SEPARATE ACCOUNT VA-5NLNY OF FIRST TRANSAMERICA LIFE INSURAN, N-30D, 1996-03-01

SEPARATE ACCOUNT VA-5NLNY OF FIRST TRANSAMERICA LIFE INSURAN
N-30D, 1996-03-01

Previous: ILLINOVA CORP, DEF 14A, 1996-03-01

Next: UNITED OF OMAHA SEPARATE ACCOUNT C, 485APOS, 1996-03-01

February 29, 1996

February 28, 1996

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Re: Transamerica Occidental Life Insurance Company and
Transamerica Occidental Life Separate Account
VA-5NLNY (File No. 33-71748)

Dear Commissioner:

On behalf of Transamerica Occidental Life Insurance Company and
Transamerica Occidental Life Separate Accounts VA-5NLNY
("Separate Account"), enclosed for filing pursuant to Rule 30b2-
1 under the Investment Company Act of 1940 ("Act") is a copy of
the annual report for each of the following funds: Federated
Investors Insurance Management Series, INVESCO Variable
Investment Funds, Inc., Janus Aspen Series, Lexington Emerging
Markets Fund, Montgomery Variable Series, Schwab Annuity
Portfolios, SteinRoe Variable Investment Trust, Strong Discovery
Fund II, TCI Portfolios, Inc. and Van Eck Worldwide Insurance
Trust.

The above-mentioned funds are the underlying investment medium
for the variable annuity contracts issued in connection with the
Separate Account.

The annual reports are for the period ending December 31, 1995,
and have been transmitted to contract holders in accordance with
Rule 30d-2 under the Act.

If you have any questions regarding the enclosed reports, please
contact the undersigned at (213) 742-3126, or Regina Fink at
(213) 742-3131.

Sincerely,

Susan Vivino
Paralegal

cc: F. Bellamy
R. Fink

Enclosure
<PAGE>

<PAGE>
SCHWAB INVESTMENT ADVANTAGE-TM-

A VARIABLE ANNUITY

ANNUAL REPORT

December 31, 1995

DISTRIBUTED BY

CHARLES SCHWAB
<PAGE>
- ----------------

February 26, 1996

DEAR VALUED CONTRACT OWNER:

We are pleased to provide you with this annual report for the
fiscal year ending December 31, 1995, for the funds which serve as
the underlying investments for the Schwab Investment Advantage-TM-
Variable Annuity issued by Transamerica Occidental Life Insurance
Company, and in New York, by First Transamerica Life Insurance
Company.

UNDERSTANDING YOUR ANNUAL REPORT

This annual report contains performance information, financial
statements, notes and highlights and other pertinent data for each
of the funds available in the variable annuity. You also will
find, from each fund manager, a discussion of their fund's
performance relative to the financial markets and economic
conditions. The performance figures quoted are for the underlying
funds, therefore, they do not reflect fees and charges associated
with the Schwab Investment Advantage-TM- Variable Annuity.

Please note that we have included all of the funds available
through the variable annuity, although you may not have amounts
allocated to each of these funds at this time.

ECONOMIC OVERVIEW

To help put the year in perspective as you read your annual
report, Transamerica would like to provide you with following
brief economic overview for the year ending December 31, 1995:

Economic growth slowed dramatically in the first half of 1995.
A drop-off in consumer spending and restrictive monetary policy
resulted in growth in real GDP of 2.7% in the first quarter of
1995 and 0.5% in the second quarter of 1995. In the third quarter,
real economic growth was running at an annual rate in excess of
3%, somewhat above its long-term average. The Federal Reserve cut
short-term interest rates twice during 1995. Both the stock and
bond markets reacted favorably to the reductions.

OUR COMMITMENT TO YOU

As a Schwab Investment Advantage-TM- Variable Annuity contract
owner, you have our deepest commitment that we will seek to
provide unparalleled customer service. If you have any questions
or comments about your variable annuity, including the information
contained in this annual report, please contact your investment
advisor or call the Schwab Annuity Service Center toll-free at
(800) 838-0650, or in New York, at (800) 838-0649.

As always, we appreciate your business and are committed to
satisfying your financial service needs. Please let us know how we
can better serve you.

Sincerely,

[SIGNATURE]
William E. Simms
PRESIDENT
INSTITUTIONAL MARKETING SERVICES
TRANSAMERICA LIFE COMPANIES

This material must be preceded or accompanied by a current
prospectus for the Schwab Investment Advantage-TM-, a variable
annuity.

----------------
1
<PAGE>
- ----------------

SCHWAB INVESTMENT ADVANTAGE-TM-
A VARIABLE ANNUITY

-------------------------------
ANNUAL REPORT
DECEMBER 31, 1995

TABLE OF CONTENTS

<TABLE>
<CAPTION>
FUND PAGE NO.
- -------------------------------------------------------------------------- -------------
<S> <C>
Federated Investors
Equity Growth and Income Fund........................................... 3
U.S. Government Bond Fund............................................... 18
Invesco Variable Investment Funds, Inc. .................................. 30
VIF - High Yield Portfolio
VIF - Industrial Income Portfolio
VIF - Total Return Portfolio
Janus Aspen Growth Portfolio.............................................. 63
Lexington Emerging Markets Fund, Inc. .................................... 79
SchwabFunds-Registered Trademark-
Schwab Money Market Portfolio........................................... 92
Steinroe Variable Investment Trust
Capital Appreciation Fund............................................... 102
The Strong Discovery Fund II.............................................. 114
TCI Portfolios, Inc.
TCI Balanced............................................................ 133
TCI Growth.............................................................. 150
</TABLE>

----------------
2
<PAGE>
- ----------------

FEDERATED INVESTORS
EQUITY GROWTH AND INCOME FUND
PRESIDENT'S MESSAGE
Dear Investor:

I am pleased to present the Annual Report to Shareholders for Equity Growth
and Income Fund, a portfolio of Insurance Management Series, for the
twelve-month period ended December 31, 1995. The report begins with the
management discussion and analysis by the fund's portfolio manager. Following
the management discussion and analysis is a complete listing of the fund's
holdings and its financial statements.

Equity Growth and Income Fund helps your money earn income and grow in value
by investing in a portfolio of high-quality stocks. Many of these stocks are
issued by companies whose names you will recognize. At the end of the period,
the fund's portfolio included Du Pont, Mattel, Avon, Philip Morris, RJR Nabisco,
Reebok, Chevron, Texaco, American Express, Bristol-Myers Squib, General
Electric, Sears, Hewlett-Packard, and AT&T to name a few.

Consistent with a highly favorable environment for stocks during 1995, the
fund delivered a total return of 33.71%* during the twelve-month period ended
December 31, 1995. The fund's net asset value increased significantly, from
$9.74 at the beginning of the period to $12.80 at the period's end. Dividends
totaled $0.20 per share, while net realized and unrealized gains totaled $3.06
per share during the period. At the end of the twelve-month report period, total
assets grew to reach $48.5 million.

Thank you for participating in the growth and income opportunities of U.S.
stocks through Equity Growth and Income Fund. We look forward to keeping you
informed about your investment's progress.

Sincerely,

[LOGO]
J. Christopher Donahue
President
February 15, 1996

- ------------
*Performance quoted represents past performance. Investment return and principal
value will fluctuate, so that an investor's shares, when redeemed, may be worth
more or less than their original cost.

----------------
3
<PAGE>
- ----------------

FEDERATED INVESTORS
EQUITY GROWTH AND INCOME FUND
MANAGEMENT DISCUSSION AND ANALYSIS
DECEMBER 31, 1995

In the fiscal year ended December 31, 1995, the U.S. stock market advanced
strongly, with the Standard & Poor's 500 Index* ("S&P 500") recording a total
return of 37.6%. This compares to a modest 1.3% total return for the twelve
months ended December 31, 1994. Total return for Equity Growth and Income Fund
for the fiscal year ended December 31, 1995, was 33.71%** versus 30.8% for the
average Lipper Growth and Income Fund.

Recent market strength was concentrated in large-capitalization stocks which
substantially influence the performance of the S&P 500. In contrast, the
Standard & Poor's 600 Small Cap Index*, a popular benchmark for
small-capitalization stocks, had a total return of only 29.9% for the year ended
December 31, 1995.

Market strength over the past year has been largely due to declining interest
rates and continuing strong growth in corporate profits. The 30-year U.S.
Treasury bond yield has declined from 8.1% to roughly 6.2%. Aggregate corporate
earnings for U.S. companies have shown 12%-15% gains in the past three quarters
versus 1994. The consensus forecast at this time is for a rather benign
inflation and interest rate environment and moderate real growth in U.S.
economic activity, perhaps at the 2.0%-2.5% level (annual rate). This backdrop
and the substantial rise in the stock market over the past year dictates
increased selectivity in stock selection at this time.

The best performing sector over the past year has been Technology, although
many stocks in this area have experienced corrections over the past few months.
We reduced our weighting in Technology a few months ago, but remain modestly
overweight relative to the S&P 500, given the excellent long-term outlook. The
Finance sector has also performed well over the past year and the fund continues
to have a significant exposure to this group.

As part of our portfolio management process in determining relative sector
weightings, we also attempt to identify underlying investment themes. Some
companies fit more than one theme. At this time, the major themes in the fund's
portfolio are as follows:

(1) Beneficiaries of corporate "restructuring" such as AT&T, ITT, and CIGNA;

(2) Industry consolidation--Lockheed Martin in the Aerospace/defense industry
and First Interstate in banking are examples;

(3) Companies which generate significant excess cash flow such as Philip Morris
and FMC;

(4) Dominant companies with superior management such as General Electric,
Citicorp and Philip Morris; and

(5) The Technology revolution--major "plays" include Hewlett-Packard, IBM, and
General Motors, Class "E" (EDS).

While some market observers express concern with overvaluation in the current
market, we believe good long-term values can be identified by our disciplined
process and careful fundamental research. An important part of our process is
our emphasis on controlling risk through diversification and attention to
valuation of individual stocks.

- ------------
*The Standard & Poor's Daily Stock Price Index of 500 Common Stocks, a
composite index of common stocks in industry, transportation, and financial
and public utility companies, can be used to compare to the total returns of
funds whose portfolios are invested primarily in common stocks. The Standard &
Poor's 600 Small Cap Index is an unmanaged index of 600 smaller capitalization
stocks. These indices are unmanaged and actual investments cannot be made in
indices.

**Performance quoted represents past performance. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost.

----------------
4
<PAGE>
- ----------------

FEDERATED INVESTORS
EQUITY GROWTH AND INCOME FUND

GROWTH OF $10,000 INVESTED IN THE EQUITY GROWTH AND INCOME FUND

The graph below illustrates the hypothetical investment of $10,000 in the
Equity Growth and Income Fund (the "Fund") from February 10, 1994 (start of
performance) to December 31, 1995, compared to the Standard and Poor's 500 Index
(S&P 500)+ and the Lipper Growth and Income Funds Average (LGIFA).++
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
EQUITY GROWTH & INCOME FUND S&P 500 INDEX
<S> <C> <C>
2/10/1994* 10000 10000
12/31/1994 9930 10048
12/31/1995 13277 13824
* Commencement of investment operations at 2/10/94.
Monthly Periods from February 1994 through December 1995
Average Annual Total Returns for the Period Ended 12/31/95 2/94*
Equity Growth & Income Fund 16.19
S&P 500 Index
Lipper Growth & Income Funds Average

<CAPTION>
LIPPER GROWTH & INCOME FUNDS AVERAGE
<S> <C>
2/10/1994* 10000
12/31/1994 9775
12/31/1995 12788
* Commencement of investment operations at 2/10/94.
Monthly Periods from February 1994 through December 1995
Average Annual Total Returns for the Period Ended 12/31/95
Equity Growth & Income Fund
S&P 500 Index
Lipper Growth & Income Funds Average
</TABLE>

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY
BE WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.

- ------------
*The Fund's performance assumes the reinvestment of all dividends and
distributions. The S&P 500 and the LGIFA have been adjusted to reflect
reinvestment of dividends on securities in the index and average.

+The S&P 500 is not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. The index is
unmanaged.

++The LGIFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category, and is not adjusted to reflect any sales charges. However, these
total returns are reported net of expenses or other fees that the SEC requires
to be reflected in a fund's performance.

----------------
5
<PAGE>
- ----------------

FEDERATED INVESTORS
EQUITY GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCKS--88.6% SHARES VALUE
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------

BASIC INDUSTRY--8.3%
<S> <C> <C> <C> <C>
Allegheny Ludlum Corp.................................................... 38,800 $ 717,800
Aluminum Co. of America.................................................. 17,100 904,162
Du Pont (E.I.) de Nemours & Co........................................... 16,000 1,118,000
Eastman Chemical Co...................................................... 4,500 281,812
International Paper Co................................................... 13,300 503,737
Praxair, Inc............................................................. 15,000 504,375
-------------
Total.................................................................... 4,029,886
-------------
<CAPTION>

CONSUMER DURABLES--2.7%
<S> <C> <C> <C> <C>
Mattel, Inc.............................................................. 25,000 768,750
Volvo, ADR............................................................... 25,400 523,081
-------------
Total.................................................................... 1,291,831
-------------
<CAPTION>

CONSUMER NON-DURABLES--7.5%
<S> <C> <C> <C> <C>
Avon Products, Inc....................................................... 10,400 783,900
IBP, Inc................................................................. 15,300 772,650
Philip Morris Cos., Inc.................................................. 16,500 1,493,250
RJR Nabisco Holdings Corp................................................ 5,100 157,463
Reebok International Ltd................................................. 15,500 437,875
-------------
Total.................................................................... 3,645,138
-------------
<CAPTION>

ENERGY MINERALS--6.1%
<S> <C> <C> <C> <C>
Chevron Corp............................................................. 15,800 829,500
Mobil Corp............................................................... 1,800 201,600
Occidental Petroleum Corp................................................ 20,500 438,188
Texaco, Inc.............................................................. 11,200 879,200
USX Marathon Group....................................................... 32,000 624,000
-------------
Total.................................................................... 2,972,488
-------------
<CAPTION>

FINANCE--15.5%
<S> <C> <C> <C> <C>
Allstate Corp............................................................ 20,408 839,279
American Express Co...................................................... 10,400 430,300
Bank of Boston Corp...................................................... 9,700 448,625
CIGNA Corp............................................................... 9,400 970,550
Chemical Banking Corp.................................................... 10,700 628,625
Citicorp................................................................. 17,157 1,153,808
Dean Witter, Discover & Co............................................... 13,400 629,800
Mellon Bank Corp......................................................... 19,100 1,026,625
Providian Corp........................................................... 12,500 509,375
Travelers Group, Inc..................................................... 13,550 851,956
-------------
Total.................................................................... 7,488,943
-------------
</TABLE>

----------------
6
<PAGE>
- ----------------

FEDERATED INVESTORS
EQUITY GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED) SHARES VALUE
- ------------------------------------------------------------------------------------------------------
HEALTH CARE--9.2%
<S> <C> <C> <C> <C>
American Home Products Corp.............................................. 8,700 $ 843,900
Becton, Dickinson & Co................................................... 14,400 1,080,000
Bristol-Myers Squibb Co.................................................. 14,900 1,279,537
Merck & Co., Inc......................................................... 11,900 782,425
Smithkline Beecham Corp., ADR............................................ 8,900 493,950
-------------
Total.................................................................... 4,479,812
-------------
<CAPTION>

PRODUCER MANUFACTURING--8.9%
<S> <C> <C> <C> <C>
FMC Corp................................................................. 9,200(a) 622,150
General Electric Co...................................................... 16,300 1,173,600
Loews Corp............................................................... 12,000 940,500
Philips Electronics N.V., ADR............................................ 10,500 376,688
Textron, Inc............................................................. 13,700 924,750
Westinghouse Electric Corp............................................... 18,200 300,300
-------------
Total.................................................................... 4,337,988
-------------
<CAPTION>

RETAIL TRADE--2.8%
<S> <C> <C> <C> <C>
American Stores Co....................................................... 17,800 476,150
Sears, Roebuck & Co...................................................... 22,000 858,000
-------------
Total.................................................................... 1,334,150
-------------
<CAPTION>

SERVICES--2.7%
<S> <C> <C> <C> <C>
Baker Hughes, Inc........................................................ 18,500 450,938
Gannett Co., Inc......................................................... 6,300 386,662
Western Atlas, Inc....................................................... 9,200(a) 464,600
-------------
Total.................................................................... 1,302,200
-------------
<CAPTION>

TECHNOLOGY--16.0%
<S> <C> <C> <C> <C>
DST Systems, Inc......................................................... 5,000(a) 142,500
General Motors Corp., Class E............................................ 23,200 1,206,400
Hewlett-Packard Co....................................................... 10,800 904,500
Intel Corp............................................................... 14,100 800,175
International Business Machines Corp..................................... 13,500 1,238,625
Litton Industries, Inc................................................... 10,500(a) 467,250
Lockheed Martin Corp..................................................... 19,300 1,524,700
Raytheon Co.............................................................. 10,300 486,675
Rockwell International Corp.............................................. 18,700 988,763
-------------
Total.................................................................... 7,759,588
-------------
<CAPTION>

TRANSPORTATION--1.5%
<S> <C> <C> <C> <C>
Conrail, Inc............................................................. 10,200 714,000
-------------
</TABLE>

----------------
7
<PAGE>
- ----------------

FEDERATED INVESTORS
EQUITY GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED) SHARES VALUE
- ------------------------------------------------------------------------------------------------------
UTILITIES--7.4%
<S> <C> <C> <C> <C>
AT&T Corp................................................................ 18,400 $ 1,191,400
CMS Energy Corp.......................................................... 10,900 325,637
Columbia Gas System, Inc................................................. 9,600(a) 421,200
Enron Corp............................................................... 19,000 724,375
FPL Group, Inc........................................................... 6,000 278,250
MCI Communications Corp.................................................. 25,500 666,188
-------------
Total.................................................................... 3,607,050
-------------

TOTAL COMMON STOCKS (identified cost $38,914,802)........................ 42,963,074
-------------
<CAPTION>

PREFERRED STOCKS--4.3%
- ------------------------------------------------------------------------------------------------------

CONSUMER NON-DURABLES--0.9%
<S> <C> <C> <C> <C>
RJR Nabisco Holdings Corp., Conv. Pfd., Series C, $.60................... 71,700 457,088
-------------
<CAPTION>

FINANCE--2.0%
<S> <C> <C> <C> <C>
Merrill Lynch & Co., Inc., STRYPES, Series MGIC, $3.12................... 9,300 481,275
SunAmerica, Inc., Conv. Pfd., Series E, $3.10............................ 7,400 484,700
-------------
Total.................................................................... 965,975
-------------
<CAPTION>

PRODUCER MANUFACTURING--1.4%
<S> <C> <C> <C> <C>
Westinghouse Electric Corp., PEPS, Series C, $1.30....................... 41,700 667,617
-------------

TOTAL PREFERRED STOCKS (identified cost $2,018,173)...................... 2,090,680
-------------
<CAPTION>

PRINCIPAL
CORPORATE BOND--0.4% AMOUNT
- ------------------------------------------------------------------------------------------------------

TECHNOLOGY--0.4%
<S> <C> <C> <C> <C>
Analog Devices, Inc., Conv. Bond, 3.50%, 12/1/2000....................... $ 165,000 172,631
-------------

TOTAL CORPORATE BONDS (identified cost $165,000)......................... 172,631
-------------
<CAPTION>

REPURCHASE AGREEMENT--13.5%(b)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>

J.P. Morgan Securities, Inc., 5.85%, dated 12/29/1995, due 1/2/1996 (at
amortized cost)........................................................ 6,560,000 6,560,000
-------------
TOTAL INVESTMENTS
(identified cost $47,657,975)(c)....................................... $ 51,786,385
-------------
-------------
</TABLE>

----------------
8
<PAGE>
- ----------------

FEDERATED INVESTORS
EQUITY GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995

------------------------
(a) Non-income producing.

(b) The repurchase agreement is fully collateralized by U.S.
government and/or agency obligations based on market prices at
the date of the portfolio. The investment in the repurchase
agreement is through participation in a joint account with other
Federated funds.

(c) The cost of investments for federal tax purposes amounts to
$47,702,372. The net unrealized appreciation of investments on a
federal tax cost basis amounts to $4,084,013, and is comprised
of $4,491,513 appreciation and $407,500 depreciation at December
31, 1995.

The following acronyms are used throughout this portfolio:

ADR--American Depository Receipt

PEPS--Participating Equity Preferred Stock

STRYPES--Structured Yield Product Exchangeable for Stock

Note: The categories of investments are shown as a percentage of net
assets ($48,513,534) at December 31, 1995.

See Notes which are an integral part of the Financial Statements.

----------------
9
<PAGE>
- ----------------

FEDERATED INVESTORS
EQUITY GROWTH AND INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995

<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------
ASSETS
Investments in repurchase agreements................................................... $6,560,000
Investments in securities.............................................................. 45,226,385
----------
Total investments in securities, at value
(identified cost, $47,657,975 and tax cost, $47,702,372)........................... $51,786,385
Cash................................................................................... 507
Receivable for shares sold............................................................. 270,500
Income receivable...................................................................... 89,416
Prepaid expenses....................................................................... 365
----------
Total assets......................................................................... 52,147,173
----------

LIABILITIES
Payable for investments purchased...................................................... 3,601,406
Payable for shares redeemed............................................................ 1,855
Accrued expenses....................................................................... 30,378
----------
Total liabilities.................................................................... 3,633,639
----------
NET ASSETS for 3,790,198 shares outstanding.............................................. $48,513,534
----------
----------
NET ASSETS consist of:
Paid-in capital........................................................................ $43,990,489
Net unrealized appreciation of investments............................................. 4,128,410
Accumulated net realized gain on investments........................................... 404,645
Distribution in excess of net investment income........................................ (10,010)
----------
Total net assets..................................................................... $48,513,534
----------
----------
NET ASSET VALUE, offering price, and redemption proceeds per share:
$48,513,534 DIVIDED BY 3,790,198 shares outstanding................................... $12.80
----------
----------
</TABLE>

- ------------
See Notes which are an integral part of the Financial Statements.

----------------
10
<PAGE>
- ----------------

FEDERATED INVESTORS
EQUITY GROWTH AND INCOME FUND
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995

<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends............................................................................... $ 416,256
Interest................................................................................ 131,596
---------
Total income.......................................................................... 547,852

EXPENSES
Investment advisory fee................................................................. $ 142,579
Administrative personnel and services fee............................................... 125,000
Custodian fees.......................................................................... 43,505
Transfer and dividend disbursing agent fees and expenses................................ 14,286
Directors'/Trustees' fees............................................................... 1,440
Auditing fees........................................................................... 8,738
Legal fees.............................................................................. 2,016
Portfolio accounting fees............................................................... 33,828
Share registration costs................................................................ 15,619
Printing and postage.................................................................... 21,456
Insurance premiums...................................................................... 3,572
Miscellaneous........................................................................... 8,628
---------
Total expenses........................................................................ 420,667

Waiver and Reimbursement:
Waiver of investment advisory fee....................................................... $(142,579)
Reimbursement of other operating expenses............................................... (115,765)
---------
Total waiver and reimbursements....................................................... (258,344)
Net expenses............................................................................ 162,323
---------
Net investment income................................................................... 385,529
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain of investments........................................................ 418,832
Net change in unrealized appreciation of investments.................................... 4,129,761
---------
Net realized and unrealized gain on investments......................................... 4,548,593
---------
Change in net assets resulting from operations...................................... $4,934,122
---------
---------
</TABLE>

- ------------
See Notes which are an integral part of the Financial Statements.

----------------
11
<PAGE>
- ----------------

FEDERATED INVESTORS
EQUITY GROWTH AND INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
- -----------------------------------------------------------------------------------------------------
1995 1994(A)
---------- ---------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income....................................................... $ 385,529 $ 15,142
Net realized gain (loss) on investment ($460,510 net gain and $(11,469) net
loss, respectively, as computed for federal tax purposes)................. 418,832 (14,187)
Net change in unrealized appreciation (depreciation)........................ 4,129,761 (1,351)
---------- ---------
Change in net assets resulting from operations............................ 4,934,122 (396)
---------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income.................................... (386,024) (14,647)
Distributions in excess of net investment income............................ (10,010) --
---------- ---------
Change in net assets resulting from distributions to shareholders......... (396,034) (14,647)
---------- ---------
SHARE TRANSACTIONS
Proceeds from sale of shares................................................ 45,176,314 3,287,097
Net asset value of shares issued to shareholders in payment of distributions
declared.................................................................. 396,398 7,346
Cost of shares redeemed..................................................... (3,997,296) (879,370)
---------- ---------
Change in net assets resulting from share transactions.................... 41,575,416 2,415,073
---------- ---------
Change in net assets.................................................... 46,113,504 2,400,030

NET ASSETS
Beginning of period......................................................... 2,400,030 --
---------- ---------
End of period (including undistributed net investment income of $0 and $495,
respectively)............................................................. $48,513,534 $2,400,030
---------- ---------
---------- ---------
</TABLE>

- ------------
(a) For the period from December 9, 1993 (start of business) to December 31,
1994.

See Notes which are an integral part of the Financial Statements.

----------------
12
<PAGE>
- ----------------

FEDERATED INVESTORS
EQUITY GROWTH AND INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
- -------------------------------------------------------------------------------------------------------------
1995 1994(A)
--------- -----------
<S> <C> <C>
Net asset value, beginning of period................................................. $ 9.74 $ 10.00

INCOME FROM INVESTMENT OPERATIONS
Net investment income.............................................................. 0.20 0.19
Net realized and unrealized gain (loss) on investments............................. 3.06 (0.26)
--------- -----------
Total from investment operations................................................... 3.26 (0.07)

LESS DISTRIBUTIONS
Distributions from net investment income........................................... (0.19) (0.19)
Distributions in excess of net investment income (b)............................... (0.01) --
--------- -----------
Total distributions from net investment income..................................... (0.20) (0.19)
--------- -----------
Net asset value, end of period....................................................... $ 12.80 $ 9.74
--------- -----------
--------- -----------
Total return (c)..................................................................... 33.71% (0.70%)

RATIOS TO AVERAGE NET ASSETS
Expenses........................................................................... 0.85% 0.54%*
Net investment income.............................................................. 2.03% 2.58%*
Expense waiver/reimbursement (d)................................................... 1.36% 25.42%*

SUPPLEMENTAL DATA
Net assets, end of period (000 omitted)............................................ $ 48,514 $ 2,400
Portfolio turnover rate............................................................ 43% 32%
</TABLE>

- ------------
* Computed on an annualized basis.

(a)Reflects operations for the period from February 10, 1994 (date of initial
public investment) to December 31, 1994. For the period from December 9, 1993
(start of business) to January 31, 1994, the Fund had no investment activity.

(b)Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These distributions
do not represent a return of capital for federal income tax purposes.

(c)Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

(d)This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

See Notes which are an integral part of the Financial Statements.

----------------
13
<PAGE>
- ----------------

FEDERATED INVESTORS
EQUITY GROWTH AND INCOME FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995

1. ORGANIZATION

Insurance Management Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end, management
investment company. The Trust consists of seven portfolios. The financial
statements included herein are only those of Equity Growth and Income Fund (the
"Fund"), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held.

2. SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.

INVESTMENT VALUATIONS: Short-term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized cost,
which approximates fair market value. All other securities are valued at prices
provided by an independent pricing service.

REPURCHASE AGREEMENTS: It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault, all
securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to be
paid under the repurchase agreement transaction.

The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/ dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.

INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS: Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Dividend income
and distributions to shareholders are recorded on the ex-dividend date.

Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These distributions do
not represent a return of capital for federal income tax purposes.

FEDERAL TAXES: It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS: The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are
marked to market daily and begin earning interest on the settlement date.

OTHER: Investment transactions are accounted for on the trade date.

----------------
14
<PAGE>
- ----------------

FEDERATED INVESTORS
EQUITY GROWTH AND INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995

3. SHARES OF BENEFICIAL INTEREST

The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1995 1994(A)
--------- ---------
<S> <C> <C>
Shares sold....................................................................... 3,870,639 334,265
Shares issued to shareholders in payment of distributions declared................ 32,670 752
Shares redeemed................................................................... (359,502) (88,626)
--------- ---------
Net change resulting from share transactions.................................. 3,543,807 246,391
--------- ---------
--------- ---------
</TABLE>

4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE: Federated Advisers, the Fund's investment adviser,
(the "Adviser"), receives for its services an annual investment advisory fee
equal to .75 of 1% of the Fund's average daily net assets.

The Adviser may voluntarily choose to waive any portion of its fee and/or
reimburse certain operating expenses of the Fund. The Adviser can modify or
terminate this voluntary waiver and/or reimbursement at any time at its sole
discretion.

ADMINISTRATIVE FEE: Federated Administrative Services, under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. This fee is based on the level of average aggregate
daily net assets of all funds advised by subsidiaries of Federated Investors for
the period. The administrative fee received during the period of the
Administrative Services Agreement shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.

TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES: Federated Services
Company ("FServ") serves as transfer and dividend disbursing agent for the Fund.
This fee is based on the size, type, and number of accounts and transactions
made by shareholders.

PORTFOLIO ACCOUNTING FEES: FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.

ORGANIZATIONAL EXPENSES: Organizational expenses of $16,348 and start-up
administrative service expenses of $31,507 were borne initially by the Adviser.
The Fund has agreed to reimburse the Adviser for the organizational and start-up
administrative expenses during the five year period following effective date.
For the period ended December 31, 1995, the Fund paid $2,180 and $4,201,
respectively, pursuant to this agreement.

GENERAL: Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.

5. INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
period ended December 31, 1995, were as follows:

<TABLE>
<S> <C>
Purchases............................................................................ $46,464,211
----------
----------
Sales................................................................................ $7,752,424
----------
----------
</TABLE>

- ------------
(a) For the period from December 9, 1993 (start of business) to December 31,
1994.

----------------
15
<PAGE>
- ----------------

FEDERATED INVESTORS
EQUITY GROWTH AND INCOME FUND

<TABLE>
<CAPTION>
TRUSTEES OFFICERS
<S> <C>
- ------------------------------------------------------------------------------------------------------
John F. Donahue John F. Donahue
Thomas G. Bigley CHAIRMAN
John T. Conroy, Jr. J. Christopher Donahue
William J. Copeland PRESIDENT
J. Christopher Donahue Edward C. Gonzales
James E. Dowd EXECUTIVE VICE PRESIDENT
Lawrence D. Ellis, M.D. John W. McGonigle
Edward L. Flaherty, Jr. EXECUTIVE VICE PRESIDENT AND SECRETARY
Peter E. Madden Richard B. Fisher
Gregor F. Meyer VICE PRESIDENT
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar TREASURER
Marjorie P. Smuts G. Andrew Bonnewell
ASSISTANT SECRETARY
</TABLE>

MUTUAL FUNDS ARE NOT BANK DEPOSITS OR OBLIGATIONS, ARE NOT GUARANTEED BY ANY
BANK, AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN MUTUAL FUNDS INVOLVES INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

THIS REPORT IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY WHEN
PRECEDED OR ACCOMPANIED BY THE FUND'S PROSPECTUS WHICH CONTAINS FACTS CONCERNING
ITS OBJECTIVE AND POLICIES, MANAGEMENT FEES, EXPENSES AND OTHER INFORMATION.

----------------
16
<PAGE>
- ----------------

FEDERATED INVESTORS
EQUITY GROWTH AND INCOME FUND
INDEPENDENT AUDITORS' REPORT

To the Board of Trustees of the Insurance Management Series
and the Shareholders of EQUITY GROWTH AND INCOME FUND:

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Equity Growth and Income Fund (a portfolio of
the Insurance Management Series) as of December 31, 1995, the related statement
of operations for the year then ended and the statement of changes in net assets
and financial highlights for the periods presented. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform 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 as of
December 31, 1995 by correspondence with the custodian and brokers; where
replies were not received from brokers, 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Equity Growth and
Income Fund as of December 31, 1995, the results of its operations, the changes
in its net assets and its financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 7, 1996

----------------
17
<PAGE>
- ----------------

FEDERATED INVESTORS
U.S. GOVERNMENT BOND FUND
PRESIDENT'S MESSAGE
Dear Investor:

I am pleased to present the Annual Report to Shareholders for U.S. Government
Bond Fund, a portfolio of Insurance Management Series, for the twelve-month
period ended December 31, 1995. The report begins with the management discussion
and analysis by your fund's portfolio manager. Following the management
discussion and analysis is a complete listing of the fund's holdings and its
financial statements.

As a shareholder in U.S. Government Bond Fund, you are pursuing current income
and a degree of capital appreciation through a portfolio of U.S. government
mortgage-backed securities. While the Fund itself is not guaranteed, the payment
of principal and interest on all these securities are issued or guaranteed by
agencies of the U.S. government.

During the period ended December 31, 1995, your fund achieved a total return
of 8.77%.* The net asset value increased from $9.99 at the beginning of the
period to $10.29 at the period's end. Dividends paid to shareholders over the
twelve-month report period totaled $0.54 per share. At the end of the
twelve-month report period, total assets stood at $12.3 million.

Thank you for participating in the income opportunities of U.S. Government
Bond Fund. We look forward to keeping you informed about your investment's
progress.

Sincerely,

[LOGO]
J. Christopher Donahue
President
February 15, 1996

----------------
18
<PAGE>
- ----------------

FEDERATED INVESTORS
U.S. GOVERNMENT BOND FUND
MANAGEMENT DISCUSSION AND ANALYSIS

In 1995, the U.S. bond market experienced its best year in over a decade. As
yields declined, bond prices rose, fueled by a series of data indicating that
the U.S. economy was slowing and growing anticipation that the Federal Reserve
Board (the "Fed") would reverse its monetary policy.

During the first six months of 1995, yields of bonds with between two- and
five-year maturities declined by nearly 2%. The difference in spread between
short-term (two-year) and long-term (30-year) bonds increased from .18% to .82%
over the course of 1995.

The second half of 1995 saw a shift in market expectations about the Fed's
monetary policy. Investors struggled with the realization that the Fed was
transitioning toward "easing," or lowering, interest rates, at a slower pace
than expected. With the view by investors that inflation was well under control,
long-term U.S. Treasury securities became the star performers.

The dominant trend in the mortgage market during 1995 was the market
directional mortgage/ Treasury basis trade. Throughout 1995, mortgage to
Treasury yield spreads widened in market rallies and narrowed in market
sell-offs. The first and third quarters were rewarding time periods for mortgage
investors, while the second quarter was painful and the fourth quarter was
uneventful. For the year, the mortgage market did outperform the U.S. Treasury
market on a duration-adjusted basis.

U.S. Government Bond Fund invests in securities with average maturities
ranging from three to seven years. At the end of 1995, nearly 60% of the fund's
assets were invested in mortgage-backed securities, with the remainder invested
in U.S. Treasury obligations, including a repurchase agreement backed by U.S.
government obligations.

This focus on the mortgage-backed market is expected to continue, as decreased
volatility in interest rates, concerns about potential downgrades in corporate
bonds, and an increase in demand by financial institutions should result in
relatively strong performance by mortgage-backed securities in 1996.

----------------
19
<PAGE>
- ----------------

FEDERATED INVESTORS
U.S. GOVERNMENT BOND FUND

GROWTH OF $10,000 INVESTED IN THE U.S. GOVERNMENT BOND FUND

The graph below illustrates the hypothetical investment of $10,000 in the
U.S. Government Bond Fund (the "Fund") from March 28, 1994 (start of
performance) to December 31, 1995, compared to the Lehman Brothers 5 Year
Treasury Bellwether Index (LB5TB)+, and the Lipper U.S. Mortgage Funds Average
(LUSMF)++.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
U.S. GOVERNMENT BOND FUND
<S> <C> <C>
3/28/1994* 10000
12/31/1994 10262
12/31/1995 11162
* Commencement of investment operations at 3/28/94.
Monthly Periods from February 1994 through December 1995
Average Annual Total Returns for the Period Ended 12/31/95 3/94*
U.S. Government Bond Fund 6.44
Lehman Brothers 5 Year Treasury Bellwether Index 0
Lipper U.S. Mortgage Funds Average 0

<CAPTION>
LEHMAN BROTHERS 5 YEAR TREASURY BELLWETHER INDEX
<S> <C>
3/28/1994* 10000
12/31/1994 9886
12/31/1995 11561
* Commencement of investment operations at 3/28/94.
Monthly Periods from February 1994 through December 1995
Average Annual Total Returns for the Period Ended 12/31/95
U.S. Government Bond Fund
Lehman Brothers 5 Year Treasury Bellwether Index
Lipper U.S. Mortgage Funds Average

<CAPTION>
LIPPER U.S. MORTGAGE FUNDS AVERAGE
3/28/1994* 10000
12/31/1994 9858
12/31/1995 11458
* Commencement of investment operations at 3/28/94.
Monthly Periods from February 1994 through December 1995
Average Annual Total Returns for the Period Ended 12/31/95
U.S. Government Bond Fund
Lehman Brothers 5 Year Treasury Bellwether Index
Lipper U.S. Mortgage Funds Average
</TABLE>

- ------------
*The Fund's performance assumes the reinvestment of all dividends and
distributions. The LB5TB and the LUSMF have been adjusted to reflect
reinvestment of dividends on securities in the index and average.

+The LB5TB is not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. The index is
unmanaged.

++The LUSMF represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category, and is not adjusted to reflect any sales charges. However, these
total returns are reported net of expenses or other fees that the SEC requires
to be reflected in a fund's performance.

----------------
20
<PAGE>
- ----------------

FEDERATED INVESTORS
U.S. GOVERNMENT BOND FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
LONG-TERM U.S. GOVERNMENT OBLIGATIONS--57.6% AMOUNT VALUE
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------

Federal Home Loan PC, 7.50% - 8.00%, 10/1/2010 - 7/1/2025................ $ 2,345,316 $ 2,413,239
Federal National Mortgage Association, 7.00% - 8.00%, 10/1/2010 -
8/1/2025............................................................... 2,397,319 2,433,523
Government National Mortgage Association, 8.00% - 9.50%, 11/15/2016 -
10/15/2024............................................................. 2,073,755 2,216,146
-------------

TOTAL LONG-TERM U.S. GOVERNMENT OBLIGATIONS.............................. 7,062,908
-------------

U.S. TREASURY OBLIGATIONS--28.7%
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>

U.S. Treasury Notes, 5.625%, 11/30/2000.................................. 3,485,000 3,519,362
-------------
<CAPTION>

REPURCHASE AGREEMENT--12.2%(a)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>

J.P. Morgan Securities, Inc., 5.85%, dated 12/29/1995, due 1/2/1996 (at
amortized cost)........................................................ 1,500,000 1,500,000
-------------
TOTAL INVESTMENTS
(identified cost $11,905,595)(b)....................................... $ 12,082,270
-------------
-------------
</TABLE>

------------------------
(a) The repurchase agreement is fully collateralized by U.S.
government and/or agency obligations based on market prices at
the date of the portfolio. The investments in the repurchase
agreement is through participation in a joint account with other
Federated funds.

(b) The cost of investments for federal tax purposes amounts to
$11,905,595. The net unrealized appreciation of investments on a
federal tax cost basis amounts to $176,675, and is comprised of
$176,675 appreciation and $0 depreciation at December 31, 1995.

Note: The categories of investments are shown as a percentage of net
assets ($12,264,229) at December 31, 1995.

The following acronym is used throughout this portfolio:

PC--Participation Certificate

See Notes which are an integral part of the Financial Statements.

----------------
21
<PAGE>
- ----------------

FEDERATED INVESTORS
U.S. GOVERNMENT BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995

<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------
ASSETS
Investments in repurchase agreements................................................... $1,500,000
Investments in securities.............................................................. 10,582,270
----------
Total investments in securities, at value (identified and tax cost $11,905,595)...... $12,082,270
Cash................................................................................... 7,398
Income receivable...................................................................... 65,114
Receivable for shares sold............................................................. 124,058
----------
Total assets......................................................................... 12,278,840

LIABILITIES
Payable for shares redeemed............................................................ 1,038
Income distribution payable 327
Accrued expenses....................................................................... 13,246
----------
Total liabilities.................................................................... 14,611
----------
NET ASSETS for 1,191,893 shares outstanding.............................................. $12,264,229
----------
NET ASSETS consist of:
Paid-in capital........................................................................ $12,016,048
Net unrealized appreciation on investments............................................. 176,675
Accumulated net realized gain on investments........................................... 68,239
Undistributed net investment income.................................................... 3,267
----------
Total net assets..................................................................... $12,264,229
----------
----------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
$12,264,229 DIVIDED BY 1,191,893 shares outstanding................................... $10.29
----------
----------
</TABLE>

- ------------
See Notes which are an integral part of the Financial Statements.

----------------
22
<PAGE>
- ----------------

FEDERATED INVESTORS
U.S. GOVERNMENT BOND FUND
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995

<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Interest................................................................................. $ 345,164

EXPENSES
Investment advisory fee.................................................................. $ 30,456
Administrative personnel and services fee................................................ 125,000
Custodian fees........................................................................... 28,952
Transfer and dividend disbursing agent fees and expenses................................. 18,763
Directors'/Trustees' fees................................................................ 1,543
Auditing fees............................................................................ 4,800
Legal fees............................................................................... 2,056
Portfolio accounting fees................................................................ 32,688
Share registration costs................................................................. 4,726
Printing and postage..................................................................... 24,263
Insurance premiums....................................................................... 3,455
Miscellaneous............................................................................ 8,112
---------
Total expenses......................................................................... 284,814

Waiver and reimbursements:
Waiver of investment advisory fee........................................................ $ (30,456)
Reimbursement of other operating expenses................................................ (213,565)
---------
Total waiver and reimbursements........................................................ (244,021)
Net expenses............................................................................. 40,793
---------
Net investment income.................................................................... 304,371
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments......................................................... 68,245
Net change in unrealized appreciation of investments..................................... 176,675
---------
Net realized and unrealized gain on investments.......................................... 244,920
---------
Change in net assets resulting from operations....................................... $ 549,291
---------
---------
</TABLE>

- ------------
See Notes which are an integral part of the Financial Statements.

----------------
23
<PAGE>
- ----------------

FEDERATED INVESTORS
U.S. GOVERNMENT BOND FUND
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
- -----------------------------------------------------------------------------------------------------
1995 1994(A)
---------- ---------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income....................................................... $ 304,371 $ 18,762
Net realized gain (loss) on investments ($68,245 net gain and, $6 net loss),
respectively, as computed for federal tax purposes)....................... 68,245 (6)
Net change in unrealized appreciation (depreciation)........................ 176,675 --
---------- ---------
Change in net assets resulting from operations............................ 549,291 18,756
---------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income.................................... (301,104) (18,762)
---------- ---------
SHARE TRANSACTIONS
Proceeds from sale of shares................................................ 13,444,158 1,519,262
Net asset value of shares issued to shareholders in payment of distributions
declared.................................................................. 292,129 11,969
Cost of shares redeemed..................................................... (2,964,009) (387,461)
---------- ---------
Change in net assets resulting from share transactions.................... 10,772,278 1,143,770
---------- ---------
Change in net assets.................................................... 11,020,465 1,143,764

NET ASSETS
Beginning of period......................................................... 1,243,764 100,000
---------- ---------
End of period (including undistributed net investment income of $3,267 and
$0, respectively)......................................................... $12,264,229 $1,243,764
---------- ---------
---------- ---------
</TABLE>

- ------------
(a) For the period from December 8, 1993 (start of business) to December 31,
1994.

