Filed with the Securities and Exchange Commission on February 28, 1997

                                                           File No. 2-96461
                                                           File No. 811-4257

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

         Pre-Effective Amendment No.
                                         --

         Post-Effective Amendment No.    21
                                         --

                                       and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

         Amendment No.    25
                          --

                      Scudder Variable Life Investment Fund
                      -------------------------------------
               (Exact Name of Registrant as Specified in Charter)

                 Two International Place, Boston, MA 02110-4103
                 ----------------------------------------------
               (Address of Principal Executive Offices) (Zip Code)

       Registrant's Telephone Number, including Area Code: (617) 295-2567
                                                           --------------

                               Thomas F. McDonough
                         Scudder, Stevens & Clark, Inc.
                 Two International Place, Boston, MA 02110-4103
                 ----------------------------------------------
                       (Name Address of Agent for Service)

It is proposed that this filing will become effective

               immediately upon filing pursuant to paragraph (b)
           --

               on ________________ pursuant to paragraph (b)
           --

               60 days after filing pursuant to paragraph (a)(i)
           --

               on ________________pursuant to paragraph (a)(i)
           --

               75 days after filing pursuant to paragraph (a)(ii)
           --

            X  on May 1, 1997 pursuant to paragraph (a)(ii) of Rule 485.
           --


If appropriate, check the following box:

           --   This post-effective amendment designates a new effective date
                for a previously filed post-effective amendment.

The Registrant has filed a declaration registering an indefinite amount of
securities pursuant to Rule 24f-2 under the Investment Company Act of 1940, as
amended. The Registrant has filed the notice required by Rule 24f-2 for its most
recent fiscal year on February 28, 1997.

<PAGE>
<TABLE>
<CAPTION>



                      SCUDDER VARIABLE LIFE INVESTMENT FUND
                             MONEY MARKET PORTFOLIO
                              CROSS-REFERENCE SHEET

                           Items Required By Form N-1A
                           ---------------------------


PART A
------
     <S>             <C>                          <C>

     Item No.        Item Caption                   Prospectus Caption
     --------        ------------                   ------------------

        1.           Cover Page                     COVER PAGE

        2.           Synopsis                       NOT APPLICABLE

        3.           Condensed Financial            NOT APPLICABLE
                     Information

        4.           General Description of         INVESTMENT CONCEPT OF THE FUND;
                     Registrant                     INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIO; SPECIAL RISK
                                                    CONSIDERATIONS; POLICIES AND TECHNIQUES APPLICABLE TO THE
                                                    PORTFOLIO;
                                                    INVESTMENT RESTRICTIONS

        5.           Management of the Fund         INVESTMENT ADVISER; PORTFOLIO MANAGEMENT;
                                                    ADDITIONAL INFORMATION

        5A.          Management's Discussion of     NOT APPLICABLE
                     Fund Performance

        6.           Capital Stock and Other        TAX STATUS, DIVIDENDS AND DISTRIBUTIONS;
                     Securities                     SHAREHOLDER COMMUNICATIONS; ADDITIONAL INFORMATION

        7.           Purchase of Securities         DISTRIBUTOR; PURCHASES AND REDEMPTIONS;
                     Being Offered                  NET ASSET VALUE

        8.           Redemption or Repurchase       PURCHASES AND REDEMPTIONS;
                                                    NET ASSET VALUE

        9.           Pending Legal Proceedings      NOT APPLICABLE


                            Cross Reference - Page 1
<PAGE>


                      SCUDDER VARIABLE LIFE INVESTMENT FUND
                             MONEY MARKET PORTFOLIO
                              CROSS-REFERENCE SHEET

                           Items Required By Form N-1A
                           ---------------------------


PART B
------

                                                       Caption in Statement of
    Item No.        Item Caption                       Additional Information
    --------        ------------                       ----------------------

       10.          Cover Page                         COVER PAGE

       11.          Table of Contents                  TABLE OF CONTENTS

       12.          General Information and History    ORGANIZATION AND CAPITALIZATION

       13.          Investment Objectives and          INVESTMENT OBJECTIVE AND POLICIES;
                    Policies                           POLICIES AND TECHNIQUES APPLICABLE TO THE PORTFOLIO; INVESTMENT
                                                       RESTRICTIONS; PORTFOLIO TURNOVER

       14.          Management of the Fund             MANAGEMENT

       15.          Control Persons and Principal      TRUSTEES AND OFFICERS
                    Holders of Securities

       16.          Investment Advisory and Other      INVESTMENT ADVISER AND DISTRIBUTOR; EXPERTS
                    Services

       17.          Brokerage Allocation               ALLOCATION OF PORTFOLIO BROKERAGE

       18.          Capital Stock and Other            ORGANIZATION AND CAPITALIZATION;
                    Securities                         ADDITIONAL INFORMATION

       19.          Purchase, Redemption and           PURCHASES AND REDEMPTIONS;
                    Pricing of Securities Being        NET ASSET VALUE;
                    Offered                            DIVIDENDS AND DISTRIBUTIONS

       20.          Tax Status                         TAX STATUS; DIVIDENDS AND DISTRIBUTIONS

       21.          Underwriters                       INVESTMENT ADVISER AND DISTRIBUTOR

       22.          Calculations of                    PERFORMANCE INFORMATION
                    Performance Data

       23.          Financial Statements               FINANCIAL STATEMENTS


                            Cross Reference - Page 2
<PAGE>



                      SCUDDER VARIABLE LIFE INVESTMENT FUND
                                 BOND PORTFOLIO
                              CROSS-REFERENCE SHEET

                           Items Required By Form N-1A
                           ---------------------------


PART A
------

     Item No.        Item Caption                   Prospectus Caption
     --------        ------------                   ------------------

        1.           Cover Page                     COVER PAGE

        2.           Synopsis                       NOT APPLICABLE

        3.           Condensed Financial            NOT APPLICABLE
                     Information

        4.           General Description of         INVESTMENT CONCEPT OF THE FUND;
                     Registrant                     INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIO; SPECIAL RISK
                                                    CONSIDERATIONS; POLICIES AND TECHNIQUES APPLICABLE TO THE
                                                    PORTFOLIO;
                                                    INVESTMENT RESTRICTIONS

        5.           Management of the Fund         INVESTMENT ADVISER; PORTFOLIO MANAGEMENT;
                                                    ADDITIONAL INFORMATION

        5A.          Management's Discussion of     NOT APPLICABLE
                     Fund Performance

        6.           Capital Stock and Other        TAX STATUS, DIVIDENDS AND DISTRIBUTIONS;
                     Securities                     SHAREHOLDER COMMUNICATIONS; ADDITIONAL INFORMATION

        7.           Purchase of Securities         DISTRIBUTOR; PURCHASES AND REDEMPTIONS;
                     Being Offered                  NET ASSET VALUE

        8.           Redemption or Repurchase       PURCHASES AND REDEMPTIONS;
                                                    NET ASSET VALUE

        9.           Pending Legal Proceedings      NOT APPLICABLE



                            Cross Reference - Page 3
<PAGE>



                      SCUDDER VARIABLE LIFE INVESTMENT FUND
                                 BOND PORTFOLIO
                              CROSS-REFERENCE SHEET

                           Items Required By Form N-1A
                           ---------------------------


PART B
------

                                                       Caption in Statement of
    Item No.        Item Caption                       Additional Information
    --------        ------------                       ----------------------

       10.          Cover Page                         COVER PAGE

       11.          Table of Contents                  TABLE OF CONTENTS

       12.          General Information and History    ORGANIZATION AND CAPITALIZATION

       13.          Investment Objectives and          INVESTMENT OBJECTIVE AND POLICIES;
                    Policies                           POLICIES AND TECHNIQUES APPLICABLE TO THE PORTFOLIO; INVESTMENT
                                                       RESTRICTIONS; PORTFOLIO TURNOVER

       14.          Management of the Fund             MANAGEMENT

       15.          Control Persons and Principal      TRUSTEES AND OFFICERS
                    Holders of Securities

       16.          Investment Advisory and Other      INVESTMENT ADVISER AND DISTRIBUTOR; EXPERTS
                    Services

       17.          Brokerage Allocation               ALLOCATION OF PORTFOLIO BROKERAGE

       18.          Capital Stock and Other            ORGANIZATION AND CAPITALIZATION;
                    Securities                         ADDITIONAL INFORMATION

       19.          Purchase, Redemption and           PURCHASES AND REDEMPTIONS;
                    Pricing of Securities Being        NET ASSET VALUE;
                    Offered                            DIVIDENDS AND DISTRIBUTIONS

       20.          Tax Status                         TAX STATUS; DIVIDENDS AND DISTRIBUTIONS

       21.          Underwriters                       INVESTMENT ADVISER AND DISTRIBUTOR

       22.          Calculations of                    PERFORMANCE INFORMATION
                    Performance Data

       23.          Financial Statements               FINANCIAL STATEMENTS



                            Cross Reference - Page 4
<PAGE>



                      SCUDDER VARIABLE LIFE INVESTMENT FUND
                               BALANCED PORTFOLIO
                              CROSS-REFERENCE SHEET

                           Items Required By Form N-1A
                           ---------------------------


PART A
------

     Item No.        Item Caption                   Prospectus Caption
     --------        ------------                   ------------------

        1.           Cover Page                     COVER PAGE

        2.           Synopsis                       NOT APPLICABLE

        3.           Condensed Financial            NOT APPLICABLE
                     Information

        4.           General Description of         INVESTMENT CONCEPT OF THE FUND;
                     Registrant                     INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIO; SPECIAL RISK
                                                    CONSIDERATIONS; POLICIES AND TECHNIQUES APPLICABLE TO THE
                                                    PORTFOLIO;
                                                    INVESTMENT RESTRICTIONS

        5.           Management of the Fund         INVESTMENT ADVISER; PORTFOLIO MANAGEMENT;
                                                    ADDITIONAL INFORMATION

        5A.          Management's Discussion of     NOT APPLICABLE
                     Fund Performance

        6.           Capital Stock and Other        TAX STATUS, DIVIDENDS AND DISTRIBUTIONS;
                     Securities                     SHAREHOLDER COMMUNICATIONS; ADDITIONAL INFORMATION

        7.           Purchase of Securities         DISTRIBUTOR; PURCHASES AND REDEMPTIONS;
                     Being Offered                  NET ASSET VALUE

        8.           Redemption or Repurchase       PURCHASES AND REDEMPTIONS;
                                                    NET ASSET VALUE

        9.           Pending Legal Proceedings      NOT APPLICABLE



                            Cross Reference - Page 5
<PAGE>



                      SCUDDER VARIABLE LIFE INVESTMENT FUND
                               BALANCED PORTFOLIO
                              CROSS-REFERENCE SHEET

                           Items Required By Form N-1A
                           ---------------------------


PART B
------

                                                       Caption in Statement of
    Item No.        Item Caption                       Additional Information
    --------        ------------                       ----------------------

       10.          Cover Page                         COVER PAGE

       11.          Table of Contents                  TABLE OF CONTENTS

       12.          General Information and History    ORGANIZATION AND CAPITALIZATION

       13.          Investment Objectives and          INVESTMENT OBJECTIVE AND POLICIES;
                    Policies                           POLICIES AND TECHNIQUES APPLICABLE TO THE PORTFOLIO; INVESTMENT
                                                       RESTRICTIONS; PORTFOLIO TURNOVER

       14.          Management of the Fund             MANAGEMENT

       15.          Control Persons and Principal      TRUSTEES AND OFFICERS
                    Holders of Securities

       16.          Investment Advisory and Other      INVESTMENT ADVISER AND DISTRIBUTOR; EXPERTS
                    Services

       17.          Brokerage Allocation               ALLOCATION OF PORTFOLIO BROKERAGE

       18.          Capital Stock and Other            ORGANIZATION AND CAPITALIZATION;
                    Securities                         ADDITIONAL INFORMATION

       19.          Purchase, Redemption and           PURCHASES AND REDEMPTIONS;
                    Pricing of Securities Being        NET ASSET VALUE;
                    Offered                            DIVIDENDS AND DISTRIBUTIONS

       20.          Tax Status                         TAX STATUS; DIVIDENDS AND DISTRIBUTIONS

       21.          Underwriters                       INVESTMENT ADVISER AND DISTRIBUTOR

       22.          Calculations of                    PERFORMANCE INFORMATION
                    Performance Data

       23.          Financial Statements               FINANCIAL STATEMENTS




                            Cross Reference - Page 6
<PAGE>



                      SCUDDER VARIABLE LIFE INVESTMENT FUND
                           GROWTH AND INCOME PORTFOLIO
                              CROSS-REFERENCE SHEET

                           Items Required By Form N-1A
                           ---------------------------


PART A
------

     Item No.        Item Caption                   Prospectus Caption
     --------        ------------                   ------------------

        1.           Cover Page                     COVER PAGE

        2.           Synopsis                       NOT APPLICABLE

        3.           Condensed Financial            NOT APPLICABLE
                     Information

        4.           General Description of         INVESTMENT CONCEPT OF THE FUND;
                     Registrant                     INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIO; SPECIAL RISK
                                                    CONSIDERATIONS; POLICIES AND TECHNIQUES APPLICABLE TO THE
                                                    PORTFOLIO;
                                                    INVESTMENT RESTRICTIONS

        5.           Management of the Fund         INVESTMENT ADVISER; PORTFOLIO MANAGEMENT;
                                                    ADDITIONAL INFORMATION

        5A.          Management's Discussion of     NOT APPLICABLE
                     Fund Performance

        6.           Capital Stock and Other        TAX STATUS, DIVIDENDS AND DISTRIBUTIONS;
                     Securities                     SHAREHOLDER COMMUNICATIONS; ADDITIONAL INFORMATION

        7.           Purchase of Securities         DISTRIBUTOR; PURCHASES AND REDEMPTIONS;
                     Being Offered                  NET ASSET VALUE

        8.           Redemption or Repurchase       PURCHASES AND REDEMPTIONS;
                                                    NET ASSET VALUE

        9.           Pending Legal Proceedings      NOT APPLICABLE



                            Cross Reference - Page 7
<PAGE>



                      SCUDDER VARIABLE LIFE INVESTMENT FUND
                           GROWTH AND INCOME PORTFOLIO
                              CROSS-REFERENCE SHEET

                           Items Required By Form N-1A
                           ---------------------------


PART B
------

                                                       Caption in Statement of
    Item No.        Item Caption                       Additional Information
    --------        ------------                       ----------------------

       10.          Cover Page                         COVER PAGE

       11.          Table of Contents                  TABLE OF CONTENTS

       12.          General Information and History    ORGANIZATION AND CAPITALIZATION

       13.          Investment Objectives and          INVESTMENT OBJECTIVE AND POLICIES;
                    Policies                           POLICIES AND TECHNIQUES APPLICABLE TO THE PORTFOLIO; INVESTMENT
                                                       RESTRICTIONS; PORTFOLIO TURNOVER

       14.          Management of the Fund             MANAGEMENT

       15.          Control Persons and Principal      TRUSTEES AND OFFICERS
                    Holders of Securities

       16.          Investment Advisory and Other      INVESTMENT ADVISER AND DISTRIBUTOR; EXPERTS
                    Services

       17.          Brokerage Allocation               ALLOCATION OF PORTFOLIO BROKERAGE

       18.          Capital Stock and Other            ORGANIZATION AND CAPITALIZATION;
                    Securities                         ADDITIONAL INFORMATION

       19.          Purchase, Redemption and           PURCHASES AND REDEMPTIONS;
                    Pricing of Securities Being        NET ASSET VALUE;
                    Offered                            DIVIDENDS AND DISTRIBUTIONS

       20.          Tax Status                         TAX STATUS; DIVIDENDS AND DISTRIBUTIONS

       21.          Underwriters                       INVESTMENT ADVISER AND DISTRIBUTOR

       22.          Calculations of                    PERFORMANCE INFORMATION
                    Performance Data

       23.          Financial Statements               FINANCIAL STATEMENTS




                            Cross Reference - Page 8
<PAGE>



                      SCUDDER VARIABLE LIFE INVESTMENT FUND
                            CAPITAL GROWTH PORTFOLIO
                              CROSS-REFERENCE SHEET

                           Items Required By Form N-1A
                           ---------------------------


PART A
------

     Item No.        Item Caption                   Prospectus Caption
     --------        ------------                   ------------------

        1.           Cover Page                     COVER PAGE

        2.           Synopsis                       NOT APPLICABLE

        3.           Condensed Financial            NOT APPLICABLE
                     Information

        4.           General Description of         INVESTMENT CONCEPT OF THE FUND;
                     Registrant                     INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIO; SPECIAL RISK
                                                    CONSIDERATIONS; POLICIES AND TECHNIQUES APPLICABLE TO THE
                                                    PORTFOLIO;
                                                    INVESTMENT RESTRICTIONS

        5.           Management of the Fund         INVESTMENT ADVISER; PORTFOLIO MANAGEMENT;
                                                    ADDITIONAL INFORMATION

        5A.          Management's Discussion of     NOT APPLICABLE
                     Fund Performance

        6.           Capital Stock and Other        TAX STATUS, DIVIDENDS AND DISTRIBUTIONS;
                     Securities                     SHAREHOLDER COMMUNICATIONS; ADDITIONAL INFORMATION

        7.           Purchase of Securities         DISTRIBUTOR; PURCHASES AND REDEMPTIONS;
                     Being Offered                  NET ASSET VALUE

        8.           Redemption or Repurchase       PURCHASES AND REDEMPTIONS;
                                                    NET ASSET VALUE

        9.           Pending Legal Proceedings      NOT APPLICABLE



                            Cross Reference - Page 9
<PAGE>



                      SCUDDER VARIABLE LIFE INVESTMENT FUND
                            CAPITAL GROWTH PORTFOLIO
                              CROSS-REFERENCE SHEET

                           Items Required By Form N-1A
                           ---------------------------


PART B
------

                                                       Caption in Statement of
    Item No.        Item Caption                       Additional Information
    --------        ------------                       ----------------------

       10.          Cover Page                         COVER PAGE

       11.          Table of Contents                  TABLE OF CONTENTS

       12.          General Information and History    ORGANIZATION AND CAPITALIZATION

       13.          Investment Objectives and          INVESTMENT OBJECTIVE AND POLICIES;
                    Policies                           POLICIES AND TECHNIQUES APPLICABLE TO THE PORTFOLIO; INVESTMENT
                                                       RESTRICTIONS; PORTFOLIO TURNOVER

       14.          Management of the Fund             MANAGEMENT

       15.          Control Persons and Principal      TRUSTEES AND OFFICERS
                    Holders of Securities

       16.          Investment Advisory and Other      INVESTMENT ADVISER AND DISTRIBUTOR; EXPERTS
                    Services

       17.          Brokerage Allocation               ALLOCATION OF PORTFOLIO BROKERAGE

       18.          Capital Stock and Other            ORGANIZATION AND CAPITALIZATION;
                    Securities                         ADDITIONAL INFORMATION

       19.          Purchase, Redemption and           PURCHASES AND REDEMPTIONS;
                    Pricing of Securities Being        NET ASSET VALUE;
                    Offered                            DIVIDENDS AND DISTRIBUTIONS

       20.          Tax Status                         TAX STATUS; DIVIDENDS AND DISTRIBUTIONS

       21.          Underwriters                       INVESTMENT ADVISER AND DISTRIBUTOR

       22.          Calculations of                    PERFORMANCE INFORMATION
                    Performance Data

       23.          Financial Statements               FINANCIAL STATEMENTS




                            Cross Reference - Page 10
<PAGE>



                      SCUDDER VARIABLE LIFE INVESTMENT FUND
                           GLOBAL DISCOVERY PORTFOLIO
                              CROSS-REFERENCE SHEET

                           Items Required By Form N-1A
                           ---------------------------


PART A
------

     Item No.        Item Caption                   Prospectus Caption
     --------        ------------                   ------------------

        1.           Cover Page                     COVER PAGE

        2.           Synopsis                       NOT APPLICABLE

        3.           Condensed Financial            NOT APPLICABLE
                     Information

        4.           General Description of         INVESTMENT CONCEPT OF THE FUND;
                     Registrant                     INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIO; SPECIAL RISK
                                                    CONSIDERATIONS; POLICIES AND TECHNIQUES APPLICABLE TO THE
                                                    PORTFOLIO;
                                                    INVESTMENT RESTRICTIONS

        5.           Management of the Fund         INVESTMENT ADVISER; PORTFOLIO MANAGEMENT;
                                                    ADDITIONAL INFORMATION

        5A.          Management's Discussion of     NOT APPLICABLE
                     Fund Performance

        6.           Capital Stock and Other        TAX STATUS, DIVIDENDS AND DISTRIBUTIONS;
                     Securities                     SHAREHOLDER COMMUNICATIONS; ADDITIONAL INFORMATION

        7.           Purchase of Securities         DISTRIBUTOR; PURCHASES AND REDEMPTIONS;
                     Being Offered                  NET ASSET VALUE

        8.           Redemption or Repurchase       PURCHASES AND REDEMPTIONS;
                                                    NET ASSET VALUE

        9.           Pending Legal Proceedings      NOT APPLICABLE



                            Cross Reference - Page 11
<PAGE>



                      SCUDDER VARIABLE LIFE INVESTMENT FUND
                           GLOBAL DISCOVERY PORTFOLIO
                              CROSS-REFERENCE SHEET

                           Items Required By Form N-1A
                           ---------------------------


PART B
------

                                                       Caption in Statement of
    Item No.        Item Caption                       Additional Information
    --------        ------------                       ----------------------

       10.          Cover Page                         COVER PAGE

       11.          Table of Contents                  TABLE OF CONTENTS

       12.          General Information and History    ORGANIZATION AND CAPITALIZATION

       13.          Investment Objectives and          INVESTMENT OBJECTIVE AND POLICIES;
                    Policies                           POLICIES AND TECHNIQUES APPLICABLE TO THE PORTFOLIO; INVESTMENT
                                                       RESTRICTIONS; PORTFOLIO TURNOVER

       14.          Management of the Fund             MANAGEMENT

       15.          Control Persons and Principal      TRUSTEES AND OFFICERS
                    Holders of Securities

       16.          Investment Advisory and Other      INVESTMENT ADVISER AND DISTRIBUTOR; EXPERTS
                    Services

       17.          Brokerage Allocation               ALLOCATION OF PORTFOLIO BROKERAGE

       18.          Capital Stock and Other            ORGANIZATION AND CAPITALIZATION;
                    Securities                         ADDITIONAL INFORMATION

       19.          Purchase, Redemption and           PURCHASES AND REDEMPTIONS;
                    Pricing of Securities Being        NET ASSET VALUE;
                    Offered                            DIVIDENDS AND DISTRIBUTIONS

       20.          Tax Status                         TAX STATUS; DIVIDENDS AND DISTRIBUTIONS

       21.          Underwriters                       INVESTMENT ADVISER AND DISTRIBUTOR

       22.          Calculations of                    PERFORMANCE INFORMATION
                    Performance Data

       23.          Financial Statements               FINANCIAL STATEMENTS




                            Cross Reference - Page 12
<PAGE>



                      SCUDDER VARIABLE LIFE INVESTMENT FUND
                             INTERNATIONAL PORTFOLIO
                              CROSS-REFERENCE SHEET

                           Items Required By Form N-1A
                           ---------------------------


PART A
------

     Item No.        Item Caption                   Prospectus Caption
     --------        ------------                   ------------------

        1.           Cover Page                     COVER PAGE

        2.           Synopsis                       NOT APPLICABLE

        3.           Condensed Financial            NOT APPLICABLE
                     Information

        4.           General Description of         INVESTMENT CONCEPT OF THE FUND;
                     Registrant                     INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIO; SPECIAL RISK
                                                    CONSIDERATIONS; POLICIES AND TECHNIQUES APPLICABLE TO THE
                                                    PORTFOLIO; INVESTMENT RESTRICTIONS

        5.           Management of the Fund         INVESTMENT ADVISER; PORTFOLIO MANAGEMENT;
                                                    ADDITIONAL INFORMATION

        5A.          Management's Discussion of     NOT APPLICABLE
                     Fund Performance

        6.           Capital Stock and Other        TAX STATUS, DIVIDENDS AND DISTRIBUTIONS;
                     Securities                     SHAREHOLDER COMMUNICATIONS; ADDITIONAL INFORMATION

        7.           Purchase of Securities         DISTRIBUTOR; PURCHASES AND REDEMPTIONS;
                     Being Offered                  NET ASSET VALUE

        8.           Redemption or Repurchase       PURCHASES AND REDEMPTIONS;
                                                    NET ASSET VALUE

        9.           Pending Legal Proceedings      NOT APPLICABLE



                            Cross Reference - Page 13
<PAGE>



                      SCUDDER VARIABLE LIFE INVESTMENT FUND
                             INTERNATIONAL PORTFOLIO
                              CROSS-REFERENCE SHEET

                           Items Required By Form N-1A
                           ---------------------------


PART B
------

                                                       Caption in Statement of
    Item No.        Item Caption                       Additional Information
    --------        ------------                       ----------------------

       10.          Cover Page                         COVER PAGE

       11.          Table of Contents                  TABLE OF CONTENTS

       12.          General Information and History    ORGANIZATION AND CAPITALIZATION

       13.          Investment Objectives and          INVESTMENT OBJECTIVE AND POLICIES;
                    Policies                           POLICIES AND TECHNIQUES APPLICABLE TO THE PORTFOLIO; INVESTMENT
                                                       RESTRICTIONS; PORTFOLIO TURNOVER

       14.          Management of the Fund             MANAGEMENT

       15.          Control Persons and Principal      TRUSTEES AND OFFICERS
                    Holders of Securities

       16.          Investment Advisory and Other      INVESTMENT ADVISER AND DISTRIBUTOR; EXPERTS
                    Services

       17.          Brokerage Allocation               ALLOCATION OF PORTFOLIO BROKERAGE

       18.          Capital Stock and Other            ORGANIZATION AND CAPITALIZATION;
                    Securities                         ADDITIONAL INFORMATION

       19.          Purchase, Redemption and           PURCHASES AND REDEMPTIONS;
                    Pricing of Securities Being        NET ASSET VALUE;
                    Offered                            DIVIDENDS AND DISTRIBUTIONS

       20.          Tax Status                         TAX STATUS; DIVIDENDS AND DISTRIBUTIONS

       21.          Underwriters                       INVESTMENT ADVISER AND DISTRIBUTOR

       22.          Calculations of                    PERFORMANCE INFORMATION
                    Performance Data

       23.          Financial Statements               FINANCIAL STATEMENTS



                            Cross Reference - Page 14
</TABLE>
<PAGE>



                                                                       
                      SCUDDER VARIABLE LIFE INVESTMENT FUND

                             Two International Place

                        Boston, Massachusetts 02110-4103

                                 (A Mutual Fund)

Scudder  Variable Life  Investment  Fund (the "Fund") is an open-end  management
investment  company  which  offers  shares  of  beneficial   interest  of  seven
diversified  Portfolios:  

o    Money Market  Portfolio seeks stability and current income from a portfolio
     of money market  instruments.  The Money Market  Portfolio  will maintain a
     dollar-weighted  average portfolio maturity of 90 days or less in an effort
     to maintain a constant net asset value of $1.00 per share.

o    Bond Portfolio seeks high income from a high quality portfolio of bonds.

o    Balanced  Portfolio  seeks a  balance  of  growth  and  income,  as well as
     long-term  preservation of capital,  from a diversified portfolio of equity
     and fixed-income securities.

o    Growth and Income  Portfolio  seeks  long-term  growth of capital,  current
     income and growth of income from a portfolio consisting primarily of common
     stocks and securities convertible into common stocks.

o    Capital Growth Portfolio seeks to maximize  long-term capital growth from a
     portfolio consisting primarily of equity securities.

o    Global Discovery  Portfolio seeks above-average  capital  appreciation over
     the long term by  investing  primarily  in the equity  securities  of small
     companies located throughout the world.

o    International  Portfolio seeks long-term growth of capital principally from
     a diversified portfolio of foreign equity securities.

   
This  prospectus  sets forth  concisely  the  information  about the Fund that a
prospective  investor should know before applying for certain  variable  annuity
contracts ("VA contracts") and variable life insurance policies ("VLI policies")
offered in the separate accounts of certain insurance companies  ("Participating
Insurance  Companies").  Please  read it  carefully  and  retain  it for  future
reference. The prospectus should be read in conjunction with the VA contract and
VLI  policy  prospectus  which  accompanies  it.  Shares  of  the  Money  Market
Portfolio,  and Class A shares of all other  Portfolios,  are offered herein. If
you require more detailed  information,  a Statement of  Additional  Information
dated May 1, 1997, as supplemented  from time to time, is available upon request
without charge and may be obtained by calling a Participating  Insurance Company
or by writing to  broker/dealers  offering the above  mentioned VA contracts and
VLI policies,  or Scudder  Investor  Services,  Inc., Two  International  Place,
Boston, Massachusetts 02110-4103. The Statement of Additional Information, which
is  incorporated  by  reference  into this  prospectus,  has been filed with the
Securities and Exchange Commission. 
    

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. 

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

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

                                   PROSPECTUS

   
                                   May 1, 1997
    

<PAGE>

                                                                        SCUDDER
-------------------------------------------------------------------------------

                                TABLE OF CONTENTS

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


                                                               Page

INVESTMENT CONCEPT OF THE FUND                                   1
FINANCIAL HIGHLIGHTS                                             2
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS             8


     Money Market Portfolio                                      8
     Bond Portfolio                                              8
     Balanced Portfolio                                          9
     Growth and Income Portfolio                                11
     Capital Growth Portfolio                                   11
     Global Discovery Portfolio                                 11
     International Portfolio                                    14

POLICIES AND TECHNIQUES APPLICABLE TO THE PORTFOLIOS            14
     Repurchase Agreements                                      14
     Convertible Securities                                     15
     Mortgage and Other Asset-Backed Securities                 15
     Foreign Securities                                         15
     When-Issued Securities                                     16
     Indexed Securities                                         16
     Loans of Portfolio Securities                              16
     Zero Coupon Securities                                     16
     Derivatives                                                17
     Options                                                    17
     Options on Securities Indexes                              17
     Futures Contracts                                          17
     Forward Foreign Currency Exchange Contracts, Foreign
       Currency Futures Contracts and Foreign Currency Options  18
     Strategic Transactions and Derivatives Applicable to
       Global Discovery Portfolio                               18
     Special Situation Securities                               18

INVESTMENT RESTRICTIONS                                         20
INVESTMENT ADVISER                                              21
     Portfolio Management                                       22
     Money Market Portfolio                                     22
     Bond Portfolio                                             22
     Balanced Portfolio                                         23
     Growth and Income Portfolio                                23
     Capital Growth Portfolio                                   23
     Global Discovery Portfolio                                 23
     International Portfolio                                    23

DISTRIBUTOR                                                     24
PURCHASES AND REDEMPTIONS                                       24
NET ASSET VALUE                                                 25
PERFORMANCE INFORMATION                                         25
     Money Market Portfolio                                     25
     Bond Portfolio                                             25
     All Portfolios                                             25
VALUATION OF PORTFOLIO SECURITIES                               26
     Money Market Portfolio                                     26
     Other Portfolios                                           26
TAX STATUS, DIVIDENDS AND DISTRIBUTIONS                         26
SHAREHOLDER COMMUNICATIONS                                      27
ADDITIONAL INFORMATION                                          27
     Fund Organization and Shareholder Indemnification          27
     Other Information                                          28

TRUSTEES AND OFFICERS                                           29


<PAGE>


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

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



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


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


                                       1
<PAGE>



                                                                        SCUDDER
-------------------------------------------------------------------------------

                              FINANCIAL HIGHLIGHTS

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

Money Market Portfolio

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

If  you  would  like  more  detailed  information   concerning  the  Portfolio's
performance,  a complete portfolio listing and audited financial  statements are
available  in the  Fund's  Annual  Report  dated  December  31,  1995 and may be
obtained  without  charge by  calling a  Participating  Insurance  Company or by
writing to broker/dealers offering the previously mentioned VA contracts and VLI
policies, or Scudder Investor Services, Inc.

<TABLE>
<CAPTION>
                                                                                                         SIX     FOR THE PERIOD
                                                                                                       MONTHS    JULY 16, 1985
                                                                                                       ENDED    (COMMENCEMENT
                                                      YEARS ENDED DECEMBER 31,                        DECEMBER  OF OPERATIONS) 
                               ----------------------------------------------------------------------    31,     TO JUNE 30,  
                                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>


                                       2
<PAGE>


                                                                        SCUDDER
-------------------------------------------------------------------------------

                              FINANCIAL HIGHLIGHTS

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

Bond Portfolio

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

If  you  would  like  more  detailed  information   concerning  the  Portfolio's
performance,  a complete portfolio listing and audited financial  statements are
available  in the  Fund's  Annual  Report  dated  December  31,  1995 and may be
obtained  without  charge by  calling a  Participating  Insurance  Company or by
writing to broker/dealers offering the previously mentioned VA contracts and VLI
policies, or Scudder Investor Services, Inc.
<TABLE>
<CAPTION>
                                                                                                     
                                                                                                          SIX       FOR THE PERIOD
                                                                                                         MONTHS      JULY 16, 1985
                                                                                                          ENDED     (COMMENCEMENT
                                                YEARS ENDED DECEMBER 31, (e)                            DECEMBER    OF OPERATIONS)
                               ---------------------------------------------------------------------       31,       TO JUNE 30,
                                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>

                                       3
<PAGE>

                                                                        SCUDDER
-------------------------------------------------------------------------------

                              FINANCIAL HIGHLIGHTS

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

Balanced Portfolio

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

If  you  would  like  more  detailed  information   concerning  the  Portfolio's
performance,  a complete portfolio listing and audited financial  statements are
available  in the  Fund's  Annual  Report  dated  December  31,  1995 and may be
obtained  without  charge by  calling a  Participating  Insurance  Company or by
writing to broker/dealers offering the previously mentioned VA contracts and VLI
policies, or Scudder Investor Services, Inc.
<TABLE>
<CAPTION>
                                                                                                     
                                                                                                          SIX       FOR THE PERIOD
                                                                                                         MONTHS      JULY 16, 1985
                                                                                                          ENDED     (COMMENCEMENT
                                                YEARS ENDED DECEMBER 31, (e)                            DECEMBER    OF OPERATIONS)
                               ---------------------------------------------------------------------       31,       TO JUNE 30,
                                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>

                                       4
<PAGE>


                                                                        SCUDDER
-------------------------------------------------------------------------------

                              FINANCIAL HIGHLIGHTS

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

Growth and Income Portfolio

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

If  you  would  like  more  detailed  information   concerning  the  Portfolio's
performance,  a complete portfolio listing and audited financial  statements are
available  in the  Fund's  Annual  Report  dated  December  31,  1995 and may be
obtained  without  charge by  calling a  Participating  Insurance  Company or by
writing to broker/dealers offering the previously mentioned VA contracts and VLI
policies, or Scudder Investor Services, Inc.
<TABLE>
<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>



                                       5
<PAGE>


                                                                        SCUDDER
-------------------------------------------------------------------------------

                              FINANCIAL HIGHLIGHTS

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

Capital Growth Portfolio

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

If  you  would  like  more  detailed  information   concerning  the  Portfolio's
performance,  a complete portfolio listing and audited financial  statements are
available  in the  Fund's  Annual  Report  dated  December  31,  1995 and may be
obtained  without  charge by  calling a  Participating  Insurance  Company or by
writing to broker/dealers offering the previously mentioned VA contracts and VLI
policies, or Scudder Investor Services, Inc.

<TABLE>
<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>


                                       6
<PAGE>


                                                                        SCUDDER
-------------------------------------------------------------------------------

                              FINANCIAL HIGHLIGHTS

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

International Portfolio

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

If  you  would  like  more  detailed  information   concerning  the  Portfolio's
performance,  a complete portfolio listing and audited financial  statements are
available  in the  Fund's  Annual  Report  dated  December  31,  1995 and may be
obtained  without  charge by  calling a  Participating  Insurance  Company or by
writing to broker/dealers offering the previously mentioned VA contracts and VLI
policies, or Scudder Investor Services, Inc.
<TABLE>
<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>

                                       7
<PAGE>


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

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


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

MONEY MARKET PORTFOLIO

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

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

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

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

BOND PORTFOLIO

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

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

                                       8
<PAGE>

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

   
The Bond  Portfolio is of high  quality.  Under normal  market  conditions,  the
Portfolio will invest at least 65% of its assets in securities  rated within the
three highest quality rating  categories of Moody's (Aaa, Aa and A) or S&P (AAA,
AA and A), or if  unrated,  in bonds  judged  by the  Fund's  Adviser,  to be of
comparable  quality at the time of purchase.  The Portfolio may invest up to 20%
of its assets in debt  securities  rated lower than Baa3 or BBB- or, if unrated,
of equivalent quality as determined by the Adviser,  but will not purchase bonds
rated below B3 by Moody's or B- by S&P or their equivalent.

Risks of debt securities  rated below  investment-grade:  Securities rated below
investment-grade  (those rated lower than Baa3 or BBB-) are commonly referred to
as "junk bonds."  These  securities  can entail  greater  price  volatility  and
involve a higher degree of speculation  with respect to the payment of principal
and interest than higher quality fixed-income  securities.  The market prices of
such lower rated debt securities may decline significantly in periods of general
economic  difficulty.  In addition,  the trading market for these  securities is
generally  less liquid than for higher rated  securities,  and the Portfolio may
have  difficulty  disposing of these  securities at the time it wishes to do so.
The lack of a liquid  secondary  market for certain  securities may also make it
more  difficult  for the  Portfolio to obtain  accurate  market  quotations  for
purposes of valuing its portfolio and calculating its net asset value.
    

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

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

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

BALANCED PORTFOLIO

The Balanced  Portfolio  seeks a balance of growth and income from a diversified
portfolio  of equity  and fixed  income  securities.  The  Portfolio  also seeks
long-term preservation of capital through a quality-oriented investment approach
that is designed to reduce risk.


In  seeking  its  objectives  of a balance  of  growth  and  income,  as well as
long-term  preservation  of  capital,  the  Portfolio  invests in a  diversified
portfolio of equity and fixed income securities.  The Portfolio  invests,  under
normal  circumstances,  at least 50%, but no more than 75%, of its net assets in
common stocks and other equity  investments.  The Portfolio's equity investments
consist of common stocks,  preferred stocks, warrants and securities convertible
into common  stocks,  of  companies  that,  in the  Adviser's  judgment,  are of
above-average  financial quality and offer the prospect for above-average growth
in earnings,  cash flow, or assets  relative to the overall market as defined by
the Standard and Poor's 500  Composite  Price Index ("S&P 500").  The  Portfolio
will invest  primarily in securities  issued by medium- to large-sized  domestic
companies  with  annual  revenues  or  market  capitalization  of at least  $600
million, and which, in the opinion of the Adviser, offer above-average potential
for price  appreciation.  The Portfolio  seeks to invest in companies  that have

                                       9
<PAGE>


relatively consistent and above-average rates of growth; companies that are in a
strong financial  position with high credit standings and  profitability;  firms
with important business franchises,  leading products, or dominant marketing and
distribution systems; companies guided by experienced and motivated managements;
and companies selling at attractive market valuations. The Adviser believes that
companies with these  characteristics will be rewarded by the market with higher
stock prices over time and provide investment  returns, on average, in excess of
the S&P 500.

At least 65% of the value of the  Portfolio's  common  stocks will be of issuers
which  qualify,  at the time of purchase,  for one of the three  highest  equity
earnings  and  dividends  ranking  categories  (A+,  A, or A-) of S&P, or if not
ranked by S&P,  are  judged to be of  comparable  quality  by the  Adviser.  S&P
assigns  earnings and dividends  rankings to  corporations  based on a number of
factors,  including stability and growth of earnings and dividends.  Rankings by
S&P are not an appraisal of a company's  creditworthiness,  as is true for S&P's
debt security  ratings,  nor are these rankings intended as a forecast of future
stock  market  performance.  In addition to using S&P  rankings of earnings  and
dividends of common stocks, the Adviser conducts its own analysis of a company's
history, current financial position, and earnings prospects.

To enhance income and stability,  the Portfolio's remaining assets are allocated
to bonds and  other  fixed  income  securities,  including  cash  reserves.  The
Portfolio  will  normally  invest 25% to 50% of its net  assets in fixed  income
securities.  However,  at least 25% of the Portfolio's net assets will always be
invested in fixed income  securities.  The Portfolio can invest in a broad range
of corporate bonds and notes,  convertible  bonds, and preferred and convertible
preferred  securities.  It may also  purchase  U.S.  Government  securities  and
obligations of federal agencies and instrumentalities that are not backed by the
full faith and credit of the U.S. Government, such as obligations of the Federal
Home  Loan  Banks,  Farm  Credit  Banks,  and the  Federal  Home  Loan  Mortgage
Corporation.  The  Portfolio  may also invest in  obligations  of  international
agencies,  foreign debt securities (both U.S. and non-U.S.  dollar-denominated),
mortgage-backed  and  other  asset-backed  securities,   municipal  obligations,
restricted securities issued in private placements and zero coupon securities.

For liquidity and defensive purposes,  the Portfolio may invest without limit in
cash  and  in  money  market  securities  such  as  commercial  paper,  bankers'
acceptances, and certificates of deposit issued by domestic and foreign branches
of U.S.  banks.  The Portfolio may also enter into  repurchase  agreements  with
respect to U.S. Government securities.

Not less than 50% of the  Portfolio's  debt  securities will be invested in debt
obligations,  including  money  market  instruments,  that  (a)  are  issued  or
guaranteed by the U.S. Government,  (b) are rated at the time of purchase within
the two highest ratings categories by any  nationally-recognized  rating service
or (c) if not rated, are judged by the Adviser to be of a quality  comparable to
obligations  rated as  described  in (b)  above.  Not less  than 80% of the debt
obligations  in which the Portfolio  invests  will, at the time of purchase,  be
rated within the three highest ratings categories of any such service or, if not
rated, will be judged to be of comparable  quality by the Adviser.  Up to 20% of
the  Portfolio's  debt  securities may be invested in bonds rated below A but no
lower than B by Moody's or S&P, or unrated  securities  judged by the Adviser to
be of comparable quality. Debt securities which are rated below investment-grade
(that is, rated below Baa by Moody's or below BBB by S&P and  commonly  referred
to as "junk bonds") and unrated securities of comparable quality,  which usually
entail greater risk  (including the  possibility of default or bankruptcy of the
issuers of such securities),  generally involve greater  volatility of price and
risk of  principal  and income,  and may be less liquid than  securities  in the
higher  rating  categories.   Securities  rated  B  involve  a  high  degree  of
speculation  with respect to the payment of principal and  interest.  Should the
rating of any security  held by the  Portfolio be  downgraded  after the time of
purchase,  the Adviser will determine  whether it is in the best interest of the
Portfolio to retain or dispose of the security.

The Portfolio  will,  on occasion,  adjust its mix of  investments  among equity
securities,  bonds, and cash reserves. In reallocating investments,  the Adviser
weighs the  relative  values of different  asset  classes and  expectations  for
future returns. In doing so, the Adviser analyzes,  on a global basis, the level
and  direction  of  interest  rates,  capital  flows,  inflation   expectations,
anticipated growth of corporate profits, monetary and fiscal policies around the
world, and other related factors. The Portfolio does not take extreme investment
positions as part of an effort to "time the market."  Shifts  between stocks and
fixed income  investments  are expected to occur in generally  small  increments
within the guidelines adopted in this prospectus. The Portfolio is designed as a
conservative long-term investment program.

While the Portfolio emphasizes U.S. equity and debt securities,  it may invest a
portion of its assets in foreign securities,  including depositary receipts. The
Portfolio's  foreign holdings will meet the criteria  applicable to its domestic
investments.  The international  component of the Portfolio's investment program
is intended to increase diversification, thus reducing risk, while providing the
opportunity for higher returns.

                                       10
<PAGE>

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

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

GROWTH AND INCOME PORTFOLIO

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

The  Portfolio  attempts  to achieve  its  investment  objectives  by  investing
primarily in dividend  paying common  stocks,  preferred  stocks and  securities
convertible into common stocks.  The Portfolio may also purchase such securities
which do not pay  current  dividends  but which  offer  prospects  for growth of
capital and future income.  Convertible  securities (which may be current coupon
or zero coupon securities) are bonds,  notes,  debentures,  preferred stocks and
other securities which may be converted or exchanged at a stated or determinable
exchange ratio into  underlying  shares of common stock.  The Portfolio may also
invest  in  nonconvertible  preferred  stocks  consistent  with the  Portfolio's
objectives.  From  time to time,  for  temporary  defensive  purposes,  when the
Adviser  feels such a  position  is  advisable  in light of  economic  or market
conditions,  the  Portfolio  may invest a portion of its assets in cash and cash
equivalents.  The Portfolio may invest in foreign  securities  and in repurchase
agreements.

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

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

CAPITAL GROWTH PORTFOLIO

The Capital Growth Portfolio seeks to maximize  long-term capital growth through
a broad and flexible  investment  program.  The Portfolio  invests in marketable
securities,  principally  common  stocks and,  consistent  with its objective of
long-term capital growth, preferred stocks. However, in order to reduce risk, as
market or economic  conditions  periodically  warrant,  the  Portfolio  may also
invest up to 25% of its assets in short-term debt instruments.

In its examination of potential investments,  the Adviser considers, among other
things, the issuer's financial strength,  management  reputation,  absolute size
and overall industry position.

Equity investments can have diverse financial characteristics,  and the Trustees
believe that the  opportunity  for capital growth may be found in many different
sectors of the market at any  particular  time.  In contrast to the  specialized
investment  policies  of some  capital  appreciation  funds,  the  Portfolio  is
therefore free to invest in a wide range of marketable  securities  offering the
potential for growth.  This enables the Portfolio to pursue investment values in
various sectors of the stock market including:

     1.   Companies  that generate or apply new  technologies,  new and improved
          distribution  techniques,  or  new  services,  such  as  those  in the
          business equipment,  electronics,  specialty merchandising, and health
          service industries.

     2.   Companies  that  own or  develop  natural  resources,  such as  energy
          exploration or precious metals companies.

     3.   Companies  that  may  benefit  from  changing   consumer  demands  and
          lifestyles,    such   as   financial    service    organizations   and
          telecommunications companies.

                                       11
<PAGE>

     4.   Foreign companies.

While emphasizing  investments in companies with above-average growth prospects,
the Portfolio may also purchase and hold equity securities of companies that may
have only average growth prospects,  but seem undervalued due to factors thought
to be of a temporary  nature which may cause their securities to be out of favor
and to trade at a price below their potential value.

The Portfolio, as a matter of nonfundamental policy, may invest up to 20% of its
net  assets in  intermediate  to longer  term debt  securities  when  management
anticipates  that the  total  return  on debt  securities  is likely to equal or
exceed the total  return on common  stocks over a selected  period of time.  The
Portfolio may purchase  investment-grade debt securities,  which are those rated
Aaa, Aa, A or Baa by Moody's,  or AAA,  AA, A or BBB by S&P, or, if unrated,  of
equivalent  quality as  determined  by the Adviser.  Bonds that are rated Baa by
Moody's or BBB by S&P have some  speculative  characteristics.  The  Portfolio's
intermediate  to longer term debt  securities  may also include  those which are
rated below  investment  grade, as long as no more than 5% of its net assets are
invested  in  such  securities.  As  interest  rates  fall  the  prices  of debt
securities  tend to rise and vice versa.  Should the rating of any security held
by the  Portfolio be  downgraded  after the time of  purchase,  the Adviser will
determine  whether  it is in the best  interest  of the  Portfolio  to retain or
dispose of the security.

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

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


GLOBAL DISCOVERY PORTFOLIO

The Global Discovery Portfolio seeks above-average capital appreciation over the
long term by investing  primarily in the equity  securities  of small  companies
located  throughout the world.  The Portfolio is designed for investors  looking
for  above-average  appreciation  potential  (when  compared  with  the  overall
domestic  stock  market as reflected  by Standard & Poor's 500  Composite  Price
Index) and the  benefits of  investing  globally,  but who are willing to accept
above-average  stock market risk, the impact of currency  fluctuation and little
or no current income.

In pursuit of its objective,  the Portfolio generally invests in small,  rapidly
growing companies that offer the potential for above-average returns relative to
larger  companies,  yet are frequently  overlooked  and thus  undervalued by the
market.  The Portfolio has the flexibility to invest in any region of the world.
It can invest in companies based in emerging markets, typically in the Far East,
Latin  America and lesser  developed  countries  in Europe,  as well as in firms
operating in developed economies,  such as those of the United States, Japan and
Western  Europe.  The Portfolio will limit  investments in securities of issuers
located in Eastern Europe to 5% of its total assets.

The Adviser  invests  the  Portfolio's  assets in  companies  it believes  offer
above-average  earnings, cash flow or asset growth potential. It also invests in
companies  that may receive  greater market  recognition  over time. The Adviser
believes  these  factors offer  significant  opportunity  for long-term  capital
appreciation.  The Adviser  evaluates  investments for the Portfolio from both a
macroeconomic  and  microeconomic   perspective,   using  fundamental  analysis,
including field research. The Adviser analyzes the growth potential and relative
value of possible  investments.  When  evaluating  an  individual  company,  the
Adviser  takes into  consideration  numerous  factors,  including  the depth and
quality  of  management;   a  company's  product  line,  business  strategy  and
competitive  position;  research and development  efforts;  financial  strength,
including  degree of  leverage;  cost  structure;  revenue and  earnings  growth
potential;   price-earnings   ratios  and  other   stock   valuation   measures.
Secondarily,  the Adviser weighs the attractiveness of the country and region in
which a company is located.

Under  normal  circumstances  the  Portfolio  invests  at least 65% of its total
assets in the equity  securities of small companies.  While the Adviser believes
that smaller,  lesser-known  companies can offer greater  growth  potential than
larger,  more established  firms, the former also involve greater risk and price
volatility.  To help reduce  risk,  the  Portfolio  expects,  under usual market
conditions,  to diversify its portfolio widely by company, industry and country.
The Portfolio intends to allocate  investments among at least three countries at
all times, including the United States.

                                       12
<PAGE>


The Portfolio  may invest up to 35% of its total assets in equity  securities of
larger  companies  throughout  the world and in debt  securities  if the Adviser
determines that the capital  appreciation of debt securities is likely to exceed
the capital  appreciation  of equity  securities.  The  Portfolio  may  purchase
investment-grade  bonds,  those rated Aaa, Aa, A or Baa by Moody's or AAA, AA, A
or BBB by S&P or,  if  unrated,  of  equivalent  quality  as  determined  by the
Adviser.  The  Portfolio  may also  invest  up to 5% of its net  assets  in debt
securities  rated below  investment-grade.  Securities  rated below  Baa/BBB are
commonly  referred  to as "junk  bonds."  The  lower  the  ratings  of such debt
securities,  the greater  their risks  render them like equity  securities.  The
Portfolio may invest in securities rated D by S&P at the time of purchase, which
may be in default with respect to payment of principal or interest.

The Portfolio  invests  primarily in companies  whose  individual  equity market
capitalizations  would  place  them in the  same  size  range  as  companies  in
approximately  the lowest 20% of world market  capitalization  as represented by
the Salomon Brothers Broad Market Index, an index comprised of equity securities
of more than 6,500 small,  medium and large-sized  companies based in 22 markets
around the globe.  Based on this policy,  the  companies  held by the  Portfolio
typically  will  have  individual  equity  market   capitalizations  of  between
approximately $50 million and $2 billion (although the Portfolio will be free to
invest in smaller  capitalization  issues  that  satisfy  the  Portfolio's  size
standard).  Furthermore,  the median market capitalization of the Portfolio will
not exceed $750 million.

