INVESTORS MARK SERIES FUND INC, 497, 1998-05-11

INVESTORS MARK SERIES FUND INC
497, 1998-05-11

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<PAGE>
INVESTORS MARK SERIES FUND, INC.

PROSPECTUS DATED MAY 1, 1998

Investors Mark Series Fund, Inc. (the "Fund") is an open-end management
investment company authorized to issue multiple series of shares, each
representing a diversified portfolio of investments (individually, a "Portfolio"
and collectively, the "Portfolios"). The Fund currently has authorized ten
series, nine of which are available hereunder.

This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. The Fund's shares are
currently offered only to insurance companies ("Participating Insurance
Companies") to fund benefits under their variable annuity contracts ("VA
Contracts") and variable life insurance policies ("VLI Policies").

Please read this Prospectus carefully and retain it for future reference.
This Prospectus should be read in conjunction with the prospectuses issued by
the Participating Insurance Companies for the VA Contracts and VLI Policies that
accompany this Prospectus. Additional information about the Fund and the
Portfolios is contained in a Statement of Additional Information ("SAI") which
has been filed with the Securities and Exchange Commission (the "SEC") and is
available to investors without charge by calling the Fund at 1-888-262-8131. The
SAI, as amended from time to time, bears the same date as this Prospectus and is
incorporated by reference in its entirety into this Prospectus. The Securities
and Exchange Commission maintains a Web Site (http://www.sec.gov) that contains
the SAI, material incorporated by reference, and other information regarding the
Fund.

This Prospectus does not constitute an offer to sell, or a solicitation of
an offer to buy, the securities of the Fund in any jurisdiction in which such
sale, offer to sell, or solicitation may not be lawfully made.

PURCHASERS SHOULD BE AWARE THAT AN INVESTMENT IN THE MONEY MARKET PORTFOLIO
IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO
ASSURANCE THAT THE MONEY MARKET PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE. THE BALANCED PORTFOLIO WILL INVEST UP TO 75% OF
ITS ASSETS IN LOWER RATED BONDS, COMMONLY KNOWN AS "JUNK BONDS", THAT ENTAIL
GREATER RISKS INCLUDING DEFAULT RISKS, THAN THOSE FOUND IN HIGHER RATED
SECURITIES. INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS BEFORE INVESTING.
INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK. SHARES OF THE FUND ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENTAL AGENCY. AN INVESTMENT IN THE FUND IS SUBJECT TO RISK THAT MAY CAUSE
THE VALUE OF THE INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS REDEEMED,
THE VALUE MAY BE HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED BY THE
INVESTOR.

LIKE ALL MUTUAL FUNDS, 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 CURRENTLY OFFERED EXCLUSIVELY
AS A POOLED FUNDING VEHICLE FOR LIFE INSURANCE COMPANIES WRITING ALL TYPES OF
VARIABLE LIFE INSURANCE POLICIES AND VARIABLE ANNUITY CONTRACTS.
<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY................................................................. 1
EXPENSE SUMMARY......................................................... 4
FINANCIAL HIGHLIGHTS.................................................... 6
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS.................... 7
COMMON TYPES OF SECURITIES AND MANAGEMENT PRACTICES..................... 17
INVESTMENT RISKS........................................................ 26
OTHER RISKS............................................................. 29
INVESTMENT RESTRICTIONS................................................. 29
PORTFOLIO TURNOVER...................................................... 29
MANAGEMENT OF THE FUND.................................................. 29
PERFORMANCE ADVERTISING................................................. 34
PURCHASES AND REDEMPTIONS............................................... 37
NET ASSET VALUE......................................................... 37
TAX STATUS, DIVIDENDS AND DISTRIBUTIONS................................. 38
GENERAL INFORMATION..................................................... 38
</TABLE>

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SUMMARY

THE FUND

The Fund is an open-end management investment company which currently offers
shares of nine of its ten Portfolios as follows: the Balanced Portfolio, the
Global Fixed Income Portfolio, the Growth & Income Portfolio, the Intermediate
Fixed Income Portfolio, the Large Cap Value Portfolio, the Large Cap Growth
Portfolio, the Mid Cap Equity Portfolio, the Money Market Portfolio and the
Small Cap Equity Portfolio. Each of the Portfolios has distinct investment
objectives and policies. See "Investment Objectives and Policies." Additional
Portfolios may be added to the Fund in the future. This Prospectus will be
supplemented or amended to reflect the addition of any new Portfolios.

This summary, which provides basic information about the Portfolios and the
Fund, is qualified in its entirety by reference to the more detailed information
provided elsewhere in this Prospectus and in the SAI.

INVESTMENT ADVISER AND SUB-ADVISERS

Subject to the authority of the Board of Directors of the Fund, Investors
Mark Advisors, LLC (the "Adviser") serves as the Fund's investment adviser and
has responsibility for the overall management of the investment strategies and
policies of the Portfolios. The Adviser has engaged Sub-Advisers for each of the
Portfolios to make investment decisions and place orders. The Sub-Advisers for
the Portfolios are as follows:

<TABLE>
<CAPTION>
SUB-ADVISER NAME OF PORTFOLIO
- ---------------------------------------- ----------------------------------------
<S> <C>
Standish, Ayer & Wood, Inc.............. Intermediate Fixed Income
Mid Cap Equity
Money Market
Standish International Management
Company, L.P........................... Global Fixed Income
Stein Roe & Farnham, Incorporated....... Small Cap Equity
Large Cap Growth
David L. Babson & Co., Inc.............. Large Cap Value
Lord, Abbett & Co....................... Growth & Income
Kornitzer Capital Management, Inc....... Balanced
</TABLE>

For additional information concerning the Adviser and the Sub-Advisers,
including a description of advisory and sub-advisory fees, see "Management of
the Fund."

THE PORTFOLIOS

BALANCED PORTFOLIO. The Portfolio seeks both long-term capital growth and
high current income. Long-term capital growth is intended to be achieved
primarily by the Portfolio's investment in common stocks and secondarily by the
Portfolio's investment in convertible bonds and convertible preferred stocks.
High current income is intended to be achieved by the Portfolio's investment in
corporate bonds, government bonds, convertible bonds, preferred stocks and
convertible preferred stocks. THE PORTFOLIO WILL INVEST UP TO 75% OF ITS ASSETS
IN LOWER RATED BONDS, COMMONLY KNOWN AS "JUNK BONDS," THAT ENTAIL GREATER RISKS
INCLUDING DEFAULT RISKS, THAN THOSE FOUND IN HIGHER-RATED SECURITIES. INVESTORS
SHOULD CAREFULLY CONSIDER THESE RISKS BEFORE INVESTING.

GLOBAL FIXED INCOME PORTFOLIO. The investment objective of the Portfolio is
to maximize total return while realizing a market level of income consistent
with preserving principal and liquidity. Under normal market conditions, the
Portfolio will invest at least 65% of its total assets in fixed income
securities of

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foreign governments or their political subdivisions and companies located in at
least three countries around the world, including the United States.

GROWTH & INCOME PORTFOLIO. The investment objective of the Portfolio is
long-term growth of capital and income without excessive fluctuation in market
value. The Portfolio will normally invest in common stocks (including securities
convertible into common stocks) of large, seasoned companies in sound financial
condition, which common stocks are expected to show above-average price
appreciation.

INTERMEDIATE FIXED INCOME PORTFOLIO. The investment objective of this
Portfolio is primarily to achieve a high level of current income, consistent
with conserving principal and liquidity, and secondarily to seek capital
appreciation when changes in interest rates or other economic conditions
indicate that capital appreciation may be available without significant risk to
principal. Under normal market conditions, substantially all, and at least 65%,
of the Portfolio's total assets will be invested in investment grade fixed
income securities.

LARGE CAP VALUE PORTFOLIO. The Portfolio seeks long-term growth of capital
and income by investing in a diversified portfolio of common stocks which are
considered to be undervalued in relation to earnings, dividends and/or assets.
The Portfolio may be considered "contrarian" in nature in that its investments
will typically include shares of companies that are relatively unpopular and
out-of-favor with general investors.

LARGE CAP GROWTH PORTFOLIO. The Portfolio seeks long-term capital
appreciation. The Portfolio will normally invest at least 65% of its total
assets in common stocks and other equity-type securities that the Portfolio's
Sub-Adviser believes to have long-term appreciation possibilities.

MID CAP EQUITY PORTFOLIO. The investment objective of the Portfolio is to
achieve long-term growth of capital through investment primarily in equity and
equity-related securities of companies which appear to be undervalued. Under
normal circumstances, at least 80% of the Portfolio's total assets will be
invested in equity and equity-related securities.

MONEY MARKET PORTFOLIO. The investment objective of the Portfolio is to
obtain the highest level of current income that is consistent with the
preservation of capital and maintenance of liquidity. The Portfolio will invest
primarily in high-quality, short-term money market instruments. AN INVESTMENT IN
THE PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT.

SMALL CAP EQUITY PORTFOLIO. The Portfolio seeks long-term capital
appreciation by investing primarily in a diversified portfolio of equity
securities of entrepreneurially managed companies that the Sub-Adviser believes
represent special opportunities. It emphasizes investments in financially strong
small and medium-sized companies, based principally on appraisal of their
management and stock valuations.

The investment objectives, policies and practices of the Portfolios are not
fundamental and may be changed by the Board of Directors without the approval of
a majority of the outstanding shares of each Portfolio. Certain investment
restrictions are fundamental and may not be changed without shareholder
approval. A complete list of investment restrictions, including those
restrictions which cannot be changed without shareholder approval, is contained
in the SAI. There is no assurance that a Portfolio will meet its stated
objective.

INVESTMENT RISKS

Each Portfolio invests in securities that fluctuate in value, and investors
should expect each Portfolio's net asset value per share to fluctuate. Certain
Portfolios may invest in stocks and convertible securities that may be traded in
the over-the-counter market. Some of these securities may not be as liquid as
exchange-listed stocks. In addition, certain Portfolios may invest in the
securities of small capitalization companies which may experience greater price
volatility than investment companies that invest primarily in more established,
larger capitalized companies.

