                 900             42,525
  City National Corporation                                                    900             10,238
  Comerica, Inc.                                                             1,200             38,550
  Commerce Bancshares, Inc.                                                    600             18,750
  Crestar Financial Corporation                                                300             14,700
  Cullen/Frost Bankers, Inc.                                                   100              4,063
  CVB Financial Corporation                                                    121              1,543
  Deposit Guaranty Corporation                                                 300             11,625
  Dime Bancorp, Inc.*                                                          500              5,000
  Eagle Financial Corporation                                                  210              4,568
  First American Corporation-Tennessee*                                        200              7,188
  First Bank System, Inc.                                                      400             16,400
  First Chicago Corporation                                                    600             35,925
  First Empire State Corporation                                               100             17,150
  First Fidelity Bancorp                                                       300             17,700
  First Interstate Bancorp                                                     400             32,100
  First Tennessee National Corporation                                         100              4,631
  First Union Corporation                                                      300             13,575
  Firstier Financial, Inc.                                                     150              5,569
  Fleet Financial Group, Inc.                                                  500             18,563
  Hibernia Corporation                                                       1,200             10,650
  Hubco, Inc.                                                                  450              8,016
  Liberty Bankcorp., Inc. -Oklahoma                                            300              9,750
  Magna Group, Inc.                                                            500             11,063
  Mercantile Bancorp                                                           300             13,463
  Michigan National Corporation                                                115             12,219
  Mid-America Bancorp                                                          212              3,578
</TABLE>

                                       55
<PAGE>
 
                       Zweig Equity (Small Cap) Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ---------------------------------

<S>                                                                          <C>            <C>
COMMON STOCKS (CONTINUED)

DEPOSITORY INSTITUTIONS (12.0%) (CONTINUED)
  Midatlantic Corporation, Inc.                                                600          $  23,925
  National City Corporation                                                    500             14,688
  Nationsbank Corporation                                                      400             21,450
  National Westminster Bank                                                    700             36,575
  NBD Bancorp, Inc.                                                          1,100             35,200
  North Fork Bancorporation                                                    746             13,521
  Premier Bancorp*                                                             300              5,400
  Republic New York Corporation                                                700             39,200
  Riggs National Corporation Washington, D.C.*                               1,100             10,863
  Southern National Corporation                                                300              7,200
  Standard Federal Bancorp                                                     400             13,450
  Star Banc Corporation                                                        200              9,200
  TCF Financial Corporation                                                    300             14,250
  UJB Financial Corporation                                                    600             18,225
  Wells Fargo & Company                                                        100             18,025
  Westamerica Bancorporation                                                   100              3,725
  Westcorp                                                                     435              6,797
  Westpac Banking                                                            1,200             22,050
  Zions Bancorporation                                                         100              4,975
                                                                                            ---------
                                                                                              961,666

DURABLE GOODS, WHOLESALE (1.6%)
  Barnes Group, Inc.                                                           100              4,025
  Bearings, Inc.-Ohio                                                          200              6,125
  Bell Industries, Inc.*                                                       553             11,820
  Castle (A.M.) & Company                                                      500              9,063
  Commercial Metals Company                                                     33                891
  Envirosource, Inc.*                                                        1,900              8,550
  Hughes Supply, Inc.                                                          400              8,800
  Noland Company                                                               400              8,150
  Owens & Minor, Inc. Holding Company                                          500              6,250
  Pioneer Standard Electronics                                               1,050             25,988
  Rexel, Inc.*                                                               1,500             14,250
  Shelter Components Corporation                                             1,250             14,688
  Software Spectrum, Inc.*                                                     300              6,225
                                                                                            ---------
                                                                                              124,825
</TABLE>

                                       56
<PAGE>
 
                       Zweig Equity (Small Cap) Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ---------------------------------

<S>                                                                          <C>          <C>
COMMON STOCKS (CONTINUED)

ELECTRIC, GAS AND SANITARY SERVICE (4.7%)
  AEP Industries, Inc.                                                         900        $   19,238
  American Electric Power                                                      400            14,050
  Baltimore Gas & Electric                                                     700            17,500
  Boston Edison Company                                                        200             5,225
  Centerior Energy Corporation                                                 900             8,663
  Central Maine Power Company                                                  700             8,313
  CMS Energy Corporation                                                       400             9,850
  Coastal Corporation                                                        1,000            30,375
  Columbia Gas System*                                                         200             6,350
  DQE, Inc.                                                                    100             2,350
  Illinova Corporation                                                         300             7,613
  Laidlaw, Inc.                                                              1,500            14,438
  New England Electric System                                                  200             6,900
  Niagra Mohawk Power Corporation                                              600             8,850
  Northeast Utilities                                                          700            15,750
  Northern States Power                                                        300            13,838
  Northwest Natural Gas Company                                                101             3,137
  Pacific Enterprises                                                            1                25
  Pacific Gas & Electric                                                       900            26,100
  Pacificorp                                                                   800            15,000
  Pinnacle West Corporation                                                    300             7,350
  Portland General Corporation                                                 200             4,425
  Public Service Company of New Mexico*                                        600             8,550
  Republic Waste Industries*                                                   400             5,200
  Rochester Gas & Electric                                                     400             8,500
  Scecorp                                                                    1,500            25,688
  Sierra Pacific Resources                                                     500            10,875
  Southern Union Company*                                                      100             1,813
  St. Joseph Light & Power                                                     300             8,475
  Unicom Corporation                                                           900            23,963
  Upper Peninsula Energy Corporation                                           300             4,950
  Westcoast Energy, Inc.                                                       800            11,800
  Western Waste Industries*                                                    800            16,100
  Williams Companies, Inc.                                                     206             7,184
                                                                                          ----------
                                                                                             378,438
</TABLE>

                                       57
<PAGE>
 
                       Zweig Equity (Small Cap) Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ---------------------------------

<S>                                                                          <C>            <C>
COMMON STOCKS (CONTINUED)

ELECTRONIC AND OTHER ELECTRICAL EQUIPMENT (8.5%)
  Acme Cleveland Corporation                                                   600          $  14,175
  Advance Circuits, Inc.*                                                      300              5,363
  Advanced Micro Devices*                                                    1,200             43,650
  Altron, Inc.*                                                              1,500             36,188
  Applied Power, Inc.                                                          200              5,775
  Boston Acoustics, Inc.                                                       400              7,550
  Burr-Brown Corporation*                                                      450             12,150
  Charter Power Systems                                                        600             14,400
  Computer Products, Inc.*                                                   2,400             14,850
  CTS Corporation                                                              100              3,050
  Cypress Semiconductor Corporation*                                           300             12,150
  Dynamics Corporation of America                                              100              2,288
  Electro Scientific Industries, Inc.*                                         300             10,013
  Electrolux AB                                                                200              9,100
  Electromagnetic Sciences, Inc.*                                              700             10,675
  Franklin Electronic Publishers, Inc.*                                        200              5,125
  Genlyte Group, Inc.*                                                       1,300              7,638
  Hadco Corporation*                                                           700             17,325
  Harmon International                                                         300             12,150
  Helen of Troy Limited*                                                       500             10,313
  Integrated Device Technology, Inc.*                                          400             18,475
  Intel Corporation                                                            600             37,988
  International Jensen, Inc.*                                                  700              4,988
  International Rectifier Corporation*                                         700             22,750
  Lamson & Sessions Company*                                                   400              2,300
  LSI Logic Corporation*                                                     1,200             46,950
  Maytag Corporation                                                           900             14,400
  Microcom, Inc.*                                                              700             10,588
  Micron Technology, Inc.                                                      700             38,413
  National Semiconductor Corporation*                                          800             22,200
  Opti, Inc.*                                                                  500             11,438
  Park Electrochemical Corporation                                             300             15,188
  Philips Electronics                                                        1,000             42,750
  Recoton Corporation*                                                         199              3,806
  Rogers Corporation*                                                          300             16,613
  Siliconix, Inc.*                                                           1,500             28,500
  Standard Microsystems Corporation*                                           700             10,719
  Standard Motor Products                                                      400              8,100
</TABLE>

                                       58
<PAGE>
 
                       Zweig Equity (Small Cap) Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ----------------------------------

<S>                                                                          <C>            <C>
COMMON STOCKS (CONTINUED)

ELECTRONIC AND OTHER ELECTRICAL EQUIPMENT (8.5%) (CONTINUED)
  Technitrol, Inc.                                                             500          $  7,125
  Texas Instruments, Inc.                                                      300            40,163
  Thomas Industries, Inc.                                                      300             4,913
  Windmere Corporation                                                       1,100             9,075
  Zitel Corporation*                                                           700             7,831
                                                                                            --------
                                                                                             679,201
FABRICATED METAL (2.9%)
  Alltrista Corporation*                                                       700            13,563
  Amcast Industrial Corporation                                                500             9,500
  Armco, Inc.*                                                               1,300             8,775
  Ball Corporation                                                             200             6,975
  Blount, Inc.                                                                 400            17,850
  BMC Industries, Inc.                                                         600            15,075
  Brenco, Inc.                                                                 700             8,444
  Brush Wellman, Inc.                                                          800            17,100
  Central Sprinkler Corporation*                                               400             9,600
  Cleveland-Cliffs, Inc.                                                       200             7,700
  Comico Limited                                                               300             5,513
  Continental Can, Inc.*                                                       300             7,238
  Douglas & Lomason Company                                                    300             4,350
  Elco Industries, Inc.                                                        200             3,750
  Griffon Corporation*                                                       1,000             8,000
  International Aluminum Company                                               100             3,175
  Mueller Industries, Inc.*                                                    200             9,850
  Parker-Hannifin Corporation                                                  300            10,875
  Phelps Dodge                                                                 300            17,700
  Pitt-Des Moines, Inc.                                                        100             3,388
  SPS Technologies, Inc.*                                                      300            11,288
  Synalloy Corporation                                                         450             8,578
  Timken Company                                                               200             9,225
  U.S. Can Corporation*                                                        400             6,250
  United Dominion Industries                                                   100             2,250
  Valmont Industries                                                           300             6,356
                                                                                            --------
                                                                                             232,368
FOOD AND KINDRED PRODUCTS (2.2%)
  American Maize-Products                                                      300            10,163
  Archer Daniels Midland                                                     1,900            35,388
</TABLE>

                                       59
<PAGE>
 
                       Zweig Equity (Small Cap) Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ---------------------------------

<S>                                                                          <C>            <C>
COMMON STOCKS (CONTINUED)

FOOD AND KINDRED PRODUCTS (2.2%) (CONTINUED)
  Chock Full O Nuts Corporation*                                             1,200          $  8,250
  Coca Cola Enterprises, Inc.                                                1,600            35,000
  Goodmark Foods                                                             1,300            20,475
  Hudson Foods, Inc.                                                         1,200            16,650
  IBP, Inc.                                                                    400            17,400
  International Multifoods Corporation                                         400             9,000
  Morningstar Group, Inc.*                                                     600             4,200
  Orange Company, Inc.*                                                        300             1,875
  Seneca Foods Corporation*                                                    200             7,150
  Smithfield Foods, Inc.*                                                      100             2,131
  WLR Foods, Inc.                                                              900            12,769
                                                                                            --------
                                                                                             180,451
FOOD STORES (0.9%)
  Great Atlantic & Pacific Tea Company                                         300             7,913
  Kroger Company*                                                              600            16,125
  Riser Foods, Inc.*                                                           800             8,100
  Safeway, Inc.*                                                             1,000            37,375
  Smith's Food and Drug Centers                                                300             5,925
                                                                                            --------
                                                                                              75,438

FURNITURE AND FIXTURES (0.6%)
  Bush Industries                                                            1,125            12,656
  Chromcraft Revington, Inc.*                                                  500            10,375
  Falcon Products, Inc.                                                        600             7,425
  Kinetic Concepts                                                           1,100             7,700
  Lear Seating Corporation*                                                    400             9,150
                                                                                            --------
                                                                                              47,306

GENERAL BUILDING CONTRACTORS (0.3%)
  Del E. Webb Corporation                                                      300             6,975
  MDC Holdings, Inc.                                                         1,800            11,250
  US Home Corporation*                                                         400             9,200
                                                                                            --------
                                                                                              27,425
GENERAL MERCHANDISE STORES (0.1%)
  Waban, Inc.*                                                                 500             7,438
</TABLE>

                                       60
<PAGE>
 
                       Zweig Equity (Small Cap) Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ---------------------------------

<S>                                                                          <C>            <C>
COMMON STOCKS (CONTINUED)

HEALTH SERVICES (0.4%)
  Maxicare Health Plans, Inc.*                                                 500          $  7,688
  Ornda Healthcorp.*                                                           400             6,875
  Sun Healthcare Group, Inc.*                                                  100             1,575
  Universal Health Services*                                                   500            14,500
                                                                                            --------
                                                                                              30,638

HEAVY CONSTRUCTION EXCEPT BUILDING CONSTRUCTION (0.1%)
  Granite Construction, Inc.                                                   500            11,188

HOLDING COMPANIES AND OTHER INVESTMENT OFFICES (1.6%)
  Banponce Corporation                                                         500            17,813
  Citicorp                                                                     700            40,513
  Comdata Holdings Corporation*                                                800            12,400
  CV Reit, Inc.                                                                400             3,600
  CWM Mortgage Holdings, Inc.                                                  800            10,200
  HRE Properties                                                               100             1,350
  Mesa Royalty Trust                                                           200             7,950
  Norwest Corporation                                                          600            17,250
  Penn Virginia Corporation                                                    200             5,675
  Storage Equities, Inc.                                                       500             8,188
                                                                                            --------
                                                                                             124,939

HOTELS AND OTHER LODGING PLACES (0.1%)
  Club Med, Inc.                                                               100             3,188
  Prime Hospitality Corporation*                                               600             5,925
                                                                                            --------     
                                                                                               9,113

INDUSTRIAL MACHINERY AND EQUIPMENT (8.5%)
  AGCO Corporation                                                             600            22,500
  Amdahl Corporation                                                         1,500            16,688
  Ampco-Pittsburgh                                                             400             3,650
  Apertus Technologies, Inc.*                                                  900             7,819
  Apple Computer                                                               700            32,550
</TABLE>

                                       61
<PAGE>
 
                       Zweig Equity (Small Cap) Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ---------------------------------

<S>                                                                          <C>            <C>
COMMON STOCKS (CONTINUED)

INDUSTRIAL MACHINERY AND EQUIPMENT (8.5%) (CONTINUED)
  BHA Group, Inc.                                                              600          $  7,875
  BJ Service Company                                                           120               510
  Black & Decker Corporation                                                   300             9,263
  Briggs & Stratton                                                            400            13,800
  Cascade Corporation                                                          500             7,938
  Case Corporation                                                             100             2,975
  Caterpillar, Inc.                                                            200            12,850
  Commercial Intertech Corporation                                             300             4,800
  Compaq Computer Corporation*                                                 400            18,150
  Cummins Engine Company, Inc.                                                 200             8,725
  Deere and Company                                                            200            17,125
  Dell Computer Corporation*                                                   100             6,019
  Digital Equipment*                                                           400            16,300
  Dynatech Corporation*                                                        400             7,600
  Esterline Technologies Corporation*                                        1,000            22,625
  Exabyte Corporation*                                                         500             6,906
  Fedders Corporation                                                        2,750            15,194
  Gardner Denver Machinery, Inc.*                                              500             8,750
  Gleason Corporation                                                          300             6,638
  Graco, Inc.                                                                  300             8,063
  Harris Corporation                                                           100             5,163
  Indresco*                                                                  1,000            15,500
  International Business Machines Corporation                                  400            38,400
  JLG Industries                                                             1,000            26,125
  Kulicke & Soffa Industries*                                                  500            33,188
  Kysor Industrial Corporation                                                 400             8,300
  Mestek, Inc.*                                                                400             5,075
  Nacco Industries                                                             200            11,975
  Nortek, Inc.*                                                                500             4,313
  Novellus Systems, Inc.*                                                      200            13,550
  Outboard Marine Corporation                                                  900            17,663
  Pacific Scientific Companies                                                 100             1,788
  Photronics, Inc.*                                                            900            27,450
  Printronix, Inc.*                                                            500            13,875
  Proxima Corporation*                                                         300             7,200
  Quantum Corporation*                                                         400             9,200
</TABLE>

                                       62
<PAGE>
 
                       Zweig Equity (Small Cap) Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ---------------------------------

<S>                                                                          <C>            <C>
COMMON STOCKS (CONTINUED)

INDUSTRIAL MACHINERY AND EQUIPMENT (8.5%) (CONTINUED)
  Regal Beloit                                                                 800          $  12,400
  Robbins & Meyers, Inc.                                                       100              2,738
  Seagate Technology, Inc.*                                                    400             15,700
  Sequent Computer, Inc.*                                                      600             10,688
  Smith International, Inc.*                                                 1,100             18,425
  Standex International Corporation                                            300              9,450
  Tandem Computers, Inc.*                                                    1,000             16,125
  Tandy Corporation                                                            300             15,563
  Tecumseh Products Company                                                    400             17,500
  Toro Company                                                                 500             14,000
  Twin Disc, Inc.                                                              100              2,500
  Western Digital Corporation*                                               1,000             17,375
  Wynn's International, Inc.                                                   350              8,138
                                                                                            ---------
                                                                                              684,680

INSTRUMENTS AND RELATED PRODUCTS (2.5%)
  Allied Healthcare Products                                                   600              9,488
  Bio-Rad Laboratories*                                                        300             10,800
  Coherent, Inc.*                                                              400             11,800
  General Motors Corporation                                                   500             19,750
  Loral Corporation                                                            500             25,875
  LTX Corporation*                                                             300              2,681
  Medrad, Inc.*                                                                500              8,438
  Mentor Corporation/Minnesota                                               1,000             27,750
  Newport Corporation                                                          900              8,269
  Optical Coating Laboratories                                               2,700             24,638
  Sci Systems, Inc.*                                                           300              7,481
  Tech-Sym Corporation*                                                        300              8,213
  Tektronix, Inc.                                                              400             19,700
  Watkins-Johnson Company                                                      300             13,350
                                                                                            ---------
                                                                                              198,233

INSURANCE AGENTS, BROKERS AND SERVICE (0.2%)
  Poe & Brown, Inc.                                                            600             14,325
</TABLE>

                                       63
<PAGE>
 
                       Zweig Equity (Small Cap) Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ---------------------------------

<S>                                                                          <C>            <C>
COMMON STOCKS (CONTINUED)

INSURANCE CARRIERS (5.2%)
  Aegon NV                                                                     750          $  26,156
  Aetna Life & Casualty Co.                                                    400             25,150
  Allstate Corporation                                                         800             23,700
  Ambac, Inc.                                                                  200              8,025
  American National Insurance                                                  100              6,063
  American Re Corporation                                                      200              7,450
  Avemco Corporation                                                           100              1,738
  Cigna Corporation                                                            500             38,813
  CNA Financial Corporation                                                    200             17,275
  Equitable Companies, Inc.                                                    700             14,613
  Exel Limited                                                                 200             10,400
  Guaranty National Corporation                                                400              7,400
  Loews Corporation                                                            200             24,200
  MBIA, Inc.                                                                   200             13,300
  Meridian Insurance Group, Inc.                                               700              9,144
  NAC Re Corporation                                                           100              3,113
  National Re Corporation                                                      300             10,050
  Old Republic International Corporation                                       400             10,450
  Partnerre Holdings                                                           300              7,819
  Pioneer Financial Services, Inc.                                             700             10,325
  Protective Life Corporation                                                  200              5,450
  Pxre Corporation                                                             300              7,069
  Reliastar Financial Corporation                                              414             15,836
  RLI Corporation                                                              375              8,531
  Selective Insurance Group                                                    300              9,825
  St. Paul Companies                                                           700             34,475
  Transatlantic Holdings, Inc.                                                 100              6,500
  United Companies Financial Corporation                                       165              7,404
  USF&G Corporation                                                          1,100             17,875
  USLife Corporation                                                           200              8,050
  Washington National Corporation                                              500             10,313
  Western National Corporation                                                 600              7,425
                                                                                            ---------
                                                                                              413,937

LEATHER AND LEATHER PRODUCTS (0.2%)
  Vista Resources, Inc.*                                                       700             14,175
</TABLE>

                                       64
<PAGE>
 
                       Zweig Equity (Small Cap) Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ---------------------------------

<S>                                                                          <C>            <C>
COMMON STOCKS (CONTINUED)

LUMBER AND WOOD PRODUCTS (1.0%)
  Butler Manufacturing Company                                                 100          $  4,188
  Champion Enterprises, Inc.*                                                  400             6,350
  Georgia-Pacific Corporation                                                  300            26,025
  Macmillian Bloedel Limited                                                   600             8,438
  Rayonier, Inc.                                                               200             7,100
  Willamette Industries                                                        500            27,625
                                                                                            --------
                                                                                              79,726

METAL MINING (0.7%)
  Asarco, Inc.                                                                 300             9,150
  Cyprus Amax Minerals Companies                                             1,100            31,350
  Magma Copper Company*                                                      1,000            16,250
                                                                                            --------
                                                                                              56,750

MISCELLANEOUS MANUFACTURING INDUSTRIES (0.4%)
  Cobra Golf, Inc.*                                                            300             9,488
  First Team Sports*                                                           400             9,275
  Fuji Photo Film                                                              200             9,463
  Stephan Company                                                              400             6,850
                                                                                            --------
                                                                                              35,076

MISCELLANEOUS RETAIL (1.6%)
  Big B, Inc.                                                                1,000            14,000
  Bon-Ton Stores*                                                              800             8,400
  Fabri-Centers of America*                                                    400             8,300
  Fay's, Inc.                                                                  500             3,813
  Federated Department Stores*                                                 900            23,175
  Good Guys, Inc.*                                                           1,200            13,275
  Intertan, Inc.*                                                              500             3,750
  Oneida Limited                                                               600             8,850
  Pier 1 Imports, Inc.                                                         900             8,325
  Proffitt's, Inc.*                                                            100             2,950
  Sears Roebuck & Company                                                      400            23,950
  Trak Auto Corporation*                                                       400             6,750
                                                                                            --------
                                                                                             125,538
</TABLE>

                                       65
<PAGE>
 
                       Zweig Equity (Small Cap) Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ---------------------------------

<S>                                                                          <C>            <C>
COMMON STOCKS (CONTINUED)

NONDEPOSITORY INSTITUTION (2.8%)
  American Annuity Group, Inc.                                                 200          $  1,975
  American Express Company                                                   1,000            35,125
  Astoria Financial Corporation*                                               200             7,175
  Bay Ridge Bancorp, Inc.*                                                     400             8,325
  Dean Witter Discover & Company                                               400            18,800
  Finova Group                                                                 200             7,000
  Foothill Group, Inc.                                                       1,000            25,500
  Greenpoint Financial Corporation                                             300             7,088
  Household International, Inc.                                                700            34,650
  Midland Company                                                              200             8,750
  The Money Store, Inc.                                                        500            17,938
  Transamerica Corporation                                                     500            29,125
  Travelers, Inc.                                                              400            17,500
  White River Corporation*                                                     200             6,800
                                                                                            --------
                                                                                             225,751

NONDURABLE GOODS, WHOLESALE (0.9%)
  Bindley Western Industries                                                   500             7,938
  Hawkins Chemical, Inc.                                                       346             2,336
  International Recovery Corporation                                           450             6,638
  Super Food Services, Inc.                                                  1,000            11,875
  Super Rite Corporation*                                                    1,200            26,175
  Terra Industries, Inc.                                                     1,600            19,400
                                                                                            --------
                                                                                              74,362

NONMETALLIC MINING (0.1%)
  Potash Corporation Sask, Inc.                                                200            11,175


OIL AND GAS EXTRACTION (1.0%)
  Atwood Oceanics*                                                           1,500            24,188
  Chesapeake Energy Corporation*                                               700            18,025
  Crystal Oil Company*                                                         200             6,150
  International Petroleum Corporation*                                       4,600            15,094
  Petroleum Geo-Services*                                                      400            11,500
  Pride Petroleum Services, Inc.*                                              900             6,694
                                                                                            --------
                                                                                              81,651
</TABLE>

                                       66
<PAGE>
 
                       Zweig Equity (Small Cap) Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ---------------------------------

<S>                                                                            <C>          <C>
COMMON STOCKS (CONTINUED)

PAPER AND ALLIED PRODUCTS (3.0%)
  ACX Technologies, Inc.*                                                      100          $  4,138
  American Israeli Paper Mills                                                 200            10,600
  American Filtrona Corporation                                                300             9,000
  Boise Cascade Corporation                                                    300            12,150
  Bowater, Inc.                                                                500            22,438
  Champion International Corporation                                           800            41,700
  Chesapeake Corporation                                                       300             9,338
  Domtar, Inc.*                                                                700             6,650
  Federal Paper Board Company                                                  300            10,613
  International Paper Company                                                  300            25,725
  James River Corporation of Virginia                                          300             8,288
  Manville Corporation*                                                        900            12,375
  Mead Corporation                                                             400            23,750
  Mercer International, Inc.*                                                  700            14,744
  Mosinee Paper Corporation                                                    100             2,200
  Premark International, Inc.                                                  300            15,563
  Republic Gypsum Company                                                      500             5,000
  Westavco Corporation                                                         100             4,425
                                                                                            --------
                                                                                             238,697

PETROLEUM AND COAL INDUSTRIES (0.9%)
  Ashland Oil, Inc.                                                            300             8,025
  Diamond Shamrock, Inc.                                                       400            10,300
  Fina, Inc.                                                                   200             9,325
  British Petroleum                                                            400            34,250
  USX Marathon Group                                                           700            13,825
                                                                                            --------
                                                                                              75,725

PRIMARY METAL INDUSTRIES (2.0%)
  AK Steel Holding Corporation*                                                100             2,725
  Alcan Aluminum, Limited                                                      600            18,150
  Alumax, Inc.*                                                                300             9,338
  Aluminum Company of America                                                  700            35,088
  Carpenter Technology                                                         300            20,438
  LTV Corporation*                                                             900            13,163
</TABLE>

                                       67
<PAGE>
 
                       Zweig Equity (Small Cap) Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ---------------------------------

<S>                                                                          <C>             <C>
COMMON STOCKS (CONTINUED)

PRIMARY METAL INDUSTRIES (2.0%) (CONTINUED)
  National Steel Corporation*                                                  600           $  9,300
  Quanex Corporation                                                           100              2,475
  Roanoke Electric Corporation                                                 900             10,350
  Steel of West Virginia, Inc.*                                                400              4,600
  Texas Industries, Inc.                                                       300             11,663
  USX-U.S.Steel Company                                                        400             13,750
  WHX Corporation*                                                             600              7,050
                                                                                             --------
                                                                                              158,090

PRINTING AND PUBLISHING (0.6%)
  Devon Group, Inc.*                                                           200              5,850
  Graphic Industries                                                         1,400             14,088
  Media General, Inc.                                                          300              9,150
  Plenum Publishing Corporation                                                200              7,075
  Reynolds & Reynolds                                                          400             11,800
                                                                                             --------
                                                                                               47,963
RAILROAD TRANSPORTATION (0.6%)
  Conrail, Inc.                                                                500             27,813
  CSX Corporation                                                              200             15,025
  Santa Fe Pacific Corporation                                                 305              7,778
                                                                                             --------
                                                                                               50,616

REAL ESTATE (0.2%)
  Centerpoint Properties Corporation                                           400              8,250
  Patten Corporation*                                                        2,192              7,124
                                                                                             --------
                                                                                               15,374

RUBBER AND MISCELLANEOUS PLASTICS PRODUCTS (1.1%)
  ESSEF Corporation*                                                           700             11,200
  Furon Company*                                                               900             19,800
  Goodyear Tire & Rubber Co.                                                   800             33,000
  O'Sullivan Corporation                                                       300              3,450
  Tredegar Industries, Inc.                                                    400              9,950
  Tuscarora, Inc.                                                              400              9,425
                                                                                             --------
                                                                                               86,825
</TABLE>

                                       68
<PAGE>
 
                       Zweig Equity (Small Cap) Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ----------------------------------

<S>                                                                          <C>             <C>
COMMON STOCKS (CONTINUED)

SECURITY AND COMMODITY BROKERS (0.6%)
  Alex Brown, Inc.                                                             100           $  4,150
  Eaton Vance Corporation                                                      600             19,575
  Jefferies Group                                                              200              7,375
  Quick & Reilly Group, Inc.                                                   315             11,419
  Sherwood Group, Inc.*                                                        400              3,300
                                                                                             --------
                                                                                               45,819
SPECIAL TRADE CONTRACTORS (0.1%)
  Anthony Industries, Inc.                                                     225              4,134

STONE, CLAY, GLASS AND CONCRETE PRODUCTS (1.0%)
  A.P. Green Industries, Inc.                                                  400              7,800
  Donnelly Corporation                                                         100              1,613
  Florida Rock Industries                                                      200              5,675
  Lafarge Corporation                                                          400              7,500
  Medusa Corporation                                                           700             17,413
  National Gypsum*                                                             400             20,950
  Puerto Rican Cement Company, Inc.                                            400             12,200
  Southdown, Inc.*                                                             100              1,913
  USG Corporation*                                                             300              7,125
                                                                                             --------
                                                                                               82,189

