Scudder Variable Life
                                 Investment Fund



                                  Annual Report
                                December 31, 1995



          An open-end management investment company that offers shares
         of beneficial interest in six types of diversified portfolios.


<PAGE>

                     Scudder Variable Life Investment Fund


                                    Contents

Letter from the Fund's President                                              2

Money Market Portfolio Management Discussion                                  3

Bond Portfolio Management Discussion                                          4

Bond Portfolio Summary                                                        5

Balanced Portfolio Management Discussion                                      6

Balanced Portfolio Summary                                                    7

Growth and Income Portfolio Management Discussion                             8

Growth and Income Portfolio Summary                                           9

Capital Growth Portfolio Management Discussion                               10

Capital Growth Portfolio Summary                                             11

International Portfolio Management Discussion                                12

International Portfolio Summary                                              13

Investment Portfolios, Financial Statements, and Financial Highlights

         Money Market Portfolio                                              14

         Bond Portfolio                                                      20

         Balanced Portfolio                                                  27

         Growth and Income Portfolio                                         37

         Capital Growth Portfolio                                            46

         International Portfolio                                             54

Notes to Financial Statements                                                64

Report of Independent Accountants                                            68

Tax Information                                                              69

<PAGE>

SCUDDER VARIABLE LIFE INVESTMENT FUND
LETTER FROM THE FUND'S PRESIDENT

Dear Shareholders,

     Global stock and bond markets generally were strong in 1995, as slow
growth, moderate inflation, and falling interest rates provided a positive
economic backdrop. The biggest investment story of the year was the stunning
advance in the domestic stock market, as the average U.S. equity mutual fund
tracked by Lipper Analytical Services rose 31.07%. The U.S. bond markets rallied
as well, as evidenced by the average return of 17.30% for funds in Lipper's
income category--the product of sharply declining interest rates.
Internationally, while several European bourses provided solid returns in 1995,
interest rate declines in that region were not as compelling to investors as
those in the U.S., and market returns were correspondingly lower. Japan's stock
market was essentially flat, although the investment climate in that country
appeared to be improving as the year drew to a close.

     Despite its impressive performance in 1995, the U.S. stock market appears
to be reasonably valued based on 1996 earnings forecasts. In addition, the
long-term outlook for U.S. financial assets is positive, as the economy is
expected to grow without inflation. A repeat of 1995's exceptional performance
is unlikely, however, especially if the economy slows in the coming year, as
anticipated. Many international markets are attractively valued by comparison,
and economies such as those in Europe are just beginning to realize the full
impact of falling interest rates and corporate restructuring--underscoring the
value of a global approach to investing.

     We see a number of trends underway that support the outlook for investment
in the U.S. and around the world. Technology is bringing efficiencies to every
stage of the product cycle, from design to distribution. Globalization has
widened the competitive universe, making inflationary price increases less
likely. Deregulation is subjecting major industries to market discipline,
increasing capacity and reducing supply bottlenecks. While investing will always
involve uncertainties and market fluctuation, the net result of these forces may
well be an era of disinflationary growth that benefits investors and raises
living standards worldwide. We look forward to the challenges and opportunities
afforded by the evolving economic landscape, and thank you for your continued
investment in Scudder Variable Life Investment Funds.

                                        Sincerely,

                                        /s/David B. Watts
                                        David B. Watts
                                        President,
                                        Scudder Variable Life Investment Fund


                                       2
<PAGE>

MONEY MARKET PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION

Dear Shareholders,

     Money market funds generally provided attractive returns in 1995, despite
falling interest rates that resulted in lower yields. Many investors found the
combination of principal stability and solid real (inflation-adjusted) returns
provided by money funds attractive, and money funds consistently attracted
assets, ending the year with approximately $775 billion in total assets, up from
approximately $619 billion at the end of 1994 (source: Money Fund Report, IBC
Financial Publishing).

     As of December 31, Money Market Portfolio posted a competitive 5.28% 7-day
net annualized yield. The Fund provided investors with $0.055 per share in
income distributions, contributing to a 5.65% total return for the annual
period.

     Because longer-term instruments allow investors to lock in higher current
rates during periods of falling interest rates, we extended the Fund's average
maturity during the fiscal year. Money Market Portfolio's average maturity was
57 days at the close of the fiscal period. By comparison, the Fund's average
maturity was 35 days as of December 31, 1994. With the economy continuing to
slow, we believe that the Federal Reserve may lower interest rates further, and
we expect that in the coming months Money Market Portfolio's average maturity
will remain relatively long in order to capture higher yields.

     Corporate commercial paper offered the most attractive yields available
during the period and remained a significant portion of the Fund. These
securities allow high-quality companies to raise short-term funds at a lower
rate than loans offered by banks. Commercial paper made up approximately 74% of
the Fund's portfolio at the end of the period.

     With the economy moving at its current slow pace and inflation under
control, Money Market Portfolio will continue to lean toward longer-term
high-quality money market securities. As always, maintaining a stable one dollar
share price is a top priority, although this share price cannot be guaranteed.
Given these characteristics, and the potential for attractive real returns in
view of low inflation, which now stands at about 2%, we believe Money Market
Portfolio remains an appropriate place for your short-term investment needs and
can play an important role in your investment plan.

      Sincerely,

      Your Portfolio Management Team


      /s/Robert T. Neff                  /s/Stephen L. Akers
      Robert T. Neff                     Stephen L. Akers
      Lead Portfolio Manager


      /s/Nicca B. Alcantara
      Nicca B. Alcantara

                                       3
<PAGE>


BOND PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION

Dear Shareholders,

     Slowing economic growth and low inflation prompted the Federal Reserve
Board to reverse course mid-year and cut short-term rates on two occasions in
1995, while rates on long-term bonds ended the year nearly two percentage points
lower, falling from 7.87% to 5.95% as measured by the 30-year U.S. Treasury. The
U.S. fixed-income markets benefited from 1995's declining interest rate
environment as evidenced by the 18.47% return of the unmanaged Lehman Brothers
Aggregate Bond Index for the year. Bond Portfolio provided a total return of
18.17% for the 12 months ended December 31, in keeping with both the Lehman
Index and the average A-rated Corporate Bond fund tracked by Lipper Analytical
Services, which returned 18.45%.

     Throughout the period, we managed the portfolio actively, seeking to
capitalize upon shifts in relative valuation among the U.S. Treasury, mortgage
and corporate sectors, as well as changes in the yield curve. Going into 1995,
we extended duration--and therefore the portfolio's sensitivity to interest rate
changes--to benefit more fully from the rally in bond prices while capturing
higher yields. In addition, we began early in the year to trim our weighting in
mortgage-backed securities, particularly high-coupon issues trading at a
premium, in favor of Treasuries; mortgage-backeds tend to underperform in
periods of falling interest rates, as investors become wary of prepayments and
seek to maintain durations in order to benefit from bond market strength.
Throughout the year, we implemented a more "bulleted" portfolio configuration
focused on intermediate maturities where we saw the most potential for rate
declines and price appreciation. Finally, we maintained significant exposure to
the corporate sector, seeking bonds with favorable yield characteristics and
business outlooks versus comparable issues.

     Going forward, it is unlikely that 1996 will see fixed-income prices rally
to the extent they did in 1995. However, economic growth is expected to continue
to slow, meaning that inflation should remain benign and that the Fed should
have room for further easing, especially if progress towards fiscal restraint in
Washington remains on course. Our generally positive outlook for interest rates
is reflected in the portfolio's modestly above-neutral duration. Average quality
of portfolio holdings remains a high "AAA." Bond Portfolio remains focused both
on identifying areas of the fixed-income market that represent strong relative
value and on providing competitive yields.

                                    Sincerely,

                                    Your Portfolio Management Team



                                    /s/Ruth Heisler       /s/Renee L. Ross
                                    Ruth Heisler          Renee L. Ross
                                    Lead Portfolio Manager


                                    /s/William M. Hutchinson
                                    William M. Hutchinson

                                       4
<PAGE>

BOND PORTFOLIO
PORTFOLIO SUMMARY as of December 31, 1995
-----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
-----------------------------------------------------------------
BOND PORTFOLIO
----------------------------------------
                     Total Return
Period    Growth    --------------
Ended       of                Average
12/31/95  $10,000  Cumulative  Annual
--------  -------  ----------  ------
1 Year    $11,817    18.17%    18.17%
5 Year    $15,913    59.13%     9.74%
10 Year   $23,008   130.08%     8.69%

LB AGGREGATE BOND INDEX
--------------------------------------
                     Total Return
Period    Growth    --------------
Ended       of                Average
12/31/95  $10,000  Cumulative  Annual
--------  -------  ----------  ------
1 Year    $11,847    18.47%    18.47%
5 Year    $15,727    57.27%     9.47%
10 Year   $25,079   150.79%     9.62%

A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:

YEARLY PERIODS ENDED DECEMBER 31

Bond Portfolio 
Year            Amount
----------------------
85             $10,000
86             $11,227
87             $11,364
88             $11,984
89             $13,380
90             $14,459
91             $17,004
92             $18,196
93             $20,449
94             $19,470
95             $23,008

LB Aggregate Bond Index
Year            Amount
----------------------
85             $10,000
86             $11,526
87             $11,844
88             $12,778
89             $14,635
90             $15,946
91             $18,498
92             $19,867
93             $21,804
94             $21,168
95             $25,079

The Lehman Brothers (LB) Aggregate Bond Index is an unmanaged market
value-weighted measure of treasury issues, agency issues, corporate
bond issues and mortgage securities. Index returns assume reinvestment
of dividends and, unlike Fund returns, do not reflect any fees or
expenses.

All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Investment return
and principal value will fluctuate, so an investor's shares, when redeemed,
may be worth more or less than when purchased. Total returns in some 
periods were higher due to maintenance of the Fund's expenses. See Financial
Highlights for the Bond Portfolio. 


-------------------------------------------------------------------
ASSET QUALITY
-------------------------------------------------------------------
By Quality
-------------------
AAA             81%                       
AA               1%             The average quality of the
A               12%             portfolio remains a high
BBB              6%             "AAA".
               ----  
               100%      
               ====
-------------------
Average Quality: AAA

A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.

-------------------------------------------------------------------
EFFECTIVE MATURITY
-------------------------------------------------------------------
---------------------------
Less than 1 year        17%                       
1 - 3 years             11%
3 - 7 years             37%
7 - 12 years            11%
12 years or greater     24%
                       ----
                       100%
                       ====
---------------------------
Weighted average effective maturity: 9 years

-------------------------------------------------------------------
DIVERSIFICATION
-------------------------------------------------------------------
-----------------------------------
U.S. Treasury Obligations       56%
Corporate Bonds                 14%
Commercial Paper                13%
Foreign Bonds                    7%
Asset-Backed Securities          5%
U.S. Government Agency
  Pass-Thrus                     3%
U.S. Government Guaranteed
  Mortgages                      2%
                               ----
                               100%
                               ====
-----------------------------------

                                       5
<PAGE>

BALANCED PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION

Dear Shareholders,

     Slow economic growth, low inflation, and falling interest rates boosted
both the U.S. equity and bond markets in 1995. Stocks rose a stunning 37.58% as
measured by the unmanaged S&P 500 Index, while the bond market returned 18.47%
as gauged by the unmanaged Lehman Brothers Aggregate Bond Index. Balanced
Portfolio provided a total return of 26.67% for the 12 months ended December 31,
exceeding the 25.16% return of the average balanced fund tracked by Lipper
Analytical Services.

     With respect to the equity portion of the Portfolio, we continue to focus
on U.S. companies with strong balance sheets, leading market positions, and
solid prospects for above-average growth. Individual market sectors that
performed particularly well over the year included technology, consumer staples,
healthcare, and financial services. While the technology group was slightly
underweighted, these sectors were generally well-represented in the equity
portion of the portfolio. Going forward, we expect that an environment of slower
economic growth and low inflation will be positive for those companies capable
of delivering consistently above-average earnings growth rates. Moreover, we
believe that growth stock prices overall are well within a reasonable range.
Thus we have retained substantial weightings in healthcare, media, and services,
as well as selected finance issues. With respect to the volatile technology
sector, we have built positions in companies that operate in less
commodity-oriented segments and are market leaders in growing niches, including
LSI Logic, Atmel, and Informix. Our portfolio is underweight in manufacturing
and retail/consumer discretionary, both of which are more economically sensitive
than other sectors.

     On the fixed-income side, throughout the period, we sought to capitalize
upon shifts in relative valuation among the Treasury, mortgage, and corporate
sectors. Going into 1995, we extended duration--and therefore the portfolio's
sensitivity to interest rate changes--to benefit more fully from the rally in
bond prices. In addition, we began early in the year to trim our weighting in
mortgage-backed securities in favor of Treasuries; mortgage-backeds tend to
underperform in periods of falling interest rates, as investors become wary of
prepayments and seek to maintain durations in order to benefit from bond market
strength. Throughout the year, we implemented a more "bulleted" portfolio
configuration focused on intermediate maturities where we saw the most potential
for rate declines and price appreciation. Going forward, we believe the outlook
for interest rates is generally positive, and this is reflected in the
fixed-income portion of the portfolio's modestly above-neutral duration.

                                    Sincerely,

                                    Your Portfolio Management Team


                                    /s/Bruce F. Beaty  /s/Ruth Heisler
                                    Bruce F. Beaty     Ruth Heisler
                                    Lead Portfolio Manager


                                    /s/Renee L. Ross   /s/William F. Gadsden
                                    Renee L. Ross      William F. Gadsden


                                       6
<PAGE>

BALANCED PORTFOLIO
PORTFOLIO SUMMARY as of December 31, 1995
-----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
-----------------------------------------------------------------
BALANCED PORTFOLIO
----------------------------------------
                     Total Return
Period    Growth    --------------
Ended       of                Average
12/31/95  $10,000  Cumulative  Annual
--------  -------  ----------  ------
1 Year    $12,667    26.67%    26.67%
5 Year    $18,100    81.00%    12.60%
10 Year   $27,803   178.03%    10.77%

S&P 500 INDEX (60%)
AND LBAB INDEX (40%)
--------------------------------------
                     Total Return
Period    Growth    --------------
Ended       of                Average
12/31/95  $10,000  Cumulative  Annual
--------  -------  ----------  ------
1 Year    $13,134    31.34%    31.34%
5 Year    $19,428    94.28%    14.20%
10 Year   $34,053   240.53%    13.03%

A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:

YEARLY PERIODS ENDED DECEMBER 31

Balanced Portfolio 
Year            Amount
----------------------
85             $10,000
86             $11,671
87             $11,475
88             $13,105
89             $15,660
90             $15,361
91             $19,497
92             $20,855
93             $22,410
94             $21,950
95             $27,803

S&P 500 Index
Year            Amount
----------------------
85             $10,000
86             $11,866
87             $12,490
88             $14,564
89             $19,178
90             $18,583
91             $24,244
92             $26,092
93             $28,721
94             $29,101
95             $40,036

LBAB Index
Year            Amount
----------------------
85             $10,000
86             $11,526
87             $11,844
88             $12,778
89             $14,635
90             $15,946
91             $18,498
92             $19,867
93             $21,804
94             $12,168
95             $25,079


The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-
weighted measure of 500 widely held common stocks listed on the New York
Stock Exchange, American Stock Exchange, and Over-The-Counter market and
The Lehman Brothers Aggregate Bond (LBAB) Index is an unmanaged market 
value-weighted measure of treasury issues, agency issues, corporate bond
issues and mortgage securities. Index returns assume reinvestment of 
dividends and, unlike Fund returns, do not reflect any fees or expenses.

All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Investment return
and principal value will fluctuate, so an investor's shares, when redeemed,
may be worth more or less than when purchased. Total returns in some 
periods were higher due to maintenance of the Fund's expenses. See Financial
Highlights for the Balanced Portfolio. The Balanced Portfolio, with its
current name and investment objective, commenced operations on May 1, 1993.
Performance figures include the performance of its predecessor, the Managed
Diversified Portfolio. Since adopting its current objectives, the cumulative
and average annual returns are 32.95% and 11.25%, respectively.


-------------------------------------------------------------------
EQUITY HOLDINGS
-------------------------------------------------------------------
Sector breakdown of the                Five Largest Equity Holdings
Portfolio's equity holdings            ----------------------------
---------------------------            1. PHILIP MORRIS COMPANIES INC.
Consumer Staples        18%               Tobacco, food products and brewing
Health                  17%               
Technology              14%            2. MERCK & CO. INC.
Financial                9%               Leading ethical drug manufacturer
Consumer Discretionary   9%               
Service Industries       8%            3. AMERICAN INTERNATIONAL GROUP, INC.
Manufacturing            7%               Major international insurance 
Media                    7%               holding company
Durables                 5%               
Other                    6%            4. PROCTER & GAMBLE CO.
                       ----               Diversified manufacturer of consumer
                       100%               products
                       ====
---------------------------            5. PEPSICO. INC.
                                          Soft drinks, snack foods and food
                                          services


-------------------------------------------------------------------
FIXED INCOME HOLDINGS
-------------------------------------------------------------------
By Asset Type                                  By Quality
-----------------------------------            -----------------
U.S. Treasury Obligations       48%            AAA           79%
Corporate Bonds                 18%            AA             2%
Cash Equivalents                11%            A              8%
U.S. Government Agency                         BBB           11%
  Pass-Thrus                     7%                         ----
Foreign Bonds                    5%                         100%
Asset-Backed Securities          5%                         ====
U.S. Government Guaranteed                     -----------------
  Mortgages                      5%
Collateralized Mortgage
  Obligations                    1%
                               ----
                               100%
                               ====
-----------------------------------

                                       7
<PAGE>


GROWTH AND INCOME PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION

Dear Shareholders,

     Falling interest rates, low inflation, and strong corporate earnings
combined to make 1995 a spectacular year for the U.S. stock market, which
returned 37.58% as measured by the unmanaged S&P 500 Index. Growth and Income
Portfolio's net asset value rose $1.72 per share over the year, to $7.98 on
December 31. In addition, the Portfolio distributed $0.19 per share in income
and $0.04 per share in capital gains to shareholders. The Portfolio's total
return of 31.74% for the year modestly exceeded that of the average growth and
income fund tracked by Lipper Analytical Services, which returned 30.82%. The
Portfolio's underperformance relative to the S&P 500 is consistent with its
conservative, yield-oriented philosophy, which is designed to provide
competitive performance in strong markets and above-average performance in weak
markets.

     For much of the first half of the year, leadership among stock market
sectors vacillated with investor speculation regarding the impact on cyclical
industries of Federal Reserve policy. In July, the Fed reversed course and began
to ease short-term interest rates as signs of an economic slowdown emerged,
setting off another wave of market realignment. The Portfolio adhered to its
income-based discipline in the face of these market gyrations, purchasing only
those stocks with dividend yields at least 20% higher than the market average,
many of which were temporarily out of favor and represented a high degree of
value.

     Throughout 1995, the Portfolio maintained overweight positions in the
year's top two performing sectors: financial services and healthcare. Many
financial companies have been the beneficiaries of declining interest rates, and
one significant addition to the Portfolio, the Student Loan Marketing
Association, turned in exceptional performance, more than doubling in value
after purchase. Health stocks surged on the strength of an improved regulatory
outlook and a merger wave fed in particular by undervaluation in the
pharmaceutical group. The Portfolio did not have meaningful exposure to the
technology sector, a natural consequence of our emphasis on high dividends and
strong fundamentals, which meant that we missed both the upsurge and year-end
correction experienced by that group.

     Economic growth should continue to slow in 1996, and the Portfolio should
benefit from its significant weightings in sectors with historically resilient
earnings, including healthcare and consumer staples, as well as from its
exposure to the financial group, which should continue to thrive in the
prevailing low-interest-rate environment. Undervalued sectors such as
manufacturing and energy are also well-represented in the Portfolio. We believe
Growth and Income Portfolio, with its disciplined approach, remains an excellent
"core" investment for those seeking both participation in the equity markets and
more consistent performance than the average equity vehicle.

                          Sincerely,

                          Your Portfolio Management Team


                          /s/Robert T. Hoffman        /s/Kathleen T. Millard
                          Robert T. Hoffman           Kathleen T. Millard
                          Lead Portfolio Manager



                          /s/Benjamin W. Thorndike
                          Benjamin W. Thorndike

                                       8
<PAGE>

GROWTH AND INCOME PORTFOLIO
PORTFOLIO SUMMARY as of December 31, 1995
-----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
-----------------------------------------------------------------
GROWTH AND INCOME PORTFOLIO
----------------------------------------
                     Total Return
Period    Growth    --------------
Ended       of                Average
12/31/95  $10,000  Cumulative  Annual
--------  -------  ----------  ------
1 Year    $13,174    31.74%    31.74%
Life of
 Fund*    $13,820    38.20%    21.44%

S&P 500 INDEX 
--------------------------------------
                     Total Return
Period    Growth    --------------
Ended       of                Average
12/31/95  $10,000  Cumulative  Annual
--------  -------  ----------  ------
1 Year    $13,758    37.58%    37.58%
Life of
 Fund*    $14,305    43.05%    23.98%

*The Fund commenced operations on May 2, 1994.

A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:

Growth and Income Portfolio 
Year            Amount
----------------------
5/2/94*        $10,000
6/94           $ 9,854
9/94           $10,488
12/94          $10,235
3/95           $10,903
6/95           $11,817
9/95           $12,688
12/95          $13,483


S&P 500 Index
Year            Amount
----------------------
5/2/94*        $10,000
6/94           $ 9,915
9/94           $10,400
12/94          $10,398
3/95           $11,411
6/95           $12,500
9/95           $13,493
12/95          $14,305

The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-
weighted measure of 500 widely held common stocks listed on the New York
Stock Exchange, American Stock Exchange, and Over-The-Counter market.
Index returns assume reinvestment of dividends and, unlike Fund returns,
do not reflect any fees or expenses.

All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Investment return
and principal value will fluctuate, so an investor's shares, when redeemed,
may be worth more or less than when purchased. Total returns were higher
due to maintenance of the Fund's expenses. See Financial
Highlights for the Growth and Income Portfolio. 

-------------------------------------------------------------------
DIVERSIFICATION
-------------------------------------------------------------------
---------------------------            Sector breakdown of the
Equity Securities       94%            Portfolio's equity holdings
Cash Equivalents         6%            ---------------------------
                       ----            Financial               18%
                       100%            Health                  14%
                       ====            Manufacturing           14%
---------------------------            Consumer Staples        12%
                                       Energy                   9%
A graph in the form of a pie chart     Durables                 6%
appears here, illustrating the         Communications           6%
exact data points in the table         Utilities                4%
to the right.                          Consumer Discretionary   4%
                                       Other                    7%
                                                              ----
                                                              100%
                                                              ====
The portfolio's focus is on sectors with earnings that
should be resilient as the economy slows, such as financial
and healthcare.

-------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS
-------------------------------------------------------------------
1.  UNITED TECHNOLOGIES CORP.
    Manufacturer of aerospace, climate control systems, and elevators

2.  STUDENT LOAN MARKETING ASSOCIATION
    Student loan financing programs

3.  ELI LILLY & CO.
    Leading pharmaceutical company

4.  XEROX CORP. 
    Leading manufacturer of copiers and duplicators

5.  TRW INC.
    Defense electronics, automotive parts and systems

6.  LOCKHEED MARTIN CORP.
    Manufacturer of aircraft, missiles and space equipment

7.  KIMBERLY-CLARK CORP.
    Consumer paper products and newsprint

8.  PHILIP MORRIS COMPANIES INC.
    Tobacco, food products and brewing

9.  H&R BLOCK INC.
    Tax consulting and preparation

10. BAXTER INTERNATIONAL INC.
    Manufacturing and distributor of hospital and laboratory products
    and services


                                       9
<PAGE>


CAPITAL GROWTH PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION


Dear Shareholders,

     A combination of slow growth, declining interest rates, and low inflation
helped propel U.S. equities to unanticipated peaks in 1995. Capital Growth
Portfolio's total return of 28.65% for the 12 months ended December 31, in part
reflects this strong market environment. The Portfolio's net asset value rose
$2.85 per share to $15.08 over the period. In addition, the Portfolio
distributed to shareholders $0.11 per share in income and $0.43 in capital gains
in 1995. While the Portfolio's performance for the year lagged that of the
unmanaged S&P 500 Index, which returned 37.58%, it was roughly in keeping with
the 30.79% total return of the average growth fund tracked by Lipper Analytical
Services.

     Over the first half of 1995, Portfolio performance was aided by significant
weightings in the financial and technology sectors, including positions in the
Federal National Mortgage Association (mortgages) and Intel (semiconductors). As
the year progressed, the Portfolio de-emphasized sectors that have historically
experienced above-average volatility, such as media and communications, in favor
of sectors with earnings growth that should be sustainable even as the economy
slows, such as financial services and healthcare. Many financial stocks stand to
benefit from the current low-interest-rate environment, including such holdings
as FNMA and American International Group (insurance). Companies in the health
sector, such as Columbia/HCA Healthcare (hospital management) and Merck
(pharmaceuticals), should be more resistant to earnings disappointments than
companies with products and services of a less essential nature.