The  equity  securities  in which the  Portfolio  may  invest  consist of common
stocks,  preferred  stocks (either  convertible or  nonconvertible),  rights and
warrants.  These  securities  may be listed on the U.S.  or  foreign  securities
exchanges or traded  over-the-counter.  For capital appreciation  purposes,  the
Portfolio may purchase notes, bonds, debentures,  government securities and zero
coupon bonds (any of which may be convertible or nonconvertible).  The Portfolio
may invest in foreign securities and American  Depositary  Receipts which may be
sponsored or unsponsored. The Portfolio may also invest in closed-end investment
companies holding foreign securities,  and engage in strategic transactions.  In
addition,  the Portfolio may invest in illiquid or  restricted  securities.  For
temporary  defensive  purposes,  the  Portfolio  may,  during  periods  in which
conditions in securities markets warrant,  invest without limit in cash and cash
equivalents.

The Global Discovery  Portfolio cannot guarantee a gain or eliminate the risk of
loss.  The net asset  value of the  shares of the  Portfolio  will  increase  or
decrease  with changes in the market price of the  Portfolio's  investments  and
changes in foreign currency exchange rates.

SPECIAL RISK CONSIDERATIONS FOR GLOBAL DISCOVERY PORTFOLIO

The Portfolio is designed for long-term  investors who can accept  international
investment  risk.  Since the  Portfolio  normally  will invest in both U.S.  and
foreign  securities  markets,  changes in the Portfolio's share price may have a
low  correlation  with  movements  in  the  U.S.  markets,  which  enhances  the
Portfolio's  appeal as a diversification  tool. The Portfolio's share price will
reflect the movements of the different stock markets in which it is invested and
the different currencies in which the investments are denominated.  The strength
or weakness of the U.S. dollar against  foreign  currencies is likely to account
for  part  of the  Portfolio's  investment  performance,  although  the  Adviser
believes that,  over the long term, the impact of currency  changes on Portfolio
performance will not be as significant as changes in the underlying investments.
As with any long-term investment, the value of shares when sold may be higher or
lower than when purchased.

Global investing  involves economic and political  considerations  not typically
found in U.S. markets. These considerations,  which may favorably or unfavorably
affect  the  Portfolio's  performance,  include  changes in  exchange  rates and
exchange rate controls (which may include  suspension of the ability to transfer
currency  from  a  given  country),   costs  incurred  in  conversions   between
currencies, nonnegotiable brokerage commissions, different accounting standards,
lower trading volume and greater market volatility,  the difficulty of enforcing
obligations  in other  countries,  less  securities  regulation,  different  tax
provisions  (including  withholding  on  interest  and  dividends  paid  to  the
Portfolio), war, expropriation, political and social instability, and diplomatic
developments.

Further, the settlement period of securities transactions in foreign markets may
be longer than in domestic markets. These considerations generally are more of a
concern in  developing  countries.  For example,  the  possibility  of political
upheaval and the  dependence on foreign  economic  assistance  may be greater in
these countries than in developed  countries.  The Adviser seeks to mitigate the
risks associated with these  considerations  through  diversification and active
professional management.

                                       13
<PAGE>


There is typically less publicly  available  information  concerning foreign and
smaller companies than for domestic and larger, more established companies. Some
small companies have limited product lines,  distribution channels and financial
and managerial  resources.  Also,  because smaller companies normally have fewer
shares  outstanding than larger  companies and trade less frequently,  it may be
more  difficult  for the Portfolio to buy and sell  significant  amounts of such
shares without an unfavorable  impact on prevailing  market prices.  Some of the
companies  in which the  Portfolio  may invest may  distribute,  sell or produce
products  which have recently been brought to market and may be dependent on key
personnel with varying degrees of experience.

INTERNATIONAL PORTFOLIO

The International  Portfolio seeks long-term growth of capital primarily through
diversified  holdings of marketable  foreign equity  investments.  The Portfolio
invests in companies,  wherever  organized,  which do business primarily outside
the United States. The Portfolio intends to diversify  investments among several
countries and to have  represented  in its holdings  business  activities in not
less  than  three  different  countries.   The  Portfolio  does  not  intend  to
concentrate investments in any particular industry.

The Portfolio invests  primarily in equity securities of established  companies,
listed  on  foreign  exchanges,   which  the  Adviser  believes  have  favorable
characteristics.  It may also  invest  in fixed  income  securities  of  foreign
governments and companies.  However,  management intends to maintain a portfolio
consisting  primarily of equity securities.  Investing in foreign securities may
involve a greater  degree of risk than  investing in domestic  securities due to
the  possibility  of exchange  rate  fluctuations  and exchange  controls,  less
publicly  available   information,   more  volatile  markets,   less  securities
regulation,  less favorable tax provisions, war and expropriation (see "POLICIES
AND TECHNIQUES APPLICABLE TO THE PORTFOLIOS--Foreign Securities").

The Portfolio has no present  intention of altering its general  policy of being
primarily invested under normal conditions in foreign  securities.  However,  in
the event of exceptional conditions abroad, the Portfolio may temporarily invest
all or a portion of its assets in Canadian  or U.S.  Government  obligations  or
currencies,  or  securities  of  companies  incorporated  in  and  having  their
principal activities in Canada or the United States.

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

The  International  Portfolio  cannot  guarantee a gain or eliminate the risk of
loss.  The net asset  value of the  shares of the  Portfolio  will  increase  or
decrease  with changes in the market price of the  Portfolio's  investments  and
changes in foreign currency exchange rates.

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

                             POLICIES AND TECHNIQUES
                          APPLICABLE TO THE PORTFOLIOS

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

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

REPURCHASE AGREEMENTS

As a means of earning  income for periods as short as  overnight,  the Fund,  on
behalf of a  Portfolio,  may enter  into  repurchase  agreements  with U.S.  and
foreign  banks,  and  any  broker-dealer  which  is  recognized  as a  reporting
government   securities  dealer,  if  the   creditworthiness   of  the  bank  or
broker-dealer  has been  determined by the Adviser to be of a sufficiently  high
quality. Under a repurchase agreement, a Portfolio acquires securities,  subject
to the seller's agreement to repurchase those securities at a specified time and
price.  Securities  subject to a repurchase  agreement  are held in a segregated
account and the seller agrees to maintain the market value of such securities at
least equal to 100.5% of the  repurchase  price on a daily basis.  If the seller
under a repurchase  agreement becomes insolvent,  the Fund's right to dispose of
the securities may be restricted. In the event of the commencement of bankruptcy
or insolvency  proceedings of the seller of the securities  before repurchase of
the securities  under a repurchase  agreement,  the Fund may encounter delay and
incur costs,  including a decline in value of the securities,  before being able
to sell the securities.

CONVERTIBLE SECURITIES

The Bond,  Balanced,  Growth and  Income,  Capital  Growth and Global  Discovery
Portfolios may each invest in convertible securities (bonds, notes,  debentures,
preferred stocks and other securities  convertible into common stocks) which may

                                       14
<PAGE>

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

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

MORTGAGE AND OTHER ASSET-BACKED SECURITIES

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

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

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

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

FOREIGN SECURITIES

The Bond,  Balanced,  Growth and Income,  Capital Growth,  Global  Discovery and
International  Portfolios  may  each  invest  without  limit,  except  as may be
applicable to debt securities generally, in U.S. dollar-denominated foreign debt
securities  (including  those issued by the Dominion of Canada and its provinces
and other debt  securities  which meet the criteria  applicable to a Portfolio's
domestic  investments),  and in  certificates of deposit issued by foreign banks
and foreign branches of United States banks, to any extent deemed appropriate by
the Adviser.  The Bond  Portfolio may invest up to 20% of its assets in non-U.S.
dollar-denominated foreign debt securities. The Balanced Portfolio may invest up
to 20% of its  debt  securities  in  non-U.S.  dollar-denominated  foreign  debt
securities,  and may  invest  up to 25% of its  equity  securities  in  non-U.S.
dollar-denominated  foreign equity  securities.  The Growth and Income Portfolio
may invest up to 25% of its assets in non-U.S.  dollar-denominated securities of
foreign  issuers.  The  Capital  Growth  Portfolio  may  invest up to 25% of its
assets,  and the Global Discovery and  International  Portfolios may each invest
without  limit,  in non-U.S.  dollar-denominated  equity  securities  of foreign
issuers.  Global investing  involves economic and political  considerations  not
typically found in U.S. markets.  These  considerations,  which may favorably or
unfavorably affect the Fund's performance, include changes in exchange rates and
exchange rate controls (which may include  suspension of the ability to transfer
currency  from  a  given  country),   costs  incurred  in  conversions   between
currencies, nonnegotiable brokerage commissions, different accounting standards,

                                       15
<PAGE>


lower trading volume and greater market volatility,  the difficulty of enforcing
obligations  in other  countries,  less  securities  regulation,  different  tax
provisions  (including  withholding on interest and dividends paid to the Fund),
war,   expropriation,   political  and  social   instability,   and   diplomatic
developments.  Further,  the  settlement  period of securities  transactions  in
foreign  markets may be longer than in domestic  markets.  These  considerations
generally  are more of a concern  in  developing  countries.  For  example,  the
possibility  of  political  upheaval  and the  dependence  on  foreign  economic
assistance may be greater in these  countries than in developed  countries.  The
Adviser seeks to mitigate the risks associated with these considerations through
diversification and active professional management.

WHEN-ISSUED SECURITIES

A Portfolio may from time to time  purchase  securities  on a  "when-issued"  or
"forward  delivery"  basis.  Debt securities are often issued on this basis. The
price of such securities, which may be expressed in yield terms, is fixed at the
time a  commitment  to  purchase  is made,  but  delivery  and  payment for such
securities  take place at a later date.  During the period between  purchase and
settlement,  no payment is made by a Portfolio  and no  interest  accrues to the
Portfolio. To the extent that assets of a Portfolio are held in cash pending the
settlement of a purchase of  securities,  that  Portfolio  would earn no income;
however,  it is the Fund's  intention that each Portfolio will be fully invested
to the extent  practicable  and  subject to the  policies  stated  above.  While
when-issued or forward  delivery  securities may be sold prior to the settlement
date,  the  Portfolio  intends to purchase such  securities  with the purpose of
actually acquiring them unless a sale appears desirable for investment  reasons.
At the time a  Portfolio  makes the  commitment  to  purchase  a  security  on a
when-issued  or forward  delivery  basis,  it will  record the  transaction  and
reflect  the amount due and the value of the  security  in  determining  the net
asset  value of a  Portfolio.  The market  value of the  when-issued  or forward
delivery  securities  may be more or less than the purchase price payable at the
settlement date. The Fund does not believe that a Portfolio's net asset value or
income will be adversely affected by the purchase of securities on a when-issued
or forward  delivery basis.  Each Portfolio will establish a segregated  account
with its custodian in which it will maintain cash,  U.S.  Government  securities
and other high-grade debt obligations at least equal in value to commitments for
when-issued or forward delivery  securities.  Such segregated  securities either
will mature or, if necessary, be sold on or before the settlement date.

INDEXED SECURITIES

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

LOANS OF PORTFOLIO SECURITIES

The Fund may lend the  portfolio  securities  of any  Portfolio  (other than the
Money  Market  Portfolio)  provided:  (1) the loan is  secured  continuously  by
collateral consisting of U.S. Government securities, or cash or cash equivalents
adjusted daily to have a market value at least equal to the current market value
of the securities  loaned; (2) the Fund may at any time call the loan and regain
the securities  loaned; (3) the Portfolio will receive any interest or dividends
paid on the loaned securities;  and (4) the value of such securities loaned will
not at any time  exceed 10% of the value of the  Portfolio's  total  assets.  In
addition,  it is anticipated that the Portfolio may share with the borrower some
of the income  received on the collateral for the loan or that it will be paid a
premium  for the  loan.  Before a  Portfolio  enters  into a loan,  the  Adviser
considers all relevant facts and circumstances including the creditworthiness of
the borrower.

ZERO COUPON SECURITIES

The Bond  Portfolio  and the Balanced  Portfolio  may each invest in zero coupon
securities,  including U.S. Government securities and privately stripped coupons
on and receipts for U.S.  Government  securities.  These  securities pay no cash
income but are issued at  substantial  discounts  from their value at  maturity.
When held to maturity,  their entire return,  which consists of the accretion of
discount, comes from the difference between their issue price and their maturity

                                       16
<PAGE>

value.  Because they do not pay interest until maturity,  zero coupon securities
tend to be subject to greater interim fluctuation of market value in response to
changes in interest rates than interest-paying securities of similar maturities.

DERIVATIVES

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

OPTIONS

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

OPTIONS ON SECURITIES INDEXES

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

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

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

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

FUTURES CONTRACTS

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

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

The Fund will engage in  transactions  in futures  contracts and options thereon
only in an effort to protect a  Portfolio  against a decline in the value of the
Portfolio's  securities  or an  increase  in the  price of  securities  that the

                                       17
<PAGE>

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

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS,  FOREIGN CURRENCY FUTURES CONTRACTS
AND FOREIGN CURRENCY OPTIONS

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

The  International  Portfolio  may also  enter  into  foreign  currency  futures
contracts and foreign  currency options to the extent of 15% of the value of its
total assets,  for hedging  purposes.  Foreign  currency  futures  contracts are
standardized   contracts  traded  on  commodities  exchanges  which  involve  an
obligation  to  purchase  or  sell  a  predetermined  amount  of  currency  at a
predetermined  date at a specified  price.  The  purpose of entering  into these
contracts is to minimize the risk to the Portfolio  from adverse  changes in the
relationship  between the U.S. dollar and foreign currencies.  At the same time,
such  contracts  may  limit  potential  gain  from  a  positive  change  in  the
relationship  between the U.S. dollar and foreign currencies.  The Portfolio may
purchase and sell options on foreign currencies for hedging purposes in a manner
similar to that of transactions in forward contracts.  Unanticipated  changes in
currency prices may result in poorer overall  performance for the Portfolio than
if it had not engaged in forward  contracts,  foreign currency futures contracts
and foreign currency options.

STRATEGIC TRANSACTIONS AND DERIVATIVES APPLICABLE TO GLOBAL DISCOVERY PORTFOLIO

The Global  Discovery  Portfolio  may, but is not required to,  utilize  various
other  investment  strategies as described  below to hedge various  market risks
(such as interest rates,  currency  exchange rates, and broad or specific equity
or fixed-income market movements),  to manage the effective maturity or duration
of fixed-income  securities in the Portfolio or to enhance potential gain. These
strategies  may be  executed  through  the  use of  derivative  contracts.  Such
strategies are generally  accepted as a part of modern portfolio  management and
are regularly utilized by many mutual funds and other  institutional  investors.
Techniques  and  instruments  may  change  over  time  as  new  instruments  and
strategies are developed or regulatory changes occur.

In the  course of  pursuing  these  investment  strategies,  the  Portfolio  may
purchase and sell  exchange-listed and  over-the-counter put and call options on
securities,  equity and  fixed-income  indices and other financial  instruments,
purchase and sell financial  futures  contracts and options thereon,  enter into
various interest rate transactions such as swaps,  caps, floors or collars,  and
enter into various currency  transactions  such as currency  forward  contracts,
currency futures contracts,  currency swaps or options on currencies or currency
futures (collectively, all the above are called "Strategic Transactions").

Strategic  Transactions  may be used without limit to attempt to protect against
possible changes in the market value of securities held in or to be purchased by
the  Portfolio  resulting  from  securities  markets or currency  exchange  rate
fluctuations,  to protect the Portfolio's  unrealized  gains in the value of its
portfolio  securities,  to facilitate the sale of such securities for investment
purposes,   to  manage  the  effective  maturity  or  duration  of  fixed-income
securities  in the  portfolio,  or to  establish a position  in the  derivatives
markets  as  a  temporary   substitute  for  purchasing  or  selling  particular
securities.  Some Strategic  Transactions may also be used to enhance  potential
gain  although no more than 5% of the  Portfolio's  assets will be  committed to
Strategic  Transactions  entered into for  non-hedging  purposes.  Any or all of
these investment techniques may be used at any time and in any combination,  and
there is no particular  strategy  that dictates the use of one technique  rather
than  another,  as use of any  Strategic  Transaction  is a function of numerous
variables  including market conditions.  The ability of the Portfolio to utilize
these Strategic  Transactions  successfully will depend on the Adviser's ability

                                       18
<PAGE>

to predict  pertinent market movements,  which cannot be assured.  The Portfolio
will comply with applicable  regulatory  requirements  when  implementing  these
strategies,   techniques  and  instruments.   Strategic  Transactions  involving
financial  futures and options  thereon will be purchased,  sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not for speculative purposes.

Strategic  Transactions,  including derivative contracts,  have risks associated
with them  including  possible  default by the other  party to the  transaction,
illiquidity and, to the extent the Adviser's view as to certain market movements
is incorrect,  the risk that the use of such Strategic Transactions could result
in losses  greater  than if they had not been used.  Use of put and call options
may result in losses to the  Portfolio,  force the sale or purchase of portfolio
securities  at  inopportune  times or for prices higher than (in the case of put
options)  or lower than (in the case of call  options)  current  market  values,
limit the amount of appreciation the Portfolio can realize on its investments or
cause the  Portfolio  to hold a security  it might  otherwise  sell.  The use of
currency  transactions can result in the Portfolio  incurring losses as a result
of a number of factors including the imposition of exchange controls, suspension
of settlements or the inability to deliver or receive a specified currency.  The
use of  options  and  futures  transactions  entails  certain  other  risks.  In
particular,  the  variable  degree of  correlation  between  price  movements of
futures contracts and price movements in the related  portfolio  position of the
Portfolio  creates the possibility that losses on the hedging  instrument may be
greater  than  gains in the  value of the  Portfolio's  position.  In  addition,
futures and options markets may not be liquid in all  circumstances  and certain
over-the-counter  options may have no markets.  As a result, in certain markets,
the  Portfolio  might not be able to close out a transaction  without  incurring
substantial losses, if at all. Although the use of futures contracts and options
transactions  for  hedging  should  tend to  minimize  the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any  potential  gain  which  might  result  from an  increase  in  value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential  financial risk than would purchases of
options,  where the  exposure  is  limited to the cost of the  initial  premium.
Losses resulting from the use of Strategic  Transactions  would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions  had  not  been  utilized.  The  Strategic  Transactions  that  the
Portfolio may use and some of their risks are described more fully in the Fund's
Statement of Additional Information.

SPECIAL SITUATION SECURITIES

From time to time, the Global  Discovery  Portfolio may invest in equity or debt
securities  issued by companies  that are  determined  by the Adviser to possess
"special situation" characteristics.  In general, a special situation company is
a company whose securities are expected to increase in value solely by reason of
a development  particularly or uniquely applicable to the company.  Developments
that may  create  special  situations  include,  among  others,  a  liquidation,
reorganization,  recapitalization or merger, material litigation,  technological
breakthrough  and new  management or  management  policies.  The principal  risk
associated  with  investments  in  special  situation   companies  is  that  the
anticipated  development  thought to create the special  situation may not occur
and the  investments  therefore  may not  appreciate  in value or may decline in
value.


                                       19
<PAGE>

                                                                        SCUDDER
-------------------------------------------------------------------------------

                             INVESTMENT RESTRICTIONS

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


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


The Fund may not,  on behalf  of any  Portfolio,  except  the  Global  Discovery
Portfolio:


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

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

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

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

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

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

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

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

                                       20
<PAGE>


In addition, the Fund may not, on behalf of the Global Discovery Portfolio:

     (1)  borrow  money  except as a  temporary  measure  for  extraordinary  or
          emergency  purposes or except in  connection  with reverse  repurchase
          agreements  provided that the Portfolio  maintains  asset  coverage of
          300% for all borrowings;

     (2)  purchase or sell real estate  (except that the Portfolio may invest in
          (i)  securities  of companies  which deal in real estate or mortgages,
          and (ii) securities secured by real estate or interests  therein,  and
          that the Portfolio reserves freedom of action to hold and to sell real
          estate  acquired  as  a  result  of  the   Portfolio's   ownership  of
          securities);  or purchase or sell  physical  commodities  or contracts
          relating to physical commodities;

     (3)  act as an  underwriter of securities  issued by others,  except to the
          extent that it may be deemed an  underwriter  in  connection  with the
          disposition of portfolio securities of the Portfolio;

     (4)  issue   senior   securities,   except  as   appropriate   to  evidence
          indebtedness  which it is permitted to incur, and except for shares of
          the separate  classes or series of the Fund;  provided that collateral
          arrangements  with  respect  to  currency-related  contracts,  futures
          contracts, options or other permitted investments,  including deposits
          of initial and variation margin, are not considered to be the issuance
          of senior securities for purposes of this restriction;

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

     (6)  with respect to 75% of its total assets taken at market value purchase
          more than 10% of the voting  securities  of any one issuer,  or invest
          more than 5% of the value of its total assets in the securities of any
          one  issuer,  except  obligations  issued  or  guaranteed  by the U.S.
          Government, its agencies or instrumentalities and except securities of
          closed end investment companies;

     (7)  make loans to other persons, except (a) loans of portfolio securities,
          provided  collateral is maintained at not less than 100% by marking to
          market  daily,  and  (b) to  the  extent  the  entry  into  repurchase
          agreements and the purchase of debt  securities in accordance with its
          investment  objective  and  investment  policies  may be  deemed to be
          loans;

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

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

                               INVESTMENT ADVISER

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

The Fund retains the investment advisory firm of Scudder, Stevens & Clark, Inc.,
a  Delaware   corporation,   Two  International  Place,  Boston,   Massachusetts
02110-4103,  to manage each  Portfolio's  daily  investment and business affairs
subject to the policies  established by the Trustees.  The Trustees have overall
responsibility  for the  management  of the Fund under  Massachusetts  law.  The
Adviser is one of the most  experienced  investment  counsel firms in the United
States.  It was  established  in 1919 and  pioneered  the  practice of providing
investment counsel to individual clients on a fee basis. The principal source of
the Adviser's  income is  professional  fees received from providing  continuing
investment advice,  and the firm derives no income from brokerage,  insurance or
underwriting  of  securities.  Today,  it provides  investment  counsel for many
individuals  and  institutions,   including   insurance   companies,   colleges,
industrial  corporations,  and financial and banking organizations.  Directly or
through  affiliates,  the Adviser provides  investment  advice to over 50 mutual
fund portfolios.

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

                                       21
<PAGE>

-------------------------------------------------------------------------
  Portfolio                            Percent of the average
                                       daily net asset values
                                       of each Portfolio
 -------------------------------------------------------------------------
 Money Market Portfolio                       .370%
 Bond Portfolio                               .475%
 Balanced Portfolio                           .475%
 Growth and Income Portfolio                  .475%
 Capital Growth Portfolio                     .475%
 Global Discovery Portfolio                   .975%
 International Portfolio                      .875%
 -------------------------------------------------------------------------

The  investment  advisory  fees  for  the  Global  Discovery  and  International
Portfolios  are higher than those  charged many funds which invest  primarily in
U.S. securities, but are not necessarily higher than those charged to funds with
investment objectives similar to the investment objectives of these Portfolios.

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

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

Until  April 30,  1998,  the Adviser has agreed to waive part or all of its fees
for Global Discovery Portfolio to the extent that the Portfolio's  expenses will
be maintained at 1.50% of average net assets.

PORTFOLIO MANAGEMENT

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

MONEY MARKET PORTFOLIO

Lead  Portfolio  Manager  Stephen  L.  Akers  has led Money  Market  Portfolio's
day-to-day  management  since 1995.  Mr.  Akers  joined the team in 1995 and has
managed several  fixed-income  portfolios  since joining Scudder in 1984.  Nicca
Alcantara,  Portfolio Manager, has responsibility for the Portfolio's day-to-day
investments.  Ms.  Alcantara,  who came to  Scudder  in 1984,  has  worked  as a
portfolio  manager  since 1989 and joined the team in 1990.  Prior to becoming a
portfolio  manager,  Ms. Alcantara  worked as an account  assistant in Scudder's
Reserve Asset Management Group. Debra A. Hanson,  Portfolio Manager,  joined the
team in  1996.  Ms.  Hanson  assists  with  the  development  and  execution  of
investment strategy and has been with Scudder since 1983.

BOND PORTFOLIO

Lead  Portfolio  Manager  William  M.  Hutchinson  has  had  responsibility  for
overseeing the Portfolio's  day-to-day operations and has guided the Portfolio's
investment  strategy since 1996. Mr. Hutchinson,  who has 22 years of investment


                                       22
<PAGE>

experience,  came to Scudder in 1986 as a portfolio  manager and joined the team
in 1987. Ruth Heisler,  Portfolio Manager,  helps set the Portfolio's investment
strategy.  Ms.  Heisler,  who  has  over  40  years  of  fixed-income  investing
experience, joined the team in 1986.

BALANCED PORTFOLIO

Lead  Portfolio  Manager  Valerie  F.  Malter  joined  Scudder  in  1995  and is
responsible for the Portfolio's  investment  strategy and daily  operation.  Ms.
Malter  has 10  years of  experience  as an  analyst  covering  a wide  range of
industries,  and three years of portfolio management  experience focusing on the
stocks of companies with medium- to large-sized market capitalizations.  Michael
K. Shields, Portfolio Manager, focuses on the Portfolio's healthcare stocks. Mr.
Shields  joined  Scudder in 1992 and has 14 years of experience in the financial
industry. William M. Hutchinson,  Portfolio Manager, helps set Scudder's overall
fixed-income investment strategy. Mr. Hutchinson, who has 22 years of investment
experience,  came to  Scudder  in 1986 as a  portfolio  manager.  Ruth  Heisler,
Portfolio  Manager,  has had  responsibility  for the  Portfolio's  fixed-income
investments  since she joined the team in 1986.  Ms.  Heisler has been  involved
with bond research and investing at Scudder since 1953.

GROWTH AND INCOME PORTFOLIO

Lead Portfolio Manager Robert T. Hoffman has  responsibility  for setting Growth
and Income  Portfolio's  stock  investing  strategy and oversees the Portfolio's
day-to-day  operations.  Mr. Hoffman,  who joined Scudder in 1990 as a portfolio
manager,  has 12 years  of  experience  in the  investment  industry,  including
several  years of pension  fund  management  experience.  Kathleen  T.  Millard,
Portfolio  Manager,  has worked in the  investment  industry since 1983 and as a
portfolio  manager since 1986. Ms.  Millard,  who joined  Scudder in 1991,  also
focuses on stock investing strategy and stock selection.  Benjamin W. Thorndike,
Portfolio  Manager,   is  the  Portfolio's  chief  analyst  and  strategist  for
convertible  securities.   Mr.  Thorndike,   who  has  17  years  of  investment
experience,  joined  Scudder in 1983 as a portfolio  manager.  Lori J. Ensinger,
Portfolio  Manager,  joined the team in 1996. Ms. Ensinger,  who has 13 years of
investment  industry  experience,  joined  Scudder in 1993 and  focuses on stock
selection and investment strategy.

CAPITAL GROWTH PORTFOLIO

Lead Portfolio  Manager  William F. Gadsden assumed  responsibility  for setting
Capital  Growth   Portfolio's  stock  investing   strategy  and  overseeing  the
Portfolio's  day-to-day  operations in 1995. Mr. Gadsden joined the team in 1989
and Scudder in 1983 and has 14 years of investment  experience.  Bruce F. Beaty,
Portfolio  Manager,  joined  the team in 1995.  Prior to  joining  Scudder  as a
portfolio manager in 1991, Mr. Beaty spent 11 years in the securities  brokerage
business.

GLOBAL DISCOVERY PORTFOLIO

Lead Portfolio Manager Gerald J. Moran sets the Portfolio's  investment strategy
and oversees its daily operation. Mr. Moran joined Scudder's equity research and
management  area in 1968 as an analyst and has focused on small  company  stocks
since 1982 and has been a portfolio manager since 1985. Sewall Hodges, Portfolio
Manager,  joined  Scudder  in 1995.  Mr.  Hodges,  who has ten  years in  global
analysis and portfolio  management,  focuses on the Portfolio's  stock selection
and research.

INTERNATIONAL PORTFOLIO

Lead  Portfolio  Manager  Carol  L.  Franklin  sets  International   Portfolio's
investment  strategy and has responsibility for the Portfolio's daily operation.
Ms.  Franklin,  who joined the team in 1989,  has worked on equity  investing at
Scudder as a portfolio manager since 1981.  Nicholas Bratt,  Portfolio  Manager,
has  been a  member  of the  Portfolio  team  since  1987  and has 22  years  of
experience  in  worldwide  investing,  including  20  years of  experience  as a
portfolio manager.  Mr. Bratt, who has worked at Scudder since 1976, is the head
of Scudder's Global Equity Department.  Joan Gregory, Portfolio Manager, focuses
on stock  selection,  a role she has played since joining  Scudder in 1992.  Ms.
Gregory has been involved with investment in global and international  stocks as
an assistant portfolio manager since 1989.


                                       23
<PAGE>

                                                                         SCUDDER
-------------------------------------------------------------------------------

                                   DISTRIBUTOR

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

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


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

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

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

                            PURCHASES AND REDEMPTIONS

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

Except for Money  Market  Portfolio,  which does not offer  separate  classes of
shares, the Fund offers two classes of shares on behalf of each Portfolio: Class
A shares are  offered  at net asset  value and are not  subject to fees  imposed
pursuant to a Distribution  Plan.  Class B shares are offered at net asset value
and are subject to fees imposed pursuant to a Distribution Plan.

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

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

                                       24
<PAGE>

at any time when the Fund may, under  applicable laws and  regulations,  suspend
payment on the redemption of its shares.

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

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

                                 NET ASSET VALUE

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

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


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

                             PERFORMANCE INFORMATION

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

MONEY MARKET PORTFOLIO

From  time to time,  quotations  of the Money  Market  Portfolio's  "yield"  and
"effective yield" may be included in advertisements, sales literature or reports
to  shareholders or prospective  investors.  Both yield figures are based on the
historical   performance  of  the  Portfolio  and  show  the  performance  of  a
hypothetical investment and are not intended to indicate future performance. The
yield  of the  Money  Market  Portfolio  refers  to the  net  investment  income
generated by the Portfolio over a specified seven-day period (the ending date of
which will be stated).  Included in "net investment  income" is the amortization
of market  premium or  accretion  of market and original  issue  discount.  This
income is then  "annualized."  That is,  the amount of income  generated  by the
Portfolio  during that week is assumed to be  generated  during each week over a
52-week  period and is shown as a percentage.  The effective  yield is expressed
similarly  but,  when  annualized,  the income  earned by an  investment  in the
Portfolio  is assumed to be  reinvested.  The  effective  yield will be slightly
higher  than  the  yield  because  of the  compounding  effect  of this  assumed
reinvestment.  Yield and effective  yield for the Portfolio  will vary based on,
among other things,  changes in market  conditions,  the level of interest rates
and the level of the Portfolio's expenses.

BOND PORTFOLIO

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

ALL PORTFOLIOS

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

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

                                       25
<PAGE>

                                                                         SCUDDER
-------------------------------------------------------------------------------

                        VALUATION OF PORTFOLIO SECURITIES

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

MONEY MARKET PORTFOLIO

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

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

OTHER PORTFOLIOS

An  exchange-traded  equity  security  (not subject to resale  restrictions)  is
valued at its most recent  sale price as of the close of regular  trading on the
Exchange on each day the  Exchange is open for trading.  Lacking any sales,  the
security is valued at the calculated  mean between the most recent bid quotation
and the most recent asked quotation. An unlisted equity security which is traded
on the NASDAQ system is valued at the most recent sale price or, if there are no
such  sales,  the  security  is valued  at the high or  "inside"  bid  quotation
supplied through such system. Debt securities, other than short-term securities,
are valued at prices supplied by the Fund's pricing agent. Short-term securities
with remaining maturities of sixty days or less are valued by the amortized cost
method,  which the Trustees believe  approximates market value. Foreign currency
forward  contracts  are valued at the value of the  underlying  currency  at the
prevailing   currency  exchange  rate.   Securities  for  which  current  market
quotations  are not readily  available are valued at fair value as determined in
good faith by the  Trustees,  although  the actual  calculations  may be made by
persons  acting  pursuant to the direction of the Trustees.  Please refer to the
section  entitled  "NET  ASSET  VALUE" in the  Fund's  Statement  of  Additional
Information for more information concerning valuation of portfolio securities.

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

                     TAX STATUS, DIVIDENDS AND DISTRIBUTIONS

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

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

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

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

The Money Market Portfolio will declare a dividend of its net investment  income
daily and distribute such dividend monthly.  Distributions  will be made shortly
after  the  first  business  day of  each  month  following  declaration  of the
dividend.  The Bond,  Balanced,  Growth and Income and Capital Growth Portfolios


                                       26
<PAGE>

will declare and distribute  dividends from their net investment income, if any,
quarterly,  in  January,  April,  July and  October.  The Global  Discovery  and
International  Portfolios each intend to distribute their net investment  income
annually  within  three  months of the Fund's  fiscal  year-end of December  31,
although  an  additional  distribution  may  be  made  if  necessary.   For  all
portfolios,  distributions  of capital  gains,  if any,  will  generally be made
within three months of December 31, although an additional  distribution  may be
made if ncessary.  Dividends  declared in October,  November or December  with a
record date in such a month will be deemed to have been received by shareholders
on December 31 if paid during January of the following  year. All  distributions
will be  reinvested in shares of such  Portfolios  unless an election is made on
behalf of a separate  account to receive  distributions  in cash.  Participating
Insurance  Companies  will  be  informed  about  the  amount  and  character  of
distributions from the relevant Portfolio for federal income tax purposes.

For the fiscal  year ended  December  31,  1995,  the average  annual  portfolio
turnover  rates for the Bond and  Capital  Growth  Portfolios  were  177.21% and
119.41%,  respectively. A higher rate involves greater brokerage and transaction
expenses  to the  Portfolios  and may result in the  realization  of net capital
gains, which would be taxable to shareholders when distributed.

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

                           SHAREHOLDER COMMUNICATIONS

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

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

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

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

                             ADDITIONAL INFORMATION

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

FUND ORGANIZATION AND SHAREHOLDER INDEMNIFICATION

The Fund was organized in the  Commonwealth of Massachusetts as a "Massachusetts
business trust" on March 15, 1985. The Fund's shares of beneficial  interest are
presently  divided into seven separate series.  Additional series and classes of
shares may be created from time to time. The Fund has adopted a plan pursuant to
Rule 18f-3 under the 1940 Act to permit the Fund to  establish a multiple  class
distribution  system for all of its Portfolios,  except Money Market  Portfolio.
The plan was  approved by the Fund's  Board of Trustees at a special  meeting on
October 5, 1995.

Under the  Fund's  multi-class  system,  shares of each  class of a  multi-class
Portfolio represent an equal pro rata interest in that Portfolio and, generally,
shall  have  identical  voting,   dividend,   liquidation,   and  other  rights,
preferences,  powers,  restrictions,  limitations,  qualifications and terms and
conditions,  except that: (1) each class shall have a different designation; (2)
each class of shares shall bear its "class  expenses;" (3) each class shall have
exclusive  voting rights on any matter  submitted to  shareholders  that relates
solely to its  distribution  arrangement;  (4) each class  shall  have  separate
voting rights on any matter  submitted to shareholders in which the interests of
one class differ from the interests of any other class;  (5) each class may have
separate exchange  privileges;  and (6) each class may have different conversion
features, although a conversion feature is not currently contemplated.  Expenses
currently  designated as "Class  Expenses" by the Fund's Board of Trustees under
the  plan  pursuant  to  Rule  18f-3  include,  for  example,  payments  to  the
Distributor  pursuant to the  distribution  plan for that class,  Fund  transfer
agent fees attributable to a specific class, and certain securities registration
fees.

Each  Portfolio  (except  Money  Market  Portfolio)  has two  classes of shares,
designated as Class A shares and Class B shares, each of which is offered at net
asset value. Class A shares, which are not sold subject to a Rule 12b-1 fee, are
offered pursuant to this prospectus. Class B shares, which are sold subject to a
Rule 12b-1, are offered to certain Participating Insurance Companies pursuant to
a  separate  prospectus.   Participating   Insurance  Companies  with  inquiries



                                       27
<PAGE>

regarding  Class B shares may call or write to the Fund's  underwriter,  Scudder
Investor Services, Inc., at the number and address listed above.

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

OTHER INFORMATION

The activities of the Fund are supervised by the Trustees.

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


As of December 31, 1995,  Aetna Life Insurance and Annuity  Company owned 7.75%,
AUSA Life  Insurance  Company owned 0.2%,  Banner Life  Insurance  Company owned
2.3%, Charter National Life Insurance Company owned 48.66%, Fortis Benefits Life
Insurance  Company owned 0.05%,  Intramerica Life Insurance Company owned 4.43%,
Lincoln  Benefit Life  Insurance  Company  owned  0.96%,  Mutual of America Life
Insurance  Company owned  23.73%,  Paragon Life  Insurance  Company owned 0.11%,
Providentmutual  Life and Annuity  Company of America  owned 1.08%,  Safeco Life
Insurance  Companies owned 2.1%, The Union Central Life Insurance  Company owned
8.31%,  United of Omaha owned 0.16% and USAA Life Insurance  Company owned 0.06%
of the Fund's outstanding shares.

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

Portfolio securities of the Money Market, Bond, Balanced, Growth and Income, and
Capital  Growth  Portfolios  are  held  separately,   pursuant  to  a  custodian
agreement,  by State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, as custodian.  Portfolio securities of Global Discovery and
International Portfolios are held separately, pursuant to a custodian agreement,
by Brown Brothers & Harriman, 40 Water Street,  Boston,  Massachusetts 02109, as
custodian.

Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts 02107-2291, is
the transfer and dividend paying agent for the Fund.

Scudder Fund Accounting Corporation, a subsidiary of the Adviser, is responsible
for  determining the daily net asset value per share and maintaining the general
accounting records of each Portfolio.


                                       28
<PAGE>

                                                                        SCUDDER
-------------------------------------------------------------------------------

                              TRUSTEES AND OFFICERS

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

David B. Watts*
President and Trustee

Daniel Pierce*
Vice President and Trustee

Dr. Kenneth Black, Jr.
Trustee; Regents' Professor Emeritus
of Insurance, Georgia State University

Dr. Rosita P. Chang
Trustee; Professor of Finance,
University of Rhode Island

Peter B. Freeman
Trustee; Corporate Director and Trustee

Dr. J. D. Hammond
Trustee; Dean, Smeal College of Business
Administration, Pennsylvania State University

Thomas S. Crain*
Vice President

Jerard K. Hartman*
Vice President

Richard A. Holt*
Vice President

Thomas W. Joseph*
Vice President

David S. Lee*
Vice President

Steven M. Meltzer*
Vice President

Randall K. Zeller*
Vice President

Thomas F. McDonough*
Vice President and Secretary

Pamela A. McGrath*
Vice President and Treasurer

Edward J. O'Connell*
Vice President and Assistant Treasurer

Kathryn L. Quirk*
Vice President and Assistant Secretary

Coleen Downs Dinneen*
Assistant Secretary

*Scudder, Stevens & Clark, Inc.

                                       29


<PAGE>

                      SCUDDER VARIABLE LIFE INVESTMENT FUND

                             Two International Place

                        Boston, Massachusetts 02110-4103


        An open-end management investment company which currently offers
    shares of beneficial interest of seven diversified Portfolios which seek,
         respectively, (i) stability and current income from a portfolio
            of money market instruments, (ii) high income from a high
            quality portfolio of bonds, (iii) a balance of growth and
              income, as well as long-term preservation of capital,
                from a diversified portfolio of equity and fixed
              income securities, (iv) long-term growth of capital,
              current income and growth of income from a portfolio
              consisting primarily of common stocks and securities
              convertible into common stocks, (v) long-term capital
            growth from a a portfolio consisting primarily of equity
                         securities, (vi) above-average
              capital appreciation over the long term by investing
              primarily in the equity securities of small companies
                        located throughout the world, and
              (vii) long-term growth of capital principally from a
               diversified portfolio of foreign equity securities

                                 (A Mutual Fund)





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


                       STATEMENT OF ADDITIONAL INFORMATION

   
                                   May 1, 1997
    


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

   
     This Statement of Additional  Information is not a prospectus and should be
read in conjunction with the prospectus of Scudder Variable Life Investment Fund
dated May 1, 1997,  as may be amended  from time to time, a copy of which may be
obtained  without  charge by  calling a  Participating  Insurance  Company or by
writing to  broker/dealers  offering  certain  variable  annuity  contracts  and
variable life  insurance  policies,  or Scudder  Investor  Services,  Inc.,  Two
International Place, Boston, Massachusetts 02110-4103.
    




<PAGE>
<TABLE>
<CAPTION>

                                                  TABLE OF CONTENTS
                                                                                                                   Page
<S>                                                                                                                 <C>
INVESTMENT OBJECTIVES AND POLICIES....................................................................................1
         Money Market Portfolio.......................................................................................1
         Bond Portfolio...............................................................................................2
         Balanced Portfolio...........................................................................................3
         Growth and Income Portfolio..................................................................................5
         Capital Growth Portfolio.....................................................................................6
         Global Discovery Portfolio...................................................................................6
         Risk Factors Regarding Global Discovery Portfolio............................................................8
         International Portfolio.....................................................................................13

POLICIES AND TECHNIQUES APPLICABLE TO THE PORTFOLIOS.................................................................15
         Repurchase Agreements.......................................................................................15
         Illiquid Securities.........................................................................................15
         Zero Coupon Securities......................................................................................16
         Mortgage-Backed Securities and Mortgage Pass-Through Securities.............................................16
         Collateralized Mortgage Obligations ("CMOs")................................................................18
         FHLMC Collateralized Mortgage Obligations...................................................................18
         Other Mortgage-Backed Securities............................................................................18
         Other Asset-Backed Securities...............................................................................19
         Municipal Obligations.......................................................................................20
         Convertible Securities......................................................................................20
         Depositary Receipts.........................................................................................21
         Foreign Securities..........................................................................................21
         Limitations on Holdings of Foreign Securities for the Bond, Balanced, Growth and Income and
               International Portfolios..............................................................................22
         Indexed Securities..........................................................................................23
         When-Issued Securities......................................................................................23
         Loans of Portfolio Securities...............................................................................23
         Borrowing...................................................................................................24
         Options for the Bond, Balanced, Growth and Income and International Portfolios..............................24
         Securities Index Options....................................................................................26
         Futures Contracts...........................................................................................26
         Futures on Debt Securities..................................................................................26
         Limitations on the Use of Futures Contracts and Options on Futures..........................................28
         Foreign Currency Transactions...............................................................................29
         Strategic Transactions and Derivatives Applicable to the Global Discovery Portfolio.........................31
         Debt Securities.............................................................................................38
         High Yield, High Risk Securities............................................................................38
         Combined Transactions.......................................................................................39
         Risks of Specialized Investment Techniques Abroad...........................................................39

INVESTMENT RESTRICTIONS..............................................................................................39

PURCHASES AND REDEMPTIONS............................................................................................41

INVESTMENT ADVISER AND DISTRIBUTOR...................................................................................42
         Investment Adviser..........................................................................................42
         Personal Investments by Employees of the Adviser............................................................45
         Distributor.................................................................................................45

MANAGEMENT OF THE FUND...............................................................................................47
         Trustees and Officers.......................................................................................47
         Remuneration................................................................................................48

NET ASSET VALUE......................................................................................................49

                                       i
<PAGE>
                                               TABLE OF CONTENTS (continued)
                                                                                                                   Page

TAX STATUS...........................................................................................................51

DIVIDENDS AND DISTRIBUTIONS..........................................................................................54
         Money Market Portfolio......................................................................................54
         Global Discovery Portfolio and International Portfolio......................................................55
         Other Portfolios............................................................................................55

PERFORMANCE INFORMATION..............................................................................................55
         Money Market Portfolio......................................................................................55
         Bond Portfolio..............................................................................................56
         All Portfolios..............................................................................................56
         Comparison of Portfolio Performance.........................................................................58

SHAREHOLDER COMMUNICATIONS...........................................................................................61

ORGANIZATION AND CAPITALIZATION......................................................................................62
         General.....................................................................................................62
         Shareholder and Trustee Liability...........................................................................63

ALLOCATION OF PORTFOLIO BROKERAGE....................................................................................63

PORTFOLIO TURNOVER...................................................................................................65

EXPERTS..............................................................................................................65

COUNSEL..............................................................................................................65

ADDITIONAL INFORMATION...............................................................................................65

FINANCIAL STATEMENTS.................................................................................................66
</TABLE>

APPENDIX
         Description of Bond Ratings
         Description of Commercial Paper Ratings


                                       ii
<PAGE>

                       INVESTMENT OBJECTIVES AND POLICIES

                    (See "INVESTMENT CONCEPT OF THE FUND" and
             "INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS"
                           in the Fund's prospectus.)

     Scudder  Variable  Life  Investment  Fund  (the  "Fund")  is  an  open-end,
diversified   registered   management   investment  company   established  as  a
Massachusetts  business trust. The Fund is a series fund consisting of the Money
Market  Portfolio,  Bond  Portfolio,   Balanced  Portfolio,  Growth  and  Income
Portfolio,   Capital  Growth   Portfolio,   Global  Discovery   Portfolio,   and
International Portfolio (individually or collectively hereinafter referred to as
a "Portfolio" or the  "Portfolios").  Additional  portfolios may be created from
time to time.  The Fund is  intended  to be the  funding  vehicle  for  variable
annuity  contracts ("VA  contracts") and variable life insurance  policies ("VLI
policies")  to be offered to the  separate  accounts of certain  life  insurance
companies ("Participating Insurance Companies").

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

Money Market Portfolio

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

     The Money Market Portfolio  purchases U.S. Treasury bills, notes and bonds;
obligations of agencies and  instrumentalities of the U.S. Government;  domestic
and foreign bank certificates of deposit; bankers' acceptances;  finance company
and  corporate  commercial  paper;  and  repurchase   agreements  and  corporate
obligations. Investments are limited to those that are dollar-denominated and at
the time of  purchase  are rated,  or judged by the Fund's  investment  adviser,
Scudder,  Stevens & Clark,  Inc. (the "Adviser"),  subject to the supervision of
the Trustees,  to be equivalent to those rated high quality (i.e.,  rated in the
two highest categories) by any two nationally-recognized rating services such as
Moody's Investors Service,  Inc.  ("Moody's") and Standard & Poor's ("S&P").  In
addition, the Adviser seeks through its own credit analysis to limit investments
to high quality instruments presenting minimal credit risks. Securities eligible
for  investment  by the Money  Market  Portfolio  which are rated in the highest
category by at least two rating services (or by one rating service,  if no other
rating  service has issued a rating with respect to that  security) are known as
"first tier  securities."  Securities  rated in the top two categories which are
not first tier securities are known as "second tier securities."  Investments in
commercial paper and finance company paper will be limited to securities  which,
at the time of  purchase,  will be rated A-1 or A-2 by S&P or Prime 1 or Prime 2
by Moody's or the  equivalent  by any  nationally-recognized  rating  service or
judged  to be  equivalent  by the  Adviser.  Obligations  which are  subject  to
repurchase agreements will be limited to those of the type and quality described
above.  The Money Market  Portfolio may also hold cash.  Shares of the Portfolio
are not insured by an agency of the U.S. Government.  Securities and instruments
in which the  Portfolio  may  invest may be issued by the U.S.  Government,  its
agencies and instrumentalities,  corporations,  trusts, banks, finance companies
and other business entities.

     The Money  Market  Portfolio  may invest in  certificates  of  deposit  and
bankers'  acceptances of large domestic banks (i.e.,  banks which at the time of
their most recent annual financial  statements show total assets in excess of $1
billion)  including  foreign  branches of such  domestic  banks,  which  involve
different  risks than those  associated  with  investments  in  certificates  of
deposit  of  domestic  banks,  and of  smaller  banks as  described  below.  The
Portfolio  will invest in U.S.  dollar-denominated  certificates  of deposit and
bankers'   acceptances   of  foreign   banks  if  such  banks  meet  the  stated
qualifications.  Although the  Portfolio  recognizes  that the size of a bank is
important,   this   fact   alone   is   not   necessarily   indicative   of  its
creditworthiness. Investment in certificates of deposit and bankers' acceptances
issued  by  foreign  banks and  foreign  branches  of  domestic  banks  involves
investment  risks that are different in some respects from those associated with

<PAGE>

investments  in  certificates  of deposit  and  bankers'  acceptances  issued by
domestic  banks.  (See  "Foreign  Securities"  in this  Statement of  Additional
Information for further risks of foreign investment.)

     The Money  Market  Portfolio  may also  invest in  certificates  of deposit
issued by banks and savings and loan institutions which had at the time of their
most recent annual  financial  statements  total assets of less than $1 billion,
provided  that (i) the  principal  amounts of such  certificates  of deposit are
insured by an agency of the U.S. Government,  (ii) at no time will the Portfolio
hold more than $100,000  principal  amount of certificates of deposit of any one
such  bank,  and  (iii)  at the  time of  acquisition,  no more  than 10% of the
Portfolio's  assets  (taken at current  value) are invested in  certificates  of
deposit of such banks having total assets not in excess of $1 billion.

     The assets of the Money Market Portfolio consist entirely of cash items and
investments  having a remaining  maturity date of 397 calendar days or less from
date of purchase.  The Portfolio will be managed so that the average maturity of
all instruments in the portfolio (on a dollar-weighted basis) will be 90 days or
less. The average  maturity of the Portfolio's  investments  varies according to
the Adviser's appraisal of money market conditions.

     To  ensure  diversity  of  the  Portfolio's  investments,  as a  matter  of
non-fundamental  policy the Portfolio  will not invest more than 5% of its total
assets in the securities of a single issuer, other than the U.S. Government. The
Portfolio  may,  however,  invest more than 5% of its total  assets in the first
tier  securities  of a single  issuer for a period of up to three  business days
after  purchase,  although  the  Portfolio  may not  make  more  than  one  such
investment  at any time.  The Portfolio may not invest more than 5% of its total
assets in  securities  which were second tier  securities  when  acquired by the
Portfolio. Further, the Portfolio may not invest more than the greater of (1) 1%
of its total assets,  or (2) one million dollars,  in the securities of a single
issuer which were second tier securities when acquired by the Portfolio.

     The net  investment  income of the  Portfolio  is declared as a dividend to
shareholders  daily and distributed  monthly in cash or reinvested in additional
shares.

Bond Portfolio

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

     The Bond Portfolio may purchase  corporate notes and bonds including issues
convertible into common stock and obligations of municipalities. It may purchase
U.S.  Government  securities and  obligations  of federal  agencies that are not
backed by the full faith and credit of the U.S. Government,  such as obligations
of Federal Home Loan Banks, Farm Credit Banks and the Federal Home Loan Mortgage
Corporation.  The  Portfolio  may also  purchase  obligations  of  international
agencies such as the International  Bank for  Reconstruction and Development and
the Inter-American  Development Bank. Other eligible investments include foreign
securities,  including non-U.S.  dollar-denominated  foreign debt securities and
U.S.  dollar-denominated  foreign debt  securities  (such as those issued by the
Dominion of Canada and its provinces), including without limitation,  Eurodollar
Bonds and Yankee Bonds,  mortgage and other  asset-backed  securities  and money
market  instruments  such as  commercial  paper  and  bankers'  acceptances  and
certificates  of deposit issued by domestic and foreign  branches of U.S. banks.
The Portfolio may also enter into  repurchase  agreements and may invest in zero
coupon   securities.   The  Portfolio  invests  in  a  broad  range  of  short-,
intermediate-, and long-term securities.  Proportions among maturities and types
of securities may vary  depending upon the prospects for income  relative to the
outlook for the economy and the  securities  markets,  the quality of  available
investments, the level of interest rates, and other factors.