See Notes which are an integral part of the Financial Statements.

----------------
24
<PAGE>
- ----------------

FEDERATED INVESTORS
U.S. GOVERNMENT BOND FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

INCOME FROM INVESTMENT OPERATIONS
Net investment income.............................................................. 0.54 0.27
Net realized and unrealized gain (loss) on investments............................. 0.30 --
--------- -----------
Total from investment operations................................................... 0.84 0.27

LESS DISTRIBUTIONS
Distributions from net investment income........................................... (0.54) (0.27)
Net asset value, end of period....................................................... $ 10.29 $ 9.99
--------- -----------
--------- -----------
Total return (b)..................................................................... 8.77% 2.62%
--------- -----------
--------- -----------
Ratios to average net assets
Expenses........................................................................... 0.80% 0.48%*
Net investment income.............................................................. 6.00% 3.99%*
Expense waiver/reimbursement (c)................................................... 4.81% 32.83%*

SUPPLEMENTAL DATA
Net assets, end of period (000 omitted)............................................ $ 12,264 $ 1,244
Portfolio turnover................................................................. 65% 0%
</TABLE>

- ------------
* Computed on an annualized basis.

(a)Reflects operations for the period from March 29, 1994 (date of initial
public investment), to December 31, 1994. For the period from December 8,
1993 (start of business), to March 28, 1994, net investment income was
distributed to the Fund's adviser.

(b)Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

(c)This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

See Notes which are an integral part of the Financial Statements.

----------------
25
<PAGE>
- ----------------

FEDERATED INVESTORS
U. S. GOVERNMENT BOND FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995

1. ORGANIZATION

Insurance Management Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end, management
investment company. The Trust consists of seven portfolios. The financial
statements included herein are only those of U.S. Government Bond Fund (the
"Fund"), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held.

2. SIGNIFICANT ACCOUNTING POLICIES

INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS: Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Distributions to
shareholders are recorded on the ex-dividend date.

OTHER: Investment transactions are accounted for on the trade date.

3. SHARES OF BENEFICIAL INTEREST

The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transaction in shares were as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1995 1994(A)
--------- ---------
<S> <C> <C>
Shares sold....................................................................... 1,332,658 152,142
Shares issued to shareholders in payment of distributions declared................ 28,952 1,200
Shares redeemed................................................................... (294,269) (38,790)
--------- ---------
Net change resulting from share transactions.................................. 1,067,341 114,552
--------- ---------
--------- ---------
</TABLE>

- ------------
(a) For the period from December 8, 1993 (start of business) to December 31,
1994.

----------------
26
<PAGE>
- ----------------

FEDERATED INVESTORS
U.S. GOVERNMENT BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995

4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE: Federated Advisers, the Fund's investment adviser,
(the "Adviser"), receives for its services an annual investment advisory fee
equal to .60 of 1% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive any portion of its fee and/or reimburse certain
operating expenses of the Fund. The Adviser can modify or terminate this
voluntary waiver and/or reimbursement at any time at its sole discretion.

ORGANIZATIONAL EXPENSES: Organizational expenses of ($20,065) and start-up
administrative service expenses of ($31,057) were borne initially by Adviser.
The Fund has agreed to reimburse Adviser for the organizational and start-up
administrative expenses during the five year period following effective date.
For the period ended December 31, 1995, the Fund paid $2,675 and $8,402
respectively to this agreement.

GENERAL: Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.

5. INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
period ended December 31, 1995, were as follows:

<TABLE>
<S> <C>
Purchases............................................................................ $15,400,668
----------
----------
Sales................................................................................ $5,065,042
----------
----------
</TABLE>

----------------
27
<PAGE>
- ----------------

FEDERATED INVESTORS
U.S. GOVERNMENT BOND FUND

----------------
28
<PAGE>
- ----------------

FEDERATED INVESTORS
U.S. GOVERNMENT BOND FUND
INDEPENDENT AUDITORS' REPORT

To the Board of Trustees of the Insurance Management Series
and the Shareholders of U.S. GOVERNMENT BOND FUND:

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of U.S. Government Bond Fund (a portfolio of the
Insurance Management Series) as of December 31, 1995, the related statement of
operations for the year then ended and the statement of changes in net assets
and financial highlights for the periods presented. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform 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 as of
December 31, 1995, by correspondence with the custodian and brokers; where
replies were not received from brokers, 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 present
fairly, in all material respects, the financial position of U.S. Government Bond
Fund as of December 31, 1995, the results of its operations, the changes in its
net assets and its financial highlights for the respective stated periods ended
in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
February 7, 1996

----------------
29
<PAGE>
- ----------------

INVESCO VARIABLE INVESTMENT FUNDS, INC.
ECONOMIC OVERVIEW
JANUARY 1996

1995 will long stand out as a banner year for U.S. investors. The S&P 500
achieved a total return of 37.46% for the 12 months ended 12/31/95, only the
fourth time in fifteen years the broad market returned over 25%. By other
measures, market results were even more exciting: The Dow Jones Industrial
Average broke 5000 for the first time in history, and fixed-income markets
followed suit, with the Lehman Government/Corporate Bond Index gaining
19.24%.(1)

This spectacular performance was influenced by a number of positive economic
factors. Inflation was low at a mere 2.8%, unemployment was down, and growth in
Gross Domestic Product slowed to apparently sustainable levels. In addition, the
Federal Reserve Board cut short-term interest rates by .25% in July and again on
December 19, and there may well be more cuts in 1996.

By year-end, however, the broad market expansion appeared to be slowing down,
with the S&P growing just 1.94% in December.(1) And January brought choppy
financial waters as the broad market whipsawed in the wake of stalled federal
budget negotiations.

Until a budget settlement is reached in Washington, it seems likely that the
financial markets will remain volatile. However, we feel that budget approval
will ultimately restore the stock market to moderate growth levels, heralding
the beginning of a trend for both the U.S. stock and bond markets throughout
1996.

This year, the markets should get some help from slow, steady economic growth,
but earnings improvements almost certainly won't see the dramatic gains enjoyed
in 1995. In addition, although business investment is expected to be lower in
'96, U.S. companies should continue to enjoy expanded sales overseas. Therefore,
although we may see corrections in some sectors, we expect advances in
securities prices to be in the single-digit range for 1996.

R. Dalton Sim
Chairman and President
INVESCO Trust Company

INVESCO VARIABLE INVESTMENT FUNDS, INC.

The line graphs in each of the following sections illustrate the value of a
$10,000 investment in the individual INVESCO Variable Investment Funds, plus
reinvested dividends and capital gain distributions, for the period from
inception through 12/31/95.(2) (Of course, past performance is not a guarantee
of future results.)

The charts and other total return figures cited reflect each portfolio's
operating expenses, but the indexes do not have expenses, which would, of
course, have lowered their performance.

Please note: The Annual Report of Invesco Variable Investment Funds, Inc.
refers to a Utilities Portfolio
which is not available in the Schwab Investment Advantage-TM- Variable
Annuity.

----------------
30
<PAGE>
- ----------------

INVESCO VARIABLE INVESTMENT FUNDS, INC.
ECONOMIC OVERVIEW (CONTINUED)
JANUARY 1996

VIF-INDUSTRIAL INCOME PORTFOLIO

For the one-year period ended 12/31/95, VIF-Industrial Income Portfolio
returned 29.25%.(2) (Of course past performance is not a guarantee of future
results.) As the Fund is a blended portfolio containing approximately 60% stocks
and 40% bonds at year-end, this return is significantly higher than the Lehman
Government/Corporate Bond Index return of 19.24%, and is below the S&P 500
return of 37.46% for the same period.(1)

The portfolio's combination of stock and bond investments allows the Fund to
pursue its primary mission of providing high current income with the potential
for capital appreciation, yet remain defensive against potential equity market
downturns.

Equities are selected from major companies with average market capitalizations
of $10 to $20 billion dollars. As of 12/31/95 portfolio allocations were
diversified across nine investment sectors, with specific companies such as
General Electric and AT&T Corp chosen for their ability to benefit from global
economic growth, superior competitive positions, and financially strong balance
sheets and management.

The fixed-income segment is managed to pursue a high total return through a
unique "barbell" portfolio structure. Almost half of the bonds are in AAA-rated
government securities, seeking to provide the portfolio with stability. The
remainder is invested primarily in below-investment grade corporate bonds,
generating higher current income with significant opportunities for capital
appreciation. For example, following its acquisition by Time Warner, Cablevision
Industries' rating was increased, enhancing the portfolio's performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
VIF-INDUSTRIAL INCOME S&P 500 INDEX
<S> <C> <C>
* 10000.00 10000.00
8/94 9990.00 10498.62
9/94 9990.00 10238.72
10/94 9990.00 10476.77
11/94 10020.00 10087.21
12/94 10123.00 10236.94
1/95 10233.36 10510.31
2/95 10464.11 10914.32
3/95 10704.90 11230.62
4/95 10985.82 11568.11
5/95 11326.93 12011.91
6/95 11507.51 12299.15
7/95 11688.10 12717.06
8/95 11768.36 12740.12
9/95 12069.35 13273.59
10/95 12280.03 13234.01
11/95 12771.63 13803.83
12/95 13084.13 14071.23
Monthly Periods from
August 1994 through December 1995
Average Annual Total Returns for the Periods Ended 12/31/95(2)
8/94* 12/94
VIF-Industrial Income 20.89% 29.25%
S&P 500 Index 26.42% 37.46%
Lehman Gov't/Corp. Bond Index 12.34% 19.24%
*Commencement of investment operations at 8/10/94.

<CAPTION>
LEHMAN GOV'T/CORP. BOND INDEX
<S> <C>
* 10000.00
8/94 10179.59
9/94 10025.88
10/94 10014.86
11/94 9996.83
12/94 10062.81
1/95 10256.02
2/95 10493.95
3/95 10563.21
4/95 10711.10
5/95 11159.80
6/95 11249.18
7/95 11206.44
8/95 11349.89
9/95 11465.65
10/95 11633.04
11/95 11824.99
12/95 11998.82
Monthly Periods from
August 1994 through December 1995
Average Annual Total Returns for the Periods Ended 12/31/95(2)
VIF-Industrial Income
S&P 500 Index
Lehman Gov't/Corp. Bond Index
*Commencement of investment operations at 8/10/94.
</TABLE>

FUND MANAGERS. VIF-Industrial Income Portfolio is co-managed by two INVESCO
Trust Company senior vice presidents. Industry veteran Charles P. Mayer oversees
the equity portion of the holdings. He began his investment career in 1969, and
previously managed a sizable equity portfolio for Westinghouse Pension
Investment Corporation. Mr. Mayer earned his MBA from St. John's University and
BA from St. Peter's College.

Donovan J. (Jerry) Paul manages the portfolio's fixed-income investments. He
earned his MBA from the University of Northern Iowa, as well as a BBA from the
University of Iowa. A Chartered Financial Analyst, Mr. Paul has more than 20
years of experience in the securities industry. He joined INVESCO in 1994;
previously, he was director of fixed-income research for Stein, Roe & Farnham.
Mr. Paul also manages VIF-High Yield Portfolio.

----------------
31
<PAGE>
- ----------------

INVESCO VARIABLE INVESTMENT FUNDS, INC.
ECONOMIC OVERVIEW (CONTINUED)
JANUARY 1996

VIF-TOTAL RETURN PORTFOLIO

For the one-year period ended 12/31/95, VIF-Total Return Portfolio returned
22.79%.(2) (Of course past performance is not a guarantee of future results.) As
the Fund is a "balanced" portfolio containing both stocks and bonds, this return
is higher than the Lehman Government/Corporate Bond Index return of 19.24%, and
is below the S&P 500 return of 37.46% for the same period.(1)

Total Return Portfolio generally holds 30% in stocks and 30% in bonds, with
the remaining 40% allocated according to market conditions. Our strategy
involves gradually adjusting the Fund's holdings according to shifts in the
stock and bond markets. This flexibility allows us to pursue consistent returns
in all market cycles.

VIF-Total Return's asset allocation has favored equities all year long. This
has proven beneficial to our performance, since stocks have clearly outperformed
bonds. The best performing sectors during the fourth quarter were consumer
staples, capital goods, and energy, with top returns realized over the last
quarter from Kimberly-Clark Corp and Eli Lilly Co. Stock selection is based upon
a "bottom-up, value" process that evaluates a company's historical profitability
relative to its current price. General characteristics of the resulting
portfolio of stocks usually include a low price/earnings ratio and a
higher-than-average yield.

The Fund's fixed-income segment invests only in Treasury and investment grade
corporate bonds. Our long maturity bond profile has benefited performance
throughout the year. With low inflation and moderate economic activity, interest
rates have not seen upward pressure. As a result, we continue to emphasize
longer duration investments.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
VIF-TOTAL RETURN S&P 500 INDEX
<S> <C> <C>
* 10000.00 10000.00
6/94 10040.00
7/94 10050.00
8/94 10070.00 10400.82
9/94 10080.00 10143.32
10/94 10110.00 10579.14
11/94 10120.00 9993.20
12/94 10175.00 10141.55
1/95 10326.26 10412.37
2/95 10548.12 10812.65
3/95 10699.38 11126.03
4/95 10901.07 11460.38
5/95 11314.52 11900.06
6/94 11385.11 12184.64
7/95 11536.37 12598.69
8/96 11576.71 12621.57
9/95 11879.24 13150.04
10/95 11869.15 13110.79
11/95 12252.35 13675.31
12/95 12494.24 13940.22
Monthly Periods from
June 1994 through December 1995
*Commencement of investment operations at 6/2/94.
Average Annual Total Returns for the Periods Ended 12/31/95(2)
6/94* 12/94
VIF-Total Return 15.10% 22.79%
S&P 500 Index 40.71% 37.46%
Lehman Gov't/Corp. Bond Index 12.20% 19.24%

<CAPTION>
LEHMAN GOV'T/CORP. BOND INDEX
<S> <C>
* 10000.00
6/94
7/94
8/94 10004.00
9/94 9852.94
10/94 9842.10
11/94 9824.38
12/94 9889.22
1/95 10079.09
2/95 10312.93
3/95 10381.00
4/95 10526.34
5/95 10967.40
6/94 11055.14
7/95 11013.13
8/96 11154.10
9/95 11267.87
10/95 11432.38
11/95 11621.01
12/95 11791.84
Monthly Periods from
June 1994 through December 1995
*Commencement of investment operations at 6/2/94.
Average Annual Total Returns for the Periods Ended 12/31/95(2)
VIF-Total Return
S&P 500 Index
Lehman Gov't/Corp. Bond Index
</TABLE>

FUND MANAGER. VIF-Total Return Portfolio is managed by Edward C. Mitchell,
president of INVESCO Capital Management, Inc. He earned his MBA at the
University of Colorado and a BA from the University of Virginia. A Chartered
Financial Analyst, Mr. Mitchell began his investment career in 1969.

He is assisted by David S. Griffin, who began his investment career in 1982.
Mr. Griffin holds an MBA from the College of William and Mary, as well as a BA
from Ohio Wesleyan University. He is a Chartered Financial Analyst.

----------------
32
<PAGE>
- ----------------

INVESCO VARIABLE INVESTMENT FUNDS, INC.
ECONOMIC OVERVIEW (CONTINUED)
JANUARY 1996

VIF-HIGH YIELD PORTFOLIO

VIF-High Yield Portfolio had a total return of 19.76% for the one-year period
ended 12/31/95, tracking with a total return of 19.90% for the Merrill Lynch
High Yield Master Index(1) for the same period.(2) (Of course, past performance
is not a guarantee of future results.)

The Fund's strong total return during 1995 can be attributed to investing
primarily in below-investment-grade corporate bonds, which have presented
significant potential for both growth and income in recent months.

We focus on a variety of opportunities for appreciation. One has been cyclical
companies with "near-death experiences." Having survived bankruptcy and
appearing to successfully restructure balance sheets and reduce debt, companies
such as USG Corp have seen ratings improvement and subsequent price
appreciation.

Special situations provide another growth prospect. For example, CONVEX
Computer held a CCC rating at year-end, despite its recent acquisition by
AA-rated Hewlett-Packard Co. We anticipate that when the ratings catch up with
the acquisition, appreciation in the price of this security may follow.

In addition to growth potential in the broad fixed-income market, we have
found that conditions within certain sectors present opportunities as well.
Cable television, telecommunications and broadcasting are currently attractive,
due to improving creditworthiness and heightened takeover activity.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
VIF-HIGH YIELD MERRILL LYNCH HIGH YIELD
<S> <C> <C>
* 10000.00 10000.00
6/94 9990.00 10052.06
7/94 9990.00 10122.42
8/94 9980.00 10192.26
9/94 9970.00 10188.18
10/94 9980.00 10213.65
11/94 9980.00 10126.83
12/94 10060.00 10055.94
1/95 10160.50 10197.73
2/95 10421.78 10515.90
3/95 10532.35 10662.07
4/95 10763.50 10911.56
5/95 11004.70 11252.00
6/95 11065.00 11337.52
7/95 11346.39 11466.77
8/95 11386.59 11536.72
9/95 11557.44 11668.24
10/95 11667.99 11751.08
11/95 11828.79 11866.24
12/95 12047.79 12057.29
Monthly Periods from
May 1994 through December 1995
Average Annual Total Returns for the Periods Ended 12/31/95(2)
5/94* 12/95
VIF-High Yield 11.83% 19.76%
Merrill Lynch High Yield 11.88% 19.90%
*Commencement of investment operations at 5/27/94.
</TABLE>

FUND MANAGER. Donovan J. (Jerry) Paul manages the VIF-High Yield Portfolio.
He earned his MBA from the University of Northern Iowa, as well as a BBA from
the University of Iowa. A Chartered Financial Analyst, Mr. Paul has more than 20
years of experience in the securities industry. He joined INVESCO in 1994;
previously he was director of fixed-income research for Stein, Roe & Farnham.
Mr. Paul is also co-manager of VIF-Industrial Income Portfolio.

----------------
33
<PAGE>
- ----------------

INVESCO VARIABLE INVESTMENT FUNDS, INC.
ECONOMIC OVERVIEW (CONTINUED)
JANUARY 1996

VIF-UTILITIES PORTFOLIO

VIF-Utilities Portfolio had a total return of 9.08% for the one-year period
ended 12/31/95, compared to a return of 24.17% by the Dow Jones Utilities Index
for the same period.(2) (Of course, past performance is not a guarantee of
future results.)

Since becoming fully invested during the fourth quarter, however, Utilities
Portfolio has outperformed the Index. For the three month period ended 12/31/95,
we achieved a total return of 7.15%, significantly exceeding the Dow Jones
Utilities Index return of 5.19% for the same period.(2)

Our heaviest weighting is in electric utilities to capitalize on the rally in
long-term bonds. However, should interest rates rise, utilities in general and
electric utilities in particular would come under some pressure.

With this in mind, the portfolio includes a broad cross-section of the various
utility sectors. In particular, we are placing an emphasis on growth-oriented
companies such as Southern New England Telecommunications.

Over the long-term, we expect utilities to continue in their traditional role
of providing a hedge against market downturns while distributing above-average
dividends.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
VIF-UTILITIES DOW JONES UTILITIES
<S> <C> <C>
* 10000.00 10000.00
1/95 10040.00 10639.04
2/95 10090.00 10682.56
3/95 10090.00 10337.69
4/95 10100.00 10715.06
5/95 10120.00 11372.29
6/95 10110.00 11132.64
7/95 10110.00 11237.87
8/95 10130.00 11209.22
9/95 10130.00 11804.75
10/95 10240.00 11819.07
11/95 10240.00 11887.94
12/95 10908.00 12417.35
Monthly Periods from
January 1995 through December 1995
*Commencement of investment operations at 1/1/95.
Average Annual Total Returns for the Period Ended 12/31/95(2)
1/95*
VIF-Utilities 9.08%
Dow Jones Utilities 24.17%
</TABLE>

FUND MANAGER. VIF-Utilities Portfolio is managed by INVESCO Vice President
Brian F. Kelly. A Certified Public Accountant, he holds an MBA and JD from the
University of Iowa, as well as a BA from the University of Notre Dame. Before
joining INVESCO in 1993, Mr. Kelly was senior equity investment analyst with
Sears Investment Management Company.

- ------------
(1)
The S&P 500 and Dow Jones Industrial Average are unmanaged indexes considered
representative of the performance of the broad U.S. stock market. The Lehman
Government/Corporate Bond Index is an unmanaged index illustrating the broad
fixed-income market. The Merrill Lynch High Yield Master Index is an unmanaged
index illustrating the below-investment-grade fixed-income market. The Dow
Jones Utility Index is an unmanaged index representing the broad utility stock
market.
(2)
Total return assumes reinvestment of dividends and capital gain distributions
for the periods indicated. Investment return and principal value will
fluctuate so that, when redeemed, an investor's shares may be worth more or
less than when purchased.

----------------
34
<PAGE>
- ----------------

INVESCO VARIABLE INVESTMENT FUNDS, INC.
HIGH YIELD PORTFOLIO
STATEMENT OF INVESTMENT SECURITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
FIXED-INCOME SECURITIES--83.91% NON US AMOUNT VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------

<CAPTION>
<S> <C> <C> <C>
CORPORATE BONDS--83.91%

ADVERTISING--1.91%
Outdoor Systems, Sr Notes, 10.750%, 8/15/2003..... $ 100,000 $ 97,000
-----------

AEROSPACE & DEFENSE--2.07%
Howmet Corp, Sr Sub Notes@, 10.000%, 12/1/2003.... 100,000 105,000
-----------

AUTOMOBILE RELATED--0.82%
Venture Holdings Trust, Sr Sub Notes, 9.750%,
4/1/2004........................................ 50,000 41,500
-----------

BROADCASTING--13.23%
Act III Broadcasting, Sr Sub Notes, 10.250%,
12/15/2005...................................... 100,000 102,125
Allbritton Communications, Sr Sub Deb, 11.500%,
8/15/2004....................................... 100,000 105,125
Argyle Television, Sr Sub Notes, 9.750%,
11/1/2005....................................... 100,000 99,000
Benedek Broadcasting, Sr Secured Notes, 11.875%,
3/1/2005........................................ 100,000 106,000
EZ Communications, Sr Sub Notes, 9.750%,
12/1/2005....................................... 100,000 100,500
Granite Broadcasting, Sr Sub Notes, Series A,
10.375%, 5/15/2005.............................. 100,000 102,500
Outlet Broadcasting, Sr Sub Notes, 10.875%,
7/15/2003....................................... 50,000 55,500
-----------
670,750
-----------

CABLE TELEVISION--13.51%
Cablevision Industries, Sr Deb, Series B, 9.250%,
4/1/2008........................................ 152,000 164,160
Continental Cablevision, Sr Notes@, 8.300%,
5/15/2006....................................... 100,000 100,000
Diamond Cable Communications PLC, Sr Discount
Step-Up Notes Zero Coupon@@, 12/15/2005......... UK 200,000 118,000
Galaxy Telecom LP/Galaxy Telecom Capital, Sr Sub
Notes 12.375%, 10/1/2005........................ 100,000 99,000
Marcus Cable LP/Marcus Cable Capital III, Sr
Discount Step-Up Notes Zero Coupon@@,
12/15/2005...................................... 150,000 102,000
Viacom Inc, Sub Deb, 8.000%, 7/7/2006............. 100,000 102,008
-----------
685,168
-----------

CHEMICALS--2.83%
NL Industries, Sr Secured Discount Step-Up Notes
Zero Coupon@@, 10/15/2005....................... 50,000 38,375
Rexene Corp, Sr Notes, 11.750%, 12/1/2004......... 100,000 105,250
-----------
143,625
-----------

COMPUTER RELATED--2.66%
CONVEX Computer, Conv Sub Deb, 6.000%, 3/1/2012... 150,000 134,625
-----------
</TABLE>

----------------
35
<PAGE>
- ----------------

HEALTH CARE RELATED--2.19%
Tenet Healthcare, Sr Sub Notes, 10.125%,
3/1/2005........................................ 100,000 110,750
-----------

MANUFACTURING--1.77%
Plastic Specialties & Technologies, Sr Secured
Notes 11.250%, 12/1/2003........................ 100,000 90,000
-----------

OFFICE EQUIPMENT--1.92%
Dictaphone Corp, Sr Sub Notes, 11.750%,
8/1/2005........................................ 100,000 97,500
-----------

OIL & GAS RELATED--4.08%
Gulf Canada Resources Ltd, Sr Sub Deb, 9.250%
1/15/2004....................................... CA 100,000 103,566
TransTexas Gas, Sr Secured Notes, 11.500%,
6/15/2002....................................... 100,000 103,250
-----------
206,816
-----------

PAPER & PAPER PRODUCTS--8.61%
Crown Paper, Sr Sub Notes, 11.000%, 9/1/2005...... 100,000 87,500
Gaylord Container, Sr Sub Discount Step-Up Deb
Zero Coupon@@, 5/15/2005........................ 100,000 98,000
Repap New Brunswick, 2nd Priority Sr Secured Notes
10.625%, 4/15/2005.............................. CA 50,000 48,750
Tembec Finance, Gtd Sr Notes, 9.875%, 9/30/2005... CA 100,000 98,500
Williamhouse-Regency of Delaware, Sr Sub Notes@
13.000%, 11/15/2005............................. 100,000 103,750
-----------
436,500
-----------

PRINTING & PUBLISHING--1.98%
American Media Operations, Sr Sub Notes, 11.625%
11/15/2004...................................... 100,000 100,500
-----------

RECREATION PRODUCTS & SERVICES--7.27%
Aztar Corp, Sr Sub Notes, 13.750%, 10/1/2004...... 50,000 55,375
Empress River Casino Finance, Gtd Sr Notes,
10.750% 4/1/2002................................ 100,000 102,000
Grand Casinos, Gtd 1st Mortgage Notes, 10.125%
12/1/2003....................................... 100,000 104,250
Trump Hotels & Casino Resorts Holdings LP/Trump
Hotels & Casino Resorts Funding, Sr Secured
Notes 15.500%, 6/15/2005........................ 100,000 107,000
-----------
368,625
-----------
</TABLE>

----------------
36
<PAGE>
- ----------------

INVESCO VARIABLE INVESTMENT FUNDS, INC.
HIGH YIELD PORTFOLIO
STATEMENT OF INVESTMENT SECURITIES (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
FIXED-INCOME SECURITIES (CONTINUED) NON US AMOUNT VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RETAIL--6.51%
Penn Traffic, Sr Notes, 8.625%, 12/15/2003........ $ 100,000 $ 88,625
Samsonite Corp, Sr Sub Notes, Series B, 11.125%
7/15/2005....................................... 50,000 49,000
TLC Beatrice International Holdings, Sr Secured
Notes 11.500%, 10/1/2005........................ 100,000 98,750
TPI Enterprises, Gtd Conv Sub Deb, 8.250%,
7/15/2002....................................... 100,000 93,500
-----------
329,875
-----------

TELECOMMUNICATIONS--8.80%

Centennial Cellular, Sr Notes, 8.875%,
11/1/2001....................................... 100,000 98,250
Comcast Cellular, Sr Participating Redeemable
Notes
Series B, Zero Coupon@@, 3/5/2000............... 100,000 76,750
IntelCom Group, Sr Discount Step-Up Notes@
Zero Coupon@@, 9/15/2005........................ 100,000 57,250
Mobile Telecommunication Technologies, Sr Sub
Discount Notes 13.500%, 12/15/2002.............. 100,000 111,000
MobileMedia Corp, Sr Sub Notes, 9.375%,
11/1/2007....................................... 100,000 103,000
-----------
446,250
-----------

TRANSPORTATION--2.01%
Stena AB, Sr Notes, 10.500%, 12/15/2005........... SW 100,000 102,000
-----------

TOTAL FIXED INCOME SECURITIES
(Cost $4,209,981)............................... 4,254,609
-----------
<CAPTION>

PREFERRED STOCKS--1.11%
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ELECTRICAL EQUIPMENT--1.11%
BCP/Essex Holdings, Series B, Jr Sub Deb, 15.000%
(Cost $52,580).................................. 2,234 56,397
-----------
<CAPTION>

OTHER SECURITIES--6.11%
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CABLE TELEVISION--2.05%
Wireless One, Units (Each unit consists of one
$1,000 face amount Sr Note, 13.000%, 10/15/2003
and 3 wrnts to buy equal number of shrs of cmn
stock).......................................... 100 104,000
-----------

RECREATION PRODUCTS & SERVICES--0.46%
Casino America, Units (Each unit consists of one
$1,000 face amount 1st Mortgage Note, 11.500%,
11/15/2001 and 3.263 wrnts to buy 1.5 shrs of
cmn stock)...................................... 25 23,375
-----------
</TABLE>

----------------
37
<PAGE>
- ----------------

INVESCO VARIABLE INVESTMENT FUNDS, INC.
HIGH YIELD PORTFOLIO
STATEMENT OF INVESTMENT SECURITIES (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
OTHER SECURITIES (CONTINUED) NON US AMOUNT VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TELECOMMUNICATIONS--3.60%
American Communications Services, Units@ (Each
unit consists of one $1,000 face amount Sr
Discount Step-Up Note, Zero Coupon@@ 11/1/2005
and 1 wrnt to buy 12.8 shrs of cmn stock)....... 100 $ 55,250
Comunicacion Cellular SA, Units@ (Each unit
consists of one $1,000 face amount Sr Deferred
Step-Up, Zero Coupon@@, 11/15/2003 and one wrnt
to buy 12,860 shrs of cmn stock)................ CO 100 56,500
GST Telecommunications, Units@ (Each unit consists
of eight $1,000 face amount Sr Discount Step-Up
Notes, Zero Coupon@@, 12/15/2005 and one $1,000
face amount Conv Sr Sub Discount Step-Up Notes
Zero Coupon@@, 12/15/2005)...................... 15 70,500
-----------
182,250
-----------

TOTAL OTHER SECURITIES (Cost $302,398)............ 309,625
-----------
<CAPTION>

SHORT-TERM INVESTMENTS--8.87%
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS--8.87%
Federal Farm Credit Bank, 5.670%, 1/2/1996........ $ 350,000 349,945
Federal Home Loan Mortgage, 5.580%, 1/4/1996...... 100,000 99,953
-----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $449,898)................................. 449,898
-----------
TOTAL INVESTMENT SECURITIES AT VALUE 100.00% (Cost
$5,014,857#).................................... $ 5,070,529
-----------
-----------
</TABLE>

----------------
38
<PAGE>
- ----------------

INVESCO VARIABLE INVESTMENT FUNDS, INC.
INDUSTRIAL INCOME PORTFOLIO
STATEMENT OF INVESTMENT SECURITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES, UNITS
OR PRINCIPAL
COMMON STOCKS--61.30% AMOUNT VALUE
<S> <C> <C>
- -----------------------------------------------------------------------------------------

<CAPTION>
<S> <C> <C>
AEROSPACE & DEFENSE--1.80%
Boeing Co................................................... 1,000 $ 78,375
Lockheed Martin............................................. 900 71,100
-----------
149,475
-----------

AUTOMOBILE RELATED--1.12%
Chrysler Corp............................................... 1,000 55,375
Eaton Corp.................................................. 700 37,537
-----------
92,912
-----------

BANKING--3.91%
BankAmerica Corp............................................ 1,000 64,750
Chase Manhattan............................................. 1,400 84,875
Citicorp.................................................... 500 33,625
First Chicago NBD........................................... 1,267 50,047
Mellon Bank................................................. 1,700 91,375
-----------
324,672
-----------

BUILDING & CONSTRUCTION PRODUCTS--0.76%
Masco Corp.................................................. 2,000 62,750
-----------

CABLE TELEVISION--0.44%
Comcast Corp Special Class A................................ 2,000 36,375
-----------

CHEMICALS--6.97%
Agrium Inc.................................................. 5,000 225,000
ARCO Chemical............................................... 2,000 97,250
Lawter International........................................ 5,000 58,125
Olin Corp................................................... 1,000 74,250
Vigoro Corp................................................. 2,000 123,500
-----------
578,125
-----------

COMPUTER RELATED--1.71%
Hewlett-Packard Co.......................................... 600 50,250
International Business Machines............................. 1,000 91,750
-----------
142,000
-----------

DIVERSIFIED COMPANIES--3.11%
AlliedSignal Inc............................................ 1,000 47,500
General Electric............................................ 1,000 72,000
Kansas City Southern Industries............................. 1,500 68,625
Whitman Corp................................................ 3,000 69,750
-----------
257,875
-----------
</TABLE>

----------------
39
<PAGE>
- ----------------

ELECTRONICS--1.35%
Intel Corp.................................................. 600 34,050
Nokia Corp Sponsored ADR Representing Ord A Shrs............ 2,000 77,750
-----------
111,800
-----------

ENGINEERING--1.02%
Foster Wheeler.............................................. 2,000 85,000
-----------

FINANCE RELATED--4.32%
Allmerica Financial*........................................ 8,000 216,000
American Express............................................ 1,000 41,375
Block (H & R) Inc........................................... 2,500 101,250
-----------
358,625
-----------

FOOD PRODUCTS & BEVERAGES--3.01%
CPC International........................................... 700 48,037
General Mills............................................... 1,000 57,750
Heinz (H J) Co.............................................. 1,725 57,141
Quaker Oats................................................. 1,000 34,500
Seagram Co Ltd.............................................. 1,500 51,937
-----------
249,365
-----------

HOTELS--0.74%
Hilton Hotels............................................... 1,000 61,500
-----------

INSURANCE--2.24%
Allmerica Property & Casualty............................... 4,000 108,000
Ohio Casualty............................................... 2,000 77,500
-----------
185,500
-----------

MEDICAL EQUIPMENT & SUPPLIES--0.90%
Becton Dickinson............................................ 1,000 75,000
-----------

MEDICAL RELATED--DRUGS--1.75%
American Home Products...................................... 800 77,600
Pharmacia & Upjohn*......................................... 1,740 67,425
-----------
145,025
-----------

MINING--0.93%
ASARCO Inc.................................................. 1,000 32,000
</TABLE>

----------------
40
<PAGE>
- ----------------

OIL & GAS RELATED--7.20%
Amoco Corp.................................................. 500 35,938
Atlantic Richfield.......................................... 500 55,375
Dresser Industries.......................................... 4,000 97,500
Exxon Corp.................................................. 600 48,075
Halliburton Co.............................................. 1,000 50,625
Mobil Corp.................................................. 600 67,200
Schlumberger Ltd............................................ 500 34,625
Sonat Inc................................................... 3,000 106,875
Union Pacific Resources Group............................... 4,000 101,500
-----------
597,713
-----------

PAPER & PAPER PRODUCTS--0.51%
Champion International...................................... 1,000 42,000
-----------

PHOTO EQUIPMENT--0.57%
Eastman Kodak............................................... 700 46,900
-----------

PRINTING & PUBLISHING--0.91%
Donnelley (R R) & Sons...................................... 1,000 39,375
Time Warner................................................. 950 35,981
-----------
75,356
-----------

REAL ESTATE RELATED--1.55%
Patriot American Hospitality*............................... 5,000 128,750
-----------

RECREATION PRODUCTS & SERVICES--0.71%
Disney (Walt) Co............................................ 1,000 59,000
-----------

RETAIL--1.85%
Jostens Inc................................................. 2,000 48,500
Limited Inc................................................. 3,000 52,125
Melville Corp............................................... 1,200 36,900
Sears Roebuck & Co.......................................... 400 15,600
-----------
153,125
-----------

TELECOMMUNICATIONS--1.56%
AT&T Corp................................................... 2,000 129,500
-----------
</TABLE>

----------------
41
<PAGE>
- ----------------

TRANSPORTATION--4.84%
Canadian National Railway Represented by Installment
Receipts*................................................. 19,300 289,500
Illinois Central Series A................................... 2,000 76,750
KLM Royal Dutch Airlines New York Registered Shrs........... 1,000 35,250
-----------
401,500
-----------

UTILITIES--3.99%
Bell Atlantic............................................... 1,000 66,875
GTE Corp.................................................... 1,000 44,000
Rochester Gas & Electric.................................... 1,500 33,938
U S WEST Communications Group............................... 3,400 121,550
U S WEST Media Group*....................................... 3,400 64,600
-----------
330,963
-----------

TOTAL COMMON STOCKS (Cost $4,467,785)....................... 5,085,293
-----------
<CAPTION>

PREFERRED STOCKS--0.66%
- -----------------------------------------------------------------------------------------
<S> <C> <C>
MINING--0.66%
Amax Gold, $3.75, Conv Pfd, Series B (Cost $48,795)......... 1,000 54,500
-----------
<CAPTION>

FIXED INCOME SECURITIES--26.24%
- -----------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS--10.10%
U.S. Treasury Bonds, 7.625%, 2/15/2025...................... $ 250,000 305,469
U.S. Treasury Notes, 6.500%, 5/15/2005+..................... 500,000 532,813
-----------

TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $819,015)........................................... 838,282
-----------

U.S. GOVERNMENT AGENCY OBLIGATIONS--2.96%
Federal Home Loan Mortgage Gold Participation
Certificates, 6.500%, 11/1/2010 (Cost $241,782)........... 244,224 245,594
-----------

CORPORATE BONDS--13.18%

BROADCASTING--0.67%
Outlet Broadcasting, Sr Sub Notes, 10.875%, 7/15/2003....... 50,000 55,500
-----------
</TABLE>

----------------
42
<PAGE>
- ----------------

INVESCO VARIABLE INVESTMENT FUNDS, INC.
INDUSTRIAL INCOME PORTFOLIO
STATEMENT OF INVESTMENT SECURITIES (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES, UNITS
OR PRINCIPAL
FIXED INCOME SECURITIES (CONTINUED) AMOUNT VALUE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
CABLE TELEVISION--3.24%
Cablevision Industries, Sr Deb, Series B, 9.250%,
4/1/2008.................................................. $ 100,000 $ 108,000
Diamond Cable Communications PLC, Sr Discount Step-Up Notes
Zero Coupon@@, 12/15/2005................................. 100,000 59,000
Viacom Inc, Sub Deb, 8.000%, 7/7/2006....................... 100,000 102,008
-----------
269,008
-----------

CHEMICALS--0.63%
Rexene Corp, Sr Notes, 11.750%, 12/1/2004................... 50,000 52,625
-----------

FOOD PRODUCTS & BEVERAGES--1.13%
Dr Pepper/Seven-Up Cos, Sr Sub Discount Step-Up Notes
Zero Coupon@@, 11/1/2002.................................. 100,000 93,750
-----------

HEALTH CARE RELATED--0.64%
Tenet Healthcare, Sr Notes, 8.625%, 12/1/2003............... 50,000 52,750
-----------

PRINTING & PUBLISHING--1.71%
News America Holdings
Deb, 8.500%, 2/23/2025.................................... 25,000 28,935
Sr Notes, 8.500%, 2/15/2005............................... 100,000 112,693
-----------
141,628
-----------

RECREATION PRODUCTS & SERVICES--0.64%
United Artists Theatre Circuit, Sr Secured Notes,
Series B@, 11.500%, 5/1/2002.............................. 50,000 53,250
-----------

RETAIL--1.30%
Revco (D S) Inc, Sr Notes, 9.125%, 1/15/2000................ 100,000 108,000
-----------

TELECOMMUNICATIONS--1.21%
Lenfest Communications, Sr Secured Notes, 8.375%,
11/1/2005................................................. 100,000 100,000
-----------

TRANSPORTATION--0.62%
Overseas Shipholding Group, Notes, 8.000%, 12/1/2003........ 50,000 51,586
-----------

UTILITIES--1.39%
Commonwealth Edison 1st Mortgage, 8.375%, 10/15/2006........ 100,000 114,859
-----------

TOTAL CORPORATE BONDS (Cost $1,075,013)..................... 1,092,956
-----------

TOTAL FIXED INCOME SECURITIES
(Cost $2,135,810)......................................... 2,176,832
-----------
</TABLE>

----------------
43
<PAGE>
- ----------------

INVESCO VARIABLE INVESTMENT FUNDS, INC.
INDUSTRIAL INCOME PORTFOLIO
STATEMENT OF INVESTMENT SECURITIES (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENTS--11.80%
- -----------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS--11.80%
Federal Farm Credit Bank, 5.650%, 1/8/1996.................. $ 130,000 $ 129,898
Federal Home Loan Bank, 5.550%, 1/2/1996.................... 300,000 299,723
Federal Home Loan Mortgage
5.600%, 1/8/1996.......................................... 100,000 99,922
5.580%, 1/4/1996.......................................... 450,000 449,930
-----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $979,473)........................................... 979,473
-----------
TOTAL INVESTMENT SECURITIES AT VALUE 100.00%
(Cost $7,631,863#)........................................ $ 8,296,098
-----------
-----------
</TABLE>

----------------
44
<PAGE>
- ----------------

INVESCO VARIABLE INVESTMENT FUNDS, INC.
TOTAL RETURN PORTFOLIO
STATEMENT OF INVESTMENT SECURITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES, UNITS
OR PRINCIPAL
COMMON STOCKS--65.00% AMOUNT VALUE
<S> <C> <C>
- -----------------------------------------------------------------------------------------

<CAPTION>
<S> <C> <C>
AEROSPACE & DEFENSE--3.24%
Boeing Co................................................... 900 $ 70,537
Lockheed Martin............................................. 900 71,100
Raytheon Co................................................. 1,600 75,600
-----------
217,237
-----------

AGRICULTURAL--1.10%
Archer-Daniels-Midland Co................................... 4,100 73,800
-----------

AUTOMOBILE RELATED--1.08%
Ford Motor.................................................. 2,500 72,500
-----------

BANKING--6.16%
Comerica Inc................................................ 1,900 76,237
First Chicago NBD........................................... 1,700 67,150
First of America Bank....................................... 1,600 71,000
First Union................................................. 1,200 66,750
State Street Boston......................................... 1,500 67,500
Wachovia Corp............................................... 1,400 64,050
-----------
412,687
-----------

BUILDING & CONSTRUCTION PRODUCTS--1.09%
Sherwin-Williams Co......................................... 1,800 73,350
-----------

CHEMICALS--1.82%
AKZO NV ADR................................................. 1,300 75,400
Imperial Chemical Industries PLC ADR........................ 1,000 46,750
-----------
122,150
-----------

COMPUTER RELATED--2.33%
Compaq Computer*............................................ 1,500 72,000
Hewlett-Packard Co.......................................... 1,000 83,750
-----------
155,750
-----------

DIVERSIFIED COMPANIES--5.26%
du Pont (E I) de Nemours.................................... 1,000 69,875
General Electric............................................ 1,000 72,000
Hanson PLC Sponsored ADR.................................... 4,600 70,150
Minnesota Mining & Manufacturing............................ 1,100 72,875
Textron Inc................................................. 1,000 67,500
-----------
352,400
-----------