     Despite their downturn in the latter part of 1995, technology stocks as a
group continue to display the potential for above-average long-term earnings
growth. Our focus with respect to this sector is on achieving broad exposure to
market leaders, and to avoid overexposure to the erratic semiconductor group and
individual issues trading at very high multiples. Accordingly, we have trimmed
our positions in Intel and Microsoft (software) and have added to holdings such
as Hewlett-Packard and Applied Materials, which display better value and have
diversified sources of revenue. Finally, we have increased our energy sector
holdings in view of the relative value presented by that group.

     Going forward, the prospect of fiscal restraint on the part of the U.S.
government and continued low interest rates should provide a favorable backdrop
for equity investing. Despite a slowing economy and less compelling valuations,
earnings in selected groups should continue to be attractive and be rewarded by
the market. We are confident that Capital Growth Portfolio is positioned to
benefit investors seeking capital appreciation over time.
 
                             Sincerely,

                             Your Portfolio Management Team



                             /s/William F. Gadsden    /s/Bruce F. Beaty
                             William F. Gadsden       Bruce F. Beaty
                             Lead Portfolio Manager

                                       10
<PAGE>

CAPITAL GROWTH PORTFOLIO
PORTFOLIO SUMMARY as of December 31, 1995
-----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
-----------------------------------------------------------------
CAPITAL GROWTH PORTFOLIO
----------------------------------------
                     Total Return
Period    Growth    --------------
Ended       of                Average
12/31/95  $10,000  Cumulative  Annual
--------  -------  ----------  ------
1 Year    $12,865    28.65%    28.65%
5 Year    $20,863   108.63%    15.84%
10 Year   $34,709   247.09%    13.25%

S&P 500 INDEX 
--------------------------------------
                     Total Return
Period    Growth    --------------
Ended       of                Average
12/31/95  $10,000  Cumulative  Annual
--------  -------  ----------  ------
1 Year    $13,758    37.58%    37.58%
5 Year    $21,544   115.44%    16.58%
10 Year   $40,036   300.36%    14.87%

A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:

YEARLY PERIODS ENDED DECEMBER 31

Capital Growth Portfolio 
Year            Amount
----------------------
85             $10,000
86             $12,230
87             $11,998
88             $14,646
89             $17,977
90             $16,637
91             $23,218
92             $24,709
93             $29,868
94             $26,980
95             $34,709


S&P 500 Index
Year            Amount
----------------------
85             $10,000
86             $11,866
87             $12,490
88             $14,564
89             $19,178
90             $18,583
91             $24,244
92             $26,092
93             $28,721
94             $29,101
95             $40,036

The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-
weighted measure of 500 widely held common stocks listed on the New York
Stock Exchange, American Stock Exchange, and Over-The-Counter market.
Index returns assume reinvestment of dividends and, unlike Fund returns,
do not reflect any fees or expenses.

All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Investment return
and principal value will fluctuate, so an investor's shares, when redeemed,
may be worth more or less than when purchased. Total returns in some 
periods were higher due to maintenance of the Fund's expenses. See 
Financial Highlights for the Capital Growth Portfolio. 

-------------------------------------------------------------------
DIVERSIFICATION
-------------------------------------------------------------------
---------------------------            Sector breakdown of the
Equity Securities       94%            Portfolio's equity holdings
Cash Equivalents         6%            ---------------------------
                       ----            Health                  16%
                       100%            Technology              15%
                       ====            Financial               14%
---------------------------            Energy                   8%
                                       Media                    7%
A graph in the form of a pie chart     Manufacturing            6%
appears here, illustrating the         Consumer Staples         6%
exact data points in the table         Consumer Discretionary   5%
to the right.                          Service Industries       5%
                                       Other                   12%
                                                              ----
                                                               94%
                                                              ====
Sectors such as financial services should maintain
earnings growth as the economy slows.

-------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS
-------------------------------------------------------------------
1.  CAPITAL CITIES/ABC INC.
    TV and radio broadcasting, cable programming and publishing

2.  FEDERAL NATIONAL MORTGAGE ASSOCIATION
    Insurer and holder of mortgage loans

3.  COLUMBIA/HCA HEALTHCARE CORP.
    Leading Hospital management company

4.  HEWLETT-PACKARD CO.
    Measurement and test instruments, computer systems

5.  APPLIED MATERIALS, INC..
    Producer of reactors used to manufacture thin film

6.  AMERICAN INTERNATIONAL GROUP, INC.
    Major international insurance holding company

7.  INTEL CORP.
    Semiconductor memory circuits

8.  MCDONALD'S CORP.
    Worldwide fast food restaurant franchiser

9.  ROYAL DUTCH PETROLEUM CO.
    International energy company

10. JOHNSON & JOHNSON
    Healthcare products


                                       11
<PAGE>
 

INTERNATIONAL PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION

Dear Shareholders,

     The international equity investment climate was generally positive in 1995,
as slow growth, low interest rates, and low inflation prevailed in most major
economies. The International Portfolio's return of 11.11% for the 12 months
ended December 31, is in line with the 11.46% return of the unmanaged Morgan
Stanley Capital International Europe, Australia, and Far East plus Canada Index,
and compares favorably with the 9.41% average return of international funds
tracked by Lipper Analytical Services.

     Throughout the year, Portfolio weightings favored Europe at the expense of
Japan. This strategy proved effective, as European stock markets in aggregate
produced solid returns. Among the major European bourses, Switzerland and Great
Britain turned in especially strong performances, with returns of 25.9% and
17.2%, respectively. After a shaky start to the year, the Japanese market
essentially finished flat, staging a recovery over the last quarter based on
lower interest rates and signs of a more determined effort on the part of the
government to address the underlying problems in the economy.

     Going forward, while we have trimmed our European holdings, we remain
modestly overweight in the region, which we consider attractively valued. With
growth falling and unemployment rising, a key issue is whether France and other
European governments laboring under large budget deficits will be able to meet
the criteria established in Maastricht for European Monetary Union. We believe
that some degree of monetary stimulus is likely and that rates will fall
further, and have therefore added to or initiated positions in interest rate
sensitive stocks, such as French insurer AXA and Spanish motorway operator
Acesa.

     Outside of Europe, we have increased our Japanese weighting. The yen has
given back some of its gains versus the dollar--a positive for Japan's
export-driven economy. Firms continue to restructure and interest rates are low.
Moreover, Japan is one of the few markets poised to benefit from the early
stages of economic recovery and upward revisions in corporate earnings.
Accordingly, we have added to Japanese stocks that are sensitive to economic
growth, such as retail conglomerate Ito-Yokado and specialized component
manufacturer THK.

     In the year ahead, we will continue to focus on finding companies with the
ability to thrive in an increasingly globalized economy characterized by slow
growth and low inflation. The International Portfolio continues to provide a
vehicle for important exposure to economies and stock markets outside of the
United States.
                                            
                                 Sincerely,

                                 Your Portfolio Management Team



                                 /s/Carol L. Franklin     /s/Nicholas Bratt
                                 Carol L. Franklin        Nicholas Bratt
                                 Lead Portfolio Manager



                                 /s/Joan R. Gregory
                                 Joan R. Gregory


                                       12
<PAGE>

INTERNATIONAL PORTFOLIO
PORTFOLIO SUMMARY as of December 31, 1995
-----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
-----------------------------------------------------------------
INTERNATIONAL PORTFOLIO
----------------------------------------
                     Total Return
Period    Growth    --------------
Ended       of                Average
12/31/95  $10,000  Cumulative  Annual
--------  -------  ----------  ------
1 Year    $11,111    11.11%    11.11%
5 Year    $16,403    64.03%    10.40%
Life of
 Fund*    $21,773   117.73%     9.39%

LB Aggregate Bond Index
--------------------------------------
                     Total Return
Period    Growth    --------------
Ended       of                Average
12/31/95  $10,000  Cumulative  Annual
--------  -------  ----------  ------
1 Year    $11,146    11.46%    11.46%
5 Year    $15,540    55.40%     9.21%
Life of
 Fund*    $15,509    55.09%     5.24%

*The Fund commenced operations on May 1, 1987.
 Index comparisons begin May 31, 1987.

A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:

YEARLY PERIODS ENDED DECEMBER 31

Bond Portfolio 
Year            Amount
----------------------
5/31/87*       $10,000
87             $ 8,997
88             $10,502
89             $14,470
90             $13,363
91             $14,893
92             $14,433
93             $19,896
94             $19,727
95             $21,919

MSCI EAFE & Canada Index
Year            Amount
----------------------
5/31/87*       $10,000
87             $ 9,138
88             $11,682
89             $12,968
90             $ 9,980
91             $11,186
92             $ 9,824
93             $12,961
94             $13,915
95             $15,509

The Morgan Stanley Capital International (MSCI) Europe, Australia, the Far
East (EAFE) & Canada Index is an unmanaged capitalization-weighted measure 
of stock markets in Europe, Australia, the Far East and Canada. Index returns
assume dividends reinvested net of witholding tax and, unlike Fund returns,
do not reflect any fees or expenses.

All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Investment return
and principal value will fluctuate, so an investor's shares, when redeemed,
may be worth more or less than when purchased. Total returns in some 
periods were higher due to maintenance of the Fund's expenses. See Financial
Highlights for the International Portfolio. 


-------------------------------------------------------------------
DIVERSIFICATION
-------------------------------------------------------------------
By Region                        By Sector
(Excluding Cash Equivalents)     (Equity Holdings)
----------------------------     ---------------------------
Europe                   53%     Manufacturing           21%
Japan                    27%     Financial               12%
Pacific Basin            13%     Metals & Minerals        9%
Latin America             4%     Technology               8%
Canada                    3%     Durables                 7%
                        ----     Energy                   7%
                        100%     Service Industries       6%
                        ====     Health                   5%
                                 Consumer Staples         5%
                                 Other                   20%
                                                        ----  
                                                        100%      
                                                        ====

Graphs in the form of pie charts appears here,
illustrating the exact data points in the above table.

-------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS
-------------------------------------------------------------------
1.  SAP AG
    German computer software manufacturer

2.  CANON NC.
    Leading producer of visual image and information equipment in Japan

3.  MATSUSHITA ELECTRICAL INDUSTRIAL CO., LTD.
    Consumer electronic products manufacturer in Japan

4.  SMC CORP.
    Leading maker of pneumatic equipment in Japan

5.  FUJITSU LTD.
    Leading manufacturing of computers in Japan

6.  KYOCERA CORP.
    Leading ceramic package manufacturer in Japan

7.  TELECOM ITALIA MOBILE SPA
    Cellular telecommunication services in Italy

8.  SKANDIA FOERSAEKRINGS AB
    Swedish financial conglomerate

9.  HUTCHISON WHAMPOA, LTD.
    Container terminal and real estate company in Hong Kong

10. HEINEKEN HOLDINGS N.V. 
    Brewery in the Netherlands

                                       13
<PAGE>

MONEY MARKET PORTFOLIO
INVESTMENT PORTFOLIO  as of December 31, 1995
<TABLE>
------------------------------------------------------------------------------------------------------------
<CAPTION>
                    % of      Principal                                                            Value ($)
                 Portfolio    Amount ($)                                                           (Note A)
-------------------------------------------------------------------------------------------------------------
<S>                 <C>        <C>           <C>                                                    <C>  
                                             ----------------------------------------------------------------
                    11.8%                    REPURCHASE AGREEMENT
                                             ----------------------------------------------------------------
                              9,374,000      Repurchase Agreement with 
                                               Donaldson, Lufkin &
                                               Jenrette dated 12/29/95 
                                               at 5.85%, to be repurchased 
                                               at $9,380,093 on 1/2/96,
                                               collateralized by a $9,902,000
                                               U.S. Treasury Bill, 11/14/96 
                                               (Cost $9,374,000) .................................  9,374,000
                                                                                                   ----------
                                             ----------------------------------------------------------------
                    73.8%                    COMMERCIAL PAPER
                                             ----------------------------------------------------------------
CONSUMER STAPLES     3.1%
     Package Goods/
     Cosmetics                2,500,000      Procter & Gamble Co., 5.52%, 2/20/96 ................  2,480,833
                                                                                                   ----------
HEALTH               7.5%
     Pharmaceuticals          3,000,000      Abbott Laboratories, 5.58%, 1/23/96 .................  2,989,770
                              3,000,000      Eli Lilly & Co., 5.62%, 3/5/96 ......................  2,970,027
                                                                                                   ----------
                                                                                                    5,959,797
                                                                                                   ----------
FINANCIAL           48.1%
     Banks           8.7%     3,000,000      Deutsche Bank Financial Inc., 5.52%, 3/25/96 ........  2,961,360
                              1,000,000      J.P. Morgan & Co., Inc., 5.61%, 1/31/96 .............    995,325
                              3,000,000      Prudential Funding Corp., 5.68%, 1/24/96 ............  2,989,113
                                                                                                   ----------
                                                                                                    6,945,798
                                                                                                   ----------
     Business 
     Finance         7.5%     3,000,000      New Center Asset Trust, 5.34%, 4/23/96 ..............  2,949,715
                              3,000,000      Norwest Corp., 5.67%, 2/5/96 ........................  2,983,463
                                                                                                   ----------
                                                                                                    5,933,178
                                                                                                   ----------
     Consumer 
     Finance        16.9%     3,000,000      American Express Credit Corp., 5.69%, 1/23/96 .......  2,989,568
                              3,000,000      AT&T Capital Corp., 5.58%, 1/5/96 ...................  2,998,140
                              1,500,000      Ford Credit Receivables Funding Inc.,5.67%,2/7/96 ...  1,491,259
                              3,000,000      General Electric Capital Corp., 5.44%, 5/10/96 ......  2,941,067
                              3,000,000      Household Finance Corp., 5.68%, 2/9/96 ..............  2,981,540
                                                                                                   ----------
                                                                                                   13,401,574
                                                                                                   ----------
     Other Financial
     Companies      15.0%     3,000,000      American General Finance Corp., 5.38%, 3/26/96 ......  2,961,892
                              3,000,000      Ciesco L.P., 5.63%, 2/22/96 .........................  2,975,603
                              3,000,000      Corporate Asset Funding Corp., 5.7%, 1/22/96 ........  2,990,025
                              3,000,000      Matterhorn Capital Corp., 5.74%, 1/12/96 ............  2,994,738
                                                                                                   ---------- 
                                                                                                   11,922,258
                                                                                                   ---------- 
MANUFACTURING        7.5%

     Chemicals       3.7%     3,000,000      E.I. du Pont de Nemours & Co., 5.57%, 2/8/96 ........  2,982,362
                                                                                                   ----------
     Machinery/
     Components/
     Controls        3.8%     3,000,000      Pitney Bowes Credit Corp., 5.67%, 1/18/96 ...........  2,991,967
                                                                                                   ----------
TECHNOLOGY           3.8%
     Diverse 
     Electronic
     Products                 3,000,000      Motorola Inc., 5.6%, 1/26/96 ........................  2,988,333
                                                                                                   ----------
ENERGY               3.8%
     Oil Companies            3,000,000      Chevron Oil Finance Co., 5.55%, 1/11/96 .............  2,995,375
                                                                                                   ----------
                                             TOTAL COMMERCIAL PAPER (Cost $58,601,475) ........... 58,601,475
                                                                                                   ---------- 
</TABLE>

   The accompanying notes are an integral part of the financial statements.

                                      14

<PAGE>

<TABLE>

                                                                                        INVESTMENT PORTFOLIO
-------------------------------------------------------------------------------------------------------------
<CAPTION>

                    % of        Principal                                                           Value ($)
                    Portfolio   Amount ($)                                                          (Note A)
-------------------------------------------------------------------------------------------------------------
<S>                 <C>        <C>           <C>                                                    <C>  
                                             ----------------------------------------------------------------
                    10.6%                    U.S. TREASURY OBLIGATIONS
                                             ----------------------------------------------------------------
                              3,000,000      U.S. Treasury Bill, 5.31%, 3/7/96                      2,970,795
                              3,000,000      U.S. Treasury Bill, 5.21%, 6/13/96                     2,928,865
                              2,500,000      U.S. Treasury Note, 6%, 6/30/96                        2,502,688
                                                                                                   ----------
                                             TOTAL U.S. TREASURY OBLIGATIONS (Cost $8,402,348)      8,402,348
                                                                                                   ---------- 
                                                                      
                                             ----------------------------------------------------------------
                     3.8%                    SHORT-TERM NOTES
                                             ----------------------------------------------------------------
                              1,000,000      FCC National Bank Notes, 5.8%, 10/10/96                1,000,000
                              2,000,000      Morgan Bank Delaware, 6.5%, 5/6/96                     2,003,033
                                                                                                   ----------
                                             TOTAL SHORT-TERM NOTES (Cost $3,003,033)               3,003,033
                                                                                                   ----------
           
-------------------------------------------------------------------------------------------------------------
                                             TOTAL INVESTMENT PORTFOLIO - 100.0% 
                                                  (Cost $79,380,856) (a)                           79,380,856
                                                                                                   ========== 
-------------------------------------------------------------------------------------------------------------
<FN>

(a) Cost for federal income tax purposes is $79,380,856.

</FN>
</TABLE>

   The accompanying notes are an integral part of the financial statements.

                                      15

<PAGE>

<TABLE>
MONEY MARKET PORTFOLIO
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------------------

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

                          STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
December 31, 1995
--------------------------------------------------------------------------------------------
ASSETS
<S>                                                                  <C>         <C>    

Investments, at value (including repurchase agreements
        of $9,374,000) (amortized cost $79,380,856) (Note A) ...................  79,380,856
Cash ...........................................................................          88
Receivables:
        Portfolio shares sold ..................................................     426,045
        Interest ...............................................................     113,354
                                                                                  ----------
                Total assets ...................................................  79,920,343

LIABILITIES

Payables:
        Portfolio shares redeemed ..............................     $   129,977
        Accrued management fee (Note B) ........................          24,463
        Other accrued expenses (Note B) ........................          18,012
                                                                     ----------- 
                Total liabilities ..............................                     172,452
                                                                                 -----------
Net assets, at value ...........................................                 $79,747,891
                                                                                 ===========
NET ASSETS

Net assets consist of:
        Paid-in capital ........................................                  79,747,891
                                                                                 -----------
Net assets, at value ...........................................                 $79,747,891
                                                                                 ===========

NET ASSET VALUE, offering and redemption price per share
  ($79,747,891/79,747,891 outstanding shares of beneficial
  interest, no par value, unlimited number of shares
  authorized) ..................................................                       $1.00
                                                                                       =====
</TABLE>

   The accompanying notes are an integral part of the financial statements.

                                      16

<PAGE>

<TABLE>
                                                            FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
                           STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------

<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------------------------------
INVESTMENT INCOME

<S>                                                     <C>         <C>
Interest .............................................              $4,982,809

 Expenses (Note A):
   Management fee (Note B) ...........................  $306,996
   Accounting fees (Note B) ..........................    30,000
   Trustees' fees (Note B) ...........................    15,730
   Custodian fees ....................................    16,922
   Legal .............................................    15,115
   Auditing ..........................................    12,773
   Other .............................................    13,669       411,205
                                                        ----------------------

Net investment income ................................               4,571,604
                                                                    ----------

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS                $4,571,604
                                                                    ==========

</TABLE>


    The accompanying notes are an integral part of the financial statements.

                                      17

<PAGE>

<TABLE>

MONEY MARKET PORTFOLIO
--------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------
                                      STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------------------------------------
<CAPTION>


                                                                                     YEARS ENDED DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS                                                    1994                1995
--------------------------------------------------------------------------------------------------------------
Operations:

<S>                                                                            <C>               <C>
Net investment income and net increase in net assets
   resulting from operations ..............................................    $   4,571,604     $   2,768,491
                                                                               -------------     -------------

Distributions to shareholders from net investment income
   ($.055 and $.037 per share, respectively) ..............................       (4,571,604)       (2,768,491)
                                                                               -------------     -------------

Portfolio share transactions at net asset value of $1.00 per share:

   Proceeds from shares sold ..............................................      148,542,887       186,827,297

   Net asset value of shares issued to shareholders in
           reinvestment of distributions from net investment in ...........        4,571,604         2,768,491

   Cost of shares redeemed ................................................     (163,864,512)     (147,877,533) 
                                                                               -------------     -------------

   Net increase (decrease) in net assets from Portfolio share transactions.      (10,750,021)       41,718,255
                                                                               -------------     -------------

INCREASE (DECREASE) IN NET ASSETS .........................................      (10,750,021)       41,718,255

Net assets at beginning of period .........................................       90,497,912        48,779,657
                                                                               -------------     -------------

NET ASSETS AT END OF PERIOD ...............................................    $  79,747,891     $  90,497,912
                                                                               =============     =============

</TABLE>

   The accompanying notes are an integral part of the financial statements.

                                      18

<PAGE>

<TABLE>
                                                                                                           FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------------------------------------------------------

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

<CAPTION>
                                                                                                         SIX     FOR THE PERIOD
                                                                                                       MONTHS    JULY 16, 1985
                                                                                                       ENDED    (COMMENCEMENT
                                                      YEARS ENDED DECEMBER 31,                        DECEMBER  OF OPERATIONS) 
                               ----------------------------------------------------------------------    31,     TO JUNE 30,  
                                1995    1994    1993    1992    1991    1990    1989    1988    1987    1986(e)      1986
                               ---------------------------------------------------------------------- --------- ---------------  
<S>                            <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>      <C>          <C>
Net asset value,
   beginning of period .....   $1.000  $1.000  $1.000  $1.000  $1.000  $1.000  $1.000  $1.000  $1.000    $1.000       $1.000(b)
                               ------  ------  ------  ------  ------  ------  ------  ------  ------    ------       ------   


Income from investment
   operations:
   Net investment
   income (a) ..............     .055    .037    .025    .033    .057    .076    .088    .068    .060      .026         .064
Less distributions from
   net investment income ...    (.055)  (.037)  (.025)  (.033)  (.057)  (.076)  (.088)  (.068)  (.060)    (.026)       (.064)
                                -----   -----   -----   -----   -----   -----   -----   -----   -----     -----       ----- 
Net asset value,
  end of period ............   $1.000  $1.000  $1.000  $1.000  $1.000  $1.000  $1.000  $1.000  $1.000    $1.000      $1.000
                               ======  ======  ======  ======  ======  ======  ======  ======  ======    ======      ======

TOTAL RETURN (%) ...........     5.65    3.72    2.54    3.33    5.81    7.83    8.84    7.08    5.95     2.59(d)     6.59(d)

RATIOS AND
SUPPLEMENTAL DATA

Net assets, end of
 period ($ millions) .......       80      90      49      34      28      32      15       11      8       3          -
Ratio of operating
  expenses, net to
  average daily net
  assets (%) (a) ...........      .50     .56     .66     .64     .67     .69     .72      .75    .75      .75(c)      .60(c)
Ratio of net investment
  income to average
  daily net assets (%) .....     5.51    3.80    2.55    3.26    5.67    7.57    8.53     6.99   6.06     5.10(c)     6.75(c)
(a)   Portion of expenses
      reimbursed
      (Note B) .............    $ --    $ --    $ --    $  --   $ --    $ --    $ .001   $ .003 $ .006   $ .022      $ .133

(b)   Original capital

(c)   Annualized

(d)   Not annualized

(e)   On August 22, 1986, the Trustees voted to change the year end of the Fund from June 30 to December 31.