TEXTILE MILL PRODUCTS (0.5%)
  Crown Crafts, Inc.                                                           300              4,950
  Culp, Inc.                                                                 1,187              9,644
  Fieldcrest Cannon*                                                           600             12,975
  Guilford Mills, Inc.                                                         300              7,313
  Springs Industries, Inc.                                                     200              7,450
                                                                                             --------
                                                                                               42,332

TRANSPORTATION BY AIR (1.9%)
  AMR Corporation*                                                             500             37,313
  British Airways                                                              400             26,900
  Delta Air Lines, Inc.                                                        600             44,250
  Federal Express Corporation*                                                 500             30,375
  KLM Royal Dutch Air*                                                         400             13,050
                                                                                             --------
                                                                                              151,888
</TABLE>

                                       69
<PAGE>
 
                       Zweig Equity (Small Cap) Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ----------------------------------

<S>                                                                          <C>             <C>
COMMON STOCKS (CONTINUED)

TRANSPORTATION EQUIPMENT (3.7%)
  A.O. Smith Corporation                                                       100           $  2,350
  Chrysler Corporation                                                         400             19,150
  Coachmen Industries, Inc.                                                    500              7,625
  Dana Corporation                                                             500             14,313
  Durakon Industries, Inc.*                                                    800             12,300
  Ford Motor Company                                                         1,200             35,700
  Gencorp., Inc.                                                               600              6,450
  Magna International, Inc.*                                                   100              4,413
  McDonnell Douglas Corporation                                                500             38,310
  Navistar International*                                                      300              4,538
  Northrop Grumman Corporation                                                 200             10,425
  Oshkosh Truck Corporation                                                  1,200             14,850
  Paccar, Inc.                                                                 200              9,350
  RPC Energy Services, Inc.*                                                   400              3,625
  Simpson Industries                                                         1,900             21,138
  Teledyne, Inc.                                                               300              7,350
  Textron, Inc.                                                                200             11,625
  Thor Industries, Inc.                                                        300              5,925
  United Technologies Corporation                                              200             15,625
  Varlen Corporation                                                           385              8,951
  Volvo AB Sweden                                                            1,700             32,300
  Winnebago Industries                                                       1,600             14,000
                                                                                             --------
                                                                                              300,313

TRANSPORTATION SERVICES (0.2%)
  Ryder System, Inc.                                                           700             16,713

TRUCKING AND WAREHOUSING (0.5%)
  Builders Transport, Inc.*                                                    400              4,550
  Gatx Corporation                                                             300             14,138
  Matlack Systems, Inc.*                                                       600              6,000
  TNT Freightways Corporation                                                  600             12,000
                                                                                             --------
                                                                                               36,688
</TABLE>
                                       70
<PAGE>
 
                       Zweig Equity (Small Cap) Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                           NUMBER OF
                                                                            SHARES
                                                                         OR PRINCIPAL
                                                                            AMOUNT            VALUE
                                                                      ---------------------------------

<S>                                                                     <C>                <C>
COMMON STOCKS (CONTINUED)

WATER TRANSPORTATION (0.4%)
  International Shipholding Corporation                                        300         $    6,263
  Oglebay Norton Company                                                       500             16,938
  Stolt-Nielsen S.A.                                                           300              8,569
                                                                                           ----------
                                                                                               31,770
                                                                                           ----------

TOTAL COMMON STOCKS (Cost $5,856,388)                                                       6,990,887

PREFERRED STOCKS (0.05%)

PRINTING AND PUBLISHING (0.05%)
  News Corporation Limited                                                     200              4,000
                                                                                           ----------

TOTAL PREFERRED STOCKS (Cost $3,856)                                                            4,000

SHORT-TERM SECURITIES (12.8%)

U.S. GOVERNMENT AGENCY (7.5%)
  Federal National Mortgage Assoc. Discount Note, 5.88%, due 7/6/95     $  600,000            599,510

U.S. GOVERNMENT OBLIGATIONS (1.8%)
  U.S. Treasury Bills, 5.37%, due 9/12/95                                   50,000             49,389
  U.S. Treasury Bills, 5.57%, due 7/20/95                                  100,000             99,706
                                                                                           ----------
                                                                                              149,095
TIME DEPOSITS (3.5%)
  State Street Bank, 4.90%, due 7/3/95                                     279,171            279,171
                                                                                           ----------

TOTAL SHORT-TERM SECURITIES
  (Cost $1,027,776)                                                                         1,027,776
                                                                                           ----------
TOTAL INVESTMENTS (100.0%) (Cost $6,888,020)                                               $8,022,663
                                                                                           ==========
</TABLE>

                                       71
<PAGE>
 
                       Zweig Equity (Small Cap) Portfolio

                      Schedule of Investments (continued)


FUTURES CONTRACTS

<TABLE>
<CAPTION>
                                                                           CONTRACT
                                                         EXPIRATION         AMOUNT          UNREALIZED
                                                            DATE           AT VALUE            LOSS
                                                       --------------------------------------------------

<S>                                                        <C>            <C>               <C>
4 Mid-Cap S&P 500
  Futures Contracts-Short +                                9/15/95        $  399,100        $  (8,458)
4 S&P 500
  Futures Contracts-Short +                                9/15/95         1,094,300           (7,371)
                                                                       ----------------------------------

                                                                          $1,493,400        $ (15,829)
                                                                       ==================================
</TABLE>

+  The above futures contracts are collateralized by a U.S. Treasury Bill at
   $50,000 par value, due 9/21/95 and a U.S. Treasury Bill at $100,000 par
   value, due 7/20/95.

*  Non-income producing

OTHER INFORMATION:
   Purchases and sales of securities, excluding short-term securities, for the
   year ended June 30, 1995, aggregated $4,742,902 and $3,510,411, respectively.
   Net unrealized appreciation for tax purposes aggregated $1,134,347, of which
   $1,225,951 related to appreciated investment securities and $91,605 related
   to depreciated investment securities. The aggregate cost of securities for
   tax purposes is $6,888,316.

SEE ACCOMPANYING NOTES.


                                       72
<PAGE>
 
                    Mitchell Hutchins Fixed Income Portfolio

                      Statement of Assets and Liabilities

                                 June 30, 1995


<TABLE>
<S>                                                                                    <C>
ASSETS
Investment in securities, at value (cost $5,735,468)
  (NOTE 1)-See accompanying schedule                                                   $  5,847,480
Receivable for investment securities sold                                                   235,634
Dividends, interest and other receivables                                                   309,737
                                                                                       ------------
TOTAL ASSETS                                                                              6,392,851

LIABILITIES
Payable for investment securities purchased                                                 955,582
Cash overdraft                                                                                6,282
Accounts payable and accrued expenses                                                        15,490
                                                                                       ------------
TOTAL LIABILITIES                                                                           977,354
                                                                                       ------------

NET ASSETS                                                                             $  5,415,497
                                                                                       ============

Net Assets consist of:
  Paid-in capital                                                                      $  5,176,771
  Undistributed net investment income                                                       268,795
  Undistributed net realized loss on investments                                           (142,081)
  Net unrealized appreciation on investment securities                                      112,012
                                                                                       ------------

NET ASSETS, for 497,544 shares outstanding                                             $  5,415,497
                                                                                       ============

NET ASSET VALUE, offering and redemption price per share                               $      10.88
                                                                                       ============
</TABLE>

SEE ACCOMPANYING NOTES.

                                       73
<PAGE>
 
                    Mitchell Hutchins Fixed Income Portfolio

                            Statement of Operations

                            Year Ended June 30, 1995


<TABLE>
<S>                                                                                     <C>
INVESTMENT INCOME
  Interest                                                                              $  342,900

EXPENSES (NOTE 2)
  Investment advisory and management fees                                                   45,180
  Custody and accounting fees                                                               11,295
  Professional fees                                                                         14,202
  Directors' fees and expenses                                                               4,950
  Other expenses                                                                             4,586
                                                                                        ----------
    Total expenses before reimbursement                                                     80,213
    Less:  expense reimbursement (NOTE 2)                                                   (9,482)
                                                                                        ----------
    Net expenses                                                                            70,731
                                                                                        ----------
Net investment income                                                                      272,169

REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 1)
  Net realized gain on investments                                                          32,319
  Change in unrealized appreciation on investment securities                               253,467
                                                                                        ----------
Net realized and unrealized gain on investments                                            285,786
                                                                                        ----------

Net increase in net assets resulting from operations                                    $  557,955
                                                                                        ==========
</TABLE>

SEE ACCOMPANYING NOTES.

                                       74
<PAGE>
 
                    Mitchell Hutchins Fixed Income Portfolio

                      Statements of Changes in Net Assets

<TABLE>
<CAPTION>
                                                                            YEAR ENDED JUNE 30,
                                                                           1995            1994
                                                                      -----------------------------

<S>                                                                    <C>              <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
  Net investment income                                                $   272,169      $  111,168
  Net realized gain (loss) on investments                                   32,319        (172,426)
  Net unrealized appreciation (depreciation)                               253,467        (150,618)
                                                                      ----------------------------
    Net increase (decrease) in net assets resulting from
      operations                                                           557,955        (211,876)

Distributions to shareholders from:
  Net investment income                                                    (98,000)        (29,000)

Capital share transactions:
  Proceeds from sales of shares                                          2,673,991       4,925,555
  Proceeds from reinvested dividends                                        98,000          29,000
  Cost of shares redeemed                                               (2,676,948)       (759,016)
                                                                      ----------------------------
    Net increase in net assets resulting from share
      transactions                                                          95,043       4,195,539
                                                                      ----------------------------

Total increase in net assets                                               554,998       3,954,663

NET ASSETS
Beginning of year                                                        4,860,499         905,836
                                                                      ----------------------------

End of year (including undistributed net investment income of
  $268,795 and $91,264, respectively)                                  $ 5,415,497      $4,860,499
                                                                      ============================

OTHER INFORMATION
Shares:
  Sold                                                                     263,300         470,254
  Issued through reinvestment of dividends                                   9,744           2,756
  Redeemed                                                                (261,523)        (73,851)
                                                                      ----------------------------
    Net increase                                                            11,521         399,159
                                                                      ============================
</TABLE>

SEE ACCOMPANYING NOTES.

                                       75
<PAGE>
 
                    Mitchell Hutchins Fixed Income Portfolio

                              Financial Highlights


<TABLE>
<CAPTION>
                                                                                        JANUARY 5, 1993
                                                                                         (COMMENCEMENT
                                                 YEAR ENDED          YEAR ENDED          OF OPERATIONS)
                                                  JUNE 30,            JUNE 30,          THROUGH JUNE 30,
                                                    1995                1994                1993(B)
                                             --------------------------------------------------------------

<S>                                              <C>               <C>                  <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period             $     10.00       $      10.43         $      10.00
Income from investment operations:
  Net investment income                                 0.56               0.20                 0.19
  Net realized and unrealized gain (loss)
    on investments                                      0.53              (0.52)                0.24
                                             --------------------------------------------------------------
  Total from investment operations                      1.09              (0.32)                0.43
Less distributions:
  From net investment income                           (0.21)             (0.11)                   -
                                             --------------------------------------------------------------

Net asset value, end of period                   $     10.88       $      10.00         $      10.43
                                             ==============================================================

TOTAL RETURN(A)                                        11.08%             (3.06%)               8.67%

RATIOS AND SUPPLEMENTAL DATA
  Net assets, end of period                      $ 5,415,497       $  4,860,499         $    905,836
  Ratio of expenses to average net assets               1.40%              1.56%                1.56%
  Ratio of net investment income to
    average net assets                                  5.41%              3.62%                3.86%
  Ratio of expenses to average net assets
    before voluntary expense
    reimbursement (NOTE 2)                              1.59%              2.49%               15.72%
  Ratio of net investment income (loss)
    to average net assets before
    voluntary expense reimbursement
    (NOTE 2)                                            5.22%              2.68%               (1.64%)
  Portfolio turnover rate                                432%               527%                 103%
</TABLE>

(A) Total returns are not annualized.

(B) Data expressed as a percentage are annualized as appropriate.


                                       76
<PAGE>
 
                    Mitchell Hutchins Fixed Income Portfolio

                            Schedule of Investments

                                 June 30, 1995

<TABLE>
<CAPTION>
                                                                           PRINCIPAL
                                                                            AMOUNT            VALUE
                                                                      ----------------------------------

<S>                                                                      <C>              <C>  
CORPORATE BONDS (23.8%)

COMMUNICATIONS (1.2%)
  Consolidated Edison Company, 6.625%, due 7/1/2005                      $  70,000        $   69,131

DEPOSITORY INSTITUTIONS (7.3%)
  Bankamerica Corporation, 7.5%, due 10/15/2002                            100,000           102,936
  Citicorp, 8%, due 02/01/2003                                              35,000            37,212
  Great Western Bank, 9.875%, due 6/15/2001                                 70,000            79,087
  Mellon Financial Bank, 6.875%, due 03/01/2003                             40,000            39,862
  Midland Bank PLC, 7.65%, due 5/01/2025                                    40,000            42,281
  National Westminster Bank, 9.375%, due 11/15/2003                        110,000           126,339
                                                                                          ----------
                                                                                             427,717

DURABLE GOODS, WHOLESALE (2.1%)
  News America Corporation, 8.625%, due 2/1/2003                           115,000           124,030

ELECTRIC, GAS AND SANITARY SERVICE (1.8%)
  Citizen Utility Company, 7.6%, due 6/1/2006                              100,000           106,126

ELECTRONIC AND OTHER ELECTRICAL EQUIPMENT (4.2%)
  AT&T Corporation M-T-N, 6.3%, due 7/25/96                                140,000           140,493
  Phillips Electric Nv, 7.125%, due 5/15/2025                              100,000           102,669
                                                                                          ----------
                                                                                             243,162

NONDEPOSITORY INSTITUTION (4.7%)
  American General Finance, 7.25%, due 4/15/2000                           125,000           128,738
  Ford Motor Credit, 8%, due 12/1/97                                       140,000           145,081
                                                                                          ----------
                                                                                             273,819

SECURITY AND COMMODITY BROKERS (2.3%)
  Chase Manhattan, 7.5%, due 12/01/97                                      100,000           102,075
  Salomon CMO Series 93-C1 Class A1, 6.4%, due 1/18/2023                    32,983            32,818
                                                                                          ----------
                                                                                             134,893

TRANSPORTATION BY AIR (0.2%)
  Southwest Air, 9.4%, due 7/1/2001                                         10,000            11,224
                                                                                          ----------

TOTAL CORPORATE BONDS (Cost $1,350,631)                                                    1,390,102
</TABLE>

                                       77
<PAGE>
 
                    Mitchell Hutchins Fixed Income Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                           PRINCIPAL
                                                                            AMOUNT            VALUE
                                                                      ----------------------------------

<S>                                                                      <C>              <C>
GOVERNMENT DEBT SECURITIES (67.5%)

U.S. GOVERNMENT AGENCY-COLLATERALIZED MORTGAGE OBLIGATIONS (5.4%)
  Fed. Home Loan Mort. Corp., 7.83%, due 8/11/2004                       $  100,000       $  102,227
  Fed. Home Loan Mort. Corp., 8%, due 5/1/2014                               78,412           79,999
  Fed. Home Loan Mort. Corp., 8.585%, due 10/15/2006                         50,000           54,938
  Resolution Trust Corp. Series 95-C1, Class A-2B, 6.55%, due
    2/25/2027                                                                50,000           49,375
  Resolution Trust Corp. Series 95-C1, Class A-4B, 6.65%, due
    2/25/2027                                                                30,000           29,644
                                                                                          ----------
                                                                                             316,183

U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (21.7%)
  Federal National Mortgage Assoc., 5.85%, due 2/2/1998                     120,000          119,612
  Federal National Mortgage Assoc., 7%, due 6/10/2002*                      120,000          117,900
  Federal National Mortgage Assoc., 7.5%, due 7/25/2025*                    230,000          230,575
  Federal National Mortgage Assoc., 8%, due 11/1/2023*                      193,000          196,558
  Federal National Mortgage Assoc., 8.4%, due 2/25/2009                      40,000           43,375
  Federal National Mortgage Assoc., 8.5%, due 5/01/2009                     168,019          174,109
  Gover. National Mortgage Assoc., 8%, due 4/15/2022                        315,001          322,482
  Gover. National Mortgage Assoc., 8%, due 11/15/2006                        25,432           26,188
  Gover. National Mortgage Assoc., 8%, due 11/15/2006                        35,646           36,748
                                                                                          ----------
                                                                                           1,267,547

U.S. GOVERNMENT OBLIGATIONS (40.4%)
  FDIC Series 94 Class, 7.85%, due 9/25/2025                                 51,000           52,482
  U.S. Treasury Notes, 4.75%, due 8/31/1998                                 200,000          193,124
  U.S. Treasury Notes, 5.625%, due 1/31/1998                                 10,000            9,933
  U.S. Treasury Notes, 6.375%, due 8/15/2002                                160,000          161,899
  U.S. Treasury Notes, 6.5%, due 11/30/1996                                 140,000          141,291
  U.S. Treasury Notes, 6.5%, due 5/15/2005                                  110,000          112,372
  U.S. Treasury Notes, 6.75%, due 5/31/1999                                 455,000          466,944
  U.S. Treasury Notes, 7.125%, due 2/15/2023                                490,000          516,259
  U.S. Treasury Notes, 7.25%, due 5/15/2004                                 100,000          106,766
  U.S. Treasury Notes, 7.5%, due 2/15/2005                                  102,000          111,069
  U.S. Treasury Notes, 7.5%, due 5/15/2002                                  225,000          242,226
</TABLE>

                                       78
<PAGE>
 
                    Mitchell Hutchins Fixed Income Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                           PRINCIPAL
                                                                            AMOUNT            VALUE
                                                                      ----------------------------------

<S>                                                                       <C>             <C>               
U.S. GOVERNMENT OBLIGATIONS (40.4%) (CONTINUED)
  U.S. Treasury Notes, 7.625%, due 2/15/2025                              $  80,000       $   90,350
  U.S. Treasury Notes, 12%, due 8/15/2013                                   110,000          162,250
                                                                                          ----------
                                                                                           2,366,965
                                                                                          ----------

TOTAL GOVERNMENT DEBT SECURITIES
  (Cost $3,878,154)                                                                        3,950,695

SHORT-TERM SECURITIES (8.7%)

U.S. GOVERNMENT OBLIGATIONS (6.8%)
  U.S. Treasury Bills, 5.11%, due 7/20/95                                   400,000          398,957

TIME DEPOSITS (1.9%)
  State Street Bank, 4.90%, due 7/31/95                                     107,726          107,726
                                                                                          ----------

TOTAL SHORT-TERM SECURITIES
  (Cost $506,683)                                                                            506,683
                                                                                          ----------

TOTAL INVESTMENTS (100.0%) (Cost $5,735,468)                                              $5,847,480
                                                                                          ==========
</TABLE>

*  Security purchased on a delayed delivery basis. (NOTE 1)

OTHER INFORMATION:
   Purchases and sales of securities, excluding short-term securities, for the
   year ended June 30, 1995, aggregated $21,083,997 and $19,820,738,
   respectively. Net unrealized appreciation for tax purposes aggregated
   $74,149, of which $84,228 related to appreciated investment securities and
   $10,079 related to depreciated investment securities. The aggregate cost of
   securities for tax purposes is $5,773,331.

SEE ACCOMPANYING NOTES.

                                       79
<PAGE>
 
                    Mitchell Hutchins Money Market Portfolio

                      Statement of Assets and Liabilities

                                 June 30, 1995


<TABLE>
<S>                                                                                    <C>
ASSETS
Investment in securities, at amortized cost
  (NOTE 1)-See accompanying schedule                                                   $  6,768,830
Dividends, interest and other receivables                                                     6,639
                                                                                       ------------
TOTAL ASSETS                                                                              6,775,469

LIABILITIES
Cash overdraft                                                                                7,100
Accounts payable and accrued expenses                                                        15,274
                                                                                       ------------
TOTAL LIABILITIES                                                                            22,374
                                                                                       ------------

NET ASSETS, for 6,753,095 shares outstanding                                           $  6,753,095
                                                                                       ============

NET ASSET VALUE, offering and redemption price per share                               $       1.00
                                                                                       ============
</TABLE>

SEE ACCOMPANYING NOTES.

                                       80
<PAGE>
 
                    Mitchell Hutchins Money Market Portfolio

                            Statement of Operations

                            Year Ended June 30, 1995


<TABLE>
<S>                                                                                     <C>
INVESTMENT INCOME
  Interest                                                                              $  339,821

EXPENSES (NOTE 2)
  Investment advisory and management fees                                                   40,612
  Custody and accounting fees                                                               14,058
  Professional fees                                                                         14,202
  Directors' fees and expenses                                                               4,946
  Other expenses                                                                             5,001
                                                                                        ----------
    Total expenses before reimbursement                                                     78,819
    Less:  expense reimbursement (NOTE 2)                                                   (6,639)
                                                                                        ----------
    Net expenses                                                                            72,180
                                                                                        ----------
Net investment income                                                                      267,641
                                                                                        ----------

Net increase in net assets resulting from operations                                    $  267,641
                                                                                        ==========
</TABLE>

SEE ACCOMPANYING NOTES.


                                       81
<PAGE>
 
                    Mitchell Hutchins Money Market Portfolio

                      Statements of Changes in Net Assets


<TABLE>
<CAPTION>
                                                                            YEAR ENDED JUNE 30,
                                                                          1995             1994
                                                                      -----------------------------

<S>                                                                   <C>              <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
  Net investment income                                               $    267,641     $    74,688

Distributions to shareholders from:
  Net investment income                                                   (267,641)        (74,688)

Capital share transactions:
  Proceeds from sales of shares                                         11,346,439       8,424,833
  Proceeds from reinvested dividends                                       267,641          74,688
  Cost of shares redeemed                                              (10,313,402)     (3,800,689)
                                                                      ----------------------------
    Net increase in net assets resulting from share
      transactions                                                       1,300,678       4,698,832
                                                                      ----------------------------  

Total increase in net assets                                             1,300,678       4,698,832

NET ASSETS
Beginning of year                                                        5,452,417         753,585
                                                                      ----------------------------

End of year                                                           $  6,753,095     $ 5,452,417
                                                                      ============================

OTHER INFORMATION
Shares:
  Sold                                                                  11,346,439       8,424,833
  Issued through reinvestment of dividends                                 267,641          74,688
  Redeemed                                                             (10,313,402)     (3,800,689)
                                                                      ----------------------------
    Net increase                                                         1,300,678       4,698,832
                                                                      ============================
</TABLE>

SEE ACCOMPANYING NOTES.

                                       82
<PAGE>
 
                    Mitchell Hutchins Money Market Portfolio

                              Financial Highlights


<TABLE>
<CAPTION>
                                                                                       JANUARY 12, 1993
                                                                                         (COMMENCEMENT
                                                 YEAR ENDED          YEAR ENDED          OF OPERATIONS)
                                                  JUNE 30,            JUNE 30,          THROUGH JUNE 30,
                                                    1995                1994                1993(B)
                                             -------------------------------------------------------------

<S>                                            <C>                <C>                   <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period           $      1.00        $       1.00          $       1.00
Income from investment operations:
  Net investment income                               0.04                0.02                  0.01
Less distributions:
  From net investment income                         (0.04)              (0.02)                (0.01)
                                             -------------------------------------------------------------

Net asset value, end of period                 $      1.00        $       1.00          $       1.00
                                             =============================================================

TOTAL RETURN(A)                                       4.30%               2.04%                 1.66%

RATIOS AND SUPPLEMENTAL DATA
  Net Assets, end of period                    $ 6,753,095        $  5,452,417          $    753,585
  Ratio of expenses to average net assets             1.15%               1.29%                 1.34%
  Ratio of net investment income to
    average net assets                                4.31%               2.19%                 1.67%
  Ratio of expenses to average net assets
    before voluntary expense
    reimbursement (NOTE 2)                            1.27%               2.08%                22.41%
  Ratio of net investment income (loss)
    to average net assets before
    voluntary expense reimbursement
    (NOTE 2)                                          4.20%               1.40%                (2.05%)
</TABLE>

(A) Total returns are not annualized.

(B) Data expressed as a percentage are annualized.

                                       83
<PAGE>
 
                    Mitchell Hutchins Money Market Portfolio

                            Schedule of Investments

                                 June 30, 1995

<TABLE>
<CAPTION>
                                                                           PRINCIPAL
                                                                            AMOUNT            VALUE
                                                                      ----------------------------------

<S>                                                                   <C>               <C>  
SHORT-TERM SECURITIES (100.0%)

CORPORATE BONDS (90.1%)

APPAREL AND ACCESSSORIES (2.2%)
  Melville Corporation, 6.19%, due 12/7/95                            $     150,000     $     145,899

AUTO REPAIR, SERVICES AND PARKING (3.0%)
  PHH Corp., 5.90%, due 7/7/95                                              200,000           199,803

CHEMICALS AND ALLIED PRODUCTS (8.7%)
  Eli Lilly Company, 5.93%, due 7/19/95                                     200,000           199,407
  SmithKline Beechum Corporation, 5.90%, due 7/12/95                        200,000           199,639
  Warner Lambert, 6.15%, due7/3/95                                          192,000           191,934
                                                                                         ------------
                                                                                              590,980

COMMUNICATIONS (5.9%)
  Ameritech Corporation, 5.93%, due 7/6/95                                  200,000           199,835
  Bellsouth Telecommunications, 5.90%, due 7/13/95                          200,000           199,607
                                                                                         ------------
                                                                                              399,442

DEPOSITORY INSTITUTIONS (5.9%)
  Barclays U.S Funding, 5.90%, due 7/11/95                                  200,000           199,672
  CS First Boston, 5.90%, due 7/17/95                                       200,000           199,476
                                                                                         ------------
                                                                                              399,148

DURABLE GOODS, WHOLESALE (6.0%)
  Daimler Benz N.A. Corporation, 6%, due 1/13/95                            200,000           199,123
  Siemens Corporation, 6.20%, due 7/28/95                                   210,000           209,928
                                                                                         ------------
                                                                                              409,051
ELECTRONIC AND OTHER ELECTRICAL EQUIPMENT (5.9%)
  Emerson Electronics, 6.00%, due 7/28/95                                   200,000           199,100
  Rockwell International, 5.97%, due 1/9/95                                 200,000           199,570
                                                                                         ------------
                                                                                              398,670
FOOD AND KINDRED PRODUCTS (6.7%)
  Coca Cola Company, 5.94%, due 7/27/95                                     256,000           254,902
  Unilever Capital Corporation, 5.92, due 7/6/95                            200,000           199,836
                                                                                         ------------
                                                                                              454,738
</TABLE>

                                       84
<PAGE>
 
                    Mitchell Hutchins Money Market Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                           PRINCIPAL
                                                                            AMOUNT            VALUE
                                                                      ----------------------------------

<S>                                                                    <C>              <C>
CORPORATE BONDS (CONTINUED)

GENERAL MERCHANDISE STORES (2.9%)
  WalMart Stores, Inc., 5.92%, due 8/1/95                              $    200,000     $     198,980

HOLDING AND OTHER INVESTMENT OFFICES (4.9%)
  BTR Dunlop, 6.16%, due 8/21/95                                            150,000           148,691
  Preferred Receivables, 5.90%, due 7/5/95                                  180,000           179,882
                                                                                        -------------
                                                                                              328,573

INSURANCE CARRIERS (5.4%)
  Metlife Funding, Inc., 5.92%, due 7/14/95                                 200,000           199,572
  USAA Capital Corporation, 5.94%, due 7/27/95                              165,000           164,292
                                                                                        -------------
                                                                                              363,864

MISCELLANEOUS RETAIL (2.9%)
  Toys R Us, 5.94%, due 7/17/95                                             200,000           199,472

NONDEPOSITORY INSTITUTION (23.9%)
  AT&T Capital Corp., 5.93%, due 7/27/95                                    200,000           199,143
  Delaware Funding Corporation, 5.96%, due 7/25/95                          200,000           199,205
  JC Penney Funding Corporation, 5.85%, due 7/14/95                         200,000           199,578
  Merrill Lynch, 5.93%, due 7/14/95                                         200,000           199,572
  Motorola Credit Corporation, 5.90%, due 7/12/95                           200,000           199,639
  MPS U.S. Commercial Paper, 5.98%, due 7/24/95                             250,000           249,045
  Pitney Bowes Credit Corporation, 6%, due 7/17/95                          200,000           199,474
  Toyota Motor Credit Corporation, 6.30%, due 11/13/95                      175,000           170,866
                                                                                        -------------
                                                                                            1,616,522

NONDURABLE GOODS, WHOLESALE (2.9%)
  Nestle Capital Corporation, 5.72, due 10/23/95                            200,000           196,377

SECURITY AND COMMODITY BROKERS (2.9%)
  Goldman Sachs Group, 5.90%, due 7/18/95                                   200,000           199,443
                                                                                        -------------
</TABLE>

                                       85
<PAGE>
 
                    Mitchell Hutchins Money Market Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                           PRINCIPAL
                                                                            AMOUNT            VALUE
                                                                      ----------------------------------

<S>                                                                      <C>             <C>
CORPORATE BONDS (CONTINUED)

TOTAL CORPORATE BONDS (Cost $6,100,962)                                                  $  6,100,962

GOVERNMENT DEBT SECURITIES (9.9%)

U.S. GOVERNMENT AND GOVERNMENT AGENCIES (9.9%)
  Federal Farm Credit Bank Discount Note, 5.88%, due 8/7/95              $  140,000           139,154
  Federal National Mortgage Assoc., Discount Note, 5.87%,
    due 7/21/95                                                             200,000           199,348
  Federal National Mortgage Assoc., Discount Note, 5.87%,
    due 7/10/95                                                             250,000           249,633
  U.S. Treasury Bills, 6.325%, due 7/20/95                                   80,000            79,733
                                                                                         ------------

TOTAL GOVERNMENT DEBT SECURITIES
  (Cost $667,868)                                                                             667,868
                                                                                         ------------

TOTAL SHORT-TERM SECURITIES
  (Cost $6,768,830)                                                                         6,768,830
                                                                                         ------------

TOTAL INVESTMENTS (100.0%) (Cost $6,768,830)                                             $  6,768,830
                                                                                         ============
</TABLE>

SEE ACCOMPANYING NOTES.