     The Bond Portfolio is of high quality. Under normal market conditions,  the
Portfolio will invest at least 65% of its assets in securities  rated within the
three highest quality rating  categories of Moody's (Aaa, Aa and A) or S&P (AAA,
AA and A), or if unrated,  in bonds judged by the Adviser,  to be of  comparable
quality  at the time of  purchase.  The  Portfolio  may  invest up to 20% of its


                                       2
<PAGE>

assets in debt  securities  rated  lower  than Baa3 or BBB- or, if  unrated,  of
equivalent  quality as  determined by the Adviser,  but will not purchase  bonds
rated below B3 by Moody's or B- by S&P or their equivalent.

Risks of debt securities  rated below  investment-grade:  Securities rated below
investment-grade  (those rated lower than Baa3 or BBB-) are commonly referred to
as "junk  bonds".  These  securities  can entail  greater price  volatility  and
involve a higher degree of speculation  with respect to the payment of principal
and interest than higher quality fixed-income  securities.  The market prices of
such lower rated debt securities may decline significantly in periods of general
economic  difficulty.  In addition,  the trading market for these  securities is
generally  less liquid than for higher rated  securities,  and the Portfolio may
have  difficulty  disposing of these  securities at the time it wishes to do so.
The lack of a liquid  secondary  market for certain  securities may also make it
more  difficult  for the  Portfolio to obtain  accurate  market  quotations  for
purposes of valuing its portfolio and calculating its net asset value.

     See the Appendix to this  Statement of  Additional  Information  for a more
complete description of the ratings assigned by ratings  organizations and their
respective characteristics.

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

     The Bond  Portfolio  may invest in securities  of the  Government  National
Mortgage Agency, a Government  corporation within the U.S. Department of Housing
and  Urban  Development   ("GNMAs").   GNMAs  are  mortgaged-backed   securities
representing part ownership of a pool of mortgage loans.  These loans, which are
issued by lenders  such as mortgage  bankers,  commercial  banks and savings and
loan  associations,  are either  insured by the Federal  Housing  Administration
(FHA) or guaranteed by the Veterans  Administration (VA). Once approved by GNMA,
the timely payment of interest and principal is guaranteed by the full faith and
credit of the U.S. Government.

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

Balanced Portfolio

     The  Balanced  Portfolio  seeks a  balance  of  growth  and  income  from a
diversified portfolio of equity and fixed income securities.  The Portfolio also
seeks long-term  preservation of capital through a  quality-oriented  investment
approach that is designed to reduce risk.

     In seeking its  objectives  of a balance of growth and  income,  as well as
long-term  preservation  of  capital,  the  Portfolio  invests in a  diversified
portfolio of equity and fixed income securities.  The Portfolio  invests,  under
normal  circumstances,  at least 50%, but no more than 75%, of its net assets in
common stocks and other equity  investments.  The Portfolio's equity investments
consist of common stocks,  preferred stocks, warrants and securities convertible
into common  stocks,  of  companies  that,  in the  Adviser's  judgment,  are of
above-average  financial quality and offer the prospect for above-average growth
in earnings,  cash flow, or assets  relative to the overall market as defined by
the  Standard  and Poor's 500  Composite  Stock  Price Index  ("S&P  500").  The
Portfolio will invest primarily in securities  issued by  medium-to-large  sized
domestic  companies with annual  revenues or market  capitalization  of at least
$600  million,  and which,  in the opinion of the Adviser,  offer  above-average
potential for price  appreciation.  The  Portfolio  seeks to invest in companies
that have relatively  consistent and  above-average  rates of growth;  companies
that  are  in a  strong  financial  position  with  high  credit  standings  and
profitability;  firms with important business franchises,  leading products,  or
dominant marketing and distribution systems; companies guided by experienced and
motivated  managements;  and companies selling at attractive market  valuations.
The Adviser believes that companies with these  characteristics will be rewarded
by the market with higher stock prices over time and provide investment returns,
on average, in excess of the S&P 500.

                                       3
<PAGE>

     At least  65% of the  value of the  Portfolio's  common  stocks  will be of
issuers  which  qualify,  at the time of purchase,  for one of the three highest
equity  earnings and dividends  ranking  categories (A+, A, or A-) of S&P, or if
not ranked by S&P, are judged to be of  comparable  quality by the Adviser.  S&P
assigns  earnings and dividends  rankings to  corporations  based on a number of
factors,  including stability and growth of earnings and dividends.  Rankings by
S&P are not an appraisal of a company's  creditworthiness,  as is true for S&P's
debt security  ratings,  nor are these rankings intended as a forecast of future
stock  market  performance.  In addition to using S&P  rankings of earnings  and
dividends of common stocks, the Adviser conducts its own analysis of a company's
history, current financial position, and earnings prospects.

     To enhance  income and  stability,  the  Portfolio's  remaining  assets are
allocated to bonds and other fixed income  securities,  including cash reserves.
The Portfolio will normally  invest 25% to 50% of its net assets in fixed income
securities.  However,  at least 25% of the Portfolio's net assets will always be
invested in fixed income  securities.  The Portfolio can invest in a broad range
of corporate bonds and notes,  convertible  bonds, and preferred and convertible
preferred  securities.  It may also  purchase  U.S.  Government  securities  and
obligations of federal agencies and instrumentalities that are not backed by the
full faith and credit of the U.S. Government, such as obligations of the Federal
Home  Loan  Banks,  Farm  Credit  Banks,  and the  Federal  Home  Loan  Mortgage
Corporation.  The  Portfolio  may also invest in  obligations  of  international
agencies,  foreign debt securities (both U.S. and non-U.S.  dollar-denominated),
mortgage-backed  and  other  asset-backed  securities,   municipal  obligations,
restricted  securities issued in private  placements and zero coupon securities.
Zero coupon  securities  are subject to greater market value  fluctuations  from
changing interest rates than debt obligations of comparable maturities that make
current cash distributions of interest.

     For  liquidity  and defensive  purposes,  the Portfolio may invest  without
limit in cash and in money market securities such as commercial paper,  bankers'
acceptances, and certificates of deposit issued by domestic and foreign branches
of U.S.  banks.  The Portfolio may also enter into  repurchase  agreements  with
respect to U.S. Government securities.

     Not less than 50% of the  Portfolio's  debt  securities will be invested in
debt  obligations,  including money market  instruments,  that (a) are issued or
guaranteed by the U.S. Government,  (b) are rated at the time of purchase within
the two highest ratings categories by any  nationally-recognized  rating service
or (c) if not rated, are judged at the time of purchase, by the Adviser to be of
a quality  comparable to obligations  rated as described in (b) above.  Not less
than 80% of the debt  obligations  in which the  Portfolio  invests will, at the
time of purchase,  be rated within the three highest  ratings  categories of any
such service or, if not rated, will be judged to be of comparable quality by the
Adviser.  Up to 20% of the Portfolio's  debt securities may be invested in bonds
rated  below A but no lower  than B by Moody's  or S&P,  or  unrated  securities
judged by the Adviser to be of comparable  quality.  Debt  securities  which are
rated below  investment-grade  (that is, rated below Baa by Moody's or below BBB
by S&P and  commonly  referred to as "junk  bonds") and  unrated  securities  of
comparable quality, which usually entail greater risk (including the possibility
of default or bankruptcy of the issuers of such  securities),  generally involve
greater  volatility of price and risk of principal  and income,  and may be less
liquid than  securities  in the higher  rating  categories.  Securities  rated B
involve a high degree of  speculation  with  respect to the payment of principal
and  interest.  Should  the  rating of any  security  held by the  Portfolio  be
downgraded after the time of purchase,  the Adviser will determine whether it is
in the best interest of the Portfolio to retain or dispose of the security.

     See the Appendix to this  Statement of  Additional  Information  for a more
complete description of the ratings assigned by ratings  organizations and their
respective characteristics.

     The Portfolio will, on occasion, adjust its mix of investments among equity
securities,  bonds, and cash reserves. In reallocating investments,  the Adviser
weighs the  relative  values of different  asset  classes and  expectations  for
future returns. In doing so, the Adviser analyzes,  on a global basis, the level
and  direction  of  interest  rates,  capital  flows,  inflation   expectations,
anticipated growth of corporate profits, monetary and fiscal policies around the
world, and other related factors. The Portfolio does not take extreme investment
positions as part of an effort to "time the market."  Shifts  between stocks and
fixed income  investments  are expected to occur in generally  small  increments
within the guidelines adopted in this Statement of Additional  Information.  The
Portfolio is designed as a conservative long-term investment program.

                                       4
<PAGE>

     While the Portfolio  emphasizes  U.S.  equity and debt  securities,  it may
invest a portion  of its  assets in  foreign  securities,  including  depositary
receipts.  The Portfolio's foreign holdings will meet the criteria applicable to
its  domestic  investments.  The  international  component  of  the  Portfolio's
investment program is intended to increase diversification,  thus reducing risk,
while providing the opportunity for higher returns.

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

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

Growth and Income Portfolio

     The Growth and Income Portfolio seeks long-term growth of capital,  current
income and growth of income. In pursuing these three  objectives,  the Portfolio
invests primarily in common stocks, preferred stocks, and securities convertible
into common stocks of companies  which offer the prospect for growth of earnings
while paying higher than average current dividends.  Over time, continued growth
of earnings tends to lead to higher  dividends and enhancement of capital value.
The  Portfolio   allocates  its  investments  among  different   industries  and
companies,  and changes its portfolio  securities for investment  considerations
and not for trading purposes. The Adviser believes that a portfolio investing in
these kinds of securities can perform well whether a growth or value  investment
style is in favor and that the  Portfolio's  dividend  strategy  can improve its
performance in down markets. The Adviser believes these characteristics can help
a  shareholder  feel  comfortable  holding onto the  Portfolio for the long run,
despite short-term changes in the investment climate.

     The Portfolio  attempts to achieve its  investment  objectives by investing
primarily in dividend  paying common  stocks,  preferred  stocks and  securities
convertible into common stocks.  The Portfolio may also purchase such securities
which do not pay  current  dividends  but which  offer  prospects  for growth of
capital and future income.  Convertible  securities (which may be current coupon
or zero coupon securities) are bonds,  notes,  debentures,  preferred stocks and
other securities which may be converted or exchanged at a stated or determinable
exchange ratio into  underlying  shares of common stock.  The Portfolio may also
invest  in  nonconvertible  preferred  stocks  consistent  with the  Portfolio's
objectives.  From  time to time,  for  temporary  defensive  purposes,  when the
Adviser  feels such a  position  is  advisable  in light of  economic  or market
conditions,  the  Portfolio  may invest a portion of its assets in cash and cash
equivalents.  The Portfolio may invest in foreign  securities  and in repurchase
agreements.

     When evaluating a security for purchase or sale, the Adviser may consider a
security's dividend yield relative to the average dividend yield of the S&P 500.

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

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


                                       5
<PAGE>

Capital Growth Portfolio

     The Capital Growth  Portfolio  seeks to maximize  long-term  capital growth
through a broad and  flexible  investment  program.  The  Portfolio  invests  in
marketable  securities,  principally  common  stocks  and,  consistent  with its
objective of long-term capital growth,  preferred stocks.  However,  in order to
reduce  risk,  as  market  or  economic  conditions  periodically  warrant,  the
Portfolio  may  also  invest  up  to  25%  of  its  assets  in  short-term  debt
instruments.

     Important  considerations  to the Adviser in its  examination  of potential
investments  include  certain  qualitative  considerations  such as a  company's
financial strength,  management  reputation,  absolute size and overall industry
position.

     Equity  investments  can have diverse  financial  characteristics,  and the
Trustees  believe that the  opportunity  for capital growth may be found in many
different  sectors of the market at any  particular  time.  In  contrast  to the
specialized   investment  policies  of  some  capital  appreciation  funds,  the
Portfolio is therefore  free to invest in a wide range of marketable  securities
offering  the  potential  for  growth.  This  enables  the  Portfolio  to pursue
investment values in various sectors of the stock market, including:

          1.   Companies  that  generate  or  apply  new  technologies,  new and
               improved distribution techniques,  or new services, such as those
               in the business equipment, electronics,  specialty merchandising,
               and health service industries.

          2.   Companies that own or develop natural  resources,  such as energy
               exploration or precious metals companies.

          3.   Companies  that may benefit from  changing  consumer  demands and
               lifestyles,   such  as  financial   service   organizations   and
               telecommunications companies.

          4.   Foreign companies.

     While  emphasizing  investments  in  companies  with  above-average  growth
prospects,  the  Portfolio  may also  purchase  and hold  equity  securities  of
companies that may have only average growth prospects,  but seem undervalued due
to factors thought to be of a temporary  nature which may cause their securities
to be out of favor and to trade at a price below their potential value.

     The Portfolio,  as a matter of nonfundamental  policy, may invest up to 20%
of its net assets in intermediate to longer term debt securities when management
anticipates  that the  total  return  on debt  securities  is likely to equal or
exceed the total  return on common  stocks over a selected  period of time.  The
Portfolio may purchase  investment-grade debt securities,  which are those rated
Aaa, Aa, A or Baa by Moody's,  or AAA,  AA, A or BBB by S&P, or, if unrated,  of
equivalent  quality as  determined  by the Adviser.  Bonds that are rated Baa by
Moody's or BBB by S&P have some  speculative  characteristics.  The  Portfolio's
intermediate  to longer term debt  securities  may also include  those which are
rated  below  investment  grade as long as no more than 5% of its net assets are
invested  in  such  securities.  As  interest  rates  fall  the  prices  of debt
securities  tend to rise and vice versa.  Should the rating of any security held
by the  Portfolio be  downgraded  after the time of  purchase,  the Adviser will
determine  whether  it is in the best  interest  of the  Portfolio  to retain or
dispose of the security. (See "High Yield, High Risk Securities.")

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

Global Discovery Portfolio

     The Global Discovery  Portfolio seeks  above-average  capital  appreciation
over the long term by  investing  primarily  in the equity  securities  of small
companies located  throughout the world. The Portfolio is designed for investors
looking for above-average appreciation potential (when compared with the overall
domestic  stock  market as reflected  by Standard & Poor's 500  Composite  Price


                                       6
<PAGE>

Index) and the  benefits of  investing  globally,  but who are willing to accept
above-average  stock market risk, the impact of currency  fluctuation and little
or no current income.

     In pursuit of its  objective,  the  Portfolio  generally  invests in small,
rapidly  growing  companies that offer the potential for  above-average  returns
relative to larger companies, yet are frequently overlooked and thus undervalued
by the market.  The Portfolio has the flexibility to invest in any region of the
world.  It can invest in companies based in emerging  markets,  typically in the
Far East, Latin America and lesser developed  countries in Europe, as well as in
firms  operating in  developed  economies,  such as those of the United  States,
Japan and Western Europe.

     The Adviser invests the  Portfolio's  assets in companies it believes offer
above-average  earnings, cash flow or asset growth potential. It also invests in
companies  that may receive  greater market  recognition  over time. The Adviser
believes  these  factors offer  significant  opportunity  for long-term  capital
appreciation.  The Adviser  evaluates  investments for the Portfolio from both a
macroeconomic  and  microeconomic   perspective,   using  fundamental  analysis,
including field research. The Adviser analyzes the growth potential and relative
value of possible  investments.  When  evaluating  an  individual  company,  the
Adviser  takes into  consideration  numerous  factors,  including  the depth and
quality  of  management;   a  company's  product  line,  business  strategy  and
competitive  position;  research and development  efforts;  financial  strength,
including  degree of  leverage;  cost  structure;  revenue and  earnings  growth
potential;   price-earnings   ratios  and  other   stock   valuation   measures.
Secondarily,  the Adviser weighs the attractiveness of the country and region in
which a company is located.

     Under normal  circumstances the Portfolio invests at least 65% of its total
assets in the equity  securities of small  issuers.  While the Adviser  believes
that smaller,  lesser-known  companies can offer greater  growth  potential than
larger,  more established  firms, the former also involve greater risk and price
volatility.  To help reduce  risk,  the  Portfolio  expects,  under usual market
conditions,  to diversify its portfolio widely by company, industry and country.
The Portfolio intends to allocate  investments among at least three countries at
all times, including the United States.

     The Portfolio may invest up to 35% of its total assets in equity securities
of larger  companies  throughout the world and in debt securities if the Adviser
determines that the capital  appreciation of debt securities is likely to exceed
the capital  appreciation  of equity  securities.  The  Portfolio  may  purchase
investment-grade  bonds,  those rated Aaa, Aa, A or Baa by Moody's or AAA, AA, A
or BBB by S&P or,  if  unrated,  of  equivalent  quality  as  determined  by the
Adviser.  The  Portfolio  may also  invest  up to 5% of its net  assets  in debt
securities  rated below  investment-grade.  Securities  rated below  Baa/BBB are
commonly  referred  to as "junk  bonds."  The  lower  the  ratings  of such debt
securities,  the greater  their risks  render them like equity  securities.  The
Portfolio may invest in securities rated D by S&P at the time of purchase, which
may be in default with respect to payment of principal or interest.

     The Portfolio  selects its portfolio  investments  primarily from companies
whose individual equity market capitalizations would place them in the same size
range as companies in approximately  the lowest 20% of market  capitalization as
represented by the Salomon  Brothers Broad Market Index,  an index  comprised of
global equity securities of companies with total available market capitalization
greater than $100  million.  Based on this  policy,  the  companies  held by the
Portfolio  typically  will have  individual  equity  market  capitalizations  of
between approximately $50 million and $2 billion (although the Portfolio will be
free to invest in smaller  capitalization  issues that  satisfy the  Portfolio's
size standard).  Furthermore,  the median market capitalization of the Portfolio
will not exceed $750 million.

     Because the Portfolio  applies a U.S.  size  standard on a global basis,  a
small  company  investment  outside the U.S.  might rank above the lowest 20% by
market  capitalization  in local markets and, in fact,  might in some  countries
rank among the largest companies in terms of capitalization.

     The equity  securities in which the Portfolio may invest  consist of common
stocks,  preferred  stocks (either  convertible or  nonconvertible),  rights and
warrants.  These  securities  may be listed on the U.S.  or  foreign  securities
exchanges or traded  over-the-counter.  For capital appreciation  purposes,  the
Portfolio may purchase notes, bonds, debentures,  government securities and zero
coupon bonds (any of which may be convertible or nonconvertible).  The Portfolio
may invest in foreign securities and American  Depositary  Receipts which may be
sponsored or unsponsored. The Portfolio may also invest in closed-end investment
companies holding foreign securities,  and engage in strategic transactions.  In
addition,  the Portfolio may invest in illiquid or  restricted  securities.  For
temporary  defensive  purposes,  the  Portfolio  may,  during  periods  in which


                                       7
<PAGE>

conditions in securities markets warrant,  invest without limit in cash and cash
equivalents.

     The Global  Discovery  Portfolio  cannot  guarantee a gain or eliminate the
risk of loss.  The net asset value of the shares of the Portfolio  will increase
or decrease with changes in the market price of the Portfolio's  investments and
changes in  foreign  currency  exchange  rates.  The  investment  objective  and
policies of the Portfolio may, unless otherwise  specifically stated, be changed
by the  Trustees  of the Fund  without a vote of the  Shareholders.  There is no
assurance that the objective of the Portfolio will be achieved.

Risk Factors Regarding Global Discovery Portfolio

Small Company Risk. The Adviser  believes that small  companies often have sales
and earnings growth rates which exceed those of larger companies,  and that such
growth  rates may in turn be  reflected  in more rapid share price  appreciation
over time.  However,  investing in smaller company stocks involves  greater risk
than is  customarily  associated  with  investing  in larger,  more  established
companies.  For  example,  smaller  companies  can have limited  product  lines,
markets,  or financial and managerial  resources.  Smaller companies may also be
dependent on one or a few key persons, and may be more susceptible to losses and
risks of bankruptcy.  Also,  the  securities of smaller  companies may be thinly
traded (and  therefore  have to be sold at a discount from current market prices
or sold in small lots over an  extended  period of time).  Transaction  costs in
smaller company stocks may be higher than those of larger companies.

Foreign  Securities.  The  Portfolio  is intended to provide  investors  with an
opportunity  to invest a portion of their assets in a  diversified  portfolio of
securities of U.S. and foreign  companies  located worldwide and is designed for
long-term investors who can accept international  investment risk. The Portfolio
is  designed  for  investors  who  can  accept   currency  and  other  forms  of
international  investment  risk.  The Adviser  believes  that  allocation of the
Portfolio's assets on a global basis decreases the degree to which events in any
one country,  including the U.S.,  will affect an investor's  entire  investment
holdings.  In the period since World War II, many leading foreign economies have
grown more rapidly than the U.S. economy and from time to time have had interest
rate  levels  that  had  a  higher  real  return  than  the  U.S.  bond  market.
Consequently, the securities of foreign issuers have provided attractive returns
relative to the returns  provided by the  securities of U.S.  issuers,  although
there can be no assurance that this will be true in the future.

     Investors  should recognize that investing in foreign  securities  involves
certain special  considerations,  including those set forth below, which are not
typically  associated with investing in U.S. securities and which may affect the
Portfolio's  performance favorably or unfavorably.  As foreign companies are not
generally  subject to  uniform  accounting,  auditing  and  financial  reporting
standards, practices and requirements comparable to those applicable to domestic
companies,  there may be less  publicly  available  information  about a foreign
company than about a domestic company. Many foreign stock markets, while growing
in volume of trading activity,  have  substantially less volume than that of the
New York Stock Exchange,  and securities of some foreign issuers are less liquid
and more volatile than  securities of domestic  issuers.  Similarly,  volume and
liquidity in most foreign bond markets is less than that in the U.S.  market and
at times,  volatility of price can be greater than in the U.S. Further,  foreign
markets  have  different  clearance  and  settlement  procedures  and in certain
markets  there have been times when  settlements  have been  unable to keep pace
with the volume of securities transactions,  making it difficult to conduct such
transactions. Delays in settlement could result in temporary periods when assets
of the Portfolio are uninvested and no return is earned  thereon.  The inability
of the Portfolio to make intended security purchases due to settlement  problems
could cause the Portfolio to miss attractive investment opportunities. Inability
to dispose of  portfolio  securities  due to  settlement  problems  either could
result in losses to the  Portfolio  due to  subsequent  declines in value of the
portfolio  security or, if the Portfolio has entered into a contract to sell the
security, could result in possible liability to the purchaser. Fixed commissions
on some  foreign  securities  exchanges  are  generally  higher than  negotiated
commissions on U.S. exchanges, although the Adviser will endeavor to achieve the
most favorable net results on the Portfolio's portfolio  transactions.  Further,
the Portfolio may encounter  difficulties  or be unable to pursue legal remedies
and obtain  judgment  in foreign  courts.  There is  generally  less  government
supervision  and  regulation  of business  and  industry  practices,  securities
exchanges,  brokers  and  listed  companies  than  in the  U.S.  It may be  more
difficult for the Portfolio's  agents to keep currently informed about corporate
actions such as stock  dividends or other matters which may affect the prices of
portfolio securities.  Communications between the U.S. and foreign countries may
be less  reliable  than  within the U.S.,  thus  increasing  the risk of delayed
settlements  of portfolio  transactions  or loss of  certificates  for portfolio
securities. In addition, with respect to certain foreign countries, there is the


                                       8
<PAGE>

possibility of nationalization, expropriation, the imposition of confiscatory or
withholding taxation,  political,  social or economic instability, or diplomatic
developments which could affect U.S. investments in those countries. Investments
in foreign  securities may also entail certain risks,  such as possible currency
blockages or transfer  restrictions,  and the difficulty of enforcing  rights in
other countries.  Moreover, individual foreign economies may differ favorably or
unfavorably  from the U.S.  economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment,  resource self-sufficiency and
balance of payments  position.  The Adviser  seeks to mitigate  the risks to the
Portfolio  associated  with  the  foregoing  considerations  through  investment
variation and continuous professional management.

Limitations on Holdings of Foreign Securities.  The Portfolio shall invest in no
less than five  foreign  countries;  provided  that,  (i) if foreign  securities
comprise less than 80% of the value of the Portfolio's net assets, the Portfolio
shall invest in no less than four foreign countries;  (ii) if foreign securities
comprise less than 60% of the value of the Portfolio's net assets, the Portfolio
shall  invest  in no  less  than  three  foreign  countries;  (iii)  if  foreign
securities  comprise less than 40% of the value of the  Portfolio's  net assets,
the Portfolio  shall invest in no less than two foreign  countries;  and (iv) if
foreign  securities  comprise less than 20% of the value of the  Portfolio's net
assets the Portfolio may invest in a single foreign country.

     The Portfolio  shall invest no more than 20% of the value of its net assets
in securities of issuers located in any one country; provided that an additional
15% of the value of the  Portfolio's net assets may be invested in securities of
issuers  located  in any  one of the  following  countries:  Australia,  Canada,
France, Japan, the United Kingdom and Germany; and provided further that 100% of
the  Portfolio's  assets may be invested in securities of issuers located in the
United States.

     Eastern  Europe.  Investments  in companies  domiciled in Eastern  European
countries  may be  subject  to  potentially  greater  risks  than those of other
foreign issuers. These risks include (i) potentially less social,  political and
economic  stability;  (ii)  the  small  current  size of the  markets  for  such
securities and the low volume of trading,  which result in less liquidity and in
greater price volatility; (iii) certain national policies which may restrict the
Portfolio's  investment  opportunities,  including restrictions on investment in
issuers or  industries  deemed  sensitive  to national  interests;  (iv) foreign
taxation;  (v) the absence of developed legal  structures  governing  private or
foreign  investment  or  allowing  for  judicial  redress  for injury to private
property;   (vi)  the  absence,  until  recently  in  certain  Eastern  European
countries,  of a capital market structure or market-oriented  economy; and (vii)
the possibility  that recent favorable  economic  developments in Eastern Europe
may be slowed or reversed by  unanticipated  political or social  events in such
countries,  or in the countries of the former  Soviet  Union.  The Portfolio may
invest up to 5% of its total assets in the  securities  of issuers  domiciled in
Eastern European countries.

     Investments   in  such   countries   involve   risks  of   nationalization,
expropriation and confiscatory  taxation.  The Communist governments of a number
of East European countries expropriated large amounts of private property in the
past, in many cases without adequate compensation, and there may be no assurance
that  such  expropriation  will not  occur in the  future.  In the event of such
expropriation,  the Fund could lose a substantial  portion of any investments it
has made in the affected countries.  Further,  no accounting  standards exist in
East European countries.  Finally,  even though certain East European currencies
may be convertible into U.S. dollars,  the conversion rates may be artificial to
the actual market values and may be adverse to the Portfolio's shareholders.

Foreign  Currencies.  Investments  in foreign  securities  usually  will involve
currencies of foreign countries.  Moreover,  the Portfolio  temporarily may hold
funds in bank deposits in foreign currencies during the completion of investment
programs and may purchase forward foreign currency  contracts,  foreign currency
futures contracts and options on such contracts.  Because of these factors,  the
value of the assets of the Portfolio as measured in U.S. dollars may be affected
favorably  or  unfavorably  by changes in foreign  currency  exchange  rates and
exchange  control  regulations,  and the Portfolio may incur costs in connection
with conversions between various currencies.  Although the Portfolio's custodian
values  each Fund's  assets  daily in terms of U.S.  dollars,  none of the Funds
intends to convert its  holdings of foreign  currencies  into U.S.  dollars on a
daily basis. The Portfolio will do so from time to time, and investors should be
aware of the costs of currency conversion.  Although foreign exchange dealers do
not  charge  a fee for  conversion,  they  do  realize  a  profit  based  on the
difference  (the  "spread")  between  the  prices at which  they are  buying and
selling various currencies.  Thus, a dealer may offer to sell a foreign currency
to the Portfolio at one rate,  while  offering a lesser rate of exchange  should
the Portfolio  desire to resell that currency to the dealer.  The Portfolio will
conduct its foreign currency exchange transactions either on a spot (i.e., cash)


                                       9
<PAGE>

basis at the spot rate prevailing in the foreign currency  exchange  market,  or
through  entering into forward or futures  contracts to purchase or sell foreign
currencies.

     Because the  Portfolio  normally  will be invested in both U.S. and foreign
securities  markets,  changes  in the  Portfolio's  share  price  may have a low
correlation with movements in the U.S. markets. The Portfolio's share price will
reflect the movements of both the  different  stock and bond markets in which it
is invested and of the currencies in which the investments are denominated;  the
strength or weakness of the U.S. dollar against  foreign  currencies may account
for part of the Portfolio's investment performance.  U.S. and foreign securities
markets do not always move in step with each other,  and the total  returns from
different  markets  may  vary  significantly.  The  Portfolio  invests  in  many
securities  markets  around  the  world  in an  attempt  to  take  advantage  of
opportunities wherever they may arise.

Investing  in  Emerging  Markets.  Most  emerging  securities  markets  may have
substantially  less volume and are subject to less government  supervision  than
U.S. securities  markets.  Securities of many issuers in emerging markets may be
less liquid and more volatile than securities of comparable domestic issuers. In
addition, there is less regulation of securities exchanges,  securities dealers,
and listed and unlisted companies in emerging markets than in the United States.

     Emerging markets also have different  clearance and settlement  procedures,
and in certain markets there have been times when  settlements  have been unable
to keep pace with the volume of  securities  transactions.  Delays in settlement
could result in temporary  periods when a portion of the assets of the Portfolio
is uninvested and no cash is earned  thereon.  The inability of the Portfolio to
make intended  security  purchases due to  settlement  problems  could cause the
Portfolio to miss attractive investment  opportunities.  Inability to dispose of
portfolio securities due to settlement problems could result either in losses to
the Portfolio due to subsequent  declines in value of the portfolio security or,
if the Fund has entered  into a contract to sell the  security,  could result in
possible  liability to the purchaser.  Costs  associated  with  transactions  in
foreign  securities are generally higher than costs associated with transactions
in U.S.  securities.  Such  transactions  also involve  additional costs for the
purchase or sale of foreign currency.

     Foreign   investment  in  certain   emerging  market  debt  obligations  is
restricted or controlled to varying degrees.  These restrictions or controls may
at times limit or preclude  foreign  investment in certain emerging markets debt
obligations  and  increase  the costs and  expenses  of the  Portfolio.  Certain
emerging markets require prior  governmental  approval of investments by foreign
persons,  limit the  amount of  investment  by foreign  persons in a  particular
company,  limit the  investment by foreign  persons only to a specific  class of
securities of a company that may have less advantageous  rights than the classes
available  for  purchase  by   domiciliaries  of  the  countries  and/or  impose
additional  taxes  on  foreign  investors.  Certain  emerging  markets  may also
restrict  investment  opportunities in issuers in industries deemed important to
national interest.

     Certain  emerging  markets  may  require  governmental   approval  for  the
repatriation  of  investment  income,  capital  or  the  proceeds  of  sales  of
securities by foreign investors.  In addition,  if a deterioration  occurs in an
emerging  market's  balance of payments or for other  reasons,  a country  could
impose  temporary  restrictions  on foreign capital  remittances.  The Portfolio
could be  adversely  affected by delays in, or a refusal to grant,  any required
governmental approval for repatriation of capital, as well as by the application
to the Portfolio of any restrictions on investments.

     Many emerging  markets have  experienced  substantial,  and in some periods
extremely  high  rates  of  inflation  for  many  years.   Inflation  and  rapid
fluctuations  in  inflation  rates  have had and may  continue  to have  adverse
effects on the  economies  and  securities  markets of certain  emerging  market
countries. In an attempt to control inflation, wage and price controls have been
imposed in certain  countries.  Of these countries,  some, in recent years, have
begun to control inflation through prudent economic policies.

Investing in Latin America.  Investing in securities of Latin  American  issuers
may entail risks relating to the potential political and economic instability of
certain   Latin   American   countries   and   the   risks   of   expropriation,
nationalization,  confiscation  or the  imposition  of  restrictions  on foreign
investment  and  on   repatriation  of  capital   invested.   In  the  event  of
expropriation,  nationalization  or  other  confiscation  by  any  country,  the
Portfolio could lose its entire investment in any such country.

                                       10
<PAGE>

     The  securities  markets  of Latin  American  countries  are  substantially
smaller, less developed, less liquid and more volatile than the major securities
markets in the U.S.  Disclosure  and  regulatory  standards are in many respects
less  stringent  than U.S.  standards.  Furthermore,  there is a lower  level of
monitoring and regulation of the markets and the activities of investors in such
markets.

     The  limited  size of many Latin  American  securities  markets and limited
trading volume in the securities of Latin American issuers compared to volume of
trading in the  securities of U.S.  issuers could cause prices to be erratic for
reasons apart from factors that affect the soundness and  competitiveness of the
securities  issuers.  For  example,  limited  market size may cause prices to be
unduly influenced by traders who control large positions.  Adverse publicity and
investors'  perceptions,  whether or not based on in-depth fundamental analysis,
may decrease the value and liquidity of portfolio securities.

     The Portfolio may invest a portion of its assets in securities  denominated
in currencies of Latin American countries.  Accordingly, changes in the value of
these currencies against the U.S. dollar may result in corresponding  changes in
the U.S. dollar value of the Portfolio's assets denominated in those currencies.

     Some Latin American countries also may have managed  currencies,  which are
not free  floating  against the U.S.  dollar.  In  addition,  there is risk that
certain  Latin  American  countries  may restrict the free  conversion  of their
currencies into other currencies. Further, certain Latin American currencies may
not be  internationally  traded.  Certain of these currencies have experienced a
steep  devaluation  relative  to  the  U.S.  dollar.  Any  devaluations  in  the
currencies  in  which  the  Portfolio  securities  are  denominated  may  have a
detrimental impact on the Portfolio's net asset value.

     The economies of individual  Latin American  countries may differ favorably
or unfavorably  from the U.S.  economy in such respects as the rate of growth of
gross domestic product, the rate of inflation,  capital  reinvestment,  resource
self-sufficiency  and  balance of  payments  position.  Certain  Latin  American
countries  have   experienced   high  levels  of  inflation  which  can  have  a
debilitating effect on an economy, although some have begun to control inflation
in recent years through prudent economic  policies.  Furthermore,  certain Latin
American  countries  may impose  withholding  taxes on dividends  payable to the
Portfolio at a higher rate than those imposed by other foreign  countries.  This
may reduce the  Portfolio's  investment  income  available for  distribution  to
shareholders.

     Certain Latin American  countries such as Argentina,  Brazil and Mexico are
among the world's largest debtors to commercial  banks and foreign  governments.
At times,  certain  Latin  American  countries  have  declared  moratoria on the
payment of principal and/or interest on outstanding debt.

     Latin America is a region rich in natural  resources  such as oil,  copper,
tin, silver, iron ore, forestry, fishing, livestock and agriculture.  The region
has a large  population  (roughly 300  million)  representing  a large  domestic
market.  Economic  growth  was  strong  in  the  1960s  and  1970s,  but  slowed
dramatically  (and in some  instances  was negative) in the 1980s as a result of
poor economic policies,  higher international  interest rates, and the denial of
access to new foreign capital. Although a number of Latin American countries are
currently  experiencing lower rates of inflation and higher rates of real growth
in gross  domestic  product  than they have in the past,  other  Latin  American
countries continue to experience significant problems,  including high inflation
rates and high interest  rates.  Capital flight has proven a persistent  problem
and  external  debt has been  forcibly  restructured.  Political  turmoil,  high
inflation,  capital repatriation restrictions,  and nationalization have further
exacerbated conditions.

     Governments of many Latin American countries have exercised and continue to
exercise  substantial  influence over many aspects of the private sector through
the  ownership or control of many  companies,  including  some of the largest in
those  countries.  As a result,  government  actions in the future  could have a
significant  effect on economic  conditions which may adversely affect prices of
certain   portfolio   securities.    Expropriation,    confiscatory    taxation,
nationalization,  political,  economic or social  instability  or other  similar
developments,  such as military coups,  have occurred in the past and could also
adversely affect the Fund's investments in this region.

     Changes in political  leadership,  the  implementation  of market  oriented
economic policies,  such as privatization,  trade reform and fiscal and monetary
reform are among the recent steps taken to renew economic growth.  External debt
is being  restructured and flight capital  (domestic  capital that has left home
country)  has  begun  to  return.  Inflation  control  efforts  have  also  been
implemented.  Free Trade Zones are being  discussed in various  areas around the


                                       11
<PAGE>

region, the most notable being a free zone among Mexico, the U.S. and Canada and
another zone among four  countries in the  southernmost  point of Latin America.
Currencies are typically weak, but most are now relatively free floating, and it
is not unusual for the  currencies  to undergo wide  fluctuations  in value over
short periods of time due to changes in the market.

Investing in the Pacific Basin.  Economies of individual Pacific Basin countries
may differ  favorably or unfavorably  from the U.S.  economy in such respects as
growth of gross  national  product,  rate of  inflation,  capital  reinvestment,
resource  self-sufficiency,  interest  rate  levels,  and  balance  of  payments
position. Of particular importance,  most of the economies in this region of the
world are heavily dependent upon exports,  particularly to developed  countries,
and,  accordingly,  have been and may continue to be adversely affected by trade
barriers,   managed   adjustments  in  relative   currency  values,   and  other
protectionist  measures  imposed or negotiated  by the U.S. and other  countries
with which they trade.  These  economies  also have been and may  continue to be
negatively  impacted  by  economic  conditions  in the U.S.  and  other  trading
partners, which can lower the demand for goods produced in the Pacific Basin.

     With  respect to the Peoples  Republic of China and other  markets in which
the  Fund  may  participate,   there  is  the  possibility  of  nationalization,
expropriation   or  confiscatory   taxation,   political   changes,   government
regulation,  social instability or diplomatic  developments that could adversely
impact a Pacific Basin country or the Portfolio's investment in the debt of that
country.

     Foreign  companies,  including  Pacific Basin companies,  are not generally
subject to uniform  accounting,  auditing  and  financial  reporting  standards,
practices and  disclosure  requirements  comparable to those  applicable to U.S.
companies.  Consequently, there may be less publicly available information about
such  companies  than about U.S.  companies.  Moreover,  there is generally less
government supervision and regulation in the Pacific Basin than in the U.S.

Investing in Europe. Most Eastern European nations,  including Hungary,  Poland,
Czechoslovakia,  and Romania have had  centrally  planned,  socialist  economies
since shortly after World War II. A number of their governments, including those
of  Hungary,  the Czech  Republic,  and Poland  are  currently  implementing  or
considering reforms directed at political and economic liberalization, including
efforts to foster multi-party political systems, decentralize economic planning,
and move toward free market economies.  At present,  no Eastern European country
has a developed stock market, but Poland,  Hungary,  and the Czech Republic have
small securities markets in operation.  Ethnic and civil conflict currently rage
through the former Yugoslavia. The outcome is uncertain.

     Both the European Community (the "EC") and Japan,  among others,  have made
overtures  to  establish  trading   arrangements  and  assist  in  the  economic
development  of the Eastern  European  nations.  A great deal of  interest  also
surrounds  opportunities  created by the reunification of East and West Germany.
Following reunification, the Federal Republic of Germany has remained a firm and
reliable  member  of the EC  and  numerous  other  international  alliances  and
organizations.  To reduce  inflation  caused by the unification of East and West
Germany,  Germany has adopted a tight monetary  policy which has led to weakened
exports and a reduced  domestic demand for goods and services.  However,  in the
long-term,   reunification  could  prove  to  be  an  engine  for  domestic  and
international growth.

     The conditions that have given rise to these  developments  are changeable,
and there is no assurance that reforms will continue or that their goals will be
achieved.

     Portugal is a genuinely  emerging market which has experienced rapid growth
since the  mid-1980s,  except for a brief  period of  stagnation  over  1990-91.
Portugal's government remains committed to privatization of the financial system
away from one dependent  upon the banking  system to a more  balanced  structure
appropriate for the requirements of a modern economy.  Inflation continues to be
about three times the EC average.

     Economic  reforms  launched in the 1980s  continue to benefit Turkey in the
1990s.  Turkey's  economy has grown  steadily  since the early 1980s,  with real
growth in per capita Gross Domestic Product (the "GDP")  increasing more than 6%
annually.  Agriculture  remains the most important  economic  sector,  employing
approximately  55% of the labor force,  and accounting for nearly 20% of GDP and
20% of exports.  Inflation  and interest  rates remain high,  and a large budget
deficit   will   continue  to  cause   difficulties   in  Turkey's   substantial
transformation to a dynamic free market economy.

                                       12
<PAGE>

     Like many other Western economies, Greece suffered severely from the global
oil price hikes of the 1970s,  with annual GDP growth  plunging from 8% to 2% in
the 1980s, and inflation,  unemployment, and budget deficits rising sharply. The
fall of the socialist  government in 1989 and the inability of the  conservative
opposition to obtain a clear majority have led to business  uncertainty  and the
continued  prospects for flat economic  performance.  Once Greece has sorted out
its  political  situation,  it will  have to face  the  challenges  posed by the
steadily increasing integration of the EC, including the progressive lowering of
trade and investment barriers. Tourism continues as a major industry,  providing
a vital offset to a sizable commodity trade deficit.

     Securities  traded in certain emerging European  securities  markets may be
subject to risks due to the inexperience of financial  intermediaries,  the lack
of  modern  technology  and the  lack of a  sufficient  capital  base to  expand
business  operations.  Additionally,  former  Communist  regimes  of a number of
Eastern  European  countries had  expropriated  a large amount of property,  the
claims of which have not been entirely  settled.  There can be no assurance that
the  Portfolio's  investments in Eastern Europe would not also be  expropriated,
nationalized  or otherwise  confiscated.  Finally,  any change in  leadership or
policies of Eastern European countries, or countries that exercise a significant
influence  over  those  countries,  may halt the  expansion  of or  reverse  the
liberalization of foreign investment policies now occurring and adversely affect
existing investment opportunities.

Investing in Africa.  Africa is a continent of roughly 50 countries with a total
population of approximately  840 million people.  Literacy rates (the percentage
of  people  who are  over 15  years  of age and who  can  read  and  write)  are
relatively low,  ranging from 20% to 60%. The primary  industries  include crude
oil, natural gas, manganese ore,  phosphate,  bauxite,  copper,  iron,  diamond,
cotton, coffee, cocoa, timber, tobacco, sugar, tourism, and cattle.

     Many of the  countries  are fraught with  political  instability.  However,
there has been a trend over the past five  years  toward  democratization.  Many
countries are moving from a military style,  Marxist, or single party government
to a multi-party  system.  Still, there remain many countries that do not have a
stable political  process.  Other countries have been enmeshed in civil wars and
border clashes.

     Economically,  the Northern Rim countries  (including  Morocco,  Egypt, and
Algeria) and Nigeria,  Zimbabwe and South Africa are the wealthier  countries on
the continent.  The market  capitalization  of these  countries has been growing
recently as more international companies invest in Africa and as local companies
start to list on the exchanges.  However, religious and ethnic strife has been a
significant source of instability.

     On  the  other  end  of  the  economic  spectrum  are  countries,  such  as
Burkinafaso, Madagascar, and Malawi, that are considered to be among the poorest
or least  developed in the world.  These  countries are generally  landlocked or
have poor natural resources. The economies of many African countries are heavily
dependent on international  oil prices. Of all the African  industries,  oil has
been the  most  lucrative,  accounting  for 40% to 60% of many  countries'  GDP.
However,  general  decline  in oil  prices  has had an  adverse  impact  on many
economies.

     Foreign  securities such as those purchased by the Portfolio may be subject
to foreign  government  taxes which could  reduce the yield on such  securities,
although a shareholder of the Portfolio may, subject to certain limitations,  be
entitled to claim a credit or deduction for U.S. federal income tax purposes for
his or her proportionate share of such foreign taxes paid by the Portfolio. (See
"TAX STATUS.")

International Portfolio

     The  International  Portfolio seeks long-term  growth of capital  primarily
through  diversified  holdings of marketable  foreign  equity  investments.  The
Portfolio invests in companies,  wherever organized, which do business primarily
outside the United  States.  The Fund,  on behalf of the  Portfolio,  intends to
diversify  investments  among several  countries and to have  represented in the
program  business  activities in not less than three  different  countries.  The
management considers it consistent with this policy for the Portfolio to acquire
securities  of  companies  incorporated  in the United  States and having  their
principal  activities  and  interests  outside  of the United  States,  and such
investments may be included in the program.

                                       13
<PAGE>

     It is not the policy of the Portfolio to concentrate its investments in any
particular  industry,  and the  Portfolio's  management  does not intend to make
acquisitions in particular industries which would increase the percentage of the
market  value of the  Portfolio's  assets  above 25% for any one  industry.  The
Portfolio  does not invest for the  purpose of  controlling  or  managing  other
companies.

     The major portion of the Portfolio's  assets consists of equity  securities
of established  companies  listed on recognized  exchanges;  the Adviser expects
this  condition  to  continue,  although  the  Portfolio  may  invest  in  other
securities.  Investments may also be made in fixed income  securities of foreign
governments  and  companies  with a view  toward  total  investment  return.  In
determining the location of the principal activities and interests of a company,
the Adviser  takes into account  such  factors as the location of the  company's
assets,  personnel,   sales  and  earnings.  In  selecting  securities  for  the
Portfolio,  the Adviser seeks to identify  companies whose securities  prices do
not adequately reflect their established positions in their fields. In analyzing
companies for investment,  the Adviser  ordinarily  looks for one or more of the
following characteristics:  above-average earnings growth per share, high return
on invested  capital,  healthy  balance sheets and overall  financial  strength,
strong  competitive  advantages,  strength of management  and general  operating
characteristics which will enable the companies to compete successfully in their
marketplace.  Investment decisions are made without regard to arbitrary criteria
such as minimum asset size,  debt-equity ratios or dividend history of Portfolio
companies.

     The Portfolio may invest in any type of security including, but not limited
to shares,  preferred or common, bonds and other evidences of indebtedness,  and
other securities of issuers wherever  organized,  and not excluding evidences of
indebtedness  of  governments  and their  political  subdivisions.  Although  no
particular  proportion  of stocks,  bonds or other  securities is required to be
maintained,  the Fund, on behalf of the  Portfolio,  in view of the  Portfolio's
investment  objective,  intends  under normal  conditions  to maintain  holdings
consisting primarily of a diversified list of equity securities.

     Under exceptional  economic or market conditions  abroad, the Portfolio may
temporarily,  until normal conditions  return,  invest all or a major portion of
its  assets  in  Canadian  or U.S.  Government  obligations  or  currencies,  or
securities of companies incorporated in and having their principal activities in
Canada or the United States.

     Foreign  securities such as those purchased by the Portfolio may be subject
to foreign  government  taxes which could  reduce the yield on such  securities,
although a shareholder of the Portfolio may, subject to certain limitations,  be
entitled to claim a credit or deduction for U.S. federal income tax purposes for
his or her proportionate share of such foreign taxes paid by the Portfolio. (See
"TAXES.")

     The  Portfolio  is intended to provide  investors  with an  opportunity  to
invest a portion of their assets in a diversified group of securities of foreign
companies  and   governments.   Management   of  the  Portfolio   believes  that
diversification  of assets on an  international  basis  decreases  the degree to
which events in any one country,  including  the United  States,  will affect an
investor's  entire investment  holdings.  In the period since World War II, many
leading  foreign  economies  and foreign  stock  market  indexes have grown more
rapidly than the United States  economy and leading U.S.  stock market  indexes,
although there can be no assurance that this will be true in the future. Because
of the Portfolio's investment policy, the Portfolio is not intended to provide a
complete investment program for an investor.

     Because the  Portfolio  normally  will be  invested  in foreign  securities
markets,  changes in the Portfolio's share price may have a low correlation with
movements  in the U.S.  markets.  The  Portfolio's  share price will reflect the
movements of both the  different  stock and bond markets in which it is invested
and of the currencies in which the investments are denominated;  the strength or
weakness of the U.S. dollar against  foreign  currencies may account for part of
the Portfolio's investment  performance.  U.S. and foreign securities markets do
not always move in step with each other,  and the total  returns from  different
markets may vary significantly. The Portfolio invests in many foreign securities
markets in an attempt  to take  advantage  of  opportunities  wherever  they may
arise.

                                       14
<PAGE>

              POLICIES AND TECHNIQUES APPLICABLE TO THE PORTFOLIOS

           (See "POLICIES AND TECHNIQUES APPLICABLE TO THE PORTFOLIOS"
                           in the Fund's prospectus.)

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

Repurchase Agreements

     On behalf of a  Portfolio,  the Fund may enter into  repurchase  agreements
with  member  banks of the Federal  Reserve  System,  any  foreign  bank and any
broker-dealer which is recognized as a reporting government securities dealer if
the  creditworthiness  of the bank or  broker-dealer  has been determined by the
Adviser to be at least equal to that of issuers of commercial paper rated within
the two highest  categories  assigned by Moody's or S&P. A repurchase  agreement
with a member bank of the Federal Reserve System, which provides a means for the
Portfolio  to earn  income on funds for  periods  as short as  overnight,  is an
arrangement through which the Portfolio acquires a U.S. Government or other high
quality  short-term debt obligation (the "Obligation") and the seller agrees, at
the time of sale, to repurchase  the Obligation at a specified time and price. A
repurchase  agreement  with  foreign  banks may be  available  with  respect  to
government  securities of the particular  foreign  jurisdiction.  The repurchase
price may be higher than the purchase price,  the difference being income to the
Portfolio,  or the purchase and repurchase prices may be the same, with interest
at a stated rate due to the  Portfolio  together  with the  repurchase  price on
repurchase.  In either  case,  the income to the  Portfolio  is unrelated to the
interest  rate  on the  Obligation  subject  to the  repurchase  agreement.  For
purposes of the  Investment  Company Act of 1940, as amended (the "1940 Act"), a
repurchase  agreement is deemed to be a loan from the Portfolio to the seller of
the Obligation  subject to the repurchase  agreement and is therefore subject to
the  Portfolio's  investment  restriction  applicable to loans.  It is not clear
whether a court would consider the Obligation purchased by the Portfolio subject
to a repurchase agreement as being owned by the Portfolio or as being collateral
for a loan by the Portfolio to the seller.  In the event of the  commencement of
bankruptcy  or insolvency  proceedings  of the seller of the  Obligation  before
repurchase of the  Obligation  under a repurchase  agreement,  the Portfolio may
encounter  delay and incur costs before being able to sell the security.  Delays
may involve loss of interest or decline in price of the Obligation. If the court
characterizes  the  transaction  as a loan and the Portfolio has not perfected a
security interest in the Obligation, the Portfolio may be required to return the
Obligation to the seller's estate and be treated as an unsecured creditor of the
seller. As an unsecured  creditor,  the Portfolio would be at the risk of losing
some or all of the principal and income involved in the transaction. As with any
unsecured  debt  instrument  purchased  for the  Portfolio,  the  Fund  seeks to
minimize  the  risk of loss  through  repurchase  agreements  by  analyzing  the
creditworthiness  of the  obligor,  in this case the  seller of the  Obligation.
Apart from the risk of bankruptcy or insolvency  proceedings,  there is also the
risk that the seller may fail to repurchase the security. However, if the market
value of the Obligation  subject to the repurchase  agreement  becomes less than
the repurchase price (including interest),  the Portfolio will direct the seller
of the Obligation to deliver  additional  securities so that the market value of
all  securities  subject to the  repurchase  agreement  will equal or exceed the
repurchase  price.  It is possible that the Portfolio  will be  unsuccessful  in
seeking to impose on the seller a contractual  obligation to deliver  additional
securities.

Illiquid Securities

     Global Discovery Portfolio may occasionally  purchase securities other than
in  the  open  market.   While  such   purchases  may  often  offer   attractive
opportunities  for  investment not otherwise  available on the open market,  the
securities  so  purchased  are often  "restricted  securities"  or "not  readily
marketable,"  i.e.,  securities  which  cannot  be  sold to the  public  without
registration  under  the  Securities  Act  of  1933  (the  "1933  Act")  or  the
availability  of an exemption from  registration  (such as Rules 144 or 144A) or
because they are subject to other legal or contractual delays in or restrictions
on resale.