</TABLE>

                                   19


<PAGE>

<TABLE>
BOND PORTFOLIO
INVESTMENT PORTFOLIO  as of December 31, 1995
------------------------------------------------------------------------------------------------------------
<CAPTION>

                    % of        Principal                                                           Value ($)
                    Portfolio   Amount ($)                                                          (Note A)
-------------------------------------------------------------------------------------------------------------
<S>                 <C>       <C>            <C>                                                   <C>
                                             ----------------------------------------------------------------
                    13.4%                    COMMERCIAL PAPER
                                             ----------------------------------------------------------------
                              13,972,000     American Express Credit Corp., 5.003%, 1/2/96
                                             (Cost $13,972,000) .................................. 13,972,000
                                                                                                   ----------
                                             ----------------------------------------------------------------
                    55.7%                    U.S. TREASURY OBLIGATIONS
                                             ----------------------------------------------------------------

                               2,145,000     U.S. Treasury 7.25%, 5/15/16 ........................  2,449,311
                              10,405,000     U.S. Treasury 6.25%, 8/15/23 ........................ 10,705,809
                               3,025,000     U.S. Treasury Note, 4.625%, 2/29/96 .................  3,022,641
                               5,940,000     U.S. Treasury Note, 4.75%, 2/15/97 ..................  5,904,716
                               2,300,000     U.S. Treasury Note, 6.75%, 5/31/99 ..................  2,402,419
                               1,125,000     U.S. Treasury Note, 6%, 10/15/99 .. .................  1,153,125
                              24,250,000     U.S. Treasury Note 5,625%, 11/30/00 ................. 24,469,705 
                               5,030,000     U.S. Treasury Note, 6.375%, 8/15/02 .................  5,274,408
                                 970,000     U.S. Treasury Note, 5.875%, 2/15/04 .................    990,457
                               4,125,000     U.S. Treasury Separate Trading Registered Interest
                                               and Principal Securities, 11/15/10 (6.05**) .......  1,700,449
                                                                                                   ---------- 
                                             TOTAL U.S. TREASURY OBLIGATIONS (Cost $56,836,899) .. 58,073,040
                                                                                                   ---------- 
                                             
                                             ----------------------------------------------------------------
                     2.0%                    U.S. GOV'T GUARANTEED MORTGAGES
                                             ----------------------------------------------------------------

                               1,940,521     Government National Mortgage Association, 10%,
                                               8/15/20* (Cost $2,088,486) ........................  2,135,777
                                                                                                   ----------
                                             ----------------------------------------------------------------
                     3.3%                    U.S. GOVERNMENT AGENCY PASS-THRUS
                                             ----------------------------------------------------------------

                               1,990,199     Federal National Mortgage Association, 7%, 8/1/25* ..  2,006,359
                               1,468,056     Federal National Mortgage Association, 6.5%, 10/1/25*  1,450,615
                                                                                                   ----------

                                             TOTAL U.S. GOVERNMENT AGENCY PASS-THRUS
                                               (Cost $3,398,741) .................................  3,456,974
                                                                                                   ----------
                                             ----------------------------------------------------------------
                     0.1%                    COLLATERALIZED MORTGAGE OBLIGATIONS
                                             ----------------------------------------------------------------

                                 151,335     Federal National Mortgage Association, REMIC,
                                             8.5%, 4/25/18 (Cost $143,673) .......................    153,320
                                                                                                   ----------   
                                             ----------------------------------------------------------------
                     3.3%                    FOREIGN BONDS - U.S. $ DENOMINATED
                                             ----------------------------------------------------------------

                               1,000,000     J. Seagram & Sons Inc., 9%, 8/15/21 .................  1,243,880
                               1,000,000     Korea Development Bank, 9.6%, 12/1/00 ...............  1,151,520
                               1,000,000     Nippon Telegraph & Telephone Corp., 9.5%, 7/27/98 ...  1,092,140
                                                                                                   ----------
                                             TOTAL FOREIGN BONDS - U.S. $ DENOMINATED
                                               (Cost $3,110,129) .................................  3,487,540
                                                                                                   ----------
                                             ----------------------------------------------------------------
                    3.3%                     FOREIGN BONDS - NON U.S. $ DENOMINATED
                                             ----------------------------------------------------------------
                          DM  2,000,000      Federal Republic of Germany, 6.5%, 7/15/03 ..........  1,453,682
                          FFr 9,000,000      Government of France OAT, 7.5%, 4/25/05 .............  1,947,209
                                                                                                   ----------
                                             TOTAL FOREIGN BONDS - NON U.S. $ DENOMINATED
                                               (Cost $3,238,086) .................................  3,400,891
                                                                                                   ----------
</TABLE>

    The accompanying notes are an integral part of the financial statements.

                                      20

<PAGE>

<TABLE>
                                                                                        INVESTMENT PORTFOLIO
------------------------------------------------------------------------------------------------------------
<CAPTION>

                    % of        Principal                                                           Value ($)
                  Portfolio     Amount ($)                                                          (Note A)
-------------------------------------------------------------------------------------------------------------
<S>                 <C>       <C>            <C>                                                   <C>
                                             ----------------------------------------------------------------
                     5.3%                    ASSET-BACKED SECURITIES
                                             ----------------------------------------------------------------

     Credit Card 
     Receivables     2.9%       375,000      Chase Manhattan Credit Card Trust, 1991 "A", 7.65%,
                                               11/15/98 ..........................................    375,116
                              2,500,000      Standard Credit Card Trust, Series 1990#3B, 9.85%,
                                             7/10/97 .............................................  2,641,400
                                                                                                    ---------
                                                                                                    3,016,516
                                                                                                    ---------

     Home Equity 
     Loans           1.1%       705,480      Contimortgage Home Equity Loan Trust, Series 
                                             1994-5 A1, 9.07%, 5/15/06* ..........................    708,016
                                470,072      United Companies Financial Corp., Home Equity 
                                               Loan Series 1993#B1, 6.075%, 7/25/14* .............    465,371
                                                                                                    ---------       
                                                                                                    1,173,387
                                                                                                    ---------

     Manufactured 
     Housing
     Receivables     1.3%     1,298,309      Green Tree Financial Corp., Securitized NIM
                                             Series 1994B, 7.85%, 7/15/04* .......................  1,324,478
                                                                                                    ---------
                                             TOTAL ASSET-BACKED SECURITIES 
                                               (Cost $5,729,122) .................................  5,514,381
                                                                                                    ---------


                                             ----------------------------------------------------------------
                    13.6%                    CORPORATE BONDS
                                             ----------------------------------------------------------------

     Financial       1.1%     1,000,000      Banc One Corp., 8.74%, 9/15/03 ......................  1,155,160
                                                                                                   ----------

     Media           1.1%     1,000,000      Time Warner Inc., 9.125%, 1/15/13 ...................  1,126,950
                                                                                                   ----------

     Durables        1.2%     1,000,000      Lockheed Martin Corp., 9%, 1/15/22 ..................  1,277,360
                                                                                                   ----------

     Manufacturing   4.3%     1,000,000      ARCO Chemical Co., 9.375%, 12/15/05 .................  1,210,240
                              1,000,000      ITT Destinations, 6.25%, 11/15/00 ...................  1,003,560
                              1,000,000      ITT Destinations, 6.75%, 11/15/05 ...................  1,004,110
                              1,000,000      Monsanto Co., 8.7%, 10/15/21 ........................  1,244,060
                                                                                                   ----------
                                                                                                    4,461,970
                                                                                                   ----------
     Technology      1.1%     1,000,000      Loral Corp., 8.375%, 6/15/24 ........................  1,148,330
                                                                                                   ----------

     Energy          3.6%     2,000,000      Atlantic Richfield Co., 9.125%, 8/1/31 ..............  2,627,760
                              1,000,000      Enron Corp., 10%, 6/1/98 ............................  1,093,760
                                                                                                   ----------
                                                                                                    3,721,520
                                                                                                   ----------

     Transportation  1.2%       600,000      American Airlines, 8.8%, 9/16/15 ....................    660,450
                                575,000      American Airlines, 8.39%, 1/2/17 ....................    615,250
                                                                                                   ----------
                                                                                                    1,275,700
                                                                                                   ----------
                                             TOTAL CORPORATE BONDS (Cost $12,393,590) ............ 14,166,990
                                                                                                   ----------
-------------------------------------------------------------------------------------------------------------
                                             TOTAL INVESTMENT PORTFOLIO # 100.0%
                                                    (Cost $100,910,726) (a) ......................104,360,913
                                                                                                  ===========
-------------------------------------------------------------------------------------------------------------

The accompanying notes are an integral part of the financial statements.
</TABLE>
                                      21

<PAGE>

BOND PORTFOLIO
-------------------------------------------------------------------------------


*    Effective maturities will be shorter due to amortization and prepayments.


**   Yield; bond equivalent yield to maturity; not a coupon rate (unaudited).


(a)  At December 31, 1995, the net unrealized  appreciation on investments based
     on cost for federal income tax purposes of $100,923,081 was as follows:

Aggregate gross unrealized appreciation for all investments in
which there is an excess of market value over tax cost ............. $3,678,945


Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax  cost over market value ..................   (241,113)
                                                                     ----------
Net unrealized appreciation  ....................................... $3,437,832
                                                                     ==========

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

At December 31, 1995, the Bond Portfolio had a net tax basis capital loss
carryforward of approximately $428,367, which may be applied against any
realized net taxable capital gains of each succeeding year until fully utilized
or until December 31, 2003, whichever occurs first.

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

Purchases and sales of investment securities (excluding short-term investments
and U.S. Government securities), for the year ended December 31, 1995,
aggregated $75,113,605 and $122,317,664, respectively. Purchases and sales of
U.S. Government securities for the year ended December 31, 1995, aggregated
$158,950,501 and $172,496,242, respectively.

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


<TABLE>
COMMITMENTS:
As of December 31, 1995, the Bond Portfolio entered into the following forward
foreign currency exchange contracts resulting in net unrealized depreciation of
$20,855.

<CAPTION>
                                                               NET UNREALIZED
                                                               APPRECIATION/
                                                   SETTLEMENT   DEPRECIATION
CONTRACTS TO DELIVER          IN EXCHANGE FOR         DATE        (U.S.$)
------------------------  -----------------------  ----------  --------------
<S>            <C>        <C>           <C>          <C>          <C>
Deutschemarks  1,850,586  U.S. Dollars  1,306,523    1/22/96       13,068
French Francs  7,318,455  U.S. Dollars  1,463,106    1/22/96      (33,923)
                                                                  -------
                                                                  (20,855)
                                                                  =======
</TABLE>

   The accompanying notes are an integral part of the financial statements.


                                     
                                      22

<PAGE>

<TABLE>
                                                                               FINANCIAL STATEMENTS
---------------------------------------------------------------------------------------------------
                               STATEMENT OF ASSETS AND LIABILITIES
---------------------------------------------------------------------------------------------------

<CAPTION>
December 31, 1995
---------------------------------------------------------------------------------------------------
<S>                                                                    <C>             <C>         
ASSETS
Investments, at market (identified cost $100,910,726) 
  (Note A)..........................................................                   $104,360,913
Cash................................................................                            581
Unrealized appreciation on forward currency exchange contracts 
  (Note A)..........................................................                         13,068
Receivables:
  Interest..........................................................                      1,299,285
  Investments sold..................................................                     10,552,620
  Portfolio shares sold.............................................                        297,074
Receivable on closed forward currency exchange contracts (Note A)...                         17,989
                                                                                       ------------
        Total assets................................................                    116,541,530
LIABILITIES
Payables:
  Portfolio shares redeemed.........................................   $43,916,987
  Accrued management fee (Note B)...................................        51,700
  Other accrued expenses (Note B)...................................        24,463
Unrealized depreciation on forward currency exchange 
        contracts (Note A)..........................................        33,923
                                                                       -----------
        Total liabilities...........................................                     44,027,073
                                                                                       ------------
Net assets, at market value.........................................                   $ 72,514,457
                                                                                       ============
NET ASSETS
Net assets consist of:
  Undistributed net investment income...............................                   $  2,587,204
  Net unrealized appreciation (depreciation) on:
        Investments.................................................                      3,450,187
        Foreign currency related transactions.......................                        (20,098)
  Accumulated net realized loss.....................................                       (422,732)
  Paid-in capital...................................................                     66,919,896
                                                                                       ------------
Net assets, at market value.........................................                   $ 72,514,457
                                                                                       ============
NET ASSET VALUE, offering and redemption price per 
  share ($72,514,457 -:- 10,126,562 outstanding 
  shares of beneficial interest, no par value, 
  unlimited number of shares authorized)............................                          $7.16
                                                                                              =====
</TABLE>


   The accompanying notes are an integral part of the financial statements.

                                      23

<PAGE>

<TABLE>
BOND PORTFOLIO
---------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------
                                     STATEMENT OF OPERATIONS
---------------------------------------------------------------------------------------------------

<CAPTION>
Year Ended December 31, 1995
---------------------------------------------------------------------------------------------------
<S>                                                                    <C>              <C>         
INVESTMENT INCOME
  Interest........................................................                      $ 9,483,844

  Expenses (Note A):
    Management fee (Note B).......................................     $  657,112
    Accounting fees (Note B)......................................         43,187
    Trustees' fees (Note B).......................................         17,202
    Custodian fees................................................         19,516
    Auditing......................................................         16,326
    Legal.........................................................          8,521
    Other.........................................................         14,814           776,678
                                                                       ----------------------------
  Net investment income...........................................                        8,707,166
                                                                                        -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
  Net realized gain from:
    Investments...................................................      5,316,995
    Foreign currency related transactions.........................        319,329         5,636,324
                                                                       ---------- 
  Net unrealized appreciation (depreciation) during the period on:
    Investments...................................................      8,218,048
    Foreign currency related transactions.........................        (20,098)        8,197,950
                                                                       ----------       -----------
  Net gain on investment transactions.............................                       13,834,274
                                                                                        -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..............                      $22,541,440
                                                                                        ===========
</TABLE>

   The accompanying notes are an integral part of the financial statements.

                                      24

<PAGE>

<TABLE>
                                                                                           FINANCIAL STATEMENTS
---------------------------------------------------------------------------------------------------------------
                                        STATEMENTS OF CHANGES IN NET ASSETS
---------------------------------------------------------------------------------------------------------------

<CAPTION>
                                                                                    YEARS ENDED DECEMBER 31,
                                                                               --------------------------------
INCREASE (DECREASE) IN NET ASSETS                                                   1995               1994      
---------------------------------------------------------------------------------------------------------------

<S>                                                                            <C>                 <C>
Operations:
  Net investment income.....................................................   $   8,707,166       $  8,806,288
  Net realized gain (loss) from investment transactions.....................       5,636,324         (5,607,148)
  Net unrealized appreciation (depreciation) on investment
    transactions during the period..........................................       8,197,950         (9,672,581)
                                                                               -------------       ------------
Net increase (decrease) in net assets resulting from operations.............      22,541,440         (6,473,441)
                                                                               -------------       ------------
Distributions to shareholders from:
  Net investment income ($.45 and $.43 per share, respectively).............      (9,011,114)        (8,525,294)
                                                                               -------------       ------------
  Net realized gain from investment transactions ($.17 per share)...........              --         (3,161,229)
                                                                               -------------       ------------
Portfolio share transactions:
  Proceeds from shares sold.................................................      57,366,869         86,578,280
  Net asset value of shares issued to shareholders in
    reinvestment of distributions...........................................       9,011,114         11,686,523
  Cost of shares redeemed...................................................    (149,798,464)       (66,398,542)
                                                                               -------------       ------------
Net increase (decrease) in net assets from Portfolio share transactions.....     (83,420,481)        31,866,261
                                                                               -------------       ------------
INCREASE (DECREASE) IN NET ASSETS...........................................     (69,890,155)        13,706,297
Net assets at beginning of period...........................................     142,404,612        128,698,315
                                                                               -------------       ------------
NET ASSETS AT END OF PERIOD (including undistributed net investment
  income of $2,587,204 and $2,188,157, respectively)........................   $  72,514,457       $142,404,612
                                                                               =============       ============
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
Shares outstanding at beginning of period...................................      21,973,579         17,350,092
                                                                               -------------       ------------
  Shares sold...............................................................       8,433,349         12,843,292
  Shares issued to shareholders in reinvestment of distributions............       1,343,624          1,713,654
  Shares redeemed...........................................................     (21,623,990)        (9,933,459)
                                                                               -------------       ------------
  Net increase (decrease) in Portfolio shares...............................     (11,847,017)         4,623,487
                                                                               -------------       ------------
Shares outstanding at end of period.........................................      10,126,562         21,973,579
                                                                               =============       ============
</TABLE>

   The accompanying notes are an integral part of the financial statements.

                                      25

<PAGE>

<TABLE>
BOND PORTFOLIO
FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------------------------------------------------------------
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD AND OTHER 
PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.
<CAPTION>
                                                                                                     
                                                                                                          SIX       FOR THE PERIOD
                                                                                                         MONTHS      JULY 16, 1985
                                                                                                          ENDED     (COMMENCEMENT
                                                YEARS ENDED DECEMBER 31, (e)                            DECEMBER    OF OPERATIONS)
                               ---------------------------------------------------------------------       31,       TO JUNE 30,
                                1995    1994    1993    1992    1991    1990    1989    1988    1987    1986(e)(f)       1986
                               ---------------------------------------------------------------------    ----------  --------------
<S>                            <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>      <C>         <C>
Net asset value, 
    beginning of period.....   $ 6.48  $ 7.42  $ 7.19  $ 7.37  $ 6.73  $ 6.72  $ 6.39  $ 6.47  $ 6.67   $ 6.56      $ 6.00(b)
                               ------  ------  ------  ------  ------  ------  ------  ------  ------   ------      ------
Income from investment
  operations:
    Net investment 
      income (a)............      .44     .43     .48     .49     .52     .53     .54     .54     .49      .23         .45
    Net realized and 
      unrealized gain
      (loss) on 
      investment
      transactions..........      .69    (.77)    .38    (.02)    .61    (.02)    .18    (.19)   (.40)     .08         .44
                               ------  ------  ------  ------  ------  ------  ------  ------  ------   ------      ------
Total from investment
  operations................     1.13    (.34)    .86     .47    1.13     .51     .72     .35     .09      .31         .89
                               ------  ------  ------  ------  ------  ------  ------  ------  ------   ------      ------
Less distributions from: 
  Net investment income.....     (.45)   (.43)   (.48)   (.46)   (.47)   (.50)   (.39)   (.43)   (.29)    (.17)       (.33)
  
  Net realized gains
    on investment
    transactions............       --    (.17)   (.15)   (.19)   (.02)     --      --      --      --     (.03)         --
                               ------  ------  ------  ------  ------  ------  ------  ------  ------   ------      ------       
Total distributions.........     (.45)   (.60)   (.63)   (.65)   (.49)   (.50)   (.39)   (.43)   (.29)    (.20)       (.33)
                               ------  ------  ------  ------  ------  ------  ------  ------  ------   ------      ------ 
Net asset value, 
  end of period.............   $ 7.16  $ 6.48  $ 7.42  $ 7.19  $ 7.37  $ 6.73  $ 6.72  $ 6.39  $ 6.47   $ 6.67      $ 6.56
                               ======  ======  ======  ======  ======  ======  ======  ======  ======   ======      ======
TOTAL RETURN (%)                18.17   (4.79)  12.38    7.01   17.61    8.06   11.65    5.46    1.22     4.90(d)    15.11(d)

RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
  period ($ millions).......       73     142     129     113      74      42      22       3       3        1          --
Ratio of operating 
  expenses, net to 
  average net 
  assets (%) (a)............      .56     .58     .61     .63     .69     .73     .75     .75     .75      .75(c)      .60(c)
Ratio of net investment
  income to average 
  net assets (%)............     6.29    6.43    6.59    6.89    7.51    8.05    8.04    7.86    7.53     6.88(c)     7.48(c)
Portfolio turnover 
  rate (%)..................   177.21   96.55  125.15   87.00  115.86   71.02  103.41  245.23  186.05    23.82(c)     6.27(c)
<FN>
(a) Portion of expenses 
    reimbursed (Note B).....   $   --  $   --  $   --  $   --  $   --  $   --  $  .01  $  .04  $  .08  $   .21      $  .80
(b) Original capital
(c) Annualized
(d) Not annualized
(e) Per share amounts, for each of the periods identified, have been calculated using the monthly average shares outstanding 
    during the period method.
(f) On August 22, 1986, the Trustees voted to change the year end of the Fund from June 30 to December 31.
</FN>
</TABLE>

                                      26

<PAGE>

<TABLE>
                                                                                                       BALANCED PORTFOLIO
                                                                             INVESTMENT PORTFOLIO as of December 31, 1995
-------------------------------------------------------------------------------------------------------------------------

<CAPTION>
                                   % of         Principal                                                        Market
                                Portfolio       Amount ($)                                                      Value ($)
-------------------------------------------------------------------------------------------------------------------------
<S>                               <C>       <C>                                                                <C>
                                            -----------------------------------------------------------------------------
                                   4.5%            REPURCHASE AGREEMENT
                                            -----------------------------------------------------------------------------
                                            3,023,000  Repurchase Agreement with Donaldson, 
                                                        Lufkin & Jenrette dated 12/29/95 at 5.85%,
                                                        to be repurchased at $3,024,965 on 1/2/96,
                                                        collateralized by a $2,582,000 U.S. Treasury
                                                        Bond, 7.25%, 8/15/22 (Cost $3,023,000)............      3,023,000
                                                                                                               ----------
                                            -----------------------------------------------------------------------------
                                  19.2%            U.S. TREASURY OBLIGATIONS
                                            -----------------------------------------------------------------------------
                                              250,000  U.S. Treasury Bill, 5.3%, 1/11/96..................        249,698
                                              700,000  U.S. Treasury Bond, 7.25%, 5/15/16.................        799,309
                                              300,000  U.S. Treasury Bond, 8.125%, 5/15/21................        379,359
                                            1,350,000  U.S. Treasury Bond, 6.25%, 8/15/23.................      1,389,029
                                              275,000  U.S. Treasury Note, 4.375%, 11/15/96...............        272,982
                                              550,000  U.S. Treasury Note, 4.75%, 2/15/97.................        546,733
                                              250,000  U.S. Treasury Note, 6.125%, 5/31/97................        253,048
                                              900,000  U.S. Treasury Note, 5.25%, 7/31/98.................        900,279
                                              200,000  U.S. Treasury Note, 5.875%, 3/31/99................        203,562
                                            1,000,000  U.S. Treasury Note, 6.75%, 5/31/99.................      1,044,530
                                            1,000,000  U.S. Treasury Note, 6.375%, 1/15/00................      1,038,280
                                            3,650,000  U.S. Treasury Note, 5.625%, 11/30/00...............      3,683,069
                                            1,250,000  U.S. Treasury Note, 6.375%, 8/15/02................      1,310,738
                                              800,000  U.S. Treasury Separate Trading Registered Interest
                                                        and Principal Securities, 11/15/10 (6.05**).......        329,784
                                            1,460,000  U.S. Treasury Separate Trading Registered Interest
                                                        and Principal Securities, 2/15/12 (6.13**)........        551,646
                                                                                                               ----------
                                                       TOTAL U.S. TREASURY OBLIGATIONS 
                                                         (Cost $12,503,802).                                   12,952,046
                                                                                                               ----------
                                            -----------------------------------------------------------------------------
                                   2.0%            U.S. GOV'T GUARANTEED MORTGAGES
                                            -----------------------------------------------------------------------------
                                              719,018  Government National Mortgage Association, 10%, 
                                                        8/15/20 (a).......................................        791,366
                                              532,237  Government National Mortgage Association, 8.75%, 
                                                        12/15/24 (a)......................................        556,188
                                                                                                               ----------
                                                       TOTAL U.S. GOV'T GUARANTEED MORTGAGES 
                                                        (Cost $1,278,803).................................      1,347,554
                                                                                                               ----------
                                            -----------------------------------------------------------------------------
                                   2.7%            U.S. GOVERNMENT AGENCY PASS-THRUS
                                            -----------------------------------------------------------------------------
                                              805,276  Federal National Mortgage Association, 7%, 
                                                        9/1/25 (a)........................................        811,815
                                              993,206  Federal National Mortgage Association, 6.5%, 
                                                        10/1/25 (a).......................................        981,406
                                                                                                               ----------
                                                       TOTAL U.S. GOVERNMENT AGENCY PASS-THRUS
                                                        (Cost $1,751,178).................................      1,793,221
                                                                                                               ----------
                                            -----------------------------------------------------------------------------
                                   0.2%            COLLATERALIZED MORTGAGE OBLIGATIONS
                                            -----------------------------------------------------------------------------
                                              151,335  Federal National Mortgage Association, REMIC, 8.5%,
                                                        4/25/18 (Cost $145,376)...........................        153,320
                                                                                                               ----------
                                            -----------------------------------------------------------------------------
                                   0.8%            FOREIGN BONDS - U.S. $ DENOMINATED
                                            -----------------------------------------------------------------------------
                                              250,000  ABN-AMRO Bank NV, 7.75%, 5/15/23...................        274,707
                                              250,000  Seagram Co., Ltd., 6.875%, 9/1/23..................        249,268
                                                                                                               ----------
                                                       TOTAL FOREIGN BONDS -- U.S. $ DENOMINATED
                                                        (Cost $461,469)...................................        523,975
                                                                                                               ----------
</TABLE>

   The accompanying notes are an integral part of the financial statements.