                                       86
<PAGE>
 
                     Morgan Stanley Asian Growth Portfolio

                      Statement of Assets and Liabilities

                                 June 30, 1995


<TABLE>
<S>                                                                                    <C>
ASSETS
Investment in securities, at value (cost $12,945,471)
  (NOTE 1)-See accompanying schedule                                                   $  13,163,401
Dividends, interest and other receivables                                                     48,716
Deferred organization costs (NOTE 1)                                                           9,032
                                                                                       -------------
TOTAL ASSETS                                                                              13,221,149

LIABILITIES
Cash overdraft                                                                               141,547
Payable for investment securities purchased                                                  225,024
Accounts payable and accrued expenses                                                         29,915
                                                                                       -------------
TOTAL LIABILITIES                                                                            396,486
                                                                                       -------------

NET ASSETS                                                                             $  12,824,663
                                                                                       =============

Net Assets consist of:
  Paid-in capital                                                                      $  12,633,934
  Undistributed net investment income                                                         14,748
  Undistributed net realized loss on investments and foreign currency
    transactions                                                                             (42,298)
  Net unrealized appreciation (depreciation) on investments and assets and
    liabilities in foreign currencies                                                        218,279
                                                                                       -------------

NET ASSETS, for 1,259,429 shares outstanding                                           $  12,824,663
                                                                                       =============

NET ASSET VALUE, offering and redemption price per share                               $       10.18
                                                                                       =============
</TABLE>

SEE ACCOMPANYING NOTES.

                                       87
<PAGE>
 
                     Morgan Stanley Asian Growth Portfolio

                            Statement of Operations

                            Year Ended June 30, 1995

<TABLE>
<S>                                                                                  <C>
INVESTMENT INCOME
  Dividends (net of foreign taxes withheld of $4,837)                                $       163,806
  Interest                                                                                    93,141
                                                                                     ---------------
Total investment income                                                                      256,947

EXPENSES (NOTE 2)
  Investment advisory and management fees                                                     97,281
  Custody and accounting fees                                                                 54,890
  Professional fees                                                                           16,703
  Directors' fees and expenses                                                                 4,950
  Regulatory fees                                                                              4,657
  Amortization of deferred costs                                                               2,279
  Other expenses                                                                               3,650
                                                                                     ---------------
    Total expenses                                                                           184,410
                                                                                     ---------------
Net investment income                                                                         72,537

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
  CURRENCY (NOTE 1)
Net realized loss on:
  Investment securities                                                                      (42,299)
  Foreign currency transactions                                                              (57,753)
                                                                                     ---------------
    Net realized loss                                                                       (100,052)

Change in unrealized appreciation on:
  Investment securities                                                                      217,930
  Translation of assets and liabilities in foreign currencies                                    349
                                                                                     ---------------
    Change in unrealized appreciation                                                        218,279
                                                                                     ---------------
Net realized and unrealized gain on investments                                              118,227
                                                                                     ---------------

Net increase in net assets resulting from operations                                 $       190,764
                                                                                     ===============
</TABLE>

SEE ACCOMPANYING NOTES.

                                       88
<PAGE>
 
                     Morgan Stanley Asian Growth Portfolio

                       Statement of Changes in Net Assets

<TABLE>
<CAPTION>
                                                                                          JUNE 15, 1994
                                                                                          (COMMENCEMENT
                                                                      YEAR ENDED          OF OPERATIONS)
                                                                       JUNE 30,          THROUGH JUNE 30,
                                                                         1995                 1994
                                                                    --------------------------------------

<S>                                                                   <C>                    <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
  Net investment income                                               $    72,537            $      465
  Net realized loss on investments and foreign currency
    transactions                                                         (100,052)                    -
  Net unrealized appreciation on investments and translation
    of assets and liabilities in foreign currency                         218,279                     -
                                                                      ---------------------------------
    Net increase in net assets resulting from operations                  190,764                   465

Distributions to shareholders from:
  Net investment income                                                      (500)                    -

Capital share transactions:
  Proceeds from sales of shares                                        12,547,902             1,904,892
  Proceeds from reinvested dividends                                          500                     -
  Cost of shares redeemed                                              (1,819,360)                    -
                                                                      ---------------------------------
    Net increase in net assets resulting from share
      transactions                                                     10,729,042             1,904,892
                                                                      ---------------------------------

Total increase in net assets                                           10,919,306             1,905,357

NET ASSETS
Beginning of period                                                     1,905,357                     -
                                                                      ---------------------------------

End of period (including undistributed net investment income of
  $14,748 and $465, respectively)                                     $12,824,663            $1,905,357
                                                                      =================================

OTHER INFORMATION
Shares:
  Sold                                                                  1,262,727               190,495
  Issued through reinvestment of dividends                                     49                     -
  Redeemed                                                               (193,842)                    -
                                                                      ---------------------------------
    Net increase                                                        1,068,934               190,495
                                                                      =================================
</TABLE>

SEE ACCOMPANYING NOTES.

                                       89
<PAGE>
 
                     Morgan Stanley Asian Growth Portfolio

                              Financial Highlights


<TABLE>
<CAPTION>
                                                                                        JUNE 15, 1994
                                                                                        (COMMENCEMENT
                                                                        YEAR ENDED      OF OPERATIONS)
                                                                         JUNE 30,      THROUGH JUNE 30,
                                                                           1995            1994(B)
                                                                     -----------------------------------
                                   
<S>                                                                   <C>                 <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period                                  $      10.00        $      10.00
Income from investment operations:
  Net investment income                                                       0.01                0.00(C)
  Net realized and unrealized gain on
    investments                                                               0.17                   -
                                                                      --------------------------------
  Total from investment operations                                            0.18                0.00
Less distributions:
  From net investment income                                                  0.00(C)                -
                                                                      --------------------------------

Net asset value, end of period                                        $      10.18        $      10.00
                                                                      ================================

TOTAL RETURN(A)                                                               1.80%               0.52%

RATIOS AND SUPPLEMENTAL DATA
  Net assets, end of period                                           $ 12,824,663        $  1,905,357
  Ratio of expenses to average net
    assets(D)                                                                 1.92%               0.75%
  Ratio of net investment income to
    average net assets(D)                                                      .76%               0.59%
  Portfolio turnover rate                                                       30%                  -
</TABLE>

(A) Total returns are not annualized.

(B) Data expressed as a percentage are annualized as appropriate.

(C) Less than $0.01 per share.

(D) The ratios of expenses and net investment income to average net assets
    before voluntary expense reimbursement were 9.79% and (8.44%), respectively,
    for the period June 15, 1994 (commencement of operations) through June 30,
    1994. (NOTE 2)

                                       90
<PAGE>
 
                     Morgan Stanley Asian Growth Portfolio

                            Schedule of Investments

                                 June 30, 1995


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ----------------------------------

<S>                                                                         <C>            <C>
COMMON STOCKS (93.6%)

AUSTRALIA (0.1%)
  Odin Mining & Investment                                                    1,250        $      382

HONG KONG (26.6%)
  Cheung Kong Holdings, Ltd.                                                105,000           519,728
  Citic Pacific Limited                                                      71,000           178,470
  CP Pokphand                                                               168,000            59,165
  Guangdong Investments                                                     600,000           327,617
  Harbin Power Equipment Company*                                           205,000            65,572
  Hong Kong Telecom                                                         257,000           508,174
  Hopewell Holdings                                                         200,000           169,301
  HSBC Holdings                                                              24,640           316,053
  Hutchison Whampoa                                                          89,000           430,180
  Maanshan Iron & Steel                                                     102,000            21,355
  New World Development Company                                              91,000           302,835
  Shenzhen North Jianshe                                                     50,000            24,232
  Sun Hung Kai Properties                                                    25,000           184,971
  Swire Pacific Limited                                                      45,000           343,125
  Yizheng Chemical Fibre Company                                            150,000            52,341
                                                                                           ----------
                                                                                            3,503,119
INDONESIA (7.4%)
  Asiana Imi Industry*                                                       10,000             4,266
  Bimantara Citra                                                           230,000           129,097
  Duta Pertiwi Realty                                                        35,000            36,147
  Keramika Indonesia Assos                                                   32,500            43,781
  Ometraco Finance -Rights                                                   32,000                 -
  Ometraco Finance                                                           80,000            57,476
  Private Bank International Indo*                                           26,000            80,265
  Private Charoen Pokphand Indo*                                             30,000            65,335
  Private Indocement Tunggal Prakarsa                                        20,000            78,581
  Private Indonesia Satellite                                                 3,200           122,400
  Private Indosat                                                            25,000            95,420
  Private Kalbe Farma*                                                       20,000            91,603
  Private Sorini Corp                                                        20,000            95,644
  Private United Tractors                                                    35,000            74,652
                                                                                           ----------
                                                                                              974,667
</TABLE>

                                       91
<PAGE>
 
                     Morgan Stanley Asian Growth Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ---------------------------------

<S>                                                                         <C>            <C>
COMMON STOCKS (CONTINUED)

MALAYSIA (20.6%)
  Bandar Raya Developments                                                   15,000        $   32,609
  Genting Berhad                                                             37,000           365,751
  Land & General Berhad                                                      37,500           125,359
  Magnum Corporation Berhad                                                  18,000            42,084
  Malayan Banking Berhad                                                     59,000           467,063
  Malaysian International Ship                                               34,000            99,713
  Malaysian Resources Corporation                                            39,000            68,786
  Mulpha International Berhad                                                20,000            24,282
  Renong Berhad                                                             100,000           186,216
  Resorts World Berhad                                                       54,000           316,735
  Sime Darby Berhad                                                          48,000           133,880
  Tan & Tan Development                                                      60,000            74,815
  Technology Resources*                                                      22,000            63,167
  Telekom Malaysia Berhad                                                    40,000           303,527
  Tenaga Nasional Berhad                                                     52,000           212,223
  Time Engineering Berhad                                                    13,000            43,724
  United Engineers, Ltd                                                      24,000           152,584
                                                                                           ----------
                                                                                            2,712,518

PAKISTAN (0.2%)
  Pakistan Telecom, Ltd.*                                                       300            30,450

PHILIPPINES (6.1%)
  Aboitiz Equity Ventures*                                                  465,600            94,797
  Ayala Land, Inc                                                            55,000            63,528
  Benpres Holding Corporation*                                                5,500            45,375
  JG Summit Holdings                                                        395,000           114,448
  Manila Electric Company                                                    15,000           120,399
  Petron Corporation                                                        197,500           129,527
  Philipino Telephone Corporation                                             8,000             6,265
  Philippine Long Distance                                                      900            64,311
  San Miguel Corporation                                                     15,600            64,746
  SM Prime Holdings, Ltd.*                                                  241,800            66,273
  Universal Robina Corporation                                               73,200            37,259
                                                                                           ----------
                                                                                              806,928
</TABLE>

                                       92
<PAGE>
 
                     Morgan Stanley Asian Growth Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                            NUMBER
                                                                           OF SHARES          VALUE
                                                                      ---------------------------------

<S>                                                                         <C>            <C>
COMMON STOCKS (CONTINUED)

SINGAPORE (14.8%)
  British American Tobacco                                                   10,000        $   45,634
  City Developments, Ltd                                                     32,000           195,848
  DBS Land, Ltd.                                                             56,000           175,576
  Development of Bank Singapore                                              19,000           216,249
  Fraser & Neave, Ltd.                                                       10,000           115,247
  Keppel Corporation, Ltd.                                                   22,000           179,528
  Overseas Chinese Banking                                                   20,000           221,904
  Overseas Union Bank                                                        10,000            62,992
  Sembawamg Corporation, Ltd.                                                18,000           109,520
  Singapore Press Holdings                                                    7,200           107,717
  Singapore Technologies                                                    110,000           166,929
  Straits Steamship Land, Ltd.                                               22,000            76,220
  Straits Trading Company                                                    20,000            50,107
  United Overseas Bank                                                       24,000           226,772
                                                                                           ----------
                                                                                            1,950,243

SOUTH KOREA (3.2%)
  Pohang Iron & Steel                                                         2,500            73,750
  Samsung Electronics                                                         2,794           148,781
  Samsung Electronics New                                                     2,000           192,500
                                                                                           ----------
                                                                                              415,031

THAILAND (14.5%)
  Advanced Information Service                                                4,600            67,458
  Bangkok Bank Company, Ltd.                                                 25,000           275,471
  Charoen Pokphand Feedmill                                                   9,000            53,595
  Finance One Company, Ltd.                                                  29,600           218,238
  National Finance & Security                                                 8,400            41,175
  National Finance & Security Warrants                                        7,800                 -
  Phatra Thanakit Company, Ltd.                                              13,500           112,660
</TABLE>

                                       93
<PAGE>
 
                     Morgan Stanley Asian Growth Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                           NUMBER OF
                                                                           SHARES OR
                                                                           PRINCIPAL
                                                                            AMOUNT            VALUE
                                                                      ---------------------------------

<S>                                                                     <C>               <C>
COMMON STOCKS (CONTINUED)

THAILAND (14.5%) (CONTINUED)
  Shinawatra  Computer Co                                                    5,700        $   137,160
  Siam Cement Company                                                        2,700            172,380
  Siam Commercial Bank Company                                              13,000            124,288
  Telecomasia Corporation*                                                  67,000            248,349
  Thai Farmers Bank, Ltd.                                                   27,000            258,132
  Thai Telephone & Telecom*                                                 17,000            140,490
  United Communication                                                       4,000             60,280
                                                                                          -----------
                                                                                            1,909,676

UNITED STATES (0.1%)
  Jilin Chemical Industrial Company*                                         1,200             23,100
                                                                                          -----------

TOTAL COMMON STOCKS (Cost $12,108,184)                                                     12,326,114

SHORT-TERM SECURITIES (6.4%)

TIME DEPOSITS (6.4%)
  State Street Bank, 4.90%, due 7/3/95                                  $  837,287            837,287
                                                                                          -----------

TOTAL SHORT-TERM SECURITIES (Cost $837,287)                                                   837,287
                                                                                          -----------

TOTAL INVESTMENTS (100.0%) (Cost $12,945,471)                                             $13,163,401
                                                                                          ===========
</TABLE>

*  Non-income producing

OTHER INFORMATION:
   Purchases and sales of securities excluding short-term securities, for the
   year ended June 30, 1995, aggregated $14,759,349 and $2,657,683,
   respectively. Net unrealized appreciation for tax purposes aggregated
   $217,930, of which $727,184 related to appreciated investment securities and
   $509,254 related to depreciated investment securities. The aggregate cost of
   securities is the same for book and tax purposes.

SEE ACCOMPANYING NOTES.

                                       94
<PAGE>
 
                     Morgan Stanley Asian Growth Portfolio

                      Schedule of Investments (continued)


As of June 30, 1995, the Portfolio had investments in the following  industries.
The allocation is based on the percentage of total Portfolio investments.

<TABLE>
<CAPTION>
                                                                          PERCENT OF
                                                                             TOTAL
                                                                          INVESTMENTS
                                                                          -----------

<S>                                                                         <C>
INDUSTRY
  Amusement and Recreation Services                                           5.5%
  Business Services                                                           3.8
  Chemicals and Allied Products                                               1.3
  Communications                                                             13.5
  Depository Institutions                                                    16.5
  Durable Goods, Wholesale                                                    0.2
  Electric, Gas and Sanitary Services                                         2.5
  Electronic and Other Electric Equipment                                     3.1
  Engineering and Management Services                                         2.4
  Fabricated Metal Products                                                   0.2
  Food and Kindred Products                                                   3.7
  Forestry                                                                    1.0
  Government                                                                  6.2
  Holding and Other Investment Offices                                       19.0
  Industrial Machinery and Equipment                                          1.6
  Miscellaneous Holdings                                                      0.2
  Nondepository Institutions                                                  1.3
  Petroleum and Coal Products                                                 1.0
  Primary Metal Industries                                                    1.0
  Printing and Publishing                                                     0.8
  Real Estate                                                                 6.8
  Securities Brokers and Dealers                                              0.3
  Stone, Clay and Glass Products                                              2.2
  Transportation by Air                                                       2.6
  Transportation Equipment                                                    2.2
  Tobacco Products                                                            0.3
  Water Transportation                                                        0.8
                                                                           -------

                                                                            100.0%
                                                                           =======
</TABLE>

SEE ACCOMPANYING NOTES.

                                       95
<PAGE>
 
                 Morgan Stanley Worldwide High Income Portfolio

                      Statement of Assets and Liabilities

                                 June 30, 1995


<TABLE>
<S>                                                                                    <C>
ASSETS
Investment in securities, at value (cost $7,299,960)
  (NOTE 1)-See accompanying schedule                                                   $  7,032,585
Cash                                                                                          3,768
Receivable for investment securities sold                                                   404,905
Dividends, interest and other receivables                                                   135,469
Deferred organization costs (NOTE 1)                                                          9,125
                                                                                       ------------
TOTAL ASSETS                                                                              7,585,852

LIABILITIES
Payable for investment securities purchased                                               1,322,888
Accounts payable and accrued expenses                                                        21,067
                                                                                       ------------
TOTAL LIABILITIES                                                                         1,343,955
                                                                                       ------------

NET ASSETS                                                                             $  6,241,897
                                                                                       ============

Net Assets consist of:
  Paid-in capital                                                                      $  6,059,757
  Undistributed net investment income                                                       532,957
  Undistributed net realized loss on investments                                            (83,442)
  Net unrealized depreciation on investment securities                                     (267,375)
                                                                                       ------------

NET ASSETS, for 600,165 shares outstanding                                             $  6,241,897
                                                                                       ============

NET ASSET VALUE, offering and redemption price per share                               $      10.40
                                                                                       ============
</TABLE>

SEE ACCOMPANYING NOTES.

                                       96
<PAGE>
 
                 Morgan Stanley Worldwide High Income Portfolio

                            Statement of Operations

                            Year Ended June 30, 1995


<TABLE>
<S>                                                                              <C>
INVESTMENT INCOME
  Interest                                                                       $    624,658

EXPENSES (NOTE 2)
  Investment advisory and management fees                                              48,816
  Custody and accounting fees                                                          13,202
  Professional fees                                                                    16,703
  Directors' fees and expenses                                                          4,950
  Amortization of deferred costs                                                        2,185
  Other expenses                                                                        5,770
                                                                                 ------------
    Total expenses                                                                     91,626
                                                                                 ------------
Net investment income                                                                 533,032

REALIZED AND UNREALIZED LOSS ON INVESTMENTS (NOTE 1)
  Net realized loss on investments                                                    (83,442)
  Change in unrealized depreciation on investment securities                         (267,375)
                                                                                 ------------
Net realized and unrealized loss on investments                                      (350,817)
                                                                                 ------------

Net increase in net assets resulting from operations                             $    182,215
                                                                                 ============
</TABLE>

SEE ACCOMPANYING NOTES.

                                       97
<PAGE>
 
                 Morgan Stanley Worldwide High Income Portfolio

                       Statement of Changes in Net Assets


<TABLE>
<CAPTION>
                                                                                       JUNE 15, 1994
                                                                                       (COMMENCEMENT
                                                                   YEAR ENDED          OF OPERATIONS)
                                                                    JUNE 30,              THROUGH
                                                                      1995             JUNE 30, 1994
                                                                 --------------------------------------

<S>                                                                 <C>                     <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
  Net investment income                                             $   533,032             $    225
  Net realized loss on investments                                      (83,442)                   -
  Net unrealized depreciation                                          (267,375)                   -
                                                                    --------------------------------
    Net increase in net assets resulting from operations                182,215                  225

Distributions to shareholders from:
  Net investment income                                                    (300)                   -

Capital share transactions:
  Proceeds from sales of shares                                       9,617,478              687,259
  Proceeds from reinvested dividends                                        300                    -
  Cost of shares redeemed                                            (4,245,280)                   -
                                                                    --------------------------------
    Net increase in net assets from share transactions                5,372,498              687,259
                                                                    --------------------------------

Total increase in net assets                                          5,554,413              687,484

NET ASSETS
Beginning of period                                                     687,484                    -
                                                                    --------------------------------

End of period (including undistributed net investment income
  of $532,957 and $225, respectively)                               $ 6,241,897             $687,484
                                                                    ================================

OTHER INFORMATION
Shares:
  Sold                                                                  966,462               68,726
  Issued through reinvestment of dividends                                   30                    -
  Redeemed                                                             (435,053)                   -
                                                                    --------------------------------
    Net increase                                                        531,439               68,726
                                                                    ================================
</TABLE>

SEE ACCOMPANYING NOTES.

                                       98
<PAGE>
 
                 Morgan Stanley Worldwide High Income Portfolio

                              Financial Highlights


<TABLE>
<CAPTION>
                                                                                       JUNE 15, 1994
                                                                                       (COMMENCEMENT
                                                                     YEAR ENDED        OF OPERATIONS)
                                                                      JUNE 30,            THROUGH
                                                                        1995          JUNE 30, 1994(B)
                                                                   -------------------------------------

<S>                                                                 <C>                    <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period                                $     10.00            $     10.00
Income from investment operations:
  Net investment income                                                    0.89                   0.00(C)
  Net realized and unrealized loss on
    investments                                                           (0.49)                     -
                                                                    ----------------------------------
  Total from investment operations                                         0.40                   0.00
Less distributions:
  From net investment income                                               0.00(C)                   -
                                                                    ----------------------------------

Net asset value, end of period                                      $     10.40            $     10.00
                                                                    ==================================

TOTAL RETURN(A)                                                            4.00%                  0.79%

RATIOS AND SUPPLEMENTAL DATA
  Net assets, end of period                                         $ 6,241,897            $   687,484
  Ratio of expenses to average net
    assets(D)                                                              1.61%                  0.85%
  Ratio of net investment income to
    average net assets(D)                                                  9.28%                  0.80%
  Portfolio turnover rate                                                   142%                     -
</TABLE>

(A) Total returns are not annualized.

(B) Data expressed as a percentage are annualized as appropriate.

(C) Less than $0.01 per share.

(D) The ratios of expenses and net investment income to average net assets
    before voluntary expense reimbursement were 24.78% and (23.13%),
    respectively, for the period June 15, 1994 (commencement of operations)
    through June 30, 1994. (NOTE 2)

                                       99
<PAGE>
 
                 Morgan Stanley Worldwide High Income Portfolio

                            Schedule of Investments

                                 June 30, 1995


<TABLE>
<CAPTION>
                                                                           PRINCIPAL
                                                                            AMOUNT            VALUE
                                                                      ----------------------------------

<S>                                                                      <C>               <C>    
CORPORATE BONDS (61.3%)

ARGENTINA (6.8%)
  Banco de Galicia, 9%, due 11/1/2003                                    $  300,000        $  211,500
  Transport De Gas Del Sur,7.75%, due 12/23/98 (a)                          300,000           264,750
                                                                                           ----------
                                                                                              476,250

BRAZIL (19.5%)
  Compania Brasil, 12.5%, due 12/22/97 (a)                                  330,000           320,925
  Iochpe-Maxion 12.375%, due 11/8/2002                                      500,000           440,000
  Iochpe-Maxion S.A., 12.375%, due 11/8/2002 (a)                            250,000           220,000
  Klabin Fabric, 11%, due 4/15/98                                           400,000           392,000
                                                                                           ----------
                                                                                            1,372,925

CANADA (8.9%)
  Algoma Steel, Inc., 12.375%, due 7/15/2005                                250,000           225,385
  Rogers Cablesystems, Inc., 10% due 3/15/2005 (a)                          150,000           154,125
  Sherritt, Inc., 10.5%, due 3/31/2014                                      250,000           244,375
                                                                                           ----------
                                                                                              623,885

MEXICO (4.9%)
  Banco Nacional Com Ext, 7.25%, due 2/2/2004                               150,000           108,000
  Cemex SA de C.V., 9.5%, due 9/20/2001 (a)                                 300,000           234,000
                                                                                           ----------
                                                                                              342,000

NIGERIA (4.7%)
  Central Bank of Nigeria, 6.25%, due 11/15/2020                            750,000           331,875
  Central Bank of Nigeria-Warrants                                              750                 -
                                                                                           ----------
                                                                                              331,875

UNITED STATES (16.5%)
  AES Corporation, 9.75%, due 6/15/2000                                     250,000           253,125
  Continental Cablevision, 8.875%, due 9/15/2005                            200,000           204,000
  Pronet, Inc., 11.875%, due 6/15/2005 (a)                                  150,000           150,750
  Six Flags Theme Parks, 12.25%, due 6/15/2005 (a), (b)                     100,000            72,000
  Viacom International, 8%, due 7/7/2006                                    250,000           243,438
  Westpoint Stevens, 9.375%, due 12/15/2005                                 250,000           240,625
                                                                                           ----------
                                                                                            1,163,938
                                                                                           ----------
</TABLE>

                                      100
<PAGE>
 
                 Morgan Stanley Worldwide High Income Portfolio

                      Schedule of Investments (continued)


<TABLE>
<CAPTION>
                                                                           PRINCIPAL
                                                                            AMOUNT            VALUE
                                                                      ----------------------------------
<S>                                                                       <C>             <C>
CORPORATE BONDS (CONTINUED)

TOTAL CORPORATE BONDS (Cost $4,370,176)                                                   $ 4,310,873

GOVERNMENT BONDS (29.0%)

BRAZIL (7.9%)
  Brazil Federated Republic, 7.3125%, due 4/15/2009                       $  500,000          269,375
  Minas Gerais XWB, 8.25%, due 2/10/2000                                     370,000          288,600
                                                                                          -----------
                                                                                              557,975

BULGARIA (1.5%)
  Bulgaria Federated Republic, 7.5625%, due 7/28/2011 (c)                    240,000          101,400

ECUADOR (3.5%)
  Ecuador - Discount, 7.25%, due 2/28/2025 (c)                               500,000          248,750

MEXICO (9.9%)
  Mexico Government Par, 6.25%, due 12/31/2019                               750,000          457,500
  Mexico Bond Warrants                                                       750,000                -
  Petro Mexicanos, 8.625%, due 12/1/2023 (a)                                 350,000          238,000
                                                                                          -----------
                                                                                              695,500

PANAMA (2.7%)
  Republic of Panama, 7.25%, due 5/10/2002 (c)                               250,000          192,500

VENEZUELA (3.5%)
  Venezuela Debt Convertible Bonds - Floating, 8.812%, due
    12/18/2007 (c)                                                           500,000          246,875
                                                                                          -----------

TOTAL GOVERNMENT BONDS (Cost $2,251,072)                                                    2,043,000

SHORT-TERM SECURITIES (9.7%)

TIME DEPOSITS (9.7%)
  State Street Bank, 4.90%, due 7/3/95                                       678,712          678,712
                                                                                          -----------

TOTAL SHORT-TERM SECURITIES (Cost $678,712)                                                   678,712
                                                                                          -----------

TOTAL INVESTMENTS (100.0%) (Cost $7,299,960)                                              $ 7,032,585
                                                                                          ===========
</TABLE>
                                      101
<PAGE>
 
                 Morgan Stanley Worldwide High Income Portfolio

                      Schedule of Investments (continued)


OTHER INFORMATION:
   Purchases and sales of securities excluding short-term securities, for the
   year ended June 30, 1995, aggregated $14,399,071 and $7,773,317,
   respectively. Net unrealized depreciation for tax purposes aggregated
   $269,706, of which $366,689 related to depreciated investment securities and
   $96,983 related to appreciated investment securities. The aggregate cost of
   securities for tax purposes is $7,302,291.

As of June 30, 1995, the Portfolio had investments in the following industries.
The allocation is based on the percentage of total Portfolio investments.