When interest rates decline, the value of an investment portfolio invested
in fixed-income securities can be expected to rise. Conversely, when interest
rates rise, the value of an investment portfolio invested

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in fixed-income securities can be expected to decline. In the case of foreign
currency denominated securities, these trends may be offset or amplified by
fluctuations in foreign currencies. Investments by a Portfolio in foreign
securities may be affected by adverse political, diplomatic, and economic
developments, changes in foreign currency exchange rates, taxes or other
assessments imposed on distributions with respect to those investments, and
other factors affecting foreign investments generally. High-yielding
fixed-income securities, which are commonly known as "junk bonds", are subject
to greater market fluctuations and risk of loss of income and principal than
investments in lower yielding fixed-income securities. Certain Portfolios intend
to employ, from time to time, certain investment techniques which are designed
to enhance income or total return or hedge against market or currency risks but
which themselves involve additional risks. These techniques include options on
securities, futures, options on futures, options on indexes, options on foreign
currencies, foreign currency exchange transactions, lending of securities and
when-issued securities and delayed-delivery transactions. Certain Portfolios may
have higher-than-average portfolio turnover which may result in
higher-than-average brokerage commissions and transaction costs. See "Investment
Risks."

PURCHASES AND REDEMPTIONS

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EXPENSE SUMMARY

The purpose of this section is to provide you with information about the
expenses of the various Portfolios.

<TABLE>
<S><C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GLOBAL
INTERMEDIATE MID CAP MONEY FIXED SMALL CAP LARGE CAP LARGE CAP GROWTH &
SHAREHOLDER TRANSACTION FIXED INCOME EQUITY MARKET INCOME EQUITY GROWTH VALUE INCOME BALANCED
EXPENSES PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------- ------------ --------- --------- --------- --------- --------- --------- --------- ---------
Sales Load Imposed on
Purchases............... None None None None None None None None None
Sales Load Imposed on
Reinvested Dividends.... None None None None None None None None None
Deferred Sales Load...... None None None None None None None None None
Redemption Fees.......... None None None None None None None None None
Exchange Fees............ None None None None None None None None None

ANNUAL OPERATING EXPENSES
(as a percentage of
average net assets after
applicable expense
reimbursements)

Advisory Fees............ .60% .80% .40% .75% .95% .80% .80% .80% .80%
12b-1 Fees............... None None None None None None None None None
Other Expenses (after
expense
reimbursement).......... .20% .10% .10% .25% .10% .10% .10% .10% .10%
Total Operating Expenses
(after expense
reimbursement).......... .80% .90% .50% 1.00% 1.05% .90% .90% .90% .90%
Estimated Total Operating
Expenses without
reimbursement by
Adviser................. 2.04% 1.10% 1.15% 2.04% 1.25% 1.02% 1.02% 1.10% 1.10%
</TABLE>

The Adviser has voluntarily agreed to assume Other Expenses in an amount
that operates to limit Total Operating Expenses of the Portfolios to the
percentages shown above. This expense limitation may be modified or terminated
in the discretion of the Adviser at any time without notice to shareholders
after April 30, 1999. Total Operating Expenses include, but are not limited to,
expenses such as investment advisory fees, custodian fees, transfer agent fees,
audit fees and legal fees. Such possible assumptions of Other Expenses by the
Adviser are subject to a possible reimbursement by the Portfolios in future
years if such reimbursement can be achieved within the foregoing annual expense
limits. The Sub-Advisers have voluntarily agreed to waive their fees for a
period of time to assist the Adviser in subsidizing Other Expenses.

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EXAMPLE

<TABLE>
<C> <C> <C>
An investor in a Portfolio would pay the following expenses on a
$1,000 investment assuming (1) 5% annual return, and (2) redemption
at the end of each time period.

1 YEAR 3 YEARS
------- -------
Intermediate Fixed Income............................................. $ 8.37 $ 26.16
Mid Cap Equity........................................................ $ 9.41 $ 29.38
Money Market.......................................................... $ 5.24 $ 16.42
Global Fixed Income................................................... $ 10.45 $ 32.60
Small Cap Equity...................................................... $ 10.97 $ 34.20
Large Cap Growth...................................................... $ 9.41 $ 29.38
Large Cap Value....................................................... $ 9.41 $ 29.38
Growth & Income....................................................... $ 9.41 $ 29.38
Balanced.............................................................. $ 9.41 $ 29.38
</TABLE>

The example is based upon estimated Total Operating Expenses for the
Portfolios, as set forth in the "Annual Operating Expenses" table above and
reflects the expense reimbursement arrangement in effect. THE EXAMPLE SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. THE TABLE DOES NOT REFLECT ADDITIONAL
CHARGES AND EXPENSES WHICH ARE IMPOSED UNDER THE VA CONTRACTS AND VLI POLICIES.
SUCH CHARGES AND EXPENSES ARE DESCRIBED IN THE PROSPECTUS OF THE PARTICIPATING
INSURANCE COMPANY SEPARATE ACCOUNT. The purpose of this table is to assist the
investor in understanding the various costs and expenses that may be directly or
indirectly borne by investors in the Portfolios. See "The Adviser" and "The
Sub-Advisers".

5
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FINANCIAL HIGHLIGHTS

The following financial highlights as of December 31, 1997 and for the
period from November 13, 1997 to December 31, 1997, have been derived from
audited financial statements of Investors Mark Series Fund, Inc. and should be
read in conjunction with the financial statements of the Fund and the report of
Ernst & Young LLP, independent auditors, appearing in the December 31, 1997
Annual Report which is incorporated in the Fund's SAI. Additional information
about the performance of the Fund's Portfolios is contained in the Annual Report
which can be obtained without charge by calling the Fund at 1-888-262-8131.

Condensed data for a share of capital stock outstanding throughout the
period from November 13, 1997 (commencement) to December 31, 1997.
<TABLE>
<CAPTION>
LARGE CAP LARGE CAP MID CAP SMALL CAP GROWTH
VALUE GROWTH EQUITY EQUITY & INCOME BALANCED
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period................. $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income............................ 0.0291 0.0046 0.0185 0.0037 0.0204 0.0627
Net gains or (losses) on securities (both
realized and unrealized)....................... (0.3141) 0.7054 0.4882 (0.2837) 0.4046 (0.0447)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations................... (0.2850) 0.7100 0.5067 (0.2800) 0.4250 0.0180
----------- ----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends from net investment income............. (0.0250) -- (0.0167) -- (0.0150) (0.0580)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions................................ (0.0250) -- (0.0167) -- (0.0150) (0.0580)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period....................... $ 9.69 $ 10.71 $ 10.49 $ 9.72 $ 10.41 $ 9.96
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Total Return......................................... (2.86%) 7.10% 5.07% (2.80%) 4.25% 0.18%
Ratios/Supplemental Data
Net assets, end of period (in millions).............. $ 2.4 $ 2.2 $ 2.1 $ 2.0 $ 2.1 $ 2.5
Ratio of expenses to average net assets.............. 0.90% 0.90% 0.90% 1.05% 0.90% 0.90%
Ratio of net investment income (loss) to average net
assets.............................................. 2.21% 0.33% 1.34% 0.29% 1.50% 4.78%
Ratio of expenses to average net assets before
voluntary expense reimbursement..................... 2.78% 3.19% 3.40% 3.49% 3.19% 2.78%
Ratio of net investment income to average net assets
before voluntary expense reimbursement.............. 0.33% (1.96%) (1.16%) (2.15%) (0.79%) 2.90%
Portfolio turnover rate.............................. -- -- 13.11% 8.35% -- --
Average commission paid per equity share traded...... $ 0.0576 $ 0.1115 $ 0.0219 $ 0.0842 $ 0.0694 $ 0.0502

<CAPTION>
INTERMEDIATE GLOBAL MONEY
FIXED INCOME FIXED INCOME MARKET
------------- ------------- ---------
<S> <C> <C> <C>
Net asset value, beginning of period................. $ 10.00 $ 10.00 $ 1.00
------------- ------------- ---------
Income from investment operations:
Net investment income............................ 0.0728 0.0887 0.0071
Net gains or (losses) on securities (both
realized and unrealized)....................... 0.0542 0.0813 --
------------- ------------- ---------
Total from investment operations................... 0.1270 0.1700 0.0071
------------- ------------- ---------
Less distributions:
Dividends from net investment income............. (0.0670) (0.0800) (0.0071)
------------- ------------- ---------
Total distributions................................ (0.0670) (0.0800) (0.0071)
------------- ------------- ---------
Net asset value, end of period....................... $ 10.06 $ 10.09 $ 1.00
------------- ------------- ---------
------------- ------------- ---------
Total Return......................................... 1.27% 1.70% 0.71%
Ratios/Supplemental Data
Net assets, end of period (in millions).............. $ 2.0 $ 5.1 $ 1.0
Ratio of expenses to average net assets.............. 0.80% 1.00% 0.50%
Ratio of net investment income (loss) to average net
assets.............................................. 5.40% 5.29% 5.26%
Ratio of expenses to average net assets before
voluntary expense reimbursement..................... 3.09% 2.28% 4.90%
Ratio of net investment income to average net assets
before voluntary expense reimbursement.............. 3.11% 4.01% 0.86%
Portfolio turnover rate.............................. 39.21% 25.39% --
Average commission paid per equity share traded...... n/a n/a n/a
</TABLE>

Performance ratios are annualized, except total return.

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INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS

Each Portfolio of the Fund has a different investment objective or
objectives 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 return of each Portfolio and the degree of market and
financial risk to which each Portfolio is subject. An investment in a single
Portfolio should not be considered a complete investment program. The investment
objective(s) and policies of each Portfolio are non-fundamental and may be
changed by the Directors of the Fund without a vote of the shareholders. Such
changes may result in a Portfolio having an investment objective(s) which
differs from that which an investor may have considered at the time of
investment. There is no assurance that any Portfolio will achieve its
objective(s). United States Treasury Regulations applicable to portfolios that
serve as the funding vehicles for variable annuity and variable life insurance
contracts generally require that such portfolios invest no more than 55% of the
value of their assets in one investment, 70% in two investments, 80% in three
investments, and 90% in four investments. The Portfolios intend to comply with
the requirements of these Regulations.