FINANCE RELATED--0.97%
Dun & Bradstreet............................................ 1,000 64,750
-----------
</TABLE>

----------------
45
<PAGE>
- ----------------

INVESCO VARIABLE INVESTMENT FUNDS, INC.
TOTAL RETURN PORTFOLIO
STATEMENT OF INVESTMENT SECURITIES (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES, UNITS
OR PRINCIPAL
COMMON STOCKS (CONTINUED) AMOUNT VALUE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
FOOD PRODUCTS & BEVERAGES--7.43%
Anheuser-Busch Cos.......................................... 1,300 $ 86,937
General Mills............................................... 1,400 80,850
Heinz (H J) Co.............................................. 2,350 77,844
Kellogg Co.................................................. 900 69,525
PepsiCo Inc................................................. 1,500 83,812
Unilever NV New York Shrs................................... 700 98,525
-----------
497,493
-----------

HOUSEHOLD APPLIANCES--1.19%
Whirlpool Corp.............................................. 1,500 79,875
-----------

INSURANCE--1.96%
Marsh & McLennan............................................ 700 62,125
SAFECO Corp................................................. 2,000 69,000
-----------
131,125
-----------

INVESTMENT BROKERS--1.08%
Morgan Stanley Group........................................ 900 72,563
-----------

MEDICAL RELATED--DRUGS--3.45%
American Home Products...................................... 800 77,600
Bristol-Myers Squibb........................................ 1,000 85,875
Lilly (Eli) & Co............................................ 1,200 67,500
-----------
230,975
-----------

OFFICE SUPPLIES--1.00%
Deluxe Corp................................................. 2,300 66,700
-----------

OIL & GAS RELATED--4.56%
Amoco Corp.................................................. 1,300 93,437
Exxon Corp.................................................. 900 72,112
Repsol SA Sponsored ADR..................................... 2,100 69,038
Royal Dutch Petroleum 5 Gldr Shrs........................... 500 70,563
-----------
305,150
-----------

PAPER & PAPER PRODUCTS--0.99%
Kimberly-Clark Corp......................................... 800 66,200
-----------

POLLUTION CONTROL SERVICES--0.98%
WMX Technologies............................................ 2,200 65,725
-----------

PRINTING & PUBLISHING--0.92%
Gannett Co.................................................. 1,000 61,375
-----------
</TABLE>

----------------
46
<PAGE>
- ----------------

INVESCO VARIABLE INVESTMENT FUNDS, INC.
TOTAL RETURN PORTFOLIO
STATEMENT OF INVESTMENT SECURITIES (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES, UNITS
OR PRINCIPAL
COMMON STOCKS (CONTINUED) AMOUNT VALUE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
RETAIL--5.71%
Circuit City Stores......................................... 2,500 $ 69,062
Genuine Parts............................................... 1,600 65,600
Giant Food Class A.......................................... 2,200 69,300
K mart Corp................................................. 6,500 47,125
Melville Corp............................................... 2,100 64,575
Penney (J C) Co............................................. 1,400 66,675
-----------
382,337
-----------

TEXTILES & APPAREL MANUFACTURERS--1.73%
Liz Claiborne............................................... 2,000 55,500
Shaw Industries............................................. 4,100 60,475
-----------
115,975
-----------

TOBACCO--2.45%
American Brands............................................. 1,600 71,400
Philip Morris............................................... 1,000 90,500
Schweitzer-Mauduit International*........................... 80 1,850
-----------
163,750
-----------

TRANSPORTATION--1.98%
Illinois Central Series A................................... 1,800 69,075
Roadway Services............................................ 1,300 63,538
-----------
132,613
-----------

UTILITIES--6.52%
CINergy Corp................................................ 2,300 70,437
NYNEX Corp.................................................. 1,300 70,200
SCEcorp..................................................... 4,000 71,000
Telefonica de Espana SA Sponsored ADR....................... 1,700 71,188
Telefonos de Mexico SA de CV Sponsored ADR
Representing Ord Series L Shrs............................ 2,500 79,688
Texas Utilities............................................. 1,800 74,025
-----------
436,538
-----------
TOTAL COMMON STOCKS (Cost $3,956,474)....................... 4,353,018
-----------
<CAPTION>

FIXED INCOME SECURITIES--25.88%
- -----------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS--25.88%
U.S. Treasury Bonds
9.375%, 2/15/2006......................................... $ 250,000 321,640
9.250%, 2/15/2016......................................... 150,000 206,297
8.125%, 8/15/2019......................................... 100,000 125,750
7.250%, 8/15/2022......................................... 225,000 260,508
</TABLE>

----------------
47
<PAGE>
- ----------------

INVESCO VARIABLE INVESTMENT FUNDS, INC.
TOTAL RETURN PORTFOLIO
STATEMENT OF INVESTMENT SECURITIES (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES, UNITS
OR PRINCIPAL
FIXED INCOME SECURITIES (CONTINUED) AMOUNT VALUE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (CONTINUED)
U.S. Treasury Notes
8.000%, 1/15/1997......................................... $ 150,000 $ 154,078
7.250%, 8/15/2004......................................... 200,000 222,437
6.375%, 7/15/1999......................................... 225,000 232,523
6.375%, 8/15/2002......................................... 200,000 210,125
-----------

TOTAL FIXED INCOME SECURITIES
(Cost $1,601,362)......................................... 1,733,358
-----------
<CAPTION>

SHORT-TERM INVESTMENTS--9.12%
- -----------------------------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL PAPER--6.88%

FINANCE RELATED--6.88%
Progress Capital Holdings, 5.620%, 1/30/1996
(Cost $460,904)........................................... 463,000 460,904
-----------

REPURCHASE AGREEMENTS--2.24%
Repurchase Agreement with State Street Bank & Trust Co dated
12/29/1995 due 1/2/1996 at 5.000%, repurchased at $150,083
(Collateralized by US Treasury Bonds due 5/15/2016 at
7.250%, value $154,646) (Cost $150,000)................... 150,000 150,000
-----------

TOTAL SHORT-TERM INVESTMENTS
(Cost $610,904)........................................... 610,904
-----------
TOTAL INVESTMENT SECURITIES AT VALUE--100.00%
(Cost $6,168,740#)........................................ $ 6,697,280
-----------
-----------
</TABLE>

----------------
48
<PAGE>
- ----------------

INVESCO VARIABLE INVESTMENT FUNDS, INC.
UTILITIES PORTFOLIO
STATEMENT OF INVESTMENT SECURITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES, UNITS
OR PRINCIPAL
COMMON STOCKS--91.87% AMOUNT VALUE
<S> <C> <C>
- -----------------------------------------------------------------------------------------

<CAPTION>
<S> <C> <C>
ELECTRICAL EQUIPMENT--2.53%
TII Industries*............................................. 700 $ 6,213
-----------

ELECTRONICS--1.58%
Nokia Corp Sponsored ADR Representing Ord A Shrs............ 100 3,887
-----------

OIL & GAS RELATED--23.60%
Essex County Gas............................................ 450 11,587
Key Production*............................................. 800 4,400
Louis Dreyfus Natural Gas*.................................. 550 8,319
Panaco Inc*................................................. 1,400 6,213
Petro-Canada Represented by Installment Receipts*........... 1,900 10,925
Sonat Inc................................................... 250 8,906
Union Pacific Resources Group............................... 300 7,612
-----------
57,962
-----------

TELECOMMUNICATIONS--6.86%
Frontier Corp............................................... 350 10,500
Lincoln Telecommunications.................................. 300 6,338
-----------
16,838
-----------

UTILITIES--57.30%

ELECTRIC--25.72%
Central Louisiana Electric.................................. 100 2,687
CILCORP Inc................................................. 100 4,238
Commonwealth Energy Systems SBI............................. 150 6,713
Empire District Electric.................................... 300 5,362
Florida Public Utilities.................................... 200 3,775
IES Industries.............................................. 300 7,950
Interstate Power............................................ 100 3,325
MidAmerican Energy.......................................... 200 3,350
Montana Power............................................... 100 2,263
Nevada Power................................................ 200 4,450
Northwestern Public Service................................. 300 8,400
Orange & Rockland Utilities................................. 100 3,575
Public Service of Colorado.................................. 100 3,538
Public Service of New Mexico*............................... 200 3,525
-----------
63,151
-----------

GAS--10.13%
Chesapeake Utilities........................................ 550 8,044
Columbia Gas System*........................................ 100 4,387
Connecticut Energy.......................................... 200 4,450
ONEOK Inc................................................... 350 8,006
-----------
24,887
-----------
</TABLE>

----------------
49
<PAGE>
<TABLE>
<CAPTION>
SHARES, UNITS
OR PRINCIPAL
COMMON STOCKS (CONTINUED) AMOUNT VALUE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
TELEPHONE--21.45%
ALLTEL Corp................................................. 200 $ 5,900
Ameritech Corp.............................................. 100 5,900
BellSouth Corp.............................................. 100 4,350
Century Telephone Enterprises............................... 200 6,350
Cincinnati Bell............................................. 100 3,475
GTE Corp.................................................... 100 4,400
NYNEX Corp.................................................. 100 5,400
Southern New England Telecommunications..................... 200 7,950
U S WEST Communications Group............................... 250 8,937
-----------
52,662
-----------
TOTAL UTILITIES............................................. 140,700
-----------

TOTAL COMMON STOCKS (Cost $211,125)......................... 225,600
-----------
<CAPTION>

SHORT-TERM INVESTMENTS--8.13%
- -----------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS--8.13%
Federal National Mortgage Association, 5.600%, 1/10/1996+
(Cost $19,972)............................................ $ 20,000 19,972
-----------
TOTAL INVESTMENT SECURITIES AT VALUE 100.00%
(Cost $231,097#).......................................... $ 245,572
-----------
-----------
</TABLE>

------------------------
@@ Step up bonds are obligations which increase the interest payment
rate at a specific point in time. Rate shown reflects current
rate which may step up at a future date.

# Also represents cost for income tax purposes.

* Security is non-income producing.

+ Security has been designated as collateral for installment
receipts.

@ The following are restricted securities at December 31, 1995:

<TABLE>
<CAPTION>
VALUE AS
ACQUISITION ACQUISITION % OF
DESCRIPTION DATE(S) COST NET ASSETS
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO
American Communications Services,
Units................................. 11/9/95 $ 53,515 1.06%
Comunicacion Cellular SA, Units......... 11/17/95 53,204 1.08
Continental Cablevision, Sr Notes
8.300%, 5/15/2006..................... 12/8/95 99,679 1.91
GST Telecommunications, Units........... 12/14/95 62,554 1.35
Howmet Corp, Sr Sub Notes 10.000%,
12/1/2003............................. 11/22/95 100,000 2.01
IntelCom Group, Sr Discount Step-Up
Notes
Zero Coupon, 9/15/2005................ 8/3/95 51,344 1.09
Williamhouse-Regency of Delaware, Sr Sub
Notes, 13.000%, 11/15/2005............ 11/17/95 100,000 1.98
----------
10.48%
----------
----------
INDUSTRIAL INCOME PORTFOLIO
United Artists Theatre Circuit, Sr
Secured Notes
Series B, 11.500%, 5/1/2002........... 10/19/94- $ 54,213 0.64%
----------
----------
5/11/95
</TABLE>

----------------
50
<PAGE>
SUMMARY OF INVESTMENTS BY COUNTRY

<TABLE>
<CAPTION>
% OF
COUNTRY INVESTMENT
COUNTRY CODE SECURITIES VALUE
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO
Canada...................................................... CA 4.95% $ 250,816
Columbia.................................................... CO 1.11 56,500
Switzerland................................................. SW 2.01 102,000
United Kingdom.............................................. UK 2.33 118,000
United States............................................... US 89.60 4,543,213
------------------------
100.00% $ 5,070,529
------------------------
------------------------
</TABLE>

------------------------
See Notes to Financial Statements.

----------------
51
<PAGE>
- ----------------

INVESCO VARIABLE INVESTMENT FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995

<TABLE>
<CAPTION>
INDUSTRIAL
HIGH YIELD INCOME TOTAL RETURN UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investment Securities:
At Cost............................................................. $ 5,014,857 $ 7,631,863 $ 6,168,740 $ 231,097
------------ ------------ ------------ ----------
------------ ------------ ------------ ----------
At Value............................................................ $ 5,070,529 $ 8,296,098 $ 6,697,280 $ 245,572
Cash.................................................................. 40,188 149,293 4,462 86,807
Receivables:
Investment Securities Sold.......................................... 1,567 0 0 0
Fund Shares Sold.................................................... 41,193 22,500 240,431 0
Dividends and Interest.............................................. 85,235 45,532 54,649 695
Organization Costs.................................................... 11,046 11,046 11,046 11,046
Prepaid Expenses and Other Assets..................................... 503 472 414 72
------------ ------------ ------------ ----------
TOTAL ASSETS...................................................... 5,250,261 8,524,941 7,008,282 344,192
------------ ------------ ------------ ----------

LIABILITIES
Payables:
Investment Securities Purchased..................................... 0 93,500 438,089 37,571
Fund Shares Repurchased............................................. 20 51,954 0 0
Accrued Expenses and Other Payables................................... 17,194 17,189 17,196 16,829
------------ ------------ ------------ ----------
TOTAL LIABILITIES................................................. 17,214 162,643 455,285 54,400
------------ ------------ ------------ ----------
NET ASSETS AT VALUE..................................................... $ 5,233,047 $ 8,362,298 $ 6,552,997 $ 289,792
------------ ------------ ------------ ----------
------------ ------------ ------------ ----------
NET ASSETS
Paid-in Capital*...................................................... $ 5,177,436 $ 7,698,263 $ 6,020,008 $ 275,375
Accumulated Undistributed (Overdistributed) Net Investment Income..... (143) (200) 4,449 117
Accumulated Undistributed Net Realized Gain (Loss) on Investment
Securities and Foreign Currency Transactions........................ 82 0 0 (175)
Net Appreciation of Investment Securities and Foreign Currency
Transactions........................................................ 55,672 664,235 528,540 14,475
------------ ------------ ------------ ----------
NET ASSETS AT VALUE..................................................... $ 5,233,047 $ 8,362,298 $ 6,552,997 $ 289,792
------------ ------------ ------------ ----------
------------ ------------ ------------ ----------
Shares Outstanding...................................................... 473,935 664,722 539,662 26,744
NET ASSET VALUE, Offering and Redemption Price per Share................ $ 11.04 $ 12.58 $ 12.14 $ 10.84
------------ ------------ ------------ ----------
------------ ------------ ------------ ----------
</TABLE>

- ------------
* The Fund has 500 million authorized shares of common stock, par value of $0.01
per share. Of such shares, 100 million have been allocated to each individual
Portfolio.

See Notes to Financial Statements.

----------------
52
<PAGE>
- ----------------

INVESCO VARIABLE INVESTMENT FUNDS, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
HIGH INDUSTRIAL TOTAL
YIELD INCOME RETURN UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends............................. $ 469 $ 61,377 $ 52,476 $ 1,547
Interest.............................. 259,999 97,682 106,486 1,046
Foreign Taxes Withheld................ 0 (225) (1,031) 0
-------- -------- -------- --------
TOTAL INCOME........................ 260,468 158,834 157,931 2,593
-------- -------- -------- --------

EXPENSES
Investment Advisory Fees.............. 16,298 27,073 24,649 467
Transfer Agent Fees................... 5,000 5,000 5,000 5,000
Administrative Fees................... 10,407 10,541 10,493 10,011
Custodian Fees and Expenses........... 4,670 5,615 6,076 734
Directors' Fees and Expenses.......... 7,597 7,610 7,608 7,502
Organization Expenses................. 3,682 3,682 3,682 3,682
Professional Fees and Expenses........ 17,451 18,537 17,952 14,890
Registration Fees and Expenses........ 268 240 385 106
Reports to Shareholders............... 3,565 2,395 4,704 1,194
Other Expenses........................ 4,740 2,559 2,033 951
-------- -------- -------- --------
TOTAL EXPENSES...................... 73,678 83,252 82,582 44,537
Fees and Expenses Absorbed by
Investment Adviser.................. (47,278) (46,031) (49,223) (43,134)
Fees and Expenses Paid Indirectly..... (4,670) (4,733) (3,780) (734)
-------- -------- -------- --------
NET EXPENSES........................ 21,730 32,488 29,579 669
-------- -------- -------- --------
NET INVESTMENT INCOME................... 238,738 126,346 128,352 1,924
-------- -------- -------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES
Net Realized Gain (Loss) on Investment
Securities and Foreign Currency
Transactions........................ 171,439 170,187 2,985 (175)
Change in Net Appreciation on
Investment Securities and Foreign
Currency Transactions............... 55,093 660,022 529,556 14,475
-------- -------- -------- --------
NET GAIN ON INVESTMENT SECURITIES....... 226,532 830,209 532,541 14,300
-------- -------- -------- --------
NET INCREASE IN NET ASSETS FROM
OPERATIONS............................ $465,270 $956,555 $660,893 $ 16,224
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>

- ------------
See Notes to Financial Statements.

----------------
53
<PAGE>
- ----------------

INVESCO VARIABLE INVESTMENT FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
HIGH YIELD PORTFOLIO INDUSTRIAL INCOME PORTFOLIO
--------------------------- -----------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994
------------ ------------ ------------ --------------
(NOTE 1) (NOTE 1)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income................. $ 238,738 $ 3,332 $ 126,346 $ 1,915
Net Realized Gain on Investment
Securities and Foreign Currency
Transactions........................ 171,439 82 170,187 0
Change in Net Appreciation on
Investment Securities and Foreign
Currency Transactions............... 55,093 579 660,022 4,213
------------ ------------ ------------ --------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS........................ 465,270 3,993 956,555 6,128
------------ ------------ ------------ --------------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income................. (239,112) (3,101) (126,762) (1,707)
Net Realized Gain on Investment
Securities.......................... (171,439) 0 (170,179) 0
------------ ------------ ------------ --------------
TOTAL DISTRIBUTIONS................. (410,551) (3,101) (296,941) (1,707)
------------ ------------ ------------ --------------
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares......... 7,336,473 653,782 8,978,068 554,351
Reinvestment of Distributions......... 410,551 3,101 296,941 1,707
------------ ------------ ------------ --------------
7,747,024 656,883 9,275,009 556,058
Amounts Paid for Repurchases of
Shares.............................. (3,192,335) (59,136) (2,096,909) (60,895)
------------ ------------ ------------ --------------
NET INCREASE IN NET ASSETS FROM FUND
SHARE TRANSACTIONS................ 4,554,689 597,747 7,178,100 495,163
------------ ------------ ------------ --------------
TOTAL INCREASE IN NET ASSETS............ 4,609,408 598,639 7,837,714 499,584
NET ASSETS
Initial Subscription (Note 1)......... 0 25,000 0 25,000
Beginning of Period................... 623,639 0 524,584 0
------------ ------------ ------------ --------------
End of Period......................... $5,233,047 $ 623,639 $8,362,298 $ 524,584
------------ ------------ ------------ --------------
------------ ------------ ------------ --------------
Accumulated Undistributed
(Overdistributed) Net Investment
Income Included in Net Assets at End
of Period............................. $ (143) $ 231 $ (200) $ 208
------------------------------------------------------------------------
FUND SHARE TRANSACTIONS
Initial Subscription (Note 1)......... 0 2,500 0 2,500
Shares Sold........................... 657,306 65,433 764,485 55,410
Shares Issued from Reinvestment of
Distributions....................... 37,188 310 23,604 169
------------ ------------ ------------ --------------
694,494 68,243 788,089 58,079
Shares Repurchased.................... (282,878) (5,924) (175,375) (6,071)
------------ ------------ ------------ --------------
NET INCREASE IN FUND SHARES......... 411,616 62,319 612,714 52,008
------------ ------------ ------------ --------------
------------ ------------ ------------ --------------
</TABLE>

- ------------
See Notes to Financial Statements.

----------------
54
<PAGE>
- ----------------

INVESCO VARIABLE INVESTMENT FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

<TABLE>
<CAPTION>
TOTAL RETURN PORTFOLIO UTILITIES PORTFOLIO
--------------------------- -----------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994
------------ ------------ ------------ --------------
(NOTE 1) (NOTE 1)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income................. $ 128,352 $ 9,035 $ 1,924 $ 0
Net Realized Gain (Loss) on Investment
Securities and Foreign Currency
Transactions........................ 2,985 0 (175) 0
Change in Net Appreciation
(Depreciation) of Investment
Securities and Foreign Currency
Transactions........................ 529,556 (1,016) 14,475 0
------------ ------------ ------------ -------
NET INCREASE IN NET ASSETS FROM
OPERATIONS........................ 660,893 8,019 16,224 0
------------ ------------ ------------ -------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income................. (124,147) (8,791) (1,807) 0
Net Realized Gain on Investment
Securities.......................... (2,985) 0 0 0
------------ ------------ ------------ -------
TOTAL DISTRIBUTIONS................. (127,132) (8,791) (1,807) 0
------------ ------------ ------------ -------
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares......... 7,764,103 1,138,563 282,916 0
Reinvestment of Distributions......... 127,132 8,791 1,807 0
------------ ------------ ------------ -------
7,891,235 1,147,354 284,723 0
Amounts Paid for Repurchases of
Shares.............................. (2,926,643) (116,938) (34,348) 0
------------ ------------ ------------ -------
NET INCREASE IN NET ASSETS FROM FUND
SHARE TRANSACTIONS................ 4,964,592 1,030,416 250,375 0
------------ ------------ ------------ -------
TOTAL INCREASE IN NET ASSETS............ 5,498,353 1,029,644 264,792 0
NET ASSETS
Initial Subscription (Note 1)......... 0 25,000 0 25,000
Beginning of Period................... 1,054,644 0 25,000 0
------------ ------------ ------------ -------
End of Period......................... $6,552,997 $1,054,644 $ 289,792 $ 25,000
------------ ------------ ------------ -------
------------ ------------ ------------ -------
Accumulated Undistributed Net
Investment Income Included in Net
Assets at End of Period............. $ 4,449 $ 244 $ 117 $ 0
FUND SHARE TRANSACTIONS
Initial Subscription (Note 1)......... 0 2,500 0 2,500
Shares Sold........................... 684,722 112,706 27,466 0
Shares Issued from Reinvestment of
Distributions....................... 10,470 871 167 0
------------ ------------ ------------ -------
695,192 116,077 27,633 2,500
Shares Repurchased.................... (260,017) (11,590) (3,389) 0
------------ ------------ ------------ -------
NET INCREASE IN FUND SHARES......... 435,175 104,487 24,244 2,500
------------ ------------ ------------ -------
------------ ------------ ------------ -------
</TABLE>

- ------------
See Notes to Financial Statements.

----------------
55
<PAGE>
- ----------------

INVESCO VARIABLE INVESTMENT FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

INVESCO Variable Investment Funds, Inc. (the "Fund"), a Maryland Corporation,
was incorporated on August 19, 1993, and consists of four separate portfolios:
High Yield Portfolio, Industrial Income Portfolio, Total Return Portfolio and
Utilities Portfolio (the "Portfolios"). The investment objectives of the
respective Portfolios are: to seek the best possible current income for the
Industrial Income Portfolio; to seek a high total return on investment through
capital appreciation and current income for the Total Return Portfolio; to seek
a high level of current income by investing principally in lower rated bonds and
other debt securities and in preferred stock for the High Yield Portfolio; and
to seek capital appreciation and income on securities of companies principally
engaged in public utilities for the Utilities Portfolio. The Fund is registered
under the Investment Company Act of 1940 (the "Act") as a diversified, open-end
management investment company. On December 16, 1993, the Fund issued and sold
2,500 shares of each Portfolio at $10.00 per share to INVESCO Funds Group, Inc.
("IFG"). Investment operations of the High Yield Portfolio commenced on May 27,
1994, the Industrial Income Portfolio on August 10, 1994, the Total Return
Portfolio on June 2, 1994 and the Utilities Portfolio on January 1, 1995. The
Fund's shares are not offered directly to the public but are sold exclusively to
life insurance companies ("Participating Insurance Companies") as a pooled
funding vehicle for variable annuity and variable life insurance contracts
issued by separate accounts of the Participating Insurance Companies.

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

A. SECURITY VALUATION: Equity securities traded on national securities
exchanges or in the over-the-counter market are valued at the last sales price
in the market where such securities are primarily traded. If last sales prices
are not available, securities are valued at the highest closing bid price
obtained from one or more dealers making a market for such securities or by a
pricing service approved by the Fund's board of directors.

Debt securities are valued at evaluated bid prices as determined by a pricing
service approved by the Fund's board of directors. If evaluated bid prices are
not available, debt securities are valued by averaging the bid prices obtained
from dealers making a market for such securities.

Foreign securities are valued at the closing price on the principal stock
exchange on which they are traded. In the event that closing prices are not
available for foreign securities, prices will be obtained from the principal
stock exchange at or prior to the close of the New York Stock Exchange. Foreign
currency exchange rates are determined daily prior to the close of the New York
Stock Exchange.

If market quotations or pricing service valuations are not readily available,
securities are valued at fair value as determined in good faith by the Fund's
board of directors. Restricted securities are valued in accordance with
procedures established by the Fund's board of directors.

Short-term securities are stated at amortized cost (which approximates market
value) if maturity is 60 days or less at the time of purchase, or market value
if maturity is greater than 60 days.

B. REPURCHASE AGREEMENTS: Repurchase agreements held by the Fund are fully
collateralized by U.S. Government securities and such collateral is in the
possession of the Fund's custodian. The collateral is evaluated daily to ensure
its market value exceeds the current market value of the repurchase agreements
including accrued interest.

C. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME: Security transactions
are accounted for on the trade date and dividend income is recorded on the ex
dividend date. Certain dividends from foreign securities will be recorded as
soon as the Fund is informed of the dividend if such information is obtained
subsequent to the ex dividend date. Interest income, which may be comprised of
stated coupon rate, market discount and original issue discount, is recorded on
the accrual basis. Discounts on debt securities purchased are amortized over the
life of the respective security as adjustments to interest income. Cost is
determined on the specific identification basis.

The Fund may have elements of risk due to concentrated investments in foreign
issuers located in a specific country. Such concentrations may subject the Fund
to additional risks resulting from future political or economic conditions
and/or possible impositions of adverse foreign governmental laws or currency
exchange restrictions. Net realized and unrealized gain or loss from investments
includes fluctuations from currency exchange rates and fluctuations in market
value.

----------------
56
<PAGE>
- ----------------

INVESCO VARIABLE INVESTMENT FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The High Yield Portfolio invests primarily in high yield bonds, some of which
may be rated below investment grade. These high yield bonds may be more
susceptible than higher grade bonds to real or perceived adverse economic or
industry conditions. The secondary market, on which high yield bonds are traded,
may also be less liquid than the market for higher grade bonds.

Restricted securities held by the Fund may not be sold except in exempt
transactions or in a public offering registered under the Securities Act of
1933. The risk of investing in such securities is generally greater than the
risk of investing in the securities of widely held, publicly traded companies.
Lack of a secondary market and resale restrictions may result in the inability
of the Fund to sell a security at a fair price and may substantially delay the
sale of the security which the Fund seeks to sell. In addition, these securities
may exhibit greater price volatility than securities for which secondary markets
exist.

Investments in securities of governmental agencies may only be guaranteed by
the respective agency's limited authority to borrow from the U.S. Government and
may not be guaranteed by the full faith and credit of the United States.

D. FEDERAL AND STATE TAXES: The Fund has complied and continues to comply
with the provisions of the Internal Revenue Code applicable to regulated
investment companies and, accordingly, has made or intends to make sufficient
distributions of net investment income and net realized capital gains, if any,
to relieve it from all federal and state income taxes and federal excise taxes.
At December 31, 1995, the Utilities Portfolio had $175 in net capital loss
carryovers which expire in the year 2003. Therefore, no federal income tax
provision is required.

Dividends paid by the Fund from net investment income and distributions of net
realized short-term capital gains are, for federal income tax purposes, taxable
as ordinary income to shareholders. Of the ordinary income distributions
declared for the year ended December 31, 1995, amounts qualifying for the
dividends received deduction available to the Fund's corporate shareholders were
as follows:

<TABLE>
<CAPTION>
QUALIFYING
PORTFOLIO PERCENTAGES
<S> <C>
- -------------------------------------------------------------------------------------------------------
High Yield Portfolio...................................................................... 0.11%
Industrial Income Portfolio............................................................... 20.12%
Total Return Portfolio.................................................................... 33.22%
Utilities Portfolio....................................................................... 78.90%
</TABLE>

Investment income received from foreign sources may be subject to foreign
withholding taxes. Dividend and interest income is shown gross of foreign
withholding taxes in the accompanying financial statements.

E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Dividends and distributions
to shareholders are recorded by the Fund on the ex dividend/distribution date.
The Fund distributes net realized capital gains, if any, to its shareholders at
least annually, if not offset by capital loss carryovers. Income distributions
and capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for mortgage-backed
securities, market discounts, foreign currency transactions, nontaxable
dividends, net operating losses and expired capital loss carryforwards. As of
December 31, 1995, there were no such differences.

F. ORGANIZATION COSTS: Organization costs of $73,640 advanced by IFG are
amortized and are payable on a straight-line basis over a sixty-month period
from the date the Fund commenced operations. IFG has agreed that if it redeems
any of its initially acquired shares of the Fund during the five years from the
date the Fund commenced operations, the proceeds payable to it in respect of
such shares will be reduced by a pro rata share of the Fund's unamortized
organization costs.

G. EXPENSES: Each of the Portfolios bears expenses incurred specifically on
its behalf and, in addition, each Portfolio bears a portion of general expenses,
based on the relative net assets of each Portfolio.

Under an agreement between each Portfolio and the Fund's Custodian, agreed
upon Custodian Fees and Expenses are reduced by credits granted by the Custodian
from any temporarily uninvested cash. Such credits are included in Fees and
Expenses Paid Indirectly in the Statement of Operations.

----------------
57
<PAGE>
- ----------------

INVESCO VARIABLE INVESTMENT FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. INVESTMENT ADVISORY AND OTHER AGREEMENTS

IFG serves as the Fund's investment adviser. As compensation for its services
to the Fund, IFG receives an investment advisory fee which is accrued daily at
the application rate and paid monthly. The fee is based on the annual rate of
each Portfolio's average net assets as follows:

<TABLE>
<CAPTION>
AVERAGE NET ASSETS
-----------------------------------
<S> <C> <C> <C>
$0 TO $500 MILLION OVER
$500 TO $1
PORTFOLIO MILLION $1 BILLION BILLION
- -----------------------------------------------------------------------------------------------------------
High Yield Portfolio.................................................. 0.60% 0.55% 0.45%
Industrial Income Portfolio........................................... 0.75% 0.65% 0.55%
Total Return Portfolio................................................ 0.75% 0.65% 0.55%
Utilities Portfolio................................................... 0.60% 0.55% 0.45%
</TABLE>

In accordance with a Sub-Advisory Agreement between IFG and INVESCO Trust
Company ("ITC"), a wholly owned subsidiary of IFG, investment decisions of the
High Yield, Industrial Income and Utilities Portfolios are made by ITC. A
separate Sub-Advisory Agreement between IFG and INVESCO Capital Management, Inc.
("ICM"), an affiliate of IFG, provides that investment decisions of the Total
Return Portfolio are made by ICM. Fees for such sub-advisory services are paid
by IFG.

In accordance with an Administrative Agreement, each Portfolio pays IFG an
annual fee of $10,000, plus an additional amount computed at an annual rate of
0.015% of average net assets to provide administrative, accounting and clerical
services. The fee is accrued daily and paid monthly.

IFG receives a transfer agent fee of $5,000 per Portfolio per year. The fee is
paid monthly at one-twelfth of the annual fee.

IFG has voluntarily agreed, in some instances, to absorb certain fees and
expenses incurred by each Portfolio.

3. PURCHASES AND SALES OF INVESTMENT SECURITIES

For the year ended December 31, 1995, the aggregate cost of purchases and
proceeds from sales of investment securities (excluding all U.S. Government
securities and short-term securities) were as follows:

<TABLE>
<CAPTION>
PORTFOLIO PURCHASES SALES
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------
High Yield Portfolio..................................................... $ 11,507,443 $ 7,511,919
Industrial Income Portfolio.............................................. 7,707,366 2,679,944
Total Return Portfolio................................................... 3,625,772 715
Utilities Portfolio...................................................... 220,739 9,439
</TABLE>

The aggregate cost of purchases and proceeds from sales of U.S. Government
securities were as follows:

4. APPRECIATION AND DEPRECIATION

At December 31, 1995, the gross appreciation of securities in which there was
an excess of value over tax cost, the gross depreciation of securities in which
there was an excess of tax cost over value and the resulting net appreciation by
Portfolio were as follows:

<TABLE>
<CAPTION>
GROSS GROSS NET
PORTFOLIO APPRECIATION DEPRECIATION APPRECIATION
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
High Yield Portfolio......................................... $ 95,696 $ 40,024 $ 55,672
Industrial Income Portfolio.................................. 726,130 61,895 664,235
Total Return Portfolio....................................... 571,016 42,476 528,540
Utilities Portfolio.......................................... 15,150 675 14,475
</TABLE>

5. TRANSACTIONS WITH AFFILIATES

Certain of the Fund's officers and directors are also officers and directors
of IFG, ITC or ICM. At December 31, 1995. 9.41% of outstanding shares of
Utilities Portfolio was held by IFG.

----------------
58
<PAGE>
- ----------------

INVESCO VARIABLE INVESTMENT FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The Fund has adopted an unfunded noncontributory defined benefit pension plan
covering all independent directors of the Fund who will have served as an
independent director for at least five years at the time of retirement. Benefits
under this plan are based on an annual rate equal to 25% of the retainer fee at
the time of retirement.

Pension expenses for the year ended December 31, 1995, included in Directors'
Fees and Expenses in the Statement of Operations, and unfunded accrued pension
costs and pension liability included in Prepaid Expenses and Accrued Expenses,
respectively, in the Statement of Assets and Liabilities were as follows:

<TABLE>
<CAPTION>
UNFUNDED
ACCRUED
PENSION PENSION PENSION
PORTFOLIO EXPENSES COSTS LIABILITY
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
High Yield Portfolio............................................... $ 7 $ (31) $ (24)
Industrial Income Portfolio........................................ 9 (38) (29)
Total Return Portfolio............................................. 9 (38) (29)
Utilities Portfolio................................................ 0 (1) (1)
</TABLE>

6. LINE OF CREDIT

The Fund has available a Redemption Line of Credit Facility ("LOC"), from a
consortium of national banks, to be used for temporary or emergency purposes to
redeem investor shares. The LOC permits borrowings to a maximum of 10% of the
Net Assets at Value of each respective Portfolio. Each Portfolio agrees to pay
annual fees and interest on the unpaid principal balance based on prevailing
market rates as defined in the agreement. During the fiscal year ended December
31, 1995, there were no such borrowings.

----------------
59
<PAGE>
- ----------------

INVESCO VARIABLE INVESTMENT FUNDS, INC.
FINANCIAL HIGHLIGHTS
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
HIGH YIELD PORTFOLIO INDUSTRIAL INCOME PORTFOLIO
--------------------------- ---------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994
------------ ------------ ------------ ------------
(NOTE 1) (NOTE 1)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value--Beginning of Period.... $10.01 $10.00 $10.09 $10.00
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................. 0.55 0.05 0.19 0.03
Net Gains on Securities (Both Realized
and Unrealized)..................... 1.43 0.01 2.76 0.09
------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS.... 1.98 0.06 2.95 0.12
------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends from Net Investment
Income.............................. 0.55 0.05 0.20 0.03
Distributions from Capital Gains...... 0.40 0.00 0.26 0.00
------ ------ ------ ------
TOTAL DISTRIBUTIONS................. 0.95 0.05 0.46 0.03
------ ------ ------ ------
Net Asset Value--End of Period.......... $11.04 $10.01 $12.58 $10.09
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN>........................... 19.76% 0.60%* 29.25% 1.23%*
RATIOS
Net Assets--End of Period ($000
Omitted)............................ $5,233 $624 $8,362 $525
Ratio of Expenses to Average Net
Assets#............................. 0.97%@ 0.74%** 1.03%@ 0.79%**
Ratio of Net Investment Income to
Average Net Assets#................. 8.79% 2.72%** 3.50% 1.69%**
Portfolio Turnover Rate............... 310% 23%* 97% 0%*
</TABLE>

- ------------
> Total return does not reflect expenses that apply to the related insurance
policies, and inclusion of these charges would reduce the total return for
the period shown.

* These amounts are based on operations for the period shown and, accordingly,
are not representative of a full year.

# Various expenses of the High Yield and Industrial Income Portfolios were
voluntarily absorbed by IFG for the year ended December 31, 1995 and the
period ended December 31, 1994. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 2.71% and
30.38% for High Yield and 2.31% and 32.55% for Industrial Income,
respectively, and ratio of net investment income to average net assets would
have been 7.05% and (26.92%) for High Yield and 2.22% and (30.07%) for
Industrial Income, respectively.

@ Ratio reflects Total Expenses, less absorbed expenses by the investment
adviser.

** Annualized

----------------
60
<PAGE>
- ----------------

INVESCO VARIABLE INVESTMENT FUNDS, INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

- ------------
+ All of the expenses for the Utilities Portfolio were voluntarily absorbed by
IFG for the period ended December 31, 1994, since investment operations did
not commence during 1994.

> Total return does not reflect expenses that apply to the related insurance
policies, and inclusion of these charges would reduce the total return for
the period shown.

* These amounts are based on operations for the period shown and, accordingly,
are not representative of a full year.

# Various expenses of the Total Return and Utilities Portfolios were
voluntarily absorbed by IFG for the year ended December 31, 1995 and the
period ended December 31, 1994. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 2.51% and
16.44% for Total Return and 57.13% for Utilities, respectively, and ratio of
net investment income to average net assets would have been 2.41% and
(11.72%) for Total Return and (52.86%) for Utilities, respectively.

@ Ratio reflects Total Expenses, less absorbed expenses by the investment
adviser.

** Annualized

----------------
61
<PAGE>
- ----------------

INVESCO VARIABLE INVESTMENT FUNDS, INC.
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
INVESCO Variable Investment Funds, Inc.

In our opinion, the accompanying statement of assets and liabilities, including
the statement of investment securities, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the portfolios constituting
the INVESCO Variable Investment Funds, Inc. (the "Fund") at December 31, 1995,
the results of each of their operations for the year then ended and the changes
in each of their net assets and the financial highlights for each of the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1995 by correspondence with the custodian and the application of
alternative auditing procedures for unsettled security transactions, provide a
reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP
Denver, Colorado
January 31, 1996

----------------
62
<PAGE>
- ----------------

JANUS ASPEN GROWTH PORTFOLIO
MANAGEMENT DISCUSSION YEAR-END 1995
DECEMBER 31, 1995

PERFORMANCE REVIEW

In 1995 the financial markets achieved one of the strongest performances on
record, fueled by moderate economic growth, low inflation, and a dramatic
decline in interest rates. Corporate earnings also continued to set records.

The Janus Aspen Growth Portfolio produced a total return of 30.17% for the
year ended December 31, 1995, while the broader market, as measured by the S&P
500 Index, gained 37.58%. Both returns include reinvested dividends.

Although we did not catch the S&P 500 Index, the Portfolio produced
significant gains, and results were achieved with less risk than if the
Portfolio had contained a more volatile selection of stocks. We were cautious
earlier this year when rapid growth in the economy could have caused interest
rates to rise, and held only a moderate position in the volatile technology
sector, which lead the market until the fourth quarter. This year most European
markets did not keep pace with gains in the U.S., and this impacted our foreign
holdings. Lastly, paper stocks declined when the economy slowed and paper prices
weakened.

The Portfolio's returns were helped by Citicorp, and by our early recognition
of the boom in outsourcing and its effect on EDS (General Motors E) and First
Data. We were also quick to see the potential of German software provider SAP.

THE PORTFOLIO

Equity holdings increased from 54% when the fiscal year began to 81% at year
end, reflecting a more positive outlook for growth stocks, which tend to perform
best in a moderate economy. The Portfolio's ten largest holdings were 28% of
assets at year end, up from 18% at the end of 1994. Approximately 13% of the
Portfolio was invested abroad, compared to 6% at year end 1994.

PORTFOLIO THEMES

PHARMACEUTICALS. Pfizer in the U.S. and Astra and Roche in Europe have
exciting products in their pipelines. We expect these companies to increase
revenues by 15% annually for the next three years, while earnings should grow by
20%.

OUTSOURCING. More and more, companies farm out functions such as data
processing and computer operations to outside specialists like EDS. EDS should
sign $10 billion in new business this year. First Data processes credit card
transactions for banks and recently acquired First Financial, the largest credit
card processor for merchants. First Data now dominates a market growing at
better than 20%.

SHARE REPURCHASE. Many companies have excess cash flow, more money than they
can prudently reinvest in their business. Some companies are employing the extra
cash to buy back and retire their own stock, which adds value for shareholders.
Citicorp (banking) and Hercules (chemicals) have significant stock repurchase
programs.

INSURANCE. Many insurance companies have restructured operations, increased
efficiency, and grown market share. This group includes disability provider
UNUM, reinsurer General Re, and property-casualty giant AIG.

BANKING. Increased efficiency and disciplined asset growth are the keys to
earnings momentum at Citicorp, which also has very successful operations in
emerging markets. At Bank of New York emphasis on securities processing is
lifting profits.

GOING FORWARD

Current economic conditions are very positive for growth stocks. Even if the
economy slows and earnings momentum is less robust, companies with consistent
earnings growth, which make up the core holdings of the Portfolio, should be in
greater demand.

Thank you for your investment in Janus Aspen Growth Portfolio.

James P. Craig
Portfolio Manager

----------------
63
<PAGE>
- ----------------

JANUS ASPEN GROWTH PORTFOLIO
COMPARISON OF CHANGE IN VALUE

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
JANUS ASPEN GROWTH PORTFOLIO
AND THE S&P 500 INDEX

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
JANUS ASPEN GROWTH S&P 500 INDEX
<S> <C> <C>
9/13/93 $10,000.00 $10,000.00
12/31/93 $10,349.91 $10,193.09
3/31/94 $10,470.26 $9,807.23
6/30/94 $10,314.78 $9,848.21
9/30/94 $10,615.80 $10,328.73
12/31/94 $10,635.84 $10,326.99
3/31/95 $11,440.82 $11,331.38
6/30/95 $12,115.12 $12,411.58
9/30/95 $13,196.28 $13,397.20
12/31/95 $13,844.67 $14,203.10
</TABLE>

The returns do not reflect deductions at the separate account or contract level
for any charges that may be incurred under a contract. The Portfolio's
securities may differ significantly from the securities in the Index. The Index
is unmanaged. The Adviser voluntarily waives a portion of the Portfolio's
expenses. Without such waiver, the Portfolio's total return would have been
lower.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN
AND PRINCIPAL VALUE MAY FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST.