<TABLE>
<CAPTION>
                                                                          PERCENT OF
                                                                             TOTAL
                                                                          INVESTMENTS
                                                                          -----------

<S>                                                                         <C>
INDUSTRY
  Amusement and Recreation Services                                           1.0%
  Apparel and Other Finished Products                                         3.4%
  Chemicals and Allied Products                                               3.5%
  Communications                                                              8.5%
  Depository Institutions                                                     9.3%
  Durable Goods, Wholesale                                                    3.8%
  Electric, Gas and Sanitary Services                                         3.6%
  General Building Contractors                                                4.6%
  Governments                                                                35.3%
  Industrial Machinery and Equipment                                         11.5%
  Petroleum and Coal Products                                                 3.4%
  Primary Metal Industries                                                    3.2%
  Stone, Clay and Glass Products                                              3.3%
  Textile Mill Products                                                       5.6%
                                                                          ---------

                                                                            100.0%
                                                                          =========
</TABLE>

(a) Security exempt from registration under Rule 144a of the Securities Act of
    1933. These securities may be resold in transactions exempt from
    registration, normally to qualified institutional buyers.

(b) Deferred interest obligation; currently zero coupon under terms of the
    initial offering.

(c) Variable rate note or floating rate note, rate shown effective at 6/30/95.

SEE ACCOMPANYING NOTES.

                                      102
<PAGE>
 
                             The Legends Fund, Inc.

                         Notes to Financial Statements

                                 June 30, 1995



1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

The Legends Fund, Inc. (the "Fund") was formed as a Maryland corporation on July
22, 1992. The Fund is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The Fund has ten
investment portfolios (the "Portfolios")-Renaissance Balanced, Zweig Asset
Allocation, Nicholas-Applegate Balanced, Harris Bretall Sullivan & Smith Equity
Growth, Dreman Value, Zweig Equity (Small Cap), Mitchell Hutchins Fixed Income,
Mitchell Hutchins Money Market, Morgan Stanley Asian Growth and Morgan Stanley
Worldwide High Income. Integrity Financial Services, Inc. ("IFS"), a registered
broker-dealer with the Securities Exchange Act of 1934 and a member of the
National Association of Securities Dealers, Inc., distributes shares of the Fund
to the separate accounts of Integrity Life Insurance Company ("Integrity") and
its wholly owned subsidiary, National Integrity Life Insurance Company
("National Integrity").

ARM Financial Group, Inc. ("ARM") is the ultimate parent of Integrity, National
Integrity, and IFS. ARM is a financial services company providing retail and
institutional products and services to the long-term savings and retirement
market. At June 30, 1995, ARM had approximately $4.8 billion of policyholder
deposits and funds under management.

ARM was organized in July 1993 by the Morgan Stanley Leveraged Equity Fund II,
L.P. ("MSLEF II") and Analytical Risk Management, Ltd. (now known as Oldarm,
L.P.). MSLEF II, and investment fund sponsored by Morgan Stanley & Co.
Incorporated ("Morgan Stanley"), and, as a result of an additional investment,
certain other private equity funds managed by Morgan Stanley own approximately
91% of the outstanding shares of voting stock of ARM. Oldarm, L.P., New ARM, LLC
and certain employees, management and independent directors of ARM and its
subsidiaries own in the aggregate approximately 9% of the voting stock of ARM.

On June 14, ARM completed the acquisition of substantially all of the assets and
business operations of SBM Company ("SBM"), including all of the issued and
outstanding capital stock of SBM's subsidiaries, State Bond and Mortgage Life
Insurance Company ("SBM Life") and SBM Financial Services, Inc. ("SBM Financial
services"), and SBM's management contracts with the State Bond group of mutual
funds.

                                      103
<PAGE>
 
                             The Legends Fund, Inc.

                   Notes to Financial Statements (continued)




1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

BASIS OF PRESENTATION

The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for investment companies.

SECURITY VALUATION

Stocks that are traded on a national exchange are valued at the last sale price
on the exchange on which they are primarily traded, or, if there is no sale, at
the mean between the current bid and asked prices. Over-the-counter securities
for which market quotations are readily available are valued at the mean of the
current bid and asked prices.

Short-term debt securities with remaining maturities of 61 days or more for
which reliable quotations are readily available are valued at current market
quotations. Short-term investments with remaining maturities of 60 days or less
are valued using the amortized cost method of valuation, which approximates
market value. For the Mitchell Hutchins Money Market Portfolio, portfolio
securities are valued using the amortized cost method of valuation. Bonds and
other fixed-income securities (other than short-term securities described above)
are valued using market quotations provided by a pricing service under
procedures approved by the Fund's Board of Directors.

Futures contracts and options thereon and option contracts traded on a
commodities exchange or board of trade are valued at the closing settlement
price. Futures and option positions or any other securities or assets for which
reliable market quotations are not readily available or for which valuation
cannot be provided by a pricing service approved by the Board of Directors of
the Fund are valued at "fair value" as determined in good faith by the Valuation
Committee of the Board of Directors.

SECURITY TRANSACTIONS

Securities transactions are recorded on the trade date net of brokerage fees,
commissions, and transfer fees. Interest income is accrued daily. Dividend
income is recorded on the ex-dividend date. Premiums and discounts on securities
purchased are amortized using the interest method. Realized gains and losses on
the sale of investments are determined on the basis of nearest average.

                                      104
<PAGE>
 
                             The Legends Fund, Inc.

                   Notes to Financial Statements (continued)



1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Securities purchased on a when-issued or delayed-delivery basis may be settled a
month or more after the trade date. Securities purchased on a when-issued basis
are included in the portfolio and are subject to market value fluctuations
during the period. At June 30, 1995, the Mitchell Hutchins Fixed Income
Portfolio had segregated specific assets to be utilized to settle its
outstanding commitments related to delayed-delivery.

INCOME TAX STATUS

The Fund complied with the requirements of the Internal Revenue Code applicable
to regulated investment companies and distributed its taxable net investment
income and net realized gains. Therefore, no provision for federal or state
income tax is required.

DIVIDEND DISTRIBUTIONS

Dividends from net investment income and distributions from net realized gains
are declared and distributed annually, except that the Mitchell Hutchins Money
Market Portfolio declares dividends from net investment income each business day
and distributes them monthly. Dividends and distributions are recorded on the 
ex-dividend date. All dividends are reinvested in additional full and fractional
shares of the related Portfolios.

Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences, which may result in distribution reclassifications, are
primarily due to differing treatments for foreign currency transactions, futures
transactions, passive foreign investment companies, capital losses, and losses
deferred due to wash sales.

FUTURES CONTRACTS

Certain Portfolios may enter into futures contracts to provide against adverse
movement in the price of securities in the Portfolio or to enhance investment
performance. When entering into a futures contract, changes in the market price
of the contracts are recognized as unrealized gains or losses by marking each
contract to market at the end of

                                      105
<PAGE>
 
                             The Legends Fund, Inc.

                   Notes to Financial Statements (continued)



1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

each trading day through a variation margin account. When a futures contract is
closed, the Portfolios record a gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it was
closed. The face amount of the futures contracts shown in the Schedule of
Investments reflects each contract's value at June 30, 1995.

The use of futures contracts involves, to varying degrees, elements of market
risk in excess of the amount recognized in the statement of assets and
liabilities. The contract amounts of the futures contracts reflect the extent of
the Portfolios' exposure to off-balance sheet risk. The Portfolios bear the
market risk which arises from any changes in contract values.

FOREIGN CURRENCY TRANSLATION

Investment securities and other assets and liabilities denominated in a foreign
currency are translated into U.S. dollars based upon current exchange rates at
year end. Purchases and sales of securities, income receipts, and expense
payments are translated into U.S. dollars at the prevailing rate on the
respective dates of the transactions. The effects of changes in foreign currency
exchange rates on investments in securities are included in net realized and
unrealized gain or loss on investments in the Statement of Operations.

The Morgan Stanley Asian Growth, the Morgan Stanley Worldwide High Income, and
the Mitchell Hutchins Fixed Income Portfolios may engage in foreign currency
exchange transactions in connection with the purchase and sale of portfolio
securities, and to protect the value of specific portfolio positions. Forward
foreign currency exchange contracts involve elements of market risk in excess of
the amount reflected in the Statement of Assets and Liabilities. The Portfolios
bear the risk of an unfavorable change in the foreign exchange rate underlying
the forward contract. Additionally, losses may arise if the counterparties do
not perform under the contracts' terms.

                                      106
<PAGE>
 
                             The Legends Fund, Inc.

                   Notes to Financial Statements (continued)



1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Morgan Stanley Asian Growth Portfolio has an open forward foreign exchange
contract at June 30, 1995 to hedge against changes in the foreign currency
exchange rates between the trade and settlement dates. The contract terms at
June 30, 1995, were as follows:


<TABLE>
<CAPTION>
                         CURRENCY TO BE    U.S. DOLLAR VALUE AS    CURRENCY TO BE         UNREALIZED
   SETTLEMENT DATE          DELIVERED           OF 6/30/95            RECEIVED               LOSS
 -----------------------------------------------------------------------------------------------------

    <S>                 <C>                  <C>                    <C>                 <C>         
    July 3, 1995            548,609          $     225,024             225,098          $      (747)
                        Malaysian Ringget                           U.S. Dollars
</TABLE>


The Morgan Stanley Asian Growth and Morgan Stanley Worldwide High Income
Portfolios have relatively large investments in countries with limited or
developing capital markets that may involve greater risk than investments in
more developed markets and as a result the prices of such investments may be
volatile. The consequences of political, social, or economic changes in these
markets may have disruptive effects on the market prices of the Portfolios'
investments and the income they generate.

OTHER

Organization costs of $11,416 were deferred and are being amortized over five
years by both the Morgan Stanley Asian Growth and Morgan Stanley Worldwide High
Income Portfolios.

On August 25, 1994, Integrity purchased for its own account approximately
450,000 shares of the Morgan Stanley Worldwide High Income Portfolio, at the net
asset value on such date, for an aggregate purchase price of $4.5 million. As of
June 30, 1995, approximately 162,926 shares, having a fair value of $1.7 million
and constituting 27.2% of the outstanding shares of the Portfolio, were held by
Integrity for its own account.

                                      107
<PAGE>
 
                             The Legends Fund, Inc.

                   Notes to Financial Statements (continued)



2. INVESTMENT ADVISORY AGREEMENTS AND PAYMENTS TO RELATED PARTIES

Integrity is the investment manager for the Fund pursuant to a Management
Agreement (the "Management Agreement") between the Fund and Integrity. Integrity
has entered into a sub-advisory agreement with a registered investment adviser
("Sub-Adviser") for each of the Portfolios. Integrity, not the Fund, pays the
sub-advisory fee to each of the Sub-Advisers. The fees payable to Integrity
under the Management Agreement, and by Integrity to each Sub-Adviser, as a
percentage of average net assets are as follows:

<TABLE>
<CAPTION>
                                                        MANAGEMENT       SUB-ADVISORY
     PORTFOLIO                                              FEE               FEE
     --------------------------------------------------------------------------------

     <S>                                                   <C>               <C>  
     Renaissance Balanced                                  0.65%             0.50%
     Zweig Asset Allocation                                0.90              0.75
     Nicholas-Applegate Balanced                           0.65              0.50
     Harris Bretall Sullivan & Smith Equity Growth         0.65              0.50
     Dreman Value                                          0.65              0.50
     Zweig Equity (Small Cap)                              1.05              0.90
     Mitchell Hutchins Fixed Income                        0.90              0.75
     Mitchell Hutchins Money Market                        0.65              0.50
     Morgan Stanley Asian Growth                           1.00              0.85
     Morgan Stanley Worldwide High Income                  0.85              0.70
</TABLE>

Under the Management Agreement, Integrity provides certain management services
to the Fund, and the Fund is responsible for certain of its direct operating
expenses. Integrity has voluntarily agreed to reimburse each of the Portfolios
for operating expenses (excluding management fees) above an annual rate of 0.5%
(0.7% prior to May 1, 1994) of average net assets, with the exception of the two
Morgan Stanley Portfolios, for which the annual voluntary expense limitation
(excluding management fees) is 1.0% of average net assets. Integrity has
reserved the right to withdraw or modify its policy of expense reimbursement for
the Portfolios.

                                      108
<PAGE>
 
                             The Legends Fund, Inc.

                   Notes to Financial Statements (continued)



2. INVESTMENT ADVISORY AGREEMENTS AND PAYMENTS TO RELATED PARTIES (CONTINUED)

The Renaissance Balanced, Zweig Asset Allocation, Nicholas-Applegate Balanced,
Harris Bretall Sullivan & Smith Equity Growth, Dreman Value, Morgan Stanley
Asian Growth and Zweig Equity (Small Cap) Portfolios placed a portion of their
transactions with brokerage firms which may be considered affiliates of the Fund
under the Investment Company Act of 1940. The commissions paid to these firms
were approximately $71,000 in the aggregate during the fiscal year ended June
30, 1995.

Certain officers and directors of the Fund are also officers of ARM, IFS,
Integrity and National Integrity. The Fund does not pay any amounts to
compensate these individuals.

3. CAPITAL SHARES

At June 30, 1995, the Fund had authority to issue one billion (1,000,000,000)
shares of common stock, $.001 par value each, in any class or classes as
determined by the Board of Directors. At such date, the Board of Directors had
authorized ten classes of shares, as follows: 55,000,000 shares each for the
Renaissance Balanced, Zweig Asset Allocation, Nicholas-Applegate Balanced,
Harris Bretall Sullivan & Smith Equity Growth, Dreman Value, Zweig Equity (Small
Cap), Mitchell Hutchins Fixed Income, Morgan Stanley Asian Growth, and Morgan
Stanley Worldwide High Income Portfolios and 100,000,000 shares for the Mitchell
Hutchins Money Market Portfolio.

At June 30, 1995, Integrity, through its Separate Account II (previously named
Separate Account SF), and National Integrity, through its Separate Account II
(previously named Separate Account SFN), were the record owners of all the
outstanding shares of the Fund.

                                      109
<PAGE>
 
                             The Legends Fund, Inc.

                             Portfolio Performance

                                 June 30, 1995



The Fund has entered into sub-advisory agreements with a professional manager
for investment of the assets of each of the Portfolios. Set forth below is a
discussion of the factors, including relevant market conditions and the
investment strategies and techniques pursued by the respective Sub-Advisers,
that materially affected the performance of each Portfolio (other than Mitchell
Hutchins Money Market Portfolio) during the fiscal year ended June 30, 1995. The
discussion was, in each case, provided by the respective Portfolio's Sub-
Adviser. The performance information and graphs contained in such discussions do
not include the expenses and fees of the separate accounts of Integrity or
National Integrity, whichever is applicable, that invest in the Portfolios.


<TABLE>
                         RENAISSANCE BALANCED PORTFOLIO

             Comparison of Change in Value of $10,000 Investment in
       Renaissance Balanced Portfolio, the S&P 500, and a composite index
            consisting of 60% of the S&P 500, 30% of Lehman Brothers
     Government/Corporate Bond Index, and 10% of 90-Day Treasury Bill Yield


[The following chart is presented to illustrate performance graph data which
appears in the paper copy of The Legends Fund, Inc. Annual Report. This chart
represents the performance history of the three indices indicated below.]


<CAPTION>
                                  60% OF THE S&P 500, 30% OF
                                         LEHMAN BROTHERS
                 RENAISSANCE    GOVERNMENT/CORPORATE BOND INDEX,
                  BALANCED       AND 10% OF 90-DAY TREASURY BILL
    DATE          PORTFOLIO                   YIELD                S&P 500
  --------------------------------------------------------------------------

   <S>             <C>                       <C>                   <C>    
   12/14/92        $10,000                   $10,000               $10,000
     Dec 92         $9,930                   $10,085               $10,088
     Jun 93        $10,420                   $10,629               $10,579
     Dec 93        $10,880                   $11,058               $11,102
     Jun 94        $10,400                   $10,709               $10,727
     Dec 94        $10,502                   $11,076               $11,248
     Jun 95        $11,826                   $12,832               $13,519
</TABLE>

                                      110
<PAGE>
 
                             The Legends Fund, Inc.

                       Portfolio Performance (continued)

                                 June 30, 1995


                   RENAISSANCE BALANCED PORTFOLIO (CONTINUED)


o    Average annual total return since inception: 6.82%
o    Total return for the fiscal year ended June 30, 1995: 13.71%
o    Performance relates to the Portfolio and does not reflect separate account
     charges applicable to variable annuity certificates.
o    Portfolio commenced operations on December 14, 1992. Index performances for
     the month of December 1992 have been prorated to conform to the
     commencement date of the Portfolio (except for the S&P 500).
o    Past performance is not predictive of future performance.

Returns from both stocks and bonds have been well above their average over the
past six months. After suffering through one of the worst years of performance
in history in 1994, the U.S. bond market has staged a robust rally thus far in
1995, with yields on longer-term U.S. Treasury bonds falling to 15 month lows by
late June. The stock market has staged an equally strong rally after a
disappointing 1994, as growth in corporate earnings and falling interest rates
combined to push stock prices higher.

Our analysis of relative values between stocks, bonds, and cash equivalents led
us last year to significantly increase our position in bonds in our Portfolio.
From a low of less than 30% at the beginning of 1994, we built our positions in
U.S. Treasury bonds to approximately 40% by the fall of 1994, and were well
positioned for the subsequent rally in bond prices. The strongest returns in the
bond market over the past twelve months have been in Treasury issues of ten
years or more in maturity (our bond positions are primarily ten year maturity
Treasuries).

As interest rates rose during the last half of 1994, the level of the stock
market risk increased, and we reduced our positions in stocks to approximately
40% by mid-year, while increasing our bond positions. Our stock position
participated in the general increase in stock prices over the past year, with
particularly strong results turned in by investment positions in the Basic
Materials, Industrials, and Finance areas. Within the stock market as a whole,
leadership over the past twelve months has primarily been provided by Technology
and Financial issues.

By late in the second quarter of 1995, the rally in the bond market had resulted
in very low bond yields relative to those available from cash equivalents. We
reduced our bond positions to roughly 35% of the Portfolio by the end of March
1995, and increased our cash equivalent positions further to approximately 23%.
Given further declines in interest rates or a pullback in stock prices, we would
anticipate increasing our position in stocks. However, given current levels of
interest rates and stock prices, the level of risk in the stock market remains
somewhat above average. At June 30, 1995 the Portfolio was invested
approximately 43% in stocks, 50% in bonds, and 7% in cash equivalents.

                                      111
<PAGE>
 
                             The Legends Fund, Inc.

                       Portfolio Performance (continued)

                                 June 30, 1995


<TABLE>
                        ZWEIG ASSET ALLOCATION PORTFOLIO

             Comparison of Change in Value of $10,000 Investment in
                Zweig Asset Allocation Portfolio and the S&P 500


[The following chart is presented to illustrate performance graph data which
appears in the paper copy of The Legends Fund, Inc. Annual Report. This chart
represents the performance history of the two indices indicated below.]


<CAPTION>
                              ZWEIG ASSET ALLOCATION
              DATE                   PORTFOLIO              S&P 500
            ---------------------------------------------------------

            <S>                      <C>                    <C>
            12/14/92                 $10,000                $10,000
              Dec 92                 $10,000                $10,088
              Jun 93                 $10,810                $10,579
              Dec 93                 $11,450                $11,102
              Jun 94                 $11,444                $10,727
              Dec 94                 $10,491                $11,248
              Jun 95                 $13,112                $13,519
</TABLE>


o    Average annual total return since inception: 11.24%
o    Total return for the fiscal year ended June 30, 1995: 14.57%
o    Performance relates to the Portfolio and does not reflect separate account
     charges applicable to variable annuity certificates.
o    Portfolio commenced operations on December 14, 1992.
o    Past performance is not predictive of future performance.

The Portfolio was up 14.57% during the twelve months ended June 30, 1995. This
compares to the Portfolio's benchmark, the S&P 500, which was up 26.03% during
the same period. The average effective investment exposure of the Portfolio
during the period was 45%.

Though the Portfolio participated in the market's advance during the twelve
months, it lagged its benchmark primarily due to significant cash levels held
during the year. During the last six months of 1994, investment exposure ranged
between 30% and 40% as all three components of our asset allocation model -
monetary, sentiment, and momentum - showed above-average risk levels in the
market. We gradually increased investment exposure to 70% during the first six
months of 1995

                                      112
<PAGE>
 
                             The Legends Fund, Inc.

                       Portfolio Performance (continued)

                                 June 30, 1995


                  ZWEIG ASSET ALLOCATION PORTFOLIO (CONTINUED)


largely due to three factors. First, bonds rallied, improving our monetary
indicators. Second, an increase in corporate share buybacks and takeover
activity coupled with moderate levels of new offerings provided a favorable
supply/demand situation for stocks, improving our sentiment indicators. Third,
the market's strength caused our momentum indicators to uptick.

Stock selections added value during the fiscal year ended June 30, 1995,
principally during the final six months of the fiscal year. Emphasis on
semiconductor, aerospace, and bank issues were largely responsible.


<TABLE>
                     NICHOLAS-APPLEGATE BALANCED PORTFOLIO

             Comparison of Change in Value of $10,000 Investment in
Nicholas-Applegate Balanced Portfolio, the S&P 500, and a composite index
consisting of 60% of the S&P 500 and 40% of Lehman Brothers Intermediate
Treasury Bond Index


[The following chart is presented to illustrate performance graph data which
appears in the paper copy of The Legends Fund, Inc. Annual Report. This chart
represents the performance history of the three indices indicated below.]


<CAPTION>
                                               60% OF THE S&P 500 AND 40%
                                                  OF LEHMAN BROTHERS
                 NICHOLAS-APPLEGATE BALANCED   INTERMEDIATE TREASURY BOND
    DATE                PORTFOLIO                       INDEX              S&P 500
  ----------------------------------------------------------------------------------

  <S>                    <C>                           <C>                 <C>    
  12/3/92                $10,000                       $10,000             $10,000
   Dec 92                $10,300                       $10,143             $10,157
   Jun 93                $11,500                       $10,676             $10,651
   Dec 93                $11,740                       $11,089             $11,178
   Jun 94                $11,270                       $10,723             $10,800
   Dec 94                $11,706                       $11,063             $11,325
   Jun 95                $13,290                       $12,795             $13,611
</TABLE>

                                      113
<PAGE>
 
                             The Legends Fund, Inc.

                       Portfolio Performance (continued)

                                 June 30, 1995


               NICHOLAS-APPLEGATE BALANCED PORTFOLIO (CONTINUED)


o    Average annual total return since inception: 11.69%
o    Total return for the fiscal year ended June 30, 1995: 17.92%
o    Performance relates to the Portfolio and does not reflect separate account
     charges applicable to variable annuity certificates.
o    Portfolio commenced operations on December 3, 1992. Index performances for
     the month of December 1992 have been prorated to conform to the
     commencement date of the Portfolio (except for the S&P 500).
o    Past performance is not predictive of future performance.

In contrast to the difficult environment for equities and bonds in 1994, this
year has been one of solid growth. During 1994, interest rates placed a cloud
over future earnings growth and those companies with strong earnings growth were
not rewarded by equity markets. This year has witnessed a renewed focus by
investors on the strength of earnings growth.

U.S. stock and bond markets continued to rally in the second quarter of 1995 as
strength in corporate earnings pushed stock prices higher and a slowing national
economy spurred bond investors to bid up prices and drive down yields on fixed-
income securities. The strong demand for stocks and bonds was due in part to
foreign central banks investing their recently purchased U.S. dollars into U.S.
Treasury securities and by continued strong cash inflows into equity mutual
funds. Those funds topped $1 trillion in assets in May 1995, less than two and a
half years after topping the $500 billion mark, and signaled to many a newfound
seriousness on the part of aging baby-boom investors to make up for lost time.
Additionally, many long-time bears advised investors to add equities to their
portfolios.

Large-company stocks, as represented by the S&P 500 Index, returned 9.53% for
the quarter ended June 30 and 26.03% for the twelve months ended June 30, 1995.
Technology issues logged the best returns for the quarter on the strength of
gains by electronics components and microcomputer manufacturers.

Semiconductor manufacturers in particular continued to enjoy strong share-price
growth on the strength of expectations for a continuation of the industry's rise
in earnings. For example, the Portfolio benefited from holding Micron Technology
shares, which rose strongly from April through June on the strength of a 105%
improvement in earnings. The Portfolio performance was affected by declines in
several health care companies, particularly health maintenance organizations.
For example, the Portfolio sold positions in U.S. Healthcare due to declining
earnings caused by rising medical costs.


                                      114
<PAGE>
 
                             The Legends Fund, Inc.

                       Portfolio Performance (continued)

                                 June 30, 1995


               NICHOLAS-APPLEGATE BALANCED PORTFOLIO (CONTINUED)


The bond market continued its upward rise as domestic investors lined up with
foreign central bankers to buy U.S. Treasury Bonds amid signs of continued
economic slowing. We remain concerned, however, about a number of economic
factors that could dampen the return of bonds. Inflation, as measured by the
intermediate producer price index, continued to rise and mortgage applications
accelerated. Consumer confidence and personal income are high, suggesting
consumers have the resources to resume their spending habits at any time. These
factors could lift the economy from its recent slump and reverse the course of
declining interest rates. We remain positioned with a shorter than market
duration with our bond holdings.

This year's developments have been encouraging. Capital markets once again
provided the greatest rewards to companies with strong earnings growth and the
Portfolio recorded solid performance as a result. In any economic or market
environment, however, we will hold fast to the disciplined style that has
brought competitive returns to Nicholas-Applegate investors for more than a
decade. Identifying companies that are adapting positively to the environment
around them and as a result, are growing their earnings and their share prices.


<TABLE>
            HARRIS BRETALL SULLIVAN & SMITH EQUITY GROWTH PORTFOLIO

             Comparison of Change in Value of $10,000 Investment in
    Harris Bretall Sullivan & Smith Equity Growth Portfolio and the S&P 500

[The following chart is presented to illustrate performance graph data which
appears in the paper copy of The Legends Fund, Inc. Annual Report. This chart
represents the performance history of the two indices indicated below.]

<CAPTION>
                          HARRIS BRETALL SULLIVAN &
              DATE      SMITH EQUITY GROWTH PORTFOLIO         S&P 500
            -----------------------------------------------------------

            <S>                   <C>                         <C>
            12/8/92               $10,000                     $10,000
             Dec 92               $10,050                      $9,992
             Jun 93                $9,710                     $10,478
             Dec 93               $10,050                     $10,997
             Jun 94                $9,360                     $10,625
             Dec 94               $10,460                     $11,141
             Jun 95               $12,850                     $13,391
</TABLE>

                                      115
<PAGE>
 
                             The Legends Fund, Inc.

                       Portfolio Performance (continued)

                                 June 30, 1995



      HARRIS BRETALL SULLIVAN & SMITH EQUITY GROWTH PORTFOLIO (CONTINUED)



o    Average annual total return since inception: 10.30%
o    Total return for the fiscal year ended June 30, 1995: 37.29%
o    Performance relates to the Portfolio and does not reflect separate account
     charges applicable to variable annuity certificates.
o    Portfolio commenced operations on December 8, 1992.
o    Past performance is not predictive of future performance.

For the fiscal year ended June 30, 1995, the Portfolio finished up 37.29%. This
return is primarily the result of good fundamentals underlying our positions in
technology, information processing, and interest rate sensitive stocks. The
Portfolio finished the fiscal year significantly ahead of the S&P 500 index,
which was up 26.03%.

Not very many investment portfolios have been able to beat the S&P 500 index
this fiscal year. We believe that our superior performance was obtained by
sticking to our time-tested investment disciplines: selecting high-quality
growth companies, focusing on consistent earnings growth, and knowing that price
will follow earnings.

Back in late 1993 we introduced the concept of the "Virtuous Cycle," a period of
time when interest rates are stable or declining, earnings are rising, and
price/earnings ratios are expanding. In the past, when the stock market has been
blessed by such a "Virtuous Cycle," returns have been very compelling, exceeding
20% annualized. Our analysis leads us to believe that we could be at the
beginning of this same kind of multi-year bull market. The economic conditions
we see today of moderate economic growth, low inflation, and low interest rates
remind us of the 1950's and early 1960's, one of the best periods in history to
be an equity investor.

We remain bullish and fully invested in growth companies. Our work on valuation
indicates that the market, despite the strong advance over the last twelve
months, is still fairly valued. Last year, we predicted that "...growth stocks
are poised to outperform the market again." While that has certainly occurred
for investors in the Portfolio, historically these periods of good performance
run longer than just one year. Hence, we plan to use minor, technical
corrections as buying opportunities in this "Virtuous Cycle" for growth stocks.

                                      116
<PAGE>
 
                             The Legends Fund, Inc.

                       Portfolio Performance (continued)

                                 June 30, 1995



                             DREMAN VALUE PORTFOLIO

             Comparison of Change in Value of $10,000 Investment in
                     Dreman Value Portfolio and the S&P 500


[The following chart is presented to illustrate performance graph data which
appears in the paper copy of The Legends Fund, Inc. Annual Report. This chart
represents the performance history of the two indices indicated below.]

<TABLE> 
<CAPTION>
                                    DREMAN VALUE
               DATE                   PORTFOLIO             S&P 500
             --------------------------------------------------------

             <S>                       <C>                  <C>
             12/14/92                  $10,000              $10,000
               Dec 92                  $10,180              $10,088
               Jun 93                  $10,450              $10,579
               Dec 93                  $10,740              $11,102
               Jun 94                  $10,660              $10,727
               Dec 94                  $10,657              $11,248
               Jun 95                  $12,790              $13,519
</TABLE>


o    Average annual total return since inception: 10.16%
o    Total return for the fiscal year ended June 30, 1995: 19.98%
o    Performance relates to the Portfolio and does not reflect separate account
     charges applicable to variable annuity certificates.
o    Portfolio commenced operations on December 14, 1992.
o    Past performance is not predictive of future performance.