In order to comply with regulations which may be issued by the U.S.
Treasury, the Fund may be required to limit the availability or change the
investment policies of one or more Portfolios or to take steps to liquidate one
or more Portfolios. The Fund will not change any fundamental investment policy
of a Portfolio without a vote of shareholders of that Portfolio.

Except as otherwise noted herein, if the securities rating of a debt
security held by a Portfolio declines below the minimum rating for securities in
which the Portfolio may invest, the Portfolio will not be required to dispose of
the security, but the Portfolio's Adviser or Sub-Adviser will consider whether
continued investment in the security is consistent with the Portfolio's
investment objective.

In implementing its investment objectives and policies, each Portfolio uses
a variety of instruments, strategies and techniques which are described in more
detail in the SAI. With respect to each Portfolio's investment policies (except
for the Small Cap Equity Portfolio), use of the term "primarily" means that
under normal circumstances, at least 65% of such Portfolio's assets will be
invested as indicated. A description of the ratings systems used by the
following nationally recognized statistical rating organizations ("NRSROs") is
also contained in the SAI: Moody's Investors Service, Inc. ("Moody's"), Standard
& Poor's Ratings Group ("S&P"), Duff & Phelps, Inc. ("Duff"), Fitch Investors
Service, Inc. ("Fitch"), Thomson Bankwatch, Inc., IBCA, Ltd. and IBCA Inc. New
instruments, strategies and techniques, however, are evolving continually and
the Fund reserves authority to invest in or implement them to the extent
consistent with the investment objectives and policies of each Portfolio. If new
instruments, strategies or techniques would involve a material change to the
information contained herein, they will not be purchased or implemented until
this Prospectus is appropriately supplemented.

For a complete description of permissible investments for the Portfolios and
for a discussion of risk factors in connection with such investments, see
"Common Types of Securities and Management Practices" and "Investment Risks."

BALANCED PORTFOLIO

The Balanced Portfolio seeks both long-term capital growth and high current
income. Long-term capital growth is intended to be achieved primarily by the
Portfolio's investment in common stocks and secondarily by the Portfolio's
investment in convertible bonds and convertible preferred stocks. High current
income is intended to be achieved by the Portfolio's investment in corporate
bonds, government bonds, mortgage-backed securities, convertible bonds,
preferred stocks and convertible preferred stocks.

The Portfolio will normally invest in a broad array of securities,
diversified not only in terms of companies and industries, but also in terms of
types of securities. The types of securities include common stocks, preferred
stocks, convertible bonds, convertible preferred stocks, corporate bonds and
government bonds. It is expected that the majority of common stocks purchased by
the Portfolio will be mid to large

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<PAGE>
capitalization companies with most, if not all, listed on the New York Stock
Exchange. Mid to large capitalization stocks are considered to be those with
capitalization in excess of $1 billion.

It is not the Sub-Adviser's intention to make wide use of NASDAQ traded,
smaller capitalization common stocks. Smaller capitalization stocks are
considered to be those with capitalization of less than $1 billion. The
Portfolio may invest up to 75% of its assets in corporate bonds, convertible
bonds, preferred stocks and convertible preferred stocks. The Sub-Adviser
expects that from time-to-time these securities may be rated below investment
grade (BBB) by the major rating agencies. The Sub-Adviser believes this policy
is justified given the Sub-Adviser's view that these securities from
time-to-time offer superior value and the Sub-Adviser's experience and
substantial in-house credit research capabilities with higher yielding
securities.

Securities rated Baa or higher by Moody's or BBB or higher by S&P are
classified as investment grade securities. Although securities rated Baa by
Moody's and BBB by S&P have speculative characteristics, they are considered to
be investment grade. Such securities carry a lower degree of risk than lower
rated securities. (See "Investment Risks--Risk Factors Applicable to
High-Yield/High-Risk Debt Securities.")

Securities rated below Baa by Moody's or BBB by S&P are commonly known as
"junk bonds" and are considered to be high risk. Yields on such bonds will
fluctuate over time, and achievement of the Portfolio's investment objective may
be more dependent on the Portfolio's own credit analysis than is the case for
higher rated bonds. (See "Investment Risks--Risk Factors Applicable to
High-Yield/High-Risk Debt Securities.")

The Portfolio may invest in junk bonds. Up to 20% of the Portfolio's assets
may be invested in debt securities which are rated less than B or unrated.

The Portfolio will not invest in securities that, at the time of initial
investment, are rated less than B by Moody's or S&P. Securities that are
subsequently downgraded in quality below B may continue to be held by the
Portfolio, and will be sold only if the Sub-Adviser believes it would be
advantageous to do so. In addition, the credit quality of unrated securities
purchased by the Portfolio must be, in the opinion of the Sub-Adviser, at least
equivalent to a B rating by Moody's or S&P.

Securities rated less than Baa by Moody's or BBB by S&P are classified as
non-investment grade securities. Such securities carry a high degree of risk and
are considered speculative by the major credit rating agencies. (See "Investment
Risks--Risk Factors Applicable to High-Yield/High-Risk Debt Securities.") The
proportion of the Portfolio invested in each type of security is expected to
change over time in accordance with the Sub-Adviser's interpretation of economic
conditions and underlying security values. However, it is expected that a
minimum of 25% of the Portfolio's total assets will always be invested in fixed
income senior securities and that a minimum of 25% of its total assets will
always be invested in equity securities. When, in the Sub-Adviser's judgment,
market conditions warrant substantial temporary investments in high-quality
money market securities, the Portfolio may do so.

The Portfolio is authorized to write (i.e. sell) covered call options on the
securities in which it may invest and to enter into closing purchase
transactions with respect to certain of such options. A covered call option is
an option where the Portfolio in return for a premium gives another party a
right to buy specified securities owned by the Portfolio at a specified future
date and price set at the time of the contract. (See "Investment Risks--Covered
Call Options.")

Covered call options serve as a partial hedge against the price of the
underlying security declining.

Investments in money market securities shall include government securities,
commercial paper, bank certificates of deposit and repurchase agreements
collateralized by government securities. Investment in commercial paper is
restricted to companies rated in the top two rating categories by Moody's and
S&P.

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The Portfolio may also invest in issues of the United States treasury or a
United States government agency subject to repurchase agreements. The use of
repurchase agreements by the Portfolio involves certain risks. For a discussion
of these risks, see "Investment Risks--Repurchase Agreements."

GLOBAL FIXED INCOME PORTFOLIO

The Portfolio's investment objective is to maximize total return while
realizing a market level of income consistent with preserving principal and
liquidity.

Under normal market conditions, the Portfolio invests at least 65% of its
total assets in fixed income securities of foreign governments or their
political subdivisions and companies located in at least three countries around
the world, including the United States.

Under normal market conditions, the Portfolio's assets are invested in
securities of issuers located in at least three different countries, one of
which may be the United States. The Portfolio intends, however, to invest in no
fewer than eight foreign countries. The Portfolio may invest a substantial
portion of its assets in one or more of those eight countries. The Portfolio may
also invest up to 10% of its total assets in emerging markets generally and may
invest up to 3% of its total assets in any one emerging market.

The Portfolio will be an actively managed non-diversified portfolio
consisting primarily of fixed income securities denominated in foreign
currencies and the U.S. dollar. In pursuing the Portfolio's investment strategy,
the Sub-Adviser seeks to add value to the Portfolio by selecting undervalued
investments, rather than by varying the average maturity of a Portfolio to
reflect interest rate forecasts. The Sub-Adviser utilizes fundamental credit and
sector valuation techniques to evaluate what it considers to be less efficient
markets and sectors of the fixed income marketplace in an attempt to select
securities with the potential for the highest return. The Sub-Adviser emphasizes
intermediate term economic fundamentals relating to foreign countries and
emerging markets, rather than focusing on day-to-day fluctuations in a
particular currency or in the fixed income markets.

The Portfolio may invest in all types of fixed income securities including
bonds, notes (including structured or hybrid notes), mortgage-backed securities,
asset-backed securities, convertible securities, Eurodollar and Yankee Dollar
instruments, preferred stocks (including convertible preferred stock), listed
and unlisted warrants and money market instruments. These fixed income
securities may be issued by foreign and U.S. corporations or entities, foreign
governments and their political subdivisions, the U.S. Government, its agencies,
authorities, instrumentalities or sponsored enterprises and supranational
entities. Supranational entities include international organizations designated
or supported by governmental entities to promote economic reconstruction or
development, and international banking institutions and related government
agencies.

The Portfolio purchases securities that pay interest on a fixed, variable,
floating, inverse floating, contingent, in-kind or deferred basis. The Portfolio
may enter into repurchase agreements and forward dollar roll transactions, may
purchase zero coupon and deferred payment securities, may buy securities on a
when-issued or delayed delivery basis, may engage in short sales and may lend
portfolio securities. The Portfolio may enter into various forward foreign
currency exchange transactions and foreign currency futures transactions and
utilize over-the-counter ("OTC") options to seek to manage the Portfolio's
foreign currency exposure.

The Portfolio invests primarily in investment grade fixed income securities,
i.e., securities rated at the time of purchase at least Baa by Moody's or BBB by
S&P, Duff, Fitch or IBCA, Ltd., or, if unrated, determined by the Sub-Adviser to
be of comparable credit quality. If a security is rated differently by two or
more rating agencies, the Sub-Adviser uses the highest rating to compute the
Portfolio's credit quality and also to determine its rating category. In
determining whether unrated securities are of equivalent credit quality, the
Sub-Adviser may take into account, but will not rely entirely on, ratings
assigned by foreign rating agencies. If the rating of a security held by the
Portfolio is downgraded below the minimum

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<PAGE>
rating required for the Portfolio, the Sub-Adviser will determine whether to
retain that security in the Portfolio.