     Generally  speaking,  restricted  securities  may be sold only to qualified
institutional  buyers,  or in a privately  negotiated  transaction  to a limited
number of purchasers,  or in limited  quantities after they have been held for a
specified  period of time and other  conditions are met pursuant to an exemption
from registration, or in a public offering for which a registration statement is
in effect under the 1933 Act. The Portfolio may be deemed to be an "underwriter"
for purposes of the 1933 Act when selling  restricted  securities to the public,
and in such event the Portfolio  may be liable to purchasers of such  securities


                                       15
<PAGE>

if the registration  statement prepared by the issuer, or the prospectus forming
a part of it, is materially inaccurate or misleading.

Zero Coupon Securities

     The Bond  Portfolio  and the  Balanced  Portfolio  may each  invest in zero
coupon securities which pay no cash income and are sold at substantial discounts
from their value at maturity. When held to maturity,  their entire income, which
consists of accretion of discount,  comes from the difference  between the issue
price and their value at maturity. Zero coupon securities are subject to greater
market value  fluctuations from changing interest rates than debt obligations of
comparable  maturities which make current distributions of interest (cash). Zero
coupon convertible securities offer the opportunity for capital appreciation (or
depreciation)  as increases (or  decreases)  in market value of such  securities
closely follow the movements in the market value of the underlying common stock.
Zero coupon  convertible  securities  generally are expected to be less volatile
than the underlying common stocks because zero coupon convertible securities are
usually  issued  with  shorter  maturities  (15 years or less) and with  options
and/or redemption features exercisable by the holder of the obligation entitling
the holder to redeem the obligation and receive a defined cash payment.

     Zero  coupon  securities  include  securities  issued  directly by the U.S.
Treasury,  and U.S. Treasury bonds or notes and their unmatured interest coupons
and  receipts  for  their  underlying  principal  ("coupons")  which  have  been
separated by their holder,  typically a custodian  bank or investment  brokerage
firm. A holder will separate the interest coupons from the underlying  principal
(the "corpus") of the U.S. Treasury  security.  A number of securities firms and
banks have  stripped the  interest  coupons and receipts and then resold them in
custodial receipt programs with a number of different names, including "Treasury
Income  Growth  Receipts"  ("TIGRS")  and  Certificate  of Accrual on Treasuries
("CATS").  The underlying U.S.  Treasury bonds and notes  themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e.,  unregistered  securities  which are owned  ostensibly  by the  bearer or
holder  thereof),  in trust on  behalf of the  owners  thereof.  Counsel  to the
underwriters  of these  certificates or other evidences of ownership of the U.S.
Treasury securities has stated that for federal tax and securities purposes,  in
their opinion  purchasers of such  certificates,  such as the  Portfolios,  most
likely will be deemed the beneficial  holders of the underlying U.S.  government
securities.

     The  Treasury  has  facilitated  transfers  of  ownership  of  zero  coupon
securities by accounting  separately for the beneficial  ownership of particular
interest coupons and corpus payments on Treasury  securities through the Federal
Reserve  book-entry  record-keeping  system.  The  Federal  Reserve  program  as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered  Interest and Principal of Securities."  Under the STRIPS program,
the  Portfolio  will be able to have its  beneficial  ownership  of zero  coupon
securities recorded directly in the book-entry  record-keeping system in lieu of
having to hold  certificates  or other  evidences of ownership of the underlying
U.S. Treasury securities.

     When U.S.  Treasury  obligations  have  been  stripped  of their  unmatured
interest  coupons  by the  holder,  the  principal  or  corpus is sold at a deep
discount  because the buyer  receives  only the right to receive a future  fixed
payment on the  security  and does not receive  any rights to periodic  interest
(cash) payments. Once stripped or separated,  the corpus and coupons may be sold
separately.  Typically,  the coupons are sold  separately  or grouped with other
coupons with like maturity  dates and sold in such bundled  form.  Purchasers of
stripped  obligations   acquire,  in  effect,   discount  obligations  that  are
economically  identical to the zero coupon  securities  that the Treasury  sells
itself.

Mortgage-Backed Securities and Mortgage Pass-Through Securities

     The  Bond  Portfolio  and  the  Balanced   Portfolio  may  also  invest  in
mortgage-backed  securities,  which are  interests  in pools of mortgage  loans,
including  mortgage  loans  made by  savings  and  loan  institutions,  mortgage
bankers,  commercial banks, and others. Pools of mortgage loans are assembled as
securities  for sale to investors by various  governmental,  government-related,
and private  organizations  as further  described below. The Portfolios may also
invest in debt  securities  which are  secured  with  collateral  consisting  of
mortgage-backed  securities (see "Collateralized Mortgage Obligations"),  and in
other types of mortgage-related securities.

                                       16
<PAGE>

     A decline in interest  rates may lead to a faster rate of  repayment of the
underlying  mortgages,  and expose the Portfolios to a lower rate of return upon
reinvestment. To the extent that such mortgage-backed securities are held by the
Portfolios,  the prepayment right will tend to limit to some degree the increase
in net asset value of the  Portfolios  because the value of the  mortgage-backed
securities  held by the Portfolios may not appreciate as rapidly as the price of
non-callable debt securities.

     Interests in pools of mortgage-backed securities differ from other forms of
debt  securities,  which  normally  provide for periodic  payment of interest in
fixed  amounts  with  principal  payments at maturity or  specified  call dates.
Instead,  these  securities  provide a monthly  payment  which  consists of both
interest and principal payments.  In effect, these payments are a "pass-through"
of the monthly  payments  made by the  individual  borrowers  on their  mortgage
loans,  net of any fees paid to the  issuer  or  guarantor  of such  securities.
Additional  payments are caused by  repayments of principal  resulting  from the
sale of the underlying  property,  refinancing,  or foreclosure,  net of fees or
costs which may be incurred. Some mortgage-related securities such as securities
issued by the Government National Mortgage Association ("GNMA") are described as
"modified  pass-through."  These  securities  entitle  the holder to receive all
interest and principal  payments owed on the mortgage pool, net of certain fees,
at the  scheduled  payment  dates  regardless  of whether  or not the  mortgagor
actually makes the payment.

     The  principal  governmental  guarantor of  mortgage-related  securities is
GNMA. GNMA is a wholly-owned U.S.  Government  corporation within the Department
of Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the U.S.  Government,  the timely  payment of principal  and
interest on securities issued by institutions  approved by GNMA (such as savings
and loan  institutions,  commercial  banks, and mortgage  bankers) and backed by
pools of FHA-insured or VA-guaranteed mortgages.  These guarantees,  however, do
not apply to the market value or yield of  mortgage-backed  securities or to the
value of  Portfolio  shares.  Also,  GNMA  securities  often are  purchased at a
premium over the maturity value of the underlying mortgages. This premium is not
guaranteed and will be lost if prepayment occurs.

     Government-related  guarantors  (i.e.,  not  backed  by the full  faith and
credit of the U.S. Government) include the Federal National Mortgage Association
("FNMA") and the Federal Home Loan  Mortgage  Corporation  ("FHLMC").  FNMA is a
government-sponsored  corporation owned entirely by private stockholders.  It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases  conventional  (i.e., not insured or guaranteed by any government
agency) mortgages from a list of approved  seller/servicers  which include state
and  federally-chartered  savings and loan  associations,  mutual savings banks,
commercial banks, credit unions, and mortgage bankers.  Pass-through  securities
issued by FNMA are  guaranteed as to timely payment of principal and interest by
FNMA but are not backed by the full faith and credit of the U.S. Government.

     FHLMC is a corporate instrumentality of the U.S. Government and was created
by Congress in 1970 for the purpose of increasing the  availability  of mortgage
credit for  residential  housing.  Its stock is owned by the twelve Federal Home
Loan Banks.  FHLMC issues  Participation  Certificates  ("PCs") which  represent
interests in  conventional  mortgages  from FHLMC's  national  portfolio.  FHLMC
guarantees the timely payment of interest and ultimate  collection of principal,
but PCs are not backed by the full faith and credit of the U.S. Government.

     Commercial banks, savings and loan institutions, private mortgage insurance
companies,  mortgage  bankers,  and other  secondary  market issuers also create
pass-through  pools  of  conventional  mortgage  loans.  Such  issuers  may,  in
addition,  be the originators and/or servicers of the underlying  mortgage loans
as well as the guarantors of the mortgage-related  securities.  Pools created by
such  non-governmental  issuers  generally  offer a higher rate of interest than
government and government-related  pools because there are no direct or indirect
government or agency guarantees of payments. However, timely payment of interest
and  principal of these pools may be supported by various  forms of insurance or
guarantees,  including  individual loan, title,  pool and hazard insurance,  and
letters of credit.  The  insurance  and  guarantees  are issued by  governmental
entities,  private  insurers,  and the  mortgage  poolers.  Such  insurance  and
guarantees and the creditworthiness of the issuers thereof will be considered in
determining whether a mortgage-related security meets the Portfolios' investment
quality  standards.  There can be no  assurance  that the  private  insurers  or
guarantors can meet their obligations under the insurance  policies or guarantee
arrangements.   The  Portfolios  may  buy  mortgage-related  securities  without
insurance or guarantees,  if through an  examination of the loan  experience and
practices of the  originators/servicers and poolers, the Adviser determines that
the securities meet the Portfolios'  quality standards.  Although the market for


                                       17
<PAGE>

such securities is becoming  increasingly  liquid,  securities issued by certain
private organizations may not be readily marketable.

Collateralized Mortgage Obligations ("CMOs")

     A  CMO  is  a  hybrid  between  a  mortgage-backed   bond  and  a  mortgage
pass-through  security.  Similar to a bond,  interest and prepaid  principal are
paid, in most cases, semiannually.  CMOs may be collateralized by whole mortgage
loans  but  are  more  typically   collateralized   by  portfolios  of  mortgage
pass-through  securities  guaranteed by GNMA,  FHLMC,  or FNMA, and their income
streams.

     CMOs are structured into multiple classes,  each bearing a different stated
maturity.  Actual  maturity  and average  life will  depend upon the  prepayment
experience  of  the  collateral.  CMOs  provide  for a  modified  form  of  call
protection  through a de facto  breakdown  of the  underlying  pool of mortgages
according  to how  quickly the loans are repaid.  Monthly  payment of  principal
received from the pool of underlying mortgages,  including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity  classes  receive  principal only after the first class has been
retired.  An investor is partially  guarded against a sooner than desired return
of principal because of the sequential payments.

     In a typical CMO transaction,  a corporation issues multiple series, (e.g.,
A, B, C, Z) of CMO bonds  ("Bonds").  Proceeds of the Bond  offering are used to
purchase mortgages or mortgage  pass-through  certificates  ("Collateral").  The
Collateral  is  pledged to a third  party  trustee  as  security  for the Bonds.
Principal and interest payments from the Collateral are used to pay principal on
the Bonds in the order A, B, C, Z. The Series A, B, and C bonds all bear current
interest.  Interest on the Series Z Bond is accrued and added to principal and a
like amount is paid as principal on the Series A, B, or C Bond  currently  being
paid  off.  When the  Series A, B, and C Bonds  are paid in full,  interest  and
principal on the Series Z Bond begins to be paid currently.  With some CMOs, the
issuer  serves as a conduit to allow loan  originators  (primarily  builders  or
savings and loan associations) to borrow against their loan portfolios.

FHLMC Collateralized Mortgage Obligations

     FHLMC CMOs are debt  obligations of FHLMC issued in multiple classes having
different  maturity  dates  which  are  secured  by  the  pledge  of a  pool  of
conventional  mortgage loans purchased by FHLMC.  Unlike FHLMC PCs,  payments of
principal and interest on the CMOs are made semiannually, as opposed to monthly.
The amount of principal payable on each semiannual payment date is determined in
accordance  with FHLMC's  mandatory  sinking fund schedule,  which,  in turn, is
equal to approximately 100% of FHA prepayment experience applied to the mortgage
collateral  pool.  All sinking  fund  payments in the CMOs are  allocated to the
retirement  of the  individual  classes  of bonds in the  order of their  stated
maturities. Payment of principal on the mortgage loans in the collateral pool in
excess of the amount of FHLMC's  minimum sinking fund obligation for any payment
date are paid to the holders of the CMOs as  additional  sinking fund  payments.
Because of the  "pass-through"  nature of all principal payments received on the
collateral pool in excess of FHLMC's minimum sinking fund requirement,  the rate
at which principal of the CMOs is actually repaid is likely to be such that each
class of bonds will be retired in advance of its scheduled maturity date.

     If collection of principal  (including  prepayments)  on the mortgage loans
during any semiannual  payment period is not sufficient to meet FHLMC's  minimum
sinking fund  obligation on the next sinking fund payment date,  FHLMC agrees to
make up the deficiency from its general funds.

     Criteria for the mortgage  loans in the pool backing the CMOs are identical
to those of FHLMC PCs. FHLMC has the right to substitute collateral in the event
of delinquencies and/or defaults.

Other Mortgage-Backed Securities

     The  Adviser  expects  that  governmental,  government-related,  or private
entities may create  mortgage loan pools and other  mortgage-related  securities
offering  mortgage  pass-through  and  mortgage-collateralized   investments  in
addition to those described above. The mortgages underlying these securities may
include alternative  mortgage  instruments,  that is, mortgage instruments whose
principal  or interest  payments  may vary or whose terms to maturity may differ


                                       18
<PAGE>

from  customary  long-term  fixed rate  mortgages.  The Bond  Portfolio  and the
Balanced  Portfolio  will not purchase  mortgage-backed  securities or any other
assets which, in the opinion of the Adviser,  are illiquid if, as a result, more
than 10% of the value of the Portfolio's  total assets will be illiquid.  As new
types of mortgage-related securities are developed and offered to investors, the
Adviser will, consistent with the Portfolio's investment  objectives,  policies,
and  quality  standards,  consider  making  investments  in such  new  types  of
mortgage-related securities.

Other Asset-Backed Securities

     The securitization  techniques used to develop mortgaged-backed  securities
are now being applied to a broad range of assets.  Through the use of trusts and
special  purpose  corporations,  various types of assets,  including  automobile
loans,  computer leases and credit card  receivables,  are being  securitized in
pass-through   structures  similar  to  the  mortgage  pass-through   structures
described above or in a structure similar to the CMO structure.  Consistent with
the Bond  Portfolio's  and the Balanced  Portfolio's  investment  objectives and
policies,  the  Portfolios  may invest in these and other types of  asset-backed
securities  that may be  developed  in the future.  In general,  the  collateral
supporting  these  securities is of shorter  maturity than mortgage loans and is
less  likely  to   experience   substantial   prepayments   with  interest  rate
fluctuations.

     Several  types of  asset-backed  securities  have  already  been offered to
investors,  including  Certificates  for  Automobile  ReceivablesSM  ("CARSSM").
CARSSM  represent  undivided  fractional  interests in a trust  ("Trust")  whose
assets consist of a pool of motor vehicle retail installment sales contracts and
security interests in the vehicles securing the contracts. Payments of principal
and interest on CARSSM are passed through  monthly to certificate  holders,  and
are  guaranteed up to certain  amounts and for a certain time period by a letter
of credit  issued by a financial  institution  unaffiliated  with the trustee or
originator of the Trust. An investor's return on CARSSM may be affected by early
prepayment of principal on the underlying vehicle sales contracts. If the letter
of credit is  exhausted,  the Trust may be  prevented  from  realizing  the full
amount  due  on  a  sales  contract   because  of  state  law  requirements  and
restrictions  relating to  foreclosure  sales of vehicles  and the  obtaining of
deficiency judgments following such sales or because of depreciation,  damage to
or loss of a vehicle,  the  application  of  federal  and state  bankruptcy  and
insolvency  laws,  or  other  factors.  As a  result,  certificate  holders  may
experience delays in payments or losses if the letter of credit is exhausted.

     Asset-backed  securities  present  certain  risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the benefit
of any security  interest in the related  assets.  Credit card  receivables  are
generally  unsecured and the debtors are entitled to the  protection of a number
of state and federal  consumer  credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards,  thereby reducing the
balance due. There is the possibility that recoveries on repossessed  collateral
may not, in some cases, be available to support payments on these securities.

     Asset-backed  securities are often backed by a pool of assets  representing
the  obligations  of a number of  different  parties.  To lessen  the  effect of
failures by obligors on underlying  assets to make payments,  the securities may
contain elements of credit support which fall into two categories: (i) liquidity
protection,  and (ii) protection  against losses resulting from ultimate default
by an obligor  on the  underlying  assets.  Liquidity  protection  refers to the
provision of advances, generally by the entity administering the pool of assets,
to ensure that the receipt of payments on the underlying pool occurs in a timely
fashion.  Protection  against  losses  results  from  payment  of the  insurance
obligations on at least a portion of the assets in the pool. This protection may
be provided  through  guarantees,  policies or letters of credit obtained by the
issuer or sponsor from third parties,  through  various means of structuring the
transaction or through a combination of such approaches.  The Bond Portfolio and
the Balanced  Portfolio  will not pay any additional or separate fees for credit
support. The degree of credit support provided for each issue is generally based
on historical  information  respecting the level of credit risk  associated with
the underlying  assets.  Delinquency or loss in excess of that  anticipated,  or
failure of the credit support could adversely affect the return on an investment
in such a security.

     The Bond  Portfolio and the Balanced  Portfolio may also invest in residual
interests in asset-backed  securities.  In the case of  asset-backed  securities
issued in a  pass-through  structure,  the cash flow generated by the underlying
assets is applied to make required payments on the securities and to pay related
administrative  expenses.  The residual in an asset-backed security pass-through
structure represents the interest in any excess cash flow remaining after making


                                       19
<PAGE>

the  foregoing  payments.  The amount of  residual  cash flow  resulting  from a
particular issue of asset-backed  securities will depend on, among other things,
the   characteristics  of  the  underlying  assets,  the  coupon  rates  on  the
securities, prevailing interest rates, the amount of administrative expenses and
the actual prepayment experience on the underlying assets. Asset-backed security
residuals  not  registered  under the  Securities  Act of 1933 may be subject to
certain  restrictions on  transferability.  In addition,  there may be no liquid
market for such securities.

     The availability of asset-backed  securities may be affected by legislative
or regulatory  developments.  It is possible that such  developments may require
the Bond  Portfolio  and the Balanced  Portfolio to dispose of any then existing
holdings of such securities.

Municipal Obligations

     The Bond Portfolio and the Balanced  Portfolio may each invest in municipal
obligations,  which  are  issued by or on behalf  of  states,  territories,  and
possessions  of the  U.S.,  and  their  political  subdivisions,  agencies,  and
instrumentalities,  and the  District of  Columbia  to obtain  funds for various
public  purposes.  The interest on these  obligations  is generally  exempt from
federal  income  tax  in  the  hands  of  most  investors.   The  two  principal
classifications of municipal  obligations are "notes" and "bonds." The return on
municipal obligations is ordinarily lower than that of taxable obligations.  The
Bond Portfolio and the Balanced Portfolio may each acquire municipal obligations
when, due to disparities in the debt securities  markets,  the anticipated total
return on such obligations is higher than that on taxable obligations.  The Bond
Portfolio  and the Balanced  Portfolio  have no current  intention of purchasing
tax-exempt  municipal  obligations  that would  amount to greater than 5% of the
Portfolio's total assets.

Convertible Securities

     The Bond, Balanced,  Growth and Income, Capital Growth and Global Discovery
Portfolios may each invest in  convertible  securities;  that is, bonds,  notes,
debentures,  preferred  stocks and other  securities  which are convertible into
common stock.  Investments in convertible  securities can provide an opportunity
for capital appreciation and/or income through interest and dividend payments by
virtue of their conversion or exchange features.

     The convertible securities in which the Bond, Balanced,  Growth and Income,
Capital Growth and Global Discovery  Portfolios may invest include  fixed-income
or zero coupon debt  securities  which may be converted or exchanged at a stated
or  determinable  exchange  ratio into  underlying  shares of common stock.  The
exchange ratio for any particular convertible security may be adjusted from time
to time due to stock splits, dividends, spin-offs, other corporate distributions
or  scheduled  changes  in  the  exchange  ratio.   Convertible  securities  and
convertible  preferred  stocks,  until converted,  have general  characteristics
similar to both debt and equity  securities.  Although  to a lesser  extent than
with debt securities generally, the market value of convertible securities tends
to decline as interest  rates  increase  and,  conversely,  tends to increase as
interest  rates  decline.  In addition,  because of the  conversion  or exchange
feature,  the market value of convertible  securities  typically  changes as the
market value of the underlying common stocks changes, and, therefore, also tends
to follow  movements  in the  general  market  for equity  securities.  A unique
feature of convertible  securities is that as the market price of the underlying
common stock declines,  convertible  securities tend to trade  increasingly on a
yield basis, and so may not experience  market value declines to the same extent
as the underlying  common stock.  When the market price of the underlying common
stock  increases,  the prices of the  convertible  securities  tend to rise as a
reflection of the value of the underlying common stock,  although  typically not
as much as the  underlying  common stock.  While no securities  investments  are
without risk,  investments in convertible  securities generally entail less risk
than investments in common stock of the same issuer.

     As fixed income  securities,  convertible  securities are investments which
provide  for a  stream  of  income  (or in the case of zero  coupon  securities,
accretion of income) with generally higher yields than common stocks. Of course,
like all  fixed  income  securities,  there  can be no  assurance  of  income or
principal payments because the issuers of the convertible securities may default
on their obligations.  Convertible  securities generally offer lower yields than
non-convertible  securities of similar  quality  because of their  conversion or
exchange features.

     Convertible  securities  are  generally  subordinated  to other similar but
non-convertible  securities of the same issuer,  although  convertible bonds, as
corporate debt  obligations,  enjoy  seniority in right of payment to all equity
securities,  and  convertible  preferred stock is senior to common stock, of the
same issuer.  However,  because of the subordination feature,  convertible bonds


                                       20
<PAGE>

and  convertible  preferred  stock  typically  have lower  ratings  than similar
non-convertible securities.

     Convertible  securities may be issued as fixed income  obligations that pay
current income or as zero coupon notes and bonds,  including Liquid Yield Option
Notes  ("LYONs").  Zero  coupon  securities  pay no cash  income and are sold at
substantial discounts from their value at maturity. When held to maturity, their
entire  income,  which  consists  of  accretion  of  discount,  comes  from  the
difference  between the purchase price and their value at maturity.  Zero coupon
convertible  securities  offer  the  opportunity  for  capital  appreciation  as
increases (or decreases) in market value of such securities  closely follows the
movements  in the market  value of the  underlying  common  stock.  Zero  coupon
convertible  securities  are  generally  expected to be less  volatile  than the
underlying  common stocks as they are usually issued with short to medium length
maturities  (15 years or less) and are issued  with  options  and/or  redemption
features  exercisable  by the holder of the  obligation  entitling the holder to
redeem the obligation and receive a defined cash payment.

Depositary Receipts

     The  Balanced,  Growth and Income,  Capital  Growth,  Global  Discovery and
International  Portfolios  may each invest  indirectly  in securities of foreign
issuers through sponsored or unsponsored  American Depositary Receipts ("ADRs"),
Global Depositary Receipts ("GDRs"),  International Depositary Receipts ("IDRs")
and other types of Depositary Receipts (which, together with ADRs, GDRs and IDRs
are hereinafter referred to as "Depositary  Receipts").  Depositary Receipts may
not necessarily be denominated in the same currency as the underlying securities
into which  they may be  converted.  In  addition,  the  issuers of the stock of
unsponsored   Depositary   Receipts  are  not  obligated  to  disclose  material
information in the United States and, therefore,  there may not be a correlation
between such information and the market value of the Depositary  Receipts.  ADRs
are typically  issued by a United  States bank or trust  company which  evidence
ownership of underlying  securities  issued by a foreign  corporation.  GDRs are
typically issued by foreign banks or trust companies,  although they also may be
issued by United  States banks or trust  companies,  and  evidence  ownership of
underlying securities issued by either a foreign or a United States corporation.
Generally,  Depositary  Receipts in registered  form are designed for use in the
United  States  securities  markets and  Depositary  Receipts in bearer form are
designed for use in securities  markets outside the United States.  For purposes
of the Balanced, Growth and Income, Capital Growth and International Portfolios'
investment policies,  the Portfolios'  investments in ADRs, GDRs and other types
of  Depositary  Receipts  will be deemed  to be  investments  in the  underlying
securities.  Depositary  Receipts other than those  denominated in U.S.  dollars
will be subject to  foreign  currency  exchange  rate risk.  Certain  Depositary
Receipts  may  not be  listed  on an  exchange  and  therefore  may be  illiquid
securities.

Foreign Securities

     The Bond, Balanced, Growth and Income, Capital Growth, Global Discovery and
International Portfolios  (collectively,  the "Non-Money Market Portfolios") may
each invest,  without limit, except as applicable to debt securities  generally,
in U.S.  dollar-denominated  foreign debt securities  (including those issued by
the Dominion of Canada and its  provinces and other debt  securities  which meet
the  criteria  applicable  to  the  Portfolio's  domestic  investments),  and in
certificates  of deposit issued by foreign banks and foreign  branches of United
States  banks,  to any  extent  deemed  appropriate  by the  Adviser.  The  Bond
Portfolio  may  invest up to 20% of its  assets in  non-U.S.  dollar-denominated
foreign debt securities. The Balanced Portfolio may invest up to 20% of its debt
securities  in non-U.S.  dollar-denominated  foreign  debt  securities,  and may
invest up to 25% of its equity securities in non-U.S. dollar-denominated foreign
equity  securities.  The Growth and Income Portfolio may invest up to 25% of its
assets in non-U.S.  dollar denominated equity securities of foreign issuers. The
Capital  Growth  Portfolio  may  invest  up  to  25%  of  its  assets,  and  the
International Portfolio may invest without limit, in non-U.S. dollar-denominated
equity securities of foreign issuers.

     Investors  should recognize that investing in foreign  securities  involves
certain special  considerations,  including those set forth below, which are not
typically  associated with investing in U.S.  securities and which may favorably
or unfavorably affect the Non-Money Market Portfolios'  performance.  As foreign
companies  are not  generally  subject to uniform  accounting  and  auditing and
financial reporting  standards,  practices and requirements  comparable to those
applicable  to  domestic  companies,   there  may  be  less  publicly  available
information about a foreign company than about a domestic company.  Many foreign
stock markets,  while growing in volume of trading activity,  have substantially
less volume than the New York Stock Exchange (the "Exchange"), and securities of
some foreign  companies  are less liquid and more  volatile  than  securities of


                                       21
<PAGE>

domestic companies. Similarly, volume and liquidity in most foreign bond markets
are less than the volume and  liquidity in the U.S. and at times,  volatility of
price can be greater than in the U.S.  Further,  foreign  markets have different
clearance and settlement procedures and in certain markets there have been times
when  settlements  have been  unable to keep pace with the volume of  securities
transactions  making  it  difficult  to  conduct  such  transactions.  Delays in
settlement  could result in temporary  periods when assets of the Portfolios are
uninvested and no return is earned  thereon.  The inability of the Portfolios to
make intended  security  purchases due to  settlement  problems  could cause the
Portfolios to miss attractive investment opportunities.  Inability to dispose of
portfolio securities due to settlement problems either could result in losses to
the Portfolios due to subsequent declines in value of the portfolio security or,
if the  Portfolios  have  entered  into a contract to sell the  security,  could
result in possible liability to the purchaser. Fixed commissions on some foreign
stock  exchanges  are  generally  higher  than  negotiated  commissions  on U.S.
exchanges,  although the Portfolios  will endeavor to achieve the most favorable
net results on its portfolio transactions. Further, the Portfolios may encounter
difficulties  or be unable to pursue  legal  remedies  and obtain  judgments  in
foreign courts. There is generally less government supervision and regulation of
business and industry practices,  stock exchanges,  brokers and listed companies
than in the U.S. It may be more  difficult  for the  Portfolios'  agents to keep
currently  informed  about  corporate  actions such as stock  dividends or other
matters  which may  affect the prices of  portfolio  securities.  Communications
between the U.S.  and foreign  countries  may be less  reliable  than within the
U.S., thus increasing the risk of delayed settlements of portfolio  transactions
or loss of certificates for portfolio securities.  In addition,  with respect to
certain  foreign  countries,   there  is  the  possibility  of  nationalization,
expropriation,  the imposition of withholding or confiscatory taxes,  political,
social,  or economic  instability,  devaluations  in the  currencies  in which a
Portfolio's securities are denominated,  or diplomatic  developments which could
affect U.S.  investments in those countries.  Investments in foreign  securities
may also entail certain risks, such as possible  currency  blockages or transfer
restrictions,  and the  difficulty  of  enforcing  rights  in  other  countries.
Moreover,  individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national  product,  rate of
inflation,  capital  reinvestment,  resource  self-sufficiency  and  balance  of
payments position.

     These  considerations  generally  are  more  of  a  concern  in  developing
countries.  For example,  the  possibility  of revolution  and the dependence on
foreign  economic  assistance  generally is greater in these  countries  than in
developed countries.  The management of the Non-Money Market Portfolios seeks to
mitigate the risks associated with these considerations through  diversification
and active professional management.  Although investments in companies domiciled
in  developing  countries  may be  subject  to  potentially  greater  risks than
investments  in  developed  countries,  the  Portfolios  will not  invest in any
securities of issuers located in developing countries if the securities,  in the
judgment of the Adviser, are speculative.

     To the  extent  that the  Non-Money  Market  Portfolios  invest in  foreign
securities,  the Portfolios' share price could reflect the movements of both the
different  stock and bond markets in which it is invested and the  currencies in
which the  investments  are  denominated;  the  strength or weakness of the U.S.
dollar  against  foreign  currencies  could account for part of the  Portfolios'
investment performance.

Limitations on Holdings of Foreign Securities for the Bond, Balanced, Growth and
Income and International Portfolios

     Each Portfolio that invests in foreign  securities  shall invest in no less
than five foreign countries;  provided that, (i) if foreign securities  comprise
less than 80% of the value of the  Portfolio's  net assets,  the Portfolio shall
invest  in no less than  four  foreign  countries;  (ii) if  foreign  securities
comprise less than 60% of the value of the Portfolio's net assets, the Portfolio
shall  invest  in no  less  than  three  foreign  countries;  (iii)  if  foreign
securities  comprise less than 40% of the value of the  Portfolio's  net assets,
the Portfolio  shall invest in no less than two foreign  countries;  and (iv) if
foreign  securities  comprise less than 20% of the value of the  Portfolio's net
assets the Portfolio may invest in a single foreign country.

     Each Portfolio shall invest no more than 20% of the value of its net assets
in securities of issuers located in any one country; provided that an additional
15% of the value of each Portfolio's net assets may be invested in securities of
issuers  located  in any  one of the  following  countries:  Australia,  Canada,
France, Japan, the United Kingdom and Germany; and provided further that 100% of
a Portfolio's  assets may be invested in  securities  of issuers  located in the
United States.

                                       22
<PAGE>

Indexed Securities

     The Bond  Portfolio  and the Balanced  Portfolio may each invest in indexed
securities,  the  value  of which  is  linked  to  currencies,  interest  rates,
commodities,  indices or other financial indicators  ("reference  instruments").
Most indexed securities have maturities of three years or less.

     Indexed  securities differ from other types of debt securities in which the
Fund may invest in several  respects.  First, the interest rate or, unlike other
debt securities, the principal amount payable at maturity of an indexed security
may vary based on changes in one or more specified reference  instruments,  such
as an interest rate compared with a fixed interest rate or the currency exchange
rates between two currencies (neither of which need be the currency in which the
instrument is denominated).  The reference instrument need not be related to the
terms of the indexed  security.  For  example,  the  principal  amount of a U.S.
dollar  denominated  indexed security may vary based on the exchange rate of two
foreign currencies. An indexed security may be positively or negatively indexed;
that is,  its value  may  increase  or  decrease  if the value of the  reference
instrument increases. Further, the change in the principal amount payable or the
interest rate of an indexed security may be a multiple of the percentage  change
(positive or negative) in the value of the underlying reference instrument(s).

     Investment in indexed securities involves certain risks. In addition to the
credit risk of the  security's  issuer and the normal risks of price  changes in
response  to  changes  in  interest  rates,  the  principal  amount  of  indexed
securities  may  decrease  as a result  of  changes  in the  value of  reference
instruments.  Further,  in the case of certain  indexed  securities in which the
interest  rate is linked to a reference  instrument,  the  interest  rate may be
reduced to zero, and any further  declines in the value of the security may then
reduce the principal amount payable on maturity. Finally, indexed securities may
be more volatile than the reference instruments underlying indexed securities.

When-Issued Securities

     A Portfolio may from time to time purchase securities on a "when-issued" or
"forward  delivery"  basis.  Debt securities are often issued on this basis. The
price of such securities, which may be expressed in yield terms, is fixed at the
time a  commitment  to  purchase  is made,  but  delivery  and  payment  for the
when-issued or forward  delivery  securities take place at a later date.  During
the period between purchase and settlement,  no payment is made by the Portfolio
and no  interest  accrues  to the  Portfolio.  To the  extent  that  assets of a
Portfolio are held in cash pending the  settlement of a purchase of  securities,
that Portfolio would earn no income;  however,  it is the Fund's  intention that
each Portfolio will be fully invested to the extent  practicable  and subject to
the policies stated above. While when-issued or forward delivery  securities may
be sold prior to the  settlement  date,  the Portfolio  intends to purchase such
securities  with the purpose of actually  acquiring  them unless a sale  appears
desirable for investment  reasons.  At the time the Fund makes the commitment on
behalf of a  Portfolio  to  purchase  a  security  on a  when-issued  or forward
delivery  basis,  it will record the  transaction and reflect the amount due and
the value of the security in determining the  Portfolio's  net asset value.  The
market value of the  when-issued or forward  delivery  securities may be more or
less than the  purchase  price  payable at  settlement  date.  The Fund does not
believe that a Portfolio's net asset value or income will be adversely  affected
by the purchase of securities on a when-issued or forward  delivery basis.  Each
Portfolio  will  establish a segregated  account in which it will maintain cash,
U.S. Government  securities and other high-grade debt obligations at least equal
in value to commitments for  when-issued or forward  delivery  securities.  Such
segregated securities either will mature or, if necessary,  be sold on or before
the settlement date.

Loans of Portfolio Securities

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

                                       23
<PAGE>

Borrowing

     The Board of Trustees has adopted a policy  whereby  each  Portfolio of the
Fund may  borrow up to 10% of its total  assets;  provided,  however,  that each
Portfolio  may  borrow  up to 25% of  its  total  assets  for  extraordinary  or
emergency purposes,  including the facilitation of redemptions.  A Portfolio may
only  borrow  money from  banks as a  temporary  measure  for  extraordinary  or
emergency  purposes  (each  Portfolio  is required to  maintain  asset  coverage
(including  borrowings)  of  300%  for  all  borrowings)  and  no  purchases  of
securities  for a  Portfolio  will be made while  borrowings  of that  Portfolio
exceed 5% of the Portfolio's assets. Borrowings by the Fund increase exposure to
capital risk. In addition, borrowed funds are subject to interest costs that may
offset or exceed the return earned on investment of such funds.

Options for the Bond, Balanced, Growth and Income and International Portfolios

     The Fund may, on behalf of each of the Bond,  Balanced,  Growth and Income,
Capital Growth and International  Portfolios,  write covered call options on the
portfolio  securities  of such  Portfolio  in an attempt  to enhance  investment
performance.  A call  option is a contract  generally  having a duration of nine
months or less which gives the purchaser of the option,  in return for a premium
paid,  the right to buy, and the writer the  obligation to sell,  the underlying
security at the exercise  price at any time upon the  assignment  of an exercise
notice prior to the expiration of the option,  regardless of the market price of
the  security  during  the option  period.  A covered  call  option is an option
written on a security which is owned by the writer throughout the option period.

     The Fund will write, on behalf of a Portfolio, covered call options both to
reduce the risks  associated  with  certain of its  investments  and to increase
total investment  return.  In return for the premium income,  the Portfolio will
give up the  opportunity  to profit from an increase in the market  price of the
underlying  security above the exercise price so long as its  obligations  under
the  contract  continue,  except  insofar as the  premium  represents  a profit.
Moreover,  in writing the  option,  the  Portfolio  will retain the risk of loss
should the price of the security decline,  which loss the premium is intended to
offset  in  whole or in part.  Unlike  the  situation  in  which  the Fund  owns
securities not subject to a call option, the Fund, in writing call options, must
assume that the call may be exercised at any time prior to the expiration of its
obligations  as a  writer,  and  that in  such  circumstances  the net  proceeds
realized from the sale of the underlying  securities pursuant to the call may be
substantially below the prevailing market price. The Fund may forego the benefit
of appreciation in its Portfolios on securities sold pursuant to call options.

     When the Portfolio writes a covered call option,  it gives the purchaser of
the option the right to buy the  underlying  security at the price  specified in
the option (the  "exercise  price") by exercising  the option at any time during
the option  period,  generally  ranging up to nine  months.  Some of the options
which the Fund  writes  may be of the  European  type  which  means  they may be
exercised  only at a specified  time.  If the option  expires  unexercised,  the
Portfolio will realize income in an amount equal to the premium received for the
written option. If the option is exercised,  a decision over which the Portfolio
has no control,  the Portfolio must sell the  underlying  security to the option
holder at the exercise  price.  By writing a covered call option,  the Portfolio
forgoes,  in exchange for the premium less the commission ("net  premium"),  the
opportunity  to profit  during the option  period from an increase in the market
value of the underlying security above the exercise price.

     The  Balanced,  Growth and Income,  Capital  Growth,  Global  Discovery and
International  Portfolios  may each  write  covered  call and put  options  to a
limited extent on their  portfolio  securities in an attempt to earn  additional
income on their  portfolios,  consistent with their investment  objectives.  The
Portfolios  may  forego the  benefits  of  appreciation  on  securities  sold or
depreciation on securities  acquired pursuant to call and put options written by
the  Portfolios.  Each Portfolio has no current  intention of writing options on
more than 5% of its net assets.

     When the Fund,  on behalf  of the  Balanced,  Growth  and  Income,  Capital
Growth, Global Discovery and International  Portfolios,  writes a put option, it
gives the purchaser of the option the right to sell the  underlying  security to
the  Portfolio  at the  specified  exercise  price at any time during the option
period. Some of the European type options which the Fund writes may be exercised
only at a specified time. If the option expires unexercised,  the Portfolio will
realize income in the amount of the premium received for writing the option.  If
the put option is exercised, a decision over which the Portfolio has no control,
the Portfolio  must purchase the  underlying  security from the option holder at


                                       24
<PAGE>

the exercise price. By writing a put option, the Portfolio,  in exchange for the
net premium  received,  accepts the risk of a decline in the market value of the
underlying security below the exercise price. With respect to each put option it
writes,  the  Portfolio  will have  deposited  in a  separate  account  with its
custodian U.S. Treasury obligations, high-grade debt securities or cash equal in
value to the exercise price of the put option,  will have purchased a put option
with a higher  exercise  price that will  expire no earlier  than the put option
written or will have used some  combination  of these two  methods.  The Fund on
behalf of each Portfolio,  will only write put options involving  securities for
which a  determination  is made that it wishes to acquire the  securities at the
exercise price at the time the option is written.

     A  Portfolio  may  terminate  its  obligation  as a writer of a call or put
option by purchasing an option with the same exercise price and expiration  date
as the option previously written. This transaction is called a "closing purchase
transaction."

     When a  Portfolio  writes an  option,  an amount  equal to the net  premium
received by the Portfolio is included in the liability  section of the Portfolio
Statement  of Assets and  Liabilities  as a deferred  credit.  The amount of the
deferred  credit  will be  subsequently  marked to market to reflect the current
market value of the option written.  The current market value of a traded option
is the last sale  price or,  in the  absence  of a sale,  the mean  between  the
closing bid and asked price.  If an option expires on its stipulated  expiration
date  or if the  Portfolio  enters  into a  closing  purchase  transaction,  the
Portfolio  will  realize  a gain  (or  loss if the  cost of a  closing  purchase
transaction  exceeds the  premium  received  when the option was sold),  and the
deferred  credit related to such option will be eliminated.  If a call option is
exercised,  the  Portfolio  will  realize  a gain or loss  from  the sale of the
underlying  security  and the  proceeds  of the sale  will be  increased  by the
premium originally  received.  The writing of covered call options may be deemed
to  involve  the  pledge of the  securities  against  which the  option is being
written. Securities against which call options are written will be segregated on
the books of the custodian for the Portfolio.

     The Portfolio  may purchase call options on any  securities in which it may
invest in  anticipation  of an increase in the market value of such  securities.
The purchase of a call option would entitle the  Portfolio,  in exchange for the
premium  paid,  to purchase a security at a  specified  price  during the option
period.  The  Portfolio  would  ordinarily  have a  gain  if  the  value  of the
securities  increased above the exercise price sufficiently to cover the premium
and would have a loss if the value of the  securities  remained  at or below the
exercise price during the option period.

     The  Balanced,  Growth and Income,  Capital  Growth,  Global  Discovery and
International Portfolios will normally purchase put options in anticipation of a
decline in the  market  value of  securities  in their  portfolios  ("protective
puts") or  securities  of the type in which they are  permitted  to invest.  The
purchase of a put option  would  entitle  the  Portfolio,  in  exchange  for the
premium paid, to sell a security, which may or may not be held by the Portfolio,
at a specified  price during the option period.  The purchase of protective puts
is designed  merely to offset or hedge  against a decline in the market value of
the Portfolio's portfolio  securities.  Put options may also be purchased by the
Portfolio  for the  purpose of  affirmatively  benefiting  from a decline in the
price of  securities  which the  Portfolio  does not own.  The  Portfolio  would
ordinarily  recognize a gain if the value of the securities  decreased below the
exercise price  sufficiently  to cover the premium and would recognize a loss if
the value of the securities  remained at or above the exercise price.  Gains and
losses on the  purchase of  protective  put  options  would tend to be offset by
countervailing changes in the value of underlying portfolio securities.

     The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. To the extent that the option
markets  close  before the markets for the  underlying  securities,  significant
price and rate  movements can take place in the  underlying  securities  markets
that cannot be reflected in the option markets.  Exchange  markets in securities
options are a relatively new and untested  concept.  It is impossible to predict
the  volume  of  trading  that may  exist in such  options,  and there can be no
assurance that viable exchange markets will develop or continue.

     The  Fund  may  engage  in  over-the-counter   options   transactions  with
broker-dealers  who make  markets in these  options.  At present,  approximately
thirty  broker-dealers  make these  markets and the Adviser will  consider  risk
factors such as their  creditworthiness  when  determining a broker-dealer  with
which  to  engage  in   options   transactions.   The   ability   to   terminate
over-the-counter  option  positions is more  limited  than with  exchange-traded
option  positions  because the  predominant  market is the issuing broker rather
than an exchange, and may involve the risk that broker-dealers  participating in
such transactions will not fulfill their obligations.  Written  over-the-counter
options  purchased by the Fund and portfolio  securities  "covering"  the Fund's


                                       25
<PAGE>

obligation pursuant to an  over-the-counter  option may be deemed to be illiquid
and may not be readily marketable. The Adviser will monitor the creditworthiness
of dealers  with whom the Fund enters into such options  transactions  under the
general supervision of the Fund's Trustees.

Securities Index Options

     The  Balanced,  Growth and Income,  Capital  Growth,  Global  Discovery and
International  Portfolios  may each  purchase call and put options on securities
indexes  for the  purpose  of  hedging  against  the risk of  unfavorable  price
movements adversely affecting the value of a Portfolio's securities.  Options on
securities indexes are similar to options on stock except that the settlement is
made in cash.

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

     A securities  index  fluctuates  with  changes in the market  values of the
securities  so  included.  Some  securities  index  options are based on a broad
market  index  such as the S&P 500 or the NYSE  Composite  Index,  or a narrower
market  index  such as the S&P 100.  Indices  are also based on an  industry  or
market  segment  such as the AMEX Oil and Gas Index or the Computer and Business
Equipment Index. Options on securities indexes are currently traded on exchanges
including the Chicago Board Options Exchange,  Philadelphia  Exchange,  New York
Stock Exchange, and American Stock Exchange.

     The  effectiveness  of hedging  through the  purchase of  securities  index
options  will depend upon the extent to which price  movements in the portion of
the securities  portfolio  being hedged  correlate  with price  movements in the
selected  securities  index.  Perfect  correlation  is not possible  because the
securities holdings of a Portfolio will not exactly match the composition of the
securities  indexes on which options are written.  In addition,  the purchase of
securities index options involves  essentially the same risks as the purchase of
options  on  futures  contracts.  The  principal  risk is that the  premium  and
transactions costs paid by a Portfolio in purchasing an option will be lost as a
result of  unanticipated  movements in prices of the  securities  comprising the
securities index on which the option is written.  Options on securities  indexes
also entail the risk that a liquid secondary market to close out the option will
not exist,  although a Portfolio  will  generally only purchase or write such an
option if the Adviser believes the option can be closed out.

Futures Contracts

     The Fund may, on behalf of the Bond, Balanced and International Portfolios,
purchase  and  sell  futures  contracts  on debt  securities  to  hedge  against
anticipated  changes in  interest  rates that  might  otherwise  have an adverse
effect upon the value of the Portfolio's debt securities.  In addition, the Fund
may, on behalf of the Non-Money Market Portfolios,  purchase and sell securities
index  futures to hedge the equity  securities  of a  Portfolio  with  regard to
market  (systematic)  risk as distinguished  from  stock-specific  risk. Each of
these  five  Portfolios  may also  purchase  and write put and call  options  on
futures  contracts of the type which such  Portfolio is authorized to enter into
and may  engage in related  closing  transactions.  All of such  futures on debt
securities,  stock index futures and related options will be traded on exchanges
that are licensed and  regulated by the  Commodity  Futures  Trading  Commission
("CFTC") or on appropriate  foreign  exchanges,  to the extent permitted by law.
Even though at the present time no contracts  based on global indices which meet
the International Portfolio's investment criteria are available,  there are U.S.
stock indices which may be used to hedge U.S. securities held in that Portfolio.

Futures on Debt Securities

     A futures contract on a debt security is a binding  contractual  commitment
which,  if held to  maturity,  will  result in an  obligation  to make or accept
delivery,  during a particular future month, of securities having a standardized
face   value   and   rate   of   return.   By   purchasing   futures   on   debt
securities--assuming a "long" position--the Fund, on behalf of a Portfolio, will
legally obligate itself to accept the future delivery of the underlying security
and pay the agreed  price.  By selling  futures on debt  securities--assuming  a


                                       26
<PAGE>

"short" position--it will legally obligate itself to make the future delivery of
the security against payment of the agreed price. Open futures positions on debt
securities will be valued at the most recent settlement price, unless such price
does not appear to the  Trustees to reflect the fair value of the  contract,  in
which  case the  positions  will be  valued  by or under  the  direction  of the
Trustees.

     Positions  taken in the futures  markets are normally not held to maturity,
but are instead liquidated through offsetting transactions which may result in a
profit  or a loss.  While  futures  positions  taken by the Fund on  behalf of a
Portfolio  will usually be liquidated in this manner,  the Fund may instead make
or take delivery of the underlying  securities whenever it appears  economically
advantageous to the Portfolio to do so. A clearing  corporation  associated with
the exchange on which futures are traded assumes  responsibility for closing-out
and  guarantees  that the sale and purchase  obligations  will be performed with
regard to all positions that remain open at the termination of the contract.

     Hedging  by use of  futures  on debt  securities  seeks to  establish  more
certainly  than would  otherwise  be possible  the  effective  rate of return on
portfolio  securities.  A Portfolio may, for example, take a "short" position in
the  futures  market  by  selling  contracts  for the  future  delivery  of debt
securities held by the Portfolio (or securities having  characteristics  similar
to those held by the Portfolio) in order to hedge against an anticipated rise in
interest  rates  that  would  adversely  affect  the  value  of the  Portfolio's
portfolio  securities.  When  hedging  of  this  character  is  successful,  any
depreciation in the value of portfolio  securities will be substantially  offset
by appreciation in the value of the futures position.

     On other occasions,  the Portfolio may take a "long" position by purchasing
futures on debt  securities.  This  would be done,  for  example,  when the Fund
intends to purchase  for the  Portfolio  particular  securities  when it has the
necessary  cash,  but expects  the rate of return  available  in the  securities
markets at that time to be less favorable than rates currently  available in the
futures markets.  If the anticipated rise in the price of the securities  should
occur (with its  concomitant  reduction  in yield),  the  increased  cost to the
Portfolio of purchasing the securities will be offset,  at least to some extent,
by the rise in the value of the futures  position taken in  anticipation  of the
subsequent securities purchase.

     Stock Index  Futures.  A stock index futures  contract does not require the
physical  delivery of  securities,  but merely  provides  for profits and losses
resulting  from  changes in the market  value of the  contract to be credited or
debited  at the close of each  trading  day to the  respective  accounts  of the
parties  to the  contract.  On the  contract's  expiration  date  a  final  cash
settlement  occurs and the futures  positions are simply closed out.  Changes in
the market value of a particular stock index futures contract reflect changes in
the  specified  index of equity  securities  on which the future is based.  That
index is  designed  to  reflect  overall  price  trends in the market for equity
securities.

     Stock index  futures may be used to hedge the equity  securities of each of
the Balanced, Growth and Income, Capital Growth or International Portfolios with
regard to  market  (systematic)  risk  (involving  the  market's  assessment  of
over-all  economic   prospects),   as  distinguished  from  stock-specific  risk
(involving  the market's  evaluation of the merits of the issuer of a particular
security).  By  establishing  an  appropriate  "short"  position  in stock index
futures,  the Fund may seek to protect the value of the equity of a  Portfolio's
securities  against  an overall  decline  in the  market for equity  securities.
Alternatively,  in anticipation of a generally rising market,  the Fund can seek
on behalf of a Portfolio to avoid losing the benefit of  apparently  low current
prices by  establishing  a "long"  position  in stock  index  futures  and later
liquidating that position as particular  equity securities are in fact acquired.
To the extent that these hedging  strategies are successful,  the Portfolio will
be  affected  to a lesser  degree by adverse  overall  market  price  movements,
unrelated  to the merits of specific  portfolio  equity  securities,  than would
otherwise be the case.

Options on Futures.  For bona fide hedging purposes,  the Fund may also purchase
and write, on behalf of each of the Bond, Balanced,  Growth and Income,  Capital
Growth and International Portfolios,  call and put options on futures contracts,
which are traded on exchanges  that are licensed and regulated by the CFTC or on
any foreign exchange for the purpose of options trading, to the extent permitted
by law. A "call" option on a futures  contract gives the purchaser the right, in
return for the premium  paid,  to purchase a futures  contract  (assume a "long"
position) at a specified exercise price at any time before the option expires. A
"put" option gives the purchaser  the right,  in return for the premium paid, to
sell a futures contract (assume a "short"  position),  for a specified  exercise
price, at any time before the option expires.

                                       27
<PAGE>

     Upon the  exercise  of a "call," the writer of the option is  obligated  to
sell the futures contract (to deliver a "long" position to the option holder) at
the option  exercise  price,  which will  presumably  be lower than the  current
market price of the contract in the futures  market.  Upon  exercise of a "put,"
the writer of the option is obligated to purchase the futures contract  (deliver
a "short"  position to the option holder) at the option  exercise  price,  which
will  presumably be higher than the current  market price of the contract in the
futures  market.  When a person  exercises  an option and assumes a long futures
position, in the case of a "call," or a short futures position, in the case of a
"put," his gain will be credited to his futures margin  account,  while the loss
suffered by the writer of the option will be debited to his account. However, as
with the trading of futures,  most  participants  in the options  markets do not
seek to  realize  their  gains or losses by  exercise  of their  option  rights.
Instead,  the holder of an option will usually  realize a gain or loss by buying
or selling an offsetting  option at a market price that will reflect an increase
or a decrease from the premium originally paid.