The Portfolio has shown excellent strength during the fiscal year ending June
30, 1995, increasing 19.98%. The past twelve months have been a tale of two
completely different markets. Throughout 1994 interest rates were on the rise,
there were numerous mishaps in the world financial markets and returns on
financial investments were among the worst in recent memory. Since January 1,
1995 the opposite has taken place, with both stocks and bonds yielding
exceptional six month returns.

                                      117
<PAGE>
 
                             The Legends Fund, Inc.

                       Portfolio Performance (continued)

                                 June 30, 1995


                       DREMAN VALUE PORTFOLIO (CONTINUED)

Returns for the first half of 1995 were influenced by excellent corporate
profits and lower interest rates. With respect to the former, close to 80% of
U.S. corporations have reported earnings in excess of Wall Street estimates in
the first two quarters. While a majority of positive surprises is not unusual,
the extent of the plurality is astonishing in light of the gloom overhanging the
market just six months ago. While the Federal Reserve has only lowered the
Federal Funds target 1/4 of 1% during the first part of July 1995, the market,
the true determinant of rates, had already readjusted rates downward even
further, in anticipation of slower economic growth. The rapidity with which
rates have risen and fallen over the past three years has caught many investors
off-guard. We would not bet against another reversal of interest rates if
economic activity picks up later this year.

After being knocked down sharply in the fourth quarter of 1994, both by the
fears of higher interest rates and an overreaction to derivative write-offs, the
financial service stocks achieved solid results so far in 1995. Following the
steep rise of interest rates in 1994, the decline in recent months was embraced
by investors. In fact, the 30-year Treasury yield is now back to the levels of
second quarter 1994. Both the Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation posted solid earnings gains despite a
slowing new housing market and minimal refinancing. We view this to be extremely
positive for these firms as a "pick up" in either area would be a further
windfall to earnings.

Bank earnings were strong despite the contractions of net interest margins. We
are particularly bullish on the two California Savings and Loan holdings, Great
Western Financial and Ahmanson. Each has been hampered by the rough West Coast
economy but will benefit as their adjustable rate mortgages ("ARMs") begin to
earn at higher interest rates. During the rapid rise in rates last year the ARMs
yields did not advance as quickly as the cost of funds for these institutions. A
catch-up phase is now in place with the impact of improving the interest rate
spread and earnings per share.

The second quarter of 1995 returns in the Portfolio were led by the three
technology stocks, Apple Computer, Compaq and Hewlett-Packard, rising 30% on
average. All were swept along in Wall Street's clamoring into technology stocks
that has accelerated in the past two months. We think this new frenzy is a
dangerous area of the market and have been slowly selling into this 12-month
technology surge. Our holdings remain first-rate values selling at 11-16 times
earnings, in a sector replete with companies priced at outlandish multiples and
having very questionable market liquidity.

                                      118
<PAGE>
 
                             The Legends Fund, Inc.

                       Portfolio Performance (continued)

                                 June 30, 1995


<TABLE>
                       ZWEIG EQUITY (SMALL CAP) PORTFOLIO


             Comparison of Change in Value of $10,000 Investment in
     Zweig Equity (Small Cap) Portfolio and the Value Line Geometric Index

[The following chart is presented to illustrate performance graph data which
appears in the paper copy of The Legends Fund, Inc. Annual Report. This chart
represents the performance history of the two indices indicated below.]

<CAPTION>
                         ZWEIG EQUITY (SMALL         VALUE LINE GEOMETRIC
        DATE               CAP) PORTFOLIO                   INDEX
     ---------------------------------------------------------------------

      <S>                       <C>                        <C>
      12/14/92                  $10,000                    $10,000
        Dec 92                  $10,000                    $10,106
        Jun 93                  $10,110                    $10,611
        Dec 93                  $10,750                    $11,260
        Jun 94                  $10,650                    $10,482
        Dec 94                  $10,684                    $10,582
        Jun 95                  $11,757                    $11,862
</TABLE>

o    Average annual total return since inception: 6.57%
o    Total return for the fiscal year ended June 30, 1995: 10.39%
o    Performance relates to the Portfolio and does not reflect separate account
     charges applicable to variable annuity certificates.
o    Portfolio commenced operations on December 14, 1992. Index performance for
     the month of December 1992 has been prorated to conform to the commencement
     date of the Portfolio.
o    Past performance is not predictive of future performance.

The Portfolio was up 10.39% during the year, while its benchmark, the Value Line
Geometric Index, was up 13.17%. The average effective investment exposure of the
Portfolio during the period was 45%.

                                      119
<PAGE>
 
                             The Legends Fund, Inc.

                       Portfolio Performance (continued)

                                 June 30, 1995


                 ZWEIG EQUITY (SMALL CAP) PORTFOLIO (CONTINUED)


Though the Portfolio participated in the market's advance during the twelve
months, the Portfolio lagged its benchmark primarily due to significant cash
levels held during the year. During the last six months of 1994, investment
exposure ranged between 30% and 40% as all three components of our asset
allocation model - monetary, sentiment, and momentum - showed above-average risk
levels in the market. We gradually increased investment exposure to 70% during
the first six months of 1995 largely due to the three factors. First, bonds
rallied, improving our monetary indicators. Second, an increase in corporate
share buybacks and takeover activity coupled with moderate levels of new
offerings provided a favorable supply/demand situation for stocks, improving our
sentiment indicators. Third, the market's strength caused our momentum
indicators to uptick.

Stock selection added value during the fiscal year ended June 30, 1995,
principally during the final six months of the period. Emphasis on
semiconductor, aerospace, and bank issues were largely responsible.


                    MITCHELL HUTCHINS FIXED INCOME PORTFOLIO

             Comparison of Change in Value of $10,000 Investment in
            Mitchell Hutchins Fixed Income Portfolio and the Salomon
                   Brothers Broad Investment-Grade Bond Index


[The following chart is presented to illustrate performance graph data which
appears in the paper copy of The Legends Fund, Inc. Annual Report. This chart
represents the performance history of the two indices indicated below.]

<TABLE> 
<CAPTION>
                           MITCHELL HUTCHINS          SALOMON BROTHERS BROAD
                             FIXED INCOME                INVESTMENT-GRADE
          DATE                 PORTFOLIO                    BOND INDEX
       ----------------------------------------------------------------------

         <S>                    <C>                          <C>
         1/5/93                 $10,000                      $10,000
         Jun 93                 $10,430                      $10,695
         Dec 93                 $10,450                      $10,979
         Jun 94                 $10,000                      $10,568
         Dec 94                 $10,047                      $10,667
         Jun 95                 $11,108                      $11,894
</TABLE>

                                      120
<PAGE>
 
                             The Legends Fund, Inc.

                       Portfolio Performance (continued)

                                 June 30, 1995


              MITCHELL HUTCHINS FIXED INCOME PORTFOLIO (CONTINUED)


o    Average annual total return since inception: 4.33%
o    Total return for the fiscal year ended June 30, 1995: 11.08%
o    Performance relates to the Portfolio and does not reflect separate account
     charges applicable to variable annuity certificates.
o    Portfolio commenced operations on January 5, 1993. Index performance has
     been prorated to conform to the commencement date of the Portfolio.
o    Past performance is not predictive of future performance.

For the fiscal year ended June 30, 1995, the Portfolio, net of fees and
expenses, underperformed the Salomon Brothers Broad Investment-Grade Index by
147 basis points. The small size of the Portfolio still adversely affects
portfolio performance as trading in non-round-lot sizes incurs higher
transaction costs. The following is a discussion of market conditions and
investment strategies which materially affected the performance during this
period.

The six month period ended December 31, 1994 was characterized by strong
economic growth (4.0% and 5.1% GDP growth in the third and fourth quarters of
1994, respectively) and a restrictive Federal Reserve that raised the federal
funds rate by 300 basis points from February 1994 to February 1995. This
environment produced a significant decline in bond prices as interest rates
increased roughly 50 basis points as measured by the ten year U.S. Treasury
note. Relative Portfolio performance benefited from this backup in rates, as the
Portfolio duration averaged six months shorter than the benchmark during this
period. An overweighing in corporate securities, primarily in the short end of
the yield curve, added to performance as that sector outperformed the index as a
whole. The return of the Portfolio's mortgage-backed securities holdings kept
pace with the mortgage component of the index and a position in callable
government agencies vis-a-vis U.S. Treasuries added to total return.

Over the three months ended March 31, 1995, the bond market reversed course and
saw a 60 basis point decline in ten year maturity yields. In February 1995, the
Federal Reserve seemingly ended their tightening of monetary policy and economic
growth showed signs of slowing down from its brisk pace in 1994. As we entered
the year, our fundamental analysis produced a belief that economic growth would
remain above the "non-inflationary" potential growth rate of 2.5%, causing
inflation fears and further tightening from the Fed. This, combined with a
weakening dollar versus the German Deutschemark and Japanese Yen, convinced us
to leave the portfolio duration short relative to the benchmark to take
advantage of a further increase in rates. Unfortunately, we did not foresee
three positive technical aspects that produced higher bond prices. These factors
included (1) a "flight to quality" resulting from problems in emerging markets,
specifically Mexico, (2) heavy foreign investor and central bank buying, and (3)
a growing belief among market participants,

                                      121
<PAGE>
 
                             The Legends Fund, Inc.

                       Portfolio Performance (continued)

                                 June 30, 1995


              MITCHELL HUTCHINS FIXED INCOME PORTFOLIO (CONTINUED)

observing slower growth in the housing and retail sectors, that the Fed was
successfully engineering a "soft-landing" in the economy. Consequently, a short
relative portfolio duration in the rallying bond market resulted in relative
underperformance.

As we entered the final three months ended June 30, 1995, we rebalanced the
portfolio duration to index neutral and pared back the corporate sector
allocation in response to these technical factors and early signs that second
quarter growth might be slowing. We did not believe lengthening duration above
the benchmark was warranted, given the dramatic runup in the first quarter and
still no confirmation that economic growth was indeed slowing significantly with
a declining dollar. We soon saw with April and May employment figures that the
economy was looking at very low growth in the second quarter and market
sentiment turned to the likelihood of an easing in interest rates by the Fed.
With a duration and sector allocation roughly neutral to the index, portfolio
performance, before fees and expenses, was slightly higher than the benchmark
for the last three months of the year.


                     MORGAN STANLEY ASIAN GROWTH PORTFOLIO

             Comparison of Change in Value of $10,000 Investment in
          Morgan Stanley Asian Growth Portfolio and the MSCI Combined
                          Far East Free Ex-Japan Index


[The following chart is presented to illustrate performance graph data which
appears in the paper copy of The Legends Fund, Inc. Annual Report. This chart
represents the performance history of the two indices indicated below.]

<TABLE> 
<CAPTION>
                         MORGAN STANLEY ASIAN   MSCI COMBINED FAR EAST
          DATE             GROWTH PORTFOLIO       FREE EX-JAPAN INDEX
       ----------------------------------------------------------------

        <S>                     <C>                     <C>
        6/15/94                 $10,000                 $10,000
         Jun 94                 $10,000                  $9,754
         Sep 94                  $9,990                 $11,106
         Dec 94                  $9,280                  $9,772
         Mar 95                  $9,230                  $9,599
         Jun 95                 $10,180                 $10,456
</TABLE>

                                      122
<PAGE>
 
                             The Legends Fund, Inc.

                       Portfolio Performance (continued)

                                 June 30, 1995


               MORGAN STANLEY ASIAN GROWTH PORTFOLIO (CONTINUED)


o    Average annual total return since inception: 1.73%
o    Total return for the fiscal year ended June 30, 1995: 1.80%
o    Performance relates to the Portfolio and does not reflect separate account
     charges applicable to variable annuity certificates.
o    Portfolio commenced operations on June 15, 1994.
o    Past performance is not predictive of future performance.

The investment objective of the Portfolio is to achieve long-term capital
appreciation through investments in the stock markets of Asia, excluding Japan.

For the fiscal year ended June 30,1995 the total return of the Portfolio was
1.80%. By comparison, the benchmark index, the Morgan Stanley Capital
International ("MSCI") Combined Far East Free Ex-Japan Index, registered a gain
of 7.19% over the same period.

Underperformance for the fiscal year 1995 stems entirely from the first quarter
of the Portfolio's existence. After a spectacular rise in 1993, Asian markets
corrected sharply in 1994. Asian markets did stage one extended rally during
1994, however, and that was during the third quarter of the year, which
coincided with the Portfolio's launch. The Portfolio missed most of the rally.
Through the first three months of 1995, the Index returned 13.86%, whereas the
Portfolio lost 0.11%.

For the period from inception on June 15, 1994 through September 30, 1994, the
Portfolio was being invested, up to 76.6% at September 30. Over time, the
Portfolio became more fully invested to its present level of 96%. For much of
the year, the Portfolio maintained higher than normal cash balances, which
served the Portfolio well during volatile periods, such as the Asian aftermath
to the Mexican peso crisis.

The investment manager pursues a disciplined value oriented philosophy by which
the manager seeks to identify and invest in undervalued companies. Once
purchased, stocks are not sold unless they become expensive relative to what the
manager quantifies as their intrinsic value or another company becomes more
attractive. We have not deviated from this long-term value oriented strategy as
illustrated in the Portfolio's relatively low turnover rate.

                                      123
<PAGE>
 
                             The Legends Fund, Inc.

                       Portfolio Performance (continued)

                                 June 30, 1995


               MORGAN STANLEY ASIAN GROWTH PORTFOLIO (CONTINUED)


During 1995, Hong Kong garnered top honors as Asia's top performing market,
returning 10.9% despite uncertainty surrounding interest rates and the worsening
of relations between the U.S. and China over arms sales and the recent visit to
the U.S. by Taiwan's President. Tied to U.S. interest rates via the exchange
rate peg, Hong Kong benefitted from the dramatic drop in U.S. bond yields. At 11
times 1995 estimated earnings, we believe Hong Kong is still Asia's cheapest
market.

Malaysia rivaled Hong Kong as one of Asia's best performing markets, gaining
10.2% over the last six months. In January and February the market reeled as
investors feared that the ringgit would be devalued given the country's large
current account deficit. Eventually market sentiment improved as investors
recognized that because of Malaysia's strong external reserves position, low
debt service ratio and basic account surplus, the Central Bank was well armed to
defend the ringgit. The market snapped back to life in the last three months as
foreign investors returned in droves with the fall in U.S. bond yields and as
fears abated that tough anti-inflationary measures would be enacted. At 21 times
1995 estimated earnings, we believe Malaysia is fully valued.

The Thai market posted modest gains of 3.3% over the last two quarters of 1994.
The third quarter was particularly trying for the Thai market as it was viewed
by foreign institutional investors as a submerging market whose currency (the
baht), like the Mexican peso several months before, was overvalued and due for
an adjustment. Fearing the worst, foreign institutions reacted impulsively,
selling indiscriminately. The market's liquid bluechips were the hardest hit.
After the initial wave of panic selling, however, the market traded sideways on
thin volume for several months. With the dramatic drop in U.S. bond yields in
May and the extended rally in U.S. markets, however, foreign investors returned
to the market in force, buying aggressively in Thailand's most interest rate
sensitive sectors--banks, finance companies, and property developers--which
would benefit from the wider margins.

Looking ahead in Asia, excluding Japan, we are relatively neutral about the
Asian markets. We expect to aim for a market weighted in Malaysia, Singapore,
Thailand, and Indonesia, while being overweighted in the Philippines and
underweighted in Hong Kong and Korea.

                                      124
<PAGE>
 
                             The Legends Fund, Inc.

                       Portfolio Performance (continued)

                                 June 30, 1995



                 MORGAN STANLEY WORLDWIDE HIGH INCOME PORTFOLIO

             Comparison of Change in Value of $10,000 Investment in
Morgan Stanley Worldwide High Income Portfolio, the J.P. Morgan Emerging Market
Bond Index, and a composite index consisting of 50% of the J.P. Morgan Emerging
Market Bond Index and 50% of Lehman Brothers Aggregate Bond Index


[The following chart is presented to illustrate performance graph data which
appears in the paper copy of The Legends Fund, Inc. Annual Report. This chart
represents the performance history of the three indices indicated below.]

<TABLE> 
<CAPTION>
                                                               50% JP MORGAN EMERGING
                MORGAN STANLEY                                  MARKET BOND INDEX AND
             WORLDWIDE HIGH INCOME    JP MORGAN EMERGING       50% OF LEHMAN BROTHERS
   DATE            PORTFOLIO           MARKET BOND INDEX        AGGREGATE BOND INDEX
- --------------------------------------------------------------------------------------

<S>                <C>                     <C>                         <C>
 6/15/94           $10,000                 $10,000                     $10,000
  Jun 94           $10,000                  $9,580                      $9,784
  Sep 94           $10,010                 $10,620                     $10,335
  Dec 94            $9,503                  $9,731                      $9,909
  Mar 95            $9,130                  $8,653                      $9,625
  Jun 95           $10,400                 $10,628                     $10,935
</TABLE>

o    Average annual total return since inception: 3.84%
o    Total return for the fiscal year ended June 30, 1995: 4.00%
o    Performance relates to the Portfolio and does not reflect separate account
     charges applicable to variable annuity certificates.
o    Portfolio commenced operations on June 15, 1994. Index performances for the
     month of June 1994 have been prorated to conform to the commencement date
     of the Portfolio.
o    Past performance is not predictive of future performance.

The last twelve months in the bond markets have been tumultuous. Both emerging
markets and the U.S. bond market witnessed inflection points during the period.
In the U.S., inflationary fears and high growth drove up nominal bond yields to
8.20%. Changes in the bond markets of G-7 countries had an effect in emerging
markets. In emerging markets, political turbulence, elections in Mexico,
euphoria and leverage proved to be unsettling. The Mexican devaluation led to
widespread re-

                                      125
<PAGE>
 
                             The Legends Fund, Inc.

                       Portfolio Performance (continued)

                                 June 30, 1995


           MORGAN STANLEY WORLDWIDE HIGH INCOME PORTFOLIO (CONTINUED)


thinking of the emerging market phenomenon. However, policy responses and
economic performances since the crash of 1994 should allay the most seasoned
skeptics.

The Portfolio benefited from the hybrid nature of its investments. Tactical
shifts out of and into emerging markets had a positive impact on performance. We
increased the allocation to emerging markets in the third quarter of calendar
1994, decreased it in the first quarter of calendar 1995 and increased it again
during the second quarter of calendar 1995.

During the first two quarters of calendar 1995 we increased our exposure to
emerging markets debt, as these markets returned to normalcy and offered higher
yields and prospective returns than the U.S. high yield market. Currently our
relative allocation stands at 65:35 in favor of emerging markets debt.

Historically the Portfolio has held a higher proportion of its holdings in the
larger Latin American countries, with smaller holdings in countries such as the
Philippines, Indonesia and Hungary for diversification. During 1995 we reduced
our holdings outside Latin America to capture much greater value and potential
for capital appreciation than in Mexico, Argentina and Brazil, countries which
had witnessed a larger increase in spreads in the wake of Mexico's devaluation.

Our country allocations have remained stable except for changes in Mexico,
Venezuela and Russia. We had relatively small exposure to Mexico in 1994 as
Mexican bonds seemed rich compared to others in Latin America, and concerns over
political stability and the conduct of monetary policy prompted us to be
relatively underweight in Mexico. Following the devaluation and the collapse in
prices of Eurobonds in the first quarter of 1995, we increased our exposure to
Mexico to 16% of the Portfolio.

The Zedillo administration's orthodox program of tight fiscal and monetary
policy proved effective at reversing the trade accounts from deficit to surplus
and at keeping the inflation bubble sparked by the devaluation from spiraling
out of control. The peso rose 8% from the first quarter of 1995 level as foreign
capital flows resumed; however, the peso is down 31% since January 1, 1995. The
peso stabilized as the funding from the U.S. and the International Monetary Fund
allowed it to manage through the potential liquidity crisis. Through the end of
June, due to the success of the stabilization effort, Mexico had drawn on
substantially less funding than originally committed from the U.S. Treasury
Emerging Stabilization Fund (approximately $12.5 billion out of $20 billion) and
had rebuilt international reserves to $10.8 billion.

                                      126
<PAGE>
 
                             The Legends Fund, Inc.

                       Portfolio Performance (continued)

                                 June 30, 1995


           MORGAN STANLEY WORLDWIDE HIGH INCOME PORTFOLIO (CONTINUED)


Venezuela's economic performance in 1995 has continued to deteriorate and, as a
result, we reduced our exposure to that country to approximately 3.5%, because
of continued inaction of the government to tackle the economy's problems of high
fiscal deficits and the liquidity overhang in the banking system. A continued
reliance on price and exchange controls has not resulted in bringing down
inflation and has negatively impacted growth prospects.

Argentine assets rallied strongly in anticipation of the first round victory for
President Menem, who had campaigned on a platform which stressed continuity of
economic policy by commitment to the Convertibility Plan. Asset prices
encountered profit taking in the post election euphoria as signs of a dramatic
slowdown in the economy emerged. The strait jacket of the Convertibility Plan
presents a policy dilemma as it leaves deflation as the only way out of a
slowdown in economic activity. We reduced our exposure to Argentina in June to
6.8% of the Portfolio from the 8% level we had maintained for some time.

Brazil remains our largest position at around 27% of the Portfolio. Brazil has
the strongest economy in the region and has embarked on a long and tortuous task
of amending the constitution in order to de-regulate the economy and stabilize
the economy in the long run. The reform agenda is ambitious and the legislative
sessions are likely to be noisy, with vested interest groups vying to make the
outcome more acceptable to their constituencies. We are confident that when all
is said and done Brazil will emerge as the strongest credit in the region.

Emerging markets debt continues to offer attractive yields. Positive total
returns should result from continued improvement in perceived credit quality.
Reaffirmed commitments to orthodox economic policies in the post devaluation
world should bolster confidence in this asset class.

The second half of the calendar year 1994 was weak for the domestic fixed income
market on the heels of rising interest rates and a slowing U.S. economy. The
U.S. High Yield market was strong in the first half of calendar 1995 reflecting
the 162 basis point decline in government bond yields and the strong rally in
the equity markets. Towards the end of the period, however, the market paused as
investors feared that the economy was slowing at a potentially dangerous pace
for high yield investors. The Fed shared this concern and lowered short term
interest rates 25 basis points near the end of the second calendar quarter. This
stabilized the high yield market somewhat, although government bonds began to
deteriorate shortly after the Fed easing.

                                      127
<PAGE>
 
                       Portfolio Performance (continued)

                                 June 30, 1995


           MORGAN STANLEY WORLDWIDE HIGH INCOME PORTFOLIO (CONTINUED)

We were fairly active in the high yield portion of the Portfolio. We sold five
issues and added seven issues. Several issues were added when the market for new
issues turned soft and buyers were hesitant to add new names to their
Portfolios. During this period we believe we picked up a couple of very good
values for the Portfolio. Also, during the first half of calendar 1995, the
quality spreads within the high yield market widened. We sold a few holdings
where earnings disappointed us and we felt trouble may come in the future.

The high yield portion of the Portfolio is well balanced with a healthy portion
of high quality cable television issues that have the potential to be upgraded,
in some cases to investment grade, along with a few cyclical credits that have
good market positions that we feel we bought at very attractive prices. The high
yield portion of the Portfolio appears well positioned in the current market
environment.

                                      128
<PAGE>
 
                                                                      Appendix A
                              OPTIONS AND FUTURES


Certain Portfolios may use the following Hedging Instruments:


Options on Equity and Debt Securities and Foreign Currencies -- A call option is
a short-term contract pursuant to which the purchaser of the option, in return
for a premium, has the right to buy the security or currency underlying the
option at a specified price at any time during the term of the option.  The
writer of the call option, who receives the premium, has the obligation, upon
exercise of the option during the option term, to deliver the underlying
security or currency against payment of the exercise price.  A put option is a
similar contact that gives its purchaser, in return for a premium, the right to
sell the underlying security or currency at a specified price during the option
term.  The writer of the put option, who receives the premium, has the
obligation, upon exercise of the option during the option term, to buy the
underlying security or currency at the exercise price.

Options on Securities Indexes -- A securities index assigns relative values to
the securities included in the index and fluctuates with changes in the market
values of those securities.  A securities index option operates in the same way
as a more traditional stock option, except that exercise of a securities index
option is effected with cash payment and does not involve delivery of
securities.  Thus, upon exercise of a securities index option, the purchaser
will realize, and the writer will pay, an amount based on the difference between
the exercise price and the closing price of the securities index.

Stock Index Futures Contracts -- A stock index futures contract is a bilateral
agreement pursuant to which one party agrees to accept, and the other party
agrees to make, delivery of an amount of cash equal to a specified dollar amount
times the difference between the stock index value at the close of trading of
the contract and the price at which the futures contract is originally struck.
No physical delivery of the stocks comprising the index is made.  Generally,
contracts are closed out prior to the expiration date of the contract.

Interest Rate and Foreign Currency Futures Contracts -- Interest rates and
foreign currency futures contracts are bilateral agreements pursuant to which
one party agrees to make, and the other party agrees to accept, delivery of a
specified type of debt security or currency at a specified future time and at a
specified price. Although such futures contracts by their terms call for actual
delivery or acceptance of debt securities or currency, in most cases, the
contracts are closed out before the settlement date without the making or taking
of delivery.
   
                                      A-1
<PAGE>
 
                                    PART C
                               OTHER INFORMATION

ITEM 24.   Financial Statements and Exhibits
           ---------------------------------

     (a)   Financial Statements and Report of Independent Auditors (included
           in Part B of the Registration Statement):

           Report of Ernst & Young LLP, independent auditors
           Statements of Assets and Liabilities as of June 30, 1995
           Statements of Operations for the fiscal year ended June 30, 1995
           Statements of Changes in Net Assets for the fiscal periods ended June
             30, 1995 and 1994
           Financial Highlights for fiscal periods since 1993*
           Schedules of Investments as of June 30, 1995
           Notes to Financial Statements



- ------------------
          *Also included in Part A of the Registration Statement

     (b)   Exhibits:

     1.(a).    Articles of Incorporation of The Legends Fund, Inc. (formerly
               Integrity Series Fund, Inc.) (the Fund), the Registrant (1)

       (b).    Articles of Amendment (2)

       (c).    Articles Supplementary (2)

       (d).    Articles Supplementary filed as of June 14, 1994 (3)

     2.        By-Laws of the Fund (1)

     3.        Not applicable

     4.        See generally Articles V, VII, VIII and IX of the Articles of
               Incorporation and Articles I, IV, VII and VIII of the Bylaws,
               incorporated herein by reference.

     5(a)(i)   Management Agreement between the Fund and Integrity Life
               Insurance Company (Integrity).  (3)

      (a)(ii)  Amendment to Management Agreement.  (3)

      (b)(i)   Proposed Sub-Advisory Agreement between Integrity and Dreman
               Value Advisors, Inc. (Dreman Value Portfolio)

      (b)(ii)  Sub-Advisory Agreement between Integrity and Harris Bretall
               Sullivan & Smith, Inc. (Harris Bretall Sullivan & Smith Equity
               Growth Portfolio)  (3)

                                      C-1
<PAGE>
 
     (b)(iii)  Sub-Advisory Agreement between Integrity and Mitchell Hutchins
               Asset Management Inc. (Mitchell Hutchins Money Market Portfolio)
               (3)

     (b)(iv)   Sub-Advisory Agreement between Integrity and Mitchell Hutchins
               Institutional Investors Inc. (Mitchell Hutchins Fixed Income
               Portfolio) (3)

     (b)(v)    Sub-Advisory Agreement between Integrity and Morgan Stanley Asset
               Management Inc. (Morgan Stanley Asian Growth Portfolio)  (3)

     (b)(vi)   Sub-Advisory Agreement between Integrity and Morgan Stanley Asset
               Management Inc. (Morgan Stanley Worldwide High Income Portfolio)
               (3)

     (b)(vii)  Sub-Advisory Agreement between Integrity and Nicholas-Applegate
               Capital Management (Nicholas-Applegate Balanced Portfolio)  (3)

     (b)(viii) Sub-Advisory Agreement between Integrity and Renaissance
               Investment Management (Renaissance Balanced Portfolio)  (3)

     (b)(ix)   Sub-Advisory Agreement between Integrity and Zweig/Glaser
               Advisers (Zweig Asset Allocation Portfolio)  (3)

     (b)(x)    Sub-Advisory Agreement between Integrity and Zweig/Glaser
               Advisers (Zweig Equity (Small Cap) Portfolio) (3)

   6.          Distribution Agreement between the Fund and SBM Financial
               Services, Inc. (SBMFS),   filed as an exhibit hereto.