Securities rated within the top three investment grade ratings (i.e., Aaa,
Aa, A or P-1 by Moody's or AAA, AA, A, A-1 or Duff-1 by S&P, Duff, Fitch or
IBCA) are generally regarded as high grade obligations. Securities rated Baa or
P-2 by Moody's or BBB, A-2 or Duff-2 by S&P, Duff, Fitch or IBCA are generally
considered medium grade obligations and have some speculative characteristics.
Adverse changes in economic conditions or other circumstances are more likely to
weaken the medium grade issuer's capability to pay interest and repay principal
than is the case for high grade securities. If a non-investment grade fixed
income security presents special opportunities for the Portfolio, the Portfolio
may invest up to 15% of its total assets in securities rated Ba by Moody's or BB
by S&P, Duff, Fitch or IBCA, or, if not rated, judged by the Sub-Adviser to be
of equivalent credit quality. Below investment grade securities, commonly
referred to as "junk bonds," carry a higher degree of risk than investment grade
securities and are considered speculative by the rating agencies. (See
"Investment Risks--Risk Factors Applicable to High-Yield/High-Risk Debt
Securities.") The Sub-Adviser attempts to select for the Portfolio those medium
grade and non-investment grade fixed income securities that have the potential
for upgrade. The average dollar weighted credit quality of the Portfolio is
expected to be in a range of Aa to A according to Moody's or AA to A according
to S&P, Duff, Fitch or IBCA.

GROWTH & INCOME PORTFOLIO

The investment objective of the Growth & Income Portfolio is long-term
growth of capital and income without excessive fluctuation in market value. The
Fund intends to keep the Portfolio's assets invested in those securities which
are selling at reasonable prices in relation to value and, in doing so, it may
have to forego some opportunities for gains when, in the Fund's judgment, they
carry excessive risk. The Portfolio will try to anticipate major changes in the
economy and select stocks which it believes will benefit most from these
changes.

The Portfolio will normally invest in common stocks (including securities
convertible into common stocks) of large, seasoned companies in sound financial
condition, which common stocks are expected to show above-average price
appreciation. Although the prices of common stocks fluctuate and their dividends
vary, historically, common stocks have appreciated in value and their dividends
have increased when the companies they represent have prospered and grown.

The Portfolio constantly seeks to balance the opportunity for profit against
the risk of loss. In the past, very few industries have continuously provided
the best investment opportunities. The Portfolio will take a flexible approach
and make adjustments to reflect changes in the opportunity for sound investments
relative to the risks assumed. Therefore, the Portfolio will sell stocks that
are judged to be overpriced and reinvest the proceeds in other securities which
are believed to offer better values.

The Portfolio also has the authority to pursue a number of investment
policies and techniques, which it intends to use to reduce portfolio risk and
volatility. The policies and techniques each involve risk when used
independently and there can be no assurance that any particular policy or
technique will have the intended effect on the Portfolio. It is currently
intended that the Portfolio will invest no more than 5% of its net assets in:
(1) repurchase agreements; (2) rights and warrants to purchase securities
(including warrants that are not listed on the New York Stock Exchange or the
American Stock Exchange, provided that such warrants will not exceed 2% of the
Portfolio's net assets); and (3) call options on securities the Portfolio owns
(I.E., covered call options).

In addition, the Portfolio may invest in shares of closed-end investment
companies if bought in primary or secondary offerings with a fee or commission
no greater than the customary broker's commission and may seek to earn income by
lending its portfolio securities on a fully collateralized basis, subject to
applicable regulatory requirements. In both cases, it is currently intended that
these policies will not involve more than 5% of the Portfolio's net assets.

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The Portfolio will not purchase securities for trading purposes. To create
reserve purchasing power and also for temporary defensive purposes, the
Portfolio may invest in straight bonds and other fixed-income securities. When
the Fund believes that the Portfolio should assume a temporary defensive
position because of unfavorable investment conditions, the Portfolio may
temporarily hold its assets in cash and short-term money market instruments.

INTERMEDIATE FIXED INCOME PORTFOLIO

The Portfolio's investment objective is primarily to achieve a high level of
current income, consistent with conserving principal and liquidity, and
secondarily to seek capital appreciation when changes in interest rates or other
economic conditions indicate that capital appreciation may be available without
significant risk to principal.

Under normal market conditions, substantially all, and at least 65%, of the
Portfolio's assets are invested in investment grade fixed income securities. The
Portfolio may invest up to 20% of its total assets in fixed income securities of
foreign corporations and foreign governments and their political subdivisions,
including securities of issuers located in emerging markets. No more than 10% of
the Portfolio's total assets will be invested in foreign securities not subject
to currency hedging transactions back into U.S. dollars. The Portfolio may also
engage in short selling. See "Common Types of Securities and Management
Practices" and "Investment Risks" for additional information.

The Portfolio will be an actively managed diversified portfolio consisting
primarily of fixed income securities.

The Sub-Adviser's primary investment management and research focus is at the
security and industry/ sector level. The Sub-Adviser seeks to add value to the
Portfolio by selecting undervalued investments, rather than by varying the
average maturity of the Portfolio to reflect interest rate forecasts. The Sub-
Adviser utilizes fundamental credit and sector valuation techniques to evaluate
what it considers to be less efficient markets and sectors of the fixed income
marketplace in an attempt to select securities with the potential for the
highest return.

Fixed income securities in which the Portfolio invests include bonds, notes
(including structured or hybrid notes), mortgage-backed securities, asset-backed
securities, convertible securities, Eurodollar and Yankee Dollar instruments,
preferred stocks and money market instruments. These fixed income securities may
be issued by U.S. and foreign corporations or entities, U.S. and foreign banks,
the U.S. government, its agencies, authorities, instrumentalities or sponsored
enterprises, and foreign governments and their political subdivisions. The
Portfolio purchases securities that pay interest on a fixed, variable, floating,
inverse floating, contingent, in-kind or deferred basis. The Portfolio may enter
into repurchase agreements and forward dollar roll transactions, may purchase
zero coupon and deferred payment securities and may buy securities on a
when-issued or delayed delivery basis.

The Portfolio invests primarily in investment grade fixed income securities.
Investment grade securities are those that are rated at least Baa by Moody's or
BBB by S&P, Duff or Fitch or, if unrated, determined by the Sub-Adviser to be of
comparable credit quality. Foreign securities in which the Portfolio invests are
rated by IBCA, Ltd., in addition to the above listed ratings organizations. IBCA
uses the same ratings system as does S&P, Duff and Fitch. If a security is rated
differently by two or more rating agencies, the Sub-Adviser uses the highest
rating to compute the Portfolio's credit quality and also to determine its
rating category. In the case of unrated sovereign and subnational debt of
foreign countries, the Sub-Adviser may take into account, but will not rely
entirely on, the ratings assigned to the issuers of such securities. If the
rating of a security held by the Portfolio is downgraded below the minimum
rating required, the Sub-Adviser will determine whether to retain that security
in the Portfolio.

Securities rated Baa or P-2 by Moody's or BBB, A-2 or Duff-2 by S&P, Duff or
Fitch are generally considered medium grade obligations and have some
speculative characteristics. Adverse changes in economic conditions or other
circumstances are more likely to weaken the medium grade issuer's

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<PAGE>
capability to pay interest and repay principal than is the case for high grade
securities. The Portfolio may invest up to 20% of its total assets in below
investment grade fixed income securities rated Ba by Moody's or BB by S&P, Duff
or Fitch, or, if unrated, determined by the Sub-Adviser to be of comparable
credit quality. Below investment grade securities, commonly referred to as "junk
bonds," carry a higher degree of risk than medium grade securities and are
considered speculative by the rating agencies. (See "Investment Risks--Risk
Factors Applicable to High-Yield/High-Risk Debt Securities.") The Sub-Adviser
attempts to select for the Portfolio those medium grade and investment grade
fixed income securities that have the potential for upgrade. The average
dollar-weighted credit quality of the Portfolio's portfolio is expected to be Aa
according to Moody's or AA according to S&P, Duff or Fitch.

The Portfolio generally invests in securities with final maturities, average
lives or interest rate reset frequencies of 15 years or less.

Under normal market conditions, the Portfolio's average dollar-weighted
effective portfolio maturity will vary from five to thirteen years.

LARGE CAP VALUE PORTFOLIO

The Portfolio's investment objective is to seek long-term growth of capital
and income by investing principally in a diversified portfolio of common stocks
which are considered to be undervalued in relation to earnings, dividends and/or
assets.

The Portfolio intends to invest in stocks of companies which are rated "B-"
or better in investment quality (growth and stability of earnings and dividends)
by S&P and/or "B" or better by Value Line in financial strength. (For a
description of these ratings see "Description of Stock Ratings" in the SAI.)

A stock will be considered to be undervalued if it is currently trading at a
price below which the Sub-Adviser believes it should be trading and therefore a
superior potential investment based on one or more of the following comparisons:

1. price relative to earnings,

2. price relative to dividends,

3. price relative to assets as measured by book value.

Valuation levels as described above for each security will be compared to a
large universe of stocks as selected by the Sub-Adviser, as well as its own past
history of valuation over several years. The universe will vary from time to
time and may consist of as many as a thousand stocks. The holdings in the
Portfolio will be monitored regularly by the Sub-Adviser to determine that they
continue to be relatively favorable investments. For a discussion of risk
factors involved in investing in undervalued stocks, see "Investment
Risks--Common Stocks."

Investors' attitudes toward different kinds of companies tend to shift back
and forth over time, from enthusiasm to pessimism and back to enthusiasm. The
Portfolio may be considered to be "contrarian" in nature because of its primary
focus on undervalued stocks, and typically its portfolio will consist of
companies whose shares are relatively unpopular and out-of-favor, among
investors generally, at the time of purchase. However, the Portfolio will be
restricted to companies which the Sub-Adviser believes are sound businesses with
good future potential and should, therefore, eventually gain greater investor
favor.

Although individual stocks in the Portfolio may be in any price range
because value as determined by the Sub-Adviser is relative rather than absolute,
it is expected that the average price/earnings ratio of the stocks in the
Portfolio as a whole will be lower than that of the S&P 500, that the average
dividend yield on the investments will be higher than that of the S&P 500, and
that the average price to book value ratio will be lower than that of the S&P
500. It is also anticipated that some of the companies in the Portfolio may not
be paying current dividends.