----------------
64
<PAGE>
- ----------------

JANUS ASPEN GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
COMMON STOCK--78.4% AMOUNT VALUE
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------

<CAPTION>
AEROSPACE AND DEFENSE--3.2%
<S> <C> <C> <C> <C>
Boeing Co............................................................... 17,725 $ 1,389,197
McDonnell Douglas Corp.................................................. 11,150 1,025,800
United Technologies Corp................................................ 18,000 1,707,750
--------------
4,122,747
--------------
<CAPTION>

AUTO AND TRUCK--0.8%
<S> <C> <C> <C> <C>
General Motors Corp..................................................... 14,025 741,572
Honda Motor Co.**....................................................... 13,000 268,002
--------------
1,009,574
--------------
<CAPTION>

BIOPHARMACEUTICALS--1.4%
<S> <C> <C> <C> <C>
Amgen, Inc.*............................................................ 29,450 1,748,594
--------------
<CAPTION>

BROADCASTING, RADIO AND TELEVISION--0.7%
<S> <C> <C> <C> <C>
Grupo Televisa S.A. de C.V. (GDR)....................................... 15,000 337,500
Heritage Media Corp.--Class A*.......................................... 20,000 512,500
--------------
850,000
--------------
<CAPTION>

CHEMICALS--2.4%
<S> <C> <C> <C> <C>
Cytec Industries, Inc.*................................................. 13,275 828,028
Hercules, Inc........................................................... 16,550 933,006
W.R. Grace & Co......................................................... 8,425 498,128
Witco Corp.............................................................. 25,825 755,381
--------------
3,014,543
--------------
<CAPTION>

COMMERCIAL SERVICES--2.4%
<S> <C> <C> <C> <C>
Manpower, Inc........................................................... 19,775 556,172
Robert Half International, Inc.*........................................ 58,925 2,467,484
--------------
3,023,656
--------------
<CAPTION>

COMPUTER SOFTWARE AND SERVICES--11.7%
<S> <C> <C> <C> <C>
Cisco Systems, Inc.*.................................................... 26,500 1,977,563
Computer Associates International, Inc.................................. 26,950 1,532,781
First Data Corp......................................................... 67,400 4,507,375
Fiserv, Inc.*........................................................... 42,775 1,283,250
General Motors Corp.--Class E........................................... 93,675 4,871,100
Informix Corp.*......................................................... 4,225 126,750
NTT Data Communications Systems Corp.**................................. 17 570,945
--------------
14,869,764
--------------
<CAPTION>

COMPUTERS--1.6%
<S> <C> <C> <C> <C>
Sun Microsystems, Inc.*................................................. 40,850 1,863,781
</TABLE>

------------------------
See Notes to Schedule of Investments.

----------------
65
<PAGE>
- ----------------

JANUS ASPEN GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
COMMON STOCK (CONTINUED) AMOUNT MARKET VALUE
- ------------------------------------------------------------------------------------------------------
COMPUTERS (CONTINUED)
<S> <C> <C> <C> <C>
Telxon Corp............................................................. 5,000 $ 113,125
--------------
1,976,906
--------------
<CAPTION>

ELECTRONICS--2.2%
<S> <C> <C> <C> <C>
Altera Corp.*........................................................... 5,000 248,750
Hewlett-Packard Co...................................................... 5,000 418,750
Pittway Corp.--Class A.................................................. 30,450 2,062,988
--------------
2,730,488
--------------
<CAPTION>

ELECTRONICS--SEMICONDUCTORS--0.5%
<S> <C> <C> <C> <C>
Analog Devices, Inc.*................................................... 9,100 321,913
Rohm Co.**.............................................................. 6,000 338,559
--------------
660,472
--------------
<CAPTION>

ENTERTAINMENT--0.6%
<S> <C> <C> <C> <C>
Circus Circus Enterprises, Inc.*........................................ 28,650 798,619
--------------
<CAPTION>

FINANCIAL--BANK COMMERICAL--2.0%
<S> <C> <C> <C> <C>
First Bank System, Inc.................................................. 11,375 564,484
First Interstate Bancorp................................................ 14,775 2,016,787
--------------
2,581,271
--------------
<CAPTION>

FINANCIAL--BANK MONEY CENTER--7.9%
<S> <C> <C> <C> <C>
Bank of New York Co., Inc............................................... 82,850 4,038,938
Barclays PLC**.......................................................... 88,447 1,013,116
Citicorp................................................................ 57,475 3,865,194
First Chicago NBD Corp.................................................. 28,075 1,108,962
--------------
10,026,210
--------------
<CAPTION>

FINANCIAL--SAVINGS/LOAN/THRIFT--0.2%
<S> <C> <C> <C> <C>
HFNC Financial Corp.*................................................... 19,475 255,609
--------------
<CAPTION>

FINANCIAL--SECURITY BROKER--0.7%
<S> <C> <C> <C> <C>
Merrill Lynch and Co., Inc.............................................. 11,125 567,375
Morgan Stanley Group, Inc............................................... 4,650 374,906
--------------
942,281
--------------
<CAPTION>

FINANCIAL SERVICES--2.2%
<S> <C> <C> <C> <C>
Federal National Mortgage Association................................... 22,750 2,823,844
--------------
<CAPTION>

FOOD PROCESSING--1.4%
<S> <C> <C> <C> <C>
Kellogg Co.............................................................. 23,150 1,788,338
--------------
</TABLE>

------------------------
See Notes to Schedule of Investments.

----------------
66
<PAGE>
- ----------------

JANUS ASPEN GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
COMMON STOCK (CONTINUED) AMOUNT MARKET VALUE
- ------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--1.1%
<S> <C> <C> <C> <C>
First Brands Corp....................................................... 8,775 $ 417,909
Newell Co............................................................... 40,000 1,035,000
--------------
1,452,909
--------------
<CAPTION>

INSURANCE--LIFE--1.8%
<S> <C> <C> <C> <C>
UNUM Corp............................................................... 41,600 2,288,000
--------------
<CAPTION>

INSURANCE--MULTILINE--4.0%
<S> <C> <C> <C> <C>
American International Group, Inc....................................... 7,000 647,500
ITT Hartford Group, Inc.*............................................... 6,000 290,250
Prudential Reinsurance Holdings, Inc.................................... 175,275 4,097,053
--------------
5,034,803
--------------
<CAPTION>

INSURANCE--PROPERTY AND CASUALTY--1.1%
<S> <C> <C> <C> <C>
General Re Corp......................................................... 4,250 658,750
PartnerRe, Ltd.......................................................... 12,000 330,000
Risk Capital Holdings, Inc.*............................................ 20,000 467,500
--------------
1,456,250
--------------
<CAPTION>

LEISURE TIME--0.7%
<S> <C> <C> <C> <C>
Coleman Co., Inc.*...................................................... 24,955 876,544
--------------
<CAPTION>

MACHINE--CONSTRUCTION AND MINING--0.3%
<S> <C> <C> <C> <C>
Caterpillar, Inc........................................................ 5,750 337,813
--------------
<CAPTION>

MACHINE--DIVERSIFIED--1.9%
<S> <C> <C> <C> <C>
AGCO Corp............................................................... 23,950 1,221,450
American Standard Companies, Inc.*...................................... 17,675 494,900
Deere & Co.............................................................. 20,000 705,000
--------------
2,421,350
--------------
<CAPTION>

MEDICAL--HOSPITAL MANAGEMENT SERVICES--0.1%
<S> <C> <C> <C> <C>
HEALTHSOUTH Corp.*...................................................... 6,175 179,847
--------------
<CAPTION>

MEDICAL SUPPLIES--0.3%
<S> <C> <C> <C> <C>
Luxottica Group S.p.A. (ADR)............................................ 5,600 327,600
--------------
<CAPTION>

MINING--2.8%
<S> <C> <C> <C> <C>
Freeport McMoRan, Inc................................................... 27,391 1,013,467
Minerals Technologies, Inc.............................................. 35,975 1,313,088
Potash Corporation of Saskatchewan, Inc................................. 16,811 1,191,480
--------------
3,518,035
--------------
</TABLE>

------------------------
See Notes to Schedule of Investments.

----------------
67
<PAGE>
- ----------------

JANUS ASPEN GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
COMMON STOCK (CONTINUED) AMOUNT MARKET VALUE
- ------------------------------------------------------------------------------------------------------
MISCELLANEOUS--DISTRIBUTION AND WHOLESALE--1.1%
<S> <C> <C> <C> <C>
Cardinal Health, Inc.................................................... 25,000 $ 1,368,750
--------------
<CAPTION>

MISCELLANEOUS--MANUFACTURING--0.7%
<S> <C> <C> <C> <C>
AlliedSignal, Inc....................................................... 18,075 858,563
--------------
<CAPTION>

OFFICE AND BUSINESS EQUIPMENT--0.7%
<S> <C> <C> <C> <C>
Oce-Van Der Grinten N.V.**.............................................. 15,000 911,014
--------------
<CAPTION>

OIL AND GAS--EXPLORATION--0.5%
<S> <C> <C> <C> <C>
Triton Energy Corp.*.................................................... 12,000 688,500
--------------
<CAPTION>

PACKAGING AND CONTAINERS--0.5%
<S> <C> <C> <C> <C>
Sealed Air Corp.*....................................................... 20,850 586,406
--------------
<CAPTION>

PERSONAL CREDIT--1.2%
<S> <C> <C> <C> <C>
Travelers Group, Inc.................................................... 25,000 1,571,875
--------------
<CAPTION>

PHARMACEUTICALS--7.9%
<S> <C> <C> <C> <C>
Astra A.B.--Class A..................................................... 20,236 809,995
Centocor, Inc.*......................................................... 2,600 80,275
Lilly (Eli) & Co........................................................ 51,750 2,910,938
Pfizer, Inc............................................................. 33,200 2,091,600
Roche Holding A.G.**.................................................... 297 2,349,480
SmithKline Beecham PLC (ADR)--Class A................................... 31,700 1,759,350
--------------
10,001,638
--------------
<CAPTION>

PUBLISHING--NEWSPAPER--0.1%
<S> <C> <C> <C> <C>
Reuters Holdings PLC (ADS).............................................. 2,925 161,241
--------------
<CAPTION>

PUBLISHING AND PRINTING--1.9%
<S> <C> <C> <C> <C>
Wolters Kluwer N.V.**................................................... 26,169 2,472,009
--------------
<CAPTION>

RETAIL--DEPARTMENT STORES--0.1%
<S> <C> <C> <C> <C>
Credit Saison Co., Ltd.................................................. 3,900 92,857
--------------
<CAPTION>

RETAIL--SPECIAL LINE--0.5%
<S> <C> <C> <C> <C>
AutoZone, Inc.*......................................................... 20,000 577,500
--------------
<CAPTION>

TELECOMMUNICATIONS--1.2%
<S> <C> <C> <C> <C>
MFS Communications Co., Inc.*........................................... 12,050 641,663
Paging Network, Inc.*................................................... 35,000 853,125
--------------
1,494,788
--------------
</TABLE>

------------------------
See Notes to Schedule of Investments.

----------------
68
<PAGE>
- ----------------

JANUS ASPEN GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
COMMON STOCK (CONTINUED) AMOUNT MARKET VALUE
- ------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT--0.7%
<S> <C> <C> <C> <C>
Newbridge Networks Corp.*............................................... 22,334 $ 924,069
--------------
<CAPTION>

TOYS--0.9%
<S> <C> <C> <C> <C>
Mattel, Inc............................................................. 38,900 1,196,175
--------------
<CAPTION>

TRANSPORTATION--AIR--1.6%
<S> <C> <C> <C> <C>
AMR Corp.*.............................................................. 26,550 1,971,338
--------------
<CAPTION>

TRANSPORTATION--RAILROAD--1.2%
<S> <C> <C> <C> <C>
Burlington Northern Santa Fe Corp....................................... 19,343 1,508,754
--------------
<CAPTION>

UTILITIES--TELECOMMUNICATIONS--1.0%
<S> <C> <C> <C> <C>
DDI Corp.**............................................................. 100 774,294
Telefonos de Mexico S.A. de C.V. (ADR)--Class L......................... 15,000 478,125
--------------
1,252,419
--------------
<CAPTION>

WHOLESALE--SPECIAL LINE--0.6%
<S> <C> <C> <C> <C>
Alco Standard Corp...................................................... 16,450 750,531
--------------

TOTAL COMMON STOCK (cost $86,114,843)................................... 99,504,494
--------------
<CAPTION>

PREFERRED STOCK--2.5%
- ------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE AND SERVICES--2.5%
<S> <C> <C> <C> <C>
SAP A.G.** (cost $2,253,224)............................................ 21,250 3,207,826
--------------
<CAPTION>

U.S. GOVERNMENT AGENCIES--8.1%
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal Farm Credit Bank 5.65%, 1/10/96................................. $ 5,000,000 4,992,937
Federal Home Loan Bank System 5.40%, 1/4/96............................. 350,000 349,843
Federal Home Loan Mortgage Corp. 5.64%, 1/19/96......................... 2,000,000 1,994,360
5.50%, 1/22/96.......................................................... 3,000,000 2,990,375
--------------

TOTAL U.S. GOVERNMENT AGENCIES (amortized cost $10,327,515)............. 10,327,515
--------------
<CAPTION>

SHORT-TERM CORPORATE NOTES--10.0%
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ford Motor Credit Corp. 5.75%, 1/2/96................................... 3,700,000 3,699,408
General Electric Capital Corp. 5.63%, 1/2/96............................ 6,000,000 5,999,062
Household Finance Corp. 5.80%, 1/5/96................................... 3,000,000 2,998,067
--------------
TOTAL SHORT-TERM CORPORATE NOTES (amortized cost $12,696,537)........... 12,696,537
--------------
</TABLE>

------------------------
See Notes to Schedule of Investments.

----------------
69
<PAGE>
- ----------------

JANUS ASPEN GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
REPURCHASE AGREEMENT--0.2% AMOUNT MARKET VALUE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
State Street Bank & Trust Co., 5.00%, dated 12/29/95, maturing 1/2/96,
to be repurchased at $194,107, collateralized by $195,000 in U.S.
Treasury Notes, 5.625%, due 1/31/98, value $200,993 (cost $194,000).... $ 194,000 $ 194,000
--------------
TOTAL INVESTMENTS--99.2% (total cost $111,586,119)...................... 125,930,372
Cash, Receivables and Other Assets, net of Liabilities--0.8%............ 980,413
--------------
NET ASSETS--100%........................................................ $ 126,910,785
--------------
--------------
</TABLE>

------------------------
See Notes to Financial Statements.

NOTES TO SCHEDULES OF INVESTMENTS

(ADR)--American Depository Receipt

(ADS)--American Depository Shares

(CAD)--Canadian Dollars

(DEM)--German Deutschemarks

(GDR)--Global Depository Receipt

(GDS)--Global Depository Shares

Adjustable Rate Preferred Stock dividend rates are as of 12/31/95

*Non-income producing security

**A portion of this security has been segregated by the custodian to
cover margin or segregation requirements on open futures contracts
and/or foreign currency contracts.

+Securities are registered pursuant to Rule 144A and may be deemed
to be restricted for resale.

FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENCY
CURRENCY VALUE IN $ UNREALIZED
CURRENCY SOLD AND SETTLEMENT DATE UNITS SOLD U.S. GAIN/(LOSS)

<CAPTION>
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
JANUS ASPEN GROWTH PORTFOLIO
British Pound 3/14/96.............................. 750,000 $1,160,325 $ (11,213)
Dutch Guilder 6/13/96.............................. 1,000,000 628,022 (4,756)
German Deutschemark 6/13/96........................ 3,975,000 2,787,518 (16,227)
Japanese Yen 1/11/96............................... 9,000,000 87,084 3,696
Japanese Yen 2/8/96................................ 15,500,000 149,985 5,079
Japanese Yen 3/14/96............................... 154,000,000 1,490,251 83,045
Swedish Krona 2/8/96............................... 4,565,000 684,921 (3,028)
- -----------------------------------------------------------------------------------------
$6,988,106 $ 56,596
- -----------------------------------------------------------------------------------------
</TABLE>

----------------
70
<PAGE>
- ----------------

JANUS ASPEN GROWTH PORTFOLIO
STATEMENTS OF ASSETS AND LIABILITIES

AS OF DECEMBER 31, 1995
(ALL NUMBER IN THOUSANDS EXCEPT NET ASSET VALUE PER SHARE)

<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments at cost........................................................................................ $ 111,586
---------------
---------------
Investments at value....................................................................................... $ 125,930
Cash....................................................................................................... 1
Receivables:
Investments sold......................................................................................... 1,695
Fund shares sold......................................................................................... 617
Interest................................................................................................. --
Dividends................................................................................................ 76
From adviser............................................................................................. --
Foreign currency contracts............................................................................... 57
---------------
Total Assets........................................................................................... 128,376
---------------
LIABILITIES
Payables:
Investments purchased.................................................................................... 725
Fund shares repurchased.................................................................................. 627
Advisory fee............................................................................................. 67
Accrued expenses........................................................................................... 46
---------------
Total Liabilities...................................................................................... 1,465
---------------
NET ASSETS................................................................................................... $ 126,911
---------------
Shares Outstanding, $.001 Par Value (unlimited shares authorized)............................................ 9,436
---------------
---------------
NET ASSET VALUE Per Share.................................................................................... $13.45
---------------
---------------
</TABLE>

- ------------
See Notes to Financial Statements.

----------------
71
<PAGE>
- ----------------

JANUS ASPEN GROWTH PORTFOLIO
STATEMENTS OF OPERATIONS

FOR THE YEAR OR PERIOD ENDED DECEMBER 31, 1995
(ALL NUMBERS IN THOUSANDS)

<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Interest................................................................................................... $ 813
Dividends.................................................................................................. 747
Foreign tax withheld....................................................................................... (16)
-------
Total investment income.................................................................................. 1,544
EXPENSES
Advisory fees.............................................................................................. 505
Transfer agent expenses.................................................................................... 5
Registration fees.......................................................................................... 20
System fees................................................................................................ 10
Custodian fees............................................................................................. 42
Insurance expenses......................................................................................... 2
Audit fees................................................................................................. 16
Other expenses............................................................................................. 6
-------
Total expenses........................................................................................... 606
-------
Less: Expense offset......................................................................................... (19)
-------
Net expenses................................................................................................. 587
-------
Less: Excess expense reimbursement........................................................................... --
-------
Net expenses after reimbursement............................................................................. 587
-------
Net investment income/(loss)................................................................................. 957
-------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Net realized gain/(loss) from securities transactions...................................................... 5,785
Net realized gain/(loss) from foreign currency............................................................. (330)
Net realized gain from futures contracts................................................................... --
Change in net unrealized appreciation or (depreciation) of investments..................................... 13,625
-------
Net gain/(loss) on investments............................................................................... 19,080
-------
Net increase/(decrease) in net assets resulting from operations.............................................. $ 20,037
-------
-------
</TABLE>

- ------------
See Notes to Financial Statements.

----------------
72
<PAGE>
- ----------------

JANUS ASPEN GROWTH PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS

FOR THE YEAR OR PERIOD ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994
(ALL NUMBERS IN THOUSANDS)

<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income/(loss).......................................................................... $ 957 $ 383
Net realized gain/(loss) from investment transactions................................................. 5,455 (749)
Change in unrealized net appreciation or (depreciation) of investments................................ 13,625 702
---------- ---------
Net increase/(decrease) in net assets resulting from operations..................................... 20,037 336
---------- ---------
DIVIDENDS AND DISTRIBUTIONS
Net investment income................................................................................. (2,611) (135)
Net realized gain from investment transactions........................................................ -- --
---------- ---------
Net decrease in net assets from dividends and distributions......................................... (2,611) (135)
---------- ---------
CAPITAL SHARE TRANSACTIONS
Shares sold........................................................................................... 70,676 38,467
Reinvested dividends and distributions................................................................ 2,611 135
Shares repurchased.................................................................................... (7,351) (2,736)
---------- ---------
Net increase/(decrease) in net assets from capital share transactions............................... 65,936 35,866
---------- ---------
Net increase/(decrease) in net assets................................................................... 83,362 36,067
NET ASSETS
Beginning of period................................................................................... 43,549 7,482
---------- ---------
End of Period......................................................................................... $ 126,911 $ 43,549
---------- ---------
---------- ---------
NET ASSETS CONSIST OF
Capital (par value and paid-in surplus)*.............................................................. $ 109,269 $ 43,334
Undistributed net investment income/(distribution in excess)*......................................... -- 87
Undistributed net realized gain/(loss) from investments*.............................................. 3,241 (648)
Unrealized appreciation/(depreciation) of investments................................................. 14,401 776
---------- ---------
$ 126,911 $ 43,549
---------- ---------
---------- ---------
TRANSACTIONS IN FUND SHARES
Shares sold........................................................................................... 5,726 3,640
Reinvested distributions.............................................................................. 198 13
---------- ---------
Total............................................................................................... 5,924 3,653
Shares repurchased.................................................................................... (608) (258)
---------- ---------
Net increase/(decrease)............................................................................. 5,316 3,395
---------- ---------
Shares outstanding beginning of period................................................................ 4,120 725
Shares outstanding end of period...................................................................... 9,436 4,120
---------- ---------
---------- ---------
PURCHASES AND SALES OF INVESTMENT SECURITIES (excluding short-term securities)
Purchases of securities............................................................................... $ 178,852 $ 48,240
Proceeds from sales of securities..................................................................... 119,370 30,973
Purchases of long-term U.S. Government obligations.................................................... -- --
Proceeds from sales of long-term U.S. Government obligations.......................................... -- --
</TABLE>

- ------------
*See Note 3 in Notes to Financial Statements.

----------------
73
<PAGE>
- ----------------

JANUS ASPEN GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS

FOR A SHARE OUTSTANDING THROUGHOUT EACH FISCAL YEAR OR PERIOD ENDED DECEMBER 31

<TABLE>
<CAPTION>
1995 1994 19931
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period............................................. $ 10.57 $ 10.32 $ 10.00
-------------- ------------- ------
Income from investment operations
Net investment income/(loss)................................................... .28 .09 .03
Net gains or (losses) on securities (both realized and unrealized)............. 2.90 .20 .32
-------------- ------------- ------
Total from investment operations............................................. 3.18 .29 .35
-------------- ------------- ------
Less distributions
Dividends (from net investment income)......................................... (.30) (.04) (.03)
Dividends (in excess of net investment income)................................. -- -- --
-------------- ------------- ------
Total distributions.......................................................... (.30) (.04) (.03)
-------------- ------------- ------
Net asset value, end of period................................................... $ 13.45 $ 10.57 $ 10.32
-------------- ------------- ------
-------------- ------------- ------
Total return**................................................................... 30.17% 2.76% 3.50%
-------------- ------------- ------
-------------- ------------- ------
Net assets, end of period (in thousands)......................................... $ 126,911 $ 43,549 $ 7,482
Average net assets for the period (in thousands)................................. 77,344 26,464 3,191
Ratio of expenses to average net assets*......................................... 0.78 %4 0.88 %3 0.25 %2
Ratio of net investment income to average net assets*............................ 1.24 % 1.45 % 2.54 %
Portfolio turnover rate*......................................................... 185 % 169 % 162 %
</TABLE>

- ------------
* Annualized for periods of less than one full year.

** Total return not annualized for periods of less than 1 full year.

1 Period September 13, 1993 (inception) to December 31, 1993

2 The ratio was 2.16% for the Growth Portfolio before waiver of certain fees
and/or voluntary reduction of advisor's fee to the effective rate of the
corresponding Janus Retail Fund.

3 The ratio was 1.23% for the Growth Portfolio before waiver of certain fees
and/or voluntary reduction of advisor's fee to the effective rate of the
corresponding Janus Retail Fund.

4 The ratio was 0.98% for the Growth Portfolio before waiver of certain fees
and/or voluntary reduction of advisor's fee to the effective rate of the
corresponding Janus Retail Fund.

----------------
74
<PAGE>
- ----------------

JANUS ASPEN GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1995

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Janus Aspen Series (the "Trust") was organized as a Delaware Trust on May 20,
1993 and is registered under the Investment Company Act of 1940 (the "1940 Act")
as a no-load, open-end management investment company. The Trust offers eight
portfolios or series of shares with differing investment objectives and
policies. Five portfolios invest primarily in equity securities: Janus Aspen
Growth Portfolio, Janus Aspen Aggressive Growth Portfolio, Janus Aspen
International Growth Portfolio, Janus Aspen Worldwide Growth Portfolio, and
Janus Aspen Balanced Portfolio. Two Portfolios invest primarily in income
producing securities: Janus Aspen Flexible Income Portfolio and Janus Aspen
Short-Term Bond Portfolio. Janus Money Market Portfolio invests in short-term
money market securities. Each Portfolio is diversified as defined in the 1940
Act, with the exception of the Aggressive Growth Portfolio which is
non-diversified.

Shares of the Trust are issued and redeemed only in connection with investment
in and payments under variable annuity contracts and variable life insurance
contracts (collectively "variable insurance contracts"), as well as certain
qualified retirement plans.

Effective May 1, 1995, the Trust issued a new series of shares, the Janus
Aspen Money Market Portfolio, a diversified portfolio investing primarily in
short-term money market securities. Janus Capital Corp. (the Trust's investment
advisor "Janus Capital") invested $10,000 of initial seed capital. Organization
costs for the Portfolio were borne by Janus Capital.

The following accounting policies have been consistently followed by the
Portfolios and are in conformity with accounting principles generally accepted
in the investment company industry.

INVESTMENT VALUATION: Securities are valued at the closing price for
securities traded on a principal securities exchange (U.S. or foreign) and on
the NASDAQ National Market. Securities traded on over-the-counter markets and
listed securities for which no sales are reported are valued at the latest bid
price (or yield equivalent thereof) obtained from one or more dealers making a
market for such securities or by a pricing service approved by the Trustees.
Short-term investments maturing within 60 days and all money market securities
in the Money Market Portfolio are valued at amortized cost, which approximates
market value. Foreign securities are converted to U.S. dollars using exchange
rates at the close of the New York Stock Exchange. When market quotations are
not readily available, securities are valued at fair value as determined in good
faith under procedures established by the Trustees.

INVESTMENT TRANSACTIONS AND INVESTMENT INCOME: Investment transactions are
accounted for as of the date purchased or sold. Dividend income is recorded on
the ex-dividend date. Interest income is recorded on the accrual basis and
includes amortization of discounts and premiums. Gains and losses are determined
on the identified cost basis, which is the same basis used for federal income
tax purposes.

FORWARD FOREIGN CURRENCY TRANSACTIONS AND FUTURES CONTRACTS: The Portfolios
enter into forward foreign currency contracts in order to hedge their exposure
to changes in foreign currency exchange rates on their foreign portfolio
holdings and to hedge certain firm purchase and sale commitments denominated in
foreign currencies. A forward currency contract is a commitment to purchase or
sell a foreign currency at a future date at a negotiated forward rate. The gain
or loss arising from the difference between the original contract and the
closing of such contract is included in net realized gain or loss on foreign
currency transactions. Currency gain and loss is also calculated on payables and
receivables that are denominated in foreign currencies. The payables and
receivables are generally related to security transactions and income.

Futures contracts are marked to market daily and the variation margin is
recorded as an unrealized gain or loss. When a contract is closed, a realized
gain or loss is recorded equal to the difference between the opening and closing
value of the contract. Generally, open forward and futures contracts are marked
to market for federal income tax purposes at fiscal year-end.

Foreign denominated assets and forward currency contracts may involve more
risks than domestic transactions, including: currency risk, political and
economic risk, regulatory risk, and market risk. Risks may arise from the
potential inability of a counterparty to meet the terms of a contract and from
unanticipated movements in the value of foreign currencies relative to the U.S.
dollar.

The Portfolios may enter into futures contracts and options on securities,
financial indices and foreign currencies; forward contracts; and interest rate
swaps and swap-related products. The Portfolios intend to use such derivative
instruments primarily to hedge or protect from adverse movements in securities
prices, currency rates or interest rates. The use of futures contracts and
options may involve risks such as the possibility of illiquid markets or
imperfect correlation between the value of the contracts and the underlying
securities, or that the counterparty will fail to perform its obligations.

----------------
75
<PAGE>
- ----------------

JANUS ASPEN GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1995

ADDITIONAL INVESTMENT RISK: A portion of the Flexible Income Portfolio may be
invested in lower rated debt securities that have a higher risk of default or
loss of value due to changes in the economy or in their respective industry.

ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.

DIVIDEND DISTRIBUTIONS AND EXPENSES: Each Portfolio, except the Money Market
Portfolio, makes semiannual distributions of substantially all of its investment
income and an annual distribution of its net realized capital gains, if any. The
Money Market Portfolio makes daily distributions of its income. All dividends
and capital gains distributions from a Portfolio will be automatically
reinvested into additional shares of that Portfolio.

Each Portfolio bears expenses incurred specifically on its behalf as well as a
portion of general expenses based generally on the relative net assets of each
Portfolio.

FEDERAL INCOME TAXES: No provision for income taxes is included in the
accompanying financial statements as the Portfolios intend to distribute to
shareholders all taxable investment income and realized gains and otherwise
comply with the Internal Revenue Code applicable to regulated investment
companies.

2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES

Investment advisory fees for each of the five equity Portfolios are payable to
Janus Capital based upon annual rates of 1% of the first $30 million of average
net assets, .75% of the next $270 million of average net assets, .70% of the
next $200 million of average net assets and .65% of the average net assets in
excess of $500 million. However, Janus Capital has voluntarily agreed to reduce
each equity Portfolio's advisory fee to the extent that such fee exceeds the
effective rate of the Janus retail fund corresponding to such Portfolio. The
effective rate is the advisory fee calculated by the corresponding retail fund
as of the last day of each calendar quarter (expressed as an annual rate). Janus
Aspen Growth Portfolio, Janus Aspen Aggressive Growth Portfolio, Janus Aspen
International Growth Portfolio, Janus Aspen Worldwide Growth Portfolio and Janus
Aspen Balanced Portfolio advisory fees are reduced to the effective rates of
Janus Fund, Janus Enterprise Fund, Janus Overseas Fund, Janus Worldwide Fund and
Janus Balanced Fund, respectively. The effective rate for each Portfolio for the
period ended December 31, 1995 was .65%, .75%, .82%, .68% and .81%,
respectively. The income Portfolios are each subject to advisory fees payable to
Janus Capital based upon annual rates of .65% of the first $300 million of
average net assets plus .55% of average net assets in excess of $300 million.
The Money Market Portfolio's advisory fee rate is .25% of average net assets.

As discussed in the prospectus, Janus Capital will reduce its fee to a
Portfolio to the extent that the Portfolio's normal operating expenses
(exclusive of brokerage commissions, interest and taxes) exceed 2 1/2% of the
first $30 million, 2% of the next $70 million and 1 1/2% of the balance of a
Portfolio's average net assets for a fiscal year. Janus Capital has also agreed
to reduce its fee to the extent that normal operating expenses exceed 1% of the
average net assets of the Flexible Income Portfolio, .65% of the average net
assets of the Short-Term Bond Portfolio and .50% of the average net assets of
the Money Market Portfolio for a fiscal year.

Officers and certain trustees of the Trust are also officers and/or directors
of Janus Capital; however, they receive no compensation from the Trust.

DST Systems Inc. (DST), an affiliate of Janus Capital through a degree of
common ownership, provides accounting systems to the Portfolios. DST Securities
Inc., a wholly owned subsidiary of DST, provides brokerage services on certain
portfolio transactions. Brokerage commissions paid to DST Securities Inc. serve
to reduce custody and other fees and expenses. Brokerage commissions paid, fees
reduced, and the net fees paid to DST for the period ended December 31, 1995 are
noted below:

<TABLE>
<CAPTION>
DST SECURITIES,
DST SECURITIES INC. INC. EXPENSE DST SYSTEMS
COMMISSIONS PAID* REDUCTION* COSTS
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio............................................... $ 9,498 $ 7,123 $ 11,305
</TABLE>

- ------------
*The difference between commissions paid to DST Securities, Inc. and expenses
reduced constituted commissions paid to an unaffiliated clearing broker.

----------------
76
<PAGE>
- ----------------

JANUS ASPEN GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1995

3. FEDERAL INCOME TAX

Gains and losses on forward currency contracts and foreign currency gains and
losses on debt instruments are treated as ordinary income for federal income tax
purposes pursuant to Section 988 of the Internal Revenue Code. Listed below are
such gains or losses for the period ended December 31, 1995. There were no net
capital loss carryovers as of December 31, 1995. The aggregate cost of
investments and the composition of unrealized appreciation and depreciation of
investments for federal income tax purposes as of December 31, 1995 are also
noted below.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
CURRENCY -------------------------------------------------------------
GAINS/ NET CAPITAL FEDERAL TAX UNREALIZED UNREALIZED
(LOSSES) LOSS CARRYOVERS COST APPRECIATION (DEPRECIATION)
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio.............. $ (243,276) -- $ 111,589,037 $ 15,112,571 $ (771,236)

APPRECIATION/
(DEPRECIATION)
<S> <C>
- ------------------------------------------
Janus Aspen Growth Portfolio.............. $14,341,335
</TABLE>

Net investment income distributions and capital gains distributions are
determined in acordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are due to differing
treatments for items such as deferral of wash sales, foreign currency
transactions, net operating losses and capital loss carryforwards. Permanent
items identified in the period ended December 31, 1995 have been reclassified
among the components of net assets as follows:

<TABLE>
<CAPTION>
UNDISTRIBUTED NET
UNDISTRIBUTED NET REALIZED PAID-IN
INVESTMENT INCOME GAINS/(LOSSES) CAPITAL
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio............................................ $ 1,566,936 $ (1,566,936) --
</TABLE>

4. EXPENSES

The Portfolios' expenses may be reduced through expense reduction
arrangements. Those arrangements include the use of broker commissions paid to
DST Securities, Inc. and uninvested cash balances earning interest with the
Portfolios' custodian. The Statements of Operations reflect the total expenses
before any offset, the amount of the offset and the net expenses. The expense
ratios listed in the Financial Highlights reflect total expenses prior to any
expense offset.

These changes are part of new disclosure requirements beginning this fiscal
year. Prior years do not reflect these changes. Listed in the table are the
expense ratios before and after offsets.

<TABLE>
<CAPTION>
DST SECURITIES,
EXPENSE RATIO COMPARISONS EXPENSE RATIO ACTUAL EXPENSE INC. EXPENSE CUSTODY FEE
FOR FISCAL YEAR DECEMBER 31, 1995 PRIOR TO OFFSETS RATIO REDUCTION* REDUCTION**
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio................................. 0.78% 0.76% $ 7,123 $ 12,092
</TABLE>

- ------------
*The difference between commissions paid to DST Securities, Inc. and expenses
reduced constituted commissions paid to an unaffiliated clearing broker.
**Interest earned on uninvested cash balances which serves to reduce the
custodian fee.

----------------
77
<PAGE>
- ----------------

JANUS ASPEN GROWTH PORTFOLIO
REPORT OF INDEPENDENT ACCOUNTANTS

To the Trustees and Shareholders of Janus Aspen Series

In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Janus Aspen Growth Portfolio, Janus
Aspen Aggressive Growth Portfolio, Janus Aspen International Growth Portfolio,
Janus Aspen Worldwide Growth Portfolio, Janus Aspen Balanced Portfolio, Janus
Aspen Flexible Income Portfolio, Janus Aspen Short-Term Bond Portfolio, and
Janus Aspen Money Market Portfolio (constituting the Janus Aspen Series,
hereafter referred to as the "Funds"), at December 31, 1995, the results of each
of their operations for the year then ended, the changes in each of their net
assets and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1995 by
correspondence with the custodian and the application of alternative auditing
procedures for unsettled security transactions, provide a reasonable basis for
the opinion expressed above.

Price Waterhouse LLP
Denver, Colorado
January 30, 1996

----------------
78
<PAGE>
- ----------------

LEXINGTON EMERGING MARKETS FUND, INC.
MANAGEMENT DISCUSSION

Dear Fellow Shareholders:

It was another difficult year for emerging market funds. The Lexington
Emerging Markets Fund declined 3.93%* during 1995. The unmanaged Morgan Stanley
Capital International Emerging Markets Index fell an even greater 10.8%. The
average emerging markets fund fell 4.5% during 1995 according to Lipper
Analytical Services, Inc. Returns remained in negative territory for the fourth
quarter as the unmanaged Morgan Stanley Capital International Emerging Markets
Index fell 2.4%. The Lexington Emerging Markets Fund declined 3.05%* while the
average emerging market fund suffered declines of 3.3% during the fourth
quarter.

There were only a few bright spots in the emerging market arena in 1995.
Israeli stocks rose an average 21.8% as falling interest rates and further signs
of peace propelled equities. South African equities also saw strong returns,
appreciating 17.3%, while Greek equities posted gains of 10.2%. The best
strategy for 1995 would have been to hold large cash positions with heavy
investments in the few smaller yet strong performing markets. The major regions
in which most emerging market funds invest declined sharply. The unmanaged
Morgan Stanley Far East Index fell 10.5% during 1995, while the unmanaged Morgan
Stanley Latin America Index declined 15.8% for the year. The Lexington Emerging
Markets Fund did relatively well due to a large holding of Israeli stocks and
high cash levels at the beginning of the year.

Emerging markets performed poorly for several reasons in 1995. Latin American
markets were more severely damaged due to the collapse of the Mexican peso at
the end of 1994. Mexico fell into a severe recession as GDP fell by almost 10%.
Capital fled the Latin American region, resulting in a sharp economic
contraction in Mexico as well as in Argentina and Brazil. The economic
contraction not only damaged corporate profits but also led to a crisis in the
Mexican and Argentine banking systems. Far Eastern markets suffered from the
typical cyclical effects of economic overheating. Central banks responded to
rising current account deficits, which became more difficult to fund as foreign
capital inflows diminished, by raising interest rates. As usual, rising interest
rates had a negative impact on equity prices. Finally, with returns so strong in
the U.S. market, investors stayed at home in 1995 instead of searching abroad
for higher returns.

The outlook for 1996 is exciting. Given two years of consolidation after a
spectacular 1993, valuation levels are far more attractive today than they have
been for some time. Signs of economic slowing in Asia should begin to appear,
improving the interest rate outlook and propelling stocks higher. Mexico and
Latin America face a difficult recovery but there are also many opportunities.
Mexico is rebuilding its economy on a sounder footing. Exports are now 30% of
Mexican GDP and growing rapidly and the Mexican current account deficit has
moved into surplus.

We see tremendous opportunities in Eastern Europe, especially Poland. Western
European countries, due to high labor costs, are increasingly moving production
capacity to low wage countries with Poland becoming a favorite target. This is
in many ways similar to Japanese investment earmarked for Asia in the '80s and
'90s. Israel also continues to offer attractive investments due to its highly
skilled and cheap labor force, and better macroeconomic management from the
government and the Bank of Israel.

The Lexington Emerging Markets Fund has redeployed most of its high cash
position back into equities due to our positive stance on emerging markets. The
largest weighting remains in Asia as these dynamic, fast growing economies offer
the prospect of strong long-term earnings growth. Latin America now constitutes
over 20% of the Fund's assets as we expect confidence to return to the region.
If capital flows increase into Latin America those economies will reap the
benefits of falling interest rates and healthier currencies. Also, due to the
sharp contraction in the Latin American markets, several outstanding companies
have become very cheap and should provide excellent returns over the long term
from these depressed levels. We believe the Fund's weighting in Eastern Europe
will differentiate the Lexington Emerging Markets Fund from other emerging
markets funds in 1996. It is in this region where we believe the best value
exists. This is still a relatively undiscovered area in the emerging markets
community. The Polish economy is growing 6%, inflation although high at 24%,
continues to decline, and there are several rapidly growing companies with world
class strategic partners trading at low single digit price to earnings ratios.

----------------
79
<PAGE>
Investing in emerging markets is certainly not without risks. Besides those
risks usually associated with emerging markets investments we will be watching
out for signs of rising inflation and economic pick-up in the developed world.
Such a scenario would put pressure on interest rates and thus have a negative
effect on the emerging markets. We believe that U.S. investors will begin to
look abroad again in 1996. U.S. returns are likely to be much more pedestrian in
1996 than they were in 1995. Barings Securities estimates $50 billion will flow
into emerging markets in 1996 which would be triple the 1995 level.

We appreciate your continued support and would welcome the opportunity to
discuss any questions you may have about your investment.

Sincerely,
[SIGNATURE]
[SIGNATURE]
Richard T. Saler
Robert M. DeMichele
PORTFOLIO MANAGER
PRESIDENT
January, 1996
January, 1996
- ------------
* -3.93% and -1.85% are the one year and since commencement (3/30/94) average
annual standard total returns, respectively, for the period ended December 31,
1995. Investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than at
their original cost. Total return represents past performance.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
LEXINGTON EMERGING MARKETS FUND, INC.,
AND THE UNMANAGED MORGAN STANLEY CAPITAL INTERNATIONAL (EAFE) INDEX

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
MORGAN STANLEY CAPITAL INTERNATIONAL (EAFE)
LEXINGTON EMERGING MARKETS FUND INDEX
<S> <C> <C>
3/30/94 $ 10,000 $ 10,000
12/31/94 $ 10,076 $ 10,414
12/31/95 $ 9,679 $ 11,581
</TABLE>

This graph, prepared in accordance with SEC regulations, compares a $10,000
investment in the Fund with a similar investment in the Morgan Stanley Capital
International (EAFE) Index. Results for the Fund and the Morgan Stanley Capital
International (EAFE) Index include the reinvestment of all dividend and capital
gain distributions. The Fund's Inception Date was 3/30/94. Investment return and
principal value of an investment will fluctuate so that an investor's shares
when redeemed may be worth more or less than at their original cost. Total
return represents past performance and it is not predictive of future results.