                                      27

<PAGE>

<TABLE>
BALANCED PORTFOLIO
-------------------------------------------------------------------------------------------------------------------------

<CAPTION>
                                   % of         Principal                                                        Market
                                Portfolio       Amount ($)                                                      Value ($)
-------------------------------------------------------------------------------------------------------------------------
<S>                               <C>       <C>                                                                 <C>
                                            -----------------------------------------------------------------------------
                                  1.5%             FOREIGN BONDS - NON U.S. $ DENOMINATED
                                            -----------------------------------------------------------------------------
                                            DM   650,000  Federal Republic of Germany, 6.5%, 7/15/03........      472,447
                                            FFr2,400,000  Government of France OAT, 7.5%, 4/25/05...........      519,256
                                                                                                                ---------
                                                           TOTAL FOREIGN BONDS -- NON U.S. $ DENOMINATED
                                                            (Cost $946,463).................................      991,703
                                                                                                                ---------
                                            -----------------------------------------------------------------------------
                                  2.0%             ASSET-BACKED SECURITIES
                                            -----------------------------------------------------------------------------
AUTOMOBILE RECEIVABLES            0.3%
                                                 176,685  Premier Auto Trust Asset Backed Certificate 
                                                           Series 1994-3, 6.8%, 12/2/99 (a).................      178,672
                                                                                                                ---------
CREDIT CARD RECEIVABLES           0.8%
                                                  62,500  Chase Manhattan Credit Card Trust, 1991 "A", 
                                                           7.65%, 11/15/98 (a)..............................       62,519
                                                 250,000  First Chicago Master Trust, Series 1991-D, 
                                                           8.4%, 6/15/98....................................      252,890
                                                 250,000  Standard Credit Card Trust, Series 1990-6B, 
                                                           9.625%, 9/10/97..................................      264,608
                                                                                                                ---------
                                                                                                                  580,017
                                                                                                                ---------
HOME EQUITY LOANS                 0.3%
                                                  88,185  Contimortgage Home Equity Loan Trust, Series 
                                                           1994-5 A1, 9.07%, 5/15/06 (a)....................       88,502
                                                 117,518  United Companies Financial Corp., Home Equity Loan
                                                           Series 1993-B1, 6.075%, 7/25/14 (a)..............      116,343
                                                                                                                ---------
                                                                                                                  204,845
                                                                                                                ---------
MANUFACTURED HOUSING 
RECEIVABLES                       0.6%
                                                 420,749  Green Tree Financial Corp. Series 1995-7 A1, 6%,
                                                           10/15/26.........................................      421,669
                                                                                                                ---------
                                                          TOTAL ASSET-BACKED SECURITIES (Cost $1,397,605)...    1,385,203
                                                                                                                ---------
                                            -----------------------------------------------------------------------------
                                  7.3%             CORPORATE BONDS
                                            -----------------------------------------------------------------------------
CONSUMER DISCRETIONARY            0.4%
                                                 250,000  Price/Costco Inc., 7.125%, 6/15/05................      261,348
                                                                                                                ---------
CONSUMER STAPLES                  0.4%
                                                 270,000  J. Seagram & Sons Inc., 7%, 4/15/08...............      279,083
                                                                                                                ---------
FINANCIAL                         0.4%
                                                 250,000  NationsBank Corp., 7.25%, 10/15/25................      259,420
                                                                                                                ---------
MEDIA                             1.7%
                                               1,000,000  Time Warner Inc., 9.125%, 1/15/13.................    1,126,950
                                                                                                                ---------
DURABLES                          0.5%
                                                 250,000  Lockheed Martin Corp., 9%, 1/15/22................      319,340
                                                                                                                ---------
MANUFACTURING                     1.1%
                                                 250,000  Corning Inc., 8.75%, 7/15/99......................      270,632
                                                 200,000  ITT Destinations, 6.25%, 11/15/00.................      200,712
                                                 300,000  ITT Destinations, 6.75%, 11/15/05.................      301,233
                                                                                                                ---------
                                                                                                                  772,577
                                                                                                                ---------
</TABLE>

   The accompanying notes are an integral part of the financial statements.

                                      28

<PAGE>

<TABLE>
                                                                                                     INVESTMENT PORTFOLIO
-------------------------------------------------------------------------------------------------------------------------

<CAPTION>
                                   % of         Principal                                                        Market
                                Portfolio       Amount ($)                                                      Value ($)
-------------------------------------------------------------------------------------------------------------------------
<S>                               <C>       <C>                                                                 <C>
                                            -----------------------------------------------------------------------------
TECHNOLOGY                         0.8%
                                            500,000  Loral Corp., 8.375%, 6/15/24..........................       574,165
                                                                                                                ---------
ENERGY                             1.3%
                                            500,000  Atlantic Richfield Co., 8.25%, 2/1/22.................       578,165
                                            250,000  Enron Corp., 10%, 6/1/98..............................       273,440
                                                                                                                ---------
                                                                                                                  851,605
                                                                                                                ---------
TRANSPORTATION                     0.3%
                                            100,000  American Airlines, 8.8%, 9/16/15......................       110,075
                                            100,000  American Airlines, 8.39%, 1/2/17......................       107,000
                                                                                                                ---------
                                                                                                                  217,075
                                                                                                                ---------
UTILITIES                          0.4%
                                            250,000  Commonwealth Edison Co., 9.05%, 10/15/99..............       266,940
                                                                                                                ---------
                                                     TOTAL CORPORATE BONDS (Cost $4,514,595)...............     4,928,503
                                                                                                                ---------
                                            -----------------------------------------------------------------------------
                                   0.6%            PREFERRED STOCKS
                                            -----------------------------------------------------------------------------
                                             Shares
                                            -----------------------------------------------------------------------------
TECHNOLOGY

        Computer Software                     2,500  SAP AG (Cost $372,379)................................       378,709
                                                                                                                ---------
                                            -----------------------------------------------------------------------------
                                  59.2%            COMMON STOCKS
                                            -----------------------------------------------------------------------------
CONSUMER DISCRETIONARY             5.1%

        Department & Chain 
        Stores                     2.8%      15,400  Nordstrom, Inc. ......................................       623,700
                                             26,900  Rite Aid Corp. .......................................       921,325
                                             16,000  Wal-Mart Stores Inc. .................................       358,000
                                                                                                                ---------
                                                                                                                1,903,025
                                                                                                                ---------
        Restaurants                0.9%      13,800  McDonald's Corp. .....................................       622,725
                                                                                                                ---------
        Specialty Retail           1.4%      16,300  Corporate Express, Inc.* .............................       491,037
                                             27,300  Intimate Brands, Inc. ................................       409,500
                                                                                                                ---------
                                                                                                                  900,537
                                                                                                                ---------
CONSUMER STAPLES                  10.6%

        Alcohol & Tobacco          1.9%      
                                             14,100  Philip Morris Companies Inc. .........................     1,276,050
                                                                                                                ---------
        Consumer Electronic & 
        Photographic Products      0.6%      
                                              8,400  Duracell International Inc. ..........................       434,700
                                                                                                                ---------
        Food & Beverage            5.2%      22,000  Albertson's Inc. .....................................       723,250
                                              6,000  CPC International Inc. ...............................       411,750
                                             14,000  ConAgra Inc. .........................................       577,500
                                             17,500  PepsiCo Inc. .........................................       977,812
                                             25,600  Sara Lee Corp. .......................................       816,000
                                                                                                                ---------
                                                                                                                3,506,312
                                                                                                                ---------
        Package Goods/
        Cosmetics                  2.9%       2,700  Clorox Co. ...........................................       193,387
                                              4,800  Colgate-Palmolive Co. ................................       337,200
</TABLE>

   The accompanying notes are an integral part of the financial statements.

                                      29

<PAGE>

<TABLE>
BALANCED PORTFOLIO
-------------------------------------------------------------------------------------------------------------------------

<CAPTION>
                                   % of                                                                          Market
                                Portfolio       Shares                                                          Value ($)
-------------------------------------------------------------------------------------------------------------------------
<S>                               <C>       <C>                                                                 <C>
                                             8,200  Gillette Co. .........................................        427,425
                                            11,900  Procter & Gamble Co. .................................        987,700
                                                                                                                ---------
                                                                                                                1,945,712
                                                                                                                ---------
HEALTH                            10.3%

        Biotechnology              0.8%     13,139  Guidant Corp. ........................................        555,123
                                                                                                                ---------
        Hospital Management        1.2%     15,800  Columbia/HCA Healthcare Corp. ........................        801,850
                                                                                                                ---------
        Medical Supply 
        & Specialty                1.9%     11,900  Becton, Dickinson & Co. ..............................        892,500
                                             7,500  Medtronic Inc. .......................................        419,062
                                                                                                                ---------
                                                                                                                1,311,562
                                                                                                                ---------
        Pharmaceuticals            6.4%      4,500  American Home Products Corp. .........................        436,500
                                            14,870  Eli Lilly & Co. ......................................        836,437
                                            10,400  Johnson & Johnson ....................................        890,500
                                            16,500  Merck & Co. Inc. .....................................      1,084,875
                                             5,300  Sandoz Ltd. AG (ADR) .................................        242,806
                                            14,600  Schering-Plough Corp. ................................        799,350
                                                                                                                ---------
                                                                                                                4,290,468
                                                                                                                ---------
COMMUNICATIONS                     1.6%

        Cellular Telephone         0.5%     11,600  AirTouch Communications, Inc.* .......................        327,700
                                                                                                                ---------
        Telephone/
        Communications             1.1%     11,300  American Telephone & Telegraph Co. ...................        731,675
                                                                                                                ---------
FINANCIAL                          5.2%

        Banks                      1.0%     15,300  State Street Boston Corp. ............................        688,500
                                                                                                                ---------
        Insurance                  2.9%     10,850  American International Group, Inc. ...................      1,003,625
                                             6,000  EXEL, Ltd. ...........................................        366,000
                                             7,700  MBIA Inc. ............................................        577,500
                                                                                                                ---------
                                                                                                                1,947,125
                                                                                                                ---------
        Other Financial 
        Companies                  1.3%      7,200  Federal National Mortgage Association ................        893,700
                                                                                                                ---------
MEDIA                              4.4%

        Advertising                0.6%      9,500  Interpublic Group of Companies Inc. ..................        412,062
                                                                                                                ---------
        Broadcasting &
        Entertainment              3.8%      8,400  Broderbund Software Inc.* ............................        510,300
                                             4,000  Capital Cities/ABC Inc. ..............................        493,500
                                            16,700  Time Warner Inc. .....................................        632,513
                                            11,600  Viacom Inc. "B"* .....................................        549,550
                                             6,600  Walt Disney Co. ......................................        389,400
                                                                                                                ---------
                                                                                                                2,575,263
                                                                                                                ---------
SERVICE INDUSTRIES                 5.1%

        EDP Services               2.3%      9,400  First Data Corp. .....................................        628,625
                                            16,900  General Motors Corp. "E" .............................        878,800
                                                                                                                ---------
                                                                                                                1,507,425
                                                                                                                ---------
        Investment                 0.8%     27,000  Charles Schwab Corp. .................................        543,375
                                                                                                                ---------
</TABLE>

   The accompanying notes are an integral part of the financial statements.

                                      30

<PAGE>

<TABLE>
                                                                                                    INVESTMENT PORTFOLIO
-------------------------------------------------------------------------------------------------------------------------

<CAPTION>
                                   % of                                                                          Market
                                Portfolio       Shares                                                          Value ($)
-------------------------------------------------------------------------------------------------------------------------
<S>                               <C>       <C>                                                                 <C>
        Miscellaneous 
        Commercial Services       0.6%      22,900  Sensormatic Electronics Corp. ..........................      397,888
                                                                                                                ---------
        Miscellaneous 
        Consumer Services         0.7%      11,000  Service Corp. International ............................      484,000
                                                                                                                ---------
        Printing/Publishing       0.7%       8,600  Reuters Holdings PLC "B" (ADR) .........................      474,075
                                                                                                                ---------
DURABLES                          2.7%

        Aerospace                 1.3%      11,400  Boeing Co. .............................................      893,475
                                                                                                                ---------
        Telecommunications 
        Equipment                 1.4%      10,700  DSC Communications Corp.* ..............................      394,562
                                            26,400  L.M. Ericsson Telephone Co. "B" (ADR) ..................      514,800
                                                                                                                ---------
                                                                                                                  909,362
                                                                                                                ---------
MANUFACTURING                     4.5%

        Chemicals                 0.9%      11,900  Sigma-Aldrich Corp. ....................................      589,050
                                                                                                                ---------
        Diversified 
        Manufacturing             2.3%      10,200  Dover Corp. ............................................      376,125
                                            11,700  General Electric Co. ...................................      842,400
                                             6,150  Thermo Electron Corp.* .................................      319,800
                                                                                                                ---------
                                                                                                                1,538,325
                                                                                                                ---------
        Electrical Products       1.3%       4,200  ASEA AB (ADR) ..........................................      406,875
                                             5,700  Emerson Electric Co. ...................................      465,975
                                                                                                                ---------
                                                                                                                  872,850
                                                                                                                ---------
TECHNOLOGY                        7.8%

        Computer Software         0.8%       7,600  Informix Corp.* ........................................      228,000
                                             3,600  Microsoft Corp.* .......................................      315,900
                                                                                                                ---------
                                                                                                                  543,900
                                                                                                                ---------
        Diverse Electronic 
        Products                  1.4%      10,200  Applied Materials, Inc.* ...............................      401,625
                                             9,600  Motorola Inc. ..........................................      547,200
                                                                                                                ---------
                                                                                                                  948,825
                                                                                                                ---------
        Electronic Data 
        Processing                1.4%       8,000  Hewlett-Packard Co. ....................................      670,000
                                             9,100  Silicon Graphics Inc.* .................................      250,250
                                                                                                                ---------
                                                                                                                  920,250
                                                                                                                ---------
        Military Electronics      1.1%      21,200  Loral Corp. ............................................      749,950
                                                                                                                ---------
        Office/Plant 
        Automation                1.3%       7,700  3Com Corp.* ............................................      359,013
                                             6,800  Cisco Systems, Inc.* ...................................      507,450
                                                                                                                ---------
                                                                                                                  866,463
                                                                                                                ---------
        Semiconductors            1.8%      14,900  Atmel Corp.* ...........................................      333,387
                                            10,600  Intel Corp. ............................................      601,550
                                             9,400  LSI Logic Corp. ........................................      307,850
                                                                                                                ---------
                                                                                                                1,242,787
                                                                                                                ---------
</TABLE>

   The accompanying notes are an integral part of the financial statements.

                                      31

<PAGE>

<TABLE>
BALANCED PORTFOLIO
-------------------------------------------------------------------------------------------------------------------------

<S>                               <C>       <C>                                                                <C>
ENERGY                            1.9%

        Engineering               0.9%       8,800  Fluor Corp. ...........................................       580,800
                                                                                                               ----------
        Oil/Gas Transmission      1.0%      17,900  Enron Corp. ...........................................       682,437
                                                                                                               ----------
                                                    TOTAL COMMON STOCKS (Cost $32,024,744) ................    39,869,326
                                                                                                               ----------
-------------------------------------------------------------------------------------------------------------------------

                                                    TOTAL INVESTMENT PORTFOLIO -- 100.0%
                                                     (Cost $58,419,414) (b) ...............................    67,346,560
                                                                                                               ==========
-------------------------------------------------------------------------------------------------------------------------

<FN>
    * Non-income producing security.
   ** Yield; bond equivalent yield to maturity; not a coupon rate (unaudited).
  (a) Effective maturities will be shorter due to amortization and prepayments.
  (b) At December 31, 1995, the net unrealized appreciation on investments based on cost for federal 
      income tax purposes of $58,466,593 was as follows:

      Aggregate gross unrealized appreciation for all investments in which there is an excess of market
        value over tax cost ...............................................................................    $9,608,851
      Aggregate gross unrealized depreciation for all investments in which there is an excess of tax
        cost over market value ............................................................................      (728,884)
                                                                                                               ----------
      Net unrealized appreciation .........................................................................    $8,879,967
                                                                                                               ==========
</FN>
</TABLE>
<TABLE>
-------------------------------------------------------------------------------------------------------------------------

      Purchases and sales of investment securities (excluding short-term investments and U.S. Government securities), for 
      the year ended December 31, 1995, aggregated $40,832,157 and $36,997,809, respectively. Purchases and sales of U.S. 
      Government securities for the year ended December 31, 1995, aggregated $20,096,985 and $9,538,073, respectively.
-------------------------------------------------------------------------------------------------------------------------
      COMMITMENTS:
      As of December 31, 1995, the Balanced Portfolio entered into the following forward foreign currency exchange 
      contracts resulting in net unrealized depreciation of $6,165.
<CAPTION>
                                                                                      NET UNREALIZED
                                                                                      APPRECIATION/
                                                                  SETTLEMENT           DEPRECIATION
CONTRACTS TO DELIVER              IN EXCHANGE FOR                    DATE                 (U.S.$)
---------------------------    ---------------------------  --------------------  ---------------------
<S>               <C>             <C>             <C>               <C>                  <C>
Deutschemarks       659,903       U.S. Dollars    465,895           1/22/96                4,660
French Francs     2,335,440       U.S. Dollars    466,901           1/22/96              (10,825)
                                                                                         -------
                                                                                          (6,165)
                                                                                         =======
</TABLE>

   The accompanying notes are an integral part of the financial statements.

                                      32

<PAGE>

<TABLE>
                                                                                              FINANCIAL STATEMENTS
-------------------------------------------------------------------------------------------------------------------
                                     STATEMENT OF ASSETS AND LIABILITIES
-------------------------------------------------------------------------------------------------------------------

<CAPTION>
December 31, 1995
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>             <C>
ASSETS
Investments, at market (identified cost $58,419,414) (Note A)..................                         $67,346,560
Cash ..........................................................................                                 690
Unrealized appreciation on forward currency exchange contacts (Note A) ........                               4,660
Receivables:
  Investments sold ............................................................                              85,270
  Dividends and interest ......................................................                             412,970
  Portfolio shares sold .......................................................                             195,695
                                                                                                        -----------
    Total assets ..............................................................                          68,045,845

LIABILITIES
Payables:
  Portfolio shares redeemed ...................................................         $57,674
  Accrued management fee (Note B) .............................................          26,469
  Other accrued expenses (Note B) .............................................          25,088

Unrealized depreciation on forward currency exchange 
    contracts (Note A) ........................................................          10,825
                                                                                        -------
    Total liabilities .........................................................                             120,056
                                                                                                        -----------
Net assets, at market value ...................................................                         $67,925,789
                                                                                                        ===========
NET ASSETS
Net assets consist of:
  Undistributed net investment income .........................................                         $   483,837
  
  Net unrealized appreciation (depreciation) on:
    Investments ...............................................................                           8,927,146
    Foreign currency related transactions .....................................                              (5,965)
  Accumulated net realized gain ...............................................                           1,831,568
  Paid-in capital .............................................................                          56,689,203
                                                                                                        -----------
Net assets, at market value ...................................................                         $67,925,789
                                                                                                        ===========
NET ASSET VALUE, offering and redemption price per share
  ($67,925,789 divided by 6,206,064 outstanding shares of beneficial 
  interest, no par value, unlimited number of shares authorized) ..............                              $10.95
                                                                                                             ======
</TABLE>

   The accompanying notes are an integral part of the financial statements.

                                      33

<PAGE>

<TABLE>
BALANCED PORTFOLIO
-----------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------
                                        STATEMENT OF OPERATIONS
-----------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------------------------------------------------------------
<S>                                                                             <C>             <C>
INVESTMENT INCOME
  Income:
    Interest ......................................................                             $ 1,516,654
    Dividends (net of foreign taxes withheld of $5,268) ...........                                 564,132
                                                                                                -----------
                                                                                                  2,080,786
  Expenses (Note A):
    Management fee (Note B) .......................................             $  269,230
    Accounting fees (Note B) ......................................                 37,353
    Trustees' fees (Note B) .......................................                 15,758
    Custodian fees ................................................                 24,505
    Auditing ......................................................                  6,833
    Legal .........................................................                  3,253
    Other .........................................................                 13,961          370,893
                                                                                ----------      -----------
  Net investment income ...........................................                             $ 1,709,893
                                                                                                -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
  Net realized gain from:
    Investments ...................................................              2,268,896
    Foreign currency related transactions .........................                 38,133        2,307,029
                                                                                ---------- 
Net unrealized appreciation (depreciation) during the period on:
    Investments ...................................................              9,165,065
    Foreign currency related transactions .........................                 (5,965)       9,159,100
                                                                                ----------      -----------
Net gain on investment transactions ...............................                              11,466,129
                                                                                                -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ..............                             $13,176,022
                                                                                                ===========
</TABLE>

   The accompanying notes are an integral part of the financial statements.

                                       34

<PAGE>

<TABLE>
                                                                                      FINANCIAL STATEMENTS
-----------------------------------------------------------------------------------------------------------
                                    STATEMENTS OF CHANGES IN NET ASSETS
-----------------------------------------------------------------------------------------------------------

<CAPTION>
                                                                                 YEARS ENDED DECEMBER 31,
                                                                                ---------------------------
INCREASE (DECREASE) IN NET ASSETS                                                  1995           1994
-----------------------------------------------------------------------------------------------------------

<S>                                                                             <C>             <C>
Operations:
  Net investment income ..................................................      $ 1,709,893     $ 1,464,324
  Net realized gain (loss) from investment transactions ..................        2,307,029         (70,680)
  Net unrealized appreciation (depreciation) on investment
    transactions during the period .......................................        9,159,100      (2,374,110)
                                                                                -----------     -----------
Net increase (decrease) in net assets resulting from operations ..........       13,176,022        (980,466)
Distributions to shareholders from:
  Net investment income ($.30 and $.30 per share, respectively) ..........       (1,673,390)     (1,442,472)
                                                                                -----------     -----------
  Net realized gains from investment transactions
    ($.06 and $.77 per share, respectively) ..............................         (316,977)     (3,525,834)
                                                                                -----------     -----------
Portfolio share transactions:
  Proceeds from shares sold ..............................................       16,676,142      14,384,876
  Net asset value of shares issued to shareholders in
    reinvestment of distributions ........................................        1,990,367       4,968,306
  Cost of shares redeemed ................................................       (7,450,950)    (12,950,121)
                                                                                -----------     -----------
Net increase in net assets from Portfolio share transactions .............       11,215,559       6,403,061
                                                                                -----------     -----------
INCREASE IN NET ASSETS ...................................................       22,401,214         454,289
Net assets at beginning of period ........................................       45,524,575      45,070,286
                                                                                -----------     -----------
NET ASSETS AT END OF PERIOD (including undistributed net
  investment income of $483,837 and $392,285, respectively) ..............      $67,925,789     $45,524,575
                                                                                ===========     ===========
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
Shares outstanding at beginning of period ................................        5,076,236       4,407,727
                                                                                -----------     -----------
  Shares sold ............................................................        1,667,336       1,539,383
  Shares issued to shareholders in reinvestment of distributions .........          204,454         532,133
  Shares redeemed ........................................................         (741,962)     (1,403,007)
                                                                                -----------     -----------
  Net increase in Portfolio shares .......................................        1,129,828         668,509
                                                                                -----------     -----------
Shares outstanding at end of period ......................................        6,206,064       5,076,236
                                                                                ===========     ===========
</TABLE>

   The accompanying notes are an integral part of the financial statements.