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<PAGE>
Except for necessary reserves including but not limited to reserves held to
cover redemptions and unanticipated expenses, as determined by management, all
assets will be invested in marketable securities composed principally of common
stocks and securities convertible into common stocks. The reserves will be held
in cash or high-quality, short-term debt obligations readily changeable into
cash.

The Sub-Adviser believes, however, that there may be times when the
shareholders' interests are best served by investing temporarily in preferred
stocks, bonds or other defensive issues. It retains the freedom to administer
the Portfolio accordingly when, in its judgment, economic and market conditions
make such a course desirable. Normally, however, the Portfolio will maintain at
least 90% of the Portfolio in common stocks. There are no restrictions or
guidelines regarding the investment of Portfolio assets in shares listed on an
exchange or traded over-the-counter.

The Portfolio may also invest in issues of the United States Treasury or a
United States government agency subject to repurchase agreements. The use of
repurchase agreements by the Portfolio involves certain risks. For a discussion
of these risks, see "Investment Risks--Repurchase Agreements."

LARGE CAP GROWTH PORTFOLIO

The investment objective of the Portfolio is long-term capital appreciation.
The Portfolio attempts to achieve its objective by normally investing at least
65% of its total assets in common stocks and other equity-type securities (such
as preferred stocks, securities convertible into or exchangeable for common
stocks, and warrants or rights to purchase common stocks) that, in the opinion
of the Sub-Adviser, have long-term appreciation possibilities.

The Portfolio is designed for long-term investors who desire to participate
in the stock market with more investment risk and volatility than the stock
market in general, but with less investment risk and volatility than aggressive
capital appreciation funds. The Portfolio seeks to reduce risk by investing in a
diversified portfolio, but this does not eliminate risk.

In pursuing its investment objective, the Portfolio may invest in debt
securities of corporate and governmental issuers. Investments in debt securities
are limited to those that are rated within the four highest grades (generally
referred to as "investment grade") assigned by an NRSRO. Investments in unrated
debt securities are limited to those deemed to be of comparable quality by the
Sub-Adviser. Securities in the fourth highest grade may possess speculative
characteristics, and changes in economic conditions are more likely to affect
the issuer's capacity to pay interest and repay principal. If the rating of a
security held by the Portfolio is lost or reduced below investment grade, the
Portfolio is not required to dispose of the security--the Sub-Adviser will,
however, consider that fact in determining whether the Portfolio should continue
to hold the security.

When the Sub-Adviser determines that adverse market or economic conditions
exist and considers a temporary defensive position advisable, the Portfolio may
invest without limitation in high-quality fixed income securities or hold assets
in cash or cash equivalents.

The Portfolio may also invest in convertible securities. The Portfolio may
invest up to 25% of its total assets in foreign securities. The Portfolio may
make loans of its portfolio securities to broker-dealers and banks subject to
certain restrictions described in the SAI. The Portfolio may also invest in
securities purchased on a when-issued or delayed-delivery basis.

Consistent with its investment objective, the Portfolio may invest in a
broad array of financial instruments and securities, including conventional
exchange-traded and non-exchange-traded options, futures contracts, futures
options, securities collateralized by underlying pools of mortgages or other
receivables, floating rate instruments, and other instruments that securitize
assets of various types ("Derivatives"). In each case, the value of the
instrument or security is "derived" from the performance of an underlying asset
or a "benchmark" such as a security index, an interest rate, or a currency. The
Portfolio does not expect to invest more than 5% of its net assets in any type
of Derivative except for options,

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<PAGE>
futures contracts, and futures options. (See "Common Types of Securities and
Management Practices-- Strategic Transactions.")

The Portfolio may sell short securities the Portfolio owns or has the right
to acquire without further consideration, a technique called selling short
"against the box."

MID CAP EQUITY PORTFOLIO

The Portfolio's investment objective is to achieve long-term growth of
capital through investment primarily in equity and equity-related securities of
companies which appear to be undervalued.

Under normal circumstances, at least 80% of the Portfolio's total assets
will be invested in equity and equity-related securities.

The Portfolio follows a disciplined investment strategy, emphasizing stocks
which the Sub-Adviser believes offer above average potential for capital growth.
The Sub-Adviser intends to use statistical modeling techniques that utilize
stock specific factors (E.G., current price earnings ratios, stability of
earnings growth, forecasted changes in earnings growth, trends in consensus
analysts' estimates, and measures of earnings results relative to expectations)
to identify equity securities that are attractive to purchase as candidates.
Once identified, these securities will be subject to further fundamental
analysis by the Sub-Adviser's professional staff before they are included in the
Portfolio's holdings. Securities selected for inclusion in the Portfolio's
holdings will represent various industries and sectors. The Sub-Adviser's
security selection tends to have a midcap bias, as its research indicates that
the potential returns associated with its approach are highest in that sector of
the market.

The Portfolio will be an actively managed diversified portfolio consisting
primarily of equity and equity-related securities.

The Sub-Adviser seeks to add value to portfolios of securities by finding
companies with improving business momentum whose securities have reasonable
valuations. The Sub-Adviser utilizes both quantitative and fundamental analysis
to find stocks whose estimates of earnings are being revised upwards but whose
valuation does not yet reflect this positive trend.

When the Sub-Adviser believes that foreign markets offer above average
growth potential, the Portfolio may invest without limit in equity and
equity-related securities of foreign issuers that are listed on a United States
securities exchange or traded in the U.S. OTC market. The Portfolio may not
invest more than 10% of its total assets in such securities which are not so
listed or traded.

The equity and equity-related securities in which the Portfolio invests
include exchange-traded and over-the-counter common and preferred stocks but may
also include warrants, rights, convertible securities, depositary receipts,
depositary shares, trust certificates, shares of other investment companies,
limited partnership interests and equity participations. These equity securities
may be issued by U.S. or foreign companies.

The Portfolio may invest in shares of real estate investment trusts
("REITs"), which are pooled investment vehicles that invest in real estate or
real estate loans or interests.

The Portfolio may invest in debt securities and preferred stocks which are
convertible into, or exchangeable for, common stocks. These securities will be
rated Aaa, Aa or A by Moody's, or AAA, AA, or A by S&P, Duff or Fitch, or, if
unrated, determined by the Sub-Adviser to be of comparable credit quality. Up to
5% of the Portfolio's total assets invested in convertible debt securities and
preferred stocks may be rated Baa by Moody's or BBB by S&P, Duff, or Fitch. The
Portfolio may enter into repurchase agreements and invest in restricted and
illiquid securities, although it intends to invest in restricted and illiquid
securities on an occasional basis only. The Portfolio may purchase and sell put
and call options, enter into futures contracts on U.S. equity indices and
purchase and sell options on such futures contracts.

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<PAGE>
MONEY MARKET PORTFOLIO

The investment objective of the Portfolio is to obtain the highest level of
current income which is consistent with the preservation of capital and
maintenance of liquidity.

The Portfolio invests only in: (1) obligations of the United States
Government; (2) obligations issued by agencies or instrumentalities of the
United States Government; (3) instruments that are secured or collateralized by
obligations of the United States Government, its agencies, or its
instrumentalities; (4) short-term obligations of United States banks and savings
and loan associations and companies having assets of more than $1 billion; (5)
instruments fully secured or collateralized by such bank and savings and loan
obligations; (6) dollar denominated short-term obligations of foreign banks,
foreign branches of foreign or U.S. banks (referred to as "Eurodollars"), and
short-term obligations of U.S. branches and agencies of foreign banks (referred
to as "Yankee dollars"); (7) commercial paper and short-term corporate debt
securities rated in one of the two highest categories for short term debt
securities by at least two NRSROs or one such NRSRO if only one has rated the
security (see the SAI for a description of commercial paper ratings); (8)
corporate or other notes guaranteed by letters of credit from banks in the
United States (satisfying the criteria described in (4), above) or
collateralized by United States Government obligations; and (9) obligations of
(i) consumer and commercial finance companies, (ii) securities brokerage
companies, (iii) leasing companies and (iv) insurance companies. Certain of
these obligations may be variable or floating rate instruments.

The Portfolio will enter into repurchase agreements under which it purchases
securities, subject to agreement by the seller to repurchase the securities at a
higher price on a specified date, with the gain establishing the yield during
the Portfolio's holding period. The Sub-Adviser, under general policies
established by the Fund's Directors, reviews the creditworthiness of the other
party to any repurchase agreement, and will only enter into repurchase
agreements with parties whose credit is deemed satisfactory. If the seller
becomes bankrupt, the Portfolio may experience delays in recovering its money,
fail to recover part or all of its investment, and incur costs in disposing of
the securities used as collateral for the seller's repurchase obligation.

The Portfolio may also enter into reverse repurchase agreements when the
Sub-Adviser considers them to be advantageous to the Portfolio and only for
temporary liquidity purposes not to exceed 60 days, without renewal or
extension. Reverse repurchase agreements permit the Portfolio to leverage its
investment portfolio by selling securities while agreeing to repurchase them at
an agreed time and price. The bankruptcy of the other party to a reverse
repurchase agreement could cause the Portfolio to experience delays in
recovering its securities. If, in the meantime, the value of the securities
fluctuated, the Portfolio could experience a loss.

The Portfolio will not invest in "firm commitments" or "when issued"
securities.

The Portfolio may only invest in U.S. dollar-denominated instruments that
are determined to present minimal credit risks and that, at the time of
acquisition, are rated in one of the two highest rating categories by at least
two NRSROs or by the only NRSRO that has rated the instrument, or in the case of
unrated instruments, have been determined to be of comparable quality to either
of the above. The Portfolio's investments must also meet the maturity and
diversification requirements applicable to money market funds.

See "Investment Objectives and Policies" in the SAI for information about
the quality of the securities in which the Portfolio may invest and more
complete descriptions of repurchase agreements and other obligations that the
Portfolio may hold.

RISK FACTORS. The principal risks associated with investment in the
Portfolio are the risk of fluctuations in the short-term interest rates, the
risks associated with entering into repurchase agreements described above, and
the risk of default among one or more issuers of securities which comprise the
Portfolio's assets.