----------------
80
<PAGE>
- ----------------

LEXINGTON EMERGING MARKETS FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
DECEMBER 31, 1995

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS--95.8% SHARES (NOTE 1)
<S> <C> <C>
- ----------------------------------------------------------------------------------------
BRAZIL--7.3%
Coteminas................................................... 310,000 $ 103,685
Cia Acos Especiais Itabir (Preferred shares)................ 13,894,500 80,790
Compania Vale Do Rio Doce (ADR) (Preferred shares).......... 3,100 127,100
Telecomunicacoes Brasileiras S.A............................ 1,787,000 86,067
Telecomunicacoes de Sao Paulo S.A........................... 500,000 73,582
Usinas Siderurgicas de Minas Gerais S.A..................... 120,365,000 97,858
-----------
569,082
-----------

CHILE--5.0%
Banco O'Higgins (ADR)....................................... 5,000 115,000
Banco Osorno y La Union (ADR)............................... 7,500 104,063
Chile Fund, Inc............................................. 2,000 52,000
Madeco, S.A. (ADR).......................................... 4,550 122,850
-----------
393,913
-----------

GREECE--3.8%
AEGEK....................................................... 3,400 29,225
Delta Dairy S.A. (Preferred shares)......................... 4,950 73,000
Michaniki S.A............................................... 5,300 68,112
Titan Cement Company........................................ 3,100 129,967
-----------
300,304
-----------

HONG KONG--4.6%
Dao Heng Bank Group, Ltd.................................... 33,000 118,650
Henderson Land Development Company, Ltd..................... 13,000 78,350
HSBC Holdings Plc........................................... 10,800 163,425
-----------
360,425
-----------

HUNGARY--1.1%
Pick Szeged................................................. 2,220 84,522
-----------

INDIA--3.3%
India Fund, Inc............................................. 14,000 124,250
Bajaj Auto, Ltd.(2)......................................... 2,500 65,300
Hindalco Industries, Ltd.(2)................................ 2,100 71,400
-----------
260,950
-----------

INDONESIA--7.0%
PT Bank Bali................................................ 500 985
PT Hanjaya Mandala Sampoerna................................ 9,500 98,993
PT Hero Supermarket......................................... 28,000 60,070
PT Indah Kiat Pulp & Paper Corporation...................... 56,234 41,240
PT Indosat (ADR)............................................ 1,000 36,500
PT Modern Photo Film Company................................ 12,000 69,615
PT Semen Cibinong........................................... 53,000 132,268
</TABLE>

----------------
81
<PAGE>
- ----------------

LEXINGTON EMERGING MARKETS FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 1)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
INDONESIA (CONTINUED)
PT Semen Gresik............................................. 27,000 $ 75,657
PT Sinar Mas Agro Resources Agricultural Production and
Technology Corporation.................................... 54,000 30,144
-----------
545,472
-----------

ISRAEL--6.3%
Africa-Israel Investments, Ltd.(2).......................... 10 12,058
Bank Hapoalim, Ltd.......................................... 54,936 90,682
First International Bank of Israel.......................... 400 46,782
First Israel Fund, Inc...................................... 8,200 95,325
Koor Industries, Ltd........................................ 1,060 105,244
Osem Investment, Ltd........................................ 8,832 52,816
Teva Pharmaceutical Industries, Ltd. (ADR).................. 1,300 60,206
The Israel Land Developement Company........................ 9,000 26,036
-----------
489,149
-----------

MALAYSIA--8.4%
Arab Malaysian Merchant Bank Holdings Bhd................... 6,000 68,544
Berjaya Singer Bhd.......................................... 16,000 19,917
Cement Industries of Malaysia Bhd........................... 25,000 81,003
Genting Bhd................................................. 5,000 41,757
IOI Properties Bhd.......................................... 20,000 50,030
Malayan Banking Bhd......................................... 8,000 67,441
New Straits Times Press Bhd................................. 32,000 107,150
Sime Darby Bhd.............................................. 25,000 66,476
Sungei Way Holdings Bhd..................................... 31,000 111,739
Tanjong Plc................................................. 9,000 26,236
Tenaga Nasional Bhd......................................... 3,000 11,818
-----------
652,111
-----------

MEXICO--8.2%
Corporacion Industrial San Luis S.A......................... 22,020 113,254
Grupo Casa Autrey, S.A. de C.V. (ADR)....................... 6,000 80,250
Grupo Industrial Maseco S.A. de C.V......................... 171,000 104,648
Grupo Televisa S.A. (ADR)................................... 6,700 150,750
Transportacion Maritima Mexicana S.A. de C.V. "L" (ADR)..... 9,000 75,375
Tubos De Acero De Mexico S.A. (ADR)(2)...................... 16,800 117,600
-----------
641,877
-----------

PAKISTAN--0.5%
Pakistan Investment Fund, Inc............................... 7,700 40,425
-----------

PHILIPPINES--6.4%
Ayala Land, Inc. "B"........................................ 120,750 147,425
Filinvest Land Inc.(2)...................................... 444,250 142,377
International Container Terminal Service, Inc............... 92,750 48,657
</TABLE>

----------------
82
<PAGE>
- ----------------

LEXINGTON EMERGING MARKETS FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 1)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
PHILIPPINES (CONTINUED)
Manila Electric Company..................................... 3,000 $ 24,495
Philippine Commercial International Bank(1)................. 4,800 44,319
San Miguel Corporation "B".................................. 6,500 22,196
Universal Robina Corporation................................ 140,200 69,538
-----------
499,007
-----------

POLAND--6.7%
Bank Rozwoju Eksportu S.A................................... 7,400 112,622
Bank Slaski S.A............................................. 500 29,119
Debica S.A.................................................. 2,900 43,782
Elektrim Towarzystwo Handlowe S.A........................... 32,300 109,458
Polifarb Cieszyn Wroclaw S.A................................ 14,400 54,643
Stomil Olsztyn S.A.......................................... 8,900 83,076
Universal S.A............................................... 2,500 7,102
Wedel S.A................................................... 520 17,200
Zaklady Piwowarski W Zylocu S.A............................. 920 63,475
-----------
520,477
-----------

PORTUGAL--1.9%
Portugal Telecom S.A. (ADR)(2).............................. 7,464 140,261
Unicer - Uniao Cervejeira S.A............................... 600 10,013
-----------
150,274
-----------

SINGAPORE--7.0%
Development Bank of Singapore, Ltd.......................... 9,000 112,038
Fraser & Neave, Ltd......................................... 6,000 76,390
Jurong Engineering, Ltd..................................... 5,000 29,177
Keppel Corporation, Ltd..................................... 9,000 80,209
Oversea-Chinese Banking Corporation, Ltd.................... 11,000 137,714
Overseas Union Bank, Ltd.................................... 16,000 110,341
-----------
545,869
-----------

SOUTH AFRICA--7.4%
Anglo American Corporation of South Africa, Ltd. (ADR)...... 300 18,169
Anglo American Platinum (ADR)(2)............................ 4,442 25,284
Barlow, Ltd. (ADR).......................................... 7,500 106,415
Liberty Life Association of Africa, Ltd..................... 1,500 46,508
Liberty Life Association of Africa, Ltd. (ADR).............. 3,100 95,499
Malbak, Ltd.(1)............................................. 5,300 36,720
Malbak, Ltd................................................. 5,400 37,413
Rustenburg Platinum Holdings, Ltd. (ADR).................... 6,710 110,439
South African Breweries, Ltd................................ 1,400 51,283
South African Breweries, Ltd. (ADR)......................... 1,422 52,081
-----------
579,811
-----------
</TABLE>

----------------
83
<PAGE>
- ----------------

LEXINGTON EMERGING MARKETS FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 1)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
SOUTH KOREA--1.1%
Pohang Iron & Steel Company, Ltd............................ 1,200 $ 78,432
Pohang Iron & Steel Company, Ltd. (ADR)..................... 400 8,750
-----------
87,182
-----------

TAIWAN--1.2%
Taiwan Fund, Inc............................................ 4,537 93,009
-----------

THAILAND--6.7%
Advanced Information Service Plc............................ 4,600 81,478
Bangkok Bank, Ltd........................................... 8,000 97,220
Matichon Public Company, Ltd................................ 6,000 35,980
Phatra Thanakit Company, Ltd................................ 5,500 47,180
Saha Pathanapibul Company, Ltd.............................. 1,900 3,545
Siam City Cement Company, Ltd............................... 4,600 71,978
Thai Farmers Bank Public Company, Ltd....................... 8,000 80,699
The Siam Cement Company, Ltd................................ 1,300 72,072
Total Access Communication Plc(1)........................... 5,400 35,100
-----------
525,252
-----------

UNITED KINGDOM--1.2%
Antofagasta Holdings Plc.................................... 21,300 96,569
-----------

UNITED STATES--0.1%
Freeport McMoran Copper & Gold (Preferred shares)........... 300 8,400
-----------

VENEZUELA--0.6%
Ceramanic Carobobo ADR...................................... 3,240 3,467
Mantex S.A.C.A. (ADR)(2).................................... 5,520 26,220
Mavesa S.A. (ADR)(1,2)...................................... 1,845 6,919
Mavesa, S.A. (ADR)(2)....................................... 2,050 7,688
-----------
44,294
-----------

TOTAL COMMON STOCKS (cost $7,554,923)....................... 7,488,374
-----------
<CAPTION>

PRINCIPAL
SHORT-TERM INVESTMENTS AMOUNT VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS: 11.4%
U.S. Treasury Bill 4.92%, due 03/14/96...................... $ 400,000 396,009
U.S. Treasury Bill 5.30%, due 01/04/96...................... 100,000 99,956
U.S. Treasury Bill 5.25%, due 01/18/96...................... 300,000 299,256
U.S. Treasury Bill 5.295%, due 05/09/96..................... 100,000 98,103
-----------

TOTAL SHORT-TERM INVESTMENTS (cost $893,324)................ 893,324
-----------
</TABLE>

----------------
84
<PAGE>
- ----------------

LEXINGTON EMERGING MARKETS FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
DECEMBER 31, 1995

<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS (CONTINUED) AMOUNT VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS: 11.4% (CONTINUED)
TOTAL INVESTMENTS--
(cost $8,448,247+)(Note 1) 107.2% 8,381,698
Liabilities in excess of other assets-- (7.2%) (567,037)
------------- -----------
TOTAL NET ASSETS--(equivalent to $9.38 per share on 832,893
shares outstanding) 100.0% $ 7,814,661
------------- -----------
------------- -----------
</TABLE>

------------------------
NOTES TO STATEMENT OF NET ASSETS

(1)The following securities were purchased under Rule 144A of the
Securities Act of 1933 and, unless registered under the Act or
exempted from registration, may be sold only to qualified
institutional investors.

<TABLE>
<CAPTION>
ACQUISITION AVERAGE COST PERCENT OF
ISSUER DATE PER SHARE MARKET VALUE NET ASSETS
- --------------------------------------------- ----------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Malbak, Ltd.................................. 07/25/95 $ 5.75 $ 36,720 .47%
Mavesa S.A. (ADR)............................ 03/30/95 8.86 6,919 .09%
Philippine Commercial International Bank..... 08/04/95 8.47 44,319 .57%
Total Access Communication Plc............... 09/19/95 6.31 35,100 .45%
------------ -----------
$ 123,058 1.58%
------------ -----------
------------ -----------
</TABLE>

Pursuant to guidelines adopted by the Fund's Board of Directors,
these unregistered securities have been deemed to be illiquid. The
Fund currently limits investment in illiquid securities to 15% of
the Fund's net assets, at market value, at the time of purchase.
------------------------
(2)Non-income producing securities.
ADR--American Depository Receipt.
+Aggregate cost for Federal income tax purposes is identical.

NET ASSETS BY INDUSTRY CONCENTRATION

At December 31, 1995, the composition of the Fund's net assets by
industry concentration was as follows:

<TABLE>
<S> <C>
Banking..................................................... 18.6%
Capital Equipment........................................... 4.1
Construction & Housing...................................... 1.7
Consumer Durable............................................ 3.7
Consumer NonDurable......................................... 11.1
Financial Services.......................................... 3.3
Health Care................................................. 1.8
Materials................................................... 19.5
Merchandising............................................... 0.8
Multi-Industry.............................................. 11.8
Real Estate................................................. 5.6
Services.................................................... 7.7
Telecommunications.......................................... 4.2
Trade....................................................... 1.6
U.S. Government obligations................................. 11.4
Utilities................................................... 0.3
Other liabilities........................................... (7.2)
------
Total Net Assets........................................ 100.0%
------
------
</TABLE>

------------------------
The Notes to Financial Statements are an integral part of this
statement.

----------------
85
<PAGE>
- ----------------

LEXINGTON EMERGING MARKETS FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995

<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------

ASSETS
Investments, at value (cost $8,448,247) (Note 1).................... $ 8,381,698
Cash................................................................ 70,001
Receivable for shares sold.......................................... 44,538
Dividends and interest receivable................................... 12,289
Foreign taxes recoverable........................................... 12
Deferred organization expenses, net (Note 1)........................ 14,502
Due from Lexington Management Corporation (Note 2).................. 8,927
-----------
Total Assets.................................................... 8,531,967
-----------
LIABILITIES
Payable for shares redeemed......................................... 45,410
Payable for investment securities purchased......................... 596,373
Accrued expenses.................................................... 75,523
-----------
Total Liabilities............................................... 717,306
-----------
NET ASSETS (equivalent to $9.38 per share on 832,893 shares
outstanding) (Note 3)................................................ $ 7,814,661
-----------
-----------
NET ASSETS consist of:
Capital stock--authorized 500,000,000 shares, $.001 par value per
share............................................................... $ 833
Additional paid-in capital.......................................... 8,390,026
Undistributed net investment income (Note 1)........................ 1,876
Accumulated net realized loss on investments and foreign currency
holdings (Notes 1 and 6)............................................ (511,559)
Net unrealized depreciation of investments and foreign currency
holdings............................................................ (66,515)
-----------
NET ASSETS...................................................... $ 7,814,661
-----------
-----------
</TABLE>

- ------------
The Notes to Financial Statements are an integral part of this statement.

----------------
86
<PAGE>
- ----------------

LEXINGTON EMERGING MARKETS FUND, INC.
STATEMENT OF OPERATIONS
DECEMBER 31, 1995

<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------

INVESTMENT INCOME
Interest Income..................................................... $ 57,145
Dividend Income..................................................... 123,399
----------
180,544
Less: Foreign tax expense........................................... 15,380
----------
Total investment income......................................... $ 165,164

EXPENSES
Investment advisory fee (Note 2).................................... 53,143
Accounting and shareholder services fees (Note 2)................... 13,314
Custodian and transfer agent fees................................... 81,142
Printing and mailing................................................ 41,370
Registration fees................................................... 7,088
Directors' fees..................................................... 13,220
Amortization of deferred organization expenses (Note 1)............. 4,440
Audit and legal fees................................................ 22,100
Computer processing fees............................................ 14,165
Other expenses...................................................... 5,936
----------
Total expenses.................................................... 255,918
Less: expenses recovered under contract with investment adviser
(Note 2).......................................................... 173,670
----------
82,248
----------
Net investment income......................................... 82,916
REALIZED AND UNREALIZED LOSS ON INVESTMENTS (Note 4)
Realized loss on:
Investments....................................................... (425,641)
Foreign currency transactions..................................... (4,821)
----------
Net realized loss............................................... (430,462)
Net change in unrealized depreciation on:
Investments....................................................... 161,277
Foreign currency translations of other assets and liabilities..... 63
----------
Net unrealized change in depreciation........................... 161,340
----------
Net realized and unrealized loss................................ (269,122)
----------
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS...................... $ (186,206)
----------
----------
</TABLE>

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
MARCH 30, 1994
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
DECEMBER 31, 1995 DECEMBER 31, 1994
<S> <C> <C>
- -----------------------------------------------------------------------------------------
Net investment income............................. $ 82,916 $ 14,482
Net realized loss from investment transactions.... (430,462) (2,132)
Unrealized appreciation (depreciation) of
investments...................................... 161,340 (227,855)
----------------- -----------------
Net decrease in net assets resulting from
operations...................................... (186,206) (215,505)
Distributions to shareholders from net investment
income........................................... (76,219) (10,100)
Distributions to shareholders in excess of net
realized
gain on investments (Note 1)..................... -- (88,168)
Increase in net assets from capital share
transactions (Note 3)............................ 3,453,270 4,937,589
----------------- -----------------
Net increase in net assets.................. 3,190,845 4,623,816
NET ASSETS
Beginning of period............................. 4,623,816 --
----------------- -----------------
End of period (including undistributed net
investment income of $1,876 and $346,
respectively)................................... $7,814,661 $4,623,816
----------------- -----------------
----------------- -----------------
</TABLE>

- ------------
The Notes to Financial Statements are an integral part of these statements.

----------------
87
<PAGE>
- ----------------

LEXINGTON EMERGING MARKETS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994

1. SIGNIFICANT ACCOUNTING POLICIES

Lexington Emerging Markets Fund, Inc. (the "Fund") is an open-end diversified
management investment company registered under the Investment Company Act of
1940, as amended. The Fund's investment objective is to seek long-term growth of
capital primarily through investment in equity securities of companies domiciled
in, or doing business in emerging countries and emerging markets. With the
exception of shares held in connection with initial capital of the Fund, shares
of the Fund are currently being offered to participating insurance companies for
allocation to certain accounts for the purpose of funding variable annuity
contracts issued by the participating insurance companies. The Fund commenced
operations on March 30, 1994. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements:

SECURITIES: Security transactions are accounted for on a trade date basis.
Realized gains and losses from investment transactions are reported on the
identified cost basis. Investments are stated at market value based on closing
prices reported by the exchange on which the securities are traded, on the last
business day of the period or, for over-the-counter securities, at the average
between bid and asked prices. Securities for which market quotations are not
readily available and other assets are valued at fair value as determined by the
management and approved in good faith by the Board of Directors. Short-term
securities are stated at amortized cost, which approximates market value. All
investments quoted in foreign currency are valued in U.S. dollars on the basis
of the foreign currency exchange rate prevailing at the close of business.
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Interest income is accrued as earned.

FOREIGN CURRENCY TRANSACTIONS: Foreign currencies (and receivables and
payables denominated in foreign currencies) are translated into U.S. dollar
amounts at current exchange rates. Translation gains or losses resulting from
changes in exchange rates and realized gains and losses on the settlement of
foreign currency transactions are reported in the statement of operations. In
addition, the Fund may enter into forward foreign exchange contracts in order to
hedge against foreign currency risk. These contracts are marked to market daily,
by recognizing the difference between the contract exchange rate and the current
market rate as unrealized gains or losses. Realized gains or losses are
recognized when contracts are closed.

DISTRIBUTIONS: In accordance with Statement of Position 93-2: Determination,
Disclosure and Financial Statement Presentation of Income, Capital Gain and
Return of Capital Distributions by Investment Companies, as of December 31, 1995
and 1994, book and tax basis differences amounting to $5,167 and $4,036
respectively, have been reclassified from accumulated net realized loss on
investments to undistributed net investment income. Accumulated net realized
loss on investments reflects temporary book-tax differences arising from losses
resulting from wash sales and Internal Revenue Code Excise Tax distribution
requirements and associated post-October loss deferral provisions, which
effectively allow the deferral of net realized capital losses to the next tax
year.

FEDERAL INCOME TAXES: It is the Fund's intention to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Therefore, no provision for Federal income taxes has been made.

DEFERRED ORGANIZATION EXPENSES: Organization expenses aggregating $22,290
have been deferred and are being amortized on a straight-line basis over five
years.

2. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATE

The Fund pays an investment advisory fee to Lexington Management Corporation
("LMC") at the rate of .85% of average daily net assets. LMC has agreed to
voluntarily limit the total expenses of the Fund (excluding interest, taxes,
brokerage commissions and extraordinary expenses but including management fee
and operating expenses) to an annual rate of 1.30% of the Fund's average net
assets. For the year ended December 31, 1995 expense reimbursement amounted to
$173,670 and is set forth in the statement of operations.

The Fund also reimburses LMC for certain expenses, including accounting and
shareholder servicing costs, which are incurred by the Fund, but paid by LMC.

----------------
88
<PAGE>
- ----------------

LEXINGTON EMERGING MARKETS FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994

3. CAPITAL STOCK

Transactions in capital stock were as follows:

<TABLE>
<CAPTION>
MARCH 30, 1994
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO DECEMBER
DECEMBER 31, 1995 31, 1994
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Shares sold........................................................ 845,934 $ 7,996,657 497,613 $ 5,246,882
Shares issued on reinvestment of dividends......................... 8,108 76,218 9,946 98,265
--------- ------------ --------- ------------
854,042 8,072,875 507,559 5,345,147
Shares redeemed.................................................... (490,164) (4,619,605) (38,544) (407,558)
--------- ------------ --------- ------------
Net increase..................................................... 363,878 $ 3,453,270 469,015 $ 4,937,589
--------- ------------ --------- ------------
--------- ------------ --------- ------------
</TABLE>

4. PURCHASES AND SALES OF INVESTMENT SECURITIES

The cost of purchases and proceeds from sales of securities for the year ended
December 31, 1995, excluding short-term securities, were $10,411,784 and
$4,689,910, respectively.

At December 31, 1995, aggregate gross unrealized appreciation for all
securities and foreign currency holdings (including foreign currency receivables
and payables) in which there is an excess of value over tax cost amounted to
$474,489 and aggregate gross unrealized depreciation for which there is an
excess of tax cost over value amounted to $541,004.

5. INVESTMENT AND CONCENTRATION RISKS

The Fund's investment in foreign securities may involve risks not present in
domestic investments. Since foreign securities may be denominated in a foreign
currency and involve settlement and pay interest or dividends in foreign
currencies, changes in the relationship of these foreign currencies to the U.S.
dollar can significantly affect the value of the investments and earnings of the
Fund. Foreign investments may also subject the Fund to foreign government
exchange restrictions, expropriation, taxation or other political, social or
economic developments, all of which could affect the market and/or credit risk
of the investments.

In addition to the risks described above, risks may arise from forward foreign
currency contracts from the potential inability of counterparties to meet the
terms of their contracts.

6. FEDERAL INCOME TAXES-CAPITAL LOSS CARRYFORWARDS

Capital loss carryforwards available for federal income tax purposes as of
December 31, 1995 are approximately $447,839 expiring in 2003.

To the extent any future capital gains are offset by these losses, such gains
would not be distributed to shareholders.

Treasury regulations were issued in early 1990 which provide that capital
losses incurred after October 31 of a Fund's taxable year can be deemed to have
occurred on the first day of the following taxable year (i.e., January 1). The
regulations indicate that a fund may elect to retroactively apply these rules
for purposes of computing taxable income. Accordingly, the 1995 post-October
losses of $63,720 has been deemed to have occurred in 1996 for federal income
tax purposes.

----------------
89
<PAGE>
- ----------------

LEXINGTON EMERGING MARKETS FUND, INC.
FINANCIAL HIGHLIGHTS
Selected per share data for a share outstanding throughout the period:

<TABLE>
<CAPTION>
MARCH 30, 1994
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------ ------------------
<S> <C> <C>
Net asset value, beginning of period.................................................. $ 9.86 $ 10.00
------- -------
Income (loss) from investment operations:
Net investment income............................................................... 0.09 0.03
Net realized and unrealized gain (loss) on investments.............................. (0.48) 0.04
------- -------
Total income (loss) from investment operations.................................. (0.39) 0.07
------- -------
Less distributions:
Dividend from net investment income................................................. (0.09) (0.02)
Distributions in excess of net realized capital gains (temporary book-tax
difference)....................................................................... -- (0.19)
------- -------
Total distributions............................................................. (0.09) (0.21)
------- -------
Net asset value, end of period........................................................ $ 9.38 $ 9.86
------- -------
------- -------
Total return.................................................................... (3.93%) 0.76%
Ratio to average net assets:
Expenses, before reimbursement...................................................... 4.09% 6.28%*
Expenses, net of reimbursement...................................................... 1.32% 1.30%*
Net investment loss, before reimbursement........................................... (1.45%) (4.29%)*
Net investment income............................................................... 1.33% 0.70%*
Portfolio turnover.................................................................... 88.92% 71.21%*
Net assets at end of period (000's omitted)........................................... $ 7,815 $ 4,624
</TABLE>

- ------------
* Annualized

----------------
90
<PAGE>
- ----------------

LEXINGTON EMERGING MARKETS FUND, INC.
INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Lexington Emerging Markets Fund, Inc.:

We have audited the accompanying statements of net assets (including the
portfolio of investments) and assets and liabilities of Lexington Emerging
Markets Fund, Inc. as of December 31, 1995, the related statements of operations
for the year then ended, and the statement of changes in net assets, and the
financial highlights for the year then ended and for the period from March 30,
1994 (commencement of operations) to December 31, 1994. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform 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 as of
December 31, 1995 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Lexington Emerging Markets Fund, Inc. as of December 31, 1995, the results of
its operations for the year then ended and the changes in its net assets and the
financial highlights for the year then ended and for the period from March 30,
1994 to December 31, 1994, in conformity with generally accepted accounting
principles.

KPMG Peat Marwick LLP

New York, New York
January 29, 1996

----------------
91
<PAGE>
- ----------------

SCHWABFUNDS-REGISTERED TRADEMARK-
SCHWAB MONEY MARKET PORTFOLIO
INVESTMENT REVIEW

1995 ECONOMIC REVIEW

The economic expansion slowed in 1995 to an annual rate of 1.4% through the
end of the third quarter, compared to the impressive 3.7% growth rate of the
Real Gross Domestic Product (GDP) during 1994.(1) This slowing of the economy
can largely be attributed to the series of increases in the federal funds rate
implemented by the Federal Reserve Bank (known as the Fed) throughout 1994 and
early 1995. The Fed raised its federal funds rate target from 3.0% at the
beginning of 1994 to a high of 6.0% in February 1995. By increasing the target
on the federal funds rate, the Fed hoped to head off the inflationary impact of
a rapidly growing economy by slowing the rate of growth without putting the
economy into a recession. Following three 0.25% reductions in July and December
of 1995 and January of 1996, the federal funds rate target stood at 5.25% at the
end of January 1996. The economic data currently suggests that the Fed's actions
have achieved the desired effect, as inflation has stabilized and the U.S. has
entered into a period of moderate economic growth.

Several key economic indicators, such as industrial production, capacity
utilization, new home sales, and retail sales have fallen from their high 1994
levels, indicating that economic activity in many sectors has slowed. Although
the unemployment rate has remained low at 5.6% for 1995, non-farm payroll growth
slowed quite dramatically throughout the year. In light of the economic data and
the positive inflation outlook, the Fed lowered the federal funds rate or eased
monetary policy, twice in 1995 and once in January 1996.

SHORT-TERM INTEREST RATE ENVIRONMENT

One of the most significant news stories of 1995 was the uncertainty
surrounding the federal budget and debt ceiling negotiations between Congress
and the Clinton Administration and the resulting government shutdowns. While
these events have taken center stage in the national spotlight, the issues
relating to the deficit ceiling itself have had a relatively minor impact to
date on the financial markets. As of this writing, short-term interest rates
have declined largely as a result of weaker economic growth, lower inflation,
and the market's expectations that a balanced budget deal may be achieved. The
Fed already has lowered the federal funds rate a total of 0.50% in 1995 and
0.25% in January 1996; a balanced budget compromise could give the Fed incentive
to lower interest rates even further, an action which is widely anticipated by
market participants.

As shown in the chart on the next page, short-term interest rates declined
steadily throughout 1995. The primary reason for the decline has been the two
reductions in the federal funds target rate and anticipation of further
reductions in the future.

- ------------
(1) All Gross Domestic Product (GDP) statistics used in this report are based on
the Commerce Department's new chain-weighted calculation methodology. As a
result, these statistics may differ from those in previous shareholder
reports, which used the prior fixed-weighted methodology. During 1996, the
Commerce Department will revise all GDP growth rate reporting to a
chain-weighted basis.

----------------
92
<PAGE>
- ----------------

SCHWABFUNDS-REGISTERED TRADEMARK-
SCHWAB MONEY MARKET PORTFOLIO
INVESTMENT REVIEW (CONTINUED)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
RATES FOR SCHWAB MONEY MARKET PORTFOLIO ANNUAL REPORTS
<S> <C> <C>
1995
All Rates are weekly averages
Source:Bloomberg, David Rosenberg has hard copy
Taxable 90-Day CP 90 Day T-Bill
01/06/95 6.27 5.907
01/13/95 6.07 5.687
01/20/95 6.2 5.896
01/27/95 6.24 5.907
02/03/95 6.19 5.948
02/10/95 6.14 5.969
02/17/95 6.13 5.854
02/24/95 6.12 5.867
03/03/95 6.14 5.892
03/10/95 6.2 5.933
03/17/95 6.14 5.902
03/24/95 6.13 5.839
03/31/95 6.19 5.871
04/07/95 6.12 5.85
04/14/95 6.12 5.745
04/21/95 6.07 5.777
04/28/95 6.11 5.86
05/05/95 6.08 5.756
05/12/95 6.09 5.86
05/19/95 6.06 5.86
05/26/95 6.02 5.828
06/02/95 5.87 5.568
06/09/95 5.98 5.756
06/16/95 5.97 5.641
06/23/95 5.9 5.511
06/30/95 5.97 5.573
07/07/95 5.860 5.589
07/14/95 5.730 5.548
07/21/95 5.770 5.584
07/28/95 5.800 5.589
08/04/95 5.800 5.578
08/11/95 5.810 5.555
08/18/95 5.790 5.584
08/25/95 5.820 5.558
09/01/95 5.790 5.458
09/08/95 5.760 5.487
09/15/95 5.720 5.451
09/22/95 5.700 5.366
09/29/95 5.760 5.421
10/06/95 5.810 5.452
10/13/95 5.820 5.450
10/20/95 5.800 5.424
10/27/95 5.820 5.398
11/03/95 5.790 5.473
11/10/95 5.750 5.530
11/17/95 5.740 5.537
11/24/95 5.720 5.508
12/01/95 5.720 5.492
12/08/95 5.670 5.484
12/15/95 5.650 5.417
12/22/95 5.610 5.156
12/29/95 5.610 5.022
</TABLE>

PORTFOLIO COMPOSITION

In response to the softer economic environment and expectations of federal
funds rate reductions, the dollar-weighted average maturity of the Portfolio was
lengthened during 1995. In general, in a declining interest rate environment,
extending a fund's dollar-weighted average maturity helps minimize the impact of
having to reinvest money at lower market rates as securities held in a fund's
portfolio mature. For example, from December 31, 1994 to December 31, 1995, the
average maturity of the Schwab Money Market Portfolio increased from 13 days to
30 days. Although the Portfolio's yield has decreased recently in response to
the decline in market interest rates, this strategy of lengthening maturities
was successful in delaying the decline in the Portfolio's yield.

----------------
93
<PAGE>
- ----------------

SCHWABFUNDS-REGISTERED TRADEMARK-
SCHWAB MONEY MARKET PORTFOLIO
PORTFOLIO SUMMARY
ASSET GROWTH

<TABLE>
<CAPTION>
TOTAL TOTAL PERCENTAGE
NET ASSETS NET ASSETS GROWTH OVER
AS OF AS OF REPORTING
12/31/95 12/31/94 PERIOD
<S> <C> <C>
- ---------------------------------------------
$ 16,912,432 $ 7,409,454 128%
</TABLE>

AVERAGE YIELDS FOR THE PERIODS ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
LAST SEVEN LAST THREE LAST TWELVE
DAYS MONTHS MONTHS
<S> <C> <C>
- -------------------------------------------------
5.14% 5.15% 5.14%
</TABLE>

MATURITY SCHEDULE
PERCENT OF TOTAL INVESTMENTS

<TABLE>
<CAPTION>
MATURITY RANGE 3/31/95 6/30/95 9/30/95 12/31/95
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
0 - 15 Days................................................. 32.7% 21.5% 35.6% 25.0%
16 - 30 Days................................................. 56.0% 23.8% 17.7% 30.0%
31 - 60 Days................................................. 11.3% 29.0% 30.3% 41.0%
61 - 90 Days................................................. 0.0% 25.7% 16.4% 4.0%
91 - 120 Days................................................ 0.0% 0.0% 0.0% 0.0%
Over 120 Days................................................ 0.0% 0.0% 0.0% 0.0%
Weighted Average............................................. 19 Days 37 Days 32 Days 30 Days
</TABLE>

PORTFOLIO QUALITY

<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
SEC TIER RATING 12/31/95
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------
Tier 1................................................................................................... 100.0%
Tier 2................................................................................................... 0.0%
</TABLE>

----------------
94
<PAGE>
- ----------------

SCHWABFUNDS-REGISTERED TRADEMARK-
SCHWAB MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
AGENCY OBLIGATIONS--78.8% PAR VALUE
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------

<CAPTION>
DISCOUNT NOTES
<S> <C> <C> <C> <C>
Federal Farm Credit Bank
5.67%, 01/08/96........................................................ $ 600,000 $ 599,342
5.66%, 01/12/96........................................................ 1,450,000 1,447,506
5.68%, 01/31/96........................................................ 400,000 398,127
Federal Home Loan Bank
5.68%, 01/25/96........................................................ 1,325,000 1,320,027
5.65%, 01/25/96........................................................ 445,000 443,345
5.62%, 02/02/96........................................................ 565,000 562,223
Federal Home Loan Mortgage Corp.
5.52%, 01/10/96........................................................ 1,270,000 1,268,254
5.68%, 01/16/96........................................................ 1,520,000 1,516,428
5.67%, 01/22/96........................................................ 170,000 169,442
Federal National Mortgage Assoc.
5.68%, 01/18/96........................................................ 245,000 244,346
5.52%, 01/18/96........................................................ 1,625,000 1,620,780
5.60%, 02/12/96........................................................ 810,000 804,765
5.60%, 02/22/96........................................................ 1,350,000 1,339,197
Tennessee Valley Authority
5.65%, 01/12/96........................................................ 1,020,000 1,018,258
5.59%, 02/13/96........................................................ 1,220,000 1,211,927
-------------

TOTAL AGENCY OBLIGATIONS (Cost $13,963,967).............................. 13,963,967
-------------
<CAPTION>

U.S. TREASURY OBLIGATIONS--21.2%
- ------------------------------------------------------------------------------------------------------
U.S. TREASURY BILLS
<S> <C> <C> <C> <C>
5.37%, 01/11/96........................................................ 95,000 94,860
5.50%, 02/08/96........................................................ 230,000 228,683
5.40%, 02/08/96........................................................ 385,000 382,830
5.39%, 02/08/96........................................................ 525,000 522,055
5.43%, 02/15/96........................................................ 1,635,000 1,624,035
5.29%, 02/15/96........................................................ 95,000 94,377
5.39%, 02/22/96........................................................ 105,000 104,193
5.45%, 03/07/96........................................................ 75,000 74,267
5.02%, 03/07/96........................................................ 265,000 262,585
4.88%, 03/14/96........................................................ 160,000 158,435
5.02%, 03/28/96........................................................ 220,000 217,360
-------------

TOTAL U.S. TREASURY OBLIGATIONS (Cost $3,763,680)........................ 3,763,680
-------------
TOTAL INVESTMENTS--100.0% (Cost $17,727,647)............................. $ 17,727,647
-------------
-------------
</TABLE>

------------------------
NOTES TO SCHEDULE OF INVESTMENTS.

Yields shown are effective yields at the time of purchase and are
stated according to the market convention for the security type. For
each security, cost (for financial reporting and federal income tax
purposes) and carrying value are the same.

See accompanying Notes to Financial Statements.

----------------
95
<PAGE>
- ----------------

SCHWABFUNDS-REGISTERED TRADEMARK-
SCHWAB MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments, at value (Cost: $17,727,647).............................................. $17,727,647
Cash................................................................................. 3,850
Receivable for fund shares sold...................................................... 223,817
Deferred organization costs.......................................................... 25,732
Prepaid expenses..................................................................... 98
----------
Total assets....................................................................... 17,981,144
----------

LIABILITIES
Payable for:
Dividends............................................................................ 80,464
Fund shares redeemed................................................................. 970,101
Investment advisory fee.............................................................. 105
Other................................................................................ 18,042
----------
Total liabilities.................................................................. 1,068,712
----------
NET ASSETS applicable to outstanding shares.............................................. $16,912,432
----------
----------

NET ASSETS CONSIST OF:
Capital paid in........................................................................ $16,912,496
Accumulated net realized loss on investments sold...................................... (64)
----------
$16,912,432
----------
----------
THE PRICING OF SHARES
Outstanding shares, $0.00001 par value (unlimited shares authorized)................... 16,912,496
NET ASSET VALUE, offering and redemption price per share............................... $1.00
</TABLE>

- ------------
See accompanying Notes to Financial Statements.

----------------
96
<PAGE>
- ----------------

SCHWABFUNDS-REGISTERED TRADEMARK-
SCHWAB MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
<S> <C>
Interest income............................................................................ $ 660,502
---------

EXPENSES
Investment advisory and administration fee............................................... 53,557
Custodian fees........................................................................... 12,415
Registration fees........................................................................ 92
Professional fees........................................................................ 24,643
Shareholder reports...................................................................... 11,735
Trustees' fees........................................................................... 5,214
Amortization of deferred organization costs.............................................. 7,665
Insurance and other expenses............................................................. 3,572
---------
118,893
Less expenses reduced and absorbed......................................................... (60,678)
---------
Total expenses incurred by Fund.......................................................... 58,215
---------
Net investment income...................................................................... 602,287
Net realized gain on investments sold...................................................... 33
---------
Net increase in net assets resulting from operations....................................... $ 602,320
---------
---------
</TABLE>

- ------------
See accompanying Notes to Financial Statements.

----------------
97
<PAGE>
- ----------------

SCHWABFUNDS-REGISTERED TRADEMARK-
SCHWAB MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 3, 1994
FOR THE (COMMENCEMENT
YEAR ENDED OF OPERATIONS)
DECEMBER 31, TO DECEMBER 31,
1995 1994
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income...................................................................... $ 602,287 $ 81,012
Net realized gain (loss) on investments sold............................................... 33 (97)
-------------- ---------------
Increase in net assets resulting from operations......................................... 602,320 80,915
-------------- ---------------
Dividends to shareholders from net investment income......................................... (602,287) (81,012)
-------------- ---------------
CAPITAL SHARE TRANSACTIONS (dollar amounts and number of shares are
the same)
Proceeds from shares sold.................................................................. 68,313,915 16,565,781
Net asset value of shares issued in reinvestment of dividends.............................. 552,602 50,171
Less payments for shares redeemed.......................................................... (59,363,572) (9,206,401)
-------------- ---------------
Increase in net assets from capital share transactions................................... 9,502,945 7,409,551
-------------- ---------------
Total increase in net assets................................................................. 9,502,978 7,409,454
NET ASSETS
Beginning of period........................................................................ 7,409,454 --
-------------- ---------------
End of period.............................................................................. $ 16,912,432 $ 7,409,454
-------------- ---------------
-------------- ---------------
</TABLE>

- ------------
See accompanying Notes to Financial Statements.

----------------
98
<PAGE>
- ----------------

SCHWABFUNDS-REGISTERED TRADEMARK-
SCHWAB MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995

1. DESCRIPTION OF THE FUND

The Schwab Money Market Portfolio (the "Fund") is a series of Schwab Annuity
Portfolios (the "Trust"), a diversified, no-load, open-end, management
investment company organized as a Massachusetts business trust on January 21,
1994 and registered under the Investment Company Act of 1940, as amended. The
Fund commenced operations on May 3, 1994.

The Fund invests primarily in a portfolio of high quality, debt securities
which mature within 397 days. The Fund is intended exclusively as an investment
vehicle for Schwab Investment Advantage-TM-, a variable annuity program.

2. SIGNIFICANT ACCOUNTING POLICIES

The following significant accounting policies are in conformity with generally
accepted accounting principles for investment companies. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.

SECURITY VALUATION: Investments are stated at amortized cost which
approximates market value.

SECURITY TRANSACTIONS AND INTEREST INCOME: Security transactions are
accounted for on a trade date basis (date the order to buy or sell is executed).
Interest income is recorded on the accrual basis and includes amortization of
premium and accretion of discount on investments. Realized gains and losses from
security transactions are determined on an identified cost basis.

REPURCHASE AGREEMENTS: Repurchase agreements are fully collateralized by U.S.
Treasury or government agency securities. All collateral is held by the Fund's
custodian and is monitored daily to ensure that its market value at least equals
the repurchase price under the agreement.

DIVIDENDS TO SHAREHOLDERS: The Fund declares a daily dividend, equal to its
net investment income for that day, payable monthly.

DEFERRED ORGANIZATION COSTS: Costs incurred in connection with the
organization of the Fund and its initial registration with the Securities and
Exchange Commission and with various states are amortized on a straight-line
basis over a five-year period from the Fund's commencement of operations.

EXPENSES: Expenses arising in connection with the Fund are charged directly
to the Fund. As the Trust offers additional funds, expenses common to all series
of the Trust will be allocated to each series in proportion to their relative
net assets.

FEDERAL INCOME TAXES: It is the Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all net investment income and realized net capital gains, if any, to
shareholders. Therefore, no federal income tax provision is required. The Fund
intends to qualify under the Code with respect to the diversification
requirements related to the tax-deferred status of insurance company separate
accounts. The Fund is considered a separate entity for tax purposes.

3. TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENTS: The Trust has an
investment advisory and administration agreement with Charles Schwab Investment
Management, Inc. (the "Investment Manager"). For advisory services and
facilities furnished, the Fund pays an annual fee, payable monthly, of .46% of
the first $2 billion of average daily net assets, .45% of such assets over $2
billion and .40% of such assets in excess of $3 billion. Under this agreement,
the Fund incurred investment advisory and administration fees of $53,557 for the
year ended December 31, 1995, before the Investment Manager reduced its fee (see
Note 4).

OFFICERS AND TRUSTEES: Certain officers and trustees of the Trust are also
officers or directors of the Investment Manager. During the year ended December
31, 1995, the Trust made no direct payments to its officers or trustees who are
"interested persons" within the meaning of the Investment Company Act of 1940,
as amended. The Fund incurred fees of $5,214 related to the Trust's unaffiliated
trustees.

4. EXPENSES REDUCED AND ABSORBED BY THE INVESTMENT MANAGER

The Investment Manager reduced a portion of its fee and absorbed certain
expenses in order to limit the Fund's ratio of operating expenses to average net
assets. For the year ended December 31, 1995, the total of such fees and
expenses reduced and absorbed by the Investment Manager was $60,678.

----------------
99
<PAGE>
- ----------------

SCHWABFUNDS-REGISTERED TRADEMARK-
SCHWAB MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995

5. INVESTMENT TRANSACTIONS

Purchases, sales and maturities of investment securities for the year ended
December 31, 1995, aggregated $117,667,482 and $107,376,242, respectively.

6. FINANCIAL HIGHLIGHTS

Per share income and capital changes for a share outstanding throughout the
period:

<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 3, 1994
(COMMENCEMENT
FOR THE OF OPERATIONS)
YEAR ENDED TO
DECEMBER 31, DECEMBER 31,
1995 1994
------------------ ---------------
<S> <C> <C>
Net asset value at beginning of period............................... $ 1.00 $ 1.00
Income from investment operations
Net investment income.............................................. .05 .03
Net realized and unrealized gain (loss) on investments............. -- --
------------------ ---------------
Total from investment operations................................. .05 .03
Less distributions
Dividends from net investment income............................... (.05) (.03)
Distributions from realized gain on investments.................... -- --
------------------ ---------------
Total distributions.............................................. (.05) (.03)
------------------ ---------------
Net asset value at end of period..................................... $ 1.00 $ 1.00
------------------ ---------------
------------------ ---------------
Total return......................................................... 5.26% 2.55%
Ratios/Supplemental data
Net assets, end of period.......................................... $ 16,912,432 $ 7,409,454
Ratio of expenses to average net assets............................ .50% .50%*
Ratio of net investment income to average net assets............... 5.17% 4.16%*
</TABLE>

The Investment Manager has reduced a portion of its fees and absorbed certain
expenses in order to limit the Fund's ratio of operating expenses to average net
assets. Had these fees and expenses not been reduced and absorbed, the ratio of
expenses to average net assets for the periods ended December 31, 1995 and 1994,
would have been 1.02% and 2.10%*, respectively, and the ratio of net investment
income to average net assets would have been 4.65% and 2.56%*, respectively.

- ------------
* Annualized

----------------
100
<PAGE>
- ------------

SCHWABFUNDS-REGISTERED TRADEMARK-
SCHWAB MONEY MARKET PORTFOLIO
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Trustees and Shareholders of the Schwab Money Market Portfolio

In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, the related statements of operations and of changes
in net assets and the financial highlights present fairly, in all material
respects, the financial position of the Schwab Money Market Portfolio (one of
the series constituting Schwab Annuity Portfolios, hereafter referred to as the
"Trust") at December 31, 1995, the results of its operations for the year then
ended, the changes in its net assets and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1995 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.