                                       35

<PAGE>

<TABLE>
BALANCED PORTFOLIO
FINANCIAL HIGHLIGHTS
------------------------------------------------------------------------------------------------------------------------------------

THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD AND OTHER 
PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.
<CAPTION>
                                                                                                     
                                                                                                          SIX       FOR THE PERIOD
                                                                                                         MONTHS      JULY 16, 1985
                                                                                                          ENDED     (COMMENCEMENT
                                                YEARS ENDED DECEMBER 31, (e)                            DECEMBER    OF OPERATIONS)
                               ---------------------------------------------------------------------       31,       TO JUNE 30,
                                1995    1994    1993    1992    1991    1990    1989    1988    1987    1986(e)(f)       1986
                               ---------------------------------------------------------------------    ----------  --------------
<S>                            <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>      <C>         <C>
Net asset value,
  beginning of period........  $ 8.97  $10.23  $10.02  $ 9.85  $ 8.10  $ 8.75  $ 7.62  $ 6.88  $ 7.35   $ 7.58      $ 6.00(b)
                               ------  ------  ------  ------  ------  ------  ------  ------  ------   ------      ------
Income from investment
  operations:
  Net investment 
    income (a)...............     .30     .29     .30     .29     .35     .42     .40     .33     .34      .15         .31
  Net realized and 
    unrealized gain (loss)
    on investment
    transactions.............    2.04    (.48)    .42     .36    1.77    (.59)   1.06     .64    (.45)    (.11)       1.50
                               ------  ------  ------  ------  ------  ------  ------  ------  ------   ------      ------
Total from investment
  operations.................    2.34    (.19)    .72     .65    2.12    (.17)   1.46     .97    (.11)     .04        1.81
                               ------  ------  ------  ------  ------  ------  ------  ------  ------   ------      ------      
Less distributions from: 
  Net investment 
    income...................    (.30)   (.30)   (.28)   (.29)   (.37)   (.43)   (.33)   (.23)   (.23)    (.18)       (.23)
  Net realized gains
    on investment
    transactions.............    (.06)   (.77)   (.23)   (.19)     --    (.05)     --      --    (.13)    (.09)         --
                               ------  ------  ------  ------  ------  ------  ------  ------  ------   ------      ------      
Total distributions..........    (.36)  (1.07)   (.51)   (.48)   (.37)   (.48)   (.33)   (.23)   (.36)    (.27)       (.23)
                               ------  ------  ------  ------  ------  ------  ------  ------  ------   ------      ------      
Net asset value, 
  end of period..............  $10.95  $ 8.97  $10.23  $10.02  $ 9.85  $ 8.10  $ 8.75  $ 7.62  $ 6.88   $ 7.35      $ 7.58
                               ======  ======  ======  ======  ======  ======  ======  ======  ======   ======      ======
TOTAL RETURN (%)                26.67   (2.05)   7.45    6.96   26.93   (1.91)  19.50   14.21   (1.68)     .46(d)    30.60(d)
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
  period ($ millions)........      68      46      45      37      25      16      18      11      12        1          --
Ratio of operating 
  expenses, net to 
  average net 
  assets (%) (a).............     .65     .75     .75     .75     .75     .75     .75     .75     .75      .75(c)      .60(c)
Ratio of net investment
  income to average 
  net assets (%) ............    3.01    3.19    3.01    3.01    4.00    5.15    4.74    4.48    4.42     4.20(c)     4.87(c)
Portfolio turnover 
  rate (%)...................   87.98  101.64  133.95*  51.66   62.03   49.03   77.98  109.95  111.00    28.86(c)    64.12(c)
<FN>
(a) Portion of expenses 
    reimbursed (Note B)        $   --  $   --  $   --  $   --  $  .01  $   --  $  .01  $  .03  $  .03   $  .17      $  .80
(b) Original capital
(c) Annualized
(d) Not annualized
(e) Per share amounts, for each of the periods identified, have been calculated using the monthly average shares outstanding 
    during the period method.
(f) On August 22, 1986, the Trustees voted to change the year end of the Fund from June 30 to December 31.
   *On May 1, 1993, the Portfolio adopted its present name and investment objective which is a balance of growth and income 
    from a diversified portfolio of equity and fixed income securities.  Prior to that date, the Portfolio was known as the 
    Managed Diversified Portfolio and its investment objective was to realize a high level of long-term total rate of return 
    consistent with prudent investment risk.  The portfolio turnover rate increased due to implementing the present investment 
    objective. Financial highlights for the nine periods ended December 31, 1993 should not be considered representative of 
    the present Portfolio.
</FN>
</TABLE>

                                               36

<PAGE>

<TABLE>
                                                                                              GROWTH AND INCOME PORTFOLIO
                                                                             INVESTMENT PORTFOLIO as of December 31, 1995
-------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                  % of     Principal                                                              Market
                               Portfolio  Amount ($)                                                            Value ($)
-------------------------------------------------------------------------------------------------------------------------
<S>                               <C>     <C>        <C>                                                        <C>
                                          -------------------------------------------------------------------------------
                                  5.5%    REPURCHASE AGREEMENT
                                          -------------------------------------------------------------------------------
                                          2,860,000  Repurchase Agreement with Donaldson, Lufkin
                                                      & Jenrette dated 12/29/95 at 5.85%, to be repurchased
                                                      at $2,861,859 on 1/2/96, collateralized by a $2,108,000
                                                      U.S. Treasury Bond, 8.875%, 8/15/17 (Cost $2,860,000) ..  2,860,000
                                                                                                                ---------
                                          -------------------------------------------------------------------------------
                                  2.5%    CONVERTIBLE BONDS
                                          -------------------------------------------------------------------------------
HEALTH                            0.3%
        Pharmaceuticals                     140,000  Sandoz Capital BVI Ltd., 2%, 10/6/02 ....................    132,300
                                                                                                                ---------
FINANCIAL                         0.1%
        Other Financial 
        Companies                            40,000  First Financial Management Corp., 5%, 12/15/99 ..........     64,300
                                                                                                                ---------
SERVICE INDUSTRIES                0.4%
        Miscellaneous 
        Commercial Services                 335,000  ADT Operations Inc. LYON, 7/6/10 ........................    159,963
                                             54,000  Jardine Strategic Holdings Ltd., 7.5%, 5/7/49 ...........     58,050
                                                                                                                ---------
                                                                                                                  218,013
                                                                                                                ---------
TECHNOLOGY                        1.7%
        Computer Software         0.2%      120,000  Softkey International, Inc., 5.5%, 11/1/00 ..............     89,700
                                                                                                                ---------
        Semiconductors            1.5%      850,000  VLSI Technology, Inc., 8.25%, 10/1/05 ...................    788,375
                                                                                                                ---------
                                                     TOTAL CONVERTIBLE BONDS (Cost $1,326,234) ...............  1,292,688
                                                                                                                ---------
                                          -------------------------------------------------------------------------------
                                  2.6%    CONVERTIBLE PREFERRED STOCKS
                                          -------------------------------------------------------------------------------
                                             Shares
                                          -------------------------------------------------------------------------------
HEALTH                            1.1%
        Health Industry 
        Services                             21,500  FHP International Corp., "A", Cum. $1.25 .................    572,438
                                                                                                                ---------
FINANCIAL                         0.8%
        Consumer Finance                     10,400  Advanta Corp., 6.75% ....................................    399,100
                                                                                                                ---------
MANUFACTURING                     0.7%
        Containers & Paper        0.4%          700  Boise Cascade Corp. "G", Cum $1.58 ......................     20,038
                                              4,500  International Paper Co., 5.25% ..........................    202,500
                                                                                                                ---------
                                                                                                                  222,538
                                                                                                                ---------
        Industrial Specialty      0.3%       10,000  Cooper Industries, Inc., 6%* ............................    137,500
                                                                                                                ---------
                                                     TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $1,308,308) ....  1,331,576
                                                                                                                ---------
                                          -------------------------------------------------------------------------------
                                  89.4%   COMMON STOCKS
                                          -------------------------------------------------------------------------------
CONSUMER DISCRETIONARY            3.9%
        Department & 
        Chain Stores              3.5%       12,100  J.C. Penney Co., Inc. ...................................    576,262
                                              1,200  May Department Stores ...................................     50,700
                                              9,300  Melville Corp. ..........................................    285,975
                                             13,800  Rite Aid Corp. ..........................................    472,650
</TABLE>

     The accompanying notes an integral part of the financial statements.

                                      37

<PAGE>

GROWTH AND INCOME PORTFOLIO
<TABLE>
-------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                   % of     Principal                                                             Market
                                Portfolio  Amount ($)                                                           Value ($)
-------------------------------------------------------------------------------------------------------------------------
<S>                              <C>         <C>     <C>                                                        <C>       
                                             10,900  Sears, Roebuck & Co. ....................................    425,100
                                                                                                                ---------
                                                                                                                1,810,687
                                                                                                                ---------
        Specialty Retail          0.4%       13,000  Intimate Brands, Inc. ...................................    195,000
                                                                                                                ---------
CONSUMER STAPLES                 12.0%

        Alcohol & Tobacco         4.1%       10,400  Anheuser Busch Companies, Inc. ..........................    695,500
                                              9,600  Philip Morris Companies Inc. ............................    868,800
                                             17,980  RJR Nabisco Holdings Corp. ..............................    555,132
                                              1,080  Schweitzer-Mauduit International, Inc.*  ................     24,975
                                                                                                                ---------
                                                                                                                2,144,407
                                                                                                                ---------
        Food & Beverage           3.3%        9,700  General Mills, Inc. .....................................    560,175
                                             22,800  H.J. Heinz Co. ..........................................    755,250
                                             11,000  Quaker Oats Co. .........................................    379,500
                                                                                                                ---------
                                                                                                                1,694,925
                                                                                                                ---------
        Package Goods/
        Cosmetics                 4.6%        6,000  Avon Products Inc.  .....................................    452,250
                                              6,700  Clorox Co. ..............................................    479,887
                                              2,000  Colgate-Palmolive Co. ...................................    140,500
                                             10,800  Kimberly-Clark Corp. ....................................    893,700
                                              8,400  Tambrands Inc.  .........................................    401,100
                                                                                                                ---------
                                                                                                                2,367,437
                                                                                                                ---------
HEALTH                           13.3%

        Health Industry 
        Services                  0.3%        2,900  U.S. HealthCare, Inc.  ..................................    134,850
                                                                                                                ---------
        Medical Supply & 
        Specialty                 1.4%       18,800  Bausch & Lomb, Inc. .....................................    744,950
                                                                                                                ---------

        Pharmaceuticals          11.6%        8,600  American Home Products Corp. ............................    834,200
                                             20,000  Baxter International Inc. ...............................    837,500
                                              6,700  Bristol-Myers Squibb Co.  ...............................    575,362
                                             16,000  Carter-Wallace Inc. .....................................    182,000
                                             19,100  Eli Lilly & Co. .........................................  1,074,375
                                             13,700  Schering-Plough Corp. ...................................    750,075
                                             10,900  SmithKline Beecham PLC (ADR).............................    604,950
                                              7,200  Warner-Lambert Co. ......................................    699,300
                                             18,200  Zeneca Group PLC.........................................    352,206
                                              1,300  Zeneca Group PLC (ADR) ..................................     75,888
                                                                                                                ---------
                                                                                                                5,985,856
                                                                                                                ---------
COMMUNICATIONS                    5.6%

        Telephone/
        Communications                       23,100  Alltel Corp. ............................................    681,450
                                             14,500  GTE Corp. ...............................................    638,000
                                             18,500  Hong Kong Telecommunications Ltd. (ADR)..................    328,375
                                             12,300  Koninklijke PTT Nederland ...............................    447,594
                                             12,500  Sprint Corp..............................................    498,438
                                             11,800  Tele Danmark A/S (ADR) ..................................    325,975
                                                                                                                ---------
                                                                                                                2,919,832
                                                                                                                ---------
FINANCIAL                        17.0%

        Banks                     6.1%        9,200  Bankers Trust New York Corp.  ...........................    611,800
                                              9,700  Chemical Banking Corp. ..................................    569,875
                                             15,800  CoreStates Financial Corp. ..............................    598,425
                                             14,900  First Bank System Inc. ..................................    739,412
                                              8,100  J.P. Morgan & Co., Inc.  ................................    650,025
                                                                                                                ---------
                                                                                                                3,169,537
                                                                                                                ---------
</TABLE>

   The accompanying notes are an integral part of the financial statements.

                                         38

<PAGE>

<TABLE>
                                                                                                     INVESTMENT PORTFOLIO
-------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                   % of      Principal                                                            Market
                                Portfolio   Amount ($)                                                          Value ($)
-------------------------------------------------------------------------------------------------------------------------
<S>                               <C>         <C>    <C>                                                        <C>       
                                  
        Insurance                 3.3%        6,952  Allstate Corp. ..........................................    285,901
                                              6,800  EXEL, Ltd. ..............................................    414,800
                                              4,200  Hartford Steam Boiler Inspection & Insurance Co. ........    210,000
                                             15,300  Lincoln National Corp....................................    822,375
                                                                                                                ---------
                                                                                                                1,733,076
                                                                                                                ---------
        Other Financial 
        Companies                 3.4%        5,000  Federal National Mortgage Association ...................    620,625
                                             17,000  Student Loan Marketing Association.......................  1,119,875
                                                                                                                ---------
                                                                                                                1,740,500
                                                                                                                ---------

        Real Estate               4.2%       10,584  HGI Realty, Inc. (REIT) .................................    242,109
                                             17,600  Health Care Property Investment Inc. (REIT) .............    618,200
                                             18,800  Meditrust SBI (REIT).....................................    655,650
                                             15,700  Nationwide Health Properties Inc. (REIT) ................    659,400
                                                                                                                ---------
                                                                                                                2,175,359
                                                                                                                ---------
MEDIA                             0.5%

        Print Media   

                                              4,600  Reader's Digest Association Inc. "A" ....................    235,750
                                                                                                                ---------
SERVICE INDUSTRIES                2.6%

        Miscellaneous 
        Consumer Services         1.6%       20,900  H&R Block Inc. ..........................................    846,450
                                                                                                                ---------

        Printing/Publishing       1.0%       14,200  Deluxe Corp. ............................................    411,800
                                              1,700  Dun & Bradstreet Corp. ..................................    110,075
                                                                                                                ---------
                                                                                                                  521,875
                                                                                                                ---------
DURABLES                          6.2%

        Aerospace                 5.6%       11,742  Lockheed Martin Corp.  ..................................    927,618
                                             13,700  Rockwell International Corp. ............................    724,388
                                              1,300  Thiokol Corp. ...........................................     44,038
                                             12,900  United Technologies Corp. ...............................  1,223,888
                                                                                                                ---------
                                                                                                                2,919,932
                                                                                                                ---------
        Automobiles               0.5%

                                              9,400  Dana Corp.  .............................................    274,950
                                                                                                                ---------
        Construction/
        Agricultural Equipment    0.1%          500  PACCAR, Inc.  ...........................................     21,063
                                                                                                                ---------

MANUFACTURING                    13.1%

        Chemicals                 3.2%        5,400  Dow Chemical Co. ........................................    380,025
                                             11,200  E.I. du Pont de Nemours & Co. ...........................    782,600
                                              2,100  Lubrizol Corp. ..........................................     58,537
                                             18,400  Lyondell Petrochemical Co. ..............................    420,900
                                                                                                                ---------
                                                                                                                1,642,062
                                                                                                                ---------

        Diversified 
        Manufacturing             3.8%       25,500  Dresser Industries Inc.  ................................    621,562
                                              4,700  Olin Corp. ..............................................    348,975
                                             12,600  TRW Inc. ................................................    976,500
                                                                                                                ---------
                                                                                                                1,947,037
                                                                                                                ---------
        Electrical Products       0.9%

                                              6,500  Thomas & Betts Corp. ....................................    479,375
                                                                                                                ---------
        Industrial Specialty      0.3%

                                              4,900  Corning Inc. ............................................    156,800
                                                                                                                ---------
        Machinery/
        Components/Controls       0.7%        3,000  General Signal Corp. ....................................     97,125
                                              7,100  Timken Co. ..............................................    271,575
                                                                                                                ---------
                                                                                                                  368,700
                                                                                                                ---------
</TABLE>

   The accompanying notes are an integral part of the financial statements.

                                         39


<PAGE>

<TABLE>
GROWTH AND INCOME PORTFOLIO
-------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                   % of     Principal                                                            Market
                                Portfolio   Amount ($)                                                          Value ($)
-------------------------------------------------------------------------------------------------------------------------
<S>                               <C>         <C>    <C>                                                        <C>       

        Office Equipment/
        Supplies                  2.0%         7,600 Xerox Corp. .............................................  1,041,200
                                                                                                                ---------

        Specialty Chemicals       2.0%        11,300 Betz Laboratories Inc. ..................................    463,300
                                              19,100 Witco Corp. .............................................    558,675
                                                                                                                ---------
                                                                                                                1,021,975
                                                                                                                ---------
        Wholesale Distributors    0.2%         1,400 Alco Standard Corp. .....................................    119,700
                                                                                                                ---------

ENERGY                            8.9%

        Oil Companies             7.9%         6,100 Exxon Corp. .............................................    488,762
                                              12,500 Murphy Oil Corp. ........................................    518,750
                                               8,200 Pennzoil Co. ............................................    346,450
                                               7,800 Repsol SA (ADR) .........................................    256,425
                                               3,400 Royal Dutch Petroleum Co. (New York shares) .............    479,825
                                              15,156 Societe Nationale Elf Aquitaine (ADR) ...................    556,983
                                               4,900 Texaco Inc. .............................................    384,650
                                              14,619 Total SA (ADR)...........................................    497,046
                                              26,700 YPF S.A. "D" (ADR) ......................................    577,388
                                                                                                                ---------
                                                                                                                4,106,279
                                                                                                                ---------

        Oilfield Services/
        Equipment                 1.0%        10,300 Halliburton Co. .........................................    521,437
                                                                                                                ---------

METALS & MINERALS                 1.6%          

        Steel & Metals                        22,500 Freeport McMoRan Copper & Gold, Inc. "A" ................    630,000
                                              13,500 Oregon Steel Mills Inc.  ................................    189,000
                                                                                                                ---------
                                                                                                                  819,000
                                                                                                                ---------
TRANSPORTATION                    0.5%

        Railroads                             18,300 Canadian National Railway Co.* ..........................    274,500
                                                                                                                ---------

UTILITIES                         4.2%

        Electric Utilities                    12,700 CINergy Corp. ...........................................    388,937
                                               6,000 CMS Energy Corp. ........................................    179,250
                                              12,300 National Power PLC (ADR) ................................    113,775
                                               7,400 PacifiCorp ..............................................    157,250
                                               3,300 Pacific Gas & Electric Co.  .............................     93,637
                                              11,100 PowerGen PLC (ADR).......................................    145,687
                                              17,400 Southern Company ........................................    428,475
                                               3,100 Texas Utilities Co., Inc. ...............................    127,488
                                              16,000 Unicom Corp. ............................................    524,000
                                                                                                               ----------
                                                                                                                2,158,499
                                                                                                               ----------
                                                     TOTAL COMMON STOCKS (Cost $38,498,256)                    46,293,000
                                                                                                               ----------       

-------------------------------------------------------------------------------------------------------------------------
                                                     TOTAL INVESTMENT PORTFOLIO - 100.0%        
                                                        (Cost $43,992,798) (a) ............................... 51,777,264
                                                                                                               ==========
-------------------------------------------------------------------------------------------------------------------------

</TABLE>
   The accompanying notes are an integral part of the financial statements.

                                         40

<PAGE>

<TABLE>
                                                        INVESTMENT PORTFOLIO
------------------------------------------------------------------------------
<S>     <C>                                                     <C>
*       Non-income producing security.  
(a)     At December 31, 1995, the net unrealized 
        appreciation on investments based on cost for 
        federal income tax purposes of $44,003,751 was 
        as follows:

        Aggregate gross unrealized appreciation for 
        all investments in which there is an excess 
        of market value over tax cost........................   $8,264,388


        Aggregate gross unrealized depreciation for 
        all investments in which there is an excess 
        of tax cost over market value........................     (490,875)
                                                                ----------

        Net unrealized appreciation .........................   $7,773,513
                                                                ==========
-----------------------------------------------------------------------------

        Purchases and sales of investment securities (excluding
        short-term investments),  for the year ended December 31, 1995,
        aggregated $29,962,747 and $8,412,075,  respectively.
</TABLE>

                                41


<PAGE>

<TABLE>
GROWTH AND INCOME PORTFOLIO
FINANCIAL STATEMENTS
-----------------------------------------------------------------------------------------------------
                                  STATEMENT OF ASSETS AND LIABILITIES
-----------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------------------------------------------------------------------


<S>                                                                     <C>             <C>
ASSETS
Investments, at market (identified cost $43,992,798) (Note A).......                    $51,777,264
Cash................................................................                            814
Receivables:
        Investments sold............................................                        112,347
        Dividends and interest......................................                        176,163
        Portfolio shares sold.......................................                        157,901
                                                                                        -----------
                Total assets........................................                     52,224,489

LIABILITIES
Payables:
        Investments purchased.......................................    $    53,204
        Portfolio shares redeemed...................................         98,724
        Accrued management fee (Note B).............................         85,616
        Other accrued expenses (Note B).............................         24,511
                                                                        -----------
                Total liabilities...................................                        262,055
                                                                                        -----------
Net assets, at market value ........................................                    $51,962,434
                                                                                        ===========

NET ASSETS
Net assets consist of:
        Undistributed net investment income.........................                    $   403,970
        Net unrealized appreciation on investments..................                      7,784,466
        Accumulated net realized gain...............................                        665,292
        Paid-in capital.............................................                     43,108,706
                                                                                        -----------
Net assets, at market value.........................................                    $51,962,434
                                                                                        ===========

NET ASSET VALUE, offering and redemption price per share
        ($51,962,434 DIVIDED BY 6,510,714 outstanding shares of beneficial 
        interest, no par value, unlimited number of 
        shares authorized)..........................................                          $7.98
                                                                                              =====


</TABLE>


   The accompanying notes are an integral part of the financial statements.


                                      42



<PAGE>

<TABLE>

                                                                               FINANCIAL STATEMENTS
---------------------------------------------------------------------------------------------------
                                        STATEMENT OF OPERATIONS
---------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------------------------------------------

INVESTMENT INCOME
<S>                                                                     <C>             <C>
        Income:
                Dividends (net of foreign taxes withheld of 
                  $9,696)..........................................                     $1,273,665
                Interest...........................................                        135,250
                                                                                        ----------
                                                                                         1,408,915
        Expenses (Note A):
                Management fee (Note B)............................     $169,852
                Accounting fees (Note B)...........................       38,256
                Trustees' fees (Note B)............................       15,468
                Custodian fees.....................................       26,622
                Federal registration...............................        7,475
                Auditing...........................................        4,086
                Legal..............................................        2,265
                Other..............................................        6,597
                                                                        --------
                Total expenses before reductions...................      270,621
                Management fee reduction (Note B) .................       (1,982)
                                                                        --------
        Expenses, net..............................................                        268,639
                                                                                        ----------

        Net investment income......................................                      1,140,276
                                                                                        ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS

        Net realized gain (loss) from:
                Investments........................................      686,492
                Foreign currency related transactions..............       (1,006)          685,486
                                                                        --------
        Net unrealized appreciation on investments during the period                     8,112,233
                                                                                        ----------
        Net gain on investment transactions........................                      8,797,719
                                                                                        ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...............                     $9,937,995
                                                                                        ==========


</TABLE>


   The accompanying notes are an integral part of the financial statements.


                                      43



<PAGE>

<TABLE>
GROWTH AND INCOME PORTFOLIO
--------------------------------------------------------------------------------------------------------------
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------------------------------------

                                                                                             FOR THE PERIOD
                                                                                               MAY 2, 1994 
                                                                                              (COMMENCEMENT 
                                                                           YEAR ENDED       OF OPERATIONS) TO 
                                                                          DECEMBER 31,         DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS                                             1995                 1994
--------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                 <C>
Operations:
        Net investment income.......................................      $ 1,140,276         $   251,018
        Net realized gain from investment transactions..............          685,486             124,765
        Net unrealized appreciation (depreciation) on investment
                transactions during the period......................        8,112,233            (327,767)
                                                                           ----------         -----------
Net increase in net assets resulting from operations................        9,937,995              48,016
                                                                           ----------         -----------
Distributions to shareholders from: 
        Net investment income ($.19 and $.04 per share, respectively)        (895,880)            (86,114)
                                                                           ----------         -----------
        Net realized gains from investment transactions 
        ($.04 per share)                                                     (150,289)               --
                                                                           ----------         -----------
Portfolio share transactions:                                                                  
        Proceeds from shares sold ..................................       29,272,260          22,441,709
        Net asset value of shares issued to shareholders 
                in reinvestment of distributions....................        1,046,169              86,114
        Cost of shares redeemed.....................................       (7,322,663)         (2,415,483)
                                                                           ----------         -----------
Net increase in net assets from Portfolio share transactions........       22,995,766          20,112,340
                                                                           ----------         -----------            
INCREASE IN NET ASSETS..............................................       31,887,592          20,074,242

Net assets at beginning of period...................................       20,074,842                 600
                                                                           ----------           ---------
NET ASSETS AT END OF PERIOD (including undistributed net 
        investment income of $403,970 and $164,132, respectively)...      $51,962,434         $20,074,842
                                                                          ===========         ===========

OTHER INFORMATION

INCREASE (DECREASE) IN PORTFOLIO SHARES

Shares outstanding at beginning of period...........................        3,204,882                 100
                                                                           ----------           ---------

        Shares sold.................................................        4,166,992           3,576,097

        Shares issued to shareholders in reinvestment of 
                distributions                                                 151,454              13,561

        Shares redeemed..............................................      (1,012,614)           (384,876)
                                                                           ----------           ---------

        Net increase in Portfolio shares.............................       3,305,832           3,204,782
                                                                           ----------           ---------

Shares outstanding at end of period..................................       6,510,714           3,204,882
                                                                           ==========           =========


</TABLE>

   The accompanying notes are an integral part of the financial statements.


                                      44

<PAGE>

<TABLE>

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

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


<CAPTION>
                                                                                                  FOR THE PERIOD
                                                                                                   MAY 2, 1994
                                                                                 YEAR             (COMMENCEMENT
                                                                                 ENDED            OF OPERATIONS)
                                                                              DECEMBER 31,        TO DECEMBER 31,
                                                                                  1995                  1994
                                                                             ------------        ----------------
<S>                                                                             <C>                  <C>
Net asset value, beginning of period.........................................   $ 6.26               $ 6.00(b)
                                                                                ------               ------     
Income from investment operations:
        Net investment income (a) ...........................................      .23                  .13
        Net realized and unrealized gain (loss) on investment transactions...     1.72                  .17(f)
                                                                                ------               ------     
Total from investment operations.............................................     1.95                  .30
                                                                                ------               ------     
Less distributions from:
        Net investment income................................................     (.19)                (.04)
        Net realized gains on investment transactions........................     (.04)                  --
                                                                                ------               ------     
Total distributions..........................................................     (.23)                (.04)
                                                                                ------               ------     
Net asset value, end of period...............................................   $ 7.98               $ 6.26
                                                                                ======               ======

TOTAL RETURN (%).............................................................     31.74                4.91(d)

RATIOS AND SUPPLEMENTAL DATA

Net assets, end of period ($ millions).......................................        52                  20
Ratio of operating expenses, net to average net assets (%) (a) ..............       .75                 .75(c)
Ratio of net investment income to average net assets (%).....................      3.18                3.63(c)
Portfolio turnover rate (%) .................................................     24.33               28.41(c)
(a)  Portion of expenses waived (Note B) ....................................    $   --              $  .03
(b)  Original capital
(c)  Annualized
(d)  Not annualized
(e)  Per share amounts have been calculated using the monthly average shares 
     outstanding during the period method.