   7.          Not applicable

   8.(a).      Custody, Recordkeeping and Agency Agreement between the Fund and
               Investors Fiduciary Trust Company, as amended  (3)

     (b).      Forms of Foreign Sub-Custody Agreement (2)

   9.(a).      Fund Participation Agreement with Integrity  (3)

     (b).      Fund Participation Agreement with National Integrity Life
               Insurance Company (National Integrity)  (3)

  10.          Opinion and Consent of Shereff, Friedman, Hoffman & Goodman (2)

  11.          Consent of Ernst & Young LLP, Independent Auditors

  12.          Not applicable

  13.          Not applicable

  14.          Not applicable

  15.          Not applicable

                                      C-2
<PAGE>
 
     16.       Not applicable

     17.       Financial Data Schedule

     18.       Powers of Attorney for Arthur J. Gartland, Theodore S. Rosky
               and John Katz  (3)


- ---------------------------------
     (1) Incorporated by reference to the Fund's Registration Statement on
         Form N-1A filed on August 4, 1992 (File Nos. 33-50434 and 811-7084).

     (2) Incorporated by reference to the Fund's Pre-Effective Amendment No. 1
         to the Registration Statement filed on November 12, 1992 (File Nos. 33-
         50434 and 811-7084).

     (3) Incorporated by reference to the Fund's Post-Effective Amendment No. 4
         to the Registration Statement on Form N-1A filed on October 12, 1994
         (File Nos. 33-50434 and 811-7084).

ITEM 25.  Persons Controlled by or Under Common Control With Registrant
          -------------------------------------------------------------

     Separate Account II of Integrity and Separate Account II of National
Integrity Life Insurance Company (National Integrity) own all of the outstanding
shares of common stock of Registrant. Fund shares are voted by Integrity and
National Integrity in accordance with instructions received from their
respective variable annuity contractowners who allocate contributions to the
Fund.

     Integrity, an Ohio stock life corporation, owns 100% of the voting
securities of National Integrity, a New York stock life corporation. The voting
securities of Integrity are 100% owned by Integrity Holdings, Inc., a Delaware
corporation which is a holding company engaged in no active business. The voting
securities of Integrity Holdings, Inc. are 100% owned by ARM Financial Group,
Inc. (ARM), a Delaware corporation which is a holding company. ARM also owns
100% of the voting stock of SBMFS, a Minnesota corporation which is the
Distributor of the Fund, and 100% of Integrity Financial Services, Inc., a New
York Corporation, both of which are registered with the SEC as a broker-dealer
and are members of the National Association of Securities Dealers, Inc. In
addition, ARM owns 100% of the stock of ARM Capital Advisors, Inc., a New York
corporation registered with the SEC as an investment adviser; 100% of State Bond
and Mortgage Life Insurance Company, a Minnesota stock life corporation; 100% of
SBM Certificate Company, a Minnesota corporation registered with the SEC as a
face amount certificate company; and 100% of ARM Transfer Agency, Inc., a
Delaware corporation. Approximately 90% of the common stock of ARM is owned by
wholly-owned subsidiaries of Morgan Stanley Group Inc. as follows: 52.06% by
Morgan Stanley Leveraged Equity Fund II, L.P., the general partner of which is
Morgan Stanley Leveraged Equity Fund II, Inc.; 33.89% by Morgan Stanley Capital
Partners III, L.P., 1.0% by Morgan Stanley Capital Investors, L.P., and 3.62% by
MSCP III 892 Investors, L.P., the General Partner for all of which is MSCP III,
L.P. The General Partner of MSCP III, L.P. is Morgan Stanley Capital Partners
III, Inc. Certain persons who are affiliated with Morgan Stanley & Co.
Incorporated, a subsidiary of Morgan Stanley Group Inc., constitute a majority
of the directors of ARM. Oldarm, L.P., a Kentucky limited partnership, New Arm,
LLC, a Kentucky limited liability company, and certain employees and management
of ARM own in the aggregate approximately 10% of the voting stock of ARM.

     No person has the direct or indirect power to control Morgan Stanley Group
Inc. except insofar as he or she may have such power by virtue of his or her
capacity as a director or executive officer thereof.  Morgan Stanley Group Inc.
is publicly held; no individual beneficially owns more than 5% of the common
shares; however, approximately 31% of such shares are subject to a stockholders'
agreement or voting agreement among certain current and former principals and
employees of Morgan Stanley and its predecessor.

                                      C-3
<PAGE>
 
  The following list shows the subsidiaries of Morgan Stanley Group Inc.  All
subsidiaries are wholly owned by their immediate parent company and are
incorporated in Delaware, except where noted otherwise in parentheses.

                           MORGAN STANLEY SUB LISTING

MORGAN STANLEY GROUP INC.
     Fourth Street Development Co. Incorporated
     Fourth Street Ltd.
     Jolter Investments Inc.
     Morgan Rundle Inc.
           MR Ventures Inc.
     Morgan Stanley Advisory Partnership Inc.
     Morgan Stanley Asset Management Inc.
     Morgan Stanley Baseball, Inc.            
     Morgan Stanley Capital Group Inc.        
     Morgan Stanley Capital I Inc.            
     Morgan Stanley Capital (Jersey) Limited  
     Morgan Stanley Capital Partners III, Inc.
     Morgan Stanley Capital Services Inc.     
     Morgan Stanley Commercial Mortgage Capital, Inc.
     Morgan Stanley Commodities Management, Inc.
     Morgan Stanley Derivative Products Inc.  
     Morgan Stanley Developing Country Debt II, Inc.
     Morgan Stanley Emerging Markets Inc.     
     Morgan Stanley Equity Investors Inc.     
     Morgan Stanley Finance (Jersey) Limited  
     Morgan Stanley Global Advisory Services Inc.
     Morgan Stanley Global Securities Services Incorporated
           Morgan Stanley Bank Luxembourg S.A.
     Morgan Stanley Insurance Agency Inc.     
     Morgan Stanley (Jersey) Limited          
     Morgan Stanley LEF I, Inc.               
     Morgan Stanley Leveraged Capital Fund Inc.
     Morgan Stanley Leveraged Equity Fund II, Inc.
           Morgan Stanley Capital Partners Asia Limited
     Morgan Stanley Leveraged Equity Holdings Inc.
     Morgan Stanley Market Products Inc.      
     Morgan Stanley Mortgage Capital Inc.     
     Morgan Stanley Real Estate Holdings, Inc.
     Morgan Stanley Real Estate Holdings II, Inc.
     Morgan Stanley Real Estate Investment Management Inc.
           Morgan Stanley Real Estate Fund, Inc.  
     Morgan Stanley Real Estate Investment Management II, Inc.
     Morgan Stanley Realty Incorporated       
           Brooks Harvey & Co., Inc.       
           Morgan Stanley Realty of California Inc.
           Morgan Stanley Realty of Illinois Inc.
           Brooks Harvey of Florida, Inc.  
           Brooks Harvey & Co. of Hawaii, Inc.
           Morgan Stanley Realty Japan Ltd. 

                                      C-4
<PAGE>
 
           BH-MS Realty Inc.
               BH-MS Leasing Inc.
                   BH-Sartell Inc.
     The Morgan Stanley Scholarship Fund, Inc. (Not-for-Profit)
     Morgan Stanley Services Inc.
     Morgan Stanley Technical Services Inc.
     Morgan Stanley Technical Services MB/VC Inc.
     Morgan Stanley Trust Company
           MS Prospect & Co.
     Morgan Stanley Venture Capital Inc.
     Morgan Stanley Venture Capital II, Inc.
     Morgan Stanley Ventures Inc.
     Morstan Development Company, Inc.
           Moranta, Inc.
           Porstan Development Company, Inc.
     MS 10020, Inc.
     MS Data Services, Inc.
     MS Financing Inc.
           Morgan Stanley 750 Building Corp.
           MS Tokyo Properties Ltd.
     MS Urban Horizons, Inc.
     MS Venture Capital (Japan) Inc.
     MSCP III Holdings, Inc.
     MSPL Co. Inc.
     MSREF II, Inc.
     MS/USA Leasing Inc.
     PG Holdings, Inc.
     PG Investors, Inc.
     Pierpont Power, Inc.
     Romley Computer Leasing Inc.

THE MORGAN STANLEY LEVERAGED EQUITY FUND II, L.P.
(The general partner of which is Morgan Stanley Leveraged Equity Fund II, Inc.)
     American Italian Pasta Company
     Amerin Corporation
           Amerin Guaranty Corporation
     ARM Financial Group, Inc.
     CIMIC Holdings Limited
     Coho Energy, Inc.
     Consolidated Hydro, Inc.
     Fort Howard Corporation
     PageMart, Inc.
     PSF Finance L.P.
           Premium Standard Farms, Inc.
     Jefferson Smurfit Corporation (U.S.)
           Container Corporation of America
           Jefferson Smurfit Corporation
     Silgan Holdings Inc.
           Silgan Corporation
     Stanklav Holdings, Inc.
     Sullivan Holdings, Inc.

                                      C-5
<PAGE>
 

     Sullivan Communications, Inc.
     Sullivan Graphics, Inc.
  Tennessee Valley Steel Corporation
  Waterford Wedgwood
     Waterford Wedgwood plc

MORGAN STANLEY CAPITAL PARTNERS III, L.P.
(The general partner of which is MSCP III, L.P., the general partner of which is
Morgan Stanley Capital Partners III, Inc.)
  Highlands Gas, Inc.
  TNT Coust, Inc.
  CSH Holdings, Inc.
     Cable Services Group, Inc.
  The Compucare Company

MORGAN STANLEY & CO. INCORPORATED
  HRJ Corporation
  Morgan Stanley Flexible Agreements Inc.
  Morgan Stanley Securities Trading Inc.
  Morgan Stanley Stock Loan Inc.
  MS Securities Services Inc.
  NRSD Corporation

MORGAN STANLEY INTERNATIONAL INCORPORATED
  Bank Morgan Stanley AG (Switzerland)
  Morgan Stanley & Co. (Pty) Limited
  Morgan Stanley A02T
  Morgan Stanley Asia (China) Limited
  Morgan Stanley Asia Holdings I Inc.
  Morgan Stanley Asia Holdings II Inc.
  Morgan Stanley Asia Holdings III Inc.
  Morgan Stanley Asia Holdings IV Inc.
  Morgan Stanley Asia Holdings V Inc.
  Morgan Stanley Asia Limited
  Morgan Stanley Asia (Singapore) Pte Ltd
  Morgan Stanley Asia (Taiwan) Ltd.
  Morgan Stanley Asset Management Singapore Ltd
  Morgan Stanley Australia Limited
  Morgan Stanley Canada Limited
  Morgan Stanley Capital SA
  Morgan Stanley Capital Group (Singapore) Pte Ltd
  Morgan Stanley Capital (Luxembourg) S.A.
  Morgan Stanley Developing Country Debt, Ltd. (Bermuda)
  Morgan Stanley Financial Services Beteiligungs GmbH
  Morgan Stanley Futures (Hong Kong) Limited
  Morgan Stanley Futures (Singapore) Pte Ltd
  Morgan Stanley Group (Europe) Plc
     Morgan Stanley Asset Management Limited
     Morgan Stanley Capital Group Limited
     Morgan Stanley (Europe) Limited
     Morgan Stanley Finance plc

                                      C-6
<PAGE>
 

     Morgan Stanley Properties Limited
     Morgan Stanley Property Management (UK) Limited
     Morgan Stanley Services (UK) Limited
     Morgan Stanley UK Group
        Morgan Stanley & Co. International Limited
           Morgan Stanley International Nominees Limited
        Morgan Stanley & Co. Limited
        Morgan Stanley Securities Limited
           Morstan Nominees Limited
     MS Leasing UK Limited
     MS Volatility Fund N.V.
  Morgan Stanley Hong Kong Nominees Limited
  Morgan Stanley Hong Kong Securities Limited
  Morgan Stanley International Insurance Ltd.
  Morgan Stanley Investment Advisory Co., Limited
  Morgan Stanley Japan (Holdings) Ltd.
     Morgan Stanley Japan Limited
  Morgan Stanley Latin America Incorporated
     MS Carbocol Advisors Inc.
  Morgan Stanley Mauritius Company Limited
     Morgan Stanley Asset Management India Private Limited
     Morgan Stanley India Securities Private Limited
  Morgan Stanley Offshore Investment Company Ltd. (Cayman Islands)
  Morgan Stanley Overseas Services (Jersey) Limited
  Morgan Stanley Pacific Limited (Hong Kong)
  Morgan Stanley S.A. (France)
  Morgan Stanley SICAV Management S.A. (Luxembourg)
  Morgan Stanley (Structured Products) Jersey Limited
  MS Italy (Holdings) Inc.
     Banca Morgan Stanley S.p.A.
  MS LDC, Ltd.
  MSL Incorporated

ITEM 26.  Number of Holders of Securities

     As of September 30,1995 there were two record owners of securities
registered pursuant to this Registration Statement.

ITEM 27.  Indemnification
          
     Articles of Incorporation of the Fund. The Articles of Incorporation of the
Fund provide in substance that no director or officer of the Fund shall be
liable to the Fund or its shareholders for money damages, unless the director or
officer is subject to liability by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of duties in the conduct of his or her
office.

     By-Laws of the Fund. The By-Laws of the Fund provide for the
indemnification of present and former officers and directors of the Fund against
liability by reason of service to the Fund, unless the officer or director is
subject to liability by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office (Disabling Conduct). No indemnification shall be made to an officer
or director unless there has been a final adjudication on the merits, a
dismissal of a

                                      C-7
<PAGE>
 

proceeding for insufficiency of evidence of Disabling Conduct, or a reasonable
determination has been made that no Disabling Conduct occurred. The Fund may
advance payment of expenses only if the officer or director to be indemnified
undertakes to repay the advance unless indemnification is made and if one of the
following applies: the officer or director provides a security for his or her
undertaking, the Fund is insured against losses from any lawful advances, or a
reasonable determination has been made that there is reason to believe the
officer or director ultimately will be entitled to indemnification.

     Insurance. The directors and officers of the Fund, Integrity, as investment
adviser, and SBMFS, as distributor, are insured under a policy issued by
Evanston Insurance Company. The annual limit on such policy is $1 million.

     By-Laws of Integrity. The By-Laws of Integrity provide for the
indemnification by Integrity of directors and officers of Integrity and of any
person serving at the request of Integrity as a director or officer of another
corporation and permits the payment of expenses for covered persons. Thus, the
officers and directors of the Fund, Integrity and SBMFS are indemnified by
Integrity for their services in connection with the Fund to the extent set forth
in the By-Laws.

     Integrity's By-Laws provide, in Article V, as follows:

     Section 5.1 Indemnification of Directors, Officers, Employees and
Incorporators. To the extent permitted by the laws of the State of Ohio, subject
to all applicable requirements thereof:

     (a)  The Corporation shall indemnify or agree to indemnify any person who
     was or is a party or is threatened to be made a party, to any threatened,
     pending, or completed action, suit, or proceeding, whether civil, criminal,
     administrative, or investigative, other than an action by or in the right
     of the Corporation, by reason of the fact that he is or was a Director,
     officer, employee, or agent of the Corporation or is or was serving at the
     request of the Corporation as a Director, trustee, officer, employee, or
     agent of another corporation, domestic or foreign, non-profit or for
     profit, partnership, joint venture, trust, or other enterprise, against
     expenses, including attorney's fees, judgements, fines, and amounts paid in
     settlement actually and reasonably incurred by him in connection with such
     action, suit, or proceeding if he acted in good faith and in a manner he
     reasonably believed to be in or not opposed to the best interests of the
     Corporation, and with respect to any criminal action or proceeding, had no
     reasonable cause to believe his conduct was unlawful. The termination of
     any action, suit, or proceeding by judgment, order, settlement, or
     conviction, or upon a plea of nolo contendere or its equivalent, shall not,
     of itself, create a presumption that the person did not act in good faith
     and in a manner he reasonably believed to be in or not opposed to the best
     interests of the Corporation and, with respect to any criminal action or
     proceeding, he had reasonable cause to believe that his conduct was
     unlawful.

     (b)  The Corporation shall indemnify or agree to indemnify any person who
     was or is a party or is threatened to be made a party to any threatened,
     pending, or completed action or suit by or in the right of the Corporation
     to procure a judgment in its favor by reason of the fact that he is or was
     a Director, officer, employee, or agent of the Corporation, or is or was
     serving at the request of the Corporation as a Director, trustee, officer,
     employee, or agent of another corporation, domestic or foreign, non-profit
     or for profit, partnership, joint venture, trust, or other enterprise,
     against expenses, including attorney's fees, actually and reasonably
     incurred by him in connection with the defense or settlement of such action
     or suit if he acted in good faith and in a manner he reasonably believed to
     be in or not opposed to the best interests of the Corporation, except that
     no indemnification shall be made in respect to any of the following:

                                      C-8
<PAGE>
 

        (1)  Any claim, issue, or matter as to which such person is adjudged to
        be liable for negligence or misconduct in the performance of his duty to
        the Corporation unless, and only to the extent the court of common pleas
        or the court in which such action or suit was brought determines upon
        application that, despite the adjudication of liability, but in view of
        all circumstances of the case, such person is fairly and reasonably
        entitled to indemnity for such expenses as the court of common pleas or
        such other court shall deem proper;

        (2)  Any action of suit in which the only liability asserted against a
        Director is pursuant to Section 1701.95 of the Ohio Revised Code.

     (c)  To the extent that a Director, trustee, officer, employee, or agent
     has been successful in the merits or otherwise in defense of any action,
     suit, or proceeding referred to in division (a) and (b) of this Article, or
     in defense of any claim, issue or matter therein, he shall be indemnified
     against expenses, including attorney's fees, actually and reasonably
     incurred by him in connection with the action, suit, or proceeding.

     (d)  Any indemnification under divisions (a) and (b) of this Article,
     unless ordered by a court, shall be made by the Corporation only as
     authorized in the specific case upon the determination that indemnification
     of the Director, officer, employee, or agent is proper in the circumstances
     because he has met the applicable standard of conduct set forth in
     divisions (a) and (b) of this Article. Such determination shall be made as
     follows:

        (1)  By a majority vote of a quorum consisting of Directors of the
        Corporation who were not and are not parties to or threatened with any
        such action, suit, or proceeding;

        (2)  If the quorum described in division (d)(1) of this Article is not
        obtainable or if a majority vote of a quorum of disinterested Directors
        so directs, in a written opinion by independent legal counsel other than
        an attorney, or a firm having associated with it an attorney, who has
        been retained by or who has performed services for the Corporation or
        any person to be indemnified within the past five years;

        (3)  By the Shareholders; or

        (4)  By the court of common pleas or the court in which such action,
        suit, or proceeding was brought.

     Any determination made by the disinterested Directors under Article (d)(1)
     or by independent legal counsel under Article (d)(2) shall be promptly
     communicated to the person who threatened or brought the action or suit by
     in the right of the Corporation under (b) of this Article, and within ten
     days after receipt of such notification, such person shall have the right
     to petition the court of common pleas or the court in which such action or
     suit was brought to review the reasonableness of such determination.

     (e)(1)  Expenses, including attorney's fees, incurred by a Director in
     defending the action, suit, or proceeding shall be paid by the Corporation
     as they are incurred, in advance of the final disposition of the action,
     suit, or proceeding upon receipt of an undertaking by or on behalf of the
     Director in which he agrees to do both of the following:

        (i)  Repay such amount if it is proved by clear and convincing evidence
        in a court of competent jurisdiction that his action or failure to act
        involved an act or omission undertaken with

                                      C-9
<PAGE>

        deliberate intent to cause injury to the Corporation or undertaken with
        reckless disregard for the best interests of the Corporation;

        (ii)  Reasonably cooperate with the Corporation concerning the action,
        suit or proceeding.

     (2)  Expenses, including attorney's fees, incurred by a Director, officer,
     employee, or agent in defending any action, suit, or proceeding referred to
     in divisions (a) and (b) of this Article, may be paid by the Corporation as
     they are incurred, in advance of the final disposition of the action, suit,
     or proceeding as authorized by the Directors in the specific case upon
     receipt of an undertaking by or on behalf of the Director, officer,
     employee, or agent to repay such amount, if it ultimately is determined
     that he is not entitled to be indemnified by the Corporation.

     (f)  The indemnification authorized by this section shall not be exclusive
     of, and shall be in addition to, any other rights granted to those seeking
     indemnification under the Articles or the Regulations for any agreement,
     vote of Shareholders or disinterested Directors, or otherwise, both as to
     action in his official capacity and as to action in another capacity while
     holding such office, and shall continue as to a person who has ceased to be
     a Director, officer, employee, or agent and shall inure to the benefit of
     the heirs, executors, and administrators of such a person.

     (g)  The Corporation may purchase and maintain insurance or furnish similar
     protection, including but not limited to trust funds, letters of credit, or
     self insurance, on behalf of or for any person who is or was a Director,
     officer, employee, or agent of the Corporation, or is or was serving at the
     request of the Corporation as a Director, officer, employee, or agent of
     another corporation, domestic or foreign, non-profit or for profit,
     partnership, joint venture, trust, or other enterprise, against any
     liability asserted against him and incurred by him in any such capacity, or
     arising out of his status as such, whether or not the Corporation would
     have the power to indemnify him against such liability under this section.
     Insurance may be purchased from or maintained with a person in which the
     Corporation has a financial interest.

     By-Laws of SBMFS. The By-Laws of SBMFS, the principal underwriter for the
Fund, provide in Section 4 as follows:

        Section 4.01 Indemnification. The corporation shall indemnify its
        officers and directors for such expenses and liabilities, in such
        manner, under such circumstances, and to such extent, as required or
        permitted by Minnesota Statutes, Section 302A.521, as amended from time
        to time, or as required or permitted by other provisions of law.

     Agreements. The Fund and SBMFS, including each director, officer and
controlling person of the Fund and SBMFS, are entitled to indemnification
against certain liabilities as described in Article VIII of the Participation
Agreement filed as Exhibit 9(b) to this Registration Statement, except that the
Fund may not indemnify directors, officers and controlling persons who are its
Affiliated persons, as defined in Section 2(a)(3) of the 1940 Act. Certain
officers and directors of the Fund and SBMFS are officers and directors of
Integrity and National Integrity (see Item 28 of this Part C).

Undertaking

     Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event

                                     C-10
<PAGE>
 

that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer,
or controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

ITEM 28.  Business and Other Connections of Investment Adviser

     Integrity, the Fund's investment adviser, is an insurance company engaged
in the business of issuing and servicing fixed and variable life and annuity
contracts. National Integrity is wholly-owned by Integrity. The names of the
officers and directors of Integrity, and their business activities during the
past two fiscal years, are set forth below. The principal business address of
Integrity and National Integrity is 239 South Fifth Street, 12th Floor,
Louisville, Kentucky 40202, the principal business address of Morgan Stanley
Group Inc., Integrity's ultimate parent, is 1221 Avenue of the Americas, New
York, New York 10020, and the address of the persons marked with an asterisk is
200 E. Wilson Bridge Road, Worthington, Ohio 43085.

<TABLE>
<CAPTION>
Name                     Business Activities in Past Two Fiscal Years
- ----                     --------------------------------------------
<S>                      <C>
John Franco              Co-Chairman of the Board of Integrity and National Integrity since November 26, 1993; Co-Chief
                         Executive Officer and a director of ARM since July 15, 1993; Chief Executive Officer of Franco
                         Associates, Ltd., an affiliate of ARM Ltd. from its inception in March 1992 to its merger with ARM
                         Ltd. on December 31, 1992; Chief Executive Officer and a director of ICH Corporation, Louisville,
                         Kentucky from November 1989 to November 1991.

Martin H. Ruby           Co-Chairman of the Board of Integrity and National Integrity since November 26, 1993; Co-Chief
                         Executive Officer and a director of ARM since July 15, 1993; President and Managing Director of the
                         ICH Capital Management Group, ICH Corporation, Louisville, Kentucky and the President of Constitution
                         Life Insurance Co., the accumulation product subsidiary of ICH Corporation from May 1990 to January
                         1992.

Emad Zikry               Director of Integrity and National Integrity since December, 1994; Executive Vice President and Chief
                         Investment Officer of ARM since December, 1994; President of Kleinwort Benson Investment Management
                         from 1992 - 1994.

David R. Ramsay          Director of Integrity and National Integrity since November 26, 1993; Associate in MS & Co.'s Merchant
                         Banking Division since 1989; Director of Agricultural Minerals Corporation, Beaumont Methanol
                         Corporation, BMC Holdings Inc., SIBV/MS Holdings, Inc., Container Corporation of America, Jefferson
                         Smurfit Corporation and Stanklav Holdings, Inc.; President and a Director of PSF Finance Holdings Inc.

*Kathleen M. Bryan       Director of Integrity since December, 1994; Information Systems Officer of ARM since 1995; Manager of
                         Integrity from 1990 - 1994.
</TABLE>

                                     C-11
<PAGE>
 

<TABLE>
<CAPTION>
Name                     Business Activities in Past Two Fiscal Years
- ----                     --------------------------------------------
<S>                      <C>
John R. Lindholm         President of Integrity since November 26, 1993; Vice President - Chief Marketing Officer of National
                         Integrity since November 26, 1993; Executive Vice President -Chief Marketing Officer of ARM since July
                         27, 1993; Chief Marketing Officer of ARM Ltd. from March 1992 to July 1993; Chief Marketing Officer
                         and Managing Director of the ICH Capital Management Group, ICH Corporation, Louisville, Kentucky from
                         June 1990 to February 1992.

David E. Ferguson        Vice President - Chief Administrative Officer of Integrity since November 26, 1993; President of
                         National Integrity since November 26, 1993; Executive Vice President - Chief Administrative Officer of
                         ARM since July 27, 1993; Chief Technology Officer of Franco Associates Ltd. from its inception in
                         March 1992 to its merger with ARM Ltd. on December 31, 1992; President and Chief Executive Officer of
                         the James Graham Brown Foundation, Inc., a private philanthropy in Louisville, Kentucky from 1990 to
                         March 1992.

Dennis L. Carr           Vice President - Chief Product Development Officer of Integrity and National Integrity since November
                         26, 1993; Executive Vice President - Product Development of ARM since September 7, 1993; Director of
                         Product Development for the Accumulation and Investment Group of Capital Holding Corporation from July
                         1988 to September 1993.

Edward L. Zeman          Vice President--Chief Financial Officer of Integrity since September 19, 1995; Vice President, Chief
                         Operating Officer, Chief Financial Officer and Treasurer of SBM Company prior thereto.

Don W. Cummings          Controller of Integrity since November 26, 1993; Vice President - Controller of National Integrity
                         since November 26, 1993; Controller of ARM since July 15, 1993; Controller of ARM Ltd. from July 1992
                         to November 26, 1993.

Peter S. Resnik          Treasurer of Integrity and National Integrity since November 26, 1993; Treasurer of ARM since December
                         1993; worked in various financial and operational capacities with ARM Ltd. from 1992 to December 1993.

Robert H. Scott          General Counsel of Integrity and National Integrity since December 30, 1993; Assistant General Counsel
                         of ARM since June 1993; Deputy General Counsel of ICH Corporation from 1990 to June 1993.

John R. McGeeney         Secretary of Integrity and National Integrity since December 6, 1993; Assistant General Counsel of ARM
                         Financial Group, Inc. since October 1993; Assistant General Counsel of Capital Holding Corporation
                         from 1988 to October 1993.

*Mark A. Adkins          Director of Integrity since December, 1994; Assistant Controller and Assistant Treasurer of Integrity
                         and National Integrity since November 26, 1993; Acting Controller of Integrity and National Integrity
                         from May 1993 to November 1993; prior thereto, Manager of Accounting, Integrity and National Integrity.

*William H. Guth         Director of Integrity since December, 1994;Operations Officer of ARM since November, 1993.

*Wilda Gay Clay          Director of Integrity since December, 1994; Manager of Product Accounting of ARM since November, 1993.
</TABLE>

                                     C-12
<PAGE>
 

<TABLE>
<CAPTION>
Name                     Business Activities in Past Two Fiscal Years
- ----                     --------------------------------------------
<S>                      <C>
*Mark W. Murphy          Director of Integrity since December, 1994; Information Technology Officer of ARM since November, 1993.

*David L. Anders         Vice President - Client Services, Integrity and National Integrity
</TABLE>

Officers and Partners or Directors of the Sub-Advisers: The names of the
officers and partners or directors of the Sub-Advisers for the Portfolios of the
Fund, and their business activities during the past two fiscal years, are
incorporated herein by reference to their respective Form ADVs, as amended to
the date of their most recent filing with the Securities and Exchange Commission
(SEC), as set forth below:

Morgan Stanley Asset Management Inc.: Form ADV dated June 2, 1995, SEC File No.
801-15757

Renaissance Investment Management: Form ADV dated September 8, 1995, SEC File
No. 801-50177

Zweig/Glaser Advisers: Form ADV dated July 31, 1995, SEC File No. 801-35094

Nicholas-Applegate Capital Management: Form ADV dated May 15, 1995, SEC File No.
801-21442

Harris Bretall Sullivan & Smith, Inc.: Form ADV dated May 2, 1995, SEC File No.
801-7369

Dreman Value Advisors, Inc.: Form ADV dated September 21, 1995, SEC File No.
801-47879

Mitchell Hutchins Asset Management Inc.: Form ADV dated August 17, 1995, SEC
File No. 801-13219

Mitchell Hutchins Institutional Investors Inc.: Form ADV dated March 31, 1995,
SEC File No. 801-20378

ITEM 29.  Principal Underwriters

     (a) SBMFS is the principal underwriter for Fund shares.