PRICE WATERHOUSE LLP
San Francisco, California
January 31, 1996

----------------
101
<PAGE>
- ----------------

STEINROE VARIABLE INVESTMENT TRUST
CAPITAL APPRECIATION FUND
PORTFOLIO MANAGER'S DISCUSSION

DEAR CONTRACT OWNER:

For the year ended December 31, 1995, the Fund's total return lagged the
general market indices, increasing 11.8 percent, compared to a 28.5 percent gain
for the Russell 2000, the most comprehensive small company stock index, a 31.0
percent gain for the S&P MidCap Index and a 37.5 percent gain for the S&P 500.*

Much of the Fund's underperformance can be traced to early 1995 when the Fund
held a sizable stake -- between 19 percent and 21 percent of equities -- in
non-U.S. holdings at a time when the spread between domestic and international
stock market returns was significant. In addition, the Fund's small- and mid-cap
holdings posted lackluster returns until the third quarter of 1995. After a
difficult first half, however, the Fund's relative performance steadily improved
throughout the last half of 1995. For the six-month period ended December 31,
1995, the Fund posted a total return of 13.2 percent, which underperformed the
S&P 500's six-month return of 14.4 percent, but exceeded the 12.3 percent return
of the Russell 2000 Index and the 11.3 percent return of the S&P MidCap Index
for the same time period.

The Fund, which invests primarily in small and medium-sized companies, had 61
percent in stocks with market caps of less than $500 million, 12 percent in
stocks between $500 million and $1 billion and 27 percent in stocks with market
caps of more than $1 billion. The median market cap of the stocks in the
portfolio was $297 million. Although smaller stocks tend to be more volatile,
over the long term we believe a well-chosen group of small- and mid-cap
companies can generally achieve a greater rate of return. As a result, we
believe the Fund is best suited for investors with long-term time horizons of
three years or more. For the three-year period ended December 31, 1995, the Fund
had an annualized return of 15.3 percent, which outpaced the three-year total
returns of 14.5 percent for the Russell 2000 and 12.9 percent for the S&P
MidCap, and matched the 15.3 percent three-year total return of the S&P 500.

The Fund's ten largest holdings totaled 40 percent of equities at year end.
This group, which remains broadly diversified, has performed well over the past
year, led by Triad Guaranty (+108 percent), Interim Services (+41 percent) and
Amerisource (+57 percent). At December 31, 1995, the prior three holdings made
up 3.9 percent, 4.1 percent and 4.6 percent of total net assets, respectively.
The Fund's top ten holdings performed particularly well during the most recent
quarter ended December 31, 1995, increasing on average 10 percent, which is
higher than both the Fund's total return for the quarter of 2.1 percent and the
2.2 percent return of the Russell 2000.

On average, we believe the companies the Fund owns are growing quite
satisfactorily and, after lagging the domestic stock market, they have become
relatively inexpensive. As of December 31, 1995, the Fund's portfolio is selling
around 17x earnings, which is in-line with the general market.

We will continue to focus our direct research efforts on evaluating company
management and identifying what we believe are large market opportunities.

E. Bruce Dunn and Richard Peterson,
Portfolio Managers

* Total return performance includes changes in share price and reinvestment of
income and capital gains distributions. Performance numbers reflect all Fund
expenses, but do not include any insurance charges imposed by your insurance
company's separate accounts. If performance information included the effect of
these additional amounts, it would be lower. Past performance is no guarantee
of future results. Share price and investment return will vary, so you may
have a gain or a loss when you sell shares. The S&P 500, the S&P MidCap and
the Russell 2000 are unmanaged groups of stocks that differ from the
composition of Capital Appreciation Fund; they are not available for direct
investment.

----------------
102
<PAGE>
------------------

STEINROE VARIABLE INVESTMENT TRUST
CAPITAL APPRECIATION FUND

STEINROE VARIABLE INVESTMENT TRUST
CAPITAL APPRECIATION FUND AND S&P 500

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
PLOT POINTS FOR CAPITAL APPRECIATION FUND 12/31/95
<S> <C> <C>
Fund S&P 500
1/1/1989 10,000 10,000
12/31/1989 13,084 13,160
12/31/1990 11,918 12,751
12/31/1991 16,357 16,620
12/31/1992 18,725 17,885
12/31/1993 25,406 19,679
12/31/1994 25,708 19,983
12/31/1995 28,729 27,473
</TABLE>

The graph illustrates the hypothetical investment of $10,000 in the Capital
Appreciation Fund from inception (1/1/89) to the end of the reporting period
(12/31/95), compared to the Standard and Poor's 500 Index (S&P 500).

Performance numbers reflect all Fund expenses, but do not include any
insurance charges imposed by your insurance company's separate accounts. If
performance information included the effect of these additional amounts, it
would be lower.

----------------
103
<PAGE>
- ----------------

STEINROE VARIABLE INVESTMENT TRUST
CAPITAL APPRECIATION FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS--93.5% SHARES VALUE
<S> <C> <C>
- --------------------------------------------------------------------------------------------------

<CAPTION>
AEROSPACE--1.9%
<S> <C> <C>
Hexel Corporation..................................................... 125,000 $ 1,406,250
Power Control Technologies, Inc....................................... 155,000 1,259,375
------------
2,665,625
------------
<CAPTION>

BANKS/SAVINGS AND LOANS--2.2%
<S> <C> <C>
Rancho Santa Fe National Bank (a)..................................... 110,000 385,000
Southern National Corporation......................................... 105,000 2,756,250
------------
3,141,250
------------
<CAPTION>

BROADCASTING--3.0%
<S> <C> <C>
Central European Media Enterprises.................................... 141,900 2,908,950
Grupo Radio Centro ADS................................................ 186,000 1,371,750
------------
4,280,700
------------
<CAPTION>

BUSINESS SERVICES--17.0%
<S> <C> <C>
Danka Business Systems Plc ADRs....................................... 106,000 3,922,000
Fiserv Inc. (a)....................................................... 95,000 2,850,000
G & K Services Cl. A.................................................. 256,000 6,528,000
Interim Services, Inc. (a)............................................ 170,000 5,907,000
Unitog Company........................................................ 213,000 5,138,625
------------
24,346,125
------------
<CAPTION>

CHEMICALS--0.7%
<S> <C> <C>
CFC International, Inc. (a)........................................... 115,000 991,875
------------
<CAPTION>

COMPUTERS/BUSINESS EQUIPMENT--1.2%
<S> <C> <C>
Daktronics, Inc. (a).................................................. 85,300 383,850
Zytec Corp. (a)....................................................... 110,000 1,265,000
------------
1,648,850
------------
<CAPTION>

COMPUTER SERVICES--3.2%
<S> <C> <C>
Keane, Inc. (a)....................................................... 209,800 4,641,825
------------
<CAPTION>

CONSUMER PRODUCTS--2.3%
<S> <C> <C>
Kimberly-Clark de Mexico.............................................. 105,000 1,587,667
Thomas Nelson, Inc.................................................... 135,000 1,755,000
------------
3,342,667
------------
<CAPTION>

ELECTRONICS--5.4%
<S> <C> <C>
AVX Corp.............................................................. 87,400 2,316,100
C.P. Clare Corporation................................................ 110,000 2,255,000
Harris Corp........................................................... 40,000 2,185,000
</TABLE>

----------------
104
<PAGE>
- ----------------

ENERGY SERVICES--2.5%
<S> <C> <C>
Weatherford Enterra Inc. (a).......................................... 125,000 3,609,375
------------
<CAPTION>

FINANCIAL--2.7%
<S> <C> <C>
BHI Corp.............................................................. 163,516 2,575,377
Grupo Financiero Inbursa (a).......................................... 460,000 1,343,336
------------
3,918,713
------------
<CAPTION>

HEALTH CARE--7.1%
<S> <C> <C>
AmeriSource Distribution Corporation (a).............................. 199,700 6,590,100
Henry Schein (a)...................................................... 115,200 3,398,400
PACE Health Management Systems, Inc. (a).............................. 75,000 196,875
------------
10,185,375
------------
<CAPTION>

INSURANCE--13.6%
<S> <C> <C>
Meadowbrook Insurance Group, Inc. (a)................................. 74,200 2,485,700
National Mutual of Asia............................................... 4,493,000 4,067,694
Protective Life Corporation (a)....................................... 85,000 2,656,250
Triad Guaranty, Inc. (a).............................................. 213,800 5,665,700
20th Century Industries, Inc.......................................... 234,000 4,650,750
------------
19,526,094
------------
<CAPTION>

MEDIA/BROADCASTING--1.4%
<S> <C> <C>
Valuevision International, Inc. (a)................................... 350,000 1,946,875
------------
<CAPTION>

MEDICAL EQUIPMENT--2.5%
<S> <C> <C>
Stryker Corporation................................................... 69,400 3,643,500
------------
<CAPTION>

MISCELLANEOUS--0.8%
<S> <C> <C>
Barefoot Inc.......................................................... 110,000 1,155,000
------------
<CAPTION>

MISCELLANEOUS TRANSPORTATION--1.2%
<S> <C> <C>
Ek Chor China Motorcycle Co. Ltd...................................... 150,000 1,743,750
------------
<CAPTION>

PACKAGING--1.6%
<S> <C> <C>
Crown Cork & Seal, Inc. (a)........................................... 55,000 2,296,250
------------
<CAPTION>

OIL/GAS--6.5%
<S> <C> <C>
Alexander Energy Corp. (a)............................................ 355,000 1,619,687
Barrett Resources Corp. (a)........................................... 120,000 3,525,000
St. Mary Land & Exploration Co........................................ 49,000 686,000
</TABLE>

----------------
105
<PAGE>
- ----------------

STEINROE VARIABLE INVESTMENT TRUST
CAPITAL APPRECIATION FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------------------------
OIL/GAS (CONTINUED)
<S> <C> <C>
Renaissance Energy Ltd................................................ 116,400 $ 2,901,892
Vintage Petroleum, Inc................................................ 25,000 562,500
------------
9,295,079
------------
<CAPTION>
RETAIL TRADE--3.1%
<S> <C> <C>
Proffitts, Inc. (a)................................................... 59,000 1,548,750
Quality Food Centers, Inc............................................. 130,000 2,860,000
------------
4,408,750
------------
<CAPTION>
SPECIALTY CHEMICALS--8.1%
<S> <C> <C>
Cambrex Corp.......................................................... 98,300 4,067,163
OM Group, Inc......................................................... 173,500 5,747,187
PENWEST Ltd........................................................... 73,700 1,824,075
------------
11,638,425
------------
<CAPTION>
TELECOMMUNICATIONS--4.0%
<S> <C> <C>
ABC Communication Holdings Ltd........................................ 3,199,000 579,237
Plantronics, Inc. (a)................................................. 125,000 4,515,625
Shanghai Post & Telecommunications (a)................................ 1,659,00 660,282
------------
5,755,144
------------
<CAPTION>
WATER FILTRATION--1.5%
<S> <C> <C>
Culligan.............................................................. 87,400 2,119,450
------------

TOTAL COMMON STOCKS (Cost $119,676,471)............................... 133,975,547
------------
<CAPTION>

PRINCIPAL MARKET
SHORT-TERM INVESTMENTS--8.6% AMOUNT VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Goldman Sachs Group, 6.050%, due 1/02/96.............................. $4,000,000 $ 3,997,983
ITT Hartford, 5.800%, due 1/03/96..................................... 6,000,000 5,996,133
Lehman Brothers Holdings, Inc. 6.100%, due 1/02/96.................... 2,265,000 2,263,849
------------

TOTAL SHORT-TERM INVESTMENTS (Cost $12,257,965)....................... 12,257,965
------------

TOTAL INVESTMENTS--102.1% (Cost $131,934,436)(b)...................... 146,233,512
------------

OTHER ASSETS AND LIABILITIES--NET--(2.1)%.............................
Cash and receivables, less accounts payable and accrued expenses...... (2,985,383)
------------
NET ASSETS--100%...................................................... $143,248,129
------------
------------
</TABLE>

------------------------
(a) Non-income producing security

(b) The cost of investments for federal income tax purposes is
$131,958,186.
Gross unrealized appreciation and depreciation at December 31,
1995 is as follows:

<TABLE>
<S> <C> <C>
Gross unrealized appreciation..................... $ 22,380,839
Gross unrealized depreciation..................... (8,105,513)
------------
Net unrealized appreciation....................... $ 14,275,326
------------
------------
</TABLE>

See Notes to Financial Statements.

----------------
106
<PAGE>
- ----------------

STEINROE VARIABLE INVESTMENT TRUST
CAPITAL APPRECIATION FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments, at market value (Identified cost $131,934,436)................... $146,233,512
Receivable for investments sold............................................... 1,142,078
Receivable for fund shares sold............................................... 86,950
Dividends receivable.......................................................... 21,718
Other assets.................................................................. 14,955
------------
Total assets................................................................ 147,499,213
------------

LIABILITIES
Payable for investments purchased............................................. 3,736,360
Payable for fund shares repurchased........................................... 356,742
Management fee payable........................................................ 55,422
Administrative fee payable.................................................... 16,644
Accrued expenses payable...................................................... 36,486
Payable to custodian bank..................................................... 49,430
------------
Total liabilities........................................................... 4,251,084
------------
NET ASSETS...................................................................... $143,248,129
------------
------------
NET ASSETS REPRESENTED BY:
Paid-in capital............................................................... $129,235,823
Accumulated overdistributed net investment income............................. (77,716)
Accumulated distributions in excess of net realized gains on investments...... (209,696)
Net unrealized appreciation on investments and foreign currencies............. 14,299,718
------------
Total net assets applicable to outstanding shares of beneficial interest.... $143,248,129
------------
------------
Shares of beneficial interest outstanding....................................... 8,773,334
------------
------------
NET ASSET VALUE per share....................................................... $16.33
------------
------------
</TABLE>

- ------------
See Notes to Financial Statements.

----------------
107
<PAGE>
- ----------------

STEINROE VARIABLE INVESTMENT TRUST
CAPITAL APPRECIATION FUND
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Dividends (net of foreign taxes withheld)..................................... $ 734,892
Interest Income............................................................... 681,999
-----------
Total investment income..................................................... 1,416,891
-----------

EXPENSES
Management fee................................................................ 686,978
Administrative fee............................................................ 206,085
Custodian fee................................................................. 60,122
Accounting fee................................................................ 27,202
Printing expense.............................................................. 24,171
Audit and legal fees.......................................................... 18,797
Trustees' expense............................................................. 9,696
Transfer agent fee............................................................ 7,460
Miscellaneous expense......................................................... 9,183
-----------
Total Expenses.............................................................. 1,049,694
-----------
Net investment income........................................................... 367,197
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains on investments............................................. 1,051,804
Net realized losses on foreign currency transactions.......................... (20,399)
Change in unrealized appreciation or depreciation on investments and foreign
currency.................................................................... 13,894,884
-----------
Net increase in net assets resulting from operations............................ $15,293,486
-----------
-----------
</TABLE>

- ------------
See Notes to Financial Statements.

----------------
108
<PAGE>
- ----------------

STEINROE VARIABLE INVESTMENT TRUST
CAPITAL APPRECIATION FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
<S> <C> <C>
1995 1994
------------ ------------

OPERATIONS
Net investment income......................................................... $ 367,197 $ 517,097
Net realized gains on investments............................................. 1,051,804 13,548,855
Net realized losses on foreign currency transactions.......................... (20,399) (231)
Change in unrealized appreciation or depreciation on investments.............. 13,894,884 (12,211,045)
------------ ------------
Net increase in net assets resulting from operations........................ 15,293,486 1,854,676
------------ ------------
DISTRIBUTIONS DECLARED FROM
Net investment income......................................................... (346,798) (516,866)
Distributions in excess of net investment income.............................. (28,200) (47,983)
Net realized gains on investments............................................. (849,985) (14,465,741)
Distributions in excess of net realized gains on investments.................. -- (411,514)
------------ ------------
Total distributions......................................................... (1,224,983) (15,442,104)
------------ ------------
FUND SHARE TRANSACTIONS
Proceeds from fund shares sold................................................ 43,757,834 68,416,999
Cost of fund shares repurchased............................................... (49,881,536) (32,737,534)
Distributions reinvested...................................................... 1,224,983 15,442,104
------------ ------------
Net increase (decrease) in net assets resulting from fund share
transactions.............................................................. (4,898,719) 51,121,569
------------ ------------
Total increase in net assets.................................................... 9,169,784 37,534,141
NET ASSETS
Beginning of year............................................................. 134,078,345 96,544,204
------------ ------------
End of year................................................................... $143,248,129 $134,078,345
------------ ------------
------------ ------------
Accumulated overdistributed net investment income included in ending net
assets........................................................................ $ 77,716 $ 49,516
------------ ------------
------------ ------------
ANALYSIS OF CHANGES IN SHARES OF BENEFICIAL INTEREST
Shares sold................................................................... 2,916,477 4,230,792
Shares repurchased............................................................ (3,317,111) (2,037,606)
Distributions reinvested...................................................... 75,757 1,065,237
------------ ------------
Net increase (decrease)..................................................... (324,877) 3,258,423
------------ ------------
------------ ------------
</TABLE>

- ------------
See Notes to Financial Statements.

----------------
109
<PAGE>
- ----------------

STEINROE VARIABLE INVESTMENT TRUST
CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year.......................... $ 14.74 $ 16.53 $ 15.34 $ 15.32 $ 12.07
----------- ----------- ---------- ---------- ----------
Net investment income..................................... 0.04 0.06 0.03 -- 0.21
Net realized and unrealized gains on investments and
foreign currency transactions........................... 1.69 0.09 5.22 2.17 4.19
----------- ----------- ---------- ---------- ----------
Total from investment operations........................ 1.73 0.15 5.25 2.17 4.40
----------- ----------- ---------- ---------- ----------
Less distributions:
Distributions from and in excess of net investment
income.................................................. (0.04) (0.07) (0.02) -- (0.15)
Distributions from and in excess of net realized gains on
investments............................................. (0.10) (1.87) (4.04) (2.15) (1.00)
----------- ----------- ---------- ---------- ----------
Total distributions..................................... (0.14) (1.94) (4.06) (2.15) (1.15)
----------- ----------- ---------- ---------- ----------
Net asset value, end of year................................ $ 16.33 $ 14.74 $ 16.53 $ 15.34 $ 15.32
----------- ----------- ---------- ---------- ----------
----------- ----------- ---------- ---------- ----------

TOTAL RETURN................................................ 11.75% 1.19%(b) 35.68%(b) 14.48% 37.25%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)........................... $143,248 $134,078 $96,544 $52,135 $41,179
Ratio of expenses to average net assets................... 0.76% 0.80%(a) 0.84%(a) 1.01% 1.03%
Ratio of net investment income to average net assets...... 0.26% 0.44%(b) 0.13%(b) (0.01)% 1.35%
Portfolio turnover ratio.................................. 132% 144% 112% 85% 36%
</TABLE>

- ------------
(a) These ratios were not materially affected by the reimbursement of certain
expenses by the Investment Adviser and Administrator.

(b) Computed giving effect to the Investment Adviser's and the Administrator's
expense limitation undertaking.

See Notes to Financial Statements.

----------------
110
<PAGE>
- ----------------

STEINROE VARIABLE INVESTMENT TRUST
CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995

1. ORGANIZATION, FUND OBJECTIVES AND ACCOUNTING POLICIES

Capital Appreciation Fund (the "Fund") is a constituent fund of SteinRoe
Variable Investment Trust, a Massachusetts business trust organized on June 9,
1987. The Fund is an open-end, diversified management investment company. The
investment objective of the Fund is capital growth by investing primarily in
equity securities.

Shares of the Fund are available and are being marketed exclusively as a
pooled funding vehicle for variable annuity contracts ("VA contracts") and
Variable Life Insurance Policies ("VLI policies") of various affiliated and
non-affiliated insurance companies. Stein Roe & Farnham Incorporated (the
"Adviser") provides investment advisory services to the fund as well as
management, administration, accounting and transfer agent services. The Adviser
is an indirect, wholly-owned subsidiary of Liberty Financial Company. At
December 31, 1995, various affiliated insurance companies of Liberty Financial
Company and Transamerica Life Companies owned 98.1 percent and 1.9 percent of
the outstanding shares of the Fund, respectively.

The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
increases and decreases in net assets from operations during the reporting
period. Actual results could differ from those estimates.

VALUATION OF INVESTMENTS: Portfolio securities listed on a domestic exchange
and over-the-counter securities quoted on the NASDAQ system are valued on the
basis of the last sale on the date as of which the valuation is made, or,
lacking any sales, at the current bid prices. Over-the-counter securities not
quoted on the NASDAQ system are valued at the latest bid quotation. Foreign
security valuations are generally based upon market quotations which, depending
upon local convention or regulation, may be the last sale price, last bid or
asked price, or the mean between last bid and asked prices as of, in each case,
the close of the appropriate exchange or other designated time. Long-term debt
securities are valued on the basis of dealer-supplied quotations or valuations
furnished by a pricing service. Securities for which reliable quotations are not
readily available are valued at fair market value, as determined in good faith
and pursuant to proceedings established by the Trustees. Short-term securities
with remaining maturities of 60 days or less are valued at amortized cost unless
the Trustees determine this does not represent fair value.

FEDERAL INCOME TAXES: The Fund now qualifies and intends to continue
qualifying as a "regulated investment company" and as such (and by complying
with the applicable provisions of the Internal Revenue Code) will not be subject
to federal income tax on taxable income (including realized capital gains)
distributed to shareholders.

FOREIGN CURRENCY TRANSACTIONS: The Fund enters into foreign exchange
contracts for the settlement of purchases and sales of securities denominated in
a foreign currency to reduce the risk to the Fund from adverse changes in the
relationship between the U.S. dollar and the foreign currency. The face or
contract amount in U.S. dollars reflects the total exposure the Fund has in that
particular currency. In the event that the counterparty in the foreign exchange
contract fails to meet the terms of the contract, the Fund could be exposed to
the effects of changes in the relationship between the U.S. dollar and the
foreign currency.

RECLASSIFICATION: The Fund changed the classification of distributions to
shareholders to better disclose the differences between financial statement
amounts and distributions to shareholders in accordance with federal income tax
regulations. Accordingly, $20,339 has been reclassified to reflect an decrease
in accumulated net realized gains on investments and an increase in accumulated
net investment income.

OTHER: Security transactions are accounted for on trade date. Interest income
is recorded on the accrual basis. Discounts on debt securities are amortized in
accordance with Internal Revenue Code requirements. Dividend income and
distributions to shareholders are recorded on the ex-dividend date. Net realized
and unrealized gains (losses) on foreign currency transactions include the
fluctuation in exchange rates on gains and losses between trade and settlement
dates on security transactions, gains and losses arising from the disposition of
foreign currency, and currency gains and losses between the accrual and payment
dates on dividend and interest income and foreign withholding taxes. The Fund
does not isolate that portion of the results of operations resulting from
changes in foreign exchange rates on investments from the fluctuations arising
from changes in market

----------------
111
<PAGE>
- ----------------

STEINROE VARIABLE INVESTMENT TRUST
CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
prices of securities held. Such fluctuations are included with the net realized
and unrealized gains or losses from investments. Unrealized appreciation and
depreciation and realized gains and losses differ between financial statements
and tax earnings due to deferred losses from wash sales.

2. FUND SHARE TRANSACTIONS

The Funds capitalization consists of an unlimited number of shares of
beneficial interest without par value that represents a separate series of the
Trust. Each share of the Fund represents an equal proportionate beneficial
interest in the Fund and, when issued and outstanding, is fully paid and
non-assessable. Shareholders would be entitled to share proportionally in the
net assets of the Fund available for distribution to shareholders upon
liquidation of the Fund.

3. SECURITY TRANSACTIONS

Realized gains and losses are computed on the identified cost basis for both
financial reporting and federal income tax purposes. The cost of investments
purchased and proceeds from investments sold excluding short-term investments
for the year ended December 31, 1995 are $166,531,621 and $171,663,693,
respectively.

4. DISTRIBUTIONS TO SHAREHOLDERS

The Fund intends to distribute as dividends or capital gain distributions, at
least annually, substantially all of its net investment income and net realized
gains from the sale of portfolio securities. All dividends and distributions are
reinvested in additional shares of the Fund. Income and capital gain
distributions are determined in accordance with federal income tax regulations,
which may differ from generally accepted accounting principles, primarily
relating to gains and losses on foreign currency and wash sale transactions.

5. MANAGEMENT AND ADMINISTRATIVE FEES

The Fund pays a monthly management and administrative fee to the Adviser for
its services as investment adviser and administrator. The management fee is
computed at an annual rate of .50 of 1 percent of average daily net assets.; the
administrative fee is computed at an annual rate of .15 of 1 percent of average
daily net assets. Both of these fees are computed daily and paid monthly. For
the year ended December 31, 1995, the Fund incurred fees of $686,978 and
$206,085, respectively.

The Adviser also provides the Fund with certain Fund accounting services. The
accounting fee is $25,000 annually plus .0025 of 1 percent of assets in excess
of $50 million. For the year ended December 31, 1995, the Fund incurred fees of
$27,202.

The transfer agent fees of the Fund are paid to SteinRoe Services, Inc., an
indirect, wholly-owned subsidiary of Liberty Mutual Insurance Company.

In addition, the Adviser has agreed to reimburse the Fund to the extent that
its expenses exceed .80 of 1 percent of average daily net assets. This expense
limitation expires April 30, 1996.

----------------
112
<PAGE>
- ----------------

STEINROE VARIABLE INVESTMENT TRUST
CAPITAL APPRECIATION FUND
INDEPENDENT AUDITORS' REPORT

The Board of Trustees and Shareholders
of SteinRoe Variable Investment Trust

We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Capital Appreciation Fund, a constituent Fund of
SteinRoe Variable Investment Trust, as of December 31, 1995, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the years presented. These financial statements and
financial highlights are the responsibility of the Funds management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform 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 as of
December 31, 1995 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Capital Appreciation Fund as of December 31, 1995, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the years
presented, in conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP

Chicago, Illinois
February 5, 1996

----------------
113
<PAGE>
- ----------------

THE STRONG DISCOVERY FUND II
ANNUAL REPORT
DECEMBER 31, 1995

As I begin my thirtieth year in this business, I appreciate more than ever
what it takes to survive--and to thrive-- as a money manager. My experience has
taught me to be like a fox...to work with the pack without blindly following the
herd...to bide my time, always ready to pounce and take advantage of the
extraordinary opportunity when it presents itself.

I believe there are extraordinary opportunities out there right now for
incisive, agile money managers. A number of great, young growth companies -- in
America and abroad -- are poised to break away from their competition.

It is our goal to break away with them, using their strength and momentum to
create rewards for our shareholders.

Since its inception on May 8, 1992 through December 31, 1995 the Strong
Discovery Fund II has provided investors with a cumulative total return of
70.01%, outpacing the S&P 500 Stock Index's return of 63.88% for the same time
period.

MARKET SUMMARY

STOCKS. In 1995, two of the most influential factors that drive stock prices
- -- earnings and interest rates -- came together to create a nearly perfect
environment for U.S. common stocks. The rally was a fairly steady one, with the
S&P hitting 88 new highs during the twelve months. Most small stocks, though
they lagged their larger brethren a bit, produced solid gains, as well.

LONG BONDS. Moderate inflation and slow economic growth also helped to fuel a
robust rally in long-term bonds. The benchmark 30-year Treasury bond's yield
dropped to 5.95% by December 31 from 7.88% a year ago.

SHORT BONDS. Interest rates fell at the short end of the market, too.
Although, thanks primarily to the Federal Reserve's moderated monetary policy,
they dropped less than long rates did. After raising rates in February, the
central bank lowered its federal funds rate twice, in July and in December. The
easing, however, totaled just 50 basis points (0.50%) for the year, leaving the
yield curve -- the spread between short- and long-term rates--fairly flat.

Overall, 1995 was an excellent year for most investments, and we're proud to
be able to include the Strong Discovery Fund II among that group. By balancing
the Fund's holdings among a mix of resurgent, blue-chip companies and smaller,
rapidly growing companies, we were able to create a total return of 35.26% for
the year.

STRATEGY REVIEW

STEADFAST COMMITMENT TO STOCKS. Throughout the year, we maintained a bullish
exposure to U.S. common stocks. Three key factors led us to hold our course:
(1) two years of robust corporate-earnings growth,
(2) the poor performance of the market in 1994, and
(3) our view that interest rates would decline.

Our willingness to stick with a market that many believed was topping out
helped the Fund participate fully in the market's year-long rally.

SELECTED THEMES. As ever, our approach to managing the portfolio included
healthy measures of both bottom-up stock selection and theme-oriented research.
For example, with the help of our energetic staff of analysts, we were able to
take advantage of the year's strong surge in technology stocks.

In fact, a number of our holdings in this sector were among the portfolio's
top performers. Examples include McAfee Associates, a California firm that
specializes in computer-virus software, and CBT Group PLC, which develops,
publishes, and markets software for networked and stand-alone personal
computers.

By year end, however, we had begun taking profits, reducing our technology
exposure significantly. As of December 31, technology issues accounted for 29.8%
of the portfolio, down from a high of 50.3% at the end of September.

----------------
114
<PAGE>
- ----------------

THE STRONG DISCOVERY FUND II
ANNUAL REPORT (CONTINUED)
DECEMBER 31, 1995

In addition to identifying sectors we believe show greater-than-average
opportunity, we also seek to identify areas of the market that may be headed for
trouble. The aging baby-boom generation, if it follows historical patterns,
should soon begin to consume less and save more. This is not good news for most
U.S. retailers. As a result, we have significantly under-weighted this sector in
the portfolio.

OPPORTUNISTIC USE OF BONDS. Late in the year, with the economy slowing and
interest rates headed down further, we moved a portion of the portfolio into
long-term bonds. As a result, we were able to lock in some attractive long-term
yields.

OUR OUTLOOK

Overall, our outlook for U.S. stocks remains favorable. All the key variables
are pointed in the right direction: growth is moderate, inflation is low, and we
expect interest rates to ease further.

We all must keep in mind, however, that the market's huge run up in 1995 is a
lot for the system to digest. Unless the Fed is willing to take more aggressive
action to fuel the economy, the prospects for corporate earnings are, if not
dim, certainly diminished, especially when compared to last year.

Still, we wholeheartedly believe that there are terrific investment
opportunities out there for those investors who know where to look.

Thank you for choosing the Strong Discovery Fund II to help meet your
investment needs.

Sincerely,

Richard S. Strong
Portfolio Manager

----------------
115
<PAGE>
- ----------------

THE STRONG DISCOVERY FUND II
ANNUAL REPORT (CONTINUED)
DECEMBER 31, 1995

GROWTH OF AN ASSUMED $10,000 INVESTMENT
FROM 5/8/92 TO 12/31/95

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
THE STRONG DISCOVERY FUND II S&P 500 STOCK INDEX
<S> <C> <C>
Apr 92 10,000.00 10,000.00
May 92 10,100.00 10,008.20
Dec 92 10,886.91 10,680.00
Jun 93 11,391.84 11,200.67
Dec 93 13,284.97 11,756.48
Jun 94 11,884.72 11,358.26
Dec 94 12,569.24 11,911.78
Jun 95 14,658.24 14,319.48
Dec 95 17,000.90 16,387.98
</TABLE>

This graph, prepared in accordance with SEC regulations, compares a $10,000
investment in the Fund, made at its inception, with a similar investment in the
Standard & Poor's 500 Stock Index, an unmanaged index generally representative
of the U.S. stock market. Results include the reinvestment of all dividends and
capital gains distributions. Source for the index data is Micropal. Performance
is historical and does not represent future results. Investment returns and
principal value vary, and you may have a gain or loss when you sell shares.

* The Fund's return includes the effect of deducting the Fund's expenses, but do
not include charges and expenses attributable to any particular insurance
product. Excluding such fees and expenses from the Fund's return quotations
has the effect of increasing the performance quoted.

----------------
116
<PAGE>
- ----------------

THE STRONG DISCOVERY FUND II
SCHEDULE OF INVESTMENTS IN SECURITIES
DECEMBER 31, 1995

<TABLE>
<CAPTION>
VALUE
SHARES OR (NOTE 2)
PRINCIPAL (IN
COMMON STOCKS--80.3% AMOUNT THOUSANDS)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
AUTO & TRUCK PARTS--1.4%
Bandag, Inc. Class A....................................................... 3,200 $ 170
Exide Corporation.......................................................... 37,200 1,707
Thompson PBE, Inc. (b)..................................................... 108,500 1,519
Transpro, Inc.............................................................. 4,012 43
--------------
3,439
--------------
AUTOMOBILE--1.5%
Chrysler Corporation....................................................... 66,400 3,677
--------------
BANK -- MONEY CENTER--7.0%
Bank of Tokyo, Ltd......................................................... 54,000 946
Bank of Tokyo, Ltd. ADR.................................................... 1,500 263
Citicorp................................................................... 28,000 1,883
Dai-Ichi Kangyo Bank, Ltd. Japan........................................... 53,000 1,041
Dai-Ichi Kangyo Bank, Ltd. Japan ADR....................................... 1,900 374
Fuji Bank, Ltd............................................................. 43,000 949
Fuji Bank, Ltd. ADR........................................................ 1,200 265
HSBC Holdings PLC ADR...................................................... 6,900 1,044
Long-Term Credit Bank of Japan............................................. 86,000 732
Mitsubishi Bank, Ltd. Japan................................................ 125,000 2,939
Mitsubishi Bank, Ltd. Japan ADR............................................ 14,500 353
Mitsubishi Trust & Banking Corporation..................................... 50,000 832
Mitsubishi Trust & Banking Corporation ADR................................. 1,500 250
Mitsui Trust & Banking Company, Ltd........................................ 118,000 1,290
Sakura Bank, Ltd........................................................... 103,000 1,306
Sakura Bank, Ltd. ADR...................................................... 2,900 368
Sumitomo Trust & Banking, Ltd.............................................. 83,000 1,173
Yasuda Trust & Banking, Ltd................................................ 126,000 745
Yasuda Trust & Banking, Ltd. ADR........................................... 5,000 296
--------------
17,049
--------------
BEVERAGE -- ALCOHOLIC--1.1%
Canandaigua Wine Company, Inc. (b)......................................... 61,400 2,003
MSC Industrial Direct Company Class A (b).................................. 28,400 781
--------------
2,784
--------------
BROKERAGE & INVESTMENT MANAGEMENT--3.9%
CWM Mortgage Holdings, Inc................................................. 86,200 1,465
Daiwa Securities Company, Ltd.............................................. 85,000 1,299
Daiwa Securities Company, Ltd. ADR......................................... 1,700 260
Kankaku Securities Company (b)............................................. 94,000 400
New Japan Securities, Ltd. (b)............................................. 20,000 129
New Japan Securities, Ltd. ADR (b)......................................... 4,400 284
Nikko Securities Company, Ltd. Japan....................................... 25,000 322
Nikko Securities Company, Ltd. Japan ADR (b)............................... 3,000 387
Nomura Securities Company, Ltd............................................. 109,000 2,373
Nomura Securities Company, Ltd. ADR........................................ 4,400 960
</TABLE>

------------------------
See Notes to Financial Statements.

----------------
117
<PAGE>
- ----------------

THE STRONG DISCOVERY FUND II
SCHEDULE OF INVESTMENTS IN SECURITIES (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES OR VALUE
PRINCIPAL (NOTE 2)
COMMON STOCKS (CONTINUED) AMOUNT (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------
BROKERAGE & INVESTMENT MANAGEMENT (CONTINUED)
<S> <C> <C> <C> <C>
The Quick & Reilly Group, Inc.............................................. 52,962 $ 1,086
Sanyo Securities, Ltd. (b)................................................. 30,000 126
Yamaichi Securities, Ltd................................................... 39,000 303
Yamaichi Securities, Ltd. ADR.............................................. 4,000 311
--------------
9,705
--------------
CHEMICAL--0.1%
Monsanto Company........................................................... 1,500 184
--------------
COMMERCIAL SERVICE--5.4%
Accustaff, Inc. (b)........................................................ 126,300 5,557
Career Horizons Corporation (b)............................................ 25,075 846
Consolidated Graphics, Inc. (b)............................................ 46,000 1,196
Corestaff, Inc. (b)........................................................ 6,300 230
Education Alternatives, Inc. (b)........................................... 61,475 277
HA-LO Industries, Inc. (b)................................................. 36,700 1,129
Paychex, Inc............................................................... 18,400 918
Sensormatic Electronics Corporation........................................ 171,550 2,981
--------------
13,134
--------------
COMPUTER -- PERIPHERAL EQUIPMENT--1.2%
Dialogic Corporation (b)................................................... 37,800 1,455
Seagate Technology, Inc. (b)............................................... 5,100 242
VideoServer, Inc. (b)...................................................... 39,500 1,244
--------------
2,941
--------------
COMPUTER -- PERSONAL & WORKSTATION--0.3%
Sun Microsystems, Inc. (b)................................................. 16,800 766
--------------
COMPUTER SERVICE--0.4%
America Online, Inc. (b)................................................... 28,500 1,069
--------------
COMPUTER SOFTWARE--13.4%
Access Health, Inc. (b).................................................... 30,700 1,358
Adobe Systems, Inc......................................................... 3,000 186
Ascend Communications, Inc. (b)............................................ 32,800 2,661
Avant! Corporation (b)..................................................... 43,000 828
CBT Group PLC ADR (b)...................................................... 52,300 2,772
Cheyenne Software, Inc. (b)................................................ 53,300 1,392
Cisco Systems, Inc. (b).................................................... 750 56
Computer Associates International, Inc..................................... 83,225 4,733
Diamond Multimedia Systems, Inc. (b)....................................... 15,900 570
Enterprise Systems, Inc. (b)............................................... 21,300 650
FORE Systems, Inc. (b)..................................................... 63,000 3,748
Informix Corporation (b)................................................... 19,300 579
McAfee Associates, Inc. (b)................................................ 53,250 2,336
NTT Data Communications Systems Company.................................... 120 4,029
</TABLE>

------------------------
See Notes to Financial Statements.

----------------
118
<PAGE>
- ----------------

<TABLE>
<S> <C> <C>
ELECTRONIC PARTS DISTRIBUTION--1.4%
Kent Electronics Corporation (b)............................ 10,150 593
Marshall Industries (b)..................................... 85,650 2,752
-----------
3,345
-----------
ELECTRONIC PRODUCTS -- MISCELLANEOUS--0.5%
Mitsumi Electric Company, Ltd............................... 15,000 361
Rohm Company, Ltd........................................... 16,000 903
-----------
1,264
-----------
ELECTRONICS -- SEMICONDUCTOR/COMPONENT--0.4%
Dallas Semiconductor Corporation............................ 5,150 107
Uniphase Corporation (b).................................... 7,400 265
Xilinx, Inc. (b)............................................ 20,900 637
-----------
1,009
-----------
FINANCE -- MISCELLANEOUS--1.3%
American Express Company.................................... 11,400 472
Capital One Financial Corporation........................... 5,900 141
Medaphis Corporation (b).................................... 35,450 1,312
</TABLE>

------------------------
See Notes to Financial Statements.

----------------
119
<PAGE>
- ----------------

THE STRONG DISCOVERY FUND II
SCHEDULE OF INVESTMENTS IN SECURITIES (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
VALUE
SHARES OR (NOTE 2)
PRINCIPAL (IN
COMMON STOCKS (CONTINUED) AMOUNT THOUSANDS)
- ------------------------------------------------------------------------------------
FINANCE -- MISCELLANEOUS (CONTINUED)
<S> <C> <C>
Mercury Finance Company..................................... 76,325 $ 1,011
SunAmerica, Inc............................................. 5,250 249
-----------
3,185
-----------
HEALTHCARE -- DRUG/DIVERSIFIED--1.8%
Pharmacia & Upjohn, Inc. (b)................................ 115,370 4,471
HEALTHCARE -- MEDICAL SUPPLY--2.8%
Amerisource Distribution Corporation Class A (b)............ 5,500 182
Dentsply International, Inc................................. 35,700 1,428
Gulf South Medical Supply, Inc. (b)......................... 22,800 690
Laboratory Corporation of America Holdings Warrants,
Expire 4/28/00 (b)........................................ 9,801 7
Omnicare, Inc............................................... 31,275 1,400
Physician Sales & Service, Inc. (b)......................... 84,800 2,417
Sybron International Corporation (b)........................ 27,800 660
-----------
6,784
-----------
HEALTHCARE -- PATIENT CARE--6.0%
American Oncology Resources, Inc. (b)....................... 20,400 992
Community Care of America, Inc. (b)......................... 15,350 161
Compdent Corporation (b).................................... 8,200 340
Coram Healthcare Corporation (b)............................ 16,700 73
Home Health Corporation of America (b)...................... 59,100 650
Humana, Inc. (b)............................................ 46,675 1,278
Oxford Health Plans, Inc. (b)............................... 49,200 3,635
PhyCor, Inc. (b)............................................ 5,700 288
Physicians Health Services, Inc. Class A (b)................ 14,300 529
Sheridan Healthcare, Inc. (b)............................... 181,000 2,195
United Dental Care, Inc. (b)................................ 70,900 2,925
U.S. Healthcare, Inc........................................ 12,400 577
Vencor, Inc. (b)............................................ 22,634 736
WellPoint Health Networks, Inc. Class A (b)................. 10,500 337
-----------
14,716
-----------
HOUSEHOLD APPLIANCE & FURNISHINGS--0.6%
Fedders Corporation Class A................................. 280,400 1,192
Matsushita-Kotobuki Electronics Industries, Ltd............. 16,000 406
-----------
1,598
-----------
INSURANCE -- PROPERTY & CASUALTY--0.8%
Risk Capital Holdings, Inc. (b)............................. 80,800 1,889
LEISURE PRODUCT--3.3%
Custom Chrome, Inc. (b)..................................... 28,400 657
Harley-Davidson, Inc........................................ 236,100 6,788
</TABLE>

------------------------
See Notes to Financial Statements.