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<PAGE>
SMALL CAP EQUITY PORTFOLIO

The investment objective of the Portfolio is to seek long-term capital
appreciation. The Portfolio invests primarily in a diversified portfolio of
common stocks and other equity-type securities (such as preferred stocks,
securities convertible or exchangeable for common stocks, and warrants or rights
to purchase common stocks) of entrepreneurially managed companies that the
Sub-Adviser believes represent special opportunities. The Portfolio emphasizes
investments in financially strong small and medium-sized companies, based
principally on appraisal of their management and stock valuations. The Sub-
Adviser considers "small" and "medium-sized" companies to be those with market
capitalizations of less than $1 billion and $1 to $3 billion, respectively.

In both its initial and ongoing appraisals of a company's management, the
Sub-Adviser seeks to know both the principal owners and senior management and to
assess their business judgment and strategies through personal visits. The
Sub-Adviser favors companies whose management has an owner/operator, risk-averse
orientation and a demonstrated ability to create wealth for investors.
Attractive company characteristics include unit growth, favorable cost
structures or competitive positions, and financial strength that enables
management to execute business strategies under difficult conditions. A company
is attractively valued when its stock can be purchased at a meaningful discount
to the value of the underlying business.

The Portfolio is designed for long-term investors who want greater return
potential than is available from the stock market in general, and who are
willing to tolerate the greater investment risk and market volatility associated
with investments in small and medium-sized companies. Although the Portfolio
does not attempt to reduce or limit risk through wide industry diversification
of investment, it usually allocates its investments among a number of different
industries rather than concentrating in a particular industry or group of
industries.

In pursuing its investment objective, the Portfolio may invest in debt
securities of corporate and governmental issuers. Debt securities rated within
the four highest grades by an NRSRO are generally referred to as "investment
grade." The Portfolio may invest up to 35% of its net assets in debt securities,
but does not expect to invest more than 5% of its net assets in debt securities
that are rated below investment grade.

The Portfolio may sell short securities the Portfolio owns or has the right
to acquire without further consideration, a technique called selling short
"against the box."

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COMMON TYPES OF SECURITIES AND MANAGEMENT PRACTICES

This section describes some of the types of securities a Portfolio may hold
and the various kinds of investment practices that may be used in day-to-day
portfolio management. A Portfolio may invest in the following securities or
engage in the following practices to the extent that such securities and
practices are consistent with the Portfolio's investment objective(s) and
policies described herein. Each Portfolio's investment program is subject to
further restrictions described in the SAI.

COMMON STOCKS. Common stocks are shares of a corporation or other entity
that entitle the holder to a pro rata share of the profits of the corporation,
if any, without preference over any other shareholder or class of shareholders,
including holders of the entity's preferred stock and other senior equity.
Common stock usually carries with it the right to vote and frequently an
exclusive right to do so.

SMALL CAPITALIZATION STOCKS. Certain Portfolios may invest in securities of
companies with small or mid-sized market capitalizations. Market capitalization
is defined as the total current market value of a company's outstanding common
stock. Although investments in small capitalization companies may present
greater opportunities for growth, they also involve greater risks than are
customarily associated with investments in larger, more established companies.
The securities of small companies may be subject to more volatile market
movements than securities of larger, more established companies. Smaller
companies may have limited product lines, markets or financial resources, and
they may depend upon a limited or less experienced management group. The
securities of small capitalization companies may be traded only on the
over-the-counter market or on a regional securities exchange and may not be
traded daily or in the volume typical of trading on a national securities
exchange. As a result, the disposition by a Portfolio of securities in order to
meet redemptions or otherwise may require the Portfolio to sell securities at a
discount from market prices, over a longer period of time or during periods when
disposition is not desirable.

UNSEASONED ISSUERS. Certain of the Portfolios may invest in unseasoned
issuers. Unseasoned issuers are companies with a record of less than three
years' continuous operation, even including the operations of any predecessors
and parents. Unseasoned issuers by their nature have only a limited operating
history which can be used for evaluating the company's growth prospects. As a
result, investment decisions for these securities may place a greater emphasis
on current or planned product lines and the reputation and experience of the
company's management and less emphasis on fundamental valuation factors than
would be the case for more mature growth companies. In addition, many unseasoned
issuers may also be small companies and involve the risks and price volatility
associated with smaller companies.

WARRANTS. Warrants acquired by a Portfolio entitle it to buy common stock
from the issuer at a specified price and time. Warrants are subject to the same
market risks as stocks, but may be more volatile in price. A Portfolio's
investment in warrants will not entitle it to receive dividends or exercise
voting rights and will become worthless if the warrants cannot be profitably
exercised before their expiration dates.

CONVERTIBLE SECURITIES. Certain Portfolios may invest in convertible
securities consisting of bonds, notes, debentures and preferred stocks.
Convertible debt securities and preferred stock acquired by a Portfolio entitle
the Portfolio to exchange such instruments for common stock of the issuer at a
predetermined rate. By investing in convertible securities, a Portfolio obtains
the right to benefit from the capital appreciation potential in the underlying
stock upon exercise of the conversion right, while earning higher current income
than would be available if the stock were purchased directly. Convertible
securities are subject both to the credit and interest rate risks associated
with debt obligations and to the stock market risk associated with equity
securities. Although convertible securities purchased by a Portfolio are
frequently rated investment grade, certain Portfolios also may purchase unrated
securities or securities rated below investment grade if the securities meet the
Sub-Adviser's other investment criteria. Convertible securities rated below
investment grade:

--Tend to be more sensitive to interest rate and economic changes;

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--May be obligations of issuers who are less creditworthy than issuers of
higher quality convertible securities; and

--May be more thinly traded due to the fact that such securities are less
well known to investors than either common stock or conventional debt
securities.

As a result, a Sub-Adviser's own investment research and analysis tends to
be more important than other factors in the purchase of such securities.

MORTGAGE-BACKED SECURITIES. Certain Portfolios may invest in privately
issued mortgage-backed securities and mortgage-backed securities issued or
guaranteed by foreign entities or the U.S. Government or any of its agencies,
instrumentalities or sponsored enterprises, including, but not limited to, the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC").
Mortgage-backed securities represent direct or indirect participations in, or
are collateralized by and payable from, mortgage loans secured by real property.
Mortgagors can generally prepay interest or principal on their mortgages
whenever they choose. Therefore, mortgage-backed securities are often subject to
more rapid repayment than their stated maturity date would indicate as a result
of principal prepayments on the underlying loans. This can result in
significantly greater price and yield volatility than is the case with
traditional fixed income securities. During periods of declining interest rates,
prepayments can be expected to accelerate, and thus impair a Portfolio's ability
to reinvest the returns of principal at comparable yields.

Conversely, in a rising interest rate environment, a declining prepayment
rate will extend the average life of many mortgage-backed securities, increase a
Portfolio's exposure to rising interest rates and prevent a Portfolio from
taking advantage of such higher yields.

GNMA securities are backed by the full faith and credit of the U.S.
Government, which means that the U.S. Government guarantees that the interest
and principal will be paid when due. FNMA securities and FHLMC securities are
not backed by the full faith and credit of the U.S. Government; however, these
enterprises have the ability to obtain financing from the U.S. Treasury. See the
SAI for additional descriptions of GNMA, FNMA and FHLMC certificates.

Multiple class securities include collateralized mortgage obligations
("CMOs") and Real Estate Mortgage Investment Conduit ("REMIC") pass-through or
participation certificates. CMOs provide an investor with a specified interest
in the cash flow from a pool of underlying mortgages or other mortgage-backed
securities. CMOs are issued in multiple classes, each with a specified fixed or
floating interest rate and a final scheduled distribution date. In most cases,
payments of principal are applied to the CMO classes in the order of their
respective stated maturities, so that no principal payments will be made on a
CMO class until all other classes having an earlier stated maturity date are
paid in full. A REMIC is a CMO that qualifies for special tax treatment under
the Internal Revenue Code of 1986, as amended ("Code"), and invests in certain
mortgages principally secured by interests in real property and other permitted
investments. The Portfolios do not intend to purchase residual interests in
REMICs.

Stripped mortgage-back securities ("SMBS") are derivative multiple class
mortgage-backed securities. SMBS are usually structured with two different
classes; one that receives 100% of the interest payments and the other that
receives 100% of the principal payments from a pool of mortgage loans. If the
underlying mortgage loans experience prepayments of principal at a rate
different from what was anticipated, a Portfolio may fail to fully recoup its
initial investment in these securities. Although the market for SMBS is
increasingly liquid, certain SMBS may not be readily marketable and will be
considered illiquid for purposes of each Portfolio's limitation on investments
in illiquid securities. The market value of the class consisting entirely of
principal payments generally is unusually volatile in response to changes in
interest rates. The yields on a class of SMBS that receives all or most of the
interest from mortgage loans are generally higher than prevailing market yields
on other mortgage-backed securities because their cash flow patterns are more
volatile and there is a greater risk that the initial investment will not be
fully recouped.

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ASSET-BACKED SECURITIES. Certain Portfolios may invest in asset-backed
securities issued by foreign or U.S. entities. The principal and interest
payments on asset-backed securities are collateralized by pools of assets such
as auto loans, credit card receivables, leases, installment contracts and
personal property. Such asset pools are securitized through the use of special
purpose trusts or corporations. Payments or distributions of principal and
interest on asset-backed securities may be guaranteed up to certain amounts and
for a certain time period by a letter of credit or a pool insurance policy
issued by a financial institution; however, privately issued obligations
collateralized by a portfolio of privately issued asset-backed securities do not
involve any government-related guaranty or insurance. Like mortgage-backed
securities, asset-backed securities are subject to more rapid prepayment of
principal than indicated by their stated maturity which may greatly increase
price and yield volatility. Asset-backed securities generally do not have the
benefit of a security interest in collateral that is comparable to mortgage
assets and there is the possibility that recoveries on repossessed collateral
may not be available to support payments on these securities.