     (b) The names of the principal officers and directors of SBMFS, and their
positions with SBMFS and the Fund, are as follows:

<TABLE>
<CAPTION>
        Name            Position with SBMFS        Position with the Fund
        ----            -------------------        ----------------------
<S>                   <C>                          <C>
Edward J. Haines      President and Director            President

*William Guth         Operations Officer                None

*David L. Anders      Marketing Officer                 None

John R. McGeeney      Compliance Officer,               None
                      Secretary,
                      General Counsel and Director

Don W. Cummings       Controller                        Controller

Peter S. Resnik       Treasurer                         Treasurer
</TABLE>

                                     C-13
<PAGE>
 



<TABLE>
<CAPTION>
        Name            Position with SBMFS        Position with the Fund
        ----            -------------------        ----------------------
<S>                   <C>                          <C>
Rose M. Culbertson    Tax Officer                       Tax Officer
</TABLE>

     The principal business address of each person listed above is 239 South
Fifth Street, 12th Floor, Louisville, Kentucky 40202, except that the principal
business address of the persons marked with an asterisk is 200 E. Wilson Bridge
Road, Worthington, Ohio 43085.

     (c)  Not applicable.

ITEM 30.  Location of Accounts and Records

     The records required to be maintained by Section 31 (a) of the Investment
Company Act of 1940 and Rules 31a-1 to 31a-3 promulgated thereunder, will be
maintained by Integrity at its offices at 239 South Fifth Street, 12th Floor,
Louisville, Kentucky 40202, or with its custodian, Investors Fiduciary Trust
Company, at its offices at 127 West 10th Street, Kansas City, Missouri 64105.

ITEM 31.  Management Services

     Not applicable.

ITEM 32.  Undertakings

     Not applicable.


                                     C-14
<PAGE>

 
                                  SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this amendment to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, on this 30th day of October, 1995.

                                   THE LEGENDS FUND, INC.
                                        (Registrant)


                                   By:   /s/ Edward Haines
                                      ---------------------------
                                             Edward Haines
                                             Title:  President


     Pursuant to the requirement of the Securities Act of 1933, this amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:

<TABLE>
<CAPTION>
Signatures                            Title                        Date
- ----------                            -----                        ----
<S>                           <C>                              <C>
/s/ Edward Haines             President                        October 30, 1995
- -------------------------     (Principal Executive Officer) 
Edward Haines                                               
                                                            
                                                            
/s/  Peter Resnik             Treasurer                        October 30, 1995
- -------------------------     (Principal Financial Officer) 
Peter Resnik                                                
                                                            
                                                            
/s/  Don Cummings             Controller                       October 30, 1995
- -------------------------     (Principal Accounting Officer)
Don Cummings                  
                                                            
                                                            
            *                 Director                         October 30, 1995
- -------------------------                                   
Arthur J. Gartland, Jr.                                     
                                                            
                                                            
            *                 Director                         October 30, 1995
- -------------------------                                   
John Katz                                                   
                                                            
                                                            
/s/  John R. Lindholm         Director                         October 30, 1995
- -------------------------                                   
John R. Lindholm                                            
                                                            
                                                            
            *                 Director                         October 30, 1995
- -------------------------
Theodore S. Rosky
</TABLE>

*This Amendment has been signed by each of the persons so indicated by me the
undersigned as Attorney-in-Fact.


By  /s/  Kevin L. Howard
  --------------------------
     Attorney-in-Fact

                                     C-15

<PAGE>

                                EXHIBIT 5(b)(i)

                        FORM OF SUB-ADVISORY AGREEMENT


     AGREEMENT, made this ____ day of _______, 199_, between Integrity Life
Insurance Company (Integrity), an Arizona corporation, and Dreman Value
Advisors, Inc. (Sub-Adviser), a Delaware corporation.

     WHEREAS, Integrity, an indirect wholly-owned subsidiary of ARM Financial
Group, Inc., is an investment adviser registered under the Investment Advisers
Act of 1940, as amended (the Advisers Act);

     WHEREAS, the Sub-Adviser is an investment adviser registered under the
Advisers Act;

     WHEREAS, pursuant to a Management Agreement dated November 26, 1993 (the
Management Agreement), Integrity acts as Investment Manager to The Legends Fund,
Inc. (the Fund), an open-end management investment company registered under the
Investment Company Act of 1940, as amended (the 1940 Act);

     WHEREAS, the Fund is authorized to issue multiple series of shares, each
such series representing a separate portfolio of securities and investments; and

     WHEREAS, Integrity desires to retain the Sub-Adviser to furnish investment
advisory services to the Dreman Value Portfolio of the Fund (the Portfolio), and
the Sub-Adviser is willing to accept such appointment on the terms and
conditions set forth herein.

     NOW, THEREFORE, based on the premises and the consideration set forth
herein, Integrity and the Sub-Adviser agree as follows:

                   SECTION 1.  INVESTMENT ADVISORY SERVICES.

     Subject to the supervision of the Fund's Board of Directors and Integrity,
the Sub-Adviser will provide a continuous investment program for the Portfolio
and determine the composition of the assets of the Portfolio, including
determination of the purchase, retention or sale of the securities, cash, and
other investments contained in the Portfolio's holdings. The Sub-Adviser will
provide investment research and conduct a continuous program of evaluation,
investment, sales, and reinvestment of the Portfolio's assets by determining the
securities and other investments that shall be purchased, entered into, sold,
closed, or exchanged for the Portfolio, when these transactions should be
executed, and what portion of the assets of the Portfolio should be held in the
various securities and other investments in which it may invest, and the Sub-
Adviser is hereby authorized to execute and perform such services on behalf of
the Portfolio. To the extent, if any, permitted by the investment policies of
the Portfolio, the Sub-Adviser shall make determinations as to and execute and
perform futures contracts and options on behalf of the Portfolio. The Sub-
Adviser will provide the services under this Agreement in accordance with the
Portfolio's investment objective or objectives, policies, and restrictions as
stated in the Fund's Registration Statement filed with the Securities and
Exchange Commission (SEC). Integrity agrees to supply the Sub-Adviser with a
copy of the Registration Statement and each amendment thereto (the Registration
Statement as amended from time to time hereinafter referred to as the
Registration
<PAGE>

Statement) and any other documents that set forth investment policies,
procedures or restrictions governing the Portfolio and to notify the Sub-Adviser
in writing of any changes in the investment objectives, policies, procedures and
restrictions governing the Portfolio.

The Sub-Adviser further agrees as follows:

     (a) The Sub-Adviser will manage the Portfolio (i) so that it will qualify
         as a regulated investment company under Subchapter M of the Internal
         Revenue Code of 1986, as amended (the Code), and (ii) so as to ensure
         compliance by the Portfolio with the diversification requirements of
         Section 817(h) of the Code and regulations issued thereunder. In
         managing the Portfolio in accordance with these requirements, the Sub-
         Adviser shall be entitled to receive and act upon advice of counsel to
         the Fund, counsel to Integrity or counsel to the Sub-Adviser, provided
         the Sub-Adviser's counsel is acceptable to Integrity.

     (b) In undertaking its duties under this Agreement, the Sub-Adviser will
         comply with the 1940 Act and all rules and regulations thereunder, all
         other applicable federal and state laws and regulations, with any
         applicable procedures adopted by the Fund's Board of Directors of which
         it has notice and the provisions of the Registration Statement.

     (c) On occasions when the Sub-Adviser deems the purchase or sale of a
         security to be in the best interest of the Portfolio as well as of the
         Sub-Adviser's or the Sub-Adviser's affiliates' other investment
         advisory clients, the Sub-Adviser may, to the extent permitted by
         applicable laws and regulations, but shall not be obligated to,
         aggregate the securities to be so sold or purchased with those of its
         other clients where such aggregation is not inconsistent with the
         policies set forth in the Registration Statement. In such event, the
         Sub-Adviser will allocate the securities so purchased or sold, as well
         as the expenses incurred in the transaction, in a manner that is fair
         and equitable in the Sub-Adviser's judgment in the exercise of the Sub-
         Adviser's fiduciary obligations to the Fund and to such other clients.

     (d) In connection with the purchase and sale of securities for the
         Portfolio, the Sub-Adviser, together with Integrity, will arrange for
         the transmission to the custodian, transfer agent, dividend disbursing
         agent and recordkeeping agent for the Fund (such custodian and agent or
         agents hereinafter referred to as the Agent), on a daily basis, such
         confirmation, trade tickets (which shall state industry classifications
         unless the Sub-Adviser has previously furnished a list of
         classifications for portfolio securities), and other documents and
         information, including (but not limited to) CUSIP or other numbers that
         identify securities to be purchased or sold on behalf of the Portfolio
         and, with respect to mortgage derivative and asset-backed securities
         purchased by the Sub-Adviser for the Portfolio, 1066Q reports and
         supplemental information as required to be available pursuant to IRS
         Publication 938, as may be reasonably necessary to enable the Agent to
         perform its administrative and recordkeeping responsibilities with
         respect

                                       2
<PAGE>


         to the Portfolio. With respect to portfolio securities to be purchased
         or sold through the Depositary Trust Company, the Sub-Adviser will
         arrange for the automatic transmission of the confirmation of such
         trades to the Fund's Agent, and if requested, Integrity.

     (e) The Sub-Adviser will monitor on a daily basis, by review of daily
         pricing reports provided by the Agent to the Sub-Adviser, the
         determination by the Agent for the Fund of the valuation of portfolio
         securities and other investments of the Portfolio. The Sub-Adviser
         shall not be obligated to independently verify the Agent's pricing
         determinations, and the Agent's responsibility for accurate pricing
         determinations of the value of the Portfolio's securities shall not be
         reduced by the Sub-Adviser's duty to monitor such determinations. The
         Sub-Adviser will assist the Agent in determining or confirming,
         consistent with the procedures and policies stated in the Registration
         Statement, the value of any portfolio securities or other assets of the
         Portfolio for which the Agent seeks assistance from or identifies for
         review by the Sub-Adviser.

     (f) The Sub-Adviser will make available to the Fund and Integrity, promptly
         upon request, all of the Portfolio's investment records and ledgers
         maintained by the Sub-Adviser as are necessary to assist the Fund and
         Integrity to comply with requirements of the 1940 Act and the Advisers
         Act, as well as other applicable laws. The Sub-Adviser will furnish to
         regulatory authorities having the requisite authority any information
         or reports in connection with its services which may be requested in
         order to ascertain whether the operations of the Fund are being
         conducted in a manner consistent with applicable laws and regulations.

     (g) The Sub-Adviser will provide reports, which may be prepared by the
         Agent, to the Fund's Board of Directors for consideration at meetings
         of the Board on the investment program for the Portfolio and the
         issuers and securities represented in the Portfolio's securities
         holdings, including a schedule of the investments and other assets held
         in the Portfolio and a statement of all purchases and sales for the
         Portfolio since the last such statement, and will furnish the Funds'
         Board of Directors with periodic and special reports with respect to
         the Portfolio as the Directors and Integrity may reasonably request,
         including statistical information with respect to the Portfolio's
         securities. In addition, the Sub-Adviser will make available at each
         meeting of the Board of Directors, either in person or by telephone
         conference call as instructed by Integrity on behalf of the Board of
         Directors of the Fund, an appropriate person to discuss the investment
         performance of the Portfolio.

     (h) The Sub-Adviser will provide information and reports to Integrity as
         Integrity shall reasonably request to enable it to review the
         performance of the Sub-Adviser under this Agreement.

                     SECTION 2.  BROKER-DEALER SELECTION.

                                       3
<PAGE>


     The Sub-Adviser is responsible for decisions to buy and sell securities and
other investments for the Portfolio, broker-dealer and futures commission
merchant selection, and negotiation of brokerage commission and futures
commission merchants' rates. As a general matter, in executing portfolio
transactions the Sub-Adviser may employ or deal with such broker-dealers or
futures commission merchants as may, in the Sub-Adviser's best judgment, provide
prompt and reliable execution of the transactions at favorable prices and
reasonable commission rates. In selecting such broker-dealers or futures
commission merchants, the Sub-Adviser shall consider all relevant factors,
including price (including the applicable brokerage commission, dealer spread or
futures commission merchant rate), the size of the order, the nature of the
market for the security or other investment, the timing of the transaction, the
reputation, experience and financial stability of the broker-dealer or futures
commission merchant involved, the quality of the service, the difficulty of
execution, and the execution capabilities and operational facilities of the firm
involved, and, in the case of securities, the firm's risk in positioning a block
of securities. Subject to such policies as the Board of Directors may determine
and consistent with Section 28(e) of the Securities Exchange Act of 1934, as
amended (the 1934 Act), the Sub-Adviser shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or otherwise
solely by reason of the Sub-Adviser's having caused the Portfolio to pay a
member of an exchange, broker or dealer an amount of commission for effecting a
securities transaction in excess of the amount of commission another member of
an exchange, broker or dealer would have charged for effecting that transaction,
if the Sub-Adviser determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such member of an exchange, broker or dealer, viewed in terms of
either that particular transaction or the Sub-Adviser's overall responsibilities
with respect to the Portfolio and to the Sub-Adviser's other clients as to which
the Sub-Adviser exercises investment discretion. In accordance with Section
11(a) of the 1934 Act and Rule 11a2-2(T) thereunder, and subject to any other
applicable laws and regulations including Section 17(e) of the 1940 Act and Rule
17e-1 thereunder, the Sub-Adviser may engage its affiliates, Integrity and its
affiliates or any other sub-adviser to the Fund and its respective affiliates as
broker-dealers or futures commission merchants to effect portfolio transactions
in securities and other investments for the Portfolio.

                      SECTION 3.  RECORDS, REPORTS, ETC.

     In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
Sub-Adviser hereby agrees that all records which the Sub-Adviser maintains for
the Portfolio are the property of the Fund and further agrees to surrender
promptly to the Fund any of such records upon the Fund's or Integrity's request
or upon termination of this Agreement, although the Sub-Adviser may, at the Sub-
Adviser's own expense, make and retain a copy of such records. The Sub-Adviser
further agrees to preserve for the periods prescribed by Rule 31a-2 under the
1940 Act the records required to be maintained by Rule 31a-1 under the 1940 Act
and to preserve the records required by the Rule 204-2 under the Advisers Act
for the period specified in the Rule.

                                       4
<PAGE>

                       SECTION 4.  PAYMENT OF EXPENSES.

     The Sub-Adviser shall assume and pay all of the costs and expenses of
performing its obligations under this Agreement.

                    SECTION 5.  COMPENSATION FOR SERVICES.

     Integrity will pay to the Sub-Adviser a monthly sub-advisory fee (adjusted
pro rata for any shorter applicable period) at an annual rate of .50% of the
average daily net assets of the Portfolio from the management fee actually
received by Integrity from the Fund; provided, however, that the sub-advisory
fee shall be reduced proportionately if the management fee actually paid to
Integrity by the Portfolio shall have been reduced as a result of applicable
state expense limitations or fee waivers agreed to in writing by the Sub-
Adviser. The sub-advisory fee shall be computed, accrue and be payable in the
same manner as the management fee which is payable by the Fund to Integrity
pursuant to the Management Agreement and as specified in the Fund's Registration
Statement.

                      SECTION 6.  LIABILITY FOR SERVICES.

     Except as may otherwise be required by the 1940 Act or the rules thereunder
or other applicable law, and except as set forth in the next paragraph, the Fund
and Integrity agree that the Sub-Adviser, any of its affiliated persons, and
each person, if any, who, within the meaning of Section 15 of the Securities Act
of 1933, as amended, controls the Sub-Adviser, shall not be liable for, or
subject to any damages, expenses, or losses in connection with, any act or
omission connected with or arising out of any services rendered under this
Agreement, except by reason of willful misfeasance, bad faith, or gross
negligence in the performance of the Sub-Adviser's duties, or by reason of
reckless disregard of the Sub-Adviser's obligations and duties under this
Agreement.

                  SECTION 7.  INDEMNIFICATION BY SUB-ADVISER.

     The Sub-Adviser agrees to indemnify and hold harmless Integrity against any
losses, expenses, claims, damages or liabilities (or actions or proceedings in
respect thereof), to which Integrity may become subject arising out of or based
on the breach or alleged breach by the Sub-Adviser of any provisions of this
Agreement; provided, however, that the Sub-Adviser shall not be liable under
this paragraph in respect of any loss, expense, claim, damage or liability to
the extent that a court having jurisdiction shall have determined by a final
judgment, or independent counsel agreed upon by Integrity and the Sub-Adviser
shall have concluded in a written opinion, that such loss, expense, claim,
damage or liability resulted primarily from Integrity's willful misfeasance, bad
faith or gross negligence or by reason of the reckless disregard by Integrity of
its duties. The foregoing indemnification shall be in addition to any rights
that Integrity may have at common law or otherwise. The Sub-Adviser's agreements
in this paragraph shall, upon the same terms and conditions, extend to and inure
to the benefit of each person who may be deemed to control Integrity, be
controlled by Integrity or be under common control with Integrity and its
affiliates, directors, officers, employees and agents. The Sub-Adviser's
agreements in this

                                       5
<PAGE>

paragraph shall also extend to any of Integrity's successors or the successors
of the aforementioned affiliates, directors, offices, employees or agents.

                   SECTION 8.  INDEMNIFICATION BY INTEGRITY.

     Integrity agrees to indemnify and hold harmless the Sub-Adviser against any
losses, expenses, claims, damages or liabilities (or actions or proceedings in
respect thereof), to which the Sub-Adviser may become subject arising out of or
based on the breach or alleged breach by Integrity of any provisions of this
Agreement or the Management Agreement, or any wrongful action or alleged
wrongful action by Integrity or its affiliates in the distribution of the Fund's
shares, or any wrongful action or alleged wrongful action by the Fund other than
wrongful action or alleged wrongful action that was caused by the breach by the
Sub-Adviser of the provisions of this Agreement; provided, however, that
Integrity shall not be liable under this paragraph in respect of any loss,
expense, claim, damage or liability to the extent that a court having
jurisdiction shall have determined by a final judgment, or independent counsel
agreed upon by Integrity and the Sub-Adviser shall have concluded in a written
opinion, that such loss, expense, claim, damage or liability resulted primarily
from the Sub-Adviser's willful misfeasance, bad faith or gross negligence or by
reason of the reckless disregard by the Sub-Adviser of its duties. The foregoing
indemnification shall be in addition to any rights that the Sub-Adviser may have
at common law or otherwise. Integrity's agreements in this paragraph shall, upon
the same terms and conditions, extend to and inure to the benefit of each person
who may be deemed to control the Sub-Adviser, be controlled by the Sub-Adviser
or be under common control with the Sub-Adviser and to each of the Sub-Adviser's
and each such person's respective affiliates, directors, officers, employees and
agents. Integrity's agreements in this paragraph shall also extend to any of the
Sub-Adviser's successors or the successors of the aforementioned affiliates,
directors, officers, employees or agents.

              SECTION 9.  NOTICE AND DEFENSE OF PROCEEDINGS, ETC.

     Promptly after receipt by a party indemnified under paragraph 7 or 8 above
of notice of the commencement of any action, proceeding or investigation for
which indemnification will be sought, such indemnified party shall promptly
notify the indemnifying party in writing; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may
otherwise have to any indemnified party unless such omission results in actual
material prejudice to the indemnifying party. In case any action or proceeding
shall be brought against any indemnified party, and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in and, individually or jointly with any other
indemnifying party, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party. After notice from the indemnifying party
to the indemnified party of its election to assume the defense of any action or
proceeding, the indemnifying party shall not be liable to the indemnified party
for any legal or other expenses subsequently incurred by the indemnified party
in connection with the defense thereof other than reasonable costs of
investigation. If the indemnifying party does not elect to assume the defense of
any action or proceeding the indemnifying party on a monthly basis shall
reimburse the indemnified party for the legal fees and expenses incurred by the
indemnified party for continuing its defense thereof.

                                       6
<PAGE>


Regardless of whether or not the indemnifying party shall have assumed the
defense of any action or proceeding the indemnified party shall not settle or
compromise the action or proceeding without the prior written consent of the
indemnifying party.

            SECTION 10.  REPRESENTATIONS AND WARRANTIES; COVENANTS.

     (a) The Sub-Adviser hereby represents and warrants as follows:

         (i)   The Sub-Adviser is registered with the SEC as an investment
               adviser under the Advisers Act, and such registration is current,
               complete and in full compliance with all material applicable
               provisions of the Advisers Act and the rules and regulations
               thereunder;

         (ii)  The Sub-Adviser has all requisite authority to enter into,
               execute, deliver and perform the Sub-Adviser's obligations under
               this Agreement;

         (iii) The Sub-Adviser's performance of its obligations under this
               Agreement does not conflict with any law, regulation or order to
               which the Sub-Adviser is subject; and

         (iv)  The Sub-Adviser has reviewed the Registration Statement for the
               Fund filed with the SEC, and with respect to the disclosure about
               the Sub-Adviser and the Portfolio or information relating,
               directly or indirectly, to the Sub-Adviser or the Portfolio which
               was made in reliance upon and in conformity with written
               information provided by the Sub-Adviser to the Fund specifically
               for use therein or, if written information was not provided,
               which the Sub-Adviser had the opportunity to review prior to
               filing with the SEC, such Registration Statement contains, as of
               its date, no untrue statement of any material fact and does not
               omit any statement of a material fact which was required to be
               stated therein or necessary to make the statements contained
               therein not misleading.

     (b) The Sub-Adviser hereby covenants and agrees that, so long as this
         Agreement shall remain in effect:

         (i)   The Sub-Adviser shall maintain the Sub-Adviser's registration as
               an investment adviser under the Advisers Act, and such
               registration shall at all times remain current, complete and in
               full compliance with all material applicable provisions of the
               Advisers Act and the rules and regulations thereunder;

         (ii)  The Sub-Adviser's performance of its obligations under this
               Agreement shall not conflict with any law, regulation or order to
               which the Sub-Adviser is then subject;

                                       7
<PAGE>


         (iii) The Sub-Adviser shall at all times fully comply with the Advisers
               Act, the 1940 Act, all applicable rules and regulations under
               such Acts and all other applicable law; and

         (iv)  The Sub-Adviser shall promptly notify Integrity and the Fund upon
               the occurrence of any event that might disqualify or prevent the
               Sub-Adviser from performing its duties under this Agreement. The
               Sub-Adviser further agrees to notify Integrity and the Fund
               promptly with respect to written material that has been provided
               to the Fund or Integrity by the Sub-Adviser for inclusion in the
               Registration Statement or prospectus for the Fund or any
               supplement or amendment thereto, or, if written material has not
               been provided, with respect to the information in the
               Registration Statement or Prospectus, or any amendment or
               supplement thereto, reviewed by the Sub-Adviser, in either case
               of any untrue statement of a material fact or of any omission of
               any statement of a material fact which is required to be stated
               therein or is necessary to make the statements contained therein
               not misleading.

             SECTION 11. EXCLUSIVITY OF SERVICES AND USE OF NAMES.

     The Sub-Adviser acknowledges and agrees that the names The  Legends Fund
and Pinnacle, and abbreviations or logos associated with those names, are the
valuable property of Integrity and its affiliates; that the Fund, Integrity and
its affiliates have the right to use such names, abbreviations and logos; and
that the  Sub-Adviser shall use the names The Legends Fund and Pinnacle, and
associated abbreviations and logos, only in connection with the Sub-Adviser's
performance of its duties hereunder.

     Integrity acknowledges that "Dreman" (the Sub-Adviser's name) is
distinctive in connection with investment advisory and related services provided
by the Sub-Adviser, the Sub-Adviser's name is a property right of the Sub-
Adviser, and the Sub-Adviser's name in the name of the Portfolio are understood
to be used by the Fund with the Sub-Adviser's consent. The Sub-Adviser hereby
grants to the Fund a non-exclusive license to use the Sub-Adviser's name in the
name of the Portfolio upon the conditions hereinafter set forth; provided that
the Fund may use such name only so long as the Sub-Adviser shall be retained as
the investment sub-adviser of the Portfolio pursuant to the terms of this
Agreement.  Any such use by the Fund shall in no way prevent the Sub-Adviser or
any of its successors or assigns from using or permitting the use of the Sub-
Adviser's name along with any other word or words, for, by or in connection with
any other entity or business, other than the Fund or its business, whether or
not the same directly competes or conflicts with the Fund or its business.

     Integrity acknowledges that the Fund shall use the Sub-Adviser's name in
the name of the Portfolio for the period set forth herein in a manner not
inconsistent with the interests of the Sub-Adviser and that the Fund's rights in
the Sub-Adviser's name are limited to their use as a component of the
Portfolio's name and in connection with accurately describing the activities of

                                       8
<PAGE>


the Portfolio.  In the event that the Sub-Adviser shall cease to be the
investment sub-adviser of the Portfolio, then the Fund at its own expense, upon
the Sub- Adviser's written request:

         (i)   shall cease to use the Sub-Adviser's name as part of the
               Portfolio's name or for any other commercial purpose (other than
               the right to refer to the Portfolio's former name in the Fund's
               Registration Statement, proxy materials and other Fund documents
               to the extent required under the 1940 Act);

         (ii)  shall on all letterheads and other materials designed to be read
               or used by salespersons, distributors or investors, state in a
               prominent position and prominent type that the Sub-Adviser has
               ceased to be the investment sub-adviser of the Portfolio; and

         (iii) shall use its best efforts to cause the Fund's officers and
               directors to take any and all actions which may be necessary or
               desirable to effect the foregoing and to reconvey to the Sub-
               Adviser all rights which the Fund may have to such name.
               Integrity agrees to take any and all actions as may be necessary
               or desirable to effect the foregoing.

     The Sub-Adviser hereby agrees and consents to the use of the Sub-Adviser's
name upon the foregoing terms and conditions.

               SECTION 12. ENTIRE AGREEMENTS; AMENDMENT, WAIVER.

     This Agreement supersedes all prior agreements between the parties and
constitutes the entire Agreement by the parties.  No provision of this Agreement
may be changed, waived, discharged or terminated orally, but only by an
instrument in writing singed by the party against which enforcement of the
change, waiver, discharge or termination is sought, and no amendment of this
Agreement shall be effective with respect to the Portfolio until approved as
required by the 1940 Act.

             SECTION 13. EFFECTIVENESS AND DURATION OF AGREEMENT.

     Unless sooner terminated, this Agreement shall continue in effect for one
year and thereafter for successive one year periods, provided that continuation
of this Agreement and the terms thereof are specifically approved annually in
accordance with the requirements of the 1940 Act by a majority of the Directors
of the Fund, including a majority of the Directors who are not interested
persons of the Sub-Adviser, Integrity or the Fund, cast in person at a meeting
called for the purpose of voting on such approval.

               SECTION 14. TERMINATION OF AGREEMENT, ASSIGNMENT.

     This Agreement may be terminated at any time, without the payment of any 
penalty, by the Sub-Adviser or by Integrity, upon sixty (60) days' written
notice from the terminating party to the 

                                       9
<PAGE>


other party and to the Fund, or by the Fund, upon sixty (60) days written notice
to the Sub-Adviser and Integrity, acting pursuant to a resolution adopted by a
majority of the members of the Board of Directors who are not interested persons
or by a vote of the holders of the lesser of (1) 67% of the Portfolio's voting
shares present 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
the Portfolio.

     This Agreement shall automatically terminate in the event of its assignment
or the termination of the Management Agreement pertaining to the Portfolio.
Termination of this Agreement shall not affect rights of the parties which have
accrued prior thereto.

     The provisions of paragraphs 6,7,8,9, and 11 shall survive the termination
of this Agreement.

                           SECTION 15. DEFINITIONS.

     The terms assignment and interested person when used in this Agreement
shall have the meanings give such terms in the 1940 Act and the rules and
regulations thereunder.

             SECTION 16. CONCERNING APPLICABLE PROVISIONS OF LAW.

     This Agreement shall be subject to all applicable provisions of law,
including, without limitation, the applicable provisions of the 1940 Act, and to
the extent that any provisions herein contained conflict with any such
applicable provisions of law, the latter shall control.

     This Agreement shall be governed by the laws of the State of New York,
without reference to principles of conflicts of law.

                           SECTION 17. COUNTERPARTS.

     This Agreement may be executed in counterparts, and each counterpart shall
for all purposed be deemed an original, and all such counterparts shall together
constitute one and the same instrument.

                                      10
<PAGE>




     IN WITNESS WHEREOF, authorized officers of Integrity and the Sub-Adviser
have executed this Agreement as of the day and year first written above.



INTEGRITY LIFE INSURANCE             DREMAN VALUE ADVISORS,         
     COMPANY                         INC.


By:                                  By:                           
   ------------------------             --------------------------



Attest:                              Attest:
       --------------------                 ----------------------



                                      11

<PAGE>
 

EXHIBIT 6

                            DISTRIBUTION AGREEMENT


     Distribution Agreement, dated as of August 30, 1995, by and between The
Legends Fund, Inc. (the Fund), a Maryland corporation, and SBM Financial
Services, Inc. (SBM FS), a Minnesota corporation.