----------------
120
<PAGE>
- ----------------

THE STRONG DISCOVERY FUND II
SCHEDULE OF INVESTMENTS IN SECURITIES (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
VALUE
SHARES OR (NOTE 2)
PRINCIPAL (IN
COMMON STOCKS (CONTINUED) AMOUNT THOUSANDS)
- ------------------------------------------------------------------------------------
LEISURE PRODUCT (CONTINUED)
<S> <C> <C>
Oakley, Inc. (b)............................................ 17,100 $ 581
-----------
8,026
-----------
LEISURE SERVICE--1.2%
The Walt Disney Company..................................... 9,650 569
Harrahs Entertainment, Inc. (b)............................. 82,400 1,998
Promus Hotel Corporation (b)................................ 9,250 206
Sholodge, Inc. (b).......................................... 13,400 127
-----------
2,900
-----------
MACHINE TOOL--0.6%
Applied Power, Inc.......................................... 48,600 1,458
MACHINERY -- AGRICULTURE--0.1%
Deere & Company............................................. 7,300 257
MEDIA -- RADIO/TV--0.6%
CAI Wireless Systems, Inc................................... 8,700 84
Evergreen Media Corporation Class A (b)..................... 21,100 675
Heartland Wireless Communications, Inc. (b)................. 16,700 497
Infinity Broadcasting Corporation (b)....................... 2,600 97
People's Choice TV Corporation.............................. 7,000 133
-----------
1,486
-----------
METAL PRODUCTS & FABRICATION--0.6%
Sync Research, Inc. (b)..................................... 30,400 1,376
MORTGAGE & RELATED SERVICE--0.1%
North American Mortgage Company............................. 7,200 153
OFFICE AUTOMATION--5.3%
Canon, Inc.................................................. 62,000 1,122
Canon, Inc. ADR............................................. 3,000 274
Danka Business Systems PLC ADR.............................. 234,975 8,694
Nu-Kote Holding, Inc. Class A (b)........................... 91,400 1,554
Xerox Corporation........................................... 9,300 1,274
-----------
12,918
-----------
OIL -- NORTH AMERICAN EXPLORATION & PRODUCTION--0.7%
Flores & Rucks, Inc. (b).................................... 114,400 1,659
PAPER & FOREST PRODUCTS--0.5%
Buckeye Cellulose Corporation (b)........................... 52,400 1,153
PERSONAL & COMMERCIAL LENDING--0.4%
National Auto Credit, Inc. (b).............................. 61,300 996
RAILROAD--1.4%
Burlington Northern Santa Fe Corporation.................... 10,273 801
East Japan Railway Company.................................. 95 461
</TABLE>

------------------------
See Notes to Financial Statements.

----------------
121
<PAGE>
- ----------------

THE STRONG DISCOVERY FUND II
SCHEDULE OF INVESTMENTS IN SECURITIES (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
VALUE
SHARES OR (NOTE 2)
PRINCIPAL (IN
COMMON STOCKS (CONTINUED) AMOUNT THOUSANDS)
- ------------------------------------------------------------------------------------
RAILROAD (CONTINUED)
<S> <C> <C>
Kansas City Southern Industries, Inc........................ 45,700 $ 2,091
-----------
3,353
-----------
REAL ESTATE--0.4%
Mitsui Fudosan.............................................. 87,000 1,069
RETAIL -- DEPARTMENT STORE--0.3%
Federated Department Stores, Inc. (b)....................... 25,100 690
RETAIL -- RESTAURANT--0.2%
Quality Dining, Inc. (b).................................... 10,100 245
Rainforest Cafe, Inc. (b)................................... 10,600 319
-----------
564
-----------
RETAIL -- SPECIALTY--3.5%
CUC International, Inc. (b)................................. 36,550 1,247
Central Garden and Pet Company (b).......................... 177,600 1,687
Corporate Express, Inc. (b)................................. 55,600 1,675
Hollywood Entertainment Corporation (b)..................... 99,000 829
Movie Gallery, Inc. (b)..................................... 46,900 1,430
Office Depot, Inc. (b)...................................... 90,450 1,786
Viking Office Products, Inc. (b)............................ 400 19
-----------
8,673
-----------
SHOE & APPAREL MANUFACTURING--0.2%
Sankyo Seiki Manufacturing (b).............................. 46,000 427
-----------
TELECOMMUNICATION EQUIPMENT--1.1%
Andrew Corporation (b)...................................... 10,200 390
Cascade Communications Corporation (b)...................... 2,400 205
Newbridge Networks Corporation (b).......................... 19,800 819
VTEL Corporation (b)........................................ 71,000 1,313
-----------
2,727
-----------
TELECOMMUNICATION SERVICE--1.8%
DDI Corporation............................................. 554 4,288
EqualNet Holding Corporation (b)............................ 26,900 195
-----------
4,483
-----------
TOTAL COMMON STOCKS (Cost $186,340)......................... 196,772
-----------
PREFERRED STOCK--0.9%
SAP AG (Cost $2,065)........................................ 14,000 2,123
-----------
UNITED STATES GOVERNMENT ISSUES--14.0%
United States Treasury Bonds, 6.875%,
Due 8/15/25 (c) (Cost $33,589)............................ 30,375 34,276
-----------
</TABLE>

------------------------
See Notes to Financial Statements.

----------------
122
<PAGE>
- ----------------

----------------
123
<PAGE>
- ----------------

THE STRONG DISCOVERY FUND II
SCHEDULE OF INVESTMENTS IN SECURITIES (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
UNDERLYING
FACE AMOUNT
AT VALUE
EXPIRATION (IN
FUTURES DATE THOUSANDS)
UNREALIZED
DEPRECIATION
(IN
THOUSANDS)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sold:
136 S&P 500 Futures..................................... 3/96 $ 42,055 $ 130
</TABLE>

<TABLE>
<CAPTION>
VALUE UNREALIZED
IN USD APPRECIATION
FORWARD FOREIGN CURRENCY SETTLEMENT (IN (IN
EXCHANGE CONTRACTS DATE THOUSANDS) THOUSANDS)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Sold:
3,058,973 DEM....................................... 5/17/96 $ 2,145 $ 21
3,640,578,000 JPY...................................... 5/13/96 35,232 1,432
</TABLE>

<TABLE>
<CAPTION>
PREMIUMS
(IN
OPTIONS NUMBER THOUSANDS)
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Options outstanding at beginning of period.................................. -- $ --
Options written during the period........................................... 1,097 431
Options cancelled in closing purchase transactions.......................... (1,097) (431)
----------- -----
Options outstanding at end of period........................................ -- $ --
----------- -----
----------- -----
Exercised and expired options resulted in a capital loss (IN THOUSANDS) of $87.
</TABLE>

<TABLE>
<CAPTION>
PERCENTAGE
OF
COUNTRY DIVERSIFICATION NET ASSETS
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
United States............................................................................... 75.0%
Japan....................................................................................... 14.8%
United Kingdom.............................................................................. 3.5%
Canada...................................................................................... 2.1%
Ireland..................................................................................... 1.1%
Germany..................................................................................... 0.9%
Hong Kong................................................................................... 0.4%
Other Assets and Liabilities, Net........................................................... 2.2%
------------
Total....................................................................................... 100.0%
------------
------------
</TABLE>

--------------------------
LEGEND
(a) Cash equivalents include any security which has a maturity of
less than one year.
(b) Non-income producing security.
(c) All or a portion of security pledged to cover margin
requirements for futures contracts.
(d) Restricted security.

All principal amounts and costs are stated in thousands.
Percentages are stated as a percent of net assets.

CURRENCY ABBREVIATIONS
DEM German Mark
JPY Japanese Yen

See Notes to Financial Statements.

----------------
124
<PAGE>
- ----------------

THE STRONG DISCOVERY FUND II
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, at value (cost of $228,369)................................... $ 239,546
Receivable from brokers for securities and forward foreign currency contracts sold....... 11,287
Dividends and interest receivable........................................................ 2,213
---------
Total assets........................................................................... 253,046
---------

LIABILITIES
Payable to brokers for securities and forward foreign currency contracts purchased....... 7,434
Accrued operating expenses and other liabilities......................................... 565
---------
Total liabilities...................................................................... 7,999
---------
NET ASSETS................................................................................. $ 245,047
---------
---------
CAPITAL SHARES
Authorized............................................................................... 300,000
Outstanding.............................................................................. 18,233
---------
NET ASSET VALUE PER SHARE.................................................................. $ 13.44
---------
---------
</TABLE>

- ------------
See Notes to Financial Statements.

----------------
125
<PAGE>
- ----------------

THE STRONG DISCOVERY FUND II
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS)

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<S> <C>
INCOME
Dividends................................................................................. $ 1,134
Interest.................................................................................. 476
---------
Total Income............................................................................ 1,610
---------

EXPENSES
Investment advisory fees.................................................................. 1,677
Custodian fees............................................................................ 157
Shareholder servicing costs............................................................... 260
Reports to shareholders................................................................... 37
Federal and state registration fees....................................................... 21
Other..................................................................................... 45
---------
Total expenses.......................................................................... 2,197
---------
Net investment loss......................................................................... (587)
---------
REALIZED AND UNREALIZED GAIN
Net realized gain on:
Investments............................................................................. 33,729
Futures contracts, options, and hedges.................................................. 145
Foreign currencies...................................................................... 1
Change in unrealized appreciation/depreciation on:
Investments............................................................................. 13,860
Futures contracts, options, and hedges.................................................. 1,323
---------
Net gain.............................................................................. 49,058
---------
Net increase in net assets resulting from operations........................................ $ 48,471
---------
---------
</TABLE>

- ------------
See Notes to Financial Statements.

----------------
126
<PAGE>
- ----------------

THE STRONG DISCOVERY FUND II
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 (IN THOUSANDS)

CAPITAL SHARE TRANSACTIONS............................................................................ 80,827 60,218

DISTRIBUTIONS
From net investment income.......................................................................... -- (1,047)
In excess of net investment income.................................................................. (3,178) (4,473)
From net realized gains............................................................................. -- (3,295)
---------- ----------
Total increase in net assets...................................................................... 126,120 46,989

NET ASSETS
Beginning of year................................................................................... 118,927 71,938
---------- ----------
End of year......................................................................................... $ 245,047 $ 118,927
---------- ----------
---------- ----------
</TABLE>

- ------------
See Notes to Financial Statements.

----------------
127
<PAGE>
- ----------------

THE STRONG DISCOVERY FUND II
FINANCIAL HIGHLIGHTS
THE FOLLOWING PRESENTS INFORMATION RELATING TO A SHARE OF CAPITAL STOCK OF THE
FUND, OUTSTANDING FOR THE ENTIRE PERIOD.

<TABLE>
<CAPTION>
1995 1994 1993 1992(A)
------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period................................... $ 10.07 $ 11.54 $ 10.15 $ 10.00
Income from investment operations
Net investment income................................................ (0.03) 0.10 0.05 0.04
Net realized and unrealized gains (losses) on investments............ 3.58 (0.71) 2.09 0.78
------------- ------------ ----------- -----------
Total from investment operations................................... 3.55 (0.61) 2.14 0.82
Less distributions
From net investment income........................................... -- (0.10) (0.05) (0.04)
In excess of net investment income................................... (0.18) (0.43) (0.70) --
From net realized gains.............................................. -- (0.33) -- (0.63)(b)
------------- ------------ ----------- -----------
Total distributions.................................................... (0.18) (0.86) (0.75) (0.67)
------------- ------------ ----------- -----------
Net asset value, end of period......................................... $ 13.44 $ 10.07 $ 11.54 $ 10.15
------------- ------------ ----------- -----------
------------- ------------ ----------- -----------
TOTAL RETURN........................................................... +35.3% -5.4% +22.0% +8.9%
Net assets, end of period (in thousands)............................... $ 245,047 $ 118,927 $ 71,938 $ 26,739
Ratio of expenses to average net assets................................ 1.3% 1.2% 1.3% 1.7%*
Ratio of net investment income to average net assets................... (0.3%) 1.1% 0.5% 0.5%*
Portfolio turnover rate................................................ 542.1% 662.5% 976.5% 1,149.6%
</TABLE>

- ------------
* Calculated on an annualized basis.

(a) Inception date is May 8, 1992. Total return and portfolio turnover rate are
not annualized.

(b) Ordinary income distribution for tax purposes.

----------------
128
<PAGE>
- ----------------

THE STRONG DISCOVERY FUND II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995

1. ORGANIZATION

The Strong Discovery Fund II is a diversified series of the Strong Variable
Insurance Funds, Inc., an open-end management investment company registered
under the Investment Company Act of 1940.

2. SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.

SECURITY VALUATION: Portfolio securities traded primarily on a principal
securities exchange are valued at the last reported sales price or the mean
between the latest bid and asked prices where no last sales price is available.
Securities traded over-the-counter are valued at the mean of the latest bid and
asked prices or the last reported sales price. Debt securities not traded on a
principal securities exchange are valued through valuation obtained from a
commercial pricing service, otherwise sale or bid prices are used. Securities
for which market quotations are not readily available are valued at fair value
as determined in good faith under consistently applied procedures established by
and under the general supervision of the Board of Directors. Securities which
are purchased within 60 days of their stated maturity are valued at amortized
cost, which approximates current value.

The Fund may own certain investment securities which are restricted as to
resale. These securities are valued after giving due consideration to pertinent
factors, including recent private sales, market conditions and the issuer's
financial performance. The Fund generally bears the costs, if any, associated
with the disposition of restricted securities. Aggregate cost and fair value of
these restricted securities held at December 31, 1995 were as follows (IN
THOUSANDS):

<TABLE>
<S> <C>
Aggregate Cost......................................................................... $ 230
Aggregate Fair Value................................................................... 149
Percent of Net Assets.................................................................. 0.1%
</TABLE>

FEDERAL INCOME AND EXCISE TAXES AND DISTRIBUTIONS TO SHAREHOLDERS: It is the
Fund's policy to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute substantially all
of its taxable income to its shareholders in a manner which results in no tax
cost to the Fund. Therefore, no Federal income or excise tax provision is
required.

The character of distributions made during the year from net investment income
or net realized gains may differ from the characterization for Federal income
tax purposes due to differences in the recognition of income and expense items
for financial statement and tax purposes. Where appropriate, reclassifications
between net asset accounts are made for such differences that are permanent in
nature.

REALIZED GAINS AND LOSSES ON INVESTMENT TRANSACTIONS: Gains or losses
realized on investment transactions are determined by comparing the identified
cost of the security lot sold with the net sales proceeds.

FUTURES: Upon entering into a futures contract, the Fund pledges to the
broker cash, U.S. government securities or other liquid, high-grade debt
obligations equal to the minimum "initial margin" requirements of the exchange.
The Fund also receives from or pays to the broker an amount of cash equal to the
daily fluctuation in the value of the contract. Such receipts or payments are
known as "variation margin," and are recorded as unrealized gains or losses.
When the futures contract is closed, a realized gain or loss is recorded 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.

OPTIONS: Premiums received by the Fund upon writing put or call options are
recorded as an asset with a corresponding liability which is subsequently
adjusted to the current market value of the option. When an option expires, is
exercised, or is closed, the Fund realizes a gain or loss, and the liability is
eliminated. The Fund continues to bear the risk of adverse movements in the
price of the underlying asset during the period of the option, although any
potential loss during the period would be reduced by the amount of the option
premium received.

FOREIGN CURRENCY TRANSLATION: Investment securities and other assets and
liabilities initially expressed in foreign currencies are converted to U.S.
dollars based upon current exchange rates. Purchases and sales of foreign
investment securities and income are converted to U.S. dollars based upon
currency exchange rates prevailing on the respective dates of such transactions.
The effect of changes in foreign exchange rates on realized and unrealized
security gains or losses is reflected as a component of such gains or losses.

----------------
129
<PAGE>
- ----------------

THE STRONG DISCOVERY FUND II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS: Forward foreign currency
exchange contracts are valued at the forward rate and are marked-to-market
daily. The change in market value is recorded as an unrealized gain or loss.
When the contract is closed, the Fund records an exchange 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.

ADDITIONAL INVESTMENT RISK: The use of futures contracts, options, foreign
denominated assets and forward foreign currency exchange contracts for purposes
of hedging the Fund's investment portfolio involves, to varying degrees,
elements of market risk in excess of the amount recognized in the statement of
assets and liabilities. The predominant risk with futures contracts is an
imperfect correlation between the value of the contracts and the underlying
securities. Foreign denominated assets and forward foreign currency exchange
contracts may involve greater risks than domestic transactions, including
currency, political and economic, regulatory and market risks.

OTHER: Investment security transactions are recorded as of the trade date.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis and includes
amortization of premium and discounts.

3. NET ASSETS

Net assets as of December 31, 1995 were as follows (IN THOUSANDS):

<TABLE>
<S> <C>
Capital Stock...................................................................... $ 204,656
Undistributed Net Investment Loss.................................................. (234)
Undistributed Net Realized Gain.................................................... 28,125
Net Unrealized Appreciation........................................................ 12,500
---------
$ 245,047
---------
---------
</TABLE>

4. CAPITAL SHARE TRANSACTIONS

Transactions in shares of the Fund for the years ended December 31, 1995 and
1994 were as follows (IN THOUSANDS):

<TABLE>
<CAPTION>
1995 1994
--------------------------- ---------------------------
SHARES DOLLARS SHARES DOLLARS
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Shares Sold............................................... 11,517 $ 141,163 9,272 $ 101,331
Dividends Reinvested...................................... 240 3,176 851 8,807
Shares Redeemed........................................... (5,338) (63,512) (4,542) (49,920)
----------- -------------- ----------- --------------
6,419 $ 80,827 5,581 $ 60,218
----------- -------------- ----------- --------------
----------- -------------- ----------- --------------
</TABLE>

5. RELATED PARTY TRANSACTIONS

Strong Capital Management, Inc. (the "Advisor"), with whom certain officers
and directors of the Fund are affiliated, provides investment advisory services
to the Fund. Investment advisory fees, which are established by terms of the
Advisory Agreement, are based on an annualized rate of 1.00% of the average
daily net assets of the Fund. Advisory fees are subject to reimbursement by the
Advisor if the Fund's operating expenses exceed certain levels.

The amount payable to the Advisor at December 31, 1995 and unaffiliated
directors' fees for 1995 were (IN THOUSANDS) $262 and $4, respectively.

6. INVESTMENT TRANSACTIONS

The aggregate purchases and sales of long-term securities for the year ended
December 31, 1995 were as follows (IN THOUSANDS):

<TABLE>
<S> <C>
Purchases:
U.S. Government and Agency....................................................... $ 33,589
Other............................................................................ 929,508
Sales:
U.S. Government and Agency....................................................... --
Other............................................................................ 873,156
</TABLE>

----------------
130
<PAGE>
- ----------------

THE STRONG DISCOVERY FUND II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995

7. INCOME TAX INFORMATION

At December 31, 1995, the investment cost and gross unrealized appreciation
and depreciation on investments for Federal income tax purposes were as follows
(IN THOUSANDS):

<TABLE>
<S> <C>
Aggregate Investment Cost.......................................................... $ 229,273
---------
---------
Aggregate Unrealized:
Appreciation..................................................................... $ 21,606
Depreciation..................................................................... (11,333)
---------
$ 10,273
---------
---------
</TABLE>

For corporate shareholders in the Fund, the percentage qualifying for the
dividends-received deduction is 20.3%.

----------------
131
<PAGE>
- ----------------

THE STRONG DISCOVERY FUND II, INC.
REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Board of Directors of the Strong Discovery Fund II

We have audited the accompanying statement of assets and liabilities of Strong
Discovery Fund II (one of the portfolios constituting the Strong Variable
Insurance Funds, Inc.), including the schedule of investments in securities, as
of December 31, 1995, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform 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 as of
December 31, 1995 by correspondence with the custodians and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Strong
Discovery Fund II as of December 31, 1995, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated, in conformity with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
January 25, 1996

----------------
132
<PAGE>
- ----------------

TCI PORTFOLIOS, INC.
TCI BALANCED
OUR MESSAGE TO YOU
DECEMBER 31, 1995

TCI Balanced seeks to provide investors with opportunities for capital growth
and current income through a combination of approximately 60% common stocks and
40% investment-grade fixed income securities. For the 12-month period ended
December 31, 1995, the fund posted a 21.12% return, the best calendar-year gain
since its May 1, 1991, inception. The fund did, however, trail its benchmark
blended index, which gained 28.65% for the period. The S&P 500 Index gained
37.44%.

TCI Balanced's common stock holdings are targeted to the shares of larger,
well-established companies demonstrating earnings and revenue acceleration. For
most of the year this approach proved rewarding, and shareholders benefited from
strong returns in such industries as healthcare, pharmaceuticals and technology.
Yet, as concerns about a slowing U.S. economy developed late in the period, many
investors moved to more defensively postured firms characterized by steady
(albeit unspectacular) earnings growth. Most such firms do not meet the fund's
standards for accelerating growth, but they were major components of the S&P
500's solid gains in the fourth quarter of 1995. History shows us that over time
investors will favor companies with the above-average earnings growth we seek on
your behalf.

The Federal Reserve Board raised interest rates early in the period and
lowered rates later in the year. Responding to falling interest rates, the bond
market experienced a sharp price rebound from 1994 declines, which translated
into relatively strong performance for the year. The fixed income markets
especially favored longer-term bonds. TCI Balanced focuses on less volatile
short- and intermediate-term bonds. As a result, while it provided steady income
and good performance, it did not fully share in the bond market's appreciation.

Because it is designed to be a more conservative investment, TCI Balanced is
not likely to match major stock indices in a year like 1995. Its portfolio
design of large company stocks and bonds, however, should lessen the impact of
down market years on its portfolio as compared to more aggressive funds.

TCI Balanced continues to pursue its original goal of providing shareholders
with the opportunity to invest in a portfolio of growing companies while using
bonds to reduce share-price fluctuations along the way. We will continue to
target accelerating growth in earnings and revenues for our stock holdings,
while limiting our bond holdings to investment-grade issues. We remain confident
that the fund has the potential to provide shareholders with a long-term rate of
return that could comfortably outpace the rate of inflation.

Sincerely,

[SIGNATURE] [SIGNATURE]

James E. Stowers James E. Stowers III
CHAIRMAN OF THE BOARD AND FOUNDER PRESIDENT

Effective May 1, 1995, allocations may not be made to the TCI Balanced
Portfolio. This report contains information for the TCI Balanced Portfolio
Sub-Account for the benefit of contract owners who allocated amounts to that
Sub-Account prior to May 1, 1995.

This report and the financial statements contained herein are submitted for the
general information of our shareholders. The report is not authorized for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus.

----------------
133
<PAGE>
- ----------------

TCI PORTFOLIOS, INC.
TCI BALANCED
INVESTMENT REVIEW
DECEMBER 31, 1995

QUICK FUND FACTS

TCI Balanced Strategy: A mix of growth stocks and intermediate bonds, with
approximately 60% allocated to stocks.
Inception Date: May 1, 1991 Size: $153.8 million (as of December
31, 1995)
Investment Approach: Capital Growth and Current Income

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
TCI BALANCED BLENDED INDEX S&P 500 INDEX LEHMAN
<S> <C> <C> <C> <C>
05/01/91 10000 10000 10000 10000
12/31/91 12554 11241 11234 11060
06/30/92 11349 11329 11160 11394
12/31/92 11795 12077 12089 11854
06/30/93 12246 12729 12675 12590
12/31/93 12702 13231 13302 12895
06/30/94 12379 12823 12856 12558
12/31/94 12780 13238 13482 12646
06/30/95 14388 15375 16198 13861
12/31/95 15479 17084 18531 14586
* Commencement of investment operations at 2/10/94.
Average Annual Total Returns (as of December 31,
1995)
6 Months 1 Year 3 Year Since Inception
TCI Balanced 7.58% 21.12% 9.50% 9.82%
Blended Index 10.75% 28.65% 12.06% 12.02%
S&P 500 Index 14.40% 37.44% 15.33% 14.14%
Lehman 5.23% 15.33% 7.16% 8.42%
</TABLE>

- ------------
*Actual
**Because the assets of TCI Balanced are invested in a mix of two distinct types
of assets, we have created a Blended Index that, in addition to the Standard &
Poor's 500 Index (S&P 500), can serve as a comparison for the performance of
the fund. The Blended Index averages two widely known indices in the
proportions of the asset mix of the fund. Accordingly, 60% of the Blended
Index represents the S&P 500, which reflects the 60% of the fund's total
assets invested in common stocks. The remaining 40% of the Blended Index
represents the Lehman Intermediate Government/Corporate Index, which reflects
the 40% of the fund's total assets invested in bonds and other fixed income
securities. The Blended Index and the Lehman Intermediate Government/Corporate
Index for 4/30/91, the date closest to the inception date (5/1/91) of the fund
for which the indices are available, have been used for the starting points
for these indices in the graph and average annual total returns.

No expenses or fees are reflected in the S&P 500, Blended Index or the Lehman
Intermediate Government/Corporate Index. All performance illustrations for TCI
Balanced are shown net of fees and assume reinvestment of all distributions.

Past performance is not predictive of future performance.
Source: Lipper Analytical Services, Inc.

----------------
134
<PAGE>
- ----------------

TCI PORTFOLIOS, INC.
TCI BALANCED
INVESTMENT REVIEW (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
QUALITY DIVERSIFICATION FOR FIXED INCOME INVESTMENTS % OF FIXED INCOME
(MOODY'S RATINGS) INVESTMENTS
- --------------------------------------------------------------------------
<S> <C>
AAA.................................................... 40%
AA..................................................... 14%
A...................................................... 39%
BBB.................................................... 7%
-----
100.0%
-----
-----

AVERAGE PORTFOLIO MATURITY FOR FIXED INCOME INVESTMENTS
(AS OF 12/31/95)
- --------------------------------------------------------------------------
<S> <C>
Years.................................................. 5.7
</TABLE>

Average years to maturity indicates the average time until the principal on
the Fund's bonds is expected to be repaid, weighted by dollar amount.

<TABLE>
<CAPTION>
DURATION FOR FIXED INCOME INVESTMENTS (AS OF 12/31/95)
- --------------------------------------------------------------------------
<S> <C>
Years.................................................. 4.1
</TABLE>

Duration is a measure of the sensitivity of a portfolio to changes in interest
rates. As the duration of a fund increases, the impact of a change in interest
rates on the value of its portfolio also increases.

<TABLE>
<CAPTION>
% OF FUND
ASSET ALLOCATION (AS OF 12/31/95) INVESTMENTS
- --------------------------------------------------------------------------
<S> <C>
Temporary Cash Investments............................. 4%
Mortgage-Backed Securities............................. 3%
Sovereign Governments.................................. 2%
U.S. Treasury Securities............................... 11%
Common Stocks.......................................... 57%
Corporate Bonds........................................ 23%
</TABLE>

<TABLE>
<CAPTION>
% OF FUND'S
INVESTMENTS IN
TOP FIVE INDUSTRIES FOR EQUITY INVESTMENTS (AS OF % OF FUND'S THESE INDUSTRIES
12/31/95) INVESTMENTS** 12 MONTHS AGO**
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Computer Software & Services........................... 12.5% 10.9%
Computer Systems....................................... 8.1% 13.1%
Electrical & Electronic Components..................... 8.0% 0.9%
Healthcare............................................. 7.2% 5.4%
Communications Services................................ 6.7% 8.1%
</TABLE>

<TABLE>
<CAPTION>
% OF FUND'S
INVESTMENTS IN
% OF FUND'S THESE STOCKS
TOP 10 EQUITY HOLDINGS* (AS OF 12/31/95) INVESTMENTS** 12 MONTHS AGO**
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
HFS, Inc............................................... 3.1% --
International Business Machines Corp................... 3.1% 4.7%
First Data Corp........................................ 2.6% --
Halliburton Co......................................... 2.6% --
Tele-Communications, Inc............................... 2.6% 0.7%
Intuit Inc............................................. 2.5% --
Hewlett-Packard Co..................................... 2.4% 2.5%
Oracle Systems Corp.................................... 2.4% 3.2%
Columbia/HCA Healthcare Corp........................... 2.3% 2.5%
United Technologies Corp............................... 2.3% --
</TABLE>

----------------
135
<PAGE>
- ----------------

TCI PORTFOLIOS, INC.
TCI BALANCED
INVESTMENT REVIEW (CONTINUED)
DECEMBER 31, 1995

<TABLE>
<CAPTION>
INVESTMENTS BY COUNTRY (EXPRESSED AS A PERCENTAGE OF % OF FUND'S
TOTAL VALUE OF INVESTMENTS) INVESTMENTS
- ----------------------------------------------------------------------
<S> <C>
Canada................................................. 3.3%
Germany................................................ 0.9%
Hong Kong.............................................. 0.6%
Japan.................................................. 3.2%
Mexico................................................. 0.5%
Sweden................................................. 0.8%
United Kingdom......................................... 2.2%
United States.......................................... 88.5%
-----
100.0%
-----
-----
</TABLE>

*The composition of the portfolio may change over time.

**These percentages reflect the composition of the common stock portion of TCI
Balanced and do not relate to the bond portion of the fund.

----------------
136
<PAGE>
- ----------------

TCI PORTFOLIOS, INC.
TCI BALANCED
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995

<TABLE>
<CAPTION>
COMMON STOCKS SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AEROSPACE & DEFENSE--3.5%
Boeing Co..................................................................... 16,000 $ 1,254,000
General Dynamics Corp......................................................... 11,500 679,937
Lockheed Martin Corp.......................................................... 18,000 1,422,000
United Technologies Corp...................................................... 20,500 1,944,938
--------------
5,300,875
--------------

AUTOMOBILES & AUTO PARTS--.9%
Nissan Motor Company ORD...................................................... 170,000 1,303,142
--------------

BANKING--2.3%
BankAmerica Corp.............................................................. 19,000 1,230,250
Citicorp...................................................................... 18,000 1,210,500
First Interstate Bancorp...................................................... 7,000 955,500
--------------
3,396,250
--------------

BIOTECHNOLOGY--1.2%
Amgen Inc.(1)................................................................. 31,000 1,838,687
--------------

BROADCASTING--1.1%
Grupo Televisa ADR............................................................ 36,000 810,000
Liberty Media Corp. Cl. A(1).................................................. 29,525 791,639
--------------
1,601,639
--------------

BUSINESS SERVICES & SUPPLIES--1.8%
HFS, Inc.(1).................................................................. 33,000 2,697,750
--------------

CHEMICALS & RESINS--.5%
Air Products & Chemicals, Inc................................................. 6,700 353,425
du Pont (E.I.) de Nemours & Co................................................ 7,000 489,125
--------------
842,550
--------------

COMMUNICATIONS EQUIPMENT--2.6%
DSC Communications Corp.(1)................................................... 47,000 1,739,000
Ericsson (L.M.) Telephone Co. ADR............................................. 64,000 1,248,000
Motorola, Inc................................................................. 17,000 969,000
--------------
3,956,000
--------------

COMMUNICATIONS SERVICES--3.8%
AirTouch Communications(1).................................................... 15,500 437,875
Nextel Communications Inc.(1)................................................. 85,000 1,259,063
Tele-Communications, Inc.(1).................................................. 110,000 2,193,125
</TABLE>

------------------------
See Notes to Financial Statements.

----------------
137
<PAGE>
- ----------------

TCI PORTFOLIOS, INC.
TCI BALANCED
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995

<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED) SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMUNICATIONS SERVICES (CONTINUED)
Vodafone Group Plc ADR........................................................ 54,000 $ 1,903,500
--------------
5,793,563
--------------

COMPUTER SOFTWARE & SERVICES--7.1%
Electronic Arts(1)............................................................ 44,000 1,152,250
First Data Corp............................................................... 33,001 2,206,942
General Motors Corp. Cl. E.................................................... 26,000 1,352,000
Intuit Inc.(1)................................................................ 28,000 2,187,500
Microsoft Corp.(1)............................................................ 20,000 1,756,250
Oracle Systems Corp.(1)....................................................... 49,000 2,076,375
--------------
10,731,317
--------------

COMPUTER SYSTEMS--4.6%
Compaq Computer Corp.(1)...................................................... 33,000 1,584,000
Fujitsu Ltd. ORD.............................................................. 58,000 644,756
Hewlett-Packard Co............................................................ 25,000 2,093,750
International Business Machines Corp.......................................... 29,000 2,660,750
--------------
6,983,256
--------------

ELECTRICAL & ELECTRONIC COMPONENTS--4.6%
Intel Corp.................................................................... 27,500 1,562,344
Kyocera Corp. ORD............................................................. 7,000 518,995
Lattice Semiconductor Corp.(1)................................................ 45,000 1,470,937
Micron Technology, Inc........................................................ 5,000 198,125
Siemens AG ORD................................................................ 2,400 1,311,521
Texas Instruments Inc......................................................... 35,000 1,811,250
--------------
6,873,172
--------------

ENERGY (PRODUCTION & MARKETING)--3.5%
British Petroleum Co. p.l.c. ADR.............................................. 14,034 1,433,222
Enron Oil & Gas Co............................................................ 72,000 1,728,000
Mobil Corp.................................................................... 4,000 448,000
Texaco Inc.................................................................... 22,000 1,727,000
--------------
5,336,222
--------------

ENERGY (SERVICES)--2.1%
Global Marine Inc.(1)......................................................... 115,000 1,006,250
Halliburton Co................................................................ 44,000 2,227,500
--------------
3,233,750
--------------

FINANCIAL SERVICES--1.2%
Nomura Securities Co. Ltd. ORD................................................ 80,000 1,739,971
--------------
</TABLE>

------------------------
See Notes to Financial Statements.

----------------
138
<PAGE>
- ----------------

TCI PORTFOLIOS, INC.
TCI BALANCED
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995

<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED) SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FOOD & BEVERAGE--.3%
Coca-Cola Company (The)....................................................... 6,000 $ 445,500
--------------

HEALTHCARE--4.1%
Baxter International, Inc..................................................... 36,000 1,507,500
Columbia/HCA Healthcare Corp.................................................. 39,000 1,979,250
Foundation Health Corp.(1).................................................... 45,000 1,935,000
United Healthcare Corp........................................................ 12,000 786,000
--------------
6,207,750
--------------

INDUSTRIAL EQUIPMENT & MACHINERY--.4%
Nikon Corp. ORD............................................................... 40,000 541,324
--------------

INSURANCE--1.0%
CIGNA Corp.................................................................... 14,000 1,445,500
--------------

LEISURE--.5%
Promus Companies Inc.(1)...................................................... 37,350 831,037
--------------

MEDICAL EQUIPMENT & SUPPLIES--2.2%
Nellcor Inc.(1)............................................................... 23,000 1,342,625
St. Jude Medical, Inc.(1)..................................................... 45,250 1,940,094
--------------
3,282,719
--------------

METALS & MINING--.3%
Placer Dome Inc. ADR.......................................................... 19,000 458,375
--------------

PHARMACEUTICALS--2.8%
Bristol-Myers Squibb Co....................................................... 7,000 601,125
Johnson & Johnson............................................................. 21,500 1,840,938
Pfizer, Inc................................................................... 28,000 1,764,000
--------------
4,206,063
--------------

PUBLISHING--.6%
K-III Communications Corp.(1)................................................. 72,000 873,000
--------------

RESTAURANTS--.4%
Wendy's International, Inc.................................................... 31,000 658,750
--------------

RETAIL (APPAREL)--1.2%
NIKE, Inc..................................................................... 25,000 1,740,625
--------------
</TABLE>

------------------------
See Notes to Financial Statements.

----------------
139
<PAGE>
- ----------------

TCI PORTFOLIOS, INC.
TCI BALANCED
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED) SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
RETAIL (GENERAL MERCHANDISE)--1.1%
Federated Department Stores, Inc.(1).......................................... 30,000 $ 825,000
Sears, Roebuck & Co........................................................... 22,000 858,000
--------------
1,683,000
--------------

RETAIL (SPECIALTY)--.7%
OfficeMax, Inc.(1)............................................................ 50,000 1,118,750
--------------

TRANSPORTATION--.6%
Hutchison Whampoa ORD......................................................... 141,000 858,855
--------------

TOTAL COMMON STOCKS--57.1% (Cost $70,042,492)................................. 85,979,392
--------------

PRINCIPAL
FIXED INCOME SECURITIES AMOUNT
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY SECURITIES
U.S. Treasury Notes, 6.875%, 10-31-96......................................... $ 2,000,000 2,025,880
U.S. Treasury Notes, 5.50%, 11-15-98.......................................... 1,000,000 1,007,300
U.S. Treasury Notes, 5.875%, 6-30-00.......................................... 3,000,000 3,064,560
U.S. Treasury Notes, 6.25%, 8-31-00........................................... 500,000 517,685
U.S. Treasury Notes, 6.125%, 9-30-00.......................................... 1,000,000 1,030,730
U.S. Treasury Notes, 5.75%, 10-31-00.......................................... 2,700,000 2,741,769
U.S. Treasury Notes, 5.625%, 11-30-00......................................... 2,500,000 2,524,900
U.S. Treasury Notes, 6.375%, 8-15-02.......................................... 1,000,000 1,050,180
U.S. Treasury Notes, 5.75%, 8-15-03........................................... 750,000 760,087
U.S. Treasury Notes, 6.50%, 8-15-05........................................... 2,500,000 2,665,375
--------------

TOTAL U.S. TREASURY SECURITIES--11.5% (Cost $17,066,152)...................... 17,388,466
--------------

MORTGAGE-BACKED SECURITIES*
FHLMC Series 1439-BPAC REMIC, 4.00%, 1-15-96.................................. 91,056 90,858
FHLMC Series 1449-BPAC REMIC, 4.00%, 2-15-96.................................. 354,921 353,919
FNMA Series G92-64-CPAC REMIC, 4.50%, 5-15-96................................. 818,824 812,077
FNMA Pool #248679, 5.50%, 5-15-99............................................. 1,740,356 1,702,196
UCFC Series 1995-D1, 6.20%, 12-1-98........................................... 1,050,000 1,050,315
--------------

TOTAL MORTGAGE-BACKED SECURITIES--2.7% (Cost $3,972,578)...................... 4,009,365
--------------
<CAPTION>

CORPORATE BONDS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AUTOMOBILES & AUTO PARTS--1.7%
Ford Motor Credit Co., 6.375%, 10-6-00........................................ 1,500,000 1,526,250
General Motors Acceptance Corp., MTN, 7.00%, 6-15-03.......................... 1,000,000 1,052,500
--------------
2,578,750
--------------
</TABLE>

------------------------
See Notes to Financial Statements.

----------------
140
<PAGE>
- ----------------

TCI PORTFOLIOS, INC.
TCI BALANCED
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
CORPORATE BONDS (CONTINUED) AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BANKING--4.3%
Abbey National First Capital, 8.20%, 10-15-04................................. $ 1,000,000 $ 1,135,000
Chase Manhattan Corp., 8.80%, 2-1-00.......................................... 1,000,000 1,032,500
First Union Corp., 8.77%, 11-15-04............................................ 1,000,000 1,113,750
First Union Corp., 7.05%, 8-1-05.............................................. 1,000,000 1,055,000
First USA Bank, 5.75%, 1-15-99................................................ 1,000,000 996,250
Republic of New York Corp., 7.25%, 7-15-02.................................... 1,000,000 1,070,000
--------------
6,402,500
--------------

COMMUNICATIONS SERVICES--.7%
GTE Southwest, Inc., 5.82%, 12-1-99........................................... 1,000,000 1,001,250
--------------

DIVERSIFIED COMPANIES--1.3%
Hanson Overseas BV, 5.50%, 1-15-96............................................ 1,000,000 1,000,125
Hanson Overseas BV, 6.75%, 9-15-05............................................ 1,000,000 1,037,500
--------------
2,037,625
--------------

FINANCIAL SERVICES--4.2%
Keycorp Inc., MTN, 7.30%, 2-3-03.............................................. 1,300,000 1,386,125
Lehman Brothers Holdings Inc., MTN, 9.17%, 2-28-02............................ 1,000,000 1,138,750
Norwest Financial, Inc., 6.25%, 11-1-02....................................... 1,750,000 1,780,625
Standard Credit Card Trust Series 1995-2A, 8.625%, 1-7-00..................... 1,000,000 1,054,723
Xerox Credit Corp. Notes, 6.25%, 1-15-96...................................... 1,000,000 1,000,476
--------------
6,360,699
--------------

FOOD & BEVERAGE--1.1%
Nabisco Inc., 8.00%, 1-15-00.................................................. 1,500,000 1,606,875
--------------

INSURANCE--.7%
London Insurance Group, 6.875%, 9-15-05....................................... 1,000,000 1,033,750
--------------

PAPER & FOREST PRODUCTS--1.2%
Boise Cascade Corp., MTN, 9.98%, 3-27-03...................................... 1,500,000 1,805,625
--------------

RETAIL (GENERAL MERCHANDISE)--3.0%
Sears Roebuck & Co., MTN, 8.00%, 2-16-99...................................... 1,000,000 1,063,750
Sears Roebuck & Co., MTN, 8.23%, 10-21-04..................................... 1,000,000 1,136,250
Wal-Mart Stores, Inc., 7.50%, 5-15-04......................................... 1,100,000 1,204,500
Wal-Mart Stores, Inc., 8.00%, 9-15-06......................................... 1,000,000 1,150,000
--------------
4,554,500
--------------
</TABLE>

------------------------
See Notes to Financial Statements.

----------------
141
<PAGE>
- ----------------

TCI PORTFOLIOS, INC.
TCI BALANCED
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
CORPORATE BONDS (CONTINUED) AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES (ELECTRIC)--3.9%
Detroit Edison Co., MTN, 5.41%, 5-1-97........................................ $ 1,000,000 $ 996,250
Florida Power & Light Co., 5.50%, 7-1-99...................................... 1,000,000 998,750
Kansas Power & Light Co., 8.875%, 3-1-00...................................... 1,000,000 1,115,000
Pacific Gas & Electric Co., 6.25%, 8-1-03..................................... 1,700,000 1,710,625
Texas Utilities Electric Co., 5.75%, 7-1-98................................... 1,000,000 1,001,250
--------------
5,821,875
--------------

UTILITIES (NATURAL GAS)--.7%
Consolidated Natural Gas Co., 9.375%, 2-1-97.................................. 1,000,000 1,042,500
--------------

TOTAL CORPORATE BONDS--22.8% (Cost $33,108,990)............................... 34,245,949
--------------
<CAPTION>

SOVEREIGN GOVERNMENTS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Province of Ontario Global Bonds, 7.625%, 6-22-04............................. 1,000,000 1,102,500
Quebec Province, 8.625%, 1-19-05.............................................. 2,000,000 2,312,500
--------------

TOTAL SOVEREIGN GOVERNMENTS--2.3% (Cost $3,247,910)........................... 3,415,000
--------------
<CAPTION>

TEMPORARY CASH INVESTMENTS--3.6%
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreement (Goldman Sachs & Co., Inc.), 5.75%, due 1-2-96;
collateralized by $4,275,000 par value U.S. Treasury Bonds, 8.125%, due
8-15-21 (Delivery value $5,403,450) (Cost $5,400,000)....................... 5,400,000
--------------
TOTAL INVESTMENT SECURITIES--100.0% (Cost $132,838,122)....................... $ 150,438,172
--------------
--------------
</TABLE>

NOTES TO SCHEDULE OF INVESTMENTS

ADR = American Depositary Receipts
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
MTN = Medium Term Note
ORD = Foreign Ordinary Shares
UCFC = United Companies Financial Corporation

(1)Non-income producing

*Expected remaining maturity is indicated and used for purposes of calculating
the weighted average portfolio maturity.

- ------------
See Notes to Financial Statements.