     Options on futures can be used by a Portfolio  to hedge  substantially  the
same  risks  as  might  be  addressed  by the  direct  purchase  or  sale of the
underlying futures contracts.  If the Portfolio purchases an option on a futures
contract,  it may obtain benefits  similar to those that would result if it held
the futures position itself. But in contrast to a futures transaction,  in which
only transaction costs are involved,  benefits received in an option transaction
will be  reduced  by the amount of the  premium  paid as well as by  transaction
costs. In the event of an adverse market movement,  however,  the Portfolio will
not be subject to a risk of loss on the option  transaction  beyond the price of
the premium it paid plus its transaction  costs,  and may  consequently  benefit
from a favorable  movement in the value of its portfolio  securities  that would
have been more completely  offset if the hedge had been effected through the use
of futures.

     If a Portfolio  writes  options on futures  contracts,  the Portfolio  will
receive a premium but will assume a risk of adverse movement in the price of the
underlying  futures  contract  comparable  to that involved in holding a futures
position. If the option is not exercised,  the Portfolio will gain the amount of
the premium,  which may  partially  offset  unfavorable  changes in the value of
securities  held  in or to be  acquired  for the  Portfolio.  If the  option  is
exercised, the Portfolio will incur a loss in the option transaction, which will
be reduced by the amount of the premium it has received, but which may partially
offset favorable changes in the value of its portfolio securities.

     While the holder or writer of an option on a futures  contract may normally
terminate its position by selling or purchasing an offsetting option of the same
series, the Portfolio's  ability to establish and close out options positions at
fairly established prices will be subject to the maintenance of a liquid market.
A Portfolio will not purchase or write options on futures  contracts  unless, in
the Adviser's opinion, the market for such options has sufficient liquidity that
the risks  associated  with such options  transactions  are not at  unacceptable
levels.

Limitations on the Use of Futures Contracts and Options on Futures

     All of the futures contracts and options on futures transactions into which
the Fund will enter  will be for bona fide  hedging  or other  appropriate  risk
management  purposes  as  permitted  by  CFTC  regulations  and  to  the  extent
consistent  with  requirements  of the Securities and Exchange  Commission  (the
"SEC").

     To ensure that its futures and options transactions meet this standard, the
Fund will enter into them only for the purposes or with the intent  specified in
CFTC regulations,  subject to the requirements of the SEC. The Fund will further
seek to assure  that  fluctuations  in the price of the  futures  contracts  and
options on  futures  that it uses for  hedging  purposes  will be  substantially
correlated to fluctuations in the price of the securities held by a Portfolio or
which it expects to purchase,  though there can be no assurance that this result
will be  achieved.  The Fund will sell  futures  contracts  or  acquire  puts to
protect  against a decline in the price of securities that a Portfolio owns. The
Fund will purchase futures  contracts or calls on futures contracts to protect a
Portfolio  against an increase in the price of securities the Fund intends later
to purchase for the Portfolio before it is in a position to do so.

     As evidence of this hedging intent, the Fund expects that on 75% or more of
the  occasions on which it  purchases a long futures  contract or call option on
futures for a Portfolio  the Fund will effect the purchase of  securities in the
cash market or take delivery as it closes out a Portfolio's futures position. In
particular  cases,  however,  when  it  is  economically   advantageous  to  the
Portfolio,  a long futures  position may be terminated (or an option may expire)
without the corresponding purchase of securities.

                                       28
<PAGE>

     As an  alternative  to  literal  compliance  with  the  bona  fide  hedging
definition,  a CFTC  definition  now  permits the Fund to elect to comply with a
different test,  under which its long futures  positions will not exceed the sum
of (a) cash or cash equivalents  segregated for this purpose,  (b) cash proceeds
on existing  investments  due within thirty days and (c) accrued  profits on the
particular futures or options positions. However, the Fund will not utilize this
alternative unless it is advised by counsel that to do so is consistent with the
requirements of the SEC.

     Futures on debt securities and stock index futures are at present  actively
traded on exchanges  that are licensed and registered by the CFTC, or consistent
with the CFTC regulations on foreign exchanges.  Portfolios will incur brokerage
fees in  connection  with their  futures and options  transactions,  and will be
required  to deposit  and  maintain  funds with  brokers as margin to  guarantee
performance of futures  obligations.  In addition,  while futures  contracts and
options on futures will be purchased  and sold to reduce  certain  risks,  those
transactions  themselves entail certain other risks. Thus, while a Portfolio may
benefit from the use of futures and options on futures, unanticipated changes in
interest  rates  or  stock  price  movements  may  result  in a  poorer  overall
performance  for the  Portfolio  than if it had not  entered  into  any  futures
contracts  or  options  transactions.  Moreover,  in the  event of an  imperfect
correlation  between the futures  position and the portfolio  position  which is
intended to be  protected,  the desired  protection  may not be obtained and the
Portfolio may be exposed to risk of loss.

     Each Portfolio,  in dealing in futures contracts and options on futures, is
subject to the 300% asset  coverage  requirement  for borrowings set forth under
"Investment  Restrictions"  in the Fund's  prospectus.  The  Trustees  have also
adopted a policy (which is not  fundamental  and may be modified by the Trustees
without a shareholder  vote) that,  immediately  after the purchase or sale of a
futures  contract or option thereon,  the value of the aggregate  initial margin
with  respect  to all  futures  contracts  and  premiums  on  options on futures
contracts  entered  into by a  Portfolio  will not exceed 5% of the fair  market
value of the Portfolio's total assets. Additionally,  the value of the aggregate
premiums paid for all put and call options held by the Portfolio will not exceed
2% of its net assets.  A futures contract for the receipt of a debt security and
long  index  futures  will  be  offset  by  assets  of the  Portfolio  held in a
segregated  account in an amount  equal to the total market value of the futures
contracts less the amount of the initial margin for the contracts.

Foreign Currency Transactions

     The Non-Money  Market  Portfolios may enter into forward  foreign  currency
exchange contracts ("forward contracts") for hedging purposes.  These Portfolios
may also, for hedging purposes,  purchase foreign currencies in the form of bank
deposits as well as other  foreign money market  instruments,  including but not
limited to, bankers'  acceptances,  certificates of deposit,  commercial  paper,
short-term government and corporate obligations and repurchase  agreements.  The
International  Portfolio may also enter into foreign currency futures  contracts
and foreign currency options.

     Because investments in foreign companies usually will involve currencies of
foreign countries,  and because the Non-Money Market Portfolios  temporarily may
hold funds in bank  deposits  in foreign  currencies  during the  completion  of
investment  programs,  the value of their assets as measured in U.S. dollars may
be affected  favorably or  unfavorably by changes in foreign  currency  exchange
rates and exchange control  regulations,  and they may incur costs in connection
with  conversions  between  various  currencies.  Although the Non-Money  Market
Portfolios value their assets daily in terms of U.S. dollars, they do not intend
to convert their  holdings of foreign  currencies  into U.S.  dollars on a daily
basis.  They will do so from time to time, and investors  should be aware of the
costs of currency conversion.  Although foreign exchange dealers do not charge a
fee for  conversion,  they do  realize  a profit  based on the  difference  (the
"spread")  between  the  prices at which they are  buying  and  selling  various
currencies. Thus, a dealer may offer to sell a foreign currency to the Non-Money
Market  Portfolios at one rate,  while offering a lesser rate of exchange should
the Non-Money  Market  Portfolios  desire to resell that currency to the dealer.
The Non-Money  Market  Portfolios will conduct their foreign  currency  exchange
transactions  either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency  exchange  market,  or through entering into forward or, in
the case of the International  Portfolio,  futures contracts to purchase or sell
foreign currencies.

     A forward  contract  involves an  obligation to purchase or sell a specific
currency at a future  date,  which may be any fixed number of days from the date
of the contract  agreed upon by the  parties,  at a price set at the time of the
contract.  These contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers. A


                                       29
<PAGE>

forward contract  generally has no deposit  requirement,  and no commissions are
charged at any stage for trades.

     A foreign  currency  futures  contract is a  standardized  contract for the
future delivery of a specified  amount of a foreign currency at a future date at
a price set at the time of the contract. The agreed price may be fixed or within
a specified range of prices.  Foreign currency  futures  contracts traded in the
United  States are  designed by and traded on  exchanges  regulated by the CFTC,
such as the Chicago  Mercantile  Exchange.  Futures  contracts involve brokerage
costs,  which  may vary from less  than 1% to 2.5% of the  contract  price,  and
require parties to the contract to make "margin" deposits to secure  performance
of the contract. The International Portfolio would also be required to segregate
assets to cover contracts that would require it to purchase foreign  currencies.
The  International  Portfolio  would  enter into  futures  contracts  solely for
hedging  or other  appropriate  risk  management  purposes  as  defined  in CFTC
regulations.

     Forward contracts differ from foreign currency futures contracts in certain
respects.  For example, the maturity date of a forward contract may be any fixed
number of days from the date of the contract agreed upon by the parties,  rather
than a  predetermined  date in a given  month,  and they  may be in any  amounts
agreed upon by the parties  rather than  predetermined  amounts.  Also,  forward
contracts are traded directly  between  currency traders so that no intermediary
is required. A forward contract generally requires no margin or other deposit.

     Upon the  maturity  of a forward or  foreign  currency  futures  contract a
Portfolio may either  accept or make  delivery of the currency  specified in the
contract or, at or prior to maturity,  enter into a closing purchase transaction
involving  the  purchase or sale of an  offsetting  contract.  Closing  purchase
transactions  with respect to forward  contracts  are usually  effected with the
currency  trader  who is a  party  to the  original  forward  contract.  Closing
purchase  transactions  with  respect to futures  contracts  are  effected  on a
commodities  exchange;  a  clearing  corporation  associated  with the  exchange
assumes responsibility for closing out such contracts.

     A Portfolio may enter into forward  contracts and foreign  currency futures
contracts under certain  circumstances.  When a Portfolio enters into a contract
for the purchase or sale of a security  denominated  in a foreign  currency,  or
when a Portfolio  anticipates the receipt in a foreign  currency of dividends or
interest payments on such a security which it holds, the Portfolio may desire to
"lock in" the U.S. dollar price of the security or the U.S. dollar equivalent of
such  dividend  or  interest  payment,  as the case may be. By  entering  into a
forward or futures  contract  for the  purchase or sale,  for a fixed  amount of
dollars,   of  the  amount  of  foreign  currency  involved  in  the  underlying
transactions,  the Portfolio  will attempt to protect  itself against a possible
loss  resulting  from an adverse  change in the  relationship  between  the U.S.
dollar and the foreign  currency during the period between the date on which the
security is purchased or sold,  or on which the dividend or interest  payment is
declared, and the date on which such payments are made or received.

     Additionally,  when management of a Portfolio believes that the currency of
a particular  foreign country may suffer a substantial  decline against the U.S.
dollar,  it may enter into a forward or futures  contract  to sell,  for a fixed
amount of dollars,  the amount of foreign  currency  approximating  the value of
some or all of the Portfolio's  securities denominated in such foreign currency.
The precise matching of the forward or futures contract amounts and the value of
the securities  involved will not generally be possible because the future value
of such securities in foreign  currencies will change as a consequence of market
movements  in the  value  of those  securities  between  the  date on which  the
contract is entered  into and the date it matures.  The  precise  projection  of
short-term  currency market  movements is not possible,  and short-term  hedging
provides  a means of fixing the  dollar  value of a portion  of the  Portfolio's
foreign assets.

     The Non-Money Market Portfolios do not intend to enter into such forward or
futures  contracts  to  protect  the value of their  portfolio  securities  on a
regular  continuous  basis, and will not do so if, as a result, a Portfolio will
have  more  than  15%  of  the  value  of  its  total  assets  committed  to the
consummation  of such  contracts.  A  Portfolio  also will not  enter  into such
forward or foreign currency futures contracts or maintain a net exposure to such
contracts  where the  consummation of the contracts would obligate the Portfolio
to  deliver  an  amount  of  foreign  currency  in  excess  of the  value of the
Portfolio's  securities  or other assets  denominated  in that  currency.  Under
normal  circumstances,  consideration of the prospect for currency parities will
be  incorporated  into the long-term  investment  decisions  made with regard to
overall  diversification  strategies.  However,  the Non-Money Market Portfolios
believe that it is important to have the  flexibility to enter into such forward


                                       30
<PAGE>

or  foreign  currency  futures  contracts  when  each  determines  that the best
interests of the Portfolio will be served.

     Except when a Portfolio  enters into a forward  contract for the purpose of
the  purchase or sale of a security  denominated  in a foreign  currency,  State
Street  Bank and Trust  Company  (the  "Custodian"),  will  place cash or liquid
securities into a segregated  account of the Portfolio in an amount equal to the
value of the Portfolio's  total assets  committed to the consummation of forward
contracts  (or the  Portfolio's  forward  contracts  will be  otherwise  covered
consistent with applicable  regulatory  policies) and foreign  currency  futures
contracts  that require the  Portfolio to purchase  foreign  currencies.  If the
value of the securities placed in the segregated  account  declines,  additional
cash or  securities  will be placed in the  account on a daily basis so that the
value of the account will equal the amount of the Portfolio's  commitments  with
respect to such contracts.

     The Non-Money Market Portfolios  generally will not enter into a forward or
foreign  currency futures contract with a term of greater than one year. It also
should be realized  that this method of  protecting  the value of a  Portfolio's
securities  against a  decline  in the value of a  currency  does not  eliminate
fluctuations in the underlying prices of the securities. It simply establishes a
rate of exchange which the Portfolio can achieve at some future point in time.

     While the Non-Money  Market  Portfolios will enter into forward and, in the
case of the  International  Portfolio,  foreign currency  futures  contracts and
foreign currency options to reduce currency exchange rate risks, transactions in
such contracts involve certain other risks.  Thus, while a Portfolio may benefit
from such transactions, unanticipated changes in currency prices may result in a
poorer overall  performance  for the Portfolio than if it had not engaged in any
such transaction. Moreover, there may be imperfect correlation between the value
of the Portfolio's  holdings of securities  denominated in a particular currency
and forward or futures contracts  entered into by the Portfolio.  Such imperfect
correlation  may prevent the Portfolio from achieving a complete hedge or expose
the Portfolio to risk of foreign exchange loss.

     The International  Portfolio may purchase options on foreign currencies for
hedging  purposes  in a  manner  similar  to that  of  transactions  in  forward
contracts.  For example,  a decline in the dollar value of a foreign currency in
which portfolio  securities are denominated will reduce the dollar value of such
securities,  even if their value in the foreign  currency remains  constant.  In
order to protect  against such  decreases in the value of portfolio  securities,
the Portfolio may purchase put options on the foreign currency.  If the value of
the currency  declines,  the Portfolio will have the right to sell such currency
for a fixed amount of dollars which  exceeds the market value of such  currency.
This would result in a gain that may offset,  in whole or in part,  the negative
effect  of  currency  depreciation  on the value of the  Portfolio's  securities
denominated in that currency.

     Conversely,  if a rise in the dollar value of a currency is  projected  for
those securities to be acquired, thereby increasing the cost of such securities,
the International  Portfolio may purchase call options on such currency.  If the
value of such currency increased, the purchase of such call options would enable
the  Portfolio to purchase  currency for a fixed amount of dollars which is less
than the market value of such  currency.  Such a purchase would result in a gain
that may offset, at least partially, the effect of any currency related increase
in the price of securities the Portfolio  intends to acquire.  As in the case of
other types of options transactions,  however, the benefit the Portfolio derives
from purchasing  foreign  currency  options will be reduced by the amount of the
premium and related  transaction costs. In addition,  if currency exchange rates
do not move in the direction or to the extent  anticipated,  the Portfolio could
sustain losses on transactions in foreign  currency  options which would deprive
it of a portion or all of the benefits of advantageous changes in such rates.

     The International Portfolio may close out its position in a currency option
by either  selling the option it has  purchased or entering  into an  offsetting
option.

Strategic  Transactions  and  Derivatives  Applicable  to the  Global  Discovery
Portfolio

     The Global Discovery Portfolio may, but is not required to, utilize various
other  investment  strategies as described  below to hedge various  market risks
(such as interest rates,  currency  exchange rates, and broad or specific equity
or fixed-income market movements),  to manage the effective maturity or duration
of fixed-income securities in the Portfolio's portfolio, or to enhance potential
gain. These strategies may be executed through the use of derivative  contracts.


                                       31
<PAGE>

Such strategies are generally accepted as a part of modern portfolio  management
and are  regularly  utilized  by  many  mutual  funds  and  other  institutional
investors.  Techniques and  instruments  may change over time as new instruments
and strategies are developed or regulatory changes occur.

     In the course of pursuing these  investment  strategies,  the Portfolio may
purchase and sell  exchange-listed and  over-the-counter put and call options on
securities,  equity and  fixed-income  indices and other financial  instruments,
purchase and sell financial  futures  contracts and options thereon,  enter into
various interest rate transactions such as swaps,  caps, floors or collars,  and
enter into various currency  transactions  such as currency  forward  contracts,
currency futures contracts,  currency swaps or options on currencies or currency
futures  (collectively,  all the above  are  called  "Strategic  Transactions").
Strategic  Transactions  may be used without limit to attempt to protect against
possible  changes in the market value of  securities  held in or to be purchased
for the Portfolio  resulting from securities  markets or currency  exchange rate
fluctuations,  to protect the Portfolio's  unrealized  gains in the value of its
portfolio securities in the Portfolio, to facilitate the sale of such securities
for  investment  purposes,  to manage the  effective  maturity  or  duration  of
fixed-income  securities  in the  Portfolio,  or to  establish a position in the
derivatives  markets  as  a  temporary  substitute  for  purchasing  or  selling
particular  securities.  Some Strategic Transactions may also be used to enhance
potential  gain  although  no more  than 5% of the  Portfolio's  assets  will be
committed to Strategic  Transactions entered into for non-hedging purposes.  Any
or all of  these  investment  techniques  may be  used  at any  time  and in any
combination  and there is no  particular  strategy  that dictates the use of one
technique rather than another, as use of any Strategic Transaction is a function
of numerous variables including market conditions.  The ability of the Portfolio
to  utilize  these  Strategic  Transactions  successfully  will  depend  on  the
Adviser's  ability  to  predict  pertinent  market  movements,  which  cannot be
assured. The Portfolio will comply with applicable regulatory  requirements when
implementing   these   strategies,   techniques   and   instruments.   Strategic
Transactions  involving financial futures and options thereon will be purchased,
sold or entered into only for bona fide  hedging,  risk  management or portfolio
management purposes and not for speculative purposes.

     Strategic   Transactions,   including  derivative  contracts,   have  risks
associated  with them  including  possible  default  by the  other  party to the
transaction,  illiquidity  and, to the extent the  Adviser's  view as to certain
market  movements  is  incorrect,  the  risk  that  the  use of  such  Strategic
Transactions  could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Portfolio, force the sale or
purchase of portfolio  securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation the Portfolio can realize on its
investments or cause the Portfolio to hold a security it might  otherwise  sell.
The use of currency transactions can result in the Portfolio incurring losses as
a result of a number of factors  including the imposition of exchange  controls,
suspension  of  settlements,  or the inability to deliver or receive a specified
currency.  The use of options and futures  transactions  entails  certain  other
risks. In particular, the variable degree of correlation between price movements
of futures  contracts and price movements in the related  portfolio  position of
the Portfolio creates the possibility that losses on the hedging  instrument may
be greater  than gains in the value of the  Portfolio's  position.  In addition,
futures and options markets may not be liquid in all  circumstances  and certain
over-the-counter  options may have no markets.  As a result, in certain markets,
the  Portfolio  might not be able to close out a transaction  without  incurring
substantial  losses,  if at  all.  Although  the  use  of  futures  and  options
transactions  for  hedging  should  tend to  minimize  the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any  potential  gain  which  might  result  from an  increase  in  value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential  financial risk than would purchases of
options,  where the  exposure  is  limited to the cost of the  initial  premium.
Losses resulting from the use of Strategic  Transactions  would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.

General  Characteristics of Options. Put options and call options typically have
similar structural  characteristics and operational  mechanics regardless of the
underlying  instrument on which they are purchased or sold.  Thus, the following
general  discussion relates to each of the particular types of options discussed
in greater  detail below.  In addition,  many Strategic  Transactions  involving
options  require  segregation  of  Portfolio  assets  in  special  accounts,  as
described below under "Use of Segregated and Other Special Accounts."

     A put option gives the purchaser of the option,  upon payment of a premium,
the  right to  sell,  and the  writer  the  obligation  to buy,  the  underlying
security,  commodity, index, currency or other instrument at the exercise price.
For instance,  the  Portfolio's  purchase of a put option on a security might be
designed  to protect  its  holdings in the  underlying  instrument  (or, in some


                                       32
<PAGE>

cases, a similar  instrument)  against a substantial decline in the market value
by giving the Portfolio the right to sell such instrument at the option exercise
price.  A call  option,  upon payment of a premium,  gives the  purchaser of the
option the right to buy, and the seller the  obligation to sell,  the underlying
instrument at the exercise price. The Portfolio's purchase of a call option on a
security,  financial  future,  index,  currency  or  other  instrument  might be
intended  to  protect  the  Portfolio  against an  increase  in the price of the
underlying  instrument  that it intends to  purchase in the future by fixing the
price at which it may purchase such  instrument.  An American  style put or call
option may be  exercised  at any time during the option  period while a European
style put or call option may be exercised only upon expiration or during a fixed
period prior thereto.  The Portfolio is authorized to purchase and sell exchange
listed options and  over-the-counter  options ("OTC  options").  Exchange listed
options are issued by a  regulated  intermediary  such as the  Options  Clearing
Corporation ("OCC"),  which guarantees the performance of the obligations of the
parties to such options. The discussion below uses the OCC as an example, but is
also applicable to other financial intermediaries.

     With certain  exceptions,  OCC issued and exchange listed options generally
settle by physical delivery of the underlying security or currency,  although in
the future cash  settlement may become  available.  Index options and Eurodollar
instruments are cash settled for the net amount,  if any, by which the option is
"in-the-money"  (i.e., where the value of the underlying  instrument exceeds, in
the case of a call  option,  or is less than,  in the case of a put option,  the
exercise  price of the option) at the time the option is exercised.  Frequently,
rather than taking or making delivery of the underlying  instrument  through the
process of  exercising  the option,  listed  options are closed by entering into
offsetting  purchase or sale transactions that do not result in ownership of the
new option.

     The Portfolio's  ability to close out its position as a purchaser or seller
of an OCC or exchange listed put or call option is dependent,  in part, upon the
liquidity of the option market.  Among the possible reasons for the absence of a
liquid option market on an exchange are: (i)  insufficient  trading  interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading  halts,  suspensions  or other  restrictions  imposed  with  respect  to
particular  classes  or series of  options or  underlying  securities  including
reaching daily price limits;  (iv)  interruption of the normal operations of the
OCC or an exchange;  (v)  inadequacy of the  facilities of an exchange or OCC to
handle current  trading  volume;  or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant  market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.

     The hours of trading  for listed  options may not  coincide  with the hours
during which the underlying financial instruments are traded. To the extent that
the  option  markets  close  before the  markets  for the  underlying  financial
instruments,  significant  price  and  rate  movements  can  take  place  in the
underlying markets that cannot be reflected in the option markets.

     OTC options are  purchased  from or sold to securities  dealers,  financial
institutions  or  other  parties  ("Counterparties")  through  direct  bilateral
agreement with the Counterparty.  In contrast to exchange listed options,  which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement,  term, exercise price,
premium,  guarantees and security,  are set by  negotiation of the parties.  The
Portfolio will only sell OTC options (other than OTC currency  options) that are
subject  to a  buy-back  provision  permitting  the  Portfolio  to  require  the
Counterparty  to sell the option back to the Portfolio at a formula price within
seven days. The Portfolio  expects generally to enter into OTC options that have
cash settlement provisions, although it is not required to do so.

     Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option.  As a result,  if the  Counterparty  fails to make or
take delivery of the security,  currency or other  instrument  underlying an OTC
option it has entered into with the Portfolio or fails to make a cash settlement
payment due in accordance with the terms of that option, the Portfolio will lose
any  premium  it paid for the option as well as any  anticipated  benefit of the
transaction.  Accordingly,  the Adviser must assess the creditworthiness of each
such Counterparty or any guarantor or credit  enhancement of the  Counterparty's
credit to  determine  the  likelihood  that the terms of the OTC option  will be
satisfied.  The Portfolio will engage in OTC option  transactions only with U.S.
government securities dealers recognized by the Federal Reserve Bank of New York
as "primary  dealers",  or broker  dealers,  domestic or foreign  banks or other
financial  institutions which have received (or the guarantors of the obligation
of which have  received) a short-term  credit rating of A-1 from S&P or P-1 from
Moody's or an equivalent rating from any other nationally recognized statistical


                                       33
<PAGE>

rating organization ("NRSRO") or, in the case of OTC currency transactions,  are
determined to be of equivalent  credit quality by the Adviser.  The staff of the
SEC currently  takes the position that OTC options  purchased by the  Portfolio,
and portfolio  securities  "covering" the amount of the  Portfolio's  obligation
pursuant  to an OTC  option  sold by it  (the  cost of the  sell-back  plus  the
in-the-money  amount,  if any) are illiquid,  and are subject to the Portfolio's
limitation on investing no more than 10% of its assets in illiquid securities.

     If the  Portfolio  sells a call  option,  the premium  that it receives may
serve as a  partial  hedge,  to the  extent  of the  option  premium,  against a
decrease  in the  value  of the  underlying  securities  or  instruments  in its
portfolio or will increase the Portfolio's  income.  The sale of put options can
also provide income.

     The Portfolio  may purchase and sell call options on  securities  including
U.S. Treasury and agency securities,  mortgage-backed securities, corporate debt
securities,  equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities  exchanges and in the
over-the-counter  markets,  and on securities  indices,  currencies  and futures
contracts.  All  calls  sold by the  Portfolio  must  be  "covered"  (i.e.,  the
Portfolio  must own the securities or futures  contract  subject to the call) or
must meet the asset segregation requirements described below as long as the call
is  outstanding.  Even though the Portfolio  will receive the option  premium to
help protect it against loss, a call sold by the Portfolio exposes the Portfolio
during  the term of the  option  to  possible  loss of  opportunity  to  realize
appreciation  in the market price of the  underlying  security or instrument and
may  require  the  Portfolio  to hold a security  or  instrument  which it might
otherwise have sold.

     The  Portfolio  may purchase and sell put options on  securities  including
U.S.  Treasury  and  agency  securities,   mortgage-backed  securities,  foreign
sovereign  debt,  corporate  debt  securities,   equity  securities   (including
convertible  securities) and Eurodollar instruments (whether or not it holds the
above securities in its portfolio),  and on securities  indices,  currencies and
futures contracts other than futures on individual corporate debt and individual
equity securities. The Portfolio will not sell put options if, as a result, more
than 50% of the  Portfolio's  assets would be required to be segregated to cover
its potential  obligations  under such put options other than those with respect
to futures and options thereon. In selling put options, there is a risk that the
Portfolio may be required to buy the  underlying  security at a  disadvantageous
price above the market price.

General  Characteristics  of Futures.  The  Portfolio  may enter into  financial
futures  contracts or purchase or sell put and call options on such futures as a
hedge against anticipated  interest rate, currency or equity market changes, for
duration  management  and for risk  management  purposes.  Futures are generally
bought and sold on the commodities  exchanges where they are listed with payment
of  initial  and  variation  margin as  described  below.  The sale of a futures
contract  creates a firm obligation by the Portfolio,  as seller,  to deliver to
the buyer the specific type of financial  instrument  called for in the contract
at a specific  future  time for a  specified  price (or,  with  respect to index
futures and  Eurodollar  instruments,  the net cash amount).  Options on futures
contracts  are  similar  to  options on  securities  except  that an option on a
futures contract gives the purchaser the right in return for the premium paid to
assume a position in a futures contract and obligates the seller to deliver such
position.

     The  Portfolio's  use of financial  futures and options thereon will in all
cases be consistent with applicable  regulatory  requirements  and in particular
the rules and regulations of the Commodity  Futures Trading  Commission and will
be entered into only for bona fide hedging,  risk management (including duration
management) or other portfolio  management  purposes.  Typically,  maintaining a
futures  contract or selling an option thereon requires the Portfolio to deposit
with a financial  intermediary as security for its obligations an amount of cash
or other specified  assets  (initial  margin) which initially is typically 1% to
10%  of  the  face  amount  of  the   contract   (but  may  be  higher  in  some
circumstances).  Additional cash or assets (variation margin) may be required to
be  deposited  thereafter  on a daily  basis as the mark to market  value of the
contract  fluctuates.  The purchase of an option on financial  futures  involves
payment of a premium for the option  without any further  obligation on the part
of the Portfolio.  If the Portfolio exercises an option on a futures contract it
will be obligated to post initial  margin (and  potential  subsequent  variation
margin) for the  resulting  futures  position just as it would for any position.
Futures  contracts and options thereon are generally settled by entering into an
offsetting  transaction  but there can be no assurance  that the position can be
offset prior to  settlement  at an  advantageous  price,  nor that delivery will
occur.

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<PAGE>

     The  Portfolio  will not enter into a futures  contract  or related  option
(except for closing  transactions) if,  immediately  thereafter,  the sum of the
amount of its initial margin and premiums on open futures  contracts and options
thereon  would  exceed 5% of the  Portfolio's  total  assets  (taken at  current
value);  however,  in the case of an option that is  in-the-money at the time of
the purchase,  the  in-the-money  amount may be excluded in  calculating  the 5%
limitation.  The segregation  requirements with respect to futures contracts and
options thereon are described below.

Options on Securities  Indices and Other Financial  Indices.  The Portfolio also
may  purchase  and sell call and put  options on  securities  indices  and other
financial  indices and in so doing can achieve  many of the same  objectives  it
would achieve  through the sale or purchase of options on individual  securities
or other instruments.  Options on securities indices and other financial indices
are similar to options on a security or other  instrument  except  that,  rather
than settling by physical delivery of the underlying instrument,  they settle by
cash  settlement,  i.e.,  an option on an index  gives the  holder  the right to
receive,  upon exercise of the option, an amount of cash if the closing level of
the index upon which the option is based  exceeds,  in the case of a call, or is
less than, in the case of a put, the exercise price of the option (except if, in
the case of an OTC option, physical delivery is specified).  This amount of cash
is equal to the excess of the closing price of the index over the exercise price
of the option,  which also may be multiplied by a formula  value.  The seller of
the option is obligated, in return for the premium received, to make delivery of
this  amount.  The  gain or loss on an  option  on an  index  depends  on  price
movements in the instruments making up the market,  market segment,  industry or
other  composite  on which the  underlying  index is based,  rather  than  price
movements in  individual  securities,  as is the case with respect to options on
securities.

Currency  Transactions.  The Portfolio may engage in currency  transactions with
Counterparties in order to hedge the value of portfolio holdings  denominated in
particular   currencies  against   fluctuations  in  relative  value.   Currency
transactions  include  forward  currency  contracts,  exchange  listed  currency
futures,  exchange  listed and OTC options on currencies,  and currency swaps. A
forward currency contract involves a privately negotiated obligation to purchase
or sell (with delivery generally required) a specific currency at a future date,
which may be any fixed number of days from the date of the contract  agreed upon
by the parties,  at a price set at the time of the contract.  A currency swap is
an agreement to exchange cash flows based on the notional  difference  among two
or more  currencies  and operates  similarly to an interest rate swap,  which is
described  below.  The  Portfolio  may enter  into  currency  transactions  with
Counterparties  which have  received (or the  guarantors of the  obligations  of
which  have  received)  a  credit  rating  of A-1  or  P-1  by  S&P or  Moody's,
respectively,  or that have an equivalent  rating from a NRSRO or are determined
to be of equivalent credit quality by the Adviser.

     The Portfolio's  dealings in forward currency  contracts and other currency
transactions  such as  futures,  options,  options on futures  and swaps will be
limited  to  hedging   involving  either  specific   transactions  or  portfolio
positions.  Transaction  hedging is entering  into a currency  transaction  with
respect to specific assets or liabilities of the Portfolio, which will generally
arise in connection with the purchase or sale of its portfolio securities or the
receipt  of income  therefrom.  Position  hedging  is  entering  into a currency
transaction  with  respect  to  portfolio  security  positions   denominated  or
generally quoted in that currency.

     The Portfolio will not enter into a transaction to hedge currency  exposure
to an  extent  greater,  after  netting  all  transactions  intended  wholly  or
partially to offset other transactions,  than the aggregate market value (at the
time of entering into the  transaction)  of the securities held in its portfolio
that are denominated or generally  quoted in or currently  convertible into such
currency, other than with respect to proxy hedging or cross hedging as described
below.

     The Portfolio may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative  to  other  currencies  to which  the  Portfolio  has or in  which  the
Portfolio expects to have portfolio exposure.

     To reduce the effect of currency  fluctuations  on the value of existing or
anticipated holdings of portfolio  securities,  the Portfolio may also engage in
proxy  hedging.  Proxy  hedging  is often  used when the  currency  to which the
Portfolio's  portfolio is exposed is difficult to hedge or to hedge  against the
dollar.  Proxy  hedging  entails  entering into a commitment or option to sell a
currency  whose changes in value are generally  considered to be correlated to a
currency  or  currencies  in  which  some  or all of the  Portfolio's  portfolio
securities are or are expected to be denominated,  in exchange for U.S. dollars.
The  amount of the  commitment  or  option  would  not  exceed  the value of the
Portfolio's securities denominated in correlated currencies. For example, if the
Adviser  considers  that the  Austrian  schilling  is  correlated  to the German


                                       35
<PAGE>

deutschemark  (the  "D-mark"),  the Portfolio  holds  securities  denominated in
schillings  and the Adviser  believes that the value of schillings  will decline
against the U.S.  dollar,  the Adviser may enter into a commitment  or option to
sell D-marks and buy dollars.  Currency  hedging involves some of the same risks
and  considerations  as other  transactions with similar  instruments.  Currency
transactions  can result in losses to the Portfolio if the currency being hedged
fluctuates  in value  to a degree  or in a  direction  that is not  anticipated.
Further,  there  is the risk  that the  perceived  correlation  between  various
currencies may not be present or may not be present  during the particular  time
that the Portfolio is engaging in proxy hedging.  If the Portfolio enters into a
currency  hedging  transaction,   the  Portfolio  will  comply  with  the  asset
segregation requirements described below.

Risks of  Currency  Transactions.  Currency  transactions  are  subject to risks
different from those of other portfolio  transactions.  Because currency control
is of great  importance  to the  issuing  governments  and  influences  economic
planning and policy, purchases and sales of currency and related instruments can
be  negatively  affected  by  government  exchange  controls,   blockages,   and
manipulations or exchange restrictions imposed by governments.  These can result
in losses to the  Portfolio  if it is unable to deliver or receive  currency  or
funds in  settlement of  obligations  and could also cause hedges it has entered
into to be rendered  useless,  resulting  in full  currency  exposure as well as
incurring  transaction costs. Buyers and sellers of currency futures are subject
to the  same  risks  that  apply  to  the  use of  futures  generally.  Further,
settlement of a currency  futures  contract for the purchase of most  currencies
must occur at a bank based in the issuing  nation.  Trading  options on currency
futures is relatively  new, and the ability to establish and close out positions
on such options is subject to the  maintenance  of a liquid market which may not
always be available.  Currency  exchange  rates may  fluctuate  based on factors
extrinsic to that country's economy.

Combined  Transactions.  The  Portfolio  may enter into  multiple  transactions,
including multiple options transactions, multiple futures transactions, multiple
currency  transactions  (including  forward  currency  contracts)  and  multiple
interest rate transactions and any combination of futures, options, currency and
interest  rate  transactions  ("component"  transactions),  instead  of a single
Strategic  Transaction,  as part of a single or combined  strategy  when, in the
opinion of the Adviser, it is in the best interests of the Portfolio to do so. A
combined  transaction  will usually contain elements of risk that are present in
each of its component transactions.  Although combined transactions are normally
entered into based on the Adviser's  judgment that the combined  strategies will
reduce  risk  or  otherwise  more  effectively  achieve  the  desired  portfolio
management  goal, it is possible that the combination will instead increase such
risks or hinder achievement of the portfolio management objective.

Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Portfolio may enter are interest rate, currency and index swaps and the purchase
or sale of related caps, floors and collars. The Portfolio expects to enter into
these  transactions  primarily  to  preserve a return or spread on a  particular
investment  or  portion  of  its   portfolio,   to  protect   against   currency
fluctuations,  as a duration  management  technique  or to protect  against  any
increase in the price of securities  the Portfolio  anticipates  purchasing at a
later date. The Portfolio intends to use these transactions as hedges and not as
speculative  investments and will not sell interest rate caps or floors where it
does not own  securities  or other  instruments  providing the income stream the
Portfolio  may be obligated to pay.  Interest rate swaps involve the exchange by
the  Portfolio  with another  party of their  respective  commitments  to pay or
receive  interest,  e.g.,  an exchange of floating  rate payments for fixed rate
payments with respect to a notional  amount of principal.  A currency swap is an
agreement to exchange cash flows on a notional  amount of two or more currencies
based on the  relative  value  differential  among  them and an index swap is an
agreement to swap cash flows on a notional amount based on changes in the values
of the  reference  indices.  The  purchase of a cap  entitles  the  purchaser to
receive payments on a notional  principal amount from the party selling such cap
to the extent that a specified  index exceeds a  predetermined  interest rate or
amount.  The purchase of a floor entitles the purchaser to receive payments on a
notional principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a  combination  of a cap and a floor that  preserves a certain  return  within a
predetermined range of interest rates or values.

     The Portfolio  will usually enter into swaps on a net basis,  i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Portfolio receiving or paying, as the case
may be, only the net amount of the two payments.  Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Portfolio  believe such obligations do not constitute  senior securities
under the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing  restrictions.  The Portfolio will not enter into any swap, cap, floor
or collar transaction unless, at the time of entering into such transaction, the


                                       36
<PAGE>

unsecured  long-term  debt  of  the  Counterparty,   combined  with  any  credit
enhancements,  is rated at least A by S&P or Moody's or has an equivalent rating
from an  NRSRO  or is  determined  to be of  equivalent  credit  quality  by the
Adviser.  If there is a default  by the  Counterparty,  the  Portfolio  may have
contractual remedies pursuant to the agreements related to the transaction.  The
swap market has grown substantially in recent years with a large number of banks
and investment  banking firms acting both as principals and as agents  utilizing
standardized  swap  documentation.  As a  result,  the swap  market  has  become
relatively  liquid.  Caps,  floors and collars are more recent  innovations  for
which  standardized   documentation  has  not  yet  been  fully  developed  and,
accordingly, they are less liquid than swaps.

Eurodollar  Instruments.  The  Portfolio  may  make  investments  in  Eurodollar
instruments.   Eurodollar  instruments  are  U.S.   dollar-denominated   futures
contracts or options  thereon which are linked to the London  Interbank  Offered
Rate ("LIBOR"), although foreign currency-denominated  instruments are available
from time to time.  Eurodollar  futures  contracts enable purchasers to obtain a
fixed  rate for the  lending  of funds and  sellers  to obtain a fixed  rate for
borrowings.  The Portfolio  might use Eurodollar  futures  contracts and options
thereon to hedge against changes in LIBOR, to which many interest rate swaps and
fixed income instruments are linked.

Risks of Strategic  Transactions  Outside the U.S.  When  conducted  outside the
U.S., Strategic  Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees,  and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities,  currencies and other instruments.  The value of such positions also
could be adversely affected by: (i) other complex foreign  political,  legal and
economic factors,  (ii) lesser availability than in the U.S. of data on which to
make  trading  decisions,  (iii) delays in the  Portfolio's  ability to act upon
economic events  occurring in foreign markets during  non-business  hours in the
U.S.,  (iv) the  imposition  of  different  exercise  and  settlement  terms and
procedures  and  margin  requirements  than in the U.S.,  and (v) lower  trading
volume and liquidity.

Use of Segregated and Other Special Accounts.  Many Strategic  Transactions,  in
addition to other requirements, require that the Portfolio segregate liquid high
grade assets with its  custodian  to the extent  Portfolio  obligations  are not
otherwise  "covered"  through  ownership of the underlying  security,  financial
instrument or currency. In general,  either the full amount of any obligation by
the  Portfolio  to pay or deliver  securities  or assets  must be covered at all
times by the securities,  instruments or currency required to be delivered,  or,
subject to any regulatory  restrictions,  an amount of cash or liquid high grade
securities  at least  equal to the  current  amount  of the  obligation  must be
segregated  with  the  custodian.  The  segregated  assets  cannot  be  sold  or
transferred  unless equivalent assets are substituted in their place or it is no
longer  necessary to segregate  them. For example,  a call option written by the
Portfolio will require the Portfolio to hold the securities  subject to the call
(or  securities  convertible  into  the  needed  securities  without  additional
consideration)  or to  segregate  liquid  high-grade  securities  sufficient  to
purchase and deliver the securities if the call is exercised. A call option sold
by the  Portfolio  on an index  will  require  the  Portfolio  to own  portfolio
securities  which  correlate  with the index or to  segregate  liquid high grade
assets  equal to the  excess of the index  value  over the  exercise  price on a
current basis.  A put option written by the Portfolio  requires the Portfolio to
segregate liquid, high grade assets equal to the exercise price.

     Except when the Portfolio  enters into a forward  contract for the purchase
or sale of a security  denominated in a particular  currency,  which requires no
segregation,  a currency  contract which  obligates the Portfolio to buy or sell
currency will generally require the Portfolio to hold an amount of that currency
or liquid  securities  denominated  in that  currency  equal to the  Portfolio's
obligations or to segregate  liquid high grade assets equal to the amount of the
Portfolio's obligation.

     OTC options  entered into by the Portfolio,  including those on securities,
currency,  financial  instruments or indices and OCC issued and exchange  listed
index options, will generally provide for cash settlement. As a result, when the
Portfolio  sells these  instruments  it will only  segregate an amount of assets
equal to its accrued net obligations,  as there is no requirement for payment or
delivery of amounts in excess of the net amount.  These  amounts will equal 100%
of the exercise price in the case of a non cash-settled  put, the same as an OCC
guaranteed listed option sold by the Portfolio,  or the in-the-money amount plus
any  sell-back  formula  amount in the case of a  cash-settled  put or call.  In
addition,  when the Portfolio sells a call option on an index at a time when the
in-the-money  amount exceeds the exercise  price,  the Portfolio will segregate,
until the option  expires or is closed out,  cash or cash  equivalents  equal in
value to such  excess.  OCC  issued  and  exchange  listed  options  sold by the
Portfolio other than those above  generally  settle with physical  delivery,  or


                                       37
<PAGE>

with  an  election  of  either  physical  delivery  or cash  settlement  and the
Portfolio  will  segregate  an amount of assets  equal to the full  value of the
option.  OTC options  settling  with physical  delivery,  or with an election of
either  physical  delivery or cash  settlement will be treated the same as other
options settling with physical delivery.

     In the case of a futures contract or an option thereon,  the Portfolio must
deposit  initial  margin and  possible  daily  variation  margin in  addition to
segregating  assets  sufficient  to meet its  obligation  to purchase or provide
securities  or  currencies,  or to pay the amount owed at the  expiration  of an
index-based futures contract. Such assets may consist of cash, cash equivalents,
liquid debt or equity securities or other acceptable assets.

     With  respect to swaps,  the  Portfolio  will  accrue the net amount of the
excess,  if any, of its obligations over its  entitlements  with respect to each
swap on a daily basis and will  segregate an amount of cash or liquid high grade
securities having a value equal to the accrued excess.  Caps, floors and collars
require  segregation  of  assets  with a  value  equal  to the  Portfolio's  net
obligation, if any.

     Strategic  Transactions  may be covered by other means when consistent with
applicable  regulatory  policies.  The Portfolio may also enter into  offsetting
transactions so that its combined position,  coupled with any segregated assets,
equals  its  net  outstanding   obligation  in  related  options  and  Strategic
Transactions.  For example,  the  Portfolio  could  purchase a put option if the
strike price of that option is the same or higher than the strike price of a put
option sold by the Portfolio.  Moreover,  instead of  segregating  assets if the
Portfolio held a futures or forward contract,  it could purchase a put option on
the same futures or forward  contract with a strike price as high or higher than
the price of the contract held. Other Strategic  Transactions may also be offset
in  combinations.  If the  offsetting  transaction  terminates at the time of or
after the primary  transaction no segregation is required,  but if it terminates
prior to such time,  assets equal to any remaining  obligation  would need to be
segregated.

     The Portfolio's  activities involving Strategic Transactions may be limited
by  the   requirements  of  Subchapter  M  of  the  Internal  Revenue  Code  for
qualification as a regulated investment company. (See "TAX STATUS.")

Debt Securities

     If the Adviser determines that the capital  appreciation of debt securities
is likely to exceed that of common stocks,  the Global  Discovery  Portfolio may
invest  in debt  securities  of  foreign  and  U.S.  issuers.  Global  Discovery
Portfolio debt investments will be selected on the basis of capital appreciation
potential,  by evaluating,  among other things,  potential yield, if any, credit
quality,  and the fundamental  outlooks for currency and interest rate trends in
different parts of the world,  taking into account the ability to hedge a degree
of  currency  or local  bond price  risk.  The Global  Discovery  Portfolio  may
purchase  "investment-grade"  bonds,  which are those rated Aaa, Aa, A or Baa by
Moody's or AAA, AA, A or BBB by S&P or, if unrated,  judged to be of  equivalent
quality  as  determined  by  the  Adviser.  Bonds  rated  Baa or  BBB  may  have
speculative  elements as well as  investment-grade  characteristics.  The Global
Discovery  Portfolio  may  also  invest  up to 5% of  its  net  assets  in  debt
securities which are rated below  investment-grade,  that is, rated below Baa by
Moody's or below BBB by S&P and in unrated securities of equivalent quality.

High Yield, High Risk Securities

     The Bond, Balanced, Capital Growth and Global Discovery Portfolios may each
invest in below investment  grade securities  (rated Ba and lower by Moody's and
BB and lower by S&P) or unrated securities.  Such securities carry a high degree
of risk  (including the possibility of default or bankruptcy of these issuers of
such  securities)  generally  involve  greater  volatility  of price and risk of
principal  and  income,  and may be less liquid  than  securities  in the higher
ratings  categories  and  are  considered  speculative.   The  Global  Discovery
Portfolio  may invest up to 5% of its net assets in such  securities.  The lower
the ratings of such debt  securities,  the greater  their risks render them like
equity securities.  See the Appendix to this Statement of Additional Information
for a more complete description of the ratings assigned by ratings organizations
and their respective characteristics.

     As  economic  downturn  may  disrupt  the high yield  market and impair the
ability of  issuers to repay  principal  and  interest.  Also,  an  increase  in
interest rates could adversely  affect the value of such  obligations  held by a
Portfolio.  Prices and yields of high yield  securities will fluctuate over time


                                       38
<PAGE>

and may affect a Portfolio's net asset value.  In addition,  investments in high
yield zero coupon or pay-in-kind bonds,  rather than  income-bearing  high yield
securities,  may be more speculative and may be subject to greater  fluctuations
in value due to changes in interest rates.

     The trading market for high yield securities may be thin to the extent that
there is no established  retail  secondary market or because of a decline in the
value of such  securities.  A thin  trading  market may limit the ability of the
Trustees to value high yield securities accurately in a Portfolio and to dispose
of those securities. Adverse publicity and investor perceptions may decrease the
values and liquidity of high yield securities. These securities may also involve
special registration responsibilities, liabilities and costs.

     Credit quality in the high yield securities  market can change suddenly and
unexpectedly,  and even recently-issued credit ratings may not fully reflect the
actual risks posed by a particular high yield security. For these reasons, it is
the  policy  of the  Adviser  not to  rely  exclusively  on  ratings  issued  by
established credit rating agencies,  but to supplement such ratings with its own
independent  and  on-going  review of credit  quality.  The  achievement  of the
Portfolios'  investment objectives may be more dependent on the Adviser's credit
analysis  than is the case for  higher  quality  bonds.  Should  the rating of a
portfolio security be downgraded the Adviser will determine whether it is in the
best interest of that Portfolio to retain or dispose of the security.

     Prices for below investment grade securities may be affected by legislative
and regulatory developments. For example, federal rules require savings and loan
institutions gradually to reduce their holdings of this type of security.  Also,
Congress has from time to time  considered  legislation  which would restrict or
eliminate the corporate tax deduction for interest  payments in these securities
and  regulate  corporate  restructurings.  Such  legislation  may  significantly
depress the prices of outstanding securities of this type.

Combined Transactions

     Each  Portfolio may enter into multiple  transactions,  including  multiple
options transactions,  multiple futures transactions,  multiple foreign currency
transactions  (including  forward  contracts)  and any  combination  of futures,
options and foreign currency transactions ("component" transactions), instead of
a single transaction,  as part of a single hedging strategy when, in the opinion
of the Adviser,  it is in the best  interest of a Portfolio to do so. A combined
transaction,  while part of a single hedging strategy,  may not offset fully the
risks of each component transaction and, therefore, may contain elements of risk
that are present in each of its component transactions.  (See above for the risk
characteristics of certain transactions.)

Risks of Specialized Investment Techniques Abroad

     The above described specialized investment techniques when conducted abroad
may not be regulated as effectively  as in the United States;  may not involve a
clearing  mechanism  and  related  guarantees,  and are  subject  to the risk of
governmental actions affecting trading in, or the prices of, foreign securities.
The value of such  positions  also  could be  adversely  affected  by: (i) other
complex foreign political,  legal and economic factors; (ii) lesser availability
than in the  United  States of data on which to make  trading  decisions;  (iii)
delays in the Fund's  ability to act upon economic  events  occurring in foreign
markets during  on-business  hours in the United States;  (iv) the imposition of
different  exercise and settlement terms and procedures and margin  requirements
than in the United States; and (v) lesser trading volume.

                             INVESTMENT RESTRICTIONS

            (See "INVESTMENT RESTRICTIONS" in the Fund's prospectus.)

     Unless  specified to the contrary,  the following  restrictions  may not be
changed  with respect to any  Portfolio  without the approval of the majority of
outstanding  voting securities of that Portfolio (which,  under the 1940 Act and
the rules  thereunder and as used in this  Statement of Additional  Information,
means the lesser of (1) 67% of the shares of that Portfolio present at a meeting
if the holders of more than 50% of the outstanding  shares of that Portfolio are
present in person or by proxy, or (2) more than 50% of the outstanding shares of
that Portfolio).  Any investment restrictions which involve a maximum percentage
of securities or assets shall not be considered to be violated  unless an excess


                                       39
<PAGE>

over the percentage occurs  immediately  after, and is caused by, an acquisition
or  encumbrance  of securities or assets of, or borrowings by or on behalf of, a
Portfolio.