(f)  The amount shown for a share outstanding throughout the period does not 
     accord with the change in the aggregate gains and losses in the portfolio 
     securities during the period because of the timing of sales and purchases 
     of Portfolio shares in relation to fluctuating market values during the period.


</TABLE>


                                      45


<PAGE>

<TABLE>
CAPITAL GROWTH PORTFOLIO
INVESTMENT PORTFOLIO  as of December 31, 1995
-------------------------------------------------------------------------------------------------------------
<CAPTION>
                    % of      Principal                                                            Value ($)
                 Portfolio    Amount ($)                                                           (Note A)
-------------------------------------------------------------------------------------------------------------
<S>                 <C>        <C>           <C>                                                    <C>  
                                             ----------------------------------------------------------------
                     5.8%                    REPURCHASE AGREEMENT
                                             ----------------------------------------------------------------
                               19,661,000    Repurchase Agreement with Donaldson, Lufkin
                                               & Jenrette dated 12/29/95 at 5.85%, to be 
                                               repurchased at $19,673,780 on 1/2/96, 
                                               collateralized by a $12,135,000 U.S. Treasury 
                                               Bond, 11.25%, 2/15/15
                                               (Cost $19,661,000) .............................    19,661,000
                                                                                                   ----------
                                             ----------------------------------------------------------------
                     1.0%                    PREFERRED STOCKS
                                             ----------------------------------------------------------------
                                             Shares
                                             ----------------------------------------------------------------

FINANCIAL            0.3%

        Banks                       8,000    First Nationwide Bank, non-cum. 11.5% (a).........       898,000
                                                                                                   ----------  

TECHNOLOGY           0.7%

        Computer Software          15,000    SAP AG............................................     2,272,251
                                                                                                   ----------  
                                             TOTAL PREFERRED STOCKS (Cost $3,149,733)               3,170,251
                                                                                                   ----------

                                             ----------------------------------------------------------------  
                    93.2%                    COMMON STOCKS
                                             ----------------------------------------------------------------

CONSUMER 
DISCRETIONARY        5.3%

        Department & 
        Chain Stores 2.3%         100,000    May Department Stores ............................     4,225,000
                                  120,000    Walgreen Co.......................................     3,585,000
                                                                                                   ----------
                                                                                                    7,810,000
                                                                                                   ----------  
        Recreational 
        Products     0.3%          80,000    Acclaim Entertainment Inc.* ......................       990,000
                                                                                                   ----------

        Restaurants  2.1%         160,000    McDonald's Corp. .................................     7,220,000
                                                                                                   ----------

        Specialty 
        Retail       0.6%          75,600    Intimate Brands, Inc. ............................     1,134,000
                                   36,000    Toys "R" Us Inc.* ................................       783,000
                                                                                                   ----------
                                                                                                    1,917,000

CONSUMER STAPLES     6.0%

        Alcohol & 
        Tobacco      1.1%          40,000    Philip Morris Companies Inc.  ....................     3,620,000
                                                                                                   ----------
        
        Food & 
        Beverage     1.7%         105,000    PepsiCo Inc. .....................................     5,866,875
                                                                                                   ----------

        Package 
        Goods/
        Cosmetics    3.2%          70,000    Clorox Co. .......................................     5,013,750
                                   56,000    Estee Lauder Companies "A"* ......................     1,953,000
                                   45,000    Procter & Gamble Co. .............................     3,735,000
                                                                                                   ----------
                                                                                                   10,701,750
                                                                                                   ----------
HEALTH              15.8%

        Health 
        Industry 
        Services     0.8%         115,600    Bergen Brunswig Corp. "A" ........................     2,875,550
                                                                                                   ----------
        Hospital 
        Management   3.3%         220,000    Columbia/HCA Healthcare Corp. ....................    11,165,000
                                                                                                   ----------  

        Medical 
        Supply & 
        Specialty    2.7%          68,000    Becton, Dickinson & Co. ..........................     5,100,000
                                   70,000    Medtronic Inc. ...................................     3,911,250
                                                                                                   ----------
                                                                                                    9,011,250
                                                                                                   ----------


</TABLE>


   The accompanying notes are an integral part of the financial statements.


                                      46


<PAGE>

<TABLE>
INVESTMENT PORTFOLIO
----------------------------------------------------------------------------------------------------------------


<CAPTION>

                           % of                                                                          Market
                         Portfolio        Shares                                                       Value ($)
----------------------------------------------------------------------------------------------------------------
<S>                       <C>           <C>           <C>                                             <C>

        Pharmaceuticals    9.0%            7,500      Astra AB "A" (Free)......................          299,458
                                         133,050      Astra AB "B" (Free)......................        5,272,284
                                          40,000      BioChem Pharma, Inc.*....................        1,605,000
                                          80,000      Eli Lilly & Co. .........................        4,500,000
                                          80,000      Johnson & Johnson .......................        6,850,000
                                         102,800      Merck & Co. Inc. ........................        6,759,100
                                          89,000      Schering-Plough Corp. ...................        4,872,750
                                                                                                      ----------
                                                                                                      30,158,592
                                                                                                      ----------

COMMUNICATIONS             1.5%

        Cellular 
        Telephone          0.4%           41,000      Associated Group, Inc. "A"* .............          773,875
                                          32,770      Associated Group, Inc. "B"* .............          622,630
                                                                                                      ----------
                                                                                                       1,396,505
                                                                                                      ----------
        Telephone/
        Communications     1.1%

                                         115,000      Century Telephone Enterprises............        3,651,250
                                                                                                      ----------
FINANCIAL                 13.3%

        Banks              2.9%           78,600      MBNA Corp. ..............................        2,898,375
                                          95,000      Norwest Corp. ...........................        3,135,000
                                          80,000      Wachovia Corp. ..........................        3,660,000
                                                                                                      ----------
                                                                                                       9,693,375
                                                                                                      ----------

        Insurance          7.1%           88,500      American International Group, Inc. ......        8,186,250
                                          11,800      Chubb Corp. .............................        1,141,650
                                          60,000      EXEL, Ltd. ..............................        3,660,000
                                          31,300      General Re Corp. ........................        4,851,500
                                          80,000      MBIA Inc. ...............................        6,000,000
                                                                                                      ----------
                                                                                                      23,839,400
                                                                                                      ----------

        Other   
        Financial 
        Companies          3.3%

                                          90,000      Federal National Mortgage Association ...       11,171,250
                                                                                                      ----------

MEDIA                      7.5%

        Broadcasting & 
        Entertainment      4.6%          106,000      Capital Cities/ABC Inc. .................       13,077,750
                                          40,000      Walt Disney Co. .........................        2,360,000
                                                                                                      ----------
                                                                                                      15,437,750
                                                                                                      ----------

        Cable   
        Television         2.4%          129,750      Comcast Corp. "A"........................        2,359,828
                                          84,576      Tele-Comm Liberty Media Group "A"........        2,272,980
                                         178,307      Tele-Communications Inc. "A".............        3,543,852
                                                                                                      ----------
                                                                                                       8,176,660
                                                                                                      ----------

        Print Media        0.5%

                                          28,000     Gannet Co., Inc..........................        1,718,500
                                                                                                     ----------
SERVICE INDUSTRIES         4.7%

        EDP Services       0.4%           55,400     National Data Corp. .....................        1,371,150
                                                                                                     ----------
                                                                                                        
        Environmental 
        Services           0.7%           40,000     Browning Ferris Industries...............        1,180,000
                                          69,900     Destec Energy Inc.* .....................          961,125
                                                                                                     ----------
                                                                                                      2,141,125
                                                                                                     ----------

        Investment         2.4%           35,000     Dean Witter, Discover & Co. .............        1,645,000
                                         127,400     Franklin Resources Inc. .................        6,417,775
                                                                                                     ----------
                                                                                                      8,062,775
                                                                                                     ----------

        Miscellaneous 
        Consumer 
        Services           1.2%          100,000     H&R Block Inc. ..........................        4,050,000
                                                                                                     ----------


</TABLE>


   The accompanying notes are an integral part of the financial statements.


                                      47


<PAGE>

<TABLE>
CAPITAL GROWTH PORTFOLIO
-----------------------------------------------------------------------------------------------------------------
<CAPTION>

                           % of                                                                          Market
                         Portfolio          Shares                                                      Value ($)
-----------------------------------------------------------------------------------------------------------------
<S>                        <C>             <C>         <C>                                             <C>
DURABLES                   4.2%

        Aerospace          2.8%            110,000     Rockwell International Corp. ............        5,816,250
                                            40,000     United Technologies Corp. ...............        3,795,000
                                                                                                       ----------
                                                                                                        9,611,250
                                                                                                       ----------

        Telecommunications 
        Equipment          1.4%             40,000     DSC Communications Corp.* ...............        1,475,000
                                            60,000     General Instrument Corp.* ...............        1,402,500
                                            46,000     Nokia AB Oy "A"..........................        1,777,553
                                                                                                       ----------
                                                                                                        4,655,053
                                                                                                       ----------

MANUFACTURING              6.5%

        Chemicals          2.0%             65,000     E.I. du Pont de Nemours & Co. ...........        4,541,875
                                            46,000     Sigma-Aldrich Corp. .....................        2,277,000
                                                                                                       ----------
                                                                                                        6,818,875
                                                                                                       ----------

        Diversified 
        Manufacturing      2.1%             60,000     Canadian Pacific Ltd. ...................        1,087,500
                                            60,000     TRW Inc..................................        4,650,000
                                            21,000     Thermo Electron Corp.* ..................        1,092,000
                                                                                                        ----------
                                                                                                        6,829,500
                                                                                                        ----------

        Electrical 
        Products           1.4%            131,600     Philips NV (New York shares).............        4,721,150
                                                                                                       ----------

        Machinery/
        Components/
        Controls           1.0%            100,000     Parker-Hannifin Group....................        3,425,000
                                                                                                       ----------

TECHNOLOGY                13.9%

        Diverse 
        Electronic 
        Products           2.5%            210,000     Applied Materials, Inc.* ................        8,268,750
                                                                                                       ----------

        Electronic 
        Data 
        Processing         5.1%             65,000     Compaq Computer Corp.* ..................        3,120,000
                                           125,000     Hewlett-Packard Co. .....................       10,468,750
                                            40,000     International Business Machines Corp.....        3,670,000
                                                                                                       ----------
                                                                                                       17,258,750
                                                                                                        ----------
        Military 
        Electronics        0.7%             65,000     Loral Corp. .............................        2,299,375
                                                                                                       ----------

        Office/Plant 
        Automation         2.3%             72,000     3Com Corp.* .............................        3,357,000
                                            25,000     Cabletron Systems Inc.* .................        2,025,000
                                            30,000     Cisco Systems, Inc.* ....................        2,238,750
                                                                                                       ----------
                                                                                                        7,620,750
                                                                                                       ----------

        Semiconductors     3.3%            130,000     Intel Corp. .............................        7,377,500
                                            30,000     Micron Technology Inc. ..................        1,188,750
                                            50,000     Texas Instruments Inc. ..................        2,587,500
                                                                                                       ----------
                                                                                                       11,153,750
                                                                                                       ----------
ENERGY                     8.5%

        Oil & Gas 
        Production         1.3%             78,800     Triton Energy Corp. .....................        4,521,150
                                                                                                       ----------

        Oil Companies      6.2%             79,800     Amoco Corp. .............................        5,735,625
                                            40,000     Mobil Corp. .............................        4,480,000
                                           100,000     Repsol SA (ADR) .........................        3,287,500
                                            51,000     Royal Dutch Petroleum Co. (New York shares)      7,197,375
                                                                                                       ----------
                                                                                                       20,700,500
                                                                                                       ----------

</TABLE>


   The accompanying notes are an integral part of the financial statements.


                                      48


<PAGE>

<TABLE>
INVESTMENT PORTFOLIO
---------------------------------------------------------------------------------------------------------------
<CAPTION>
                           % of                                                                        Market
                         Portfolio       Shares                                                       Value ($)
---------------------------------------------------------------------------------------------------------------
<S>                        <C>          <C>         <C>                                            <C>
        Oil/Gas 
        Transmission       1.0%          85,000     Enron Corp. .............................        3,240,625
                                                                                                    ----------

TRANSPORTATION             2.5%

        Airlines           1.2%          55,000     AMR Corp.* ..............................        4,083,750
                                                                                                    ----------

        Railroads          1.3%          60,000     Consolidated Rail Corp. .................        4,200,000
                                                                                                    ----------

UTILITIES                  3.5%

        Electric        
        Utilities                        10,000     CILCORP, Inc. ...........................          423,750
                                         20,000     CMS Energy Corp.  .......................          597,500
                                         43,700     Centrais Eletricas Brasileiras 
                                                       S/A (ADR)* (a)........................          589,950
                                          6,800     Central Costanera SA (ADR)...............          210,800
                                        100,000     Houston Industries Inc.  ................        2,425,000
                                        126,750     Iberdrola SA ............................        1,159,872
                                         30,000     Illinova Corp. ..........................          900,000
                                         50,000     National Power PLC.......................          349,205
                                        100,000     PowerGen PLC ............................          826,595
                                         79,000     Public Service Co. of New Mexico*........        1,392,375
                                         50,000     Scottish Power PLC.......................          287,444
                                         30,000     TNP Enterprises Inc. ....................          562,500
                                         60,000     Unicom Corp. ............................        1,965,000
                                                                                                    ----------
                                                                                                    11,689,991
                                                                                                   -----------
--------------------------------------------------------------------------------------------------------------
                                                    TOTAL COMMON STOCKS (COST $274,581,998)        313,143,976
                                                                                                   -----------      
--------------------------------------------------------------------------------------------------------------
                                                    TOTAL INVESTMENT PORTFOLIO - 100.0%
                                                      (Cost $297,392,731) (b) ...............      335,975,227
                                                                                                   ===========
--------------------------------------------------------------------------------------------------------------
<FN>
*       Non-income producing security.
(a)     Securities valued in good faith by the Valuation Committee of the Trustees. 
        The cost and market value of these securities at December 31, 1995 aggregated 
        $1,466,894 and $1,487,950 (.44% of net assets), respectively.

(b)     At December 31, 1995, the net unrealized appreciation on investments based 
        on cost for federal income tax purposes of $297,392,731 was as follows:

        Aggregate gross unrealized appreciation for all investments in which there 
        is an excess of market value over tax cost ..........................................     $ 45,011,124

        Aggregate gross unrealized depreciation for all investments in which there 
        is an excess of tax cost over market value ..........................................       (6,428,628)
                                                                                                  ------------

        Net unrealized appreciation .........................................................     $ 38,582,496
                                                                                                  ============
--------------------------------------------------------------------------------------------------------------
        Purchases and sales of investment securities (excluding short-term investments), 
        for the year ended December 31, 1995, aggregated $332,871,804 and $334,755,688, 
        respectively.


</FN>
</TABLE>


   The accompanying notes are an integral part of the financial statements.


                                      49



<PAGE>

<TABLE>
CAPITAL GROWTH PORTFOLIO
FINANCIAL STATEMENTS

----------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
----------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------------------------------------------------------------
<S>                                                                         <C>         <C>         
ASSETS
Investments, at market (identified cost $297,392,731) (Note A)......                     $335,975,227
Cash................................................................                            3,743
Receivables:
        Investments sold............................................                        1,375,062
        Dividends and interest......................................                          364,657
        Portfolio shares sold.......................................                          362,505
                                                                                         ------------
                Total assets........................................                      338,081,194

LIABILITIES

Payables:
        Portfolio shares redeemed  .................................        $216,110
        Accrued management fee (Note B).............................         132,445
        Other accrued expenses (Note B).............................          64,159
                                                                            --------    
                Total liabilities ..................................                          412,714
                                                                                         ------------
Net assets, at market value ........................................                     $337,668,480
                                                                                         ============

NET ASSETS
Net assets consist of:
        Undistributed net investment income.........................                     $  1,250,850
        Net unrealized appreciation on:
                Investments.........................................                       38,582,496
                Foreign currency related transactions...............                               21
        Accumulated net realized gain...............................                       28,441,999
        Paid-in capital.............................................                      269,393,114
                                                                                        -------------
Net assets, at market value ........................................                    $ 337,668,480
                                                                                        =============
NET ASSET VALUE, offering and redemption price per share
        ($337,668,480/22,392,030 outstanding shares of beneficial 
        interest, no par value, unlimited number 
        of shares authorized).......................................                           $15.08
                                                                                               ======


</TABLE>


   The accompanying notes are an integral part of the financial statements.


                                      50

<PAGE>

<TABLE>
                                                                               FINANCIAL STATEMENTS
---------------------------------------------------------------------------------------------------
                                         STATEMENT OF OPERATIONS
---------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------------------------------------------------------------
<S>                                                                    <C>              <C>         
INVESTMENT INCOME
        Income:
                Dividends (net of foreign taxes withheld of 
                    $85,921)........................................                    $ 4,002,539
                Interest............................................                        742,001
                                                                                        -----------
                                                                                          4,744,540
        Expenses (Note A):
                Management fee (Note B).............................    $ 1,383,919
                Accounting fees (Note B)............................         73,583
                Trustees' fees (Note B).............................         18,743
                Custodian fees......................................        108,047
                Auditing............................................         30,194
                Legal...............................................         16,187
                Other...............................................         24,335       1,655,008
                                                                        -----------     -----------
        Net investment income.......................................                      3,089,532
                                                                                        -----------

NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
        Net realized gain (loss) from:
                Investments.........................................     28,459,799
                Foreign currency related transactions...............        (20,393)     28,439,406
                                                                        ------------
        Net unrealized appreciation during the period on:
                Investments.........................................     40,611,076
                Foreign currency related transactions ..............          4,421      40,615,497
                                                                        -----------     -----------
        Net gain on investment transactions.........................                     69,054,903
                                                                                        -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................                    $72,144,435
                                                                                        ===========


</TABLE>


   The accompanying notes are an integral part of the financial statements.


                                      51



<PAGE>

<TABLE>
CAPITAL GROWTH PORTFOLIO

-----------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
-----------------------------------------------------------------------------------------------------
<CAPTION>
                                                                          YEARS ENDED DECEMBER 31,
                                                                        -----------------------------
INCREASE (DECREASE) IN NET ASSETS                                           1995             1994
-----------------------------------------------------------------------------------------------------
<S>                                                                     <C>             <C>         
Operations:
        Net investment income.......................................    $  3,089,532    $   1,195,374
        Net realized gain from investment transactions..............      28,439,406        8,741,905
        Net unrealized appreciation (depreciation) on investment
                transactions during the period......................      40,615,497      (35,951,788)
                                                                        ------------    -------------
Net increase (decrease) in net assets resulting from operations.....      72,144,435      (26,014,509)
                                                                        ------------    -------------
Distributions to shareholders from:
        Net investment income ($.11 and $.05 per share, respectively)     (2,245,727)        (889,382)
                                                                        ------------    -------------                
        Net realized gain from investment transactions
                ($.43 and $1.31 per share, respectively)............      (8,804,833)     (23,981,060)
                                                                        ------------    -------------
Portfolio share transactions:
        Proceeds from shares sold...................................     125,834,281      157,574,508
        Net asset value of shares issued to shareholders in
                reinvestment of distributions.......................      11,050,560       24,870,442
        Cost of shares redeemed ....................................    (116,840,991)    (131,982,527)
                                                                        ------------    -------------
Net increase in net assets from Portfolio share transactions              20,043,850       50,462,423
                                                                        ------------    -------------
INCREASE (DECREASE) IN NET ASSETS...................................      81,137,725         (422,528)
Net assets at beginning of period ..................................     256,530,755       256,953,283
                                                                        ------------    --------------
Net assets at end of period (including undistributed net
        investment income of $1,250,850 and $507,243, 
        respectively)...............................................    $337,668,480     $ 256,530,755
                                                                        ============    ==============
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
Shares outstanding at beginning of period...........................      20,979,934        17,184,932
                                                                        ------------    --------------
        Shares sold.................................................       9,213,682        12,319,350
        Shares issued to shareholders in reinvestment of 
                distributions                                                896,773         1,905,054
        Shares redeemed.............................................      (8,698,359)      (10,429,402)
                                                                        ------------    --------------
        Net increase in Portfolio shares............................       1,412,096         3,795,002
                                                                        ------------    --------------
Shares outstanding at end of period.................................      22,392,030        20,979,934
                                                                        ============    ==============


</TABLE>


    The accompanying notes are an integral part of the financial statements.


                                      52

<PAGE>

                                                         FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------
<TABLE>
The following table includes selected data for a share outstanding throughout 
each period and other performance information derived from the financial 
statements.

<CAPTION>
                                                                                                            SIX    FOR THE PERIOD  
                                                                                                           MONTHS   JULY 16, 1985
                                                                                                           ENDED    (COMMENCEMENT)  
                                                       YEAR ENDED DECEMBER 31, (e)                       DECEMBER   OF OPERATIONS)
                             ------------------------------------------------------------------------       31,      TO JUNE 30,
                              1995     1994     1993    1992    1991    1990    1989    1988    1987    1986(e)(f)     1986
                             ------   ------   ------  ------  ------  ------  ------  ------  ------   ----------  -------------
<S>                          <C>      <C>      <C>     <C>     <C>     <C>     <C>     <C>     <C>       <C>          <C>
Net asset value,
 beginning of period........ $12.23   $14.95   $12.71  $12.28  $ 8.99  $10.21  $ 8.53  $ 7.06  $ 7.67    $ 7.93       $ 6.00(b)

Income from investment
 operations:
 Net investment income (a)..    .14      .06      .06     .11     .16     .25     .35     .16     .15       .09          .19

 Net realized and unrealized 
   gain (loss) on investment
   transactions.............   3.25    (1.42)    2.52     .66    3.35   (1.00)   1.58    1.40    (.28)     (.07)        1.87
                             ------   ------   ------  ------  ------  ------  ------  ------  ------    ------       ------
Total from investment
  operations................   3.39    (1.36)    2.58     .77    3.51    (.75)   1.93    1.56    (.13)      .02         2.06
                             ------   ------   ------  ------  ------  ------  ------  ------  ------    ------       ------
Less distributions from: 

  Net investment income.....   (.11)    (.05)    (.07)   (.11)   (.22)   (.24)   (.25)   (.09)   (.09)     (.07)        (.13)

  Net realized gains on 
    investment transactions.   (.43)   (1.31)    (.27)   (.23)     --    (.23)     --      --    (.39)     (.21)          --
                             ------   ------   ------  ------  ------  ------  ------  ------  ------    ------       ------
Total distributions.........   (.54)   (1.36)    (.34)   (.34)   (.22)   (.47)   (.25)   (.09)   (.48)     (.28)        (.13)
                             ------   ------   ------  ------  ------  ------  ------  ------  ------    ------       ------
Net asset value, end of 
  period.................... $15.08   $12.23   $14.95  $12.71  $12.28  $ 8.99  $10.21  $ 8.53  $ 7.06    $ 7.67       $ 7.93
                             ======   ======   ======  ======  ======  ======  ======  ======  ======    ======       ======

TOTAL RETURN (%)............  28.65    (9.67)   20.88    6.42   39.56   (7.45)  22.75   22.07   (1.88)      .26(d)     34.66(d)

RATIOS AND SUPPLEMENTAL DATA

Net assets, end of
  period ($ millions).......    338      257      257     167     108      45      45      17      10        1           --

Ratio of operating expenses, 
  net to average net  
  assets(%)(a)..............    .57      .58      .60     .63     .71     .72     .75     .75     .75      .75(c)       .60(c)

Ratio of net investment
  income to average net 
  assets(%).................   1.06      .47      .46     .95    1.49    2.71    3.51    2.17    1.68      2.21(c)      2.95(c)

Portfolio turnover rate(%).. 119.41    66.44    95.31   56.29   58.88   61.39   63.96  129.75  113.34     38.78(c)     86.22(c)

(a)  Portion of expenses 
     reimbursed (Note B).... $   --   $   --   $   --   $  --  $   --  $   --  $  .01  $  .01  $  .04    $  .20       $  .81

(b)  Original capital

(c)  Annualized

(d)  Not annualized

(e)  Per share amounts, for each of the periods identified, have been calculated using the monthly average shares 
     outstanding during the period method.