FOREIGN SECURITIES. Certain Portfolios may invest in securities of foreign
governments and companies. Investments in foreign securities involve certain
risks that are different from the risks of investing in securities of U.S.
issuers. (See "Investment Risks--Foreign Securities" for a discussion of these
risks.) Certain Portfolios may also invest in issuers located in emerging
markets. Investments in emerging markets involve risks in addition to those
generally associated with investments in foreign securities. (See "Investment
Risks--Investing in Emerging Markets".)

The Mid Cap Equity Portfolio may invest without limit in foreign securities
which trade on a U.S. exchange or in the U.S. OTC market, but is limited to 10%
of total assets on those foreign securities which are not so listed or traded.
The Mid Cap Equity Portfolio may invest up to 10% of its total assets in issuers
located in emerging markets generally and up to 3% of its total assets in
issuers of any one specific emerging market country.

Other than American Depositary Receipts ("ADRs"), foreign debt securities
denominated in U.S. dollars, and securities guaranteed by a U.S. person, each of
the Large Cap Growth and Small Cap Equity Portfolios is limited to investing no
more than 25% of its total assets in foreign securities.

DEPOSITARY RECEIPTS AND DEPOSITARY SHARES. Depositary receipts and
depositary shares are typically issued by a U.S. or foreign bank or trust
company and evidence ownership of underlying securities of a U.S. or foreign
issuer. Unsponsored programs are organized independently and without the
cooperation of the issuer of the underlying securities. As a result, available
information concerning the issuer may not be as current as for sponsored
depositary instruments and their prices may be more volatile than if they were
sponsored by the issuers of the underlying securities. Examples of such
investments include, but are not limited to, ADRs, American Depositary Shares
("ADSs"), Global Depository Receipts and Shares ("GDRs" and "GDSs") and European
Depository Receipts and Shares ("EDRs" and "EDSs").

EURODOLLAR AND YANKEE DOLLAR INVESTMENTS. Certain Portfolios may invest in
Eurodollar and Yankee Dollar instruments. Eurodollar instruments are bonds of
foreign corporate and government issuers that pay interest and principal in U.S.
dollars held in banks outside the United States, primarily in Europe. Yankee
Dollars instruments are U.S. dollar denominated bonds typically issued in the
U.S. by foreign governments and their agencies and foreign banks and
corporations. (See "Investment Risks--Foreign Securities.")

SOVEREIGN DEBT OBLIGATIONS. Certain Portfolios may invest in sovereign debt
obligations, which involve special risks that are not present in corporate debt
obligations. The foreign issuer of the sovereign debt or the foreign
governmental authorities that control the repayment of the debt may be unable or
unwilling to repay principal or interest when due, and a Portfolio may have
limited recourse in the event of a default. During periods of economic
uncertainty, the market prices of sovereign debt, and the Portfolio's net asset
value, to the extent it invests in such securities, may be more volatile than
prices of debt obligations of U.S. issuers. In the past, certain foreign
countries have encountered difficulties in servicing their debt obligations,
withheld payments of principal and interest and declared moratoria on the
payment of principal and interest on their sovereign debt.

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A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its cash
flow situation, the extent of its foreign currency reserves, the availability of
sufficient foreign exchange, the relative size of the debt service burden, the
sovereign debtor's policy toward principal international lenders and local
political constraints. Sovereign debtors may also be dependent on expected
disbursements from foreign governments, multilateral agencies and other entities
to reduce principal and interest arrearages on their debt. The failure of a
sovereign debtor to implement economic reforms, achieve specified levels of
economic performance or repay principal or interest when due may result in the
cancellation of third-party commitments to lend funds to the sovereign debtor,
which may further impair such debtor's ability or willingness to service its
debts.

BRADY BONDS. Brady Bonds are securities created through the exchange of
existing commercial bank loans to public and private entities in certain
emerging markets for new bonds in connection with debt restructurings. In light
of the history of defaults of countries issuing Brady Bonds on their commercial
bank loans, investments in Brady Bonds may be viewed as speculative. Brady Bonds
may be fully or partially collateralized or uncollateralized, are issued in
various currencies (but primarily in U.S. dollars) and are actively traded in
over-the-counter secondary markets. Incomplete collateralization of interest or
principal payment obligations results in increased credit risk. U.S.
dollar-denominated collateralized Brady Bonds, which may be fixed-rate bonds or
floating-rate bonds, are generally collateralized by U.S. Treasury zero coupon
bonds having the same maturity as the Brady Bonds.

OBLIGATIONS OF SUPRANATIONAL ENTITIES. Certain Portfolios may invest in
obligations of supranational entities designated or supported by governmental
entities to promote economic reconstruction or development and of international
banking institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the "World Bank"), the
Asian Development Bank and the Inter-American Development Bank. Each
supranational entity's lending activities are limited to a percentage of its
total capital (including "callable capital" contributed by its governmental
members at the entity's call), reserves and net income. There is no assurance
that participating governments will be able or willing to honor their
commitments to make capital contributions to a supranational entity.

RESTRICTED AND ILLIQUID SECURITIES. Certain Portfolios may invest in
restricted and illiquid securities. Restricted securities are securities which
are not readily marketable because they are subject to restrictions on their
resale. Illiquid securities include those that are not readily marketable,
repurchase agreements maturing in more than seven days, time deposits with a
notice or demand period of more than seven days, certain SMBS, swap
transactions, certain over-the-counter options and certain restricted
securities. Based upon continuing review of the trading markets for a specific
restricted security, the security may be determined to be eligible for resale to
qualified institutional buyers pursuant to Rule 144A under the Securities Act of
1933 and, therefore, to be liquid. Also, certain illiquid securities may be
determined to be liquid if they are found to satisfy certain relevant liquidity
requirements.

The Board of Directors has adopted guidelines and delegated to the Adviser
the daily function of determining and monitoring the liquidity of portfolio
securities, including restricted and illiquid securities. The Board of
Directors, however, retains oversight and is ultimately responsible for such
determinations. The purchase price and subsequent valuation of illiquid
securities normally reflect a discount, which may be significant, from the
market price of comparable securities for which a liquid market exists.

Each of the Intermediate Fixed Income, Mid Cap Equity, Global Fixed Income,
Small Cap Equity and Large Cap Growth Portfolios may invest up to 15% of its net
assets in illiquid securities. Each of the Balanced, Large Cap Value and Money
Market Portfolios may invest up to 10% of its net assets in illiquid securities,
while the Growth & Income Portfolio may invest up to 5% of its net assets in
illiquid securities.

CORPORATE DEBT OBLIGATIONS. Certain Portfolios may invest in corporate debt
obligations and zero coupon securities issued by financial institutions and
corporations. Corporate debt obligations are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations and may
also be subject to price volatility due to such factors as market interest
rates, market perception of the creditworthiness of the issuer and general
market liquidity.

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BELOW INVESTMENT GRADE SECURITIES. Certain Portfolios may invest their
assets in securities rated below investment grade. Securities rated below Baa by
Moody's or BBB by S&P are commonly known as "junk bonds" and are considered to
be high risk. (See "Investment Risks--Risk Factors Applicable to High-
Yield/High-Risk Debt Securities.")

ZERO COUPON AND DEFERRED PAYMENT SECURITIES. Certain Portfolios may invest
in zero coupon and deferred payment securities. Zero coupon securities are
securities sold at a discount to par value and on which interest payments are
not made during the life of the security. Upon maturity, the holder is entitled
to receive the par value of the security. A Portfolio is required to accrue
income with respect to these securities prior to the receipt of cash payments.
Because a Portfolio will distribute this accrued income to shareholders, to the
extent that shareholders elect to receive dividends in cash rather than
reinvesting such dividends in additional shares, the Portfolio will have fewer
assets with which to purchase income producing securities. Deferred payment
securities are securities that remain zero coupon securities until a
predetermined date, at which time the stated coupon rate becomes effective and
interest becomes payable at regular intervals. Zero coupon and deferred payment
securities may be subject to greater fluctuation in value and may have less
liquidity in the event of adverse market conditions than comparably rated
securities paying cash interest at regular interest payment periods.

FORWARD ROLL TRANSACTIONS. To seek to enhance current income, the
Intermediate Fixed Income Portfolio may invest up to 10% of its net assets and
the Global Fixed Income Portfolio may invest up to 5% of its total assets in
forward roll transactions involving mortgage-backed securities. In a forward
roll transaction, a Portfolio sells a mortgage-backed security to a financial
institution, such as a bank or broker-dealer, and simultaneously agrees to
repurchase a similar security from the institution at a later date at an
agreed-upon price. The mortgage-backed securities that are repurchased will bear
the same interest rate as those sold, but generally will be collateralized by
different pools of mortgages with different prepayment histories than those
sold. During the period between the sale and repurchase, the Portfolio will not
be entitled to receive interest and principal payments on the securities sold.
Proceeds of the sale will be invested in short-term instruments, such as
repurchase agreements or other short-term securities, and the income from these
investments, together with any additional fee income received on the sale and
the amount gained by repurchasing the securities in the future at a lower price,
will generate income and gain for the Portfolio which is intended to exceed the
yield on the securities sold. Forward roll transactions involve the risk that
the market value of the securities sold by the Portfolio may decline below the
repurchase price of those securities. At the time that a Portfolio enters into a
forward roll transaction, it will place cash or liquid assets in a segregated
account that is marked to market daily having a value equal to the repurchase
price (including accrued interest).

LEVERAGE. The use of forward roll transactions involves leverage. Leverage
allows any investment gains made with the additional monies received (in excess
of the costs of the forward roll transaction), to increase the net asset value
of a Portfolio's shares faster than would otherwise be the case. On the other
hand, if the additional monies received are invested in ways that do not fully
recover the costs of such transactions to a Portfolio, the net asset value of
the Portfolio would fall faster than would otherwise be the case.

STRUCTURED OR HYBRID NOTES. Certain Portfolios may invest in structured or
hybrid notes. The distinguishing feature of a structured or hybrid note is that
the amount of interest and/or principal payable on the note is based on the
performance of a benchmark asset or market other than fixed income securities or
interest rates. Examples of these benchmarks include stock prices, currency
exchange rates and physical commodity prices. Investing in a structured note
allows a Portfolio to gain exposure to the benchmark market while fixing the
maximum loss that it may experience in the event that the market does not
perform as expected. Depending on the terms of the note, a Portfolio may forego
all or part of the interest and principal that would be payable on a comparable
conventional note; the Portfolio's loss cannot exceed this foregone interest
and/or principal. An investment in structured or hybrid notes involves risks
similar to those associated with a direct investment in the benchmark asset.