     In  addition  to the  investment  restrictions  set  forth  in  the  Fund's
prospectus, the Fund may not on behalf of any Portfolio:

          (1)  purchase and sell real estate (though it may invest in securities
               of  companies  which deal in real  estate and in other  permitted
               investments secured by real estate) or commodities or commodities
               contracts,  except  (a) debt  securities  futures  contracts  and
               securities index futures  contracts and options thereon,  and (b)
               in the  case of the  International  Portfolio,  foreign  currency
               futures contracts;

          (2)  participate  on a  joint  or a joint  and  several  basis  in any
               trading  account  in  securities,  but  may for  the  purpose  of
               possibly  achieving better net results on portfolio  transactions
               or lower brokerage  commission  rates join with other  investment
               company and client accounts  managed by Scudder,  Stevens & Clark
               or  its   affiliates   in  the  purchase  or  sale  of  portfolio
               securities;

          (3)  purchase or retain securities of an issuer any of whose officers,
               directors,  trustees or security holders is an officer or Trustee
               of the Fund or a member,  officer,  director  or  trustee  of the
               investment adviser of the Fund if one or more of such individuals
               owns  beneficially  more than one-half of one percent (1/2 of 1%)
               of the shares or  securities  or both (taken at market  value) of
               such issuer and such individuals owning more than one-half of one
               percent  (1/2 of 1%) of such shares or  securities  together  own
               beneficially more than 5% of such shares or securities or both;

          (4)  purchase  securities  on margin or make short  sales  unless,  by
               virtue of its ownership of other securities,  it has the right to
               obtain securities equivalent in kind and amount to the securities
               sold and, if the right is conditional,  the sale is made upon the
               same conditions;

          (5)  issue  senior  securities,  except  as  appropriate  to  evidence
               indebtedness  which a Portfolio is permitted to incur pursuant to
               the Investment  Restrictions  set forth in the Fund's  prospectus
               and except for shares of various  additional  series which may be
               established by the Trustees; or

          (6)  act as underwriter of the securities issued by others,  except to
               the extent that the purchase of securities in accordance with its
               investment  objective  and  policies  directly  from  the  issuer
               thereof  and the later  disposition  thereof  may be deemed to be
               underwriting.

     In  addition  to the  investment  restrictions  set  forth  in  the  Fund's
prospectus, as a matter of nonfundamental policy, the Fund may not, on behalf of
the Global Discovery and International Portfolios:

          (1)  hedge by purchasing put and call options,  futures contracts,  or
               other derivative instruments on securities in an aggregate amount
               equivalent to more than 10% of the Portfolio's total assets;

          (2)  make  securities  loans if the  value of such  securities  loaned
               exceeds 10% of the value of the  Portfolio's  total assets at the
               time any loan is made.

     In  addition  to the  investment  restrictions  set  forth  in  the  Fund's
prospectus, as a matter of nonfundamental policy, the Fund may not, on behalf of
the Global Discovery Portfolio:

          (1)  purchase or retain securities of any open-end investment company,
               or  securities  of  closed-end  investment  companies  except  by
               purchase in the open market  where no  commission  or profit to a
               sponsor or dealer  results  from such  purchases,  or except when
               such purchase,  though not made in the open market,  is part of a
               plan of merger,  consolidation,  reorganization or acquisition of
               assets;  in any event the Portfolio may not purchase more than 3%
               of  the  outstanding  voting  securities  of  another  investment
               company,  may not  invest  more  than 5% of its  total  assets in
               another investment  company,  and may not invest more than 10% of
               its total assets in other investment companies;

                                       40
<PAGE>

          (2)  invest  more than 10% of its net assets in  securities  which are
               not readily  marketable,  the  disposition of which is restricted
               under Federal  securities  laws, or in repurchase  agreements not
               terminable  within 7 days, and the Portfolio will not invest more
               than 5% of its total assets in restricted securities;

          (3)  buy options on  securities or financial  instruments,  unless the
               aggregate premiums paid on all such options held by the Portfolio
               at any  time do not  exceed  20% of its net  assets;  or sell put
               options on securities if, as a result, the aggregate value of the
               obligations  underlying  such put options would exceed 50% of the
               Portfolio's net assets;

          (4)  enter into futures  contracts or purchase  options thereon unless
               immediately  after  the  purchase,  the  value  of the  aggregate
               initial margin with respect to all futures contracts entered into
               on behalf of the  Portfolio  and the premiums paid for options on
               futures  contracts  does not exceed 5% of the  Portfolio's  total
               assets   provided   that  in  the  case  of  an  option  that  is
               in-the-money at the time of purchase, the in-the-money amount may
               be excluded in computing the 5% limit;

          (5)  borrow other than from banks, or borrow money (including  reverse
               repurchase  agreements)  in  excess  of 10% of its  total  assets
               (taken at market  value)  except that for  temporary or emergency
               purposes the Portfolio may borrow up to 25% of its total assets;

          (6)  purchase  securities  on margin or make short  sales  unless,  by
               virtue of its ownership of other securities,  it has the right to
               obtain securities equivalent in kind and amount to the securities
               sold at no added cost and, if the right is conditional,  the sale
               is made  upon the same  conditions,  except  in  connection  with
               arbitrage  transactions  and except that the Fund may obtain such
               short-term  credits  as may be  necessary  for the  clearance  of
               purchases and sales of securities;

          (7)  purchase  warrants if as a result  warrants taken at the lower of
               cost or market value would  represent  more than 10% of the value
               of the  Portfolio's  net assets or more than 2% of its net assets
               in warrants that are not listed on the New York or American Stock
               Exchanges or on an exchange with comparable listing  requirements
               (for this purpose, warrants attached to securities will be deemed
               to have no value).

     If a percentage  restriction  on investment or utilization of assets as set
forth under "Investment  Restrictions" and "Other Investment  Policies" above is
adhered  to at the time an  investment  is made,  a later  change in  percentage
resulting from changes in the value or the total cost of the Portfolio's  assets
will not be considered a violation of the restriction.

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

                            PURCHASES AND REDEMPTIONS

           (See "PURCHASES AND REDEMPTIONS" in the Fund's prospectus.)

     The separate accounts of the Participating Insurance Companies purchase and
redeem  shares of each  Portfolio  based on, among other  things,  the amount of
premium  payments to be  invested  and  surrender  and  transfer  requests to be
effected on that day pursuant to variable  annuity  contracts  and variable life
insurance  policies  but only on days on which the Exchange is open for trading.
Such  purchases and  redemptions of the shares of each Portfolio are effected at
their  respective  net  asset  values  per share  determined  as of the close of
regular trading on the Exchange  (normally 4 p.m. eastern time) on that same day
except that, in the case of the Money Market  Portfolio,  purchases  will not be
effected  until the next  determination  of net asset value after  federal funds
have been made  available  to the Fund.  (See "NET ASSET  VALUE.")  Payment  for
redemptions will be made by State Street Bank and Trust Company on behalf of the
Fund and the  applicable  Portfolios  within  seven days  thereafter.  No fee is
charged the separate accounts of the Participating Insurance Companies when they
redeem Fund shares.

                                       41
<PAGE>

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

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

                       INVESTMENT ADVISER AND DISTRIBUTOR

     (See "INVESTMENT ADVISER" and "DISTRIBUTOR" in the Fund's prospectus.)

Investment Adviser

     The Fund has four investment advisory agreements,  one for the Money Market
Portfolio, Bond Portfolio,  Balanced Portfolio and Capital Growth Portfolio, one
for the International Portfolio, one for the Growth and Income Portfolio and one
for the Global Discovery Portfolio (the "Agreements"). These Agreements are with
the  investment  counsel  firm of  Scudder,  Stevens & Clark,  Inc.,  a Delaware
corporation,  doing  business  under the name  Scudder,  Stevens  & Clark.  This
organization  is one of the most  experienced  investment  counsel  firms in the
United States.  It currently manages in excess of $100 billion in assets for its
clients,  including:  more than $50 billion in U.S. and foreign bonds,  and over
$10  billion in balanced  portfolios  for over 3,000  institutional  and private
accounts. In addition, the assets of Scudder's international  investment company
clients exceed $6 billion.  Scudder,  Stevens & Clark,  Inc. was  established in
1919 and  pioneered the practice of providing  investment  counsel to individual
clients on a fee basis.  In 1928, it introduced the first no-load mutual fund to
the public. The Adviser has been a leader in international investment management
and trading for over 40 years.

     The principal source of the Adviser's income is professional  fees received
from providing continuous investment advice, and the firm derives no income from
brokerage or underwriting of securities.  Today, it provides  investment counsel
for many individuals and institutions,  including insurance companies, colleges,
industrial corporations,  and financial and banking organizations.  In addition,
it manages  Montgomery Street Income  Securities,  Inc.,  Scudder California Tax
Free Trust,  Scudder Cash Investment Trust,  Scudder Equity Trust, Scudder Fund,
Inc., Scudder Funds Trust, Scudder Global Fund, Inc., Scudder GNMA Fund, Scudder
Portfolio Trust, Scudder  Institutional Fund, Inc., Scudder  International Fund,
Inc., Scudder Investment Trust,  Scudder Municipal Trust,  Scudder Mutual Funds,
Inc.,  Scudder New Asia Fund,  Inc.,  Scudder  New Europe  Fund,  Inc.,  Scudder
Securities  Trust,  Scudder  State Tax Free Trust,  Scudder Tax Free Money Fund,
Scudder Tax Free Trust,  Scudder U.S. Treasury Money Fund, Scudder Variable Life
Investment Fund,  Scudder World Income  Opportunities  Fund, Inc., The Argentina
Fund, Inc., The Brazil Fund, Inc., The First Iberian Fund, Inc., The Korea Fund,
Inc., The Japan Fund,  Inc. and The Latin America Dollar Income Fund,  Inc. Some
of the foregoing companies or trusts have two or more series.

     The Adviser also provides  investment advisory services to the mutual funds
which comprise the AARP  Investment  Program from Scudder.  The AARP  Investment
Program  from  Scudder has assets over $12 billion and  includes the AARP Growth
Trust,  AARP Income Trust,  AARP Tax Free Income Trust and AARP Cash  Investment
Funds.

     Certain  investments  may be appropriate for the Fund and for other clients
advised by the Adviser.  Investment decisions for the Fund and other clients are
made with a view to achieving their respective  investment  objectives and after
consideration  of such factors as their current  holdings,  availability of cash
for  investment  and the  size of their  investments  generally.  Frequently,  a
particular  security  may be bought or sold for only one client or in  different
amounts  and at  different  times for more  than one but less than all  clients.
Likewise,  a particular  security may be bought for one or more clients when one
or more other clients are selling the security. In addition,  purchases or sales
of the same  security  may be made for two or more  clients on the same day.  In
such event,  such  transactions  will be allocated among the clients in a manner
believed by the Adviser to be equitable to each. In some cases,  this  procedure


                                       42
<PAGE>

could have an adverse effect on the price or amount of the securities  purchased
or sold by the Fund.  Purchase and sale orders for the Fund may be combined with
those of other clients of the Adviser in the interest of the most  favorable net
results to the Fund.

     The  Adviser  maintains  a  large  research   department,   which  conducts
continuous   studies  of  the  factors  that  affect  the  position  of  various
industries,  companies and individual securities. The Adviser receives published
reports and statistical  compilations from issuers and other sources, as well as
analyses from brokers and dealers who may execute portfolio transactions for the
Adviser's clients. However, the Adviser regards this information and material as
an adjunct to its own research activities.  Scudder's  international  investment
management  team  travels  the world,  researching  hundreds  of  companies.  In
selecting  the  securities  in which the Fund may invest,  the  conclusions  and
investment decisions of the Adviser with respect to the Fund are based primarily
on the analyses of its own research department.

     Under  the  Agreements,  the  Adviser  regularly  provides  the  Fund  with
investment  research,  advice and  supervision  and  furnishes  continuously  an
investment  program  consistent  with the investment  objectives and policies of
each Portfolio,  and determines,  for each Portfolio,  what securities  shall be
purchased,  what  securities  shall  be held or  sold,  and  what  portion  of a
Portfolio's assets shall be held uninvested, subject always to the provisions of
the  Fund's  Declaration  of  Trust  and  By-Laws,  and of the 1940 Act and to a
Portfolio's  investment  objectives,  policies  and  restrictions,  and  subject
further to such policies and  instructions as the Trustees may from time to time
establish.  The Adviser  also  advises  and assists the  officers of the Fund in
taking such steps as are necessary or  appropriate to carry out the decisions of
its Trustees  and the  appropriate  committees  of the  Trustees  regarding  the
conduct of the business of the Fund.

     The Adviser pays the compensation  and expenses of all affiliated  Trustees
and executive employees of the Fund and makes available,  without expense to the
Fund, the services of such affiliated persons as may duly be elected Trustees of
the Fund,  subject to their  individual  consent to serve and to any limitations
imposed  by law,  and pays  the  Fund's  office  rent  and  provides  investment
advisory, research and statistical facilities and all clerical services relating
to research,  statistical  and investment  work.  For its advisory  services the
Adviser  receives  compensation  monthly at the following  annual rates for each
Portfolio:
<TABLE>
<CAPTION>

                                        % of the average
                                        daily net asset
                                         values of each       Dollar Amount
                Portfolio                  Portfolio              1993                1994                1995

<S>                                            <C>             <C>                 <C>                 <C>     
      Money Market Portfolio                   .370%           $130,455            $269,963            $306,996
      Bond Portfolio                           .475%            550,565             650,361             657,112
      Balanced Portfolio                       .475%            198,056             218,621             269,230
      Growth and Income Portfolio              .475%                 --                   0             169,852
      Capital Growth Portfolio                 .475%            955,017           1,199,585           1,383,919
      Global Discovery Portfolio               .975%                 --                  --                  --
      International Portfolio                  .875%          1,049,464           3,363,597           4,357,541
</TABLE>

     Under the  Agreements,  the Fund is responsible for all its other expenses,
including  clerical  salaries;  fees and expenses  incurred in  connection  with
membership in investment company  organizations;  brokers'  commissions;  legal,
auditing and accounting  expenses;  taxes and governmental  fees; the charges of
custodians,  transfer  agents and other agents;  any other  expenses,  including
clerical expenses,  of issue, sale,  underwriting,  distribution,  redemption or
repurchase  of shares;  the expenses of and fees for  registering  or qualifying
securities  for sale;  the fees and expenses of the Trustees of the Fund who are
not  affiliated  with the Adviser;  and the cost of preparing  and  distributing
reports and notices to shareholders.  The Fund may arrange to have third parties
assume all or part of the expense of sale,  underwriting and distribution of its
shares. (See "Distributor" for expenses paid by Scudder Investor Services, Inc.)
The Fund is also  responsible  for its  expenses  incurred  in  connection  with
litigation,  proceedings  and  claims  and the legal  obligation  it may have to
indemnify its officers and Trustees with respect thereto.

                                       43
<PAGE>

     In addition to payments for investment  advisory  services  provided by the
Adviser, the Trustees, consistent with the Fund's investment advisory agreements
and underwriting  agreement,  have approved  payments to the Adviser and Scudder
Investor Services, Inc. for clerical, accounting and certain other services they
may provide the Fund.  Effective  October 1, 1994,  the Trustees  authorized the
elimination of these administrative expenses.  Under a new agreement,  effective
October 1, 1994, the Trustees  authorized the Fund, on behalf of each Portfolio,
to pay Scudder Fund  Accounting  Corporation,  a subsidiary of the Adviser,  for
determining  the daily net asset value per share and  maintaining  the portfolio
and general accounting records of the Fund.

     For the year ended December 31, 1994, such compensation amounted to $40,297
for the Money Market Portfolio,  $40,238 for the Bond Portfolio, $38,204 for the
Balanced Portfolio, $25,179 for the Growth and Income Portfolio, $45,253 for the
Capital   Growth   Portfolio,   $45,272   for   the   International   Portfolio;
administrative   expenses  not  imposed   aggregated  $7,119  for  the  Balanced
Portfolio.

     For the year ended December 31, 1995, such compensation amounted to $30,000
for the Money Market Portfolio,  $43,187 for the Bond Portfolio, $37,353 for the
Balanced Portfolio, $38,256 for the Growth and Income Portfolio, $73,583 for the
Capital Growth Portfolio and $277,867 for the International Portfolio.

     The  Agreements  dated  November 14, 1986 (for the Money Market  Portfolio,
Bond Portfolio, Balanced Portfolio and Capital Growth Portfolio), April 30, 1987
(for the  International  Portfolio),  May 1, 1994  (for the  Growth  and  Income
Portfolio)  will remain in effect until  September 30, 1996. The Agreement dated
May 1, 1996 (for the Global  Discovery  Portfolio)  will remain in effect  until
September  30, 1997.  The  Agreements  will continue in effect from year to year
thereafter  only if their  continuance  is  approved  annually  by the vote of a
majority of those Trustees who are not parties to such Agreements or "interested
persons" of the  Adviser or the Fund cast in person at a meeting  called for the
purpose  of voting on such  approval  and  either by vote of a  majority  of the
Trustees or a majority of the  outstanding  securities  of such  Portfolio.  The
Agreement for the Money Market Portfolio, Bond Portfolio, Balanced Portfolio and
Capital Growth Portfolio and the Agreement for the International  Portfolio were
last approved by such Trustees (including a majority of the Trustees who are not
such "interested  persons") on August 11, 1995. The Agreement for the Growth and
Income Portfolio was last approved by such Trustees (including a majority of the
Trustees  who are not such  "interested  persons")  on February  11,  1994.  The
Agreement for the Global Discovery  Portfolio was last approved by such Trustees
(including a majority of the Trustees who are not such "interested  persons") on
October 5, 1995. Each Agreement may be terminated at any time without payment of
penalty  by  either  party on sixty  days'  written  notice,  and  automatically
terminates in the event of its assignment.

     Each  Agreement  also  provides that the Fund may use any name derived from
the name "Scudder,  Stevens & Clark" only as long as such  Agreement  remains in
effect.

     In  reviewing  the  terms of the  Agreements  and in  discussions  with the
Adviser concerning the Agreements,  Trustees who are not "interested persons" of
the Fund are represented by independent counsel at the Fund's expense.

     The  Agreements  provide that the Adviser shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in connection
with  matters  to which the  Agreements  relate,  except a loss  resulting  from
willful misfeasance, bad faith or gross negligence on the part of the Adviser in
the  performance of its duties or from reckless  disregard by the Adviser of its
obligations and duties under the Agreements.

     Each  Participating  Insurance  Company  has  agreed  with the  Adviser  to
reimburse  the  Adviser  for a  period  of five  years  to the  extent  that the
aggregate  annual  advisory fee paid on behalf of all Portfolios with respect to
the average daily net asset value of the shares of all  Portfolios  held in that
Participating  Insurance  Company's  general or  separate  account  (or those of
affiliates)  is less than  $25,000 in any year.  It is expected  that  insurance
companies which become  Participating  Insurance Companies in the future will be
required to enter into similar arrangements.

     Until April 30,  1998,  the Adviser has agreed to waive part or all of both
the management and administrative fees for the Global Discovery Portfolio to the
extent that the Portfolio's expenses will be maintained at 1.50%.

                                       44
<PAGE>

     Officers  and  employees  of  the  Adviser  from  time  to  time  may  have
transactions with various banks,  including the Fund's custodian bank. It is the
Adviser's  opinion that the terms and conditions of those  transactions were not
influenced by existing or potential custodial or other Fund relationships.

     None of the  Trustees or officers  of the Fund may have  dealings  with the
Fund as principals in the purchase or sale of securities.

Personal Investments by Employees of the Adviser

     Employees  of  the  Adviser  are  permitted  to  make  personal  securities
transactions,  subject  to  requirements  and  restrictions  set  forth  in  the
Adviser's  Code  of  Ethics.   The  Code  of  Ethics  contains   provisions  and
requirements  designed to identify  and address  certain  conflicts  of interest
between personal investment  activities and the interests of investment advisory
clients such as the Portfolios.  Among other things,  the Code of Ethics,  which
generally  complies  with  standards   recommended  by  the  Investment  Company
Institute's  Advisory Group on Personal  Investing,  prohibits  certain types of
transactions  absent prior approval,  imposes time periods during which personal
transactions may not be made in certain securities,  and requires the submission
of  duplicate  broker   confirmations   and  monthly   reporting  of  securities
transactions.  Additional  restrictions  apply to portfolio  managers,  traders,
research  analysts  and others  involved  in the  investment  advisory  process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.

Distributor

     The Fund has an underwriting agreement with Scudder Investor Services, Inc.
(the  "Distributor"),  a subsidiary  of the Adviser,  Two  International  Place,
Boston,  Massachusetts 02110-4103.  The Fund's underwriting agreement dated July
12, 1985,  will remain in effect until September 30, 1996, and from year to year
thereafter  only if its  continuance  is approved  annually by a majority of the
Trustees who are not parties to such  agreement or  "interested  persons" of any
such party and either by vote of a majority of the Trustees or a majority of the
outstanding voting securities of the Fund.

     Under  the  principal  underwriting  agreement  between  the  Fund  and the
Distributor, the Fund is responsible for the payment of all fees and expenses in
connection  with the preparation  and filing of any  registration  statement and
prospectus  covering  the issue and sale of  shares,  and the  registration  and
qualification  of shares for sale with the SEC in the various states,  including
registering the Fund as a broker or dealer.  The Fund will also pay the fees and
expenses of preparing,  printing and mailing  prospectuses  annually to existing
shareholders  and any  notice,  proxy  statement,  report,  prospectus  or other
communication to shareholders of the Fund, printing and mailing confirmations of
purchases of shares, any issue taxes or any initial transfer taxes, a portion of
toll-free  telephone service for shareholders,  wiring funds for share purchases
and redemptions  (unless paid by the shareholder who initiates the transaction),
printing and postage of business  reply  envelopes and a portion of the computer
terminals used by both the Fund and the Distributor.

     The  Distributor  will pay for printing and  distributing  prospectuses  or
reports  prepared for its use in  connection  with the offering of the shares to
the  public  and  preparing,  printing  and  mailing  any  other  literature  or
advertising  in  connection  with the offering of the shares to the public.  The
Distributor will pay all fees and expenses in connection with its  qualification
and  registration  as a broker or dealer under Federal and state laws, a portion
of the  toll-free  telephone  service  and  of  computer  terminals,  and of any
activity  which is primarily  intended to result in the sale of shares issued by
the Fund,  unless a 12b-l Plan is in effect which  provides  that the Fund shall
bear some or all of such expenses.  The  Distributor has entered into agreements
with  broker-dealers  authorized to offer and sell VA contracts and VLI policies
on behalf of the  Participating  Insurance  Companies under which agreements the
broker-dealers  have agreed to be  responsible  for the fees and expenses of any
prospectus,   statement  of  additional   information  and  printed  information
supplemental  thereto of the Fund  distributed in connection with their offer of
VA contracts and VLI policies.

     As agent,  the Distributor  currently  offers shares of each Portfolio on a
continuous basis to the separate accounts of Participating  Insurance  Companies
in all  states  in which  the  Portfolio  or the  Fund may from  time to time be
registered or where  permitted by  applicable  law. The  underwriting  agreement
provides  that the  Distributor  accepts  orders for  shares at net asset  value


                                       45
<PAGE>

without sales commission or load being charged. The Distributor has made no firm
commitment to acquire shares of any Portfolio.

     A  description  of the Rule 12b-1 plan for Class B shares of the  Portfolio
(the  "Plan")  and  related  services  and fees  thereunder  is  provided in the
prospectus.  On October 5, 1995,  the Board of Trustees of the Fund  unanimously
approved the Plan. In connection with its  consideration  of the Plan, the Board
of  Trustees  was  furnished  with  drafts  of the Plan and  related  materials,
including  information related to the advantages and disadvantages of Rule 12b-1
plans  currently  being used in the mutual fund industry.  Legal counsel for the
Fund provided additional information,  summarized the provisions of the proposed
Plan and  discussed  the legal and  regulatory  considerations  in adopting such
Plan.

     The Board considered  various factors in connection with its decision as to
whether  to  approve  the  Plan,  including  (a) the  nature  and  causes of the
circumstances  which make  implementation of the Plan necessary and appropriate;
(b) the way in which the Plan would address those  circumstances,  including the
nature and potential amount of  expenditures;  (c) the nature of the anticipated
benefits;  (d) the possible benefits of the Plan to any other person relative to
those of the Fund; (e) the effect of the Plan on existing owners of VA contracts
and VLI  policies;  (f) the  merits of  possible  alternative  plans or  pricing
structures; (g) competitive conditions in the variable products industry and (h)
the relationship of the Plan to other distribution efforts of the Fund.

     Based upon its review of the foregoing factors and the materials  presented
to it, and in light of its  fiduciary  duties under  relevant  state law and the
1940 Act, the Board determined,  in the exercise of its business judgment,  that
the Fund's Plan is reasonably likely to benefit the Fund and the VA contract and
VLI  policy  owners in at least one of  several  ways.  Specifically,  the Board
concluded that the Participating  Insurance  Companies would have less incentive
to educate VA contract  and VLI policy  owners and sales people  concerning  the
Fund if expenses associated with such services were not paid for by the Fund. In
addition, the Board determined that the payment of distribution fees to insurers
should  motivate them to maintain and enhance the level of services  relating to
the Fund provided to VA contract and VLI policy owners,  which would, of course,
benefit such VA contract  and VLI policy  owners.  Further,  the adoption of the
Plan would  likely  help to  maintain  and may lead to an increase in net assets
under management given the distribution financing alternatives available through
the multi-class  structure.  The Board also took into account expense structures
of other competing products and administrative compensation arrangements between
other funds, their advisers and insurance companies that currently are in use in
the variable products industry. Further, it is anticipated that Plan fees may be
used to educate  potential and existing  owners of VA contracts and VLI policies
concerning the Fund, the securities markets and related risks. A better educated
investor,  in the Distributor's  view, is less likely to surrender his or her VA
contract or VLI policy early, thereby avoiding the costs associated with such an
event.  Accordingly,  the Plan may  help  the Fund and  Participating  Insurance
Companies meet investor education needs.

     The Board realizes that there is no assurance that the  expenditure of Fund
assets to finance distribution of Fund shares will have the anticipated results.
However, the Board believes there is a reasonable likelihood that one or more of
such benefits will result,  and since the Board will be in a position to monitor
the  distribution  expenses of the Fund, it will be able to evaluate the benefit
of such expenditures in deciding whether to continue the Plan.

     The Plan and any Rule  12b-1-related  agreement that is entered into by the
Fund or the  Distributor in connection with the Plan will continue in effect for
a period  of more  than one year  only so long as  continuance  is  specifically
approved  at least  annually  by a vote of a  majority  of the  Fund's  Board of
Trustees,  and of a majority of the Trustees who are not interested  persons (as
defined in the 1940 Act) of the Fund or a  Portfolio  ("Independent  Trustees"),
cast in person at a meeting called for the purpose of voting on the Plan, or the
Rule 12b-1 related agreement, as applicable.  In addition, the Plan and any Rule
12b-1 related  agreement,  may be terminated as to Class B shares of a Portfolio
at any time,  without penalty,  by vote of a majority of the outstanding Class B
shares of that Portfolio or by vote of a majority of the  Independent  Trustees.
The Plan also  provides  that it may not be amended to increase  materially  the
amount  that may be spent  for  distribution  of Class B shares  of a  Portfolio
without the approval of Class B shareholders of that Portfolio.

                                       46
<PAGE>

                                                MANAGEMENT OF THE FUND

Trustees and Officers
<TABLE>
<C>                                <C>                      <C>                               <C>
                                                                                               Position with
                                                                                               Underwriter, Scudder
                                                                                               Investor Services,
Name and Address                    Position with Fund       Principal Occupation**            Inc.
-----------------                   ------------------       ----------------------            ---------------------

David B. Watts*@+ (61)              President and Trustee    Managing Director of Scudder,     Assistant Treasurer
                                                             Stevens & Clark, Inc.

Daniel Pierce*@+ (62)               Vice President and       Chairman of the Board and         Vice President,
                                    Trustee                  Managing Director of Scudder,     Director and Assistant
                                                             Stevens & Clark, Inc.             Treasurer

Dr. Kenneth Black, Jr. (71)         Trustee                  Regents' Professor Emeritus of       ----
Educational Foundation, Inc.                                 Insurance, Georgia State
35 Broad Street                                              University
11th Floor, Room 1144
Atlanta, GA  30303

Dr. Rosita P. Chang (41)            Trustee                  Professor of Finance,                _____
PACAP Research Center                                        University of Rhode Island
College of Business
  Administration
University of Rhode Island
7 Lippitt Road
Kingston, RI 02881-0802

Peter B. Freeman@ (63)              Trustee                  Corporate Director and Trustee      ----
100 Alumni Avenue
Providence, RI  02906

Dr. J. D. Hammond (62)              Trustee                  Dean, Smeal College of Business     ----
801 Business                                                 Administration, Pennsylvania
  Administration Bldg.                                       State University
Pennsylvania State University
University Park, PA  16802

Thomas S. Crain++ (55)              Vice President           Managing Director of Scudder,       ----
                                                             Stevens & Clark, Inc.

Jerard K. Hartman# (63)             Vice President           Managing Director of Scudder,       ----
                                                             Stevens & Clark, Inc.

Richard A. Holt*** (54)             Vice President           Managing Director of Scudder,       ----
                                                             Stevens & Clark, Inc.

Thomas W. Joseph+ (57)              Vice President           Principal of Scudder, Stevens &   Vice President,
                                                             Clark, Inc.                       Director, Treasurer
                                                                                               and Assistant Clerk

David S. Lee+ (62)                  Vice President           Managing Director of Scudder,     President, Assistant


                                       47
<PAGE>

                                                                                               Position with
                                                                                               Underwriter, Scudder
                                                                                               Investor Services,
Name and Address                    Position with Fund       Principal Occupation**            Inc.
-----------------                   ------------------       ----------------------            ---------------------
                                                             Stevens & Clark, Inc.             Treasurer and Director
Steven M. Meltzer+ (37)             Vice President           Principal of Scudder, Stevens &     ----
                                   Clark, Inc.

Randall K. Zeller# (41)             Vice President           Managing Director of Scudder,       ----
                                                             Stevens & Clark, Inc.

Thomas F. McDonough+ (49)           Vice President and       Principal of Scudder, Stevens &   Clerk
                                    Secretary                Clark, Inc.

Pamela A. McGrath+ (42)             Vice President and       Managing Director of Scudder,       ----
                                    Treasurer                Stevens & Clark, Inc.

Edward J. O'Connell# (50)           Vice President and       Principal of Scudder, Stevens &   Assistant Treasurer
                                    Assistant Treasurer      Clark, Inc.

Kathryn L. Quirk# (43)              Vice President and       Managing Director of Scudder,     Vice President
                                    Assistant Secretary      Stevens & Clark, Inc.

Coleen Downs Dinneen+ (35)          Assistant Secretary      Vice President of Scudder,        Assistant Clerk
                                                             Stevens & Clark, Inc.

          *         Messrs. Watts and Pierce are considered by the Fund and its counsel to be Trustees who are
                    "interested persons" of the Adviser or of the Fund (within the meaning of the 1940 Act).
          **        Unless otherwise stated, all the officers and Trustees have
                    been associated with their respective companies for more
                    than five years, but not necessarily in the same capacity.
          @         Peter B. Freeman, Daniel Pierce and David B. Watts are members of the Executive Committee, which
                    has the power to declare dividends from ordinary income and distributions of realized capital
                    gains to the same extent as the Board is so empowered.
          +         Address:  Two International Place, Boston, Massachusetts  02110-4103
          #         Address:  345 Park Avenue, New York, New York  10154
          ++        Address:  600 Vine Street - Suite 2000, Cincinnati, Ohio  45202
          ***       Address:  111 E. Wacker Drive - Suite 2200, Chicago, Illinois  60601
</TABLE>

Certain  of the  Trustees  and  officers  of the  Fund  also  serve  in  similar
capacities with other Scudder Funds.

Remuneration

     Several of the  officers  and  Trustees of the Fund may also be officers of
the Adviser, the Distributor, Scudder Service Corporation, Scudder Trust Company
or Scudder Fund Accounting  Corporation which receive fees paid by the Fund. The
Fund pays no direct  remuneration to any officer of the Fund.  However,  each of
the Trustees who is not affiliated with the Adviser will be paid by the Fund. Of
these  unaffiliated  Trustees,  Drs.  Black and Hammond  each  receive an annual
Trustee's  fee of $2,000 per  Portfolio and a fee of $200 per Portfolio for each
Trustees'  meeting  attended  or for  each  meeting  held  for  the  purpose  of
considering  arrangements  between the Fund and the Adviser,  while Mr.  Freeman
receives fees of $1,250 per Portfolio and $125 per Portfolio, respectively. Drs.
Black and Hammond also receive $100 per Portfolio per committee meeting attended
(other  than  audit  committee,  for  which  each  receives  a fee of  $200  per
Portfolio),  while Mr.  Freeman  receives fees of $75 per Portfolio and $125 per
Portfolio,  respectively.  A total of $106,524 was paid for  Trustees'  fees and
expenses,  including  legal counsel to the Trustees,  in the year ended December
31, 1995.

                                       48
<PAGE>

     The following  Compensation Table,  provides in tabular form, the following
data.

Column (1) All Trustees who receive compensation from the Fund.
Column (2) Aggregate  compensation  received by a Trustee from all series of the
Fund,  which is comprised of Money Market  Portfolio,  Bond Portfolio,  Balanced
Portfolio,   Growth  and  Income   Portfolio,   Capital  Growth   Portfolio  and
International Portfolio.
Columns (3) and (4)  Pension or  retirement  benefits  accrued or proposed to be
paid by the Fund. The Fund does not pay its Trustees such  benefits.  
Column (5) Total compensation received by a Trustee from Money Market Portfolio,
Bond Portfolio,  Balanced Portfolio, Growth and Income Portfolio, Capital Growth
Portfolio,   Global  Discovery  Portfolio  and  International  Portfolio,   plus
compensation  received from all funds managed by the Adviser for which a Trustee
serves.   The  total  number  of  funds  from  which  a  Trustee  receives  such
compensation is also provided in column (5).
<TABLE>
<CAPTION>

                                                  Compensation Table
                                         for the year ended December 31, 1995
=========================== ============================= =================== ================= ====================
           (1)                          (2)                      (3)                (4)                 (5)

                                                              Pension or                        Total Compensation
                                                              Retirement                         From the Fund and
                                                           Benefits Accrued      Estimated       Fund Complex Paid
                            Aggregate Compensation from    As Part of Fund    Annual Benefits       to Trustee
     Name of Person,         the Scudder Variable Life         Expenses       Upon Retirement
         Position                 Investment Fund*
=========================== ============================= =================== ================= ====================

<S>                                  <C>                        <C>                <C>              <C>     
Dr. Kenneth Black, Jr.,              $ 26,000                   N/A                N/A              $ 26,000
Trustee                                                                                             (6 funds)

Dr. Rosita P. Chang,                  $ 3,092                   N/A                N/A               $ 3,092
Trustee                                                                                             (6 funds)

Peter B. Freeman, Trustee            $ 16,400                   N/A                N/A              $ 126,750
                                                                                                   (31 funds)
Dr. J.D. Hammond,                    $ 26,000                   N/A                N/A              $ 26,000
Trustee                                                                                             (6 funds)
</TABLE>


*    Scudder Variable Life Investment Fund consists of seven  Portfolios:  Money
     Market Portfolio,  Bond Portfolio,  Balanced  Portfolio,  Growth and Income
     Portfolio,   Capital  Growth  Portfolio,  Global  Discovery  Portfolio  and
     International Portfolio.


                                 NET ASSET VALUE

         (See "NET ASSET VALUE" and "VALUATION OF PORTFOLIO SECURITIES"
                            in the Fund's prospectus)

     The net asset value of shares of each  Portfolio of the Fund is computed as
of the close of regular trading on the Exchange on each day the Exchange is open
for trading  (the "Value  Time").  The Exchange is scheduled to be closed on the
following holidays:  New Year's Day, Presidents Day, Good Friday,  Memorial Day,
Independence  Day, Labor Day,  Thanksgiving  and Christmas.  Net asset value per
share is  determined  by dividing the value of the total assets of a Fund,  less
all liabilities, by the total number of shares outstanding.

     The valuation of the Money Market Portfolio  securities is based upon their
amortized cost, which does not take into account unrealized  securities gains or
losses.  This method  involves  initially  valuing an instrument at its cost and


                                       49
<PAGE>

thereafter  assuming a constant  amortization  to  maturity  of any  discount or
premium,  regardless of the impact of  fluctuating  interest rates on the market
value of the instrument.  While this method provides certainty in valuation,  it
may result in periods  during which value,  as determined by amortized  cost, is
higher or lower than the price the Money Market  Portfolio  would  receive if it
sold the  instrument.  During periods of declining  interest  rates,  the quoted
yield on shares of the Money Market  Portfolio may tend to be higher than a like
computation  made by a fund with  identical  investments  utilizing  a method of
valuation based upon market prices and estimates of market prices for all of its
portfolio  instruments.  Thus,  if the use of  amortized  cost by the  Portfolio
resulted in a lower aggregate portfolio value on a particular day, a prospective
investor in the Money Market Portfolio would be able to obtain a somewhat higher
yield if he  purchased  shares of the Money Market  Portfolio on that day,  than
would  result/from  investment in a fund  utilizing  solely market  values,  and
existing  investors in the Money Market  Portfolio would receive less investment
income. The converse would apply in a period of rising interest rates.

     An exchange-traded  equity security (not subject to resale restrictions) is
valued at its most recent  sale price as of the Value  Time.  Lacking any sales,
the  security  is valued at the  calculated  mean  between  the most  recent bid
quotation and the most recent asked quotation (the "Calculated  Mean"). If there
are no bid and asked  quotations,  the security is valued at the most recent bid
quotation.  An  unlisted  equity  security  which  is  traded  on  the  National
Association  of Securities  Dealers  Automated  Quotation  ("NASDAQ")  system is
valued at the most recent sale price.  If there are no such sales,  the security
is valued at the high or "inside" bid quotation. The value of an equity security
not quoted on the NASDAQ System, but traded in another  over-the-counter market,
is the most  recent  sale price.  If there are no such  sales,  the  security is
valued at the Calculated  Mean. If there is no Calculated  Mean, the security is
valued at the most recent bid quotation.

     Debt  securities,  other than short-term  securities,  are valued at prices
supplied  by the Fund's  pricing  agent  which  reflect  broker/dealer  supplied
valuations and electronic data processing techniques. Short-term securities with
remaining  maturities  of sixty  days or less are valued by the  amortized  cost
method,  which  the  Board  believes  approximates  market  value.  If it is not
possible  to value a  particular  debt  security  pursuant  to  these  valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker.  If no such bid quotation is available, the Adviser may
calculate the price of that debt security, subject to limitations established by
the Board.

     Option  contracts on securities,  currencies,  futures and other  financial
instruments  traded on an exchange are valued at their most recent sale price on
the exchange. If no sales are reported,  the value is the Calculated Mean, or if
the Calculated Mean is not available,  the most recent bid quotation in the case
of purchased options,  or the most recent asked quotation in the case of written
options.  Option contracts traded over-the-counter are valued at the most recent
bid  quotation  in the case of  purchased  options and at the most recent  asked
quotation in the case of written  options.  Futures  contracts are valued at the
most recent settlement  price.  Foreign currency forward contracts are valued at
the value of the underlying currency at the prevailing currency exchange rate.

     If a  security  is  traded  on more  than one  exchange,  or on one or more
exchanges  and in the  over-the-counter  market,  quotations  are taken from the
market in which the security is traded most extensively.

     If, in the opinion of the Fund's Valuation Committee, the value of an asset
as determined in accordance  with these  procedures  does not represent the fair
market  value of the  asset,  the  value of the  asset is taken to be an  amount
which, in the opinion of the Valuation  Committee,  represents fair market value
on the basis of all available information. The value of other portfolio holdings
owned by the Fund is  determined  in a manner  which,  in the  discretion of the
Valuation  Committee  most fairly  reflects fair market value of the property on
the valuation date.

     Following the valuations of securities or other  portfolio  assets in terms
of the  currency  in  which  the  market  quotation  used is  expressed  ("Local
Currency"),  the value of these assets in terms of U.S. dollars is calculated by
converting  the Local  Currency  into U.S.  dollars at the  prevailing  currency
exchange rates on the valuation date.

                                       50
<PAGE>

                                   TAX STATUS

    (See "TAX STATUS, DIVIDENDS AND DISTRIBUTIONS" in the Fund's prospectus.)

     Each  Portfolio  of the Fund  has  elected  to be  treated  as a  regulated
investment  company under  Subchapter M of the Internal Revenue Code of 1986, as
amended  (the  "Code").   Such  qualification  does  not  involve   governmental
supervision or management of investment practices or policy.

     Each  Portfolio  intends to comply with the provisions of Section 817(h) of
the  Code  relating  to  diversification   requirements  for  variable  annuity,
endowment and life insurance contracts.  Specifically, each Portfolio intends to
comply with either (i) the requirement of Section 817(h)(1) of the Code that its
assets be adequately diversified,  or (ii) the "Safe Harbor for Diversification"
specified  in  Section  817(h)(2)  of the  Code,  or (iii)  the  diversification
requirement of Section 817(h)(1) of the Code by having all or part of its assets
invested in U.S.  Treasury  securities  which  qualify for the "Special Rule for
Investments in United States Obligations"  specified in Section 817(h)(3) of the
Code.

     A regulated investment company qualifying under Subchapter M of the Code is
required to distribute to its shareholders at least 90 percent of its investment
company taxable income and generally is not subject to federal income tax to the
extent that it distributes  annually its investment  company  taxable income and
net realized capital gains in the manner required under the Code.

     Investment  company  taxable income of a Portfolio  generally is made up of
dividends,  interest,  certain  currency  gains and  losses  and  net-short-term
capital gains in excess of net long-term  capital  losses,  less  expenses.  Net
realized  capital  gains of a Portfolio for a fiscal year are computed by taking
into account any capital loss carryforward of the Portfolio.

     At December 31, 1994 the Bond  Portfolio  had a net tax basis  capital loss
carryforward  of  approximately  $4,153,327  which may be  applied  against  any
realized net taxable  capital gains of each succeeding year until fully utilized
or until December 31, 2002,  whichever occurs first. In addition,  from November
1, 1994 through December 31, 1994, the Balanced  Portfolio  incurred $275,417 of
net realized capital losses which the Fund intends to defer and treat as arising
in the fiscal year ended December 31, 1995.

     If any net  realized  long-term  capital  gains in excess  of net  realized
short-term  capital  losses  are  retained  by  a  Portfolio  for  reinvestment,
requiring  federal  income  taxes  to be paid  thereon  by the  Portfolio,  such
Portfolio  intends  to  elect  to  treat  such  capital  gains  as  having  been
distributed to  shareholders.  As a result,  each  shareholder  will report such
capital  gains as long-term  capital  gains,  will be able to claim its share of
federal income taxes paid by the Portfolio on such gains as a credit against its
own federal income tax liability,  and will be entitled to increase the adjusted
tax basis of its shares of the Portfolio by the difference  between its pro rata
share of such gains and its tax credit.

     Distributions   of  investment   company  taxable  income  are  taxable  to
shareholders as ordinary income.

     Distributions  of the  excess  of  net  long-term  capital  gain  over  net
short-term  capital loss are taxable to shareholders as long-term  capital gain,
regardless of the length of time the shares of the relevant  Portfolio have been
held by such shareholders.  Any loss realized upon the redemption of shares held
at the time of redemption  for six months or less will be treated as a long-term
capital loss to the extent of any amounts treated as  distributions of long-term
capital gain during such six-month period.

     Distributions of investment company taxable income and net realized capital
gains will be taxable as  described  above,  whether  reinvested  in  additional
shares or in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received  equal to the net asset  value of a share on the  reinvestment
date.

     All  distributions  of investment  company  taxable income and net realized
capital  gain,  whether  reinvested  in  additional  shares or in cash,  must be
reported  by each  shareholder  on its  federal  income  tax  return.  Dividends
declared  in October,  November  or December  with a record date in such a month
will be deemed to have been  received  by  shareholders  on  December 31 if paid


                                       51
<PAGE>

during  January of the following  year.  Redemptions of shares may result in tax
consequences  (gain or loss) to the  shareholder  and are also  subject to these
reporting requirements.

     Distributions by a Portfolio  (except the Money Market Portfolio) result in
a  reduction  in the  net  asset  value  of the  Portfolio's  shares.  Should  a
distribution  reduce the net asset value below a shareholder's  cost basis, such
distribution would nevertheless be taxable to the shareholder as ordinary income
or capital gain as described above, even though, from an investment  standpoint,
it may constitute a partial return of capital.  In particular,  investors should
consider the tax implications of buying shares just prior to a distribution. The
price of shares  purchased at that time  includes the amount of the  forthcoming
distribution.  Those purchasing just prior to a distribution will then receive a
partial  return of capital upon the  distribution,  which will  nevertheless  be
taxable to them.

     If the Balanced,  Growth and Income,  Capital Growth,  Global  Discovery or
International   Portfolios  invest  in  stock  of  certain  foreign   investment
companies,  the Portfolios may be subject to U.S.  federal income  taxation on a
portion  of any  "excess  distribution"  with  respect  to,  or  gain  from  the
disposition  of, such stock.  The tax would be  determined  by  allocating  such
distribution or gain ratably to each day of a Portfolio's holding period for the
stock. The distribution or gain so allocated to any taxable year of a Portfolio,
other than the taxable year of the excess distribution or disposition,  would be
taxed to a  Portfolio  at the  highest  ordinary  income rate in effect for such
year,  and the tax would be further  increased by an interest  charge to reflect
the value of the tax deferral  deemed to have resulted from the ownership of the
foreign  company's  stock.  Any amount of  distribution or gain allocated to the
taxable  year  of  the  distribution  or  disposition  would  be  included  in a
Portfolio's  investment  company taxable income and,  accordingly,  would not be
taxable to a Portfolio to the extent distributed by a Portfolio as a dividend to
its shareholders.

     Proposed regulations have been issued which may allow the Balanced,  Growth
and Income,  Capital Growth and International  Portfolios to make an election to
mark to market their  shares of these  foreign  investment  companies in lieu of
being subject to U.S. federal income  taxation.  At the end of each taxable year
to which the election applies, the Balanced,  Capital Growth,  International and
Growth and Income Portfolios would report as ordinary income the amount by which
the fair  market  value of the foreign  company's  stock  exceeds the  Balanced,
Capital Growth,  International and Growth and Income Portfolios'  adjusted basis
in these shares. No mark to market losses would be recognized. The effect of the
election  would be to treat excess  distributions  and gain on  dispositions  as
ordinary  income  which is not subject to a fund level tax when  distributed  to
shareholders as a dividend.  Alternatively,  the Portfolios may elect to include
as income and gain their share of the ordinary  earnings and net capital gain of
certain  foreign  investment  companies  in lieu of being  taxed  in the  manner
described above.

     Equity  options  (including  options on stock and  options on  narrow-based
stock  indexes)  and  over-the-counter  options  on debt  securities  written or
purchased by a Portfolio  will be subject to tax under Section 1234 of the Code.
In general,  no loss is recognized  by a Portfolio  upon payment of a premium in
connection with the purchase of a put or call option.  The character of any gain
or loss recognized (i.e.,  long-term or short-term) will generally depend in the
case of a lapse or sale of the option on the Portfolio's  holding period for the
option and in the case of an exercise of a put option on the Portfolio's holding
period for the underlying security.  The purchase of a put option may constitute
a short sale for  federal  income tax  purposes,  causing an  adjustment  in the
holding period of the underlying security or a substantially  identical security
of the  Portfolio.  If the  Portfolio  writes a put or call  option,  no gain is
recognized upon its receipt of a premium. If the option lapses or is closed out,
any gain or loss is  treated as a  short-term  capital  gain or loss.  If a call
option  written by a Portfolio is  exercised,  the character of the gain or loss
depends on the holding period of the underlying security.  The exercise of a put
option written by a Portfolio is not a taxable transaction for the Portfolio.

     Many futures contracts,  certain foreign currency forward contracts entered
into by a Portfolio and all listed nonequity options written or purchased by the
Portfolio  (including options on debt securities,  options on futures contracts,
options on securities  indexes and options on broad-based stock indexes) will be
governed by Section  1256 of the Code.  Absent a tax  election to the  contrary,
gain or loss  attributable  to the lapse,  exercise  or closing  out of any such
position  generally will be treated as 60% long-term and 40% short-term  capital
gain or loss,  and on the last trading day of the fiscal year,  all  outstanding
Section  1256  positions  will be  marked  to market  (i.e.  treated  as if such
positions  were  closed  out at  their  closing  price  on such  day),  with any
resulting gain or loss  recognized as 60% long-term and 40%  short-term  capital
gain or loss. Under Section 988 of the Code,  discussed below,  foreign currency
gain or loss from foreign  currency-related  forward contracts,  certain futures
and options  and similar  financial  instruments  entered  into or acquired by a


                                       52
<PAGE>

Portfolio will be treated as ordinary income. Under certain circumstances, entry
into a futures  contract  to sell a  security  may  constitute  a short sale for
federal income tax purposes,  causing an adjustment in the holding period of the
underlying  security  or  a  substantially   identical  security  owned  by  the
Portfolio.

     Subchapter M of the Code requires that each Portfolio realize less than 30%
of its  annual  gross  income  from  the  sale or other  disposition  of  stock,
securities and certain options, futures and forward contracts held for less than
three months. Certain options, futures and forward activities of a Portfolio may
increase the amount of gains realized by a Portfolio that are subject to the 30%
limitation.  Accordingly,  the amount of such  transactions that a Portfolio may
undertake may be limited.

     Positions of a Portfolio  which  consist of at least one stock and at least
one stock  option or other  position  with respect to a related  security  which
substantially diminishes the Portfolio's risk of loss with respect to such stock
could be treated as a "straddle"  which is governed by Section 1092 of the Code,
the operation of which may cause deferral of losses,  adjustments in the holding
periods of stock or securities and conversion of short-term  capital losses into
long-term  capital  losses.  An exception to these straddle rules exists for any
"qualified covered call options" on stock written by a Portfolio.

     Positions  of a  Portfolio  which  consist  of at least  one  position  not
governed by Section  1256 and at least one futures  contract,  foreign  currency
forward   contract  or   nonequity   option   governed  by  Section  1256  which
substantially diminishes the Portfolio's risk of loss with respect to such other
position will be treated as a "mixed  straddle."  Although  mixed  straddles are
subject to the straddle rules of Section 1092 of the Code, certain tax elections
exist for them which reduce or  eliminate  the  operation  of these rules.  Each
Portfolio  will  monitor  its  transactions  in options and futures and may make
certain tax elections in connection with these investments.

     Under the Code,  gains or losses  attributable  to fluctuations in exchange
rates  which  occur  between  the  time  a  Portfolio  accrues   receivables  or
liabilities  denominated  in a  foreign  currency  and the  time  the  Portfolio
actually  collects  such  receivables  or pays such  liabilities  generally  are
treated as ordinary income or ordinary loss.  Similarly,  on disposition of debt
securities  denominated  in a foreign  currency  and on  disposition  of certain
futures contracts,  forward contracts and options,  gains or losses attributable
to fluctuations in the value of foreign currency between the date of acquisition
of the  security or contract  and the date of  disposition  are also  treated as
ordinary  gain or loss.  These  gains or losses,  referred  to under the Code as
"Section  988"  gains or  losses,  may  increase  or  decrease  the  amount of a
Portfolio's   investment  company  taxable  income  to  be  distributed  to  its
shareholders as ordinary income.

     If a Portfolio holds zero coupon  securities or other  securities which are
issued at a  discount,  a portion of the  difference  between the issue price of
zero coupon  securities and the face value  ("original  issue discount") will be
treated as income to the Portfolio each year, even though the Portfolio will not
receive cash  interest  payments  from these  securities.  This  original  issue
discount (imputed income) will comprise a part of the investment company taxable
income of the Portfolio  which must be distributed to  shareholders  in order to
maintain the  qualification of the Portfolio as a regulated  investment  company
and to avoid federal  income tax at the Portfolio  level.  Shareholders  will be
subject to income tax on such original issue discount, whether or not they elect
to  receive  their  distributions  in  cash.  If a  Portfolio  acquires  a  debt
instrument at a market discount,  a portion of the gain  recognized,  if any, on
disposition of such instrument may be treated as ordinary income.