(f)  On August 22, 1986, the Trustees voted to change the year end of the Fund from June 30 to December 31.

</TABLE>

                                       53

<PAGE>

<TABLE>
INTERNATIONAL PORTFOLIO
INVESTMENT PORTFOLIO  as of December 31, 1995
--------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                 % of     Principal                                                               Market
                              Portfolio  Amount ($)                                                             Value ($)
--------------------------------------------------------------------------------------------------------------------------
<S>                             <C>     <C>          <C>                                                        <C>       
                                        ----------------------------------------------------------------------------------
                                7.0%                 REPURCHASE AGREEMENT
                                        ----------------------------------------------------------------------------------
                                   U.S. $37,648,000  Repurchase Agreement with Donaldson, Lufkin 
                                                     & Jenrette dated 12/29/95 at 5.85%, to be 
                                                     repurchased at $37,672,471 on 1/2/96, collateralized
                                                     by a $39,769,000 U.S. Treasury Bill, 11/14/96 
                                                     (Cost $37,648,000)......................................   37,648,000
                                                                                                                ----------
                                        ----------------------------------------------------------------------------------
                                0.0%                 BONDS
                                        ----------------------------------------------------------------------------------
                                   DM       350,000  Deutsche Bank AG, 8%, 4/11/00 (Cost $190,295)...........      268,517
                                                                                                                ----------

                                        ----------------------------------------------------------------------------------
                                3.9%                 PREFERRED STOCKS
                                        ----------------------------------------------------------------------------------
                                        <CAPTION>
                                           Shares
                                        ----------------------------------------------------------------------------------

GERMANY                         3.4%

                                             15,000  RWE AG (Producer and marketer of petroleum
                                                        and chemical products)...............................    4,188,482
                                             92,500  SAP AG (Computer software manufacturer).................   14,012,216
                                                                                                                ----------
                                                                                                                18,200,698
                                                                                                                ----------

ITALY                           0.5%      1,500,000  Fiat SpA (Multi-industry, automobiles)..................    2,742,749
                                                                                                                ----------
                                                     TOTAL PREFERRED STOCKS (Cost $9,723,236)................   20,943,447
                                                                                                                ----------
                                        ----------------------------------------------------------------------------------
                               89.1%                 COMMON STOCKS
                                        ----------------------------------------------------------------------------------

ARGENTINA                       0.7%        
                                            170,000  YPF S.A. "D" (ADR) (Petroleum company)..................    3,676,250
                                                                                                                ----------
AUSTRALIA                       0.6%
                                          1,556,504  Ampol Exploration Ltd. (Oil and gas exploration company)*   3,401,203
                                                                                                                ----------
BRAZIL                          2.9% 
                                          8,578,870  Centrais Eletricas Brasileiras S/A "B" (pfd.) 
                                                         (Electric utility)..................................    2,321,357
                                          5,086,206  Companhia Cervejaria Brahma (pfd.) (Leading beer
                                                         producer and distributor) ..........................    2,093,249

                                         28,110,000  Companhia Vale do Rio Doce (pfd.) (Diverse mining 
                                                         and industrial complex).............................    4,627,398

                                         22,000,000  Petroleo Brasileiro S/A (pfd.) (Petroleum company) .....    1,878,471

                                         65,040,000  Telecomunicacoes Brasileiras S.A. (pfd.) 
                                                         (Telecommunication services)........................    3,131,717

                                      2,330,200,000  Usinas Siderurgicas de Minas Gerais S/A (pfd.) 
                                                         (Non-coated flat products and electrolytic 
                                                         galvanized products)* ..............................    1,893,984
                                                                                                                ----------
                                                                                                                15,946,176
                                                                                                                ----------
CANADA                          2.4%
                                            160,000  Barrick Gold Corp. (Gold exploration and production 
                                                         in North and South America).........................    4,219,007

                                            206,500  Canadian National Railway Co. (Operator of one of 
                                                         Canada's two principal railroads)*..................    3,097,500

                                            203,043  Canadian Pacific Ltd. (Ord.) (Transportation and 
                                                         natural resource conglomerate)......................    3,699,457

                                            200,000  Hemlo Gold Mines, Inc. (Large gold producer, with 
                                                         single mine in Ontario; active exploration 
                                                         company)............................................    1,904,413
                                                                                                                ----------
                                                                                                                12,920,377
                                                                                                                ----------

DENMARK                         0.8%         85,000  Unidanmark A/S "A" (Bank holding company)                   4,212,471
                                                                                                                ----------


</TABLE>


   The accompanying notes are an integral part of the financial statements.


                                      54



<PAGE>

<TABLE>
INVESTMENT PORTFOLIO  
--------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                 % of       Principal                                                             Market
                              Portfolio    Amount ($)                                                           Value ($)
--------------------------------------------------------------------------------------------------------------------------
<S>                             <C>   <C>            <C>                                                        <C>       

FINLAND                         1.5%
                                            116,000  Nokia AB Oy "A" (Leading manufacturer of 
                                                        cellular telephones) ................................    4,482,525
                                            247,000  Outokumpu Oy "A" (Metals and minerals)..................    3,920,139
                                                                                                                ----------
                                                                                                                 8,402,664
                                                                                                                ----------
FRANCE                          6.9%
                                             55,000  AXA SA (Insurance group providing insurance, finance 
                                                        and real estate services)............................    3,710,898
                                              9,300  Carrefour (Hypermarket and food retailing)..............    5,649,213
                                             36,800  Compagnie Bancaire SA (Bank)............................    4,123,165
                                             12,000  LVMH Moet-Hennessy Louis Vuitton SA (Producer of 
                                                        wines, spirits and luxury products)..................    2,502,556
                                             88,000  Michelin "B" (Leading tire manufacturer)................    3,513,883
                                             20,000  Societe Generale (Bank).................................    2,473,932
                                             50,780  Societe Nationale Elf Aquitaine (Petroleum company).....    3,745,946
                                             15,996  Societe Nationale Elf Aquitaine (ADR) ..................      587,853
                                             72,508  Total SA "B" (International oil and gas exploration, 
                                                        development and production)..........................    4,899,590
                                             16,000  Union des Assurances Federales SA (Insurance group) ....    1,913,719
                                             95,523  Valeo SA (Automobile and truck components 
                                                        manufacturer) .......................................    4,429,486
                                                                                                                ----------
                                                                                                                37,550,241
                                                                                                                ----------

GERMANY                         4.3%
                                             86,980  Deutsche Bank AG (Bank) ................................    4,127,072
                                             14,860  Mannesmann AG (Bearer) (Diversified construction 
                                                        and technology company)..............................    4,737,565
                                             69,000  Schering AG (Pharmaceutical and chemical producer)......    4,577,361
                                              3,027  Siemens AG (Bearer) (Manufacturer of electrical and 
                                                        electronic equipment) ...............................    1,658,775
                                             74,200  VEBA AG (Electric utility, distributor of oil and 
                                                        chemicals)...........................................    3,154,471
                                             12,000  Viag AG (Provider of electrical power and natural gas 
                                                        services, aluminum products, chemicals, ceramics 
                                                        and glass)...........................................    4,816,754
                                                                                                                ----------
                                                                                                                23,071,998
                                                                                                                ----------
HONG KONG                       4.3%
                                          3,000,000  First Pacific Co., Ltd. (International management and 
                                                        investment company)..................................    3,317,168
                                            209,787  HSBC Holdings Ltd. (Bank)...............................    3,174,275
                                          2,700,159  Hong Kong & China Gas Co., Ltd. (Gas utility)...........    4,347,492
                                          1,182,000  Hutchison Whampoa, Ltd. (Container terminal and real 
                                                        estate company)......................................    7,184,481
                                          1,510,000  Television Broadcasts, Ltd. (Television broadcasting)...    5,379,955
                                                                                                                ----------
                                                                                                                23,403,371
                                                                                                                ----------
INDONESIA                       1.6%
                                            370,000  HM Sampoerna (Foreign registered) (Tobacco company).....    3,851,301
                                            200,000  Indocement Tunggal (Foreign registered) (Cement 
                                                        producer) ...........................................      671,332
                                             75,400  Indonesia Satellite Corp. (ADR) (International 
                                                        telecommunication services)..........................    2,752,100
                                            402,000  Kalbe Farma (Foreign registered) (Pharmaceutical 
                                                        producer and distributor)* ..........................    1,362,563
                                                                                                                ----------
                                                                                                                 8,637,296
                                                                                                                ----------
Italy                           2.4%
                                             65,000  Luxottica Group SpA (ADR) (Manufacturer and marketer 
                                                        of eyeglass frames and eyeglasses)...................    3,802,500
                                          4,210,000  Telecom Italia Mobile SpA (Cellular 
                                                        telecommunication services)*.........................    7,419,262
                                          1,130,000  Telecom Italia SpA (Telecommunication services).........    1,759,836
                                                                                                                ----------
                                                                                                                12,981,598
                                                                                                                ----------


</TABLE>


   The accompanying notes are an integral part of the financial statements.


                                      55

<PAGE>

INTERNATIONAL PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                % of                                                                                           Market
             Portfolio    Shares                                                                              Value ($)
------------------------------------------------------------------------------------------------------------------------
<C>            <C>       <C>           <S>                                                                    <C> 
JAPAN          25.6%
                         140,000       Bridgestone Corp. (Leading automobile tire manufacturer).....           2,222,652

                         508,000       Canon Inc. (Leading producer of visual image and 
                                         information equipment).....................................           9,196,128

                             510       DDI Corp. (Long distance telephone and cellular operator)....           3,949,661

                             825       East Japan Railway Co. (Railway operator)....................           4,009,196

                         705,000       Fujitsu Ltd. (Leading manufacturer of computers).............           7,848,499

                         190,000       Hitachi Construction Machinery Co., Ltd. 
                                         (Leading maker of hydraulic shovels).......................           2,299,129

                         497,000       Hitachi Ltd. (General electronics manufacturer)..............           5,003,679

                         465,000       Hitachi Metals, Ltd. (Major producer of high-quality 
                                         specialty steels)..........................................           5,806,873

                          88,000       Horipro Inc. (Growing entertainment production company)......           1,175,605

                          77,000       Ito-Yokado Co., Ltd. (Leading supermarket operator)..........           4,740,755

                         465,000       Itochu Corp. (Leading general trading company)...............           3,128,509

                          58,000       Jusco Co., Ltd. (Major supermarket operator).................           1,510,358

                         830,000       Kawasaki Steel Corp. (Major integrated steelmaker)...........           2,892,546

                          44,000       Keyence Corp. (Specialized manufacturer of sensors)..........           5,068,732

                         103,000       Kyocera Corp. (Leading ceramic package manufacturer).........           7,647,725

                          37,000       Mabuchi Motor Co., Ltd. (Manufacturer of DC motors)..........           2,299,516

                         280,000       Matsushita Electric Works, Inc. (Leading maker of 
                                         building materials and lighting equipment).................           2,954,501

                         520,000       Matsushita Electrical Industrial Co., Ltd. (Consumer 
                                         electronic products manufacturer)..........................           8,456,922

                         500,000       Mitsubishi Heavy Industries, Ltd. (Diversified heavy 
                                         machinery manufacturer and leading shipbuilder)............           3,983,543

                         380,000       NGK Spark Plug Co., Ltd. (Leading manufacturer of 
                                         automotive spark plugs)....................................           4,782,188

                         540,000       NSK Ltd. (Leading manufacturer of bearings and other
                                         machinery parts)...........................................           3,920,619

                          33,000       Nichiei Co., Ltd. (Finance company for small and 
                                         medium-sized firms)........................................           2,459,826

                          50,000       Nippon Electric Glass Co., Ltd. (Leading producer of 
                                         cathode-ray tube glass)....................................             948,693

                         945,000       Nisshin Steel Co., Ltd. (Blast furnace steelmaker)...........           3,814,763

                         390,000       Ricoh Co., Ltd. (Leading maker of copiers and 
                                         information equipment).....................................           4,266,215

                         110,000       SMC Corp. (Leading maker of pneumatic equipment).............           7,954,501

                          44,000       Seven-Eleven Japan Co., Ltd. (Leading convenience 
                                         store operator)............................................           3,100,871

                         250,000       ShinMaywa Industries, Ltd. (Leading maker of dump 
                                         trucks and other specialty vehicles).......................           2,061,955

                         530,000       Sumitomo Corp. (Leading general trading company, with 
                                         offices, subsidiaries and affiliates throughout the world).           5,387,222

                       1,710,000       Sumitomo Metal Industries, Ltd. (Leading integrated 
                                         crude steel producer)*.....................................           5,181,316

                          75,000       THK Co., Ltd. (Manufacturer of linear motion systems 
                                         for industrial machinery)..................................           2,134,559

                         145,000       Takeda Chemical Industries, Ltd. (Leading
                                         pharmaceutical manufacturer)..............................            2,386,254

                         720,000       Toshiba Corp. (General electronics manufacturer)............            5,638,722
                                                                                                             -----------    
                                                                                                             138,232,233
                                                                                                             -----------    
KOREA           2.2%

                         186,000       Korea Electric Power Corp. (ADR) (New) (Electric utility)...            4,929,000

                           7,870       Pohang Iron & Steel Co., Ltd. (Leading producer 
                                         of steel products for construction and shipbuilding 
                                         industries) (b)...........................................              570,931

                          93,400       Pohang Iron & Steel Co., Ltd. (ADR).........................            2,043,125

                           3,376       Samsung Electronics Co., Ltd. (GDS) (Voting)................              324,096

                             664       Samsung Electronics Co., Ltd. (GDS) (Voting) (New (a))......               61,752

                             873       Samsung Electronics Co., Ltd. (GDS) (Voting) (New (a))......               81,189

                          56,650       Samsung Electronics Co., Ltd. (GDS) (Non-voting) 
                                         (Major electronics manufacturer)..........................            3,399,000

</TABLE>

    The accompanying notes are an integral part of the financial statements.

                                       56


<PAGE>

                                                            INVESTMENT PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                % of                                                                                           Market
             Portfolio    Shares                                                                              Value ($)
------------------------------------------------------------------------------------------------------------------------
<C>            <C>       <C>           <S>                                                                   <C> 
                           11,148      Samsung Electronics Co., Ltd. (GDS) (Non-voting) (New (a))........        657,732
                                                                                                             -----------    
                                                                                                              12,066,825
                                                                                                             -----------    
MALAYSIA       1.3%

                          445,000      Malayan Banking Bhd. (Leading banking and financial 
                                         services group).................................................      3,749,655

                        2,100,000      Renong Berhad (Holding company involved in engineering and 
                                         construction, financial services, telecommunication and 
                                         information technology).........................................      3,109,029
                                                                                                             -----------    
                                                                                                               6,858,684
                                                                                                             -----------    
NETHERLANDS    5.4%

                          105,000      AEGON Insurance Group NV (Insurance company)......................      4,653,268

                           24,000      Akzo-Nobel N.V. (Chemical producer)...............................      2,780,351

                          204,870      Elsevier NV (International publisher of scientific, 
                                         professional, business, and consumer information books).........      2,736,545

                           46,137      Getronics N.V. (Computer and software distributor)................      2,159,837

                           43,750      Heineken Holdings N.V. "A" (Brewery)..............................      7,181,980

                           85,000      Koninklijke PTT Nederland (Telecommunication services)............      3,093,128

                          114,000      Philips Electronics N.V. (Leading manufacturer of 
                                         electrical equipment)...........................................      4,127,083

                           26,935      Wolters Kluwer CVA (Publisher)....................................      2,552,108
                                                                                                             -----------    
                                                                                                              29,284,300
                                                                                                             -----------    
NORWAY         0.7%

                          271,889      Saga Petroleum AS "A" (Oil and gas exploration 
                                         and production).................................................      3,632,035
                                                                                                             -----------    
PHILIPPINES    0.5%

                        4,008,000      C&P Homes, Inc. (Home construction company)*......................      2,941,456
                                                                                                             -----------    
PORTUGAL       0.3%

                           30,192      Jeronimo Martins (Food producer and retailer).....................      1,677,446
                                                                                                             -----------    
SPAIN          4.2%

                           41,140      Acerinox, S.A (Stainless steel producer)..........................      4,161,482

                          400,000      Autopistas Concesionaria Espanol SA (Motorway 
                                         builder and operator)...........................................      4,550,701

                           22,000      Banco Popular Espanol, S.A. (Retail bank).........................      4,057,213

                          160,000      Compania Telefonica Nacional de Espana S.A. 
                                         (Telecommunication services)....................................      2,215,993

                          133,000      Repsol SA (Integrated oil company)................................      4,358,409

                          525,000      Union Electrica Fenosa SA (Producer and distributor 
                                         of electrical energy)...........................................      3,159,522
                                                                                                             -----------    
                                                                                                              22,503,320
                                                                                                             -----------    
SWEDEN         5.4%

                           99,000      Astra AB "A" (Free) (Pharmaceutical company)......................      3,952,840

                              600      Astra AB "B" (Free)...............................................         23,776

                          101,000      Autoliv AB (Free) (Manufacturer of safety airbags for 
                                         automobiles)....................................................      5,904,475

                          356,400      L.M. Ericsson Telephone Co. "B" (ADR) (Leading 
                                         manufacturer of cellular telephone equipment)...................      6,949,800

                           57,000      Mo och Domsjo AB "B" (Free) (Manufacturer of newsprint, 
                                         paperboard, and various sawn timber products)...................      2,430,466

                          144,000      S.K.F. AB "B" (Free)* (Manufacturer of roller bearings)...........      2,755,462

                          270,000      Skandia Foersaekrings AB (Free) (Financial conglomerate)..........      7,302,245
                                                                                                             -----------    
                                                                                                              29,319,064
                                                                                                             -----------    
SWITZERLAND    4.3%

                            5,180      Brown, Boveri & Cie. AG (Bearer) (Manufacturer of 
                                         electrical equipment)...........................................      6,021,949

                                5      Brown, Boveri & Cie. AG (Registered)..............................          1,132

                            3,600      Ciba-Geigy AG (Bearer) (Pharmaceutical company)...................      3,154,470

                            2,514      Nestle SA (Registered) (Food manufacturer)........................      2,783,034

                            1,710      SGS Holdings SA (Bearer) (Trade inspection company)...............      3,397,302

                            5,000      Sandoz Ltd. AG (Registered) (Pharmaceutical company)..............      4,580,749

</TABLE>

    The accompanying notes are an integral part of the financial statements.

                                       57

<PAGE>

INTERNATIONAL PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                % of                                                                                           Market
             Portfolio    Shares                                                                              Value ($)
------------------------------------------------------------------------------------------------------------------------
<C>             <C>      <C>           <S>                                                                    <C> 
                            8,054      Swiss Bank Corp. (Bearer) (Universal bank)..................            3,291,054
                                                                                                            ------------    
                                                                                                              23,229,690
                                                                                                            ------------    
TAIWAN          0.5%

                          819,000      Taiwan Semiconductor Manufacturing Co. 
                                         (Manufacturer of integrated circuits and other 
                                         semiconductor devices)....................................            2,566,222
                                                                                                            ------------    
THAILAND        1.4%
 
                          175,000       Bangkok Bank Ltd. (Foreign registered) (Leading 
                                          commercial bank, providing full range of financial 
                                          services)................................................            2,125,844

                          525,220       Thai Farmers Bank (Foreign registered) (Commercial bank)...            5,295,986
                                                                                                            ------------    
                                                                                                               7,421,830
                                                                                                            ------------    
UNITED KINGDOM  8.9%

                          725,000       Argyll Group PLC (Owner and operator of retail food 
                                          supermarkets)............................................            3,829,995

                          600,017       British Petroleum PLC (Major integrated world oil company).            5,010,987

                          236,000       Carlton Communications PLC (Television post 
                                          production products and services)........................            3,540,345

                          143,938       De La Rue PLC (Printer of commercial banknotes and 
                                          securities)..............................................            1,455,921

                          655,706       Lasmo PLC (Oil production and exploration).................            1,772,718

                          170,000       Midlands Electricity PLC (Electric companies)..............            2,007,446

                          137,530       National Grid Group PLC (Operator of electric 
                                          transmission system in England and Wales)................              425,238

                          511,110       PowerGen PLC (Electric utility)............................            4,224,811

                          307,362       RTZ Corp. PLC (Mining and finance company).................            4,469,998

                          654,200       Reuters Holdings PLC (International news agency)...........            5,992,053

                          598,345       SmithKline Beecham PLC "A" (Manufacturer of ethical 
                                          drugs and healthcare products)...........................            6,600,720

                          130,000       Thorn EMI PLC (Amusement and recreational services)........            3,063,141

                          300,000       Zeneca Group PLC (Manufacturing and marketing of
                                          pharmaceutical and agrochemical products and
                                          specialty chemicals).....................................            5,805,588
                                                                                                            ------------    
                                                                                                              48,198,961
                                                                                                            ------------    
                                        TOTAL COMMON STOCKS (Cost $421,638,324)....................          482,135,711
                                                                                                            ------------    
------------------------------------------------------------------------------------------------------------------------
                                        TOTAL INVESTMENT PORTFOLIO -- 100.0%
                                          (Cost $469,199,855) (c)..................................          540,995,675
                                                                                                            ============
------------------------------------------------------------------------------------------------------------------------
  *  Non-income producing security.

(a)  New shares issued during 1995, eligible for a pro rata share of 1995 dividends.

(b)  Securities valued in good faith by the Valuation Committee of the Trustees. The cost and 
     market value of these securities at December 31, 1995 aggregated $736,139 and $570,931 
     (.10% of net assets), respectively.

(c)  At December 31, 1995, the net unrealized appreciation on investments based on cost for 
     federal income tax purposes of $469,199,855 was as follows:

     Aggregate gross unrealized appreciation for all investments in which there is an excess 
       of market value over tax cost...............................................................         $ 89,136,201

     Aggregate gross unrealized depreciation for all investments in which there is an excess of 
       tax cost over market value..................................................................          (17,340,381)
                                                                                                            ------------    
     Net unrealized appreciation...................................................................         $ 71,795,820
                                                                                                            ============

</TABLE>

    The accompanying notes are an integral part of the financial statements.

                                       58

<PAGE>


                                                         INVESTMENT PORTFOLIO
-----------------------------------------------------------------------------


At December 31, 1995, the International Portfolio had a net tax basis capital 
loss carryforward of approximately $4,914,971, which may be applied against 
any realized net taxable capital gains of each succeeding year until fully 
utilized or until December 31, 2003, whichever occurs first.
-----------------------------------------------------------------------------
From November 1, 1995 through December 31, 1995, the International Portfolio 
incurred approximately $3,652,097 of net realized capital losses which the 
Portfolio intends to elect to defer and treat as arising in the fiscal year 
ended December 31, 1996.
-----------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term investments),
for the year ended December 31, 1995, aggregated $246,433,640 and $211,051,347,
respectively.
-----------------------------------------------------------------------------
Sector breakdown of the International Portfolio's equity securities is noted 
on the Portfolio Summary.
-----------------------------------------------------------------------------
<TABLE>
        Transactions in written call option contracts during the year ended 
December 31, 1995 were:
<CAPTION>
                                                                                          PREMIUMS
                                                             PRINCIPAL AMOUNT           RECEIVED ($)
                                                           -----------------------------------------
<S>                                                        <C>                          <C> 
Outstanding at December 31, 1994.....................                         -                  -
  Contracts written..................................      JPY    3,752,000,000          1,200,836
  Contracts closed...................................      JPY   (3,752,000,000)        (1,200,836)
                                                           -----------------------------------------
Outstanding at December 31, 1995.....................                         -                  - 
                                                                  =============          =========
</TABLE>
-----------------------------------------------------------------------------
<TABLE>
COMMITMENTS:
As of December 31, 1995, the International Portfolio entered into the following 
forward foreign currency exchange contracts resulting in net unrealized appreciation 
of $7,747,842.
<CAPTION>
                                                                                   NET UNREALIZED
                                                                                    APPRECIATION/ 
                                                                  SETTLEMENT        DEPRECIATION
CONTRACTS TO DELIVER             IN EXCHANGE FOR                     DATE              (U.S.$)
---------------------------      --------------------------       -----------      ---------------
<S>                              <C>                                <C>               <C>
Japanese Yen  1,434,720,000      U.S. Dollars    17,133,031         4/15/96           3,033,949
Japanese Yen  2,705,000,000      U.S. Dollars    27,617,540         5/17/96             921,852
Japanese Yen  2,206,000,000      U.S. Dollars    25,723,533         7/12/96           3,792,041
                                                                                    -----------    
                                                                                      7,747,842
                                                                                    ===========
</TABLE>

    The accompanying notes are an integral part of the financial statements.

                                       59

<PAGE>

INTERNATIONAL PORTFOLIO
FINANCIAL STATEMENTS

<TABLE>
-----------------------------------------------------------------------------------------------------
                STATEMENT OF ASSETS AND LIABILITIES
-----------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------------------------------------------------------------------
<S>                                                                        <C>          <C>
ASSETS
Investments, at market (identified cost $469,199,855) (Note A).........                 $ 540,995,675
Cash...................................................................                       788,449
Unrealized appreciation on forward currency exchange contracts (Note A)                     7,747,842
Receivables:
  Investments sold.....................................................                     2,062,098
  Portfolio shares sold................................................                     1,122,116
  Foreign taxes recoverable ...........................................                       795,897
  Dividends and interest ..............................................                       279,722
                                                                                        -------------
     Total assets......................................................                   553,791,799

LIABILITIES
Payables:
  Investments purchased ...............................................    $3,256,983
  Portfolio shares redeemed ...........................................     1,583,122
  Accrued management fee (Note B)......................................       390,027
  Other accrued expenses (Note B)......................................       184,759
  Payable on closed  forward currency exchange contracts (Note A)......       174,415
                                                                           ----------
     Total liabilities.................................................                     5,589,306
                                                                                        -------------
Net assets, at market value                                                             $ 548,202,493
                                                                                        =============

NET ASSETS
Net assets consist of:
   Undistributed net investment income.................................                 $   5,598,231
   Net unrealized appreciation on:
      Investments .....................................................                    71,795,820
      Foreign currency related transactions............................                     7,763,610
   Accumulated net realized loss.......................................                    (8,741,483)
   Paid-in capital.....................................................                   471,786,315
                                                                                        -------------
Net assets, at market value............................................                 $ 548,202,493
                                                                                        =============
NET ASSET VALUE, offering and redemption price per share
   ($548,202,493/46,398,169 outstanding shares of beneficial 
   interest, no par value, unlimited number of shares authorized)......                        $11.82
                                                                                               ======   


</TABLE>


   The accompanying notes are an integral part of the financial statements.


                                      60


<PAGE>

FINANCIAL STATEMENTS

<TABLE>
-----------------------------------------------------------------------------------------------------
                STATEMENT OF OPERATIONS
-----------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------------------------------------------------------
<S>                                                                       <C>           <C> 
INVESTMENT INCOME
   Income:
      Dividends (net of foreign taxes withheld of $1,092,029)..........                 $ 7,980,980
      Interest.........................................................                   2,125,283
                                                                                        -----------
                                                                                         10,106,263

   Expenses (Note A):
      Management fee (Note B)..........................................   $ 4,357,541
      Accounting fees (Note B).........................................       277,867
      Trustees' fees (Note B) .........................................        23,623
      Custodian fees ..................................................       581,990
      Auditing ........................................................        62,767
      Legal ...........................................................        33,163
      Other ...........................................................        55,614     5,392,565
                                                                           ----------   -----------
   Net investment income ..............................................                   4,713,698
                                                                                        ----------- 
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
   Net realized gain (loss) from:
      Investments......................................................    (7,286,434)
      Options..........................................................       736,708
      Foreign currency related transactions............................    (1,376,862)   (7,926,588)
                                                                           ----------   
   Net unrealized appreciation during the period on:
      Investments .....................................................    46,850,491
      Foreign currency related transactions............................     9,269,441    56,119,932
                                                                           ----------   -----------
   Net gain on investment transactions.................................                  48,193,344
                                                                                        -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS                                    $52,907,042
                                                                                        ===========


</TABLE>


   The accompanying notes are an integral part of the financial statements.


                                      61



<PAGE>

INTERNATIONAL PORTFOLIO
-------------------------------------------------------------------------------

<TABLE>
-------------------------------------------------------------------------------------------------------
                                    STATEMENTS OF CHANGES IN NET ASSETS
-------------------------------------------------------------------------------------------------------
<CAPTION>

                                                                             YEAR ENDED DECEMBER 31, 
                                                                        -------------------------------
INCREASE (DECREASE) IN NET ASSETS                                             1995              1994
-------------------------------------------------------------------------------------------------------
<S>                                                                      <C>               <C>
Operations:
  Net investment income...........................................       $  4,713,698      $  2,210,527
  Net realized gain (loss) from investment transactions...........         (7,926,588)        3,671,002
  Net unrealized appreciation (depreciation) on investment
    transactions during the period................................         56,119,932       (14,866,907)
                                                                         ------------      ------------
Net increase (decrease) in net assets resulting from 
  operations......................................................         52,907,042        (8,985,378)
                                                                         ------------      ------------
Distributions to shareholders from:
  Net investment income ($.01 and $.07 per share, respectively)...           (572,293)       (1,958,854)
                                                                         ------------      ------------
  Net realized gain from investment transactions ($.04 per share).         (1,628,833)                -
                                                                         ------------      ------------
Portfolio share transactions:
  Proceeds from shares sold.......................................        383,866,201       313,276,872
  Net asset value of shares issued to shareholders in
    reinvestment of distributions.................................          2,201,126         1,958,854
  Cost of shares redeemed.........................................       (360,607,349)      (70,378,561)
                                                                         ------------      ------------
Net increase in net assets from Portfolio share transactions......         25,459,978       244,857,165
                                                                         ------------      ------------
INCREASE IN NET ASSETS............................................         76,165,894       233,912,933
Net assets at beginning of period.................................        472,036,599       238,123,666
                                                                         ------------      ------------
NET ASSETS AT END OF PERIOD (including undistributed 
  net investment income of $5,598,231 and $722,015, 
  respectively)...................................................       $548,202,493      $472,036,599
                                                                         ============      ============
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
Shares outstanding at beginning of period.........................         44,139,826        21,943,195
                                                                         ------------      ------------
  Shares sold.....................................................         34,890,301        28,463,330
  Shares issued to shareholders in reinvestment of distributions..            216,220           177,916
  Shares redeemed.................................................        (32,848,178)       (6,444,615)
                                                                         ------------      ------------
  Net increase in Portfolio shares................................          2,258,343        22,196,631
                                                                         ------------      ------------
Shares outstanding at end of period...............................         46,398,169        44,139,826
                                                                         ============      ============

</TABLE>

    The accompanying notes are an integral part of the financial statements.

                                       62


<PAGE>

<TABLE>
                                                                                                         FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------------------------------------------------------

THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD AND OTHER 
PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.
<CAPTION>
                                                                                                              FOR THE PERIOD
                                                                                                                MAY 1, 1987
                                                                                                              (COMMENCEMENT
                                                    YEARS ENDED DECEMBER 31,                                  OF OPERATIONS)
                               -------------------------------------------------------------------------      TO DECEMBER 31,
                                1995(E)   1994(E)  1993(E)  1992(E)  1991(E)  1990(E)  1989(E)  1988(E)             1987
                               -------------------------------------------------------------------------      ---------------
<S>                            <C>        <C>      <C>      <C>      <C>      <C>      <C>       <C>            <C>

Net asset value,
  beginning of period......... $10.69     $10.85   $ 8.12   $ 8.47   $ 7.78   $ 8.46   $ 6.14    $ 5.26         $ 6.00(b)
                               ------     ------   ------   ------   ------   ------   ------    ------         ------
Income from investment
  operations:
  Net investment income (a)...    .11        .06      .09      .10      .12      .25      .10       .09             --
  Net realized and unrealized
    gain (loss) on investment
    transactions..............   1.07       (.15)    2.90     (.36)     .77     (.89)    2.22(f)    .79           (.64)
                               ------     ------   ------   ------   ------   ------   ------    ------         ------
Total from investment
  operations..................   1.18       (.09)    2.99     (.26)     .89     (.64)    2.32       .88           (.64)
                               ------     ------   ------   ------   ------   ------   ------    ------         ------
Less distributions:
  From net investment income..   (.01)      (.07)    (.14)    (.09)    (.20)    (.04)      --        --             --
  In excess of net investment 
    income....................     --         --     (.12)      --       --       --       --        --             --
  From net realized gains on 
    investment transactions...   (.04)        --       --       --       --       --       --        --           (.10)
                               ------     ------   ------   ------   ------   ------   ------    ------         ------
  Total distributions.........   (.05)      (.07)    (.26)    (.09)    (.20)    (.04)      --        --           (.10)
                               ------     ------   ------   ------   ------   ------   ------    ------         ------
Net asset value, end of 
  period...................... $11.82     $10.69   $10.85   $ 8.12   $ 8.47   $ 7.78   $ 8.46    $ 6.14         $ 5.26
                               ======     ======   ======   ======   ======   ======   ======    ======         ======
TOTAL RETURN (%)..............  11.11       (.85)   37.82    (3.08)   11.45    (7.65)   37.79     16.73         (10.64)(d)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period 
  ($ millions)................    548        472      238       65       41       35       17         3              2
Ratio of operating expenses, 
  net to average net 
  assets(%)(a)................   1.08       1.08     1.20     1.31     1.39     1.38     1.50      1.50           1.50(c)
Ratio of net investment income
  to average net assets(%)....    .95        .57      .91     1.23     1.43     2.89     1.30      1.59            .02(c)
Portfolio turnover rate(%)....  45.76      33.52    20.36    34.42    45.01    26.67    57.69    110.42         146.08(c)
(a)  Portion of expenses
     reimbursed (Note B)...... $   --     $   --   $   --   $   --   $   --   $   --   $  .02    $  .14         $  .07
(b)  Original capital
(c)  Annualized
(d)  Not annualized
(e)  Per share amounts, for each of the periods identified, have been calculated using the monthly average shares 
     outstanding during the period method.
(f)  Includes provision for federal income tax of $.03 per share.

</TABLE>

                                       63

<PAGE>



SCUDDER VARIABLE LIFE INVESTMENT FUND
NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
A. SIGNIFICANT ACCOUNTING POLICIES
-------------------------------------------------------------------------------


Scudder Variable Life Investment Fund (the "Fund") is organized as a
Massachusetts business trust and is registered under the Investment Company
Act of 1940, as amended, as an open-end, diversified management investment
company. Its shares of beneficial interest are divided into six separate
diversified series, called "Portfolios." The Portfolios are comprised of the
Money Market Portfolio, Bond Portfolio, Balanced Portfolio, Growth and Income
Portfolio, Capital Growth Portfolio, and International Portfolio.
<TABLE>
The Fund is intended to be the funding vehicle for variable annuity
contracts and variable life insurance policies to be offered by the separate
accounts of certain life insurance companies ("Participating Insurance
Companies"). As of December 31, 1995, ownership breakdown of the Portfolios by
each Participating Insurance Company is as follows:

<CAPTION>
                                                                                PORTFOLIOS
                                          -------------------------------------------------------------------------------------
                                                                                      GROWTH
      PARTICIPATING                        MONEY                                        AND           CAPITAL         INTERNA-
   INSURANCE COMPANIES                     MARKET         BOND        BALANCED        INCOME          GROWTH           TIONAL
-----------------------------------      --------------------------------------------------------------------------------------
<S>                                       <C>            <C>           <C>             <C>            <C>              <C>     
Aetna Life Insurance & Annuity Co. ....      --%            --%           --%             --%            --%            46.5%
AUSA Life Insurance Co. ...............      --             --            --              --             --              1.2
Banner Life Insurance Co. .............     0.7            1.3           7.3             2.2            1.7              0.6
Charter National Life Insurance Co. ...    55.9           32.5          73.5            87.4           27.5             15.2
Companion Life Insurance Co.
  of New York .........................      --            0.1            --              --             --               --
Fortis Benefits Insurance Co. .........      --             --            --              --             --              0.3
Intramerica Life Insurance Co. ........     5.3            3.0           5.2             9.2            2.4              1.5
Lincoln Benefit Life Co. ..............      --            2.2           3.6              --             --               --
Mutual of America Life Insurance Co. ..      --           55.1            --              --           62.9             24.4
Paragon Life Insurance Co. ............      --            0.1           0.4              --            0.1              0.1
Providentmutual Life and Annuity Co. 
  of America ..........................      --            5.2            --             1.2             --              0.1
Safeco Life Insurance Co. .............      --             --          10.0              --             --              2.6
Security First Life Insurance Co. .....      --             --            --              --             --              0.1
Union Central Life Insurance Co. ......    37.7             --            --              --            5.0              7.2
United Companies Life Insurance Co. ...     0.1             --            --              --             --               --
United of Omaha Life Insurance Co. ....     0.3            0.5            --              --             --              0.2
USAA Life Insurance Co. ...............      --             --            --              --            0.4               --
                                          ---------------------------------------------------------------------------------------
                                          100.0%         100.0%        100.0%          100.0%         100.0%           100.0%
                                          ======         ======        ======          ======         ======           ======

</TABLE>

The policies described below are followed consistently by the Fund in
the preparation of the financial statements for its Portfolios in conformity
with generally accepted accounting principles.

SECURITY VALUATION. The Money Market Portfolio values all securities
utilizing the amortized cost method permitted in accordance with Rule 2a-7
under the Investment Company Act of 1940, as amended, and pursuant to which the
Portfolio must adhere to certain conditions. Under this method, which does not
take into account unrealized gains or losses on securities, an instrument is
initially valued at its cost and thereafter assumes a constant
accretion/amortization to maturity of any discount/premium.

Securities in each of the remaining Portfolios are valued in the following 
manner:

Portfolio securities which are traded on U.S. or foreign stock exchanges are 
valued at the most recent sale price reported on the exchange on which the 
security is traded most extensively. If no sale occurred, the security is then 
valued at the calculated mean between the most recent bid and asked quotations. 
If there are no such bid and asked quotations, the most recent bid quotation 
is used. Securities quoted on the National Association of Securities Dealers 
Automatic Quotation ("NASDAQ") System, for which there have been sales, are 
valued at the most recent sale price reported on such system. If there are 
no such sales, the value is the high or "inside" bid quotation. Securities 
which are not quoted on the

                               64

<PAGE>



NOTES TO FINANCIAL STATEMENTS
-----------------------------------------------------------------------------

NASDAQ System but are traded in another over-the-counter market are valued 
at the most recent sale price on such market. If no sale occurred, the security 
is then valued at the calculated mean between the most recent bid and asked 
quotations. If there are no such bid and asked quotations, the most recent 
bid quotation shall be used.

Portfolio debt securities with remaining maturities greater than sixty
days are valued by pricing agents approved by the officers of the Fund, which
quotations reflect broker/dealer-supplied valuations and electronic data
processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. Short-term investments having a maturity of sixty days or less
are valued at amortized cost.

All other securities are valued at their fair value as determined in good faith 
by the Valuation Committee of the Trustees.

OPTIONS. An option contract is a contract in which the writer of the
option grants the buyer of the option the right to purchase from (call option),
or sell to (put option), the writer a designated instrument at a specified
price within a specified period of time. Certain options, including options on
indices, will require cash settlement by the Fund if the option is exercised.
During the period, the International Portfolio purchased put options on
currencies and wrote call options on currencies as a hedge against potential
adverse price movements in the value of portfolio assets.

The liability representing the Fund's obligation under an exchange traded
written option or investment in a purchased option is valued at the last sale
price or, in the absence of a sale, the mean between the closing bid and asked
price or at the most recent asked price (bid for purchased options) if no bid
and asked price are available. Over-the-counter written or purchased options are
valued using dealer supplied quotations.

FOREIGN CURRENCY TRANSLATIONS. The books and records of the Portfolios are 
maintained in U.S. dollars. Foreign currency transactions are translated into 
U.S. dollars on the following basis: 

        (i)   market value of investment securities, other assets and 
              liabilities at the daily rates of exchange, and 

       (ii)   purchases and sales of investment securities, dividend 
              and interest income and certain expenses at the rates of exchange
              prevailing on the  respective dates of such transactions. 

The Portfolios do not isolate that portion of gains and losses on investments 
which is due to changes in foreign exchange rates from that which is due to 
changes in market prices of the investments. Such fluctuations are included 
with the net realized and unrealized gains and losses from investments.

Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on dividends,
interest, and foreign withholding taxes.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract (forward contract) is a commitment to purchase or sell a
foreign currency at the settlement date at a negotiated rate. During the
period, the non-money market Portfolios utilized forward contracts as a hedge
in connection with portfolio purchases and sales of securities denominated in
foreign currencies and the Bond Portfolio, Balanced Portfolio, and the
International Portfolio utilized forward contracts as a hedge against changes
in exchange rates relating to foreign currency denominated assets.

Forward contracts are valued at the prevailing forward exchange rate of
the underlying currencies and unrealized gain/loss is recorded daily. Forward
contracts having the same settlement date and broker are offset and any gain
(loss) is realized on the date of offset; otherwise, gain (loss) is realized on
settlement date. Realized and unrealized gains and losses which represent the
difference between the value of the forward contract to buy and the forward
contract to sell are included in net realized and unrealized gain (loss) from
foreign currency related transactions.

Certain risks may arise upon entering into forward contracts from the
potential inability of counterparties to meet the terms of their contracts.
Additionally, when utilizing forward contracts to hedge the Fund gives up the
opportunity to profit from favorable exchange rate movements during the term of
the contract.

                               65

<PAGE>


SCUDDER VARIABLE LIFE INVESTMENT FUND
------------------------------------------------------------------------------

REPURCHASE AGREEMENTS. The Fund on behalf of each Portfolio may enter
into repurchase agreements with U.S. and foreign banks and broker/dealers
whereby the Fund, through its custodian, receives delivery of the underlying
securities, the amount of which at the time of purchase and each subsequent
business day is required to be maintained at such a level that the market
value, depending on the maturity of the repurchase agreement and the underlying
collateral, is equal to at least 100.5% of the resale price.

FEDERAL INCOME TAXES. Each Portfolio is treated as a single corporate
taxpayer as provided for in the Internal Revenue Code of 1986, as amended. It
is each Portfolio's policy to comply with the requirements of the Internal
Revenue Code which are applicable to regulated investment companies and to
distribute all of its investment company taxable income to the separate
accounts of the Participating Insurance Companies which hold its shares.
Accordingly, the Portfolios paid no federal income taxes and no provision for
federal income taxes was required.

DISTRIBUTION OF INCOME AND GAINS. All of the net investment income of the Money 
Market Portfolio is declared as a dividend to shareholders of record as of the
close of business each day and is paid to shareholders monthly. Dividends    
from the Bond Portfolio, Balanced Portfolio, Growth and Income Portfolio, and 
the Capital Growth Portfolio are declared and paid quarterly in April, July, 
October and January. All of the net investment income of the International 
Portfolio normally will be declared and distributed as a dividend annually. 
During any particular year, net realized gains from investment transactions for
each Portfolio, in excess of available capital loss carryforwards, would be
taxable to the Portfolio if not distributed and, therefore, will be distributed 
to the Participating Insurance Companies.

The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax
regulations which may  differ from generally accepted accounting principles.
The differences primarily relate to investments in forward contracts, passive
foreign investment companies, post October loss deferral, non-taxable
distributions, and certain securities sold at a loss. As a result, net
investment income (loss) and net realized gain (loss) on investment
transactions for a reporting period may differ significantly from distributions
during such period. Accordingly, the Portfolios may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of each Portfolio.

The Portfolios use the specific identification method for determining realized 
gain or loss on investments for both financial and federal income tax reporting 
purposes.

EXPENSES. Each Portfolio is charged for those expenses which are directly
attributable to it, such as management fees and custodian fees, while other
expenses (reports to shareholders, legal and audit fees) are allocated based on
relative net asset value among the Portfolios.

OTHER. Investment security transactions are accounted for on a trade date basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. All original
issue discounts are accreted for both tax and financial reporting purposes.

B. RELATED PARTIES
----------------------------------------------------------------------------
Under the Fund's Investment Advisory Agreement (the "Agreement") with Scudder, 
Stevens and Clark, Inc. (the "Adviser"), the Fund agrees to pay the Adviser 
a fee, based on average daily net assets, equal to an annual rate of 0.37% 
for the Money Market Portfolio, 0.475% for the Bond Portfolio, 0.475% for the 
Balanced Portfolio, 0.475% for the Growth and Income Portfolio, 0.475% for 
the Capital Growth Portfolio, and 0.875% for the International Portfolio.

The Trustees authorized the Fund on behalf of each Portfolio to pay Scudder 
Fund Accounting Corp., a subsidiary of the Adviser, for determining the daily 
net asset value per share and maintaining the portfolio and general accounting 
records of the Fund. 

Related fees for such services are detailed in each Portfolio's statement of 
operations.

                                 66

<PAGE>


NOTES TO FINANCIAL STATEMENTS
------------------------------------------------------------------------------
For a period of five years from the date of execution of a Participation    
Agreement with the Fund, and from year to year thereafter as agreed by the Fund
and the Participating Insurance Companies, each of the Participating Insurance
Companies has agreed to reimburse the Fund to the extent that the annual
operating expenses of any Portfolio of the Fund, other than the International
Portfolio, exceed three-quarters of one percent (0.75 of 1%) of that
Portfolio's average annual net assets. The Participating Insurance Companies
have agreed to reimburse the Fund to the extent that such expenses of the
International Portfolio exceed one and one-half percent (1.50 of 1%) of the
Portfolio's average annual net assets. The Adviser may advance some or all of
such reimbursement to the Fund prior to receiving payment therefore from a
Participating Insurance Company, but it is under no obligation to do so. If the
Adviser does advance such reimbursement to the Fund and does not receive
payment therefore, it will be entitled to be repaid such amounts by the Fund.
In addition to the reimbursement by Participating Insurance Companies noted
above, until April 30, 1996, the Adviser has agreed to waive part or all of its
fees for the Growth and Income Portfolio to the extent that the Portfolio's
expenses will be maintained at 0.75%.

The Fund pays each Trustee not affiliated with the Adviser and not a
Trustee of other Scudder affiliated funds $12,000 annually plus specified
amounts for attended board and committee meetings. The Fund pays
each Trustee not affiliated with the Adviser and who is a Trustee of other
Scudder affiliated funds $7,500 annually plus specified amounts for attended
board and committee meetings. Allocated Trustees' fees for each Portfolio for
the year ended December 31, 1995 are detailed in each Portfolio's statement of
operations.

C. LINE OF CREDIT
-------------------------------------------------------------------------------

The International Portfolio and several other Funds ("The Participants")
share in a $500 million revolving credit facility for temporary or emergency
purposes, including the meeting of redemption requests that otherwise might
require the untimely disposition of securities. The Participants are charged an
annual commitment fee which is allocated among each of the Participants.
Interest is calculated based on the market rates at the time of the borrowing.
The International Portfolio may borrow up to a maximum of 25 percent of its net
assets under the agreement. In addition, the International Portfolio also
maintains an uncommitted line of credit.

                                 67   

<PAGE>

                                          SCUDDER VARIABLE LIFE INVESTMENT FUND
                                          REPORT OF INDEPENDENT ACCOUNTANTS
-------------------------------------------------------------------------------
TO THE TRUSTEES AND SHAREHOLDERS OF SCUDDER VARIABLE LIFE INVESTMENT FUND:

We have audited the accompanying statements of assets and liabilities of
Scudder Variable Life Investment Fund (comprised of the six Portfolios
identified in Note A), including the investment portfolios, as of December 31,
1995, and the related statements of operations, the statements of changes in
net assets, and the financial highlights for each of the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 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 Scudder Variable Life Investment Fund (comprised of the six
Portfolios identified in Note A) as of December 31, 1995, the results of their
operations, the changes in their net assets, and their financial highlights for
each of the periods indicated therein in conformity with generally accepted
accounting principles.



Boston, Massachusetts                  COOPERS & LYBRAND L.L.P.
January 29, 1996


                                       68

<PAGE>


                                                               TAX INFORMATION
------------------------------------------------------------------------------

Pursuant to section 852 of the Internal Revenue Code, the Balanced Portfolio, 
Capital Growth Portfolio, and Growth and Income Portfolio designate $812,877, 
$13,576,749, and $587,060, respectively, as capital gain dividends for the 
year ended December 31, 1995.

Pursuant to section 854 of the Internal Revenue Code, the percentages of
ordinary income dividends paid in calendar year 1995 which qualify for the
dividends received deduction for corporations are as follows: Balanced
Portfolio 34.09%, Capital Growth Portfolio 59.53%, and Growth and Income
Portfolio 100%.

                                       69

<PAGE>



 Celebrating Over 75 Years of Serving Investors
 ------------------------------------------------------------------------------


     Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven
Clark, Scudder, Stevens & Clark was the first independent investment counsel
firm in the United States. Since its birth, Scudder's pioneering spirit and
commitment to professional long-term investment management have helped shape the
investment industry. In 1928, we introduced the nation's first no-load mutual
fund. Today we offer 37 pure no load(TM) funds, including the first
international mutual fund offered to U.S. investors.


     Over the years, Scudder's global investment perspective and dedication to
research and fundamental investment disciplines have helped Scudder become one
of the largest and most respected investment managers in the world. Though times
have changed since our beginnings, we remain committed to our long-standing
principles: managing money with integrity and distinction; keeping the interests
of our clients first; providing access to investments and markets that may not
be easily available to individuals; and making investing as simple and
convenient as possible through friendly, comprehensive service.


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

     This information must be preceded or accompanied by a current prospectus.

     Portfolio changes should not be considered recommendations for action by
individual investors.