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TAX-EXEMPT SECURITIES. The Intermediate Fixed Income Portfolio may invest
up to 10% of its total assets in tax-exempt securities if the Sub-Adviser
believes that tax-exempt securities will provide competitive returns.

INVERSE FLOATING RATE SECURITIES. Certain Portfolios may invest in inverse
floating rate securities. The interest rate on an inverse floater resets in the
opposite direction from the market rate of interest to which the inverse floater
is indexed. An inverse floater may be considered to be leveraged to the extent
that its interest rate varies by a magnitude that exceeds the magnitude of the
change in the index rate of interest. The higher the degree of leverage of an
inverse floater, the greater the volatility of its market value.

REPURCHASE AGREEMENTS. A repurchase agreement involves the sale of
securities to a Portfolio with the concurrent agreement by the seller to
repurchase the securities at the Portfolio's cost plus interest at an agreed
rate upon demand or within a specified time, thereby determining the yield
during the purchaser's period of ownership. The result is a fixed rate of return
insulated from market fluctuations during such period. Under the 1940 Act,
repurchase agreements are considered loans by a Portfolio.

The Portfolios will enter into such repurchase agreements only with United
States banks having assets in excess of $100 million which are members of the
Federal Deposit Insurance Corporation, and with certain securities dealers who
meet the qualifications set from time to time by the Board of Directors. The
term to maturity of a repurchase agreement normally will be no longer than a few
days.

The Intermediate Fixed Income Portfolio, the Mid Cap Equity Portfolio and
the Global Fixed Income Portfolio may invest up to 5%, 10% and 25%,
respectively, of net assets in repurchase agreements. Each of the Small Cap
Equity and Large Cap Growth Portfolios may invest up to 15% of its assets in
repurchase agreements. Certain other Portfolios of the Fund may invest in
repurchase agreements as described elsewhere herein and in the SAI.

STRATEGIC TRANSACTIONS. Certain Portfolios may, but are not required to,
utilize various investment strategies to seek to hedge market risks (such as
interest rates, currency exchange rates and broad or specific fixed income or
equity market movements), to manage the effective maturity or duration of fixed
income securities, or to enhance potential gain. Such strategies are generally
accepted as part of modern portfolio management and are regularly utilized by
many mutual funds and other institutional investors. Techniques and instruments
used by the Portfolios may change over time as new instruments and strategies
are developed or regulatory changes occur.

In the course of pursuing its investment objective, a Portfolio may purchase
and sell (write) exchange-listed and over-the-counter put and call options on
securities, 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 to the extent a
Portfolio invests in foreign securities, enter into currency transactions such
as forward foreign currency exchange contracts, currency futures contracts,
currency swaps and options on currencies or currency futures (collectively, all
the above are called "Strategic Transactions"). Strategic Transactions may be
used in an attempt to protect against possible changes in the market value of
securities held in or to be purchased for a Portfolio resulting from securities
markets, currency exchange rate or interest rate fluctuations, to seek to
protect a Portfolio's unrealized gains in the value of portfolio securities, to
facilitate the sale of such securities for investment purposes, to seek to
manage the effective maturity or duration of a Portfolio's portfolio, or to
establish a position in the derivatives markets as a temporary substitute for
purchasing or selling particular securities. In addition to the hedging
transactions referred to in the preceding sentence, Strategic Transactions may
also be used to enhance potential gain in circumstances where hedging is not
involved.

The ability of a Portfolio to utilize Strategic Transactions successfully
will depend on the Sub-Adviser's ability to predict pertinent market and
interest rate movements, which cannot be assured. Each Portfolio will comply
with applicable regulatory requirements when implementing these strategies,
techniques and

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instruments. A Portfolio's activities involving Strategic Transactions may be
limited by the requirements of the Code for qualification as a regulated
investment company.

Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent a
Sub-Adviser's view as to certain market, interest rate or currency movements is
incorrect, the risk that the use of such Strategic Transactions could result in
losses greater than if they had not been used. The writing of put and call
options may result in losses to a Portfolio, force the purchase or sale,
respectively, of portfolio securities at inopportune times or for prices higher
than (in the case of purchases due to the exercise of put options) or lower than
(in the case of sales due to the exercise of call options) current market
values, limit the amount of appreciation a Portfolio can realize on its
investments or cause a Portfolio to hold a security it might otherwise sell.

The use of options and futures transactions entails certain other risks.
Futures markets are highly volatile and the use of futures may increase the
volatility of a Portfolio's net asset value. In particular, the variable degree
of correlation between price movements of futures contracts and price movements
in the related portfolio position of a Portfolio creates the possibility that
losses on the hedging instrument may be greater than gains in the value of the
Portfolio's position. The writing of options could significantly increase a
Portfolio's portfolio turnover rate and associated brokerage commissions or
spreads. 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, a Portfolio might not be able to close out a
transaction without incurring substantial losses. Losses resulting from the use
of Strategic Transactions could reduce net asset value and the net result may be
less favorable than if the Strategic Transactions had not been utilized.
Although the use of futures and options transactions for hedging and managing
effective maturity and duration should tend to minimize the risk of loss due to
a decline in the value of the position, at the same time, such transactions can
limit any potential gain which might result from an increase in value of such
position. The loss incurred by a Portfolio in writing options on futures and
entering into futures transactions is potentially unlimited.

The use of currency transactions can result in a 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.

A Portfolio will attempt to limit its net loss exposure resulting from
Strategic Transactions entered into for non-hedging purposes. In calculating a
Portfolio's net loss exposure from such Strategic Transactions, an unrealized
gain from a particular Strategic Transaction position would be netted against an
unrealized loss from a related position. See the SAI for further information
regarding the use of Strategic Transactions.

SHORT SALES. Certain Portfolios may engage in short sales and short sales
against the box. In a short sale, a Portfolio sells a security it does not own
in anticipation of a decline in the market value of that security. In a short
sale against the box, a Portfolio either owns or has the right to obtain at no
extra cost the security sold short. The broker holds the proceeds of the short
sale until the settlement date, at which time the Portfolio delivers the
security (or an identical security) to cover the short position. The Portfolio
receives the net proceeds from the short sale. When a Portfolio enters into a
short sale other than against the box, the Portfolio must first borrow the
security to make delivery to the buyer and must place cash or liquid assets in a
segregated account with the Fund's custodian that is marked to market daily.
Short sales other than against the box involve unlimited exposure to loss. No
securities will be sold short if, after giving effect to any such short sale,
the total market value of all securities sold short would exceed 5% of the value
of a Portfolio's net assets.

LENDING PORTFOLIO SECURITIES. Certain Portfolios may lend their portfolio
securities to qualified institutional investors such as brokers, dealers or
other financial organizations. This practice permits a Portfolio to earn income,
which, in turn, can be invested in additional securities to pursue its
investment objective. Loans of securities by a Portfolio will be collateralized
by cash, letters of credit, or securities issued or

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guaranteed by the U.S. Government or its agencies. The collateral will equal at
least 100% of the current market value of the loaned securities,
marked-to-market on a daily basis. A Portfolio bears a risk of loss in the event
that the other party to a securities lending transaction defaults on its
obligations and the Portfolio is delayed in or prevented from exercising its
rights to dispose of the collateral, including the risk of a possible decline in
the value of the collateral securities during the period in which the Portfolio
seeks to assert these rights, the risk of incurring expenses associated with
asserting these rights, and the risk of losing all or a part of the income from
the transaction.

The market value of securities loaned by the Global Fixed Income Portfolio
may not exceed 20% of the value of the Portfolio's total assets, with a 10%
limit for any single borrower. Each Sub-Adviser, under the supervision of the
Board of Directors of the Fund, monitors the creditworthiness of the parties to
whom each Portfolio makes securities loans. (See "Investment Restrictions" in
the SAI for a description of the limitations on lending with respect to the
other Portfolios.)

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Certain Portfolios may invest
in when-issued and delayed delivery securities. Although a Portfolio will
generally purchase securities on a when-issued or delayed delivery basis with
the intention of actually acquiring the securities, a Portfolio may dispose of
these securities prior to settlement, if the Sub-Adviser deems it appropriate to
do so. The payment obligation and interest rate on these securities is fixed at
the time a Portfolio enters into the commitment, but no income will accrue to
the Portfolio until they are delivered and paid for. Unless a Portfolio has
entered into an offsetting agreement to sell the securities, cash or liquid
assets equal to the amount of the Portfolio's commitment must be segregated and
maintained with the Fund's custodian to secure the Portfolio's obligation and to
partially offset the leverage inherent in these securities. The market value of
the securities when they are delivered may be less than the amount paid by the
Portfolio.

The Intermediate Fixed Income Portfolio may invest up to 15% of its net
assets in when-issued and delayed delivery securities. The Global Fixed Income
Portfolio may invest up to 25% of its total assets in when-issued and delayed
delivery securities.

EMERGENCY BORROWING. Certain Portfolios will be permitted to borrow money
up to one-third of the value of the Portfolio's total assets taken at current
value but only from banks as a temporary measure for extraordinary or emergency
purposes. Beyond 5% of a Portfolio's total assets (at current value), this
borrowing may not be used for investment leverage to purchase securities.

INVESTMENTS IN OTHER INVESTMENT COMPANIES. Certain Portfolios are permitted
to invest in shares of other investment companies. A Portfolio may invest up to
10% of its total assets in shares of investment companies and up to 5% of its
total assets in any one investment company as long as that investment does not
represent more than 3% of the total voting stock of the acquired investment
company. Investments in the securities of other investment companies may involve
duplication of advisory fees and other expenses. Because certain emerging
markets are closed to investment by foreigners, a Portfolio may invest in
issuers in those markets primarily through specifically authorized investment
funds. In addition, a Portfolio may invest in investment companies that are
designed to replicate the composition and performance of a particular index. For
example, Standard & Poor's Depositary Receipts ("