----------------
142
<PAGE>
- ----------------

TCI PORTFOLIOS, INC.
TCI BALANCED
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
ASSETS
Investment securities, at value (identified cost of
$132,838,122) (Note 3)........................................ $150,438,172
Cash............................................................ 2,311,070
Receivable for forward foreign currency exchange contracts held
(Note 4)...................................................... 21,227
Dividends and interest receivable............................... 1,213,163
------------
153,983,632
------------

LIABILITIES
Payable for capital shares redeemed............................. 37,332
Accrued management fees (Note 2)................................ 123,000
Other liabilities............................................... 130
------------
160,462
------------
NET ASSETS applicable to outstanding shares....................... $153,823,170
------------
------------
CAPITAL SHARES, $.01 PAR VALUE
Authorized...................................................... 30,000,000
------------
------------
Outstanding..................................................... 21,857,694
------------
------------
NET ASSET VALUE per share......................................... $7.04
------------
------------
NET ASSETS consist of:
Capital (par value and paid-in surplus)......................... $131,380,683
Undistributed net investment income............................. 62,692
Accumulated undistributed net realized gain from investments and
foreign currency transactions................................. 4,758,581
Net unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies (Notes 3 and
4)............................................................ 17,621,214
------------
$153,823,170
------------
------------
</TABLE>

- ------------
See Notes to Financial Statements.

----------------
143
<PAGE>
- ----------------

TCI PORTFOLIOS, INC.
TCI BALANCED
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Interest........................................................ $ 3,762,706
Dividends (net of foreign taxes withheld of $26,322)............ 850,490
------------
4,613,196
------------
EXPENSES
Management fees (Note 2)........................................ 1,222,757
Directors' fees and expenses.................................... 1,296
------------
1,224,053
------------
Net investment income............................................. 3,389,143
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY (Notes 3 and 4)
Net realized gain (loss) during the year on:
Investments..................................................... 6,884,330
Foreign currency transactions................................... (67,603)
------------
6,816,727
------------
Change in net unrealized appreciation during the year on:
Investments..................................................... 13,419,338
Translation of assets and liabilities in foreign currencies..... 38,523
------------
13,457,861
------------
Net realized and unrealized gain on investments and foreign
currency........................................................ 20,274,588
------------
Net increase in net assets resulting from operations.............. $ 23,663,731
------------
------------
</TABLE>

- ------------
See Notes to Financial Statements.

----------------
144
<PAGE>
- ----------------

TCI PORTFOLIOS, INC.
TCI BALANCED
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994

<TABLE>
<CAPTION>
INCREASE IN NET ASSETS 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income.................................................... $ 3,389,143 $ 2,270,095
Net realized gain on investments and foreign currency transactions....... 6,816,727 336,417
Change in net unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies............ 13,457,861 (2,068,007)
------------- -------------
Net increase in net assets resulting from operations..................... 23,663,731 538,505
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income............................................... (3,317,076) (2,284,710)
------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold................................................ 36,523,452 36,218,233
Proceeds from reinvestment of distributions.............................. 3,317,076 2,284,709
Payments for shares redeemed............................................. (11,464,097) (7,580,261)
------------- -------------
Net increase in net assets from capital share transactions............... 28,376,431 30,922,681
------------- -------------
Net increase in net assets................................................. 48,723,086 29,176,476
NET ASSETS
Beginning of year........................................................ 105,100,084 75,923,608
------------- -------------
End of year.............................................................. $ 153,823,170 $ 105,100,084
------------- -------------
------------- -------------
Undistributed net investment income........................................ $ 62,692 $ --
------------- -------------
------------- -------------
TRANSACTIONS IN SHARES OF THE FUND
Sold..................................................................... 5,501,320 5,984,443
Issued in reinvestment of distributions.................................. 494,003 384,871
Redeemed................................................................. (1,765,833) (1,245,028)
------------- -------------
Net increase............................................................. 4,229,490 5,124,286
------------- -------------
------------- -------------
</TABLE>

- ------------
See Notes to Financial Statements.

----------------
145
<PAGE>
- ----------------

TCI PORTFOLIOS, INC.
TCI BALANCED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION: TCI Portfolios, Inc. is registered under the Investment Company
Act of 1940 as an open-end diversified management investment company. Four
series of shares are currently issued as TCI Growth, TCI Balanced, TCI Advantage
and TCI International. With the exception of shares issued for the initial
capitalization of a series of the Corporation, shares may be purchased only by
insurance companies to fund the benefits of variable annuity or variable life
insurance policies. The investment objective of TCI Balanced (the Fund) is
capital growth and current income. The following significant accounting policies
related to the Fund are in accordance with accounting policies generally
accepted in the investment company industry.

SECURITY VALUATIONS: Portfolio securities traded primarily on a principal
securities exchange are valued at the last reported sales price, or the mean
between the latest bid and asked prices where no last sales price is available.
Securities traded over-the-counter are valued at the mean of the latest bid and
asked prices or, in the case of certain foreign securities, at the last reported
sales price. Debt securities not traded on a principal securities exchange are
valued through valuations obtained from a commercial pricing service or at the
mean of the most recent bid and asked prices. Short-term securities are valued
at amortized cost, which approximates value. When valuations are not readily
available, securities are valued at fair value as determined in good faith by
the board of directors.

SECURITY TRANSACTIONS: Security transactions are accounted for on the date
purchased or sold. Net realized gains and losses are determined on the
identified cost basis, which is also used for federal income tax purposes.

INVESTMENT INCOME: Dividend income less foreign taxes withheld (if any) is
recorded as of the ex-dividend date or upon receipt of ex-dividend notification
in the case of certain foreign securities. Interest income is recognized on the
accrual basis and includes amortization of discounts and premiums.

FOREIGN CURRENCY TRANSACTIONS: The accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities initially expressed in
foreign currencies are converted into U.S. dollars at prevailing exchange rates.
Purchases and sales of investment securities, dividend and interest income, and
certain expenses are translated at the rates of exchange prevailing on the
respective dates of such transactions.

The Fund does not isolate that portion of the results of operations resulting
from changes in the foreign exchange rates on investments from the fluctuations
arising from changes in the market prices of securities held. Such fluctuations
are included with the net realized and unrealized gain or loss on investments.

Net realized foreign currency exchange gains or losses arise from sales of
portfolio securities, sales of foreign currencies, and the difference between
asset and liability amounts initially stated in foreign currencies and the U.S.
dollar value of the amounts actually received or paid. Net unrealized foreign
currency exchange gains or losses arise from changes in the value of assets and
liabilities other than portfolio securities at the end of the reporting period,
resulting from changes in the exchange rates.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS: The Fund may enter into forward
foreign currency exchange contracts for the purpose of settling specific
purchases or sales of securities denominated in a foreign currency or to hedge
the Fund's exposure to foreign currency exchange rate fluctuations. The net U.S.
dollar value of foreign currency underlying all contractual commitments held by
the Fund and the resulting unrealized appreciation or depreciation are
determined daily using prevailing exchange rates.

REPURCHASE AGREEMENTS: Securities pledged as collateral for repurchase
agreements are held by the Federal Reserve Bank and are designated as being held
on the Fund's behalf by its custodian under a book-entry system. The Fund
monitors the adequacy of the collateral daily and can require the seller to
provide additional collateral in the event the market value of the securities
pledged falls below the carrying value of the repurchase agreement.

INCOME TAX STATUS: It is the policy of the Fund to distribute all taxable
income and capital gains to shareholders and to otherwise qualify as a regulated
investment company under provisions of the Internal Revenue Code. Accordingly,
no provision has been made for federal or state taxes.

DISTRIBUTIONS TO SHAREHOLDERS: Distributions to shareholders are recorded on
the ex-dividend date. Distributions from net investment income are declared and
paid quarterly. Distributions from net realized gains are declared and paid
annually.

----------------
146
<PAGE>
- ----------------

TCI PORTFOLIOS, INC.
TCI BALANCED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995

The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences are primarily due to differing
treatments for foreign currency transactions and wash sales.

SUPPLEMENTARY INFORMATION: Certain officers and directors of the Corporation
are also officers and/or directors, and, as a group, controlling stockholders of
Twentieth Century Companies, Inc., the parent of the Corporation's investment
manager, Investors Research Corporation (IRC).

2. MANAGEMENT AGREEMENT

The Management Agreement with IRC provides for a monthly management fee
computed by multiplying the applicable fee for the Fund by the average daily
closing value of the Fund's net assets during the previous month. The Agreement
further provides that all expenses of the Fund, except brokerage commissions,
taxes, interest, expenses of those directors who are not considered "interested
persons" as defined in the Investment Company Act of 1940 (including counsel
fees) and extraordinary expenses, will be paid by IRC. The agreement may be
terminated by either party upon 60 days' written notice. The current annual
management fee for the Fund is 1%.

3. INVESTMENT TRANSACTIONS

The aggregate cost of investment securities purchased (excluding short-term
investments) for the year ended December 31, 1995, totaled $75,144,690 for
common stocks, $27,691,703 for U.S. Treasury and Agency obligations and
$29,392,826 for other debt obligations. Investment securities sold totaled
$61,391,578 for common stocks, $25,077,824 for U.S. Treasury and Agency
obligations and $15,085,475 for other debt obligations. On December 31, 1995,
accumulated net unrealized appreciation on investments, based on the aggregate
cost of investments of $132,879,586 for federal income tax purposes, was
$17,558,586, consisting of unrealized appreciation of $17,841,143 and unrealized
depreciation of $282,557.

4. COMMITMENTS

As of December 31, 1995, the Fund had entered into forward foreign currency
exchange contracts that obligate the Fund to deliver currencies at specified
future dates. Forward contracts involve elements of market risk in excess of the
amount reflected in the Statement of Assets and Liabilities. The Fund bears the
risk of an unfavorable change in the foreign currency exchange rate underlying
the forward contract. Additionally, losses may arise if the counterparties do
not perform under the contract terms. Outstanding contracts as of December 31,
1995, were as follows:

<TABLE>
<CAPTION>
U.S. DOLLAR U.S. DOLLAR
CURRENCY TO VALUE AS OF CURRENCY TO VALUE AS OF UNREALIZED
SETTLEMENT DATE BE DELIVERED 12/31/95 BE RECEIVED 12/31/95 GAIN
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
January 31, 1996 683,856 $ 476,804 478,254 $ 478,254 $ 1,450
German Mark U.S. Dollar

January 31, 1996 252,358,200 2,449,699 2,469,476 2,469,476 19,777
Japanese Yen U.S. Dollar
----------- ----------- ----------
$2,926,503 $2,947,730 $ 21,227
----------- ----------- ----------
----------- ----------- ----------
</TABLE>

----------------
147
<PAGE>
- ----------------

TCI PORTFOLIOS, INC.
TCI BALANCED
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
MAY 1, 1991
(INCEPTION) YEAR ENDED DEC. 31,
THROUGH ------------------------------------------------
DECEMBER 31, 1991 1992 1993 1994
----------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 5.00 $ 6.19 $ 5.74 $ 6.07
----------------- ----------- ----------- ------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income................. .08 .08 .11 .15
Net realized and unrealized gains
(losses) on investments and foreign
currency transactions............... 1.19 (.45) .33 (.11)
----------------- ----------- ----------- ------------
Total from investment operations...... 1.27 (.37) .44 .04
----------------- ----------- ----------- ------------
DISTRIBUTIONS
Distributions from net investment
income.............................. (.08) (.08) (.11) (.15)
----------------- ----------- ----------- ------------
Net asset value, end of period.......... 6.19 5.74 6.07 5.96
----------------- ----------- ----------- ------------
----------------- ----------- ----------- ------------
Total return............................ 38.02%* (6.04%)(1) 7.68%(1) .61%(1)
RATIOS/SUPPLEMENTAL DATA
Ratio of operating expenses to average
net assets.......................... 1.00%* 1.00% 1.00% 1.00%
Ratio of net investment income to
average net assets.................. 2.36%* 1.91% 1.97% 2.49%
Portfolio turnover rate(1)............ 28% 85% 68% 63%
Net assets, end of period............. $1,411,775 $34,381,661 $75,923,608 $105,100,084

1995 average commission paid per share traded $.040

<CAPTION>
1995
------------
<S> <C> <C>
Net asset value, beginning of period.... $ 5.96
------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income................. .17
Net realized and unrealized gains
(losses) on investments and foreign
currency transactions............... 1.08
------------
Total from investment operations...... 1.25
------------
DISTRIBUTIONS
Distributions from net investment
income.............................. (.17)
------------
Net asset value, end of period.......... 7.04
------------
------------
Total return............................ 21.12%(1)
RATIOS/SUPPLEMENTAL DATA
Ratio of operating expenses to average
net assets.......................... .97%
Ratio of net investment income to
average net assets.................. 2.69%
Portfolio turnover rate(1)............ 87%
Net assets, end of period............. $153,823,170
1995 average commission paid per share t
</TABLE>

- ------------
(1)Actual total return and portfolio turnover rate for periods indicated
*Annualized

See Notes to Financial Statements.

----------------
148
<PAGE>
- ----------------

TCI PORTFOLIOS, INC.
TCI BALANCED
INDEPENDENT ACCOUNTANTS' REPORT

The Shareholders and Board of Directors of TCI Portfolios, Inc.

We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of TCI Balanced (a series of TCI
Portfolios, Inc.) as of December 31, 1995, and the related statement of
operations, the statements of changes in net assets, and the financial
highlights for each of the periods indicated. These financial statements and
financial highlights are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform 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 as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of TCI
Balanced as of December 31, 1995, and the results of their operations, changes
in their net assets, and the financial highlights for each of the periods
indicated in conformity with generally accepted accounting principles.

BAIRD, KURTZ & DOBSON

Kansas City, Missouri
January 26, 1996

----------------
149
<PAGE>
- ----------------

TCI PORTFOLIOS, INC.
TCI GROWTH
OUR MESSAGE TO YOU
DECEMBER 31, 1995

TCI Growth reported a gain of 31.10% for the 12 months ended December 31,
1995, reflecting the year's powerful market climb. According to Lipper
Analytical Services, the average total return for funds with growth investment
objectives was 30.79% during the period. The S&P 500 index returned 37.44% for
the 12 months.

TCI Growth's best gains came during the year's first three quarters. It
climbed steadily in the first half of the period with a 19.47% gain and surged
sharply in the third quarter with a 14.01% return (compared to the S&P's 7.92%).
Hot-selling new technologies--the introduction of Windows 95 in August, for
example--contributed to the market's extended rally during this period. With
nearly half of its portfolio in technology stocks during the 12-month period,
the fund made the most of this trend. Moderate holdings in international stocks
provided a positive effect on returns as well.

In the face of growing economic uncertainty late in the year, many investors
moved from technology stocks to stocks of large, more established companies with
steady earnings, which investors typically consider to be defensive. This change
in emphasis clipped fund performance, especially in comparison with the positive
return of the S&P, which was heavily influenced by the returns of large "steady
growers" in the index.

TCI Growth, which invests in the stocks of small, medium and large companies,
is designed for investors seeking capital growth. To meet that objective the
fund seeks to single out companies with earnings and revenue acceleration
because we have found that such an approach has provided attractive returns over
the long run.

TCI Growth's continued performance (despite the recent setback in
technology-oriented companies) reaffirms to us the potential of combining
growth-oriented stocks with a disciplined buying and selling process. We
strongly believe that this strategy has the potential to provide significant
benefits to those shareholders investing to achieve long-term financial goals.

Sincerely,

[SIGNATURE] [SIGNATURE]

James E. Stowers James E. Stowers III
CHAIRMAN OF THE BOARD AND FOUNDER PRESIDENT

----------------
150
<PAGE>
- ----------------

TCI PORTFOLIOS, INC.
TCI GROWTH
INVESTMENT REVIEW
DECEMBER 31, 1995

QUICK FUND FACTS

TCI Growth Strategy: Growth over time through investments in stocks of
small, medium and large companies.
Inception Date: November 20, 1987 Size: $1.46 billion (as of
December 31, 1995)
Investment Approach: Capital Growth

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
$10,000 OVER LIFE OF FUND (AS OF DECEMBER 31,
1995)
<S> <C> <C> <C> <C> <C>
TCI Growth S&P 500 Index
11/20/87 10000 10000
12/31/87 10720 10301
6/30/88 10801 11609
12/31/88 10477 12001
6/30/89 12072 13981
12/31/89 13486 15792
6/30/90 14852 16273
12/31/90 13317 15300
6/30/91 15264 17475
12/31/91 18894 19940
6/30/92 16858 19809
12/31/92 18640 21457
6/30/93 19543 22498
12/31/93 20563 23611
6/30/94 19109 22820
12/31/94 20322 23931
6/30/95 24278 28752
12/31/95 26642 32892
Average Annual Total Returns as of December 31,
1995
6 Months* 1 Year 3 Year 5 Year 11/87
TCI Growth 9.74% 31.10% 12.67% 14.89% 12.85%
S&P 500 Index 14.40% 37.44% 15.33% 16.56% 15.82%
</TABLE>

- ------------
*Actual

Past performance is not predictive of future performance.

No expenses or fees are reflected in the S&P 500. All performance illustrations
for TCI Growth are shown net of fees and assume reinvestment of all
distributions.

----------------
151
<PAGE>
- ----------------

TCI PORTFOLIOS, INC.
TCI GROWTH
INVESTMENT REVIEW (CONTINUED)
DECEMBER 31, 1995

<TABLE>
<CAPTION>
% OF FUND'S
INVESTMENTS IN
% OF FUND'S THESE STOCKS
TOP 10 HOLDINGS* (AS OF 12/31/95) INVESTMENTS 12 MONTHS AGO
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Sybase, Inc............................................ 2.7% --
Intel Corp............................................. 2.3% 1.2%
Structural Dynamics Research Corp...................... 2.2% --
Cephalon Inc........................................... 2.0% --
Glenayre Technologies, Inc............................. 2.0% --
StrataCom, Inc......................................... 2.0% 0.7%
Chiron Corp............................................ 1.9% 1.2%
Nellcor Inc............................................ 1.9% 1.1%
Andrew Corp............................................ 1.8% 3.5%
QUALCOMM Inc........................................... 1.8% 1.3%
</TABLE>

*The composition of the portfolio may change over time.

<TABLE>
<CAPTION>
% OF FUND'S
INVESTMENTS IN
THESE
% OF FUND'S INDUSTRIES
TOP FIVE INDUSTRIES (AS OF 12/31/95) INVESTMENTS 12 MONTHS AGO
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Computer Software & Services........................... 14.2% 7.5%
Communications Equipment............................... 11.1% 11.8%
Electrical & Electronic Components..................... 11.1% 5.7%
Industrial Equipment & Machinery....................... 8.5% 2.1%
Computer Peripherals................................... 8.1% 7.7%
</TABLE>

<TABLE>
<CAPTION>
INVESTMENTS BY COUNTRY (EXPRESSED AS A PERCENTAGE OF % OF FUND'S
TOTAL VALUE OF INVESTMENTS) INVESTMENTS
- ------------------------------------------------------------------------
<S> <C>
Canada................................................. 0.8%
Finland................................................ 0.7%
France................................................. 0.5%
Germany................................................ 1.1%
Japan.................................................. 11.3%
Netherlands............................................ 0.6%
Sweden................................................. 1.0%
United Kingdom......................................... 0.4%
United States.......................................... 83.6%
-----
100.0%
-----
-----
</TABLE>

----------------
152
<PAGE>
- ----------------

TCI PORTFOLIOS, INC.
TCI GROWTH
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995

BIOTECHNOLOGY--3.0%
Amgen Inc.(1)............................................................... 275,000 16,310,938
Chiron Corp.(1)............................................................. 250,000 27,656,250
----------------
43,967,188
----------------

BROADCASTING--.9%
Cablevision Systems Corp.(1)................................................ 250,000 13,562,500
----------------

BUSINESS SERVICES & SUPPLIES--2.0%
Gartner Group, Inc.(1)...................................................... 300,000 14,362,500
Medaphis Corp.(1)........................................................... 400,000 14,850,000
----------------
29,212,500
----------------

COMMUNICATIONS EQUIPMENT--11.1%
Andrew Corp.(1)............................................................. 690,000 26,651,250
Ericsson (L.M.) Telephone Co. ADR........................................... 750,000 14,625,000
Glenayre Technologies, Inc.(1).............................................. 475,000 29,568,750
Motorola, Inc............................................................... 120,000 6,840,000
Nokia Corp. ADR............................................................. 275,000 10,690,625
Premisys Communications, Inc.(1)............................................ 228,100 12,887,650
QUALCOMM Inc.(1)............................................................ 600,000 25,762,500
Tellabs, Inc.(1)............................................................ 401,500 14,905,688
VTEL Corp.(1)++............................................................. 670,000 12,478,750
VideoServer, Inc.(1)........................................................ 200,000 6,400,000
----------------
160,810,213
----------------

COMMUNICATIONS SERVICES--2.4%
MFS Communications Co., Inc.(1)............................................. 350,000 18,725,000
Nextel Communications Inc.(1)............................................... 900,000 13,331,250
Vodafone Group Plc ADR...................................................... 100,000 3,525,000
----------------
35,581,250
----------------

COMPUTER PERIPHERALS--8.1%
Bay Networks, Inc.(1)....................................................... 463,000 19,011,937
Cirrus Logic, Inc.(1)....................................................... 1,000 19,813
Cisco Systems Inc.(1)....................................................... 321,000 23,974,688
FORE Systems, Inc.(1)....................................................... 180,000 10,721,250
Gandalf Technologies Inc. ADR(1)............................................ 100,000 1,706,250
General DataComm Industries, Inc.(1)........................................ 400,000 6,850,000
</TABLE>

------------------------
See Notes to Financial Statements.

----------------
153
<PAGE>
- ----------------

TCI PORTFOLIOS, INC.
TCI GROWTH
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995

<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED) SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMPUTER PERIPHERALS (CONTINUED)
Microcom, Inc.(1)........................................................... 600,000 $ 15,637,500
Oki Electric Industries ORD(1).............................................. 650,000 5,830,836
StrataCom, Inc.(1).......................................................... 400,000 29,300,000
3Com Corp.(1)............................................................... 100,000 4,668,750
----------------
117,721,024
----------------

COMPUTER SOFTWARE & SERVICES--14.2%
BBN Corp.(1)................................................................ 375,000 15,421,875
Baan Co., N.V. ADR(1)....................................................... 200,000 9,050,000
Cambridge Technology Partners (Mass.) Inc.(1)............................... 210,000 11,891,250
DST Systems, Inc.(1)........................................................ 282,500 8,051,250
FTP Software, Inc.(1)....................................................... 473,100 13,749,469
Fuji Soft Corporation ORD................................................... 140,000 4,763,654
Informix Corp.(1)........................................................... 540,000 16,233,750
Microsoft Corp.(1).......................................................... 175,000 15,367,187
PLATINUM technology, inc.(1)................................................ 550,000 10,140,625
SAP Aktiengesellschaft AG ORD............................................... 100,000 15,489,036
Structural Dynamics Research Corp.(1)....................................... 1,072,300 31,364,775
Sybase, Inc.(1)............................................................. 1,100,000 39,462,500
UUNET Technologies Inc.(1).................................................. 236,400 14,952,300
----------------
205,937,671
----------------

COMPUTER SYSTEMS--.6%
Auspex Systems, Inc.(1)..................................................... 371,700 6,737,063
Micron Electronics, Inc.(1)................................................. 250,000 2,703,125
----------------
9,440,188
----------------

CONSUMER PRODUCTS--.6%
Mitsubishi Corp. ORD........................................................ 160,000 1,964,234
Nissho Iwai Corp. ORD....................................................... 1,400,000 7,172,547
----------------
9,136,781
----------------

CONTROL & MEASUREMENT--.5%
LTX Corp.(1)................................................................ 800,000 7,300,000
----------------

ELECTRICAL & ELECTRONIC COMPONENTS--11.1%
Advantest Corporation ORD................................................... 128,600 6,588,497
Altera Corp.(1)............................................................. 250,000 12,421,875
AVX Technology.............................................................. 649,100 17,201,150
Integrated Device Technology, Inc.(1)....................................... 200,000 2,587,500
Intel Corp.................................................................. 590,000 33,519,375
Kyocera Corp. ORD........................................................... 90,000 6,672,789
LSI Logic Corp.(1).......................................................... 200,000 6,550,000
</TABLE>

------------------------
See Notes to Financial Statements.

----------------
154
<PAGE>
- ----------------

TCI PORTFOLIOS, INC.
TCI GROWTH
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995

<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED) SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ELECTRICAL & ELECTRONIC COMPONENTS (CONTINUED)
Matsushita Communications Industrial Co., Ltd. ORD.......................... 300,000 $ 6,959,884
Micron Technology, Inc...................................................... 380,000 15,057,500
Nichicon ORD................................................................ 500,000 7,346,544
Omron Corporation ORD....................................................... 230,000 5,291,445
ROSS Technology, Inc.(1).................................................... 300,000 2,981,250
SGS-THOMSON Microelectronics N.V. ADR(1).................................... 160,000 6,500,000
Sierra Semiconductor Corp.(1)............................................... 850,000 11,846,875
Texas Instruments Inc....................................................... 292,200 15,121,350
Toshiba Ceramics Co. Limited ORD(1)......................................... 400,000 4,098,598
----------------
160,744,632
----------------

ENERGY (SERVICES)--1.3%
Input/Output, Inc.(1)....................................................... 325,000 18,768,750
----------------

ENVIRONMENTAL SERVICES--.6%
Molten Metal Technology, Inc.(1)............................................ 250,000 8,156,250
----------------

FINANCIAL SERVICES--7.6%
ADVANTA Corp. Cl. A......................................................... 145,300 5,503,238
Countrywide Credit Industries, Inc.......................................... 340,000 7,395,000
Credit Acceptance Corp.(1).................................................. 245,000 5,022,500
First USA, Inc.............................................................. 100,000 4,437,500
Franklin Resources, Inc..................................................... 250,000 12,593,750
Merrill Lynch & Co., Inc.................................................... 245,000 12,495,000
Money Store, Inc. (The)..................................................... 674,125 10,533,203
Morgan Stanley Group Inc.................................................... 125,000 10,078,125
Nikko Securities Co. ORD.................................................... 500,000 6,428,226
Nomura Securities Co. Ltd. ORD.............................................. 700,000 15,224,746
Schwab (Charles) Corp....................................................... 810,000 16,301,250
SunAmerica, Inc............................................................. 100,000 4,750,000
----------------
110,762,538
----------------

INDUSTRIAL EQUIPMENT & MACHINERY--8.5%
Applied Materials, Inc.(1).................................................. 510,000 20,049,375
Cognex Corp.(1)............................................................. 620,400 21,714,000
Credence Systems Corp.(1)................................................... 508,100 11,559,275
Helix Technology Corp....................................................... 208,700 8,269,738
KLA Instruments Corp.(1).................................................... 473,800 12,378,025
Keyence Corporation ORD..................................................... 43,000 4,946,351
Lam Research Corp.(1)....................................................... 310,700 14,175,687
NSK Limited ORD............................................................. 220,000 1,594,973
Nikon Corp. ORD............................................................. 1,000,000 13,533,108
Tokyo Electron LTD ORD...................................................... 397,000 15,350,411
----------------
123,570,943
----------------
</TABLE>

------------------------
See Notes to Financial Statements.

----------------
155
<PAGE>
- ----------------

TCI PORTFOLIOS, INC.
TCI GROWTH
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995

<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED) SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LEISURE--2.8%
Grand Casinos, Inc.(1)...................................................... 300,000 $ 6,975,000
Mirage Resorts, Inc.(1)..................................................... 440,000 15,180,000
Nintendo Co., Ltd ORD....................................................... 179,000 13,582,890
Trump Hotels & Casino Resorts, Inc.(1)...................................... 200,000 4,300,000
----------------
40,037,890
----------------

MEDICAL EQUIPMENT & SUPPLIES--4.4%
Biomet, Inc.(1)............................................................. 100,000 1,781,250
Medtronic, Inc.............................................................. 115,000 6,425,625
Nellcor Inc.(1)............................................................. 475,000 27,728,125
Summit Technology, Inc.(1).................................................. 425,000 14,396,875
Target Therapeutics, Inc.(1)................................................ 208,600 8,943,725
Ventritex, Inc.(1).......................................................... 304,300 5,344,269
----------------
64,619,869
----------------

METALS & MINING--.9%
Nucor Corp.................................................................. 225,000 12,853,125
----------------

OFFICE EQUIPMENT--1.4%
Canon Inc. ORD.............................................................. 315,000 8,373,610
Danka Business Systems plc ADR.............................................. 59,600 2,201,475
Sanyo Electric Company Ltd. ORD............................................. 1,600,000 9,202,513
----------------
19,777,598
----------------

PHARMACEUTICALS--7.2%
BioChem Pharma Inc. ADR(1).................................................. 250,000 10,031,250
Cephalon Inc.(1)............................................................ 710,000 28,976,875
Gilead Sciences, Inc.(1).................................................... 700,000 22,575,000
Merck & Co., Inc............................................................ 255,000 16,766,250
Neurogen Corp.(1)........................................................... 325,000 8,835,938
Sepracor Inc.(1)............................................................ 575,000 10,637,500
Somatogen, Inc.(1).......................................................... 380,000 7,196,250
----------------
105,019,063
----------------

RESTAURANTS--.8%
Lone Star Steakhouse & Saloon, Inc.(1)...................................... 150,000 5,746,875
Outback Steakhouse, Inc.(1)................................................. 153,000 5,498,438
----------------
11,245,313
----------------

RETAIL (APPAREL)--2.0%
Aoyama Trading Co., Ltd. ORD................................................ 300,000 9,569,840
Gap, Inc.................................................................... 292,200 12,272,400
Men's Wearhouse Inc. (The)(1)............................................... 200,000 5,200,000
</TABLE>

------------------------
See Notes to Financial Statements.

----------------
156
<PAGE>
- ----------------

TCI PORTFOLIOS, INC.
TCI GROWTH
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED) SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
RETAIL (APPAREL) (CONTINUED)
World Co., LTD ORD.......................................................... 40,000 $ 1,736,104
----------------
28,778,344
----------------

RETAIL (GENERAL MERCHANDISE)--.7%
Kohl's Corp.(1)............................................................. 200,000 10,500,000
----------------

RETAIL (SPECIALTY)--1.9%
General Nutrition Companies, Inc.(1)........................................ 482,500 11,218,125
PETsMART, Inc.(1)........................................................... 250,000 7,750,000
Skylark ORD................................................................. 90,000 1,652,972
Tiffany & Co................................................................ 140,000 7,052,500
----------------
27,673,597
----------------

MISCELLANEOUS--1.5%
Concord EFS, Inc.(1)........................................................ 115,400 4,817,950
Estee Lauder Companies Inc. Cl. A(1)........................................ 197,500 6,887,812
Honda Motor Co. Ltd. ORD.................................................... 300,000 6,176,897
Wisconsin Central Transportation Corp.(1)................................... 50,000 3,271,875
----------------
21,154,534
----------------
TOTAL COMMON STOCKS--97.2% (Cost $1,170,539,551)............................ 1,412,166,761
----------------

TEMPORARY CASH INVESTMENTS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreement (Goldman Sachs & Co., Inc.), 5.75%, due 1-2-96;
collateralized by $5,180,000 par value U.S. Treasury Bonds, 8.125%-11.75%,
due 2-15-10 through 5-15-21 (Delivery value $6,504,152)................... 6,500,000
Units of Participation in Provident Institutional Funds (Temp Cash
Portfolio)................................................................ 34,300,000
TOTAL TEMPORARY CASH INVESTMENTS--2.8% (Cost $40,800,000)................... 40,800,000
----------------
TOTAL INVESTMENT SECURITIES--100.0%
(Cost $1,211,339,551)..................................................... $ 1,452,966,761
----------------
----------------
</TABLE>

NOTES TO SCHEDULE OF INVESTMENTS

ADR = American Depositary Receipts
ORD = Foreign Ordinary Shares

(1)Non-income producing.

++Affiliated Company: represents ownership of at least 5% of the voting
securities of the issuer and is, therefore, an affiliate as defined in the
Investment Company Act of 1940. See Note 4 in Notes to Financial Statements
for a summary of transactions for each issuer who is or was an affiliate at or
during the year ended December 31, 1995.

- ------------
See Notes to Financial Statements.

----------------
157
<PAGE>
- ----------------

TCI PORTFOLIOS, INC.
TCI GROWTH
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
ASSETS
Investment securities, at value (identified cost of
$1,211,339,551) (Notes 3 and 4)............................. $1,452,966,761
Cash.......................................................... 4,396,532
Receivable for forward foreign currency exchange contracts
held (Note 5)............................................... 761,646
Receivable for investments sold............................... 30,192,227
Dividends and interest receivable............................. 621,325
--------------
1,488,938,491
--------------

LIABILITIES
Payable for investments purchased............................. 23,460,966
Payable for capital shares redeemed........................... 3,157,596
Accrued management fees (Note 2).............................. 1,195,012
Other liabilities............................................. 1,263
--------------
27,814,837
--------------
NET ASSETS applicable to outstanding shares..................... $1,461,123,654
--------------
--------------
CAPITAL SHARES, $.01 PAR VALUE
Authorized.................................................... 180,000,000
--------------
--------------
Outstanding................................................... 121,135,825
--------------
--------------
NET ASSET VALUE per share....................................... $12.06
--------------
--------------
NET ASSETS consist of:
Capital (par value and paid-in surplus)....................... $1,056,116,078
Distributions in excess of net investment income.............. (751,266)
Accumulated undistributed net realized gain from investments
and foreign currency transactions........................... 163,386,583
Net unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies (Notes 3 and
5).......................................................... 242,372,259
--------------
$1,461,123,654
--------------
--------------
</TABLE>

- ------------
See Notes to Financial Statements.

----------------
158
<PAGE>
- ----------------

TCI PORTFOLIOS, INC.
TCI GROWTH
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME (LOSS)
INCOME
Dividends (net of foreign taxes withheld of $241,096).......... $ 7,660,571
Interest....................................................... 1,818,694
-------------
9,479,265
-------------
EXPENSES
Management fees (Note 2)....................................... 12,365,098
Directors' fees and expenses................................... 13,112
-------------
12,378,210
-------------
Net investment (loss)............................................ (2,898,945)
-------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCY (Notes 3 and 5)
Net realized gain during the year on:
Investments.................................................... 185,941,790
Foreign currency transactions.................................. 1,971,858
-------------
187,913,648
-------------
Change in net unrealized appreciation during the year on:
Investments.................................................... 133,389,269
Translation of assets and liabilities in foreign currencies.... 864,200
-------------
134,253,469
-------------
Net realized and unrealized gain on investments and foreign
currency....................................................... 322,167,117
-------------
Net increase in net assets resulting from operations............. $ 319,268,172
-------------
-------------
</TABLE>

- ------------
See Notes to Financial Statements.

----------------
159
<PAGE>
- ----------------

TCI PORTFOLIOS, INC.
TCI GROWTH
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994

<TABLE>
<CAPTION>
INCREASE IN NET ASSETS 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income (loss).......................................... $ (2,898,945) $ 1,008,159
Net realized gain on investments and foreign currency transactions.... 187,913,648 9,711,049
Change in net unrealized appreciation (depreciation) on investments
and translation of assets and liabilities in foreign currencies..... 134,253,469 (22,279,079)
--------------- ---------------
Net increase (decrease) in net assets resulting from operations....... 319,268,172 (11,559,871)
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income............................................ (1,019,296) (90,428)
In excess of net investment income.................................... (133,044) --
--------------- ---------------
(Decrease) in net assets from distributions........................... (1,152,340) (90,428)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold............................................. 812,061,191 398,744,842
Proceeds from reinvestment of distributions........................... 1,152,340 90,428
Payments for shares redeemed.......................................... (672,782,929) (140,297,104)
--------------- ---------------
Net increase in net assets from capital share transactions............ 140,430,602 258,538,166
--------------- ---------------
Net increase in net assets.............................................. 458,546,434 246,887,867
NET ASSETS
Beginning of year..................................................... 1,002,577,220 755,689,353
--------------- ---------------
End of year........................................................... $ 1,461,123,654 $ 1,002,577,220
--------------- ---------------
--------------- ---------------
Distributions in excess of net investment income........................ $ (751,266) $ 1,047,145
--------------- ---------------
--------------- ---------------
TRANSACTIONS IN SHARES OF THE FUND
Sold.................................................................. 75,063,678 43,022,090
Issued in reinvestment of distributions............................... 126,492 9,723
Redeemed.............................................................. (62,925,631) (15,228,020)
--------------- ---------------
Net increase.......................................................... 12,264,539 27,803,793
--------------- ---------------
--------------- ---------------
</TABLE>

- ------------
See Notes to Financial Statements.

----------------
160
<PAGE>
- ----------------

TCI PORTFOLIOS, INC.
TCI GROWTH
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION: TCI Portfolios, Inc. is registered under the Investment Company
Act of 1940 as an open-end diversified management investment company. Four
series of shares are currently issued as TCI Growth, TCI Balanced, TCI Advantage
and TCI International. With the exception of shares issued for the initial
capitalization of a series of the Corporation, shares may be purchased only by
insurance companies to fund the benefits of variable annuity or variable life
insurance policies. The investment objective of TCI Growth (the Fund) is capital
growth. The following significant accounting policies related to the Fund are in
accordance with accounting policies generally accepted in the investment company
industry.

SECURITY VALUATIONS: Portfolio securities traded primarily on a principal
securities exchange are valued at the last reported sales price, or the mean
between the latest bid and asked prices where no last sales price is available.
Securities traded over-the-counter are valued at the mean of the latest bid and
asked prices or, in the case of certain foreign securities, at the last reported
sales price. Short-term securities are valued at amortized cost, which
approximates value. When valuations are not readily available, securities are
valued at fair value as determined in good faith by the board of directors.

DISTRIBUTIONS TO SHAREHOLDERS: Distributions to shareholders are recorded on
the ex-dividend date. Distributions from net investment income and net realized
gains are declared and paid annually.

----------------
161
<PAGE>
- ----------------

TCI PORTFOLIOS, INC.
TCI GROWTH
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995

2. MANAGEMENT AGREEMENT

3. INVESTMENT TRANSACTIONS

The aggregate cost of investment securities purchased (excluding short-term
investments) for the year ended December 31, 1995 totaled $1,906,745,256 for
common stocks and $1,991,880 for preferred stocks. Proceeds from investment
securities sold (excluding short-term investments) totaled $1,786,558,998 for
common stocks and $2,617,991 for preferred stocks.

On December 31, 1995, accumulated net unrealized appreciation on investments,
based on the aggregate cost of investments of $1,212,985,857 for federal income
tax purposes, was $239,980,904, consisting of unrealized appreciation of
$249,705,897 and unrealized depreciation of $9,724,993.

4. AFFILIATED COMPANY TRANSACTIONS

A summary of transactions for each issuer who is or was an affiliate at or
during the year ended December 31, 1995, follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1995
SHARE -----------------------
BALANCE PURCHASE SALES REALIZED SHARE MARKET
ISSUER 12/31/94 COST COST GAIN (LOSS) INCOME BALANCE VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Caere Corp. 320,000 $ 397,487 $ 9,387,490 $(3,431,044) -- -- --
VTEL Corp. 200,000 10,808,890 2,517,057 567,511 -- 670,000 $ 12,478,750
------------ ------------ ----------- ------- -------- ------------
$ 11,206,377 $ 11,904,547 $(2,863,533) -- $ 12,478,750
------------ ------------ ----------- ------- -------- ------------
------------ ------------ ----------- ------- -------- ------------
</TABLE>

5. COMMITMENTS

<TABLE>
<CAPTION>
U.S. DOLLAR U.S. DOLLAR
CURRENCY TO VALUE AS OF CURRENCY TO VALUE AS OF UNREALIZED
SETTLEMENT DATE BE DELIVERED 12/31/95 BE RECEIVED 12/31/95 GAIN
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
January 31, 1996 18,248,412 $ 12,723,313 12,749,180 $ 12,749,180 $ 25,867
German Mark U.S. Dollar

January 31, 1996 11,845,273,417 114,984,793 115,720,572 115,720,572 735,779
Japanese Yen U.S. Dollar
------------ ------------- -----------
$127,708,106 $ 128,469,752 $ 761,646
------------ ------------- -----------
------------ ------------- -----------
</TABLE>

----------------
162
<PAGE>
- ----------------

TCI PORTFOLIOS, INC.
TCI GROWTH
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD

<TABLE>
<CAPTION>
YEAR ENDED DEC. 31,
--------------------------------------------------------------------------------------
1991 1992 1993 1994 1995
----------------- ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 6.16 $ 8.64 $ 8.47 $ 9.32 $ 9.21
----------------- ------------ ------------ -------------- --------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss).......... .04 .02 .03 .01 (.02)
Net realized and unrealized gains
(losses) on investments and foreign
currency transactions............... 2.51 (.14) .84 (.12) 2.88
----------------- ------------ ------------ -------------- --------------
Total from investment operations...... 2.55 (.12) .87 (.11) 2.86
----------------- ------------ ------------ -------------- --------------
DISTRIBUTIONS
Distributions from net investment
income.............................. (.07) (.052) (.023) (.001) (.011)
Distributions from net realized gains
on investment transactions.......... -- (.003) -- -- --
----------------- ------------ ------------ -------------- --------------
Total distributions................... (.07) (.055) (.023) (.001) (.011)
----------------- ------------ ------------ -------------- --------------
Net asset value, end of period.......... 8.64 8.47 9.32 9.21 12.06
----------------- ------------ ------------ -------------- --------------
----------------- ------------ ------------ -------------- --------------
Total return(1)......................... 41.86% (1.33%) 10.30% (1.17%) 31.10%
RATIOS/SUPPLEMENTAL DATA
Ratio of operating expenses to average
net assets.......................... 1.00% 1.00% 1.00% 1.00% .99%
Ratio of net investment income to
average net assets.................. .62% .32% .35% .11% (.23%)
Portfolio turnover rate (1)........... 182% 135% 87% 115% 147%
Net assets, end of period............. $255,591,799 $415,004,751 $755,689,353 $1,002,577,220 $1,461,123,654

1995 average commission paid per share traded $.037
</TABLE>

- -------------
(1)Actual total return and portfolio turnover rate for periods indicated

See Notes to Financial Statements.

----------------
163
<PAGE>
- ----------------

TCI PORTFOLIOS, INC.
TCI GROWTH
INDEPENDENT ACCOUNTANTS' REPORT

The Shareholders and Board of Directors of TCI Portfolios, Inc.

We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of TCI Growth (a series of TCI
Portfolios, Inc.) as of December 31, 1995, and the related statement of
operations, the statements of changes in net assets, and the financial
highlights for each of the periods indicated. These financial statements and
financial highlights are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform 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 as of
December 31, 1995, by correspondence with the custodian and brokers. As to
securities purchased but not received and securities sold but not delivered, we
requested confirmations from brokers, and when replies were not received, we
performed alternative 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 referred to
above present fairly, in all material respects, the financial position of TCI
Growth as of December 31, 1995, and the results of their operations, changes in
their net assets, and the financial highlights for each of the periods indicated
in conformity with generally accepted accounting principles.

BAIRD, KURTZ & DOBSON

Kansas City, Missouri
January 26, 1996

----------------
164
<PAGE>
[LOGO]

Annuity contracts are issued by Transamerica Occidental Life
Insurance Company (policy form GNC-37-193; may not be
available in all jurisdictions; policy form number may
vary), or, in New York, First Transamerica Life Insurance
Company (policy form FTCG-101-193).

Form 3984