     Dividend  and  interest  income  received by the  Portfolios  from  sources
outside the U.S. may be subject to  withholding  and other taxes imposed by such
foreign  jurisdictions.  Tax conventions  between certain countries and the U.S.
may reduce or eliminate  these foreign  taxes,  however,  and foreign  countries
generally do not impose taxes on capital gains respecting investments by foreign
investors.

     Each Portfolio will be required to report to the Internal  Revenue  Service
all distributions of investment company taxable income and capital gains as well
as gross proceeds from the redemption or exchange of shares,  except in the case
of certain  exempt  shareholders,  which  include most  corporations.  Under the
backup  withholding  provisions  of Section 3406 of the Code,  distributions  of
taxable income and capital gains and proceeds from the redemption or exchange of
the shares of a regulated  investment  company may be subject to  withholding of
federal income tax at the rate of 31% in the case of non-exempt shareholders who
fail to  furnish  the  investment  company  with their  taxpayer  identification
numbers  and with  required  certifications  regarding  their  status  under the
federal  income tax law.  Withholding  may also be required  if a  Portfolio  is


                                       53
<PAGE>

notified  by  the  IRS or a  broker  that  the  taxpayer  identification  number
furnished by the shareholder is incorrect or that the shareholder has previously
failed to report interest or dividend income.  Participating Insurance Companies
that are corporations should furnish their taxpayer  identification  numbers and
certify  their  status  as  corporations  in order to avoid  possible  erroneous
application of backup withholding.

     Shareholders  of the  Portfolios may be subject to state and local taxes on
distributions received from such Portfolios and on redemptions of their shares.

     Each  distribution  is accompanied  by a brief  explanation of the form and
character of the distribution.

     The Fund is organized as a Massachusetts  business  trust,  and neither the
Fund nor the  Portfolios  are  liable  for any  income or  franchise  tax in the
Commonwealth of Massachusetts providing each Portfolio continues to qualify as a
regulated investment company under Subchapter M of the Code.

     The foregoing  discussion of U.S.  federal income tax law relates solely to
the application of that law to U.S.  persons.  Each  shareholder  which is not a
U.S. person should  consider the U.S. and foreign tax  consequences of ownership
of shares of the Portfolio,  including the  possibility  that such a shareholder
may be  subject to a U.S.  withholding  tax at a rate of 30% (or at a lower rate
under an applicable income tax treaty) on amounts  constituting  ordinary income
received by it, where such amounts are treated as income from U.S. sources under
the Code.

     For further information  concerning federal income tax consequences for the
holders of the VA contracts and VLI policies,  shareholders  should  consult the
prospectus used in connection with the issuance of their particular contracts or
policies.  Shareholders  should consult their tax advisers about the application
of the  provisions  of  tax  law  described  in  this  statement  of  additional
information in light of their particular tax situations.

                           DIVIDENDS AND DISTRIBUTIONS

    (See "TAX STATUS, DIVIDENDS AND DISTRIBUTIONS" in the Fund's prospectus.)

Money Market Portfolio

     The net investment income of the Money Market Portfolio is determined as of
the close of regular trading on the Exchange  (normally 4 p.m.  eastern time) on
each day on which the  Exchange is open for  business.  All of the net income so
determined  normally will be declared as a dividend to shareholders of record as
of the  close of  regular  trading  on such  Exchange  after  the  purchase  and
redemption of shares. Unless the business day before a weekend or holiday is the
last day of an accounting period, the dividend declared on that day will include
an amount in respect of the Portfolio's  income for the subsequent  non-business
day or days. No daily  dividend will include any amount of net income in respect
of a subsequent  semi-annual  accounting period.  Dividends commence on the next
business  day  after  the  date  of  purchase.  Dividends  will be  invested  in
additional  shares of the  Portfolio at the net asset value per share,  normally
$1.00,  determined as of the first  business day of each month unless payment of
the dividend in cash has been requested.

     Net  investment  income  of the  Money  Market  Portfolio  consists  of all
interest  income accrued on portfolio  assets less all expenses of the Portfolio
and amortized  market premium.  Accreted market discount is included in interest
income.  The Portfolio  does not  anticipate  that it will normally  realize any
long-term capital gains with respect to its portfolio.

     Normally the Money Market  Portfolio will have a positive net income at the
time of each determination  thereof. Net income may be negative if an unexpected
liability must be accrued or a loss realized. If the net income of the Portfolio
determined at any time is a negative amount,  the net asset value per share will
be reduced below $1.00 unless one or more of the following steps are taken:  the
Trustees  have  the  authority  (1) to  reduce  the  number  of  shares  in each
shareholder's  account,  (2) to offset each  shareholder's  pro rata  portion of
negative  net income from the  shareholder's  accrued  dividend  account or from
future  dividends,  or (3) to combine these methods in order to seek to maintain
the net asset  value per share at $1.00.  The Fund may  endeavor  to restore the
Portfolio's  net asset value per share to $1.00 by not declaring  dividends from


                                       54
<PAGE>

net income on subsequent  days until  restoration,  with the result that the net
asset value per share will  increase to the extent of positive  net income which
is not declared as a dividend.

     Should the Money Market Portfolio incur or anticipate,  with respect to its
portfolio,  any unusual or  unexpected  significant  expense or loss which would
affect  disproportionately  the Portfolio's  income for a particular period, the
Trustees  would at that time consider  whether to adhere to the dividend  policy
described above or to revise it in light of the then prevailing circumstances in
order to ameliorate to the extent possible the  disproportionate  effect of such
expense  or loss on then  existing  shareholders.  Such  expenses  or losses may
nevertheless  result in a  shareholder's  receiving no dividends  for the period
during  which the shares are held and in receiving  upon  redemption a price per
share  lower  than that  which  was paid.  Similarly,  should  the Money  Market
Portfolio  incur or  anticipate  any unusual or unexpected  significant  income,
appreciation or gain which would affect disproportionately the fund's income for
a particular period, the Trustees or the Executive Committee of the Trustees may
consider  whether to adhere to the dividend policy  described above or to revise
it in light of the then prevailing  circumstances  in order to ameliorate to the
extent possible the disproportionate effect of such income, appreciation or gain
on the dividend received by existing  shareholders.  Such actions may reduce the
amount of the daily dividend received by existing shareholders.

Global Discovery Portfolio and International Portfolio

     The Global Discovery Portfolio and International Portfolio will each follow
the practice of distributing substantially all of its investment company taxable
income. The Portfolios intend to distribute the excess of net realized long-term
capital gains over net realized short-term capital losses.

     Distributions of investment company taxable income and any net capital gain
will be made within three months of the end of the Fund's  fiscal  taxable year.
Both  distributions  will be reinvested in additional  shares of each  Portfolio
unless a shareholder has elected to receive cash.

Other Portfolios

     Each of the Bond, Capital Growth, Balanced and Growth and Income Portfolios
has followed the practice of declaring and distributing a dividend of investment
company taxable income, if any, quarterly,  in January, April, July and October.
Each Portfolio has  distributed  its net capital gain within three months of the
end of each fiscal year. Both dividends and capital gain  distributions  will be
reinvested in additional  shares of such a Portfolio  unless an election is made
on  behalf  of  a  separate  account  to  receive  dividends  and  capital  gain
distributions in cash.

                             PERFORMANCE INFORMATION

            (See "Performance Information" in the Fund's prospectus)

     From time to time, quotations of a Portfolio's  performance may be included
in  advertisements,  sales  literature or reports to shareholders or prospective
investors. These performance figures may be calculated in the following manner:

Money Market Portfolio

     A.   Yield is the net annualized  yield based on a specified seven calendar
          days  calculated  at simple  interest  rates.  Yield is  calculated by
          determining the net change, exclusive of capital changes, in the value
          of a hypothetical  pre-existing  account having a balance of one share
          at the  beginning  of the period  subtracting  a  hypothetical  charge
          reflecting  deductions  from  shareholder  accounts  and  dividing the
          difference  by the value of the account at the  beginning  of the base
          period to obtain the base period  return.  The yield is  annualized by
          multiplying  the base  period  return  by 365/7.  The yield  figure is
          stated to the nearest hundredth of one percent. The yield of the Money
          Market Portfolio for the seven-day period ended December 31, 1995, was
          5.28%.

     B.   Effective  yield is the net  annualized  yield for a  specified  seven
          calendar days assuming a  reinvestment  of the income or  compounding.
          Effective  yield is  calculated by the same method as yield except the


                                       55
<PAGE>

          yield  figure is  compounded  by adding 1,  raising the sum to a power
          equal to 365  divided  by 7,  and  subtracting  one  from the  result,
          according to the following formula:

             Effective Yield = [(Base Period Return + 1)365/7] - 1.

          The effective  yield of the  Portfolio for the seven-day  period ended
          December 31, 1995, was 5.42%.

     As  described  above,  yield and  effective  yield are based on  historical
earnings  and show the  performance  of a  hypothetical  investment  and are not
intended to indicate  future  performance.  Yield and effective  yield will vary
based on changes in market conditions and the level of expenses.

     In connection with communicating its yield or effective yield to current or
prospective  shareholders,  the Money Market  Portfolio  also may compare  these
figures to the  performance  of other mutual funds tracked by mutual fund rating
services  or to  other  unmanaged  indexes  which  may  assume  reinvestment  of
dividends  but  generally  do not  reflect  deductions  for  administrative  and
management costs.

     From time to time,  in  marketing  pieces  and other fund  literature,  the
Fund's yield and  performance  over time may be compared to the  performance  of
broad groups of comparable  mutual funds, bank money market deposit accounts and
fixed-rate  insured  certificates  of deposit  (CDs),  or  unmanaged  indexes of
securities  that are comparable to money market funds in their terms and intent,
such as Treasury bills,  bankers'  acceptances,  negotiable  order of withdrawal
accounts, and money market certificates.  Most bank CDs differ from money market
funds in several ways:  the interest rate is fixed for the term of the CD, there
are interest  penalties  for early  withdrawal  of the deposit,  and the deposit
principal is insured by the FDIC.

Bond Portfolio

          Yield is the net annualized  yield based on a specified 30-day (or one
          month) period  assuming a semiannual  compounding of income.  Yield is
          calculated  by dividing  the net  investment  income per share  earned
          during the period by the maximum  offering price per share on the last
          day of the period, according to the following formula:

                         YIELD = 2[((a-b)/cd + 1)6 - 1]
         Where:

          a     =     dividends and interest earned during the period.
          b     =     expenses accrued for the period (net of reimbursements).
          c     =     the average  daily  number of shares  outstanding  during 
                      the period that were entitled to receive dividends.
          d     =     the maximum offering price per share on the last day of 
                      the period.

               Yield for the 30-day period ended December 31, 1995

                              Bond Portfolio 5.71%

All Portfolios

     A.   Average  Annual Total Return is the average  annual  compound  rate of
          return for the  periods  of one year and five  years (or such  shorter
          periods  as may be  applicable  dating  from the  commencement  of the
          Portfolio's  operations)  all  ended on the date of a recent  calendar
          quarter.

          Average annual total return quotations reflect changes in the price of
          a  Portfolio's  shares and assume that all dividends and capital gains
          distributions   during  the  respective  periods  were  reinvested  in
          Portfolio shares. Average annual total return is calculated by finding
          the  average  annual  compound  rates  of  return  of  a  hypothetical
          investment  over such  periods,  according  to the  following  formula
          (average annual total return is then expressed as a percentage):

                                       56
<PAGE>

                               T = (ERV/P)1/n - 1

         Where:

         P         =       a hypothetical initial investment of $1,000
         T         =       Average Annual Total Return
         n         =       number of years
         ERV       =       ending redeemable value: ERV is the value, at the 
                           end of the applicable period, of a hypothetical 
                           $1,000 investment made at the beginning of the
                           applicable period.
<TABLE>
<CAPTION>

                            Average Annual Total Return for periods ended December 31, 1995

                                              One Year        Five Years      Ten Years        Life of Fund

          <S>                                   <C>             <C>             <C>             <C>            
          Money Market Portfolio                 5.65%           4.20%           5.65% (1)        -- %
          Bond Portfolio                        18.17            9.74            8.69 (1)        --
          Balanced Portfolio*                   26.67           12.60           10.77 (1)        --
          Growth and Income Portfolio           31.74           --              --               21.44 (3)
          Capital Growth Portfolio              28.65           15.84           13.25 (1)        --
          Global Discovery Portfolio            --              --              --               --
          International Portfolio               11.11           10.40           --                9.39 (2)
</TABLE>

(1) For the period beginning July 16, 1985 (commencement of operations) 
(2) For the period beginning May 1, 1987 (commencement of operations) 
(3) For the periodbeginning May 2, 1994 (commencement of operations)


     B.   Cumulative  Total  Return  is  the  cumulative  rate  of  return  on a
          hypothetical  initial  investment  of $1,000 for a  specified  period.
          Cumulative total return  quotations  reflect changes in the price of a
          Fund's  shares  and  assume  that  all  dividends  and  capital  gains
          distributions  during  the  period  were  reinvested  in Fund  shares.
          Cumulative  total return is calculated by finding the cumulative rates
          of return of a hypothetical investment over such periods, according to
          the following formula  (cumulative total return is then expressed as a
          percentage):

                                        C = (ERV/P) - 1
         Where:

            C         =       Cumulative Total Return
            P         =       a hypothetical initial investment of $1,000
            ERV               = ending redeemable value: ERV is
                              the value, at the end of the
                              applicable period, of a
                              hypothetical $1,000 investment
                              made at the beginning of the
                              applicable period.

----------------------------
*    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.  Performance  information for the
     five years and life of Fund periods should not be considered representative
     of the present Portfolio.

                                       57
<PAGE>
<TABLE>
<CAPTION>

                               Cumulative Total Return for periods ended December 31, 1995

                                              One Year        Five Years      Ten Years        Life of Fund

          <S>                                   <C>            <C>             <C>             <C>            
          Money Market Portfolio                 5.65%          22.85%          73.27% (1)        -- %
          Bond Portfolio                        18.17           59.13          130.08 (1)        --
          Balanced Portfolio*                   26.67           81.00          178.03 (1)        --
          Growth and Income Portfolio           31.74           --              --               38.20 (3)
          Capital Growth Portfolio              28.65          108.63          247.09 (1)        --
          Global Discovery Portfolio            --              --              --               --
          International Portfolio               11.11           64.03           --              117.73 (2)
</TABLE>

(1) For the period beginning July 16, 1985 (commencement of operations) 
(2) For the period beginning May 1, 1987 (commencement of operations) 
(3) For the period beginning May 2, 1994 (commencement of operations)

     As described  above,  average annual total return,  cumulative total return
and yield are based on  historical  earnings  and are not  intended  to indicate
future  performance.  Average annual total return,  cumulative  total return and
yield for a Portfolio  will vary based on changes in market  conditions  and the
level of the Portfolio's expenses.

     In connection  with  communicating  its total return or yield to current or
prospective  shareholders,  the  Fund  also  may  compare  these  figures  for a
Portfolio to the performance of other mutual funds tracked by mutual fund rating
services  or to  other  unmanaged  indexes  which  may  assume  reinvestment  of
dividends  but  generally  do not  reflect  deductions  for  administrative  and
management costs.

     Quoted  yields  on  shares  of the  Fund's  Portfolios  will be of  limited
usefulness to policy and contract  holders for comparable  purposes because such
quoted yields will be more than yields on  participating  contracts and policies
due to charges imposed at the separate account level.

Comparison of Portfolio Performance

     From time to time, in marketing and other fund literature,  the performance
of the Fund's  Portfolios may be compared to the  performance of broad groups of
mutual funds which are used in conjunction with variable annuities and have with
similar investment goals, as tracked by independent  organizations.  Among these
organizations,  Lipper  Analytical  Services,  Inc.,  Morningstar,  Inc. and the
Variable  Annuity  Research and Data Service  (V.A.R.D.S.R)  may be cited.  When
independent  tracking results are used, a Portfolio will be compared to Lipper's
appropriate  fund  category,  that is, by  investment  objective  and  portfolio
holdings.  For  instance,  growth  portfolios  will be compared to funds  within
Lipper's  growth  fund  category;  income  portfolios  will be compared to funds
within  Lipper's  income fund category;  and so on. Rankings may be listed among
one or more of the asset-size classes as determined by Lipper.

     Lipper,  Morningstar  and  V.A.R.D.S.R  track and rank the  performance  of
variable  annuities  in each of the  major  investment  categories.  Performance
comparisons  and rankings by Lipper,  Morningstar  and  V.A.R.D.S.R are based on
total return and assume  reinvestment  of income and capital  gains,  but do not
take into account  sales  charges,  redemption  fees or certain  other  expenses
charged at the separate account level.

     Statistical  and other  information,  as  provided  by the Social  Security
Administration,  may be used in marketing  materials  pertaining  to  retirement
planning  in order to  estimate  future  payouts  of social  security  benefits.
Estimates may be used on demographic and economic data.

     Comparison   of  the  quoted   non-standardized   performance   of  various
investments is valid only if performance is calculated in the same manner. Since
there  are  different  methods  of  calculating  performance,  investors  should
consider the effect of the methods used to calculate  performance when comparing
performance  of the  Portfolios  with  performance  quoted with respect to other
investment companies or types of investments.

                                       58
<PAGE>

     From time to time, in marketing and other Fund literature, each Portfolio's
performance  may be compared to the  performance  of broad groups of  comparable
mutual funds or  unmanaged  indexes of  comparable  securities.  Evaluations  of
performance  made by  independent  sources  may  also be used in  advertisements
concerning each Portfolio, including reprints of, or selections from, editorials
or articles about these Portfolios.

     The Bond, Balanced, Growth and Income, Capital Growth, Global Discovery and
International  Portfolios may invest in foreign securities.  The following graph
illustrates the historical risks and returns of selected indices which track the
performance  of  various   combinations  of  United  States  and   international
securities  for the ten year period ended  December 31, 1995;  results for other
periods  may vary.  The graph  uses ten year  annualized  international  returns
represented by the Morgan Stanley Capital  International  Europe,  Australia and
Far East (EAFE) Index and ten year annualized United States returns  represented
by the S&P 500 Index.  Risk is measured  by the  standard  deviation  in overall
portfolio performance within each index.  Performance of an index is historical,
and does not  represent  the  performance  of a Fund,  and is not a guarantee of
future results.
UPDATE!!!

LINE CHART -      EFFICIENT FRONTIER
                  MSCI EAFE vs. S&P 500 (12/31/85-12/31/95)

CHART DATA:

Total Return           Standard Deviation
------------           ------------------
    12.89             18.43 100% Int'l MSCI EAFE
    12.94             17.64 10 US/90 Int'l
    12.97             16.95 20/80
    12.97             16.36 30 U.S./70 Int'l
    12.94              15.9 40/60
    12.89             15.58 50 U.S./50Int'l
    12.82              15.4 60/40
    12.72             15.37 70 U.S./30 Int'l
     12.6             15.48 80/20
    12.45             15.74 90 U.S./10 Int'l
    12.28             16.14 100% U.S. S&P 500

Source:  Lipper Analytical Services, Inc. (Data as of 12/31/95)

     Evaluation of Fund  performance or other relevant  statistical  information
made by independent  sources may also be used in  advertisements  concerning the
Fund,  including  reprints of, or selections from,  editorials or articles about
this Fund. Sources for Fund performance  information and articles about the Fund
may include the following:

American Association of Individual  Investors' Journal, a monthly publication of
the AAII that includes articles on investment analysis techniques.

Asian Wall Street  Journal,  a weekly Asian  newspaper  that often  reviews U.S.
mutual funds investing internationally.

Banxquote,  an on-line source of national  averages for leading money market and
bank CD interest  rates,  published  on a weekly  basis by  Masterfund,  Inc. of
Wilmington, Delaware.

Barron's,  a Dow Jones and  Company,  Inc.  business and  financial  weekly that
periodically reviews mutual fund performance data.

                                       59
<PAGE>

Business  Week,  a  national  business  weekly  that  periodically  reports  the
performance rankings and ratings of a variety of mutual funds investing abroad.

CDA Investment  Technologies,  Inc., an organization which provides  performance
and ranking  information  through  examining the dollar results of  hypothetical
mutual fund investments and comparing these results against  appropriate  market
indices.

Consumer  Digest, a monthly  business/financial  magazine that includes a "Money
Watch" section featuring financial news.

Financial Times,  Europe's business newspaper,  which features from time to time
articles on international or country-specific funds.

Financial World, a general  business/financial  magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.

Forbes,  a national  business  publication  that from time to time  reports  the
performance of specific investment companies in the mutual fund industry.

Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.

The  Frank  Russell  Company,  a  West-Coast  investment  management  firm  that
periodically  evaluates  international stock markets and compares foreign equity
market performance to U.S. stock market performance.

Global  Investor,   a  European   publication  that  periodically   reviews  the
performance of U.S. mutual funds investing internationally.

IBC/Donoghue's   Money  Fund  Report,  a  weekly  publication  of  the  Donoghue
Organization, Inc., of Holliston, Massachusetts, reporting on the performance of
the nation's  money market  funds,  summarizing  money market fund  activity and
including certain averages as performance benchmarks,  specifically  "Donoghue's
Money Fund Average," and "Donoghue's Government Money Fund Average."

Ibbotson  Associates,  Inc., a company  specializing in investment  research and
data.

Investment  Company  Data,  Inc., an  independent  organization  which  provides
performance ranking information for broad classes of mutual funds.

Investor's  Daily, a daily  newspaper  that features  financial,  economic,  and
business news.

Kiplinger's Personal Finance Magazine, a monthly investment advisory publication
that periodically features the performance of a variety of securities.

Lipper Analytical  Services,  Inc.'s Mutual Fund Performance  Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.

Money,  a monthly  magazine that from time to time features both specific  funds
and the mutual fund industry as a whole.

Morgan  Stanley  International,  an  integrated  investment  banking  firm  that
compiles statistical information.

Morningstar, Inc., a company that, among other activities,  analyzes, ranks, and
rates mutual funds and variable annuities.

                                       60
<PAGE>

Mutual Fund Values,  a biweekly  Morningstar,  Inc.  publication  that  provides
ratings  of  mutual  funds  based  on  fund  performance,   risk  and  portfolio
characteristics.

Mutual Funds, a monthly magazine devoted to mutual fund investing.

The New York Times, a nationally  distributed  newspaper which regularly  covers
financial news.

The No-Load Fund Investor,  a monthly  newsletter,  published by Sheldon Jacobs,
that includes mutual fund  performance data and  recommendations  for the mutual
fund investor.

No-Load Fund*X, a monthly newsletter, published by DAL Investment Company, Inc.,
that reports on mutual fund  performance,  rates funds and discusses  investment
strategies for the mutual fund investor.

Personal  Investing  News,  a monthly  news  publication  that often  reports on
investment opportunities and market conditions.

Personal  Investor,  a monthly investment  advisory  publication that includes a
"Mutual Funds Outlook" section  reporting on mutual fund  performance  measures,
yields, indices and portfolio holdings.

Smart Money, a national personal finance magazine published monthly by Dow Jones
and  Company,  Inc.  and The  Hearst  Corporation.  Focus is placed on ideas for
investing, spending and saving.

Success,  a monthly magazine  targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.

United Mutual Fund Selector, a semi-monthly investment newsletter,  published by
Babson United  Investment  Advisors,  that includes mutual fund performance data
and reviews of mutual fund portfolios and investment strategies.

USA Today, a leading national daily newspaper.

U.S. News and World Report, a national business weekly that periodically reports
mutual fund performance data.

Wall Street  Journal,  a Dow Jones and Company,  Inc.  newspaper which regularly
covers financial news.

Wiesenberger  Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds,  management policies, salient features,  management results,
income and dividend records and price ranges.

Working  Woman,  a monthly  publication  that  features a  "Financial  Workshop"
section reporting on the mutual fund/financial industry.

Worth, a national  publication  put out 10 times per year by Capital  Publishing
Company,  a  subsidiary  of  Fidelity  Investments.  Focus is placed on personal
financial journalism.

Your Money, a bimonthly magazine featuring articles about personal investing and
money management.

                           SHAREHOLDER COMMUNICATIONS

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

                                       61
<PAGE>

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

                         ORGANIZATION AND CAPITALIZATION

                   (See "ADDITIONAL INFORMATION - Shareholder
                   Indemnification" in the Fund's prospectus.)
General

     The Fund is an open-end  investment  company  established under the laws of
The Commonwealth of Massachusetts by Declaration of Trust dated March 15, 1985.

     As of December  31, 1995,  AEtna Life  Insurance  and Annuity  Company (151
Farmington Avenue PPH3,  Hartford,  CT 06156),  owned of record and beneficially
46.5% of the  International  Portfolio;  they owned of record  and  beneficially
7.75% of the Fund's total outstanding shares; and AUSA Life Insurance Company (4
Manhattanville Road,  Purchase,  NY 10577) owned of record and beneficially 1.2%
of the  International  Portfolio;  they owned of record and beneficially 0.2% of
the Fund's  total  outstanding  shares;  and Banner  Life  Insurance  Company of
Rockville,  MD (1701 Research  Blvd.,  Rockville,  MD 20850) owned of record and
beneficially  0.7% of the Money Market  Portfolio,  1.3% of the Bond  Portfolio,
7.3% of the Balanced Portfolio, 0.6% of the International Portfolio, 2.2% of the
Growth and Income Portfolio and 1.7% of the Capital Growth Portfolio; they owned
of record and  beneficially  2.3% of the Fund's total  outstanding  shares;  and
Charter  National Life Insurance  Company (8301 Maryland  Avenue,  St. Louis, MO
63105, a Missouri  corporation)  and its subsidiary,  Intramerica Life Insurance
Company  (1 Blue  Hills  Plaza,  Pearl  River,  NY  10965),  owned of record and
beneficially  61.2% of the Money Market Portfolio,  35.5% of the Bond Portfolio,
78.7% of the Balanced Portfolio, 29.9% of the Capital Growth Portfolio, 96.6% of
the Growth and Income Portfolio and 16.7% of the International  Portfolio;  they
owned of record and beneficially  53.1% of the Fund's total outstanding  shares.
In 1991,  Charter  National Life Insurance  Company  purchased the Colonial Penn
Group,  Inc.,  which  indirectly  owns  Intramerica,  a New York  domestic  life
insurer.  On November 1, 1992,  First  Charter Life  Insurance  Company  ("First
Charter"),  a subsidiary of Charter National Life Insurance Company,  was merged
with and into  Intramerica.  As the company  surviving  the merger,  Intramerica
acquired  legal  ownership  of all of  First  Charter's  assets,  including  the
Variable Account, and became responsible for all of First Charter's  liabilities
and  obligations.  As a result  of the  merger,  all  Contracts  issued by First
Charter  before the merger  became  Contracts  issued by  Intramerica  after the
merger.   Fortis   Benefits   Insurance   Company   (Norwest  Bank,   Sixth  and
Marquette-MS0063,  Minneapolis,  MN 55479) owned of record and beneficially 0.3%
of the International  Portfolio;  they owned of record and beneficially 0.05% of
the Fund's total outstanding  shares; and Lincoln Benefit Life Insurance Company
(134 South 13th Street, Lincoln, NE 68508) owned of record and beneficially 2.2%
of the Bond Portfolio and 3.6% of the Balanced  Portfolio;  they owned of record
and beneficially  0.96% of the Fund's total  outstanding  shares;  and Mutual of
America Life Insurance Company of New York (666 5th Avenue,  New York, NY 10103,
a New York corporation) and its subsidiary, American Life Insurance Company (666
5th Avenue,  New York, NY 10103),  owned of record and beneficially 55.1% of the
Bond  Portfolio,  62.9%  of  the  Capital  Growth  Portfolio  and  24.4%  of the
International  Portfolio;  they owned of record and  beneficially  23.73% of the
Fund's total outstanding  shares;  and Paragon Life Insurance Company (100 South
Brentwood,  St. Louis,  MO 63105) owned of record and  beneficially  0.1% of the
Bond  Portfolio,  0.1% of the Capital  Growth  Portfolio,  0.4% of the  Balanced
Portfolio,  and 0.1% of the  International  Portfolio;  they owned of record and
beneficially 0.11% of the Fund's total outstanding  shares; and  Providentmutual
Life and Annuity Company of America,  (300 Continental Drive,  Newark, DE 19713)
owned of record and beneficially 5.2% of the Bond Portfolio,  1.2% of the Growth
and Income  Portfolio,  and 0.1% of the International  Portfolio;  they owned of
record and beneficially 1.08% of the Fund's total outstanding shares; and Safeco
Life Insurance Companies (15411 N.E. 51st Street,  Redmond, WA 98052),  owned of
record  and  beneficially  10.0%  of the  Balanced  Portfolio  and  2.6%  of the
International  Portfolio;  they  owned of record  and  beneficially  2.1% of the
Fund's total  outstanding  shares;  and The Union Central Life Insurance Company
(1876  Waycross  Road,  Cincinnati,  OH 45240) owned of record and  beneficially
37.7% of the Money Market  Portfolio,  5.0% of the Capital Growth  Portfolio and
7.2% of the International Portfolio; they owned of record and beneficially 8.31%
of the Fund's  total  outstanding  shares;  and  United of Omaha Life  Insurance
Company  (Mutual of Omaha Plaza,  Law  Division,  3301 Dodge Street,  Omaha,  NE
68131) owned of record and beneficially 0.3% of the Money Market Portfolio, 0.5%
of the Bond Portfolio,  and 0.2% of the International  Portfolio;  they owned of
record and beneficially 0.16% of the Fund's total outstanding shares.

                                       62
<PAGE>

     Shares entitle their holders to one vote per share; however, separate votes
will be taken by each  Portfolio on matters  affecting an individual  Portfolio.
For example,  a change in investment policy for the Money Market Portfolio would
be voted upon only by shareholders of the Money Market Portfolio.  Additionally,
approval of the investment  advisory  agreement covering a Portfolio is a matter
to be determined  separately by each Portfolio.  Approval by the shareholders of
one  Portfolio  is  effective as to that  Portfolio.  Shares have  noncumulative
voting  rights,  which means that holders of more than 50% of the shares  voting
for the  election of Trustees  can elect all  Trustees  and, in such event,  the
holders of the remaining  shares voting for the election of Trustees will not be
able to elect any person or persons as Trustees.  Shares have no  preemptive  or
subscription rights, and are transferable.

     Shareholders  have certain rights, as set forth in the Declaration of Trust
of the  Fund,  including  the right to call a meeting  of  shareholders  for the
purpose of voting on the removal of one or more  Trustees.  Such  removal can be
effected upon the action of two-thirds of the  outstanding  shares of beneficial
interest of the Fund.

Shareholder and Trustee Liability

     The Fund is an  entity  of the  type  commonly  known  as a  "Massachusetts
business  trust".  Under  Massachusetts  law,  shareholders of such a trust may,
under  certain  circumstances,  be held  personally  liable as partners  for the
obligations  of  the  trust.  The  Declaration  of  Trust  contains  an  express
disclaimer of shareholder  liability for acts or obligations of the Fund. Notice
of such  disclaimer  will normally be given in each  agreement,  obligation,  or
instrument entered into or executed by the Fund or the Trustees. The Declaration
of  Trust  provides  for  indemnification  out  of  the  Fund  property  of  any
shareholder  held  personally  liable  for  the  obligations  of the  Fund.  The
Declaration of Trust also provides that the Fund shall, upon request, assume the
defense of any claim made against any  shareholder  for any act or obligation of
the Fund and satisfy  any  judgment  thereon.  Thus,  the risk of a  shareholder
incurring  financial  loss on account  of  shareholder  liability  is limited to
circumstances  in which the Fund itself would be unable to meet its obligations.
The Trustees believe that, in view of the above, the risk of personal  liability
of shareholders is remote.

     The  Declaration  of Trust  further  provides that the Trustees will not be
liable for errors of judgment  or  mistakes  of fact or law,  but nothing in the
Declaration of Trust protects a Trustee  against any liability to which he would
otherwise  be  subject  by reason  of  willful  misfeasance,  bad  faith,  gross
negligence,  or reckless  disregard of the duties involved in the conduct of his
office.

                        ALLOCATION OF PORTFOLIO BROKERAGE

     To the maximum  extent  feasible,  the Adviser  places orders for portfolio
transactions through its affiliate, the Distributor, which in turn places orders
on  behalf  of the Fund  with the  issuer,  underwriters  or other  brokers  and
dealers. The Distributor will receive no commissions, fees or other remuneration
for this service. Allocation of brokerage is supervised by the Adviser.

     The Fund's purchases and sales of portfolio  securities of the Money Market
Portfolio and the Bond Portfolio and of debt  securities  acquired for the other
Portfolios,  are generally  placed by the Adviser with primary market makers for
these securities on a net basis,  without any brokerage commission being paid by
the Fund. Trading does, however,  involve  transaction costs.  Transactions with
dealers  serving as primary market makers reflect the spread between the bid and
asked prices. Purchases of underwritten issues may be made which will include an
underwriting  fee paid to the  underwriter.  Transactions  in equity  securities
generally involve the payment of a brokerage commission.

     The primary objective of the Adviser in placing orders for the purchase and
sale of securities for any Portfolio is to obtain the most favorable net results
taking into account such factors as price, commission (negotiable in the case of
U.S. stock  exchange  transactions  but which is generally  fixed in the case of
foreign exchange  transactions),  if any, size of order, difficulty of execution
and skill required of the executing broker/dealer. Subject to the foregoing, the
Adviser may  consider  sales of variable  life  insurance  policies and variable
annuity  contracts for which the Fund is an investment option as a factor in the
selection  of firms to execute  portfolio  transactions.  The  Adviser  seeks to
evaluate the overall  reasonableness  of brokerage  commissions paid through the
familiarity  of  the  Distributor   with   commissions   charged  on  comparable
transactions,  as well as by comparing  commissions paid by the Fund to reported
commissions  paid by others.  The Adviser reviews on a routine basis  commission


                                       63
<PAGE>

rates, execution and settlement services performed, making internal and external
comparisons.

     When it can be done  consistently  with the  policy of  obtaining  the most
favorable net results,  it is the  Adviser's  practice to place such orders with
brokers and dealers who supply  market  quotations  to the custodian of the Fund
for  valuation  purposes,  or  who  supply  research,   market  and  statistical
information  to  the  Adviser.  The  term  "research,   market  and  statistical
information" includes advice as to the value of securities,  the advisability of
investing  in,  purchasing  or  selling  securities;  and  the  availability  of
securities or purchasers or sellers of securities;  and furnishing  analyses and
reports concerning issuers, industries, securities, economic factors and trends,
portfolio  strategy  and  the  performance  of  accounts.  The  Adviser  is  not
authorized when placing  portfolio  transactions for the Fund to pay a brokerage
commission  (to the extent  applicable)  in excess of that which another  broker
might have charged for effecting the same  transaction  solely on account of the
receipt  of  research,  market  or  statistical  information.   Subject  to  the
foregoing,  the Adviser may consider sales of variable life  insurance  policies
and variable annuity contracts for which the Fund is an investment  option, as a
factor in the selection of firms to execute portfolio  transactions.  Except for
implementing  the policy stated above,  there is no intention to place portfolio
transactions  with any  particular  brokers  or dealers  or groups  thereof.  In
effecting  transactions in over-the-counter  securities,  orders are placed with
the principal  market-makers  for the  securities  being traded  unless,  in the
opinion of the Adviser,  after  exercising  care, it appears that more favorable
results are available otherwise.

     Subject also to obtaining the most  favorable net results,  the Adviser may
place  brokerage  transactions  with Bear,  Stearns & Co. A credit  against  the
custodian  fee due to State Street Bank and Trust  Company  equal to one-half of
the  commission  on any such  transaction  will be  given  with  respect  to the
applicable  Portfolio  on any such  transaction.  During the  fiscal  year ended
December 31, 1995, no such credit was applied against the custodian fee.

     Although certain research,  market and statistical information from brokers
and  dealers  is useful to the Fund and the  Adviser,  it is the  opinion of the
Adviser  that  such  information  is only  supplementary  to the  Adviser's  own
research  effort,  since the information  must still be analyzed,  weighed,  and
reviewed by the Adviser's  staff.  Such information may be useful to the Adviser
in  providing  services  to  clients  other  than  the  Fund  and not  all  such
information is used by the Adviser in connection with the Fund. Conversely, such
information  provided to the Adviser by brokers and dealers  through  whom other
clients  of the  Adviser  effect  securities  transactions  may be useful to the
Adviser in providing services to the Fund.

     In the  years  ended  December  31,  1993,  1994 and  1995,  the Fund  paid
brokerage commissions of $1,084,463,  $2,006,264, and $2,669,610,  respectively.
In the  years  ended  December  31,  1993,  1994,  and 1995,  the  International
Portfolio paid brokerage  commissions of $524,970,  $1,471,275,  and $1,813,248,
respectively,  the  Capital  Growth  Portfolio  paid  brokerage  commissions  of
$467,826,  $420,391, and $788,596,  respectively and the Balanced Portfolio paid
brokerage  commissions of $91,667,  $79,629, and $67,758,  respectively.  In the
years ended  December 31, 1994 and 1995,  the Growth and Income  Portfolio  paid
brokerage  commissions of $34,967 and $54,235,  respectively.  In the year ended
December 31, 1995,  $1,686,320 (93%) of the total brokerage  commissions paid by
the International  Portfolio,  $410,070 (52%) of the total brokerage commissions
paid by the  Capital  Growth  Portfolio,  $43,930  (81%) of the total  brokerage
commissions  paid by the Growth and Income  Portfolio  and $33,201  (49%) of the
total brokerage  commissions paid by the Balanced Portfolio resulted from orders
placed,  consistent with the policy of obtaining the most favorable net results,
with brokers and dealers who provided  supplementary research information to the
Portfolios  or  the  Adviser.   The  amount  of  such  transactions   aggregated
$93,846,661 for the International Portfolio (96% of all brokerage transactions),
$51,809,416   for  the  Capital   Growth   Portfolio   (89%  of  all   brokerage
transactions),  $9,483,088  for the  Growth  and  Income  Portfolio  (70% of all
brokerage  transactions) and $11,399,717 (92% of all brokerage transactions) for
the Balanced  Portfolio.  The balance of such brokerage was not allocated to any
particular broker or dealer with regard to the  above-mentioned or other special
factors.

     The Trustees will periodically review whether the recapture for the benefit
of the Fund of some portion of the brokerage commissions or similar fees paid by
the Fund on portfolio  transactions  is legally  permissible  and advisable.  No
recapture arrangements are currently in effect.

                                       64
<PAGE>

                               PORTFOLIO TURNOVER

         The average annual portfolio turnover rate for each Portfolio, i.e. the
ratio of the lesser of annual sales or purchases to the monthly average value of
the portfolio (excluding from both the numerator and the denominator securities
with maturities at the time of acquisition of one year or less), for the years
ended December 31, 1994 and 1995, respectively, was:

                                                  December 31,
                                              1994              1995

    Bond Portfolio                          96.55%            177.21%
    Balanced Portfolio                     101.64              87.98
    Growth and Income Portfolio             28.41              24.33
    Capital Growth Portfolio                66.44             119.41
    Global Discovery Portfolio              --                 --
    International Portfolio                 33.52              45.76

     In the case of the Bond and Capital  Growth  Portfolios,  the higher  rates
involve  greater  brokerage and  transaction  expenses to the Portfolios and may
result in the  realization  of net  capital  gains,  which  would be  taxable to
shareholders  when  distributed.  Under the above  definition,  the Money Market
Portfolio  will have no  portfolio  turnover.  Purchases  and  sales,  for these
Portfolios,  are made for the  Portfolio  whenever  necessary,  in  management's
opinion, to meet the Portfolio's objective.  Under normal investment conditions,
it is  anticipated  that the portfolio  turnover  rate for the Global  Discovery
Portfolio will not exceed 75% for the initial fiscal year.

                                     EXPERTS

     The Financial  Highlights of the Fund  included in the  prospectus  and the
Financial  Statements  incorporated by reference in this Statement of Additional
Information  have been  audited by  Coopers & Lybrand  L.L.P.,  One Post  Office
Square, Boston,  Massachusetts 02109, independent accountants,  and have been so
included or incorporated by reference in reliance upon the  accompanying  report
of said  firm,  which  report  is given  upon  their  authority  as  experts  in
accounting and auditing.

                                     COUNSEL

     The firm of Dechert  Price & Rhoads,  Ten Post Office  Square,  Suite 1230,
Boston, Massachusetts 02109, is counsel for the Fund.

                             ADDITIONAL INFORMATION

     The activities of the Fund are supervised by its Trustees,  who are elected
by  shareholders.  Shareholders  have one vote for each share  held.  Fractional
shares have fractional votes.

     Portfolio  securities  of the Money  Market,  Bond,  Balanced,  Growth  and
Income,  and  Capital  Growth  Portfolios  are held  separately,  pursuant  to a
custodian  agreement,  by State  Street  Bank and Trust  Company,  225  Franklin
Street,  Boston,  Massachusetts  02110,  as custodian.  Portfolio  securities of
Global Discovery and International Portfolios are held separately, pursuant to a
custodian agreement,  by Brown Brothers Harriman & Co., 40 Water Street, Boston,
Massachusetts 02109, as custodian.

     Scudder Fund Accounting  Corporation  ("SFAC"),  Two  International  Place,
Boston,  Massachusetts  02110-4103,  a subsidiary  of the Adviser,  computes net
asset value for the Portfolios.  Money Market  Portfolio pays SFAC an annual fee
equal to 0.020% of the first $150 million of average  daily net assets,  0.0060%
of such assets in excess of $150 million and 0.0035% of such assets in excess of
$1  billion,  plus  holding  and  transaction  charges  for this  service.  Bond
Portfolio,  Balanced  Portfolio,  Growth and Income Portfolio and Capital Growth
Portfolio  each pay SFAC an annual fee equal to 0.025% of the first $150 million
of average  daily net assets,  0.0075% of such assets in excess of $150  million
and 0.0045% of such assets in excess of $1 billion, plus holding and transaction
charges for this service. Global Discovery and International Portfolios pay SFAC


                                       65
<PAGE>

an annual  fee equal to 0.065% of the first $150  million  of average  daily net
assets,  0.040% of such  assets in excess  of $150  million  and  0.020% of such
assets in excess of $1 billion,  plus holding and  transaction  charges for this
service.  SFAC  computes  net asset  value  for the Fund.  The Fund pays SFAC an
annual  fee equal to  0.065% of the first  $150  million  of  average  daily net
assets,  0.040% of such  assets in excess  of $150  million  and  0.020% of such
assets in excess of $1 billion,  plus holding and  transaction  charges for this
service.

     Scudder  Service  Corporation,   P.O.  Box  2291,  Boston,   Massachusetts,
02107-2291, is the transfer and dividend paying agent for the Fund.

     The Fund has a December 31 fiscal year end.

     The name "Scudder  Variable Life Investment Fund" is the designation of the
Trustees for the time being under a  Declaration  of Trust dated March 15, 1985,
as amended  from time to time,  and all persons  dealing with the Fund must look
solely to the property of the Fund for the enforcement of any claims against the
Fund as  neither  the  Trustees,  officers,  agents or  shareholders  assume any
personal liability for obligations  entered into on behalf of the Fund. Upon the
initial  purchase of shares,  the  shareholder  agrees to be bound by the Fund's
Declaration of Trust,  as amended from time to time. The Declaration of Trust is
on  file  at  the   Massachusetts   Secretary  of  State's   Office  in  Boston,
Massachusetts.

     The Fund's  prospectus  and this Statement of Additional  Information  omit
certain information  contained in the Registration  Statement which the Fund has
filed with the SEC under the Securities Act of 1933 and reference is hereby made
to the Registration Statement, and its amendments,  for further information with
respect  to the  Fund  and  the  securities  offered  hereby.  The  Registration
Statement, and its amendments, are available for inspection by the public at the
SEC in Washington, D.C.

                              FINANCIAL STATEMENTS

     The financial  statements  of Scudder  Variable  Life  Investment  Fund are
comprised of the following:

                           Money Market Portfolio
                           Balanced Portfolio
                           Bond Portfolio
                           Growth and Income Portfolio
                           Capital Growth Portfolio
                           International Portfolio

     The financial  statements,  including the investment  portfolios of Scudder
Variable  Life  Investment  Fund,   together  with  the  Report  of  Independent
Accountants,   Financial  Highlights  and  notes  to  financial  statements  are
incorporated  by reference  and  attached  hereto,  in the Annual  Report to the
Shareholders  of the Fund dated  December 31, 1995,  and are hereby deemed to be
part of this Statement of Additional Information.

     The  Statements  of Assets  and  Liabilities  as of April 30,  1996 and the
Report of Independent Accountants for Global Discovery Portfolio is incorporated
by reference and attached hereto.



                                       66
<PAGE>

                                    APPENDIX

Description of Bond Ratings

Moody's Investors Service, Inc.

     Aaa:  Bonds that are rated Aaa are judged to be of the best  quality.  They
carry the smallest  degree of investment  risk and are generally  referred to as
"gilt edged." Interest  payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change,  such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

     Aa:  Bonds  that  are  rated Aa are  judged  to be of high  quality  by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds.  They are rated lower than the best bonds  because  margins of
protection  may  not  be as  large  as in  Aaa  securities  or  fluctuations  of
protective  elements may be of greater  amplitude or there may be other elements
present  which make the  long-term  risks  appear  somewhat  larger  than in Aaa
securities.

     A: Bonds that are rated A possess many favorable investment  attributes and
are to be considered as upper medium grade obligations.  Factors giving security
to principal and interest are considered  adequate,  but elements may be present
which suggest a susceptibility to impairment some time in the future.

     Baa: Bonds that are rated Baa are  considered as medium grade  obligations,
i.e., they are neither highly  protected nor poorly secured.  Interest  payments
and principal  security appear  adequate for the present but certain  protective
elements may be lacking or may be  characteristically  unreliable over any great
length of time. Such bonds lack outstanding  investment  characteristics  and in
fact have speculative characteristics as well.

     Ba: Bonds that are rated Ba are judged to have speculative elements;  their
future cannot be considered  as well assured.  Often the  protection of interest
and principal  payments may be very moderate,  and thereby not well  safeguarded
during  both  good  and bad  times  over the  future.  Uncertainty  of  position
characterizes bonds in this class.

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

Standard & Poor's

     AAA:  Bonds  rated AAA are  highest  grade debt  obligations.  This  rating
indicates an extremely strong capacity to pay principal and interest.

     AA: Bonds rated AA also qualify as  high-quality  obligations.  Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.

     A: Bonds rated A have a strong  capacity  to pay  principal  and  interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.

     BBB:  Bonds rated BBB are  regarded  as having an adequate  capacity to pay
interest and repay principal.  Whereas they normally exhibit adequate protection
parameters,  adverse  economic  conditions  or changing  circumstances  are more
likely to lead to a weakened  capacity to pay interest and repay  principal  for
debt in this category than in higher rated categories.

     Bonds  rated BB and B are  regarded  as  having  predominantly  speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation. While such debt will likely have some


                                       
<PAGE>

quality  and   protective   characteristics,   these  are  outweighed  by  large
uncertainties or major risk exposures to adverse conditions.

     BB: Bonds rated BB have less near-term  vulnerability to default than other
speculative issues.  However,  they face major ongoing uncertainties or exposure
to adverse  business,  financial  or  economic  conditions  which  could lead to
inadequate  capacity to meet timely  interest  and  principal  payments.  The BB
rating  category  is also  used for debt  subordinated  to  senior  debt that is
assigned an actual or implied BBB-rating.

     B: Bonds rated B have a greater vulnerability to default but currently have
the  capacity  to meet  interest  payments  and  principal  repayments.  Adverse
business,  financial  or  economic  conditions  will likely  impair  capacity or
willingness to pay interest and repay  principal.  The B rating category is also
used for debt  subordinated to senior debt that is assigned an actual or implied
BB or BB-rating.

Description of Commercial Paper Ratings

Moody's Investors Service, Inc.

     P-1: Moody's  Commercial  Paper  ratings  are  opinions  of the  ability of
          issuers to repay  punctually  senior  debt  obligations  which have an
          original maturity not exceeding one year. The designation "Prime-1" or
          "P-1"  indicates the highest quality  repayment  capacity of the rated
          issue.

Standard & Poor's

     A-1: Standard & Poor's Commercial Paper ratings are current  assessments of
          the likelihood of timely payment of debt considered  short-term in the
          relevant  market.  The A-1 designation  indicates the degree of safety
          regarding timely payment is strong. Those issues determined to possess
          extremely  strong safety  characteristics  are denoted with a plus (+)
          sign designation.

<PAGE>
                      SCUDDER VARIABLE LIFE INVESTMENT FUND

                            PART C. OTHER INFORMATION
                            -------------------------
<TABLE>
<CAPTION>

Item 24.          Financial Statements and Exhibits
--------          ---------------------------------
<S>               <C>
                  a.       Financial Statements

                           Included in Part A of this Registration Statement:

                                    Financial Highlights for: the period July 16, 1985 (commencement of operations) to 
                                    June 30, 1986, the six months ended December 31, 1986, the nine years ended
                                    December 31, 1995 and the six months ended June 30, 1996 for the Money Market 
                                    Portfolio, the Bond Portfolio, the Capital Growth Portfolio and the Balanced 
                                    Portfolio; the period May 2, 1994 (commencement of operations) to December 31, 
                                    1994 and for the one year ended December 31, 1995 and the six months ended June 
                                    30, 1996 for the Growth and Income Portfolio; the period May 1, 1987 
                                    (commencement of operations) to December 31, 1987 and the eight years ended
                                    December 31, 1995 and the six months ended June 30, 1996 for the International 
                                    Portfolio; the period of May 1, 1996 (commencement of operations) to June 30, 
                                    1996 for Global Discovery Portfolio.
                                    (Incorporated by reference to Post-Effective Amendment No. 19 to this Registration 
                                    Statement.)

                           Included in Part B of this Registration Statement:

                                    Investment Portfolios as of June 30, 1996.
                                    Statements of Assets and Liabilities as of June 30, 1996.
                                    Statements of Operations for the six months ended June 30, 1996.
                                    Statements of Changes in Net Assets for the year ended December 31, 1995 and the 
                                    six months ended June 30, 1996.
                                    Financial Highlights for: the period July 16, 1985 (commencement of operations) to 
                                    June 30, 1986, the six months ended December 31, 1986 and the nine years ended
                                    December 31, 1995 and the six months ended June 30, 1996 for the Money Market 
                                    Portfolio, the Bond Portfolio, the Capital Growth Portfolio and the Balanced 
                                    Portfolio; the period May 2, 1994 (commencement of operations) to December 31,
                                    1995 and the six months ended June 30, 1996 for the Growth and Income Portfolio; 
                                    the period May 1, 1987 (commencement of operations) to December 31, 1987 and 
                                    the eight years ended December 31, 1995 and the six months ended June 30, 1996 
                                    for the International Portfolio.
                                    Notes to Financial Statements are filed herein.
                                    (Incorporated by reference to Post-Effective Amendment No. 19 to this Registration 
                                    Statement.)

                                    For Global Discovery Portfolio:

                                    Investment Portfolio as of June 30, 1996.
                                    Statement of Assets and Liabilities as of June 30, 1996.
                                    Statement of Operations for the period May 1, 1996 (commencement of operations) 
                                    to June 30, 1996.
                                    Statement of Changes in Net Assets for the period May 1, 1996 (commencement of 
                                    operations) to June 30, 1996.
                                    Financial Highlights for the period of May 1, 1996 (commencement of operations) 
                                    to June 30, 1996.
                                    Notes to Financial Statements are filed herein.
                                    (Incorporated by reference to Post-Effective Amendment No. 20 to this Registration 
                                    Statement.)