     WHEREAS, the Fund is an open-end management investment company registered
under the Investment Company Act of 1940 (the 1940 Act); and

     WHEREAS, the Fund is authorized to issue shares of capital stock (Shares)
in separate series (the Series) with each Series representing interests in a
separate portfolio of securities and other assets; and

     WHEREAS, Shares will be sold only to separate accounts (Separate Accounts)
of life insurance companies, including Integrity Life Insurance Company and
National Integrity Life Insurance Company, (the Insurance Companies) to fund
variable annuity and variable life insurance contracts (Contracts); and

     WHEREAS, SBM FS is registered as a broker-dealer under the Securities
Exchange Act of 1934 (the 1934 Act) and is a member of the National Association
of Securities Dealers, Inc.; and

     WHEREAS, the Fund desires SBM FS to be its principal underwriter with
respect to distribution of the Shares; and

     WHEREAS, the 1940 Act prohibits any principal underwriter for a registered
openend investment company from offering for sale or selling any security for
which such company is the issuer except pursuant to a written contract.

     NOW THEREFORE, in consideration of the premises and on the terms set forth
herein, the Fund and SBM FS agree as follows:

     1.  The Fund hereby appoints SBM FS as Distributor of the Shares and SBM FS
         accepts appointment as Distributor to sell Shares of each Series to
         Insurance Companies and their Separate Accounts at the Shares' most
         recent net asset values determined in accordance with the current
         prospectus for the Shares (the Prospectus). In performing its duties as
         Distributor, SBM FS will act in conformity with the Prospectus and with
         the instructions and directions of the Board of Directors of the Fund,
         the requirements of the Securities Act of 1933, the 1934 Act, the 1940
         Act and all other applicable federal and state laws and regulations.

     2.  The Fund shall not pay any compensation to SBM FS for services as
<PAGE>
 
         Distributor, and SBM FS shall bear all of its expenses in serving as
         Distributor.

     3.  From time to time the Fund and SBM FS shall identify Insurance
         Companies that desire to issue Contracts, and the Fund and SBM FS shall
         enter into a Participation Agreement with each such Insurance Company,
         containing such terms as the Fund and SBM FS deem appropriate,
         providing for the sale of Shares to the Insurance Company's related
         Separate Accounts.

     4.  The Fund authorizes the Distributor, in connection with the sale of
         Shares, to provide only such information and to make only such
         statements or representations as are contained in the Fund's then
         current prospectus or as specifically authorized by the Fund.

     5.  This Agreement shall continue in effect from the date hereof only so
         long as such continuance is specifically approved at least annually
         after the first two years by the Board of Directors of the Fund,
         including a majority of the Directors who are not interested persons of
         the Fund, as defined under the 1940 Act.

     6.  The services of SBM FS to the Fund as Distributor are not exclusive,
         and SBM FS may provide similar services to other investment companies
         and may serve as principal underwriter for sales of Contracts so long
         as its services as Distributor are not thereby impaired.

     7.  This Agreement shall terminate automatically in the event of its
         assignment, as defined under the 1940 Act.

     8.  This Agreement may be terminated by either the Fund or SBM FS at any
         time on 60 days' written notice delivered to the other party, without
         the payment of any penalty.

     9.  This Agreement shall be governed by the laws of the State of New York.

     IN WITNESS WHEREOF, the Fund and SBM FS by their authorized officers have
caused this Agreement to be duly executed as of the day and year first written
above.


Attest:                             THE LEGENDS FUND, INC.


/s/ Patricia Mack                   By: /s/ Kevin Howard, Secretary
- -----------------------------           ----------------------------------


Attest:                             SBM FINANCIAL SERVICES, INC.


/s/ Patricia Mack                   By: /s/ John McGeeney, Secretary
- -----------------------------           ----------------------------------

<PAGE>
 
                                                                      Exhibit 11

                        Consent of Independent Auditors

We consent to the references to our firm under the captions "Financial 
Highlights," "Other Information" and "Financial Statements of the Fund" and to 
the use of our report dated August 14, 1995, in the Post-Effective Amendment No.
5 to the Registration Statement (Form N-1A) and related Prospectus of The 
Legends Fund, Inc.


                                          /s/ Ernst & Young LLP

                                              Ernst & Young LLP
Kansas City, Missouri
October 25, 1995

<TABLE> <S> <C>

<PAGE>
 
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT TO SHAREHOLDERS FOR THE LEGENDS FUND, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000890454
<NAME> THE LEGENDS FUND, INC.
<SERIES>
   <NUMBER> 1
   <NAME> RENAISSANCE BALANCED PORTFOLIO
       
<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          JUN-30-1995
<PERIOD-END>                               JUN-30-1995
<INVESTMENTS-AT-COST>                       23,959,147
<INVESTMENTS-AT-VALUE>                      25,651,072
<RECEIVABLES>                                1,405,802
<ASSETS-OTHER>                                   5,235
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                              27,062,109
<PAYABLE-FOR-SECURITIES>                             0
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                       29,914
<TOTAL-LIABILITIES>                             29,914
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                    24,724,767
<SHARES-COMMON-STOCK>                        2,327,611
<SHARES-COMMON-PRIOR>                        2,408,694
<ACCUMULATED-NII-CURRENT>                      914,654
<OVERDISTRIBUTION-NII>                               0
<ACCUMULATED-NET-GAINS>                      (299,151)
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                     1,691,925
<NET-ASSETS>                                27,032,195
<DIVIDEND-INCOME>                              201,586
<INTEREST-INCOME>                              963,029
<OTHER-INCOME>                                       0
<EXPENSES-NET>                                 249,007
<NET-INVESTMENT-INCOME>                        915,608
<REALIZED-GAINS-CURRENT>                     (299,151)
<APPREC-INCREASE-CURRENT>                    2,638,834
<NET-CHANGE-FROM-OPS>                        3,255,291
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                      423,397
<DISTRIBUTIONS-OF-GAINS>                        82,603
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                        603,427
<NUMBER-OF-SHARES-REDEEMED>                    731,529
<SHARES-REINVESTED>                             47,019
<NET-CHANGE-IN-ASSETS>                       1,985,801
<ACCUMULATED-NII-PRIOR>                        353,424
<ACCUMULATED-GAINS-PRIOR>                      150,773
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                          167,365
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                249,007
<AVERAGE-NET-ASSETS>                        25,942,942
<PER-SHARE-NAV-BEGIN>                            10.40
<PER-SHARE-NII>                                    .42
<PER-SHARE-GAIN-APPREC>                            .99
<PER-SHARE-DIVIDEND>                               .17
<PER-SHARE-DISTRIBUTIONS>                          .03
<RETURNS-OF-CAPITAL>                                 0
<PER-SHARE-NAV-END>                              11.61
<EXPENSE-RATIO>                                    .96
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0
        

</TABLE>

<TABLE> <S> <C>

<PAGE>
 
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT TO SHAREHOLDERS FOR THE LEGENDS FUND, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000890454
<NAME> THE LEGENDS FUND, INC.
<SERIES>
   <NUMBER> 2
   <NAME> ZWEIG ASSET ALLOCATION PORTFOLIO
       
<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          JUN-30-1995
<PERIOD-END>                               JUN-30-1995
<INVESTMENTS-AT-COST>                       32,587,902
<INVESTMENTS-AT-VALUE>                      36,764,428
<RECEIVABLES>                                   32,148
<ASSETS-OTHER>                                       0
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                              36,796,576
<PAYABLE-FOR-SECURITIES>                             0
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                       60,415
<TOTAL-LIABILITIES>                             60,415
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                    31,852,476
<SHARES-COMMON-STOCK>                        2,820,443
<SHARES-COMMON-PRIOR>                        2,757,868
<ACCUMULATED-NII-CURRENT>                      946,985
<OVERDISTRIBUTION-NII>                               0
<ACCUMULATED-NET-GAINS>                      (244,106)
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                     4,180,806
<NET-ASSETS>                                36,736,161
<DIVIDEND-INCOME>                              340,252
<INTEREST-INCOME>                            1,021,521
<OTHER-INCOME>                                       0
<EXPENSES-NET>                                 414,622
<NET-INVESTMENT-INCOME>                        947,151
<REALIZED-GAINS-CURRENT>                      (80,477)
<APPREC-INCREASE-CURRENT>                    3,944,541
<NET-CHANGE-FROM-OPS>                        4,811,215
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                      248,100
<DISTRIBUTIONS-OF-GAINS>                             0
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                        640,047
<NUMBER-OF-SHARES-REDEEMED>                    598,871
<SHARES-REINVESTED>                             21,399
<NET-CHANGE-IN-ASSETS>                       5,172,988
<ACCUMULATED-NII-PRIOR>                        247,934
<ACCUMULATED-GAINS-PRIOR>                    (163,629)
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                          312,227
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                414,622
<AVERAGE-NET-ASSETS>                        34,648,012
<PER-SHARE-NAV-BEGIN>                            11.44
<PER-SHARE-NII>                                    .33
<PER-SHARE-GAIN-APPREC>                           1.33
<PER-SHARE-DIVIDEND>                               .08
<PER-SHARE-DISTRIBUTIONS>                            0
<RETURNS-OF-CAPITAL>                                 0
<PER-SHARE-NAV-END>                              13.02
<EXPENSE-RATIO>                                   1.20
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0
        

</TABLE>

<TABLE> <S> <C>

<PAGE>
 
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT TO SHAREHOLDERS FOR THE LEGENDS FUND, INC. AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000890454
<NAME> THE LEGENDS FUND, INC.
<SERIES>
   <NUMBER> 3
   <NAME> NICHOLAS-APPLEGATE BALANCED PORTFOLIO
       
<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          JUN-30-1995
<PERIOD-END>                               JUN-30-1995
<INVESTMENTS-AT-COST>                       39,943,879
<INVESTMENTS-AT-VALUE>                      45,943,315
<RECEIVABLES>                                  859,825
<ASSETS-OTHER>                                       0
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                              46,803,140
<PAYABLE-FOR-SECURITIES>                       963,210
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                       59,319
<TOTAL-LIABILITIES>                          1,022,529
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                    40,464,534
<SHARES-COMMON-STOCK>                        3,475,691
<SHARES-COMMON-PRIOR>                        3,491,556
<ACCUMULATED-NII-CURRENT>                      935,896
<OVERDISTRIBUTION-NII>                               0
<ACCUMULATED-NET-GAINS>                    (1,619,255)
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                     5,999,436
<NET-ASSETS>                                45,780,611
<DIVIDEND-INCOME>                              337,189
<INTEREST-INCOME>                              998,730
<OTHER-INCOME>                                       0
<EXPENSES-NET>                                 399,353
<NET-INVESTMENT-INCOME>                        936,566
<REALIZED-GAINS-CURRENT>                     (283,310)
<APPREC-INCREASE-CURRENT>                    6,479,460
<NET-CHANGE-FROM-OPS>                        7,132,716
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                      386,000
<DISTRIBUTIONS-OF-GAINS>                             0
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                        641,113
<NUMBER-OF-SHARES-REDEEMED>                    689,568
<SHARES-REINVESTED>                             32,590
<NET-CHANGE-IN-ASSETS>                       6,422,615
<ACCUMULATED-NII-PRIOR>                        385,330
<ACCUMULATED-GAINS-PRIOR>                  (1,335,945)
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                          276,766
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                399,353
<AVERAGE-NET-ASSETS>                        42,611,134
<PER-SHARE-NAV-BEGIN>                            11.27
<PER-SHARE-NII>                                    .27
<PER-SHARE-GAIN-APPREC>                           1.74
<PER-SHARE-DIVIDEND>                               .11
<PER-SHARE-DISTRIBUTIONS>                            0
<RETURNS-OF-CAPITAL>                                 0
<PER-SHARE-NAV-END>                              13.17
<EXPENSE-RATIO>                                    .94
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0
        

</TABLE>

<TABLE> <S> <C>

<PAGE>
 
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT TO SHAREHOLDERS FOR THE LEGENDS FUND, INC. AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000890454
<NAME> THE LEGENDS FUND, INC.
<SERIES>
   <NUMBER> 4
   <NAME> HARRIS BRETALL SULLIVAN & SMITH EQUITY GROWTH PORTFOLIO
       
<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          JUN-30-1995
<PERIOD-END>                               JUN-30-1995
<INVESTMENTS-AT-COST>                       12,423,742
<INVESTMENTS-AT-VALUE>                      16,094,433
<RECEIVABLES>                                   12,026
<ASSETS-OTHER>                                 308,901
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                              16,415,360
<PAYABLE-FOR-SECURITIES>                             0
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                       22,084
<TOTAL-LIABILITIES>                             22,084
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                    12,552,547
<SHARES-COMMON-STOCK>                        1,275,266
<SHARES-COMMON-PRIOR>                        1,142,621
<ACCUMULATED-NII-CURRENT>                       17,603
<OVERDISTRIBUTION-NII>                               0
<ACCUMULATED-NET-GAINS>                        152,435
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                     3,670,691
<NET-ASSETS>                                16,393,276
<DIVIDEND-INCOME>                              118,410
<INTEREST-INCOME>                               39,734
<OTHER-INCOME>                                       0
<EXPENSES-NET>                                 140,541
<NET-INVESTMENT-INCOME>                         17,603
<REALIZED-GAINS-CURRENT>                       311,876
<APPREC-INCREASE-CURRENT>                    3,972,691
<NET-CHANGE-FROM-OPS>                        4,302,170
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                            0
<DISTRIBUTIONS-OF-GAINS>                             0
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                        485,092
<NUMBER-OF-SHARES-REDEEMED>                    352,447
<SHARES-REINVESTED>                                  0
<NET-CHANGE-IN-ASSETS>                       5,700,249
<ACCUMULATED-NII-PRIOR>                              0
<ACCUMULATED-GAINS-PRIOR>                    (159,441)
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                           86,434
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                140,541
<AVERAGE-NET-ASSETS>                        13,328,578
<PER-SHARE-NAV-BEGIN>                             9.36
<PER-SHARE-NII>                                    .01
<PER-SHARE-GAIN-APPREC>                           3.48
<PER-SHARE-DIVIDEND>                                 0
<PER-SHARE-DISTRIBUTIONS>                            0
<RETURNS-OF-CAPITAL>                                 0
<PER-SHARE-NAV-END>                              12.85
<EXPENSE-RATIO>                                   1.05
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0
        

</TABLE>

<TABLE> <S> <C>

<PAGE>
 
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT TO SHAREHOLDERS FOR THE LEGENDS FUND, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000890454
<NAME> THE LEGENDS FUND, INC.
<SERIES>
   <NUMBER> 5
   <NAME> DREMAN VALUE PORTFOLIO
       
<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          JUN-30-1995
<PERIOD-END>                               JUN-30-1995
<INVESTMENTS-AT-COST>                        9,456,354
<INVESTMENTS-AT-VALUE>                      10,857,283
<RECEIVABLES>                                   21,503
<ASSETS-OTHER>                                  16,062
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                              10,894,848
<PAYABLE-FOR-SECURITIES>                             0
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                       17,938
<TOTAL-LIABILITIES>                             17,938
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                     9,174,881
<SHARES-COMMON-STOCK>                          863,732
<SHARES-COMMON-PRIOR>                          839,865
<ACCUMULATED-NII-CURRENT>                      190,236
<OVERDISTRIBUTION-NII>                               0
<ACCUMULATED-NET-GAINS>                        110,864
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                     1,400,929
<NET-ASSETS>                                10,876,910
<DIVIDEND-INCOME>                              288,949
<INTEREST-INCOME>                               10,105
<OTHER-INCOME>                                       0
<EXPENSES-NET>                                 108,536
<NET-INVESTMENT-INCOME>                        190,518
<REALIZED-GAINS-CURRENT>                       110,922
<APPREC-INCREASE-CURRENT>                    1,497,538
<NET-CHANGE-FROM-OPS>                        1,798,978
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                      115,316
<DISTRIBUTIONS-OF-GAINS>                        33,184
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                        218,818
<NUMBER-OF-SHARES-REDEEMED>                    208,122
<SHARES-REINVESTED>                             13,171
<NET-CHANGE-IN-ASSETS>                       1,924,736
<ACCUMULATED-NII-PRIOR>                         87,937
<ACCUMULATED-GAINS-PRIOR>                       60,223
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                           62,310
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                108,536
<AVERAGE-NET-ASSETS>                         9,632,125
<PER-SHARE-NAV-BEGIN>                            10.66
<PER-SHARE-NII>                                    .26
<PER-SHARE-GAIN-APPREC>                           1.85
<PER-SHARE-DIVIDEND>                               .14
<PER-SHARE-DISTRIBUTIONS>                          .04
<RETURNS-OF-CAPITAL>                                 0
<PER-SHARE-NAV-END>                              12.59
<EXPENSE-RATIO>                                   1.13
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0
        

</TABLE>

<TABLE> <S> <C>

<PAGE>
 
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT TO SHAREHOLDERS FOR THE LEGENDS FUND, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000890454
<NAME> THE LEGENDS FUND, INC.
<SERIES>
   <NUMBER> 6
   <NAME> ZWEIG EQUITY (SMALL CAP) PORTFOLIO
       
<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          JUN-30-1995
<PERIOD-END>                               JUN-30-1995
<INVESTMENTS-AT-COST>                        6,888,020
<INVESTMENTS-AT-VALUE>                       8,022,663
<RECEIVABLES>                                   14,935
<ASSETS-OTHER>                                  14,483
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                               8,052,081
<PAYABLE-FOR-SECURITIES>                             0
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                       18,289
<TOTAL-LIABILITIES>                             18,289
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                     7,256,655
<SHARES-COMMON-STOCK>                          691,384
<SHARES-COMMON-PRIOR>                          712,505
<ACCUMULATED-NII-CURRENT>                      119,325
<OVERDISTRIBUTION-NII>                               0
<ACCUMULATED-NET-GAINS>                      (461,002)
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                     1,118,814
<NET-ASSETS>                                 8,033,792
<DIVIDEND-INCOME>                              105,415
<INTEREST-INCOME>                              134,610
<OTHER-INCOME>                                       0
<EXPENSES-NET>                                 120,601
<NET-INVESTMENT-INCOME>                        119,424
<REALIZED-GAINS-CURRENT>                     (389,775)
<APPREC-INCREASE-CURRENT>                    1,043,789
<NET-CHANGE-FROM-OPS>                          773,438
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                       40,100
<DISTRIBUTIONS-OF-GAINS>                        50,400
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                        178,821
<NUMBER-OF-SHARES-REDEEMED>                    208,320
<SHARES-REINVESTED>                              8,378
<NET-CHANGE-IN-ASSETS>                         442,845
<ACCUMULATED-NII-PRIOR>                         44,194
<ACCUMULATED-GAINS-PRIOR>                     (25,120)
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                           81,405
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                123,374
<AVERAGE-NET-ASSETS>                         7,757,740
<PER-SHARE-NAV-BEGIN>                            10.65
<PER-SHARE-NII>                                    .17
<PER-SHARE-GAIN-APPREC>                            .93
<PER-SHARE-DIVIDEND>                               .06
<PER-SHARE-DISTRIBUTIONS>                          .07
<RETURNS-OF-CAPITAL>                                 0
<PER-SHARE-NAV-END>                              11.62
<EXPENSE-RATIO>                                   1.55
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0
        

</TABLE>

<TABLE> <S> <C>

<PAGE>
 
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT TO SHAREHOLDERS FOR THE LEGENDS FUND, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000890454
<NAME> THE LEGENDS FUND, INC.
<SERIES>
   <NUMBER> 9
   <NAME> MITCHELL HUTCHINS FIXED INCOME PORTFOLIO
       
<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          JUN-30-1995
<PERIOD-END>                               JUN-30-1995
<INVESTMENTS-AT-COST>                        5,735,468
<INVESTMENTS-AT-VALUE>                       5,847,480
<RECEIVABLES>                                  545,371
<ASSETS-OTHER>                                       0
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                               6,392,851
<PAYABLE-FOR-SECURITIES>                       955,582
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                       21,772
<TOTAL-LIABILITIES>                            977,354
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                     5,176,771
<SHARES-COMMON-STOCK>                          497,544
<SHARES-COMMON-PRIOR>                          486,023
<ACCUMULATED-NII-CURRENT>                      268,795
<OVERDISTRIBUTION-NII>                               0
<ACCUMULATED-NET-GAINS>                      (142,081)
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                       112,012
<NET-ASSETS>                                 5,415,497
<DIVIDEND-INCOME>                                    0
<INTEREST-INCOME>                              342,900
<OTHER-INCOME>                                       0
<EXPENSES-NET>                                  70,731
<NET-INVESTMENT-INCOME>                        272,169
<REALIZED-GAINS-CURRENT>                        32,319
<APPREC-INCREASE-CURRENT>                      253,467
<NET-CHANGE-FROM-OPS>                          557,955
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                       98,000
<DISTRIBUTIONS-OF-GAINS>                             0
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                        263,300
<NUMBER-OF-SHARES-REDEEMED>                    261,523
<SHARES-REINVESTED>                              9,744
<NET-CHANGE-IN-ASSETS>                         554,998
<ACCUMULATED-NII-PRIOR>                         91,264
<ACCUMULATED-GAINS-PRIOR>                    (171,038)
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                           45,180
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                 80,213
<AVERAGE-NET-ASSETS>                         5,035,291
<PER-SHARE-NAV-BEGIN>                            10.00
<PER-SHARE-NII>                                    .56
<PER-SHARE-GAIN-APPREC>                            .53
<PER-SHARE-DIVIDEND>                               .21
<PER-SHARE-DISTRIBUTIONS>                            0
<RETURNS-OF-CAPITAL>                                 0
<PER-SHARE-NAV-END>                              10.88
<EXPENSE-RATIO>                                   1.40
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0
        

</TABLE>

<TABLE> <S> <C>

<PAGE>
 
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT TO SHAREHOLDERS FOR THE LEGENDS FUND, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000890454
<NAME> THE LEGENDS FUND, INC.
<SERIES>
   <NUMBER> 10
   <NAME> MITCHELL HUTCHINS MONEY MARKET PORTFOLIO
       
<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          JUN-30-1995
<PERIOD-END>                               JUN-30-1995
<INVESTMENTS-AT-COST>                        6,768,830
<INVESTMENTS-AT-VALUE>                       6,768,830
<RECEIVABLES>                                    6,639
<ASSETS-OTHER>                                       0
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                               6,775,469
<PAYABLE-FOR-SECURITIES>                             0
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                       22,374
<TOTAL-LIABILITIES>                             22,374
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                     6,753,095
<SHARES-COMMON-STOCK>                        6,753,095
<SHARES-COMMON-PRIOR>                        5,452,417
<ACCUMULATED-NII-CURRENT>                            0
<OVERDISTRIBUTION-NII>                               0
<ACCUMULATED-NET-GAINS>                              0
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                             0
<NET-ASSETS>                                 6,753,095
<DIVIDEND-INCOME>                                    0
<INTEREST-INCOME>                              339,821
<OTHER-INCOME>                                       0
<EXPENSES-NET>                                  72,180
<NET-INVESTMENT-INCOME>                        267,641
<REALIZED-GAINS-CURRENT>                             0
<APPREC-INCREASE-CURRENT>                            0
<NET-CHANGE-FROM-OPS>                          267,641
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                      267,641
<DISTRIBUTIONS-OF-GAINS>                             0
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                     11,346,439
<NUMBER-OF-SHARES-REDEEMED>                 10,313,402
<SHARES-REINVESTED>                            267,641
<NET-CHANGE-IN-ASSETS>                       1,300,678
<ACCUMULATED-NII-PRIOR>                              0
<ACCUMULATED-GAINS-PRIOR>                            0
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                           40,612
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                 78,819
<AVERAGE-NET-ASSETS>                         6,207,200
<PER-SHARE-NAV-BEGIN>                             1.00
<PER-SHARE-NII>                                    .04
<PER-SHARE-GAIN-APPREC>                              0
<PER-SHARE-DIVIDEND>                               .04
<PER-SHARE-DISTRIBUTIONS>                            0
<RETURNS-OF-CAPITAL>                                 0
<PER-SHARE-NAV-END>                               1.00
<EXPENSE-RATIO>                                   1.15
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0
        

</TABLE>

<TABLE> <S> <C>

<PAGE>
 
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT TO SHAREHOLDERS FOR THE LEGENDS FUND, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000890454
<NAME> THE LEGENDS FUND, INC.
<SERIES>
   <NUMBER> 11
   <NAME> MORGAN STANLEY ASIAN GROWTH PORTFOLIO
       
<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          JUN-30-1995
<PERIOD-END>                               JUN-30-1995
<INVESTMENTS-AT-COST>                       12,945,471
<INVESTMENTS-AT-VALUE>                      13,163,401
<RECEIVABLES>                                   48,716
<ASSETS-OTHER>                                   9,032
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                              13,221,149
<PAYABLE-FOR-SECURITIES>                       225,024
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                      171,462
<TOTAL-LIABILITIES>                            396,486
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                    12,633,934
<SHARES-COMMON-STOCK>                        1,259,429
<SHARES-COMMON-PRIOR>                          190,495
<ACCUMULATED-NII-CURRENT>                       14,748
<OVERDISTRIBUTION-NII>                               0
<ACCUMULATED-NET-GAINS>                       (42,298)
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                       218,279
<NET-ASSETS>                                12,824,663
<DIVIDEND-INCOME>                              163,806
<INTEREST-INCOME>                               93,141
<OTHER-INCOME>                                       0
<EXPENSES-NET>                                 184,410
<NET-INVESTMENT-INCOME>                         72,537
<REALIZED-GAINS-CURRENT>                     (100,052)
<APPREC-INCREASE-CURRENT>                      218,279
<NET-CHANGE-FROM-OPS>                          190,764
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                          500
<DISTRIBUTIONS-OF-GAINS>                             0
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                      1,262,727
<NUMBER-OF-SHARES-REDEEMED>                    193,842
<SHARES-REINVESTED>                                 49
<NET-CHANGE-IN-ASSETS>                      10,919,306
<ACCUMULATED-NII-PRIOR>                            465
<ACCUMULATED-GAINS-PRIOR>                            0
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                           97,281
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                184,410
<AVERAGE-NET-ASSETS>                         9,584,641
<PER-SHARE-NAV-BEGIN>                            10.00
<PER-SHARE-NII>                                    .01
<PER-SHARE-GAIN-APPREC>                            .17
<PER-SHARE-DIVIDEND>                                 0
<PER-SHARE-DISTRIBUTIONS>                            0
<RETURNS-OF-CAPITAL>                                 0
<PER-SHARE-NAV-END>                              10.18
<EXPENSE-RATIO>                                   1.92
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0
        

</TABLE>

<TABLE> <S> <C>

<PAGE>
 
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT TO SHAREHOLDERS FOR THE LEGENDS FUND, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000890454
<NAME> THE LEGENDS FUND, INC.
<SERIES>
   <NUMBER> 12
   <NAME> MORGAN STANLEY WORLDWIDE HIGH INCOME PORTFOLIO
       
<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          JUN-30-1995
<PERIOD-END>                               JUN-30-1995
<INVESTMENTS-AT-COST>                        7,299,960
<INVESTMENTS-AT-VALUE>                       7,032,585
<RECEIVABLES>                                  540,374
<ASSETS-OTHER>                                  12,893
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                               7,585,852
<PAYABLE-FOR-SECURITIES>                     1,322,888
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                       21,067
<TOTAL-LIABILITIES>                          1,343,955
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                     6,059,757
<SHARES-COMMON-STOCK>                          600,165
<SHARES-COMMON-PRIOR>                           68,726
<ACCUMULATED-NII-CURRENT>                      532,957
<OVERDISTRIBUTION-NII>                               0
<ACCUMULATED-NET-GAINS>                       (83,442)
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                     (267,375)
<NET-ASSETS>                                 6,241,897
<DIVIDEND-INCOME>                                    0
<INTEREST-INCOME>                              624,658
<OTHER-INCOME>                                       0
<EXPENSES-NET>                                  91,626
<NET-INVESTMENT-INCOME>                        533,032
<REALIZED-GAINS-CURRENT>                      (83,442)
<APPREC-INCREASE-CURRENT>                    (267,375)
<NET-CHANGE-FROM-OPS>                          182,215
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                          300
<DISTRIBUTIONS-OF-GAINS>                             0
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                        966,462
<NUMBER-OF-SHARES-REDEEMED>                    435,053
<SHARES-REINVESTED>                                 30
<NET-CHANGE-IN-ASSETS>                       5,554,413
<ACCUMULATED-NII-PRIOR>                            225
<ACCUMULATED-GAINS-PRIOR>                            0
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                           48,816
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                 91,626
<AVERAGE-NET-ASSETS>                         5,685,279
<PER-SHARE-NAV-BEGIN>                            10.00
<PER-SHARE-NII>                                    .89
<PER-SHARE-GAIN-APPREC>                          (.49)
<PER-SHARE-DIVIDEND>                                 0
<PER-SHARE-DISTRIBUTIONS>                            0
<RETURNS-OF-CAPITAL>                                 0
<PER-SHARE-NAV-END>                              10.40
<EXPENSE-RATIO>                                   1.61
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0
        

</TABLE>


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