                                 Part C - Page 1
<PAGE>
                           Statements, schedules and historical information other than those listed above have been 
                           omitted since they are either not applicable or are not required.

                   b.        Exhibits:

                             1.    (a)        Declaration of Trust of the Registrant dated March 15, 1985.
                                              (Previously filed as Exhibit (a) to Pre-Effective Amendment No. 4 to
                                              this Registration Statement.)

                                   (b)        Amendment to the Declaration of Trust dated March 10, 1988.
                                              (Previously filed as Exhibit 1(b) to Post-Effective Amendment No. 9 to
                                              this Registration Statement.)

                                   (c)        Establishment and Designation of Series of Shares of Beneficial
                                              Interest, without Par Value.
                                              (Previously filed as Exhibit 1(b) to Pre-Effective Amendment No. 4 to
                                              this Registration Statement.)

                                   (d)        Establishment and Designation of Series of Shares of Beneficial
                                              Interest, without Par Value.
                                              (Previously filed as Exhibit 1(c) to Post-Effective Amendment No. 2 to
                                              this Registration Statement.)

                                   (e)        Establishment and Designation of Series of Shares of Beneficial
                                              Interest, without Par Value, with respect to the Managed International
                                              Portfolio.
                                              (Previously filed as Exhibit 1(d) to Post-Effective Amendment No. 7 to
                                              this Registration Statement.)

                                   (f)        Amended Establishment and Designation of Series of Shares of
                                              Beneficial Interest, without Par Value dated April 15, 1988.
                                              (Previously filed as Exhibit 1(f) to Post-Effective Amendment No. 9 to
                                              this Registration Statement.)

                                   (g)        Amended Establishment and Designation of Series of Shares of
                                              Beneficial Interest, without Par Value dated April 30, 1993.
                                              (Previously filed as Exhibit 1(g) to Post-Effective Amendment No. 13
                                              to this Registration Statement.)

                                   (h)        Abolition of Series.
                                              (Previously filed as Exhibit 1(h) to Post-Effective Amendment No. 13
                                              to this Registration Statement.)

                                   (i)        Amended Establishment and Designation of Series of Shares of
                                              Beneficial Interest, without Par Value, with respect to the Growth and
                                              Income Portfolio dated February 11, 1994.
                                              (Previously filed as Exhibit 1(i) to Post-Effective Amendment No. 14
                                              to this Registration Statement.)

                             2.    (a)        By-Laws of the Registrant dated March 15, 1985.
                                              (Previously filed as Exhibit 2 to Pre-Effective Amendment No. 4 to
                                              this Registration Statement.)

                                   (b)        Amendment to the By-Laws of the Registrant dated November 13, 1991.
                                              

                                 Part C - Page 2
<PAGE>
                                             (Previously filed as Exhibit 2(b) to Post-Effective Amendment No. 12
                                              to this Registration Statement.)

                             3.    Inapplicable.


                             4.    Inapplicable.

                             5.    (a)        Investment Advisory Agreement between the Registrant and Scudder,
                                              Stevens & Clark Ltd. dated November 14, 1986.
                                              (Previously filed as Exhibit 5(a) to Post-Effective Amendment No. 5 to
                                              this Registration Statement.)

                                   (b)        Investment Advisory Agreement between the Registrant and Scudder,
                                              Stevens & Clark, Inc. with respect to the Managed International
                                              Portfolio.
                                              (Previously filed as Exhibit 5(b) to Post-Effective Amendment No. 8 to
                                              this Registration Statement.)

                                   (c)        Investment Advisory Agreement between the Registrant and Scudder,
                                              Stevens & Clark, Inc. with respect to the Growth and Income Portfolio
                                              dated May 1, 1994.
                                              (Previously filed as Exhibit 5(c) to Post-Effective Amendment No. 15
                                              to this Registration Statement.)

                                   (d)        Form of an Investment Advisory Agreement between the Registrant and
                                              Scudder, Stevens & Clark, Inc. with respect to the Global Discovery
                                              Portfolio dated May 1,1996.
                                              (Previously filed as Exhibit 5(d) to Post-Effective Amendment No. 17
                                              to this Registration Statement.)

                                   (d)(1)     An Investment Advisory Agreement between the Registrant and Scudder,
                                              Stevens & Clark, Inc. with respect to the Global Discovery Portfolio
                                              dated May 1, 1996.
                                              (Incorporated by reference to Exhibit 5(d)1 to Post-Effective
                                              Amendment No. 19 to this Registration Statement.)

                             6.    (a)        Underwriting Agreement between the Registrant and Scudder Investor
                                              Services, Inc., dated July 12, 1985.
                                              (Previously filed as Exhibit 6(a) to Post-Effective Amendment No. 1 to
                                              this Registration Statement.)

                                   (b)        Participating Contract and Policy Agreement between Scudder Investor
                                              Services, Inc. and Participating Insurance Companies.
                                              (Previously filed as Exhibit 6(b) to Post-Effective Amendment No. 1 to
                                              this Registration Statement).

                                   (c)        Participating Contract and Policy Agreement between Scudder Investor
                                              Services, Inc. and Carillon Investments, Inc. dated February 18, 1992.
                                              (Previously filed as Exhibit 6(c) to Post-Effective Amendment No. 13
                                              to this Registration Statement.)

                                   (d)        Participating Contract and Policy Agreement between Scudder Investor
                                              Services, Inc. and AEtna Life Insurance and Annuity Company dated
                                              April 27, 1992.
                                              (Previously filed as Exhibit 6(d) to Post-Effective Amendment No. 13
                                              to this Registration Statement.)

                                Part C - Page 3
<PAGE>

                                   (e)        Participating Contract and Policy Agreement between Scudder Investor
                                              Services, Inc. and PNMR Securities, Inc. dated December 1, 1992.
                                              (Previously filed as Exhibit 6(e) to Post-Effective Amendment No. 13
                                              to this Registration Statement.)

                                   (f)        Prototype Participating Contract and Policy Agreement.
                                              (Previously filed as Exhibit 6(f) to Post-Effective Amendment No. 14
                                              to this Registration Statement.)

                             7.    Inapplicable.

                             8.    (a)        Custodian Contract between the Registrant and State Street Bank and
                                              Trust Company dated August 22, 1985.
                                              (Previously filed as Exhibit 8(a) to Post-Effective Amendment No. 1 to
                                              this Registration Statement.)

                                   (b)        Fee schedule for Exhibit 8(a).
                                              (Previously filed as Exhibit 8(b) to Post-Effective Amendment No. 9 to
                                              this Registration Statement.)

                                   (c)        Amendment to the Custodian Contract dated February 17, 1987
                                              (Previously filed as Exhibit 8(c) to Post-Effective Amendment No. 9 to
                                              this Registration Statement.)

                                   (d)        Amendment to the Custodian Contract dated February 17, 1987.
                                              (Previously filed as Exhibit 8(d) to Post-Effective Amendment No. 9 to
                                              this Registration Statement.)

                                   (e)        Amendment to the Custodian Contract dated August 13, 1987.
                                              (Previously filed as Exhibit 8(e) to Post-Effective Amendment No. 9 to
                                              this Registration Statement.)

                                   (f)        Amendment to the Custodian Contract dated August 12, 1988.
                                              (Previously filed as Exhibit 8(f) to Post-Effective Amendment No. 9 to
                                              this Registration Statement.)

                                   (g)        Amendment to the Custodian Contract dated August 9, 1991.
                                              (Previously filed as Exhibit 8(g) to Post-Effective Amendment No. 12
                                              to this Registration Statement.)

                                   (h)        Fee Schedule for Exhibit 8(a).
                                              (Previously filed as Exhibit 8(h) to Post-Effective Amendment No. 15
                                              to this Registration Statement.)

                             9.    (a)(1)     Transfer, Dividend Disbursing and Plan Agency Agreement between the
                                              Registrant and State Street Bank and Trust Company dated July 12, 1985.
                                              (Previously filed as Exhibit 9(a)(1) to Post-Effective Amendment No. 1
                                              to this Registration Statement.)

                                   (a)(2)     Fee schedule for Exhibit 9(a)(1).
                                              (Previously filed as Exhibit 9(a)(2) to Post-Effective Amendment No. 1
                                              to this Registration Statement.)

                                 Part C - Page 4
<PAGE>

                                   (a)(3)     Transfer Agency and Service Agreement between the Registrant and
                                              Scudder Service Corporation dated April 6, 1992.
                                              (Previously filed as Exhibit 9(a)(3) to Post-Effective Amendment No.
                                              13 to this Registration Statement.)

                                   (b)(1)     Participation Agreement between the Registrant and Security Equity
                                              Life Insurance Company dated September 10, 1985.
                                              (Previously filed as Exhibit 9(b) to Post-Effective Amendment No. 1 to
                                              this Registration Statement.)

                                   (b)(2)     Amendment to Participation Agreement between the Registrant and
                                              Security Equity Life Insurance Company dated July 21, 1987.
                                              (Previously filed as Exhibit 9(b)(2) to Post-Effective Amendment No. 8
                                              to this Registration Statement.)

                                   (c)(1)     Participation Agreement between the Registrant and Charter National
                                              Life Insurance Company dated June 9, 1986.
                                              (Previously filed as Exhibit 9(c)(1) to Post- Effective Amendment No.
                                              8 to this Registration Statement.)

                                   (c)(2)     Amendment to Participation Agreement between the Registrant and
                                              Charter National Life Insurance Company dated July 20, 1987.
                                              (Previously filed as Exhibit 9(c)(2) to Post- Effective Amendment No.
                                              8 to this Registration Statement.)

                                   (c)(3)     Amendment to Participation Agreement between the Registrant and
                                              Charter National Life Insurance Company dated May 2, 1988.
                                              (Previously filed as Exhibit 9(c)(3) to Post-Effective Amendment No. 9
                                              to this Registration Statement.)

                                   (c)(4)     Amendment to Participation Agreement between the Registrant and
                                              Charter National Life Insurance Company dated June 30, 1991.
                                              (Previously filed as Exhibit 9(c)(4) to Post-Effective Amendment No.
                                              12 to this Registration Statement.)

                                   (c)(5)     Participation Agreement between the Registrant and The Union Central
                                              Life Insurance Company dated February 18, 1992.
                                              (Previously filed as Exhibit 9(c)(5) to Post-Effective Amendment No.
                                              13 to this Registration Statement.)

                                   (c)(6)     Participation Agreement between the Registrant and AEtna Life
                                              Insurance and Annuity Company dated April 27, 1992.
                                              (Previously filed as Exhibit 9(c)(6) to Post-Effective Amendment No.
                                              13 to this Registration Statement.)

                                   (c)(7)     Participation Agreement between the Registrant and Safeco Life
                                              Insurance Companies dated December 31, 1992.
                                              (Previously filed as Exhibit 9(c)(7) to Post-Effective Amendment No.
                                              13 to this Registration Statement.)

                                   (c)(8)     Prototype Participation Agreement - Form A.
                                              (Previously filed as Exhibit 9(c)(8) to Post-Effective Amendment No.
                                              14 to this Registration Statement.)

                                   (c)(9)     Prototype Participation Agreement - Form B.
                                              (Previously filed as Exhibit 9(c)(9) to Post-Effective Amendment No.
                                              14 to this Registration Statement.)

                                Part C - Page 5
<PAGE>

                                   (c)(10)    First Amendment to the Fund Participation Agreement between
                                              AEtna Life Insurance and Annuity Company and the Fund dated
                                              February 19, 1993.
                                              (Previously filed as Exhibit 9(c)(10) to Post-Effective Amendment No.
                                              14 to this Registration Statement.)

                                   (c)(11)    Second Amendment to the Fund Participation Agreement between
                                              AEtna Life Insurance and Annuity Company and the Fund dated August
                                              13, 1993. 
                                              (Previously filed as Exhibit 9(c)(11) to Post-Effective
                                              Amendment No. 14 to this Registration Statement.)

                                   (c)(12)    First Amendment to the Participation Agreement between
                                              Mutual of America Life Insurance Company, The American Life
                                              Insurance Company of New York and the Fund dated August 13, 1993.
                                              (Previously filed as Exhibit 9(c)(12) to Post-Effective
                                              Amendment No. 14 to this Registration Statement.)

                                   (c)(13)    First Amendment to the Participation Agreement between The Union
                                              Central Life Insurance Company and the Fund dated September 30, 1993.
                                              (Previously filed as Exhibit 9(c)(13) to Post-Effective Amendment No.
                                              14 to this Registration Statement.)

                                   (c)(14)    Participation Agreement between the Registrant and American Life
                                              Assurance Corporation dated May 3, 1993.
                                              (Previously filed as Exhibit 9(c)(14) to Post-Effective Amendment No.
                                              16 to this Registration Statement).

                                   (c)(15)    Participation Agreement between the Registrant and AUSA Life Insurance
                                              Company, Inc. dated October 21, 1993.
                                              (Previously filed as Exhibit 9(c)(15) to Post-Effective Amendment No.
                                              16 to this Registration Statement).

                                   (c)(16)    Participation Agreement between the Registrant and Banner Life
                                              Insurance Company dated January 18, 1990.
                                              (Previously filed as Exhibit 9(c)(16) to Post-Effective Amendment No.
                                              16 to this Registration Statement).

                                   (c)(17)    Participation Agreement between the Registrant and Banner Life
                                              Insurance Company dated January 18, 1995.
                                              (Previously filed as Exhibit 9(c)(17) to Post-Effective Amendment No.
                                              16 to this Registration Statement).

                                   (c)(18)    Participation Agreement between the Registrant and Fortis Benefits
                                              Insurance Company dated June 1, 1994.
                                              (Previously filed as Exhibit 9(c)(18) to Post-Effective Amendment No.
                                              16 to this Registration Statement).

                                   (c)(19)    Participation Agreement between the Registrant and Lincoln Benefit
                                              Life Company dated December 30, 1993.
                                              (Previously filed as Exhibit 9(c)(19) to Post-Effective Amendment No.
                                              16 to this Registration Statement).

                                   (c)(20)    Participation Agreement between the Registrant and Charter National
                                              Life Insurance Company dated September 3, 1993.
                                              

                                 Part C - Page 6
<PAGE>
                                              (Previously filed as Exhibit 9(c)(20)to Post-Effective Amendment No.
                                              16 to this Registration Statement).

                                   (c)(21)    Participation Agreement between the Registrant and Mutual of America
                                              Life Insurance Company dated December 30, 1988.
                                              (Previously filed as Exhibit 9(c)(21) to Post-Effective Amendment No.
                                              16 to this Registration Statement).

                                   (c)(22)    First Amendment to Participation Agreement between the Registrant and
                                              Mutual of America Life Insurance Company dated August 13, 1993.
                                              (Previously filed as Exhibit 9(c)(22) to Post-Effective Amendment No.
                                              16 to this Registration Statement).

                                   (c)(23)    Participation Agreement between the Registrant and Mutual of America
                                              Life Insurance Company dated December 30, 1988.
                                              (Previously filed as Exhibit 9(c)(23) to Post-Effective Amendment No.
                                              16 to this Registration Statement).

                                   (c)(24)    First Amendment to Participation Agreement between the Registrant and
                                              Mutual of America Life Insurance Company dated August 13, 1993.
                                              (Previously filed as Exhibit 9(c)(24) to Post-Effective Amendment No.
                                              16 to this Registration Statement).

                                   (c)(25)    Participation Agreement between the Registrant and Mutual of America
                                              Life Insurance Company dated December 30, 1993.
                                              (Previously filed as Exhibit 9(c)(25) to Post-Effective Amendment No.
                                              16 to this Registration Statement).

                                   (c)(26)    Participation Agreement between the Registrant and Paragon Life
                                              Insurance Company dated April 30, 1993.
                                              (Previously filed as Exhibit 9(c)(26) to Post-Effective Amendment No.
                                              16 to this Registration Statement).

                                   (c)(27)    Participation Agreement between the Registrant and Provident Mutual
                                              Life Insurance Company of Philadelphia dated July 21, 1993.
                                              (Previously filed as Exhibit 9(c)(27) to Post-Effective Amendment No.
                                              16 to this Registration Statement).

                                   (c)(28)    Participation Agreement between the Registrant and United of Omaha
                                              Life Insurance Company dated May 15, 1994.
                                              (Previously filed as Exhibit 9(c)(28) to Post-Effective Amendment No.
                                              16 to this Registration Statement).

                                   (c)(29)    First Amendment to the Participation Agreement between the Registrant
                                              and United of Omaha Life Insurance Company dated January 23, 1995.
                                              (Previously filed as Exhibit 9(c)(29) to Post-Effective Amendment No.
                                              16 to this Registration Statement).

                                   (c)(30)    Participation Agreement between the Registrant and USAA Life
                                              Insurance Company dated February 3, 1995. 
                                              (Previously filed as Exhibit 9(c)(30) to Post-Effective Amendment No.
                                              16 to this Registration Statement).


                                 Part C - Page 7
<PAGE>

                                   (c)(31)    Amendment to the Participation Agreement, the Reimbursement Agreement
                                              and the Participating Contract and Policy Agreement dated February 3,
                                              1995.
                                              (Previously filed as Exhibit 9(c)(31) to Post-Effective Amendment No.
                                              16 to this Registration Statement).

                                   (d)        Accounting Services Agreement between the Registrant and Scudder
                                              Investor Services, Inc. dated August 1, 1989.
                                              (Previously filed as Exhibit 9(d) to Post-Effective Amendment No. 15
                                              to this Registration Statement.)

                                   (e)(1)     Fund Accounting Services Agreement between the Registrant, on behalf
                                              of the Money Market Portfolio, and Scudder Fund Accounting Corporation
                                              dated October 1, 1994.
                                              (Previously filed as Exhibit 9(e)(1) to Post-Effective Amendment No.
                                              15 to this Registration Statement.)

                                   (e)(2)     Fund Accounting Services Agreement between the Registrant, on behalf
                                              of the Bond Portfolio, and Scudder Fund Accounting Corporation dated
                                              October 1, 1994.
                                              (Previously filed as Exhibit 9(e)(2) to Post-Effective Amendment No.
                                              15 to this Registration Statement.)

                                   (e)(3)     Fund Accounting Services Agreement between the Registrant, on behalf
                                              of the Balanced Portfolio, and Scudder Fund Accounting Corporation
                                              dated October 1, 1994.
                                              (Previously filed as Exhibit 9(e)(3) to Post-Effective Amendment No.
                                              15 to this Registration Statement.)

                                   (e)(4)     Fund Accounting Services Agreement between the Registrant, on behalf
                                              of the Growth and Income Portfolio, and Scudder Fund Accounting
                                              Corporation dated October 1, 1994.
                                              (Previously filed as Exhibit 9(e)(4) to Post-Effective Amendment No.
                                              15 to this Registration Statement.)

                                   (e)(5)     Fund Accounting Services Agreement between the Registrant, on behalf
                                              of the Capital Growth Portfolio, and Scudder Fund Accounting
                                              Corporation dated October 1, 1994.
                                              (Previously filed as Exhibit 9(e)(5) to Post-Effective Amendment No.
                                              15 to this Registration Statement.)

                                   (e)(6)     Fund Accounting Services Agreement between the Registrant, on behalf
                                              of the International Portfolio, and Scudder Fund Accounting
                                              Corporation dated October 1, 1994.
                                              (Previously filed as Exhibit 9(e)(6) to Post-Effective Amendment No.
                                              15 to this Registration Statement.)

                             10.   Inapplicable.

                             11.   Inapplicable.

                             12.   Inapplicable.

                             13.   Inapplicable.

                             14.   Inapplicable.


                                Part C - Page 8
<PAGE>

                             15.   Form of Master Distribution Plan for Class B shares pursuant to Rule 12b-1 dated
                                   February 9, 1996.
                                   (Previously filed as Exhibit 15 to Post-Effective Amendment No. 18 to this
                                   Registration Statement.)

                             16.   Schedule of Computation of Performance Calculation.
                                   (Previously filed as Exhibit 16 to Post-Effective Amendment No. 9 to Registration
                                   Statement.)

                             17.   Inapplicable.

</TABLE>


Item 25.          Persons Controlled by or under Common Control with Registrant
--------          -------------------------------------------------------------

                  As of December 31, 1995, 48.6% of the outstanding shares of
                  beneficial interest of the Registrant are owned by Charter
                  National Life Insurance Company of Missouri ("CNL"). CNL is a
                  wholly-owned subsidiary of Leucadia National Corporation.
                  Leucadia National Corporation is a New York corporation.

<TABLE>
<CAPTION>

Item 26.          Number of Holders of Securities (as of October 15, 1996)
--------          --------------------------------------------------------

<S>                               <C>                                                    <C>
                                  (1)                                                    (2)
                            Title of Class                                      Number of Shareholders

                   Shares of beneficial interest,
                   of no par value
                   Money Market Portfolio                                                (6)

                   Shares of beneficial interest,
                   of no par value
                   Bond Portfolio                                                        (10)

                   Shares of beneficial interest,
                   of no par value
                   Balanced Portfolio                                                    (6)

                   Shares of beneficial interest,
                   of no par value
                   Growth and Income Portfolio                                           (6)

                   Shares of beneficial interest,
                   of no par value
                   Capital Growth Portfolio                                              (9)

                   Shares of beneficial interest,
                   of no par value
                   Global Discovery Portfolio                                            (3)

                   Shares of beneficial interest,
                   of no par value
                   International Portfolio                                               (13)


</TABLE>

Item 27.          Indemnification.
--------          ----------------

                  A policy of insurance covering Scudder, Stevens & Clark, Inc.,
                  its subsidiaries including Scudder Investor Services, Inc.,
                  and all of the registered investment companies advised by
                  Scudder, Stevens & Clark, Inc. insures the Registrant's
                  Trustees and officers and others against liability arising by
                  reason of an alleged breach of duty caused by any negligent


                                Part C - Page 9
<PAGE>
                  act, error or accidental omission in the scope of their
                  duties.

                           Article IV, Sections 4.1 - 4.3 of Registrant's
                           Declaration of Trust provide as follows:

                           Section 4.1. No Personal Liability of Shareholders,
                           Trustees, etc. No Shareholder shall be subject to any
                           personal liability whatsoever to any Person in
                           connection with Fund Property or the acts,
                           obligations or affairs of the Fund. No Trustee,
                           officer, employee or agent of the Fund shall be
                           subject to any personal liability whatsoever to any
                           Person, other than to the Fund or its Shareholders,
                           in connection with Fund Property or the affairs of
                           the Fund, save only that arising from bad faith,
                           willful misfeasance, gross negligence or reckless
                           disregard of his duties with respect to such Person;
                           and all such Persons shall look solely to the Fund
                           Property for satisfaction of claims of any nature
                           arising in connection with the affairs of the Fund.
                           If any Shareholder, Trustee, officer, employee, or
                           agent, as such, of the Fund, is made a party to any
                           suit or proceeding to enforce any such liability of
                           the Fund, he shall not, on account thereof, be held
                           to any personal liability. The Fund shall indemnify
                           and hold each Shareholder harmless from and against
                           all claims and liabilities, to which such Shareholder
                           may become subject by reason of his being or having
                           been a Shareholder, and shall reimburse such
                           Shareholder for all legal and other expenses
                           reasonably incurred by him in connection with any
                           such claim or liability. The rights accruing to a
                           Shareholder under this Section 4.l shall not exclude
                           any other right to which such Shareholder may be
                           lawfully entitled, nor shall anything herein
                           contained restrict the right of the Fund to indemnify
                           or reimburse a Shareholder in any appropriate
                           situation even though not specifically provided
                           herein.

                           Section 4.2. Non-Liability of Trustees, etc. No
                           Trustee, officer, employee or agent of the Fund shall
                           be liable to the Fund, its Shareholders, or to any
                           Shareholder, Trustee, officer, employee, or agent
                           thereof for any action or failure to act (including
                           without limitation the failure to compel in any way
                           any former or acting Trustee to redress any breach of
                           trust) except for his own bad faith, willful
                           misfeasance, gross negligence or reckless disregard
                           of the duties involved in the conduct of his office.

                           Section 4.3 Mandatory Indemnification. (a) Subject to
                           the exceptions and limitations contained in paragraph
                           (b) below:

                                    (i)     every person who is, or has been, a
                                            Trustee or officer of the Fund shall
                                            be indemnified by the Fund to the
                                            fullest extent permitted by law
                                            against all liability and against
                                            all expenses reasonably incurred or
                                            paid by him in connection with any
                                            claim, action, suit or proceeding in
                                            which he becomes involved as a party
                                            or otherwise by virtue of his being
                                            or having been a Trustee or officer
                                            and against amounts paid or incurred
                                            by him in the settlement thereof;

                                    (ii)    the words "claim," "action," "suit,"
                                            or "proceeding" shall apply to all
                                            claims, actions, suits or
                                            proceedings (civil, criminal, or
                                            other, including appeals), actual or
                                            threatened; and the words
                                            "liability" and "expenses" shall
                                            include, without limitation,
                                            attorneys' fees, costs, judgments,
                                            amounts paid in settlement, fines,
                                            penalties and other liabilities.


<TABLE>
<CAPTION>

<S>                        <C>
                           (b)      No indemnification shall be provided hereunder to a Trustee or officer:

                                    (i)     against any liability to the Fund or the Shareholders by reason of
                                            willful misfeasance, bad faith, gross negligence or reckless disregard of
                                            the duties involved in the conduct of his office;

                                Part C - Page 10
<PAGE>

                                    (ii)    with respect to any matter as to which he shall have been finally
                                            adjudicated not to have acted in good faith in the reasonable belief
                                            that his action was in the best interest of the Fund;

                                    (iii)   in the event of a settlement or other disposition not involving a
                                            final adjudication as provided in paragraph (b)(i) resulting in a
                                            payment by a Trustee or officer, unless there has been a
                                            determination that such Trustee or officer did not engage in willful
                                            misfeasance, bad faith, gross negligence or reckless disregard of
                                            the duties involved in the conduct of his office;

                                            (A)      by the court or other body approving the settlement or other
                                                     disposition; or

                                            (B)      based upon a review of readily available facts (as
                                                     opposed to a full trial-type inquiry) by (x)
                                                     vote of a majority of the Disinterested Trustees
                                                     acting on the matter (provided that a majority
                                                     of the Disinterested Trustees then in office act
                                                     on the matter) or (y) written opinion of
                                                     independent legal counsel.

                           (c)      The rights of indemnification herein provided may be insured against by policies
                                    maintained by the Fund, shall be severable, shall not affect any other rights to
                                    which any Trustee or officer may now or hereafter be entitled, shall continue as
                                    to a person who has ceased to be such Trustee or officer and shall inure to the
                                    benefit of the heirs, executors, administrators and assigns of such a person.
                                    Nothing contained herein shall affect any rights to indemnification to which
                                    personnel of the Fund other than Trustees and officers may be entitled by contract
                                    or otherwise under law.

                           (d)      Expenses of preparation and presentation of a defense to any claim, action, suit, or
                                    proceeding of the character described in paragraph (a) of this Section 4.3 shall be
                                    advanced by the Fund prior to final disposition thereof upon receipt of an
                                    undertaking by or on behalf of the recipient, to repay such amount if it is
                                    ultimately determined that he is not entitled to indemnification under this
                                    Section 4.3, provided that either:

                                    (i)     such undertaking is secured by a surety bond or some other
                                            appropriate security provided by the recipient, or the Fund shall be
                                            insured against losses arising out of any such advances; or

                                    (ii)    a majority of the Disinterested Trustees acting on the matter
                                            (provided that a majority of the Disinterested Trustees act on the
                                            matter) or an independent legal counsel in a written opinion shall
                                            determine, based upon a review of readily available facts (as opposed
                                            to a full trial-type inquiry), that there is reason to believe that the
                                            recipient ultimately will be found entitled to indemnification.

                           As used in this Section 4.3, a "Disinterested Trustee" is one who is not (i) an "Interested Person"
                           of the Trust (including anyone who has been exempted from being an "Interested Person" by any rule,
                           regulation or order of the Commission), or (ii) involved in the claim, action, suit or proceeding.


Item 28.          Business or Other Connections of Investment Adviser
--------          ---------------------------------------------------

                  The Adviser has stockholders and employees who are denominated
                  officers but do not as such have corporation-wide
                  responsibilities. Such persons are not considered officers for
                  the purpose of this Item 28.

                                Part C - Page 11
<PAGE>

                           Business and Other Connections of Board
           Name            of Directors of Registrant's Adviser
           ----            ------------------------------------

Stephen R. Beckwith        Director, Vice President, Assistant Treasurer, Chief Operating Officer & Chief
                                 Financial Officer, Scudder, Stevens & Clark, Inc. (investment adviser)**

Lynn S. Birdsong           Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
                           President & Director, The Latin America Dollar Income Fund, Inc. (investment 
                                 company)**
                           President & Director, Scudder World Income Opportunities Fund, Inc.  (investment
                                 company)**
                           President, The Japan Fund, Inc. (investment company)**
                           Supervisory Director, The Latin America Income and Appreciation Fund N.V. 
                                 (investment company) +
                           Supervisory Director, The Venezuela High Income Fund N.V. (investment company) xx
                           Supervisory Director, Scudder Mortgage Fund (investment company)+
                           Supervisory Director, Scudder Floating Rate Funds for Fannie Mae Mortgage Securities
                                 I & II (investment company) +
                           Director, Canadian  High  Income  Fund  (investment company)#   
                           Director,   Hot  Growth   Companies  Fund (investment company)# 
                           Director,  Sovereign High Yield Investment Company  (investment  company)+  
                           Director, Scudder, Stevens & Clark (Luxembourg) S.A. (investment manager) #

Nicholas Bratt             Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
                           President & Director, Scudder New Europe Fund, Inc. (investment company)**
                           President & Director, The Brazil Fund, Inc. (investment company)**
                           President & Director, The First Iberian Fund, Inc. (investment company)**
                           President & Director, Scudder International Fund, Inc.  (investment company)**
                           President & Director, Scudder Global Fund, Inc. (President on all series except Scudder
                                 Global Fund) (investment company)**
                           President & Director, The Korea Fund, Inc. (investment company)**
                           President & Director, Scudder New Asia Fund, Inc. (investment company)**
                           President, The Argentina Fund, Inc. (investment company)**
                           Vice President, Scudder, Stevens & Clark Corporation (Delaware) (investment 
                                 adviser)**
                           Vice President, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
                           Vice President, Scudder, Stevens & Clark of Canada Ltd. (Canadian investment adviser)
                                 Toronto, Ontario, Canada
                           Vice President, Scudder, Stevens & Clark Overseas Corporationoo

E. Michael Brown           Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
                           Trustee, Scudder GNMA Fund (investment company)*
                           Trustee, Scudder U.S. Treasury Fund (investment company)*
                           Trustee, Scudder Tax Free Money Fund (investment company)*
                           Trustee, Scudder State Tax Free Trust (investment company)*
                           Trustee, Scudder Cash Investment Trust (investment company)*
                           Assistant Treasurer, Scudder Investor Services, Inc. (broker/dealer)*
                           Director & President, Scudder Realty Holding Corporation (a real estate holding
                                 company)*
                           Director & President,  Scudder Trust Company (a trust
                           company)+++ Director, Scudder Trust (Cayman) Ltd.

Mark S. Casady             Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
                           Director & Vice President, Scudder Investor Services, Inc. (broker/dealer)*
                           Director & Vice President, Scudder Service Corporation (in-house transfer agent)*
                           Director, SFA, Inc. (advertising agency)*



                                Part C - Page 12
<PAGE>

Linda C. Coughlin          Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
                           Chairman & Trustee, AARP Cash Investment Funds  (investment company)**
                           Chairman & Trustee, AARP Growth Trust (investment company)**
                           Chairman & Trustee, AARP Income Trust (investment company)**
                           Chairman & Trustee, AARP Tax Free Income Trust  (investment company)**
                           Chairman & Trustee, AARP Managed Investment Portfolios Trust  (investment 
                                 company)**
                           Director & Senior Vice President, Scudder Investor Services, Inc. (broker/dealer)*
                           Director, SFA, Inc. (advertising agency)*

Margaret D. Hadzima        Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
                           Assistant Treasurer, Scudder Investor Services, Inc. (broker/dealer)*

Jerard K. Hartman          Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
                           Vice President, Scudder California Tax Free Trust (investment company)*
                           Vice President, Scudder Equity Trust (investment company)**
                           Vice President, Scudder Cash Investment Trust (investment company)*
                           Vice President, Scudder Fund, Inc. (investment company)**
                           Vice President, Scudder Global Fund, Inc. (investment company)**
                           Vice President, Scudder GNMA Fund (investment company)*
                           Vice President, Scudder Portfolio Trust (investment company)*
                           Vice President, Scudder Institutional Fund, Inc. (investment company)**
                           Vice President, Scudder International Fund, Inc. (investment company)**
                           Vice President, Scudder Investment Trust (investment company)*
                           Vice President, Scudder Municipal Trust (investment company)*
                           Vice President, Scudder Mutual Funds, Inc. (investment company)**
                           Vice President, Scudder New Asia Fund, Inc. (investment company)**
                           Vice President, Scudder New Europe Fund, Inc. (investment company)**
                           Vice President, Scudder Securities Trust (investment company)*
                           Vice President, Scudder State Tax Free Trust (investment company)*
                           Vice President, Scudder Funds Trust (investment company)**
                           Vice President, Scudder Tax Free Money Fund (investment company)*
                           Vice President, Scudder Tax Free Trust (investment company)*
                           Vice President, Scudder U.S. Treasury Money Fund (investment company)*
                           Vice President, Scudder Pathway Series (investment company)*
                           Vice President, Scudder Variable Life Investment Fund (investment company)*
                           Vice President, The Brazil Fund, Inc. (investment company)**
                           Vice President, The Korea Fund, Inc. (investment company)**
                           Vice President, The Argentina Fund, Inc. (investment company)**
                           Vice President & Director, Scudder, Stevens & Clark of Canada, Ltd. (Canadian
                                 investment adviser) Toronto, Ontario, Canada
                           Vice President, The First Iberian Fund, Inc. (investment company)**
                           Vice President, The Latin America Dollar Income Fund, Inc. (investment company)**
                           Vice President, Scudder World Income Opportunities Fund, Inc. (investment 
                                 company)**

Richard A. Holt            Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
                           Vice President, Scudder Variable Life Investment Fund (investment company)*

Dudley H. Ladd             Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
                           Vice President & Trustee, Scudder Cash Investment Trust  (investment company)*
                           Director, Scudder Global Fund, Inc. (investment company)**
                           Director, Scudder International Fund, Inc. (investment company)**
                           Director, Scudder Mutual Fund, Inc. (investment company)**
                           Trustee, Scudder Investment Trust (investment company)*
                           Trustee, Scudder Portfolio Trust (investment company)*
                           Trustee, Scudder Municipal Trust (investment company)*

                                Part C - Page 13
<PAGE>

                           Trustee, Scudder Securities Trust (investment company)*
                           Trustee, Scudder State Tax Free Trust (investment company)*
                           Trustee, Scudder Equity Trust (investment company)**
                           Trustee, Scudder Funds Trust (investment company)**
                           Vice President, Scudder U.S. Treasury Money Fund  (investment company)*
                           President & Director, SFA, Inc. (advertising agency)*
                           Senior Vice President & Director, Scudder Investor Services, Inc. (broker/dealer)*

John T. Packard            Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
                           President, Montgomery Street Income Securities, Inc. (investment company) o
                           Chairman, Scudder Realty Advisors, Inc. (realty investment adviser) x

Daniel Pierce              Chairman & Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
                           Chairman, Vice President & Director, Scudder Global Fund, Inc. (investment 
                                 company)**
                           Chairman & Director, Scudder New Europe Fund, Inc. (investment company)**
                           Chairman & Director, The First Iberian Fund, Inc. (investment company)**
                           Chairman & Director, Scudder International Fund, Inc. (investment company)**
                           Chairman & Director, Scudder New Asia Fund, Inc. (investment company)**
                           President & Trustee, Scudder Equity Trust (investment company)**
                           President & Trustee, Scudder GNMA Fund (investment company)*
                           President & Trustee, Scudder Portfolio Trust (investment company)*
                           President & Trustee, Scudder Funds Trust (investment company)**
                           President & Trustee, Scudder Securities Trust (investment company)*
                           President & Trustee, Scudder Investment Trust (investment company)*
                           President & Director, Scudder Institutional Fund, Inc. (investment company)**
                           President & Director, Scudder Fund, Inc. (investment company)**
                           President & Director, Scudder Mutual Funds, Inc. (investment company)**
                           Vice President & Trustee, Scudder Municipal Trust (investment company)*
                           Vice President & Trustee, Scudder Variable Life Investment Fund (investment 
                                 company)*
                           Vice President & Trustee, Scudder Pathway Series (investment company)*
                           Trustee, Scudder California Tax Free Trust (investment company)*
                           Trustee, Scudder State Tax Free Trust (investment company)*
                           Vice President, Montgomery Street Income Securities, Inc. (investment company)o
                           Chairman & President, Scudder, Stevens & Clark of Canada, Ltd. (Canadian investment
                                 adviser), Toronto, Ontario, Canada
                           Chairman & Director, Scudder Global Opportunities Funds (investment company) Luxembourg
                           Chairman, Scudder, Stevens & Clark, Ltd. (investment adviser) London, England
                           President & Director, Scudder Precious Metals, Inc. xxx
                           Vice President, Director & Assistant Secretary, Scudder Realty Holdings Corporation
                                 (a real estate holding company)*
                           Vice President, Director & Assistant Treasurer, Scudder Investor Services, Inc.
                                 (broker/dealer)*
                           Director, Scudder Latin America Investment Trust PLC (investment company)@  
                           Director, Fiduciary  Trust Company (banking & trust company) Boston, MA
                           Director, Fiduciary Company Incorporated banking & trust  company) Boston, MA  
                           Trustee, New  England Aquarium, Boston, MA  
                           Incorporator,  Scudder  Trust Company (a trust company)+++

Kathryn L. Quirk           Director & Secretary, Scudder, Stevens & Clark, Inc. (investment adviser)**
                           Director, Vice President & Assistant Secretary, The Argentina Fund, Inc. (investment
                                 company)**
                           Director, Vice President & Assistant Secretary, Scudder International Fund, Inc.
                                 (investment company)**

                                Part C - Page 14
<PAGE>

                           Director, Vice President & Assistant Secretary, Scudder New Asia Fund (investment
                                 company)**
                           Trustee, Vice President & Assistant Secretary, Scudder Equity Trust (investment
                                 company)**
                           Trustee, Vice President & Assistant Secretary, Scudder Securities Trust (investment
                                 company)*
                           Trustee, Vice President & Assistant Secretary, Scudder Funds Trust (investment
                                 company)**
                           Trustee,   Scudder   Investment   Trust   (investment company)*    
                           Trustee,    Scudder    Municipal   Trust (investment   company)*  
                           Vice  President  &  Trustee, Scudder  Tax Free  Money Fund  (investment  company)*
                           Vice  President  &  Trustee,  Scudder  Tax Free Trust (investment  company)* 
                           Vice  President &  Secretary, AARP  Growth  Trust   (investment   company)**   
                           Vice President & Secretary,  AARP Income Trust (investment company)** 
                           Vice President & Secretary,  AARP Tax Free Income Trust (investment  company)** 
                           Vice President & Secretary,  AARP Cash  Investment  Funds  (investment company)**
                           Vice President & Secretary, AARP Managed Investment Portfolios Trust (investment
                                 company)**
                           Vice President & Secretary, The Japan Fund, Inc. (investment company)**
                           Vice President & Assistant Secretary, Scudder World Income Opportunities Fund, Inc.
                                 (investment company)**
                           Vice President & Assistant Secretary, The Korea Fund, Inc. (investment company)**
                           Vice President & Assistant Secretary, The Brazil Fund, Inc. (investment company)**
                           Vice President & Assistant Secretary, Scudder Global Fund, Inc. (investment 
                                 company)**
                           Vice President & Assistant Secretary, Montgomery Street Income Securities, Inc.
                                 (investment company)o
                           Vice President & Assistant Secretary, Scudder Mutual Funds, Inc. (investment company)**
                           Vice President & Assistant Secretary, Scudder Pathway Series (investment company)*
                           Vice President & Assistant Secretary, Scudder New Europe Fund, Inc. (investment
                                 company)**
                           Vice President & Assistant Secretary, Scudder Variable Life Investment Fund (investment
                                 company)*
                           Vice President & Assistant Secretary, The First Iberian Fund, Inc. (investment
                                 company)**
                           Vice President & Assistant Secretary, The Latin America Dollar Income Fund, Inc.
                                 (investment company)**
                           Vice President, Scudder Fund, Inc. (investment company)**
                           Vice President, Scudder Institutional Fund, Inc. (investment company)**
                           Vice President, Scudder GNMA Fund (investment company)*
                           Director, Senior Vice President & Clerk, Scudder Investor Services, Inc.
                                 (broker/dealer)*
                           Director, Vice President & Secretary, Scudder Fund Accounting Corporation (in-house
                                 fund accounting agent)*
                           Director, Vice President & Secretary, Scudder Realty Holdings Corporation (a real
                                 estate holding company)*
                           Director & Clerk, Scudder Service Corporation (in-house transfer agent)*
                           Director, SFA, Inc. (advertising agency)*
                           Vice President & Assistant Secretary, Scudder Precious Metals, Inc. xxx

Cornelia M. Small          Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
                           President, AARP Cash Investment Funds (investment company)**
                           President, AARP Growth Trust (investment company)**
                           President, AARP Income Trust (investment company)**

                                Part C - Page 15
<PAGE>

                           President, AARP Tax Free Income Trust (investment company)**
                           President, AARP Managed Investment Portfolio Trust (investment company)**

Edmond D. Villani          Director, President & Chief Executive Officer, Scudder, Stevens & Clark, Inc.
                                 (investment adviser)**
                           Chairman & Director, The Argentina Fund, Inc. (investment company)**
                           Chairman & Director, The Latin America Dollar Income Fund, Inc. (investment company)**
                           Chairman & Director, Scudder World Income Opportunities Fund, Inc.  (investment
                                 company)**
                           Supervisory Director, Scudder Mortgage Fund (investment company) +
                           Supervisory Director, Scudder Floating Rate Funds for Fannie Mae Mortgage Securities
                                 I & II (investment company)+
                           Director, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
                           Director, The Brazil Fund, Inc. (investment company)**
                           Director, Indosuez High Yield Bond Fund (investment company) Luxembourg
                           President & Director, Scudder, Stevens & Clark Overseas Corporationoo
                           President & Director, Scudder, Stevens & Clark Corporation (Delaware) (investment
                                 adviser)**
                           Director, Scudder Realty Advisors, Inc. (realty investment adviser) x
                           Director, IBJ Global Investment Management S.A., (Luxembourg investment 
                                 management company) Luxembourg, Grand-Duchy of Luxembourg

Stephen A. Wohler          Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
                           Vice President, Montgomery Street Income Securities, Inc. (investment company)o

         *        Two International Place, Boston, MA
         x        333 South Hope Street, Los Angeles, CA
         **       345 Park Avenue, New York, NY
         ++       Two Prudential Plaza, 180 N. Stetson Avenue, Chicago, IL
         +++      5 Industrial Way, Salem, NH
         o        101 California Street, San Francisco, CA
         #        Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg, R.C. Luxembourg B 34.564
         +        John B. Gorsiraweg 6, Willemstad Curacao, Netherlands Antilles
         xx       De Ruyterkade 62, P.O. Box 812, Willemstad Curacao, Netherlands Antilles
         ##       2 Boulevard Royal, Luxembourg
         ***      B1 2F3F 248 Section 3, Nan King East Road, Taipei, Taiwan
         xxx      Grand Cayman, Cayman Islands, British West Indies
         oo       20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
         ###      1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
         @        c/o Sinclair Hendersen Limited, 23 Cathedral Yard, Exeter, Devon, U.K.

</TABLE>
Item 29.          Principal Underwriters.
--------          -----------------------

         (a)      Scudder California Tax Free Trust
                  Scudder Cash Investment Trust
                  Scudder Equity Trust
                  Scudder Fund, Inc.
                  Scudder Funds Trust
                  Scudder Global Fund, Inc.
                  Scudder GNMA Fund
                  Scudder Institutional Fund, Inc.
                  Scudder International Fund, Inc.
                  Scudder Investment Trust
                  Scudder Municipal Trust
                  Scudder Mutual Funds, Inc.
                  Scudder Pathway Series

                                Part C - Page 16
<PAGE>

                  Scudder Portfolio Trust
                  Scudder Securities Trust
                  Scudder State Tax Free Trust
                  Scudder Tax Free Money Fund
                  Scudder Tax Free Trust
                  Scudder U.S. Treasury Money Fund
                  Scudder Variable Life Investment Fund
                  AARP Cash Investment Funds
                  AARP Growth Trust
                  AARP Income Trust
                  AARP Tax Free Income Trust
                  AARP Managed Investment Portfolios Trust
                  The Japan Fund, Inc.

         (b)

<TABLE>
<CAPTION>
<S>     <C>                                <C>                                     <C>
         (1)                               (2)                                     (3)

         Name and Principal                Position and Offices with               Positions and
         Business Address                  Scudder Investor Services, Inc.         Offices with Registrant
         ----------------                  -------------------------------         -----------------------

         E. Michael Brown                  Assistant Treasurer                     None
         Two International Place
         Boston, MA  02110

         Mark S. Casady                    Director and Vice President             None
         Two International Place
         Boston, MA  02110

         Linda Coughlin                    Director and Senior Vice President      None
         Two International Place
         Boston, MA  02110

         Richard W. Desmond                Vice President                          None
         345 Park Avenue
         New York, NY  10154

         Paul J. Elmlinger                 Senior Vice President and Assistant     None
         345 Park Avenue                   Clerk
         New York, NY  10154

         Margaret D. Hadzima               Assistant Treasurer                     None
         Two International Place
         Boston, MA  02110

         Thomas W. Joseph                  Director, Vice President,               Vice President
         Two International Place           Treasurer and Assistant Clerk
         Boston, MA 02110

         Dudley H. Ladd                    Director and Senior Vice President      None
         Two International Place
         Boston, MA 02110

         David S. Lee                      Director, President and Assistant       Vice President
         Two International Place           Treasurer
         Boston, MA 02110



                                Part C - Page 17
<PAGE>

         Name and Principal                Position and Offices with               Positions and
         Business Address                  Scudder Investor Services, Inc.         Offices with Registrant
         ----------------                  -------------------------------         -----------------------

         Thomas F. McDonough               Assistant Clerk                         None
         Two International Place
         Boston, MA 02110

         Thomas H. O'Brien                 Assistant Treasurer                     None
         345 Park Avenue
         New York, NY  10154

         Edward J. O'Connell               Assistant Treasurer                     Vice President and
         345 Park Avenue                                                           Assistant Secretary
         New York, NY 10154

         Daniel Pierce                     Director, Vice President                Vice President and 
         Two International Place           and Assistant Treasurer                 Trustee
         Boston, MA 02110

         Kathryn L. Quirk                  Director, Senior Vice President and     Vice President and
         345 Park Avenue                   Clerk                                   Assistant Secretary
         New York, NY  10154

         Edmund J. Thimme                  Vice President                          None
         345 Park Avenue
         New York, NY  10154

         Benjamin Thorndike                Vice President                          None
         Two International Place
         Boston, MA 02110

         David B. Watts                    Assistant Treasurer                     President and Trustee
         Two International Place
         Boston, MA 02110

         Linda J. Wondrack                 Vice President                          None
         Two International Place
         Boston, MA 02110

</TABLE>
         The  Underwriter  has  employees  who are  denominated  officers  of an
         operational   area.   Such   persons   do  not  have   corporation-wide
         responsibilities  and are not  considered  officers  for the purpose of
         this Item 29.

         (c)

<TABLE>
<CAPTION>
<S>           <C>                      <C>                 <C>                   <C>                 <C>
                     (1)                     (2)                 (3)                 (4)                 (5)
                                       Net Underwriting    Compensation on
              Name of Principal         Discounts and        Redemptions          Brokerage              Other
                 Underwriter             Commissions       and Repurchases       Commissions         Compensation
                 -----------             -----------       ---------------       -----------         ------------

               Scudder Investor              None                None                None                None
                Services, Inc.
</TABLE>

Item 30.          Location of Accounts and Records.
--------          ---------------------------------

                  Certain  accounts,  books and other  documents  required to be
                  maintained  by  Section  31(a) of the  1940 Act and the  Rules
                  promulgated  thereunder are  maintained by Scudder,  Stevens &
                  Clark, Inc., Two International  Place,  Boston, MA 02110-4103.
                  Records relating to the duties of the  Registrant's  custodian
                  are  maintained  by  State  Street  Bank  and  Trust  Company,
                  Heritage Drive, North Quincy, Massachusetts.  Records relating
                  to  the  duties  of  the   Registrant's   transfer  agent  are
                  maintained by Scudder Service  Corporation,  Two International
                  Place, Boston, Massachusetts 02110-4103.

Item 31.          Management Services.
--------          --------------------

                  Inapplicable.

Item 32.          Undertakings.

                  Inapplicable.


                                Part C - Page 18

<PAGE>
                                           SIGNATURES

         Pursuant  to the  requirements  of the  Securities  Act of 1933 and the
Investment  Company Act of 1940, the  Registrant  certifies that it meets all of
the  requirements  for  effectiveness  of  this  amendment  to its  Registration
Statement  pursuant to Rule 485(a) under the Securities Act of 1933 and has duly
caused this amendment to its  Registration  Statement to be signed on its behalf
by the  undersigned,  thereunto  duly  authorized  in the City of Boston and the
Commonwealth of Massachusetts on the 28th day of February, 1997.

                                   SCUDDER VARIABLE LIFE INVESTMENT FUND

                                   By /s/Thomas F. McDonough
                                      --------------------------------
                                      Thomas F. McDonough, Secretary

     Pursuant to the requirements of the Securities Act of 1933, this amendment
to its Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.

SIGNATURE                    TITLE                     DATE
---------                    -----                     -----

/s/David B. Watts
-----------------
David B. Watts*              President (Principal            February 28, 1997
                             Executive Officer)                               
                             and Trustee                                      
                                                                              
/s/Daniel Pierce                                                              
-----------------                                                             
Daniel Pierce*               Vice President and Trustee      February 28, 1997
                                                                              
                                                                              
                                                                              
/s/Dr. Kenneth Black, Jr.                                                     
--------------------------   Trustee                         February 28, 1997
Dr. Kenneth Black, Jr.*                                                       
                                                                              
                                                                              
/s/Dr. Rosita P. Chang                                                        
--------------------------   Trustee                         February 28, 1997
Dr. Rosita P. Chang*                                                          
                                                                              
                                                                              
/s/Peter B. Freeman                                                           
--------------------------                                                    
Peter B. Freeman*            Trustee                         February 28, 1997
                                                                              
                                                                              
/s/Dr. J. D. Hammond                                                          
--------------------------                                                    
Dr. J. D. Hammond*           Trustee                         February 28, 1997
<PAGE>                                                                        
                             

--------------------------
Pamela A. McGrath            Treasurer (Principal            February 28, 1997 
                             Financial and                                      
                             Accounting Officer)                                
                             and Vice President                                 
                                                    
*By:/s/Thomas F. McDonough
    ----------------------
     Thomas F. McDonough**

**   Attorney-in-fact pursuant to the
     powers of attorney contained in
     the signature pages of
     Post-Effective Amendment No. 9 to
     the Registration Statement filed
     March 3, 1989 and Post-Effective
     Amendment No. 19 to the
     Registration Statement filed
     May 1, 1996.

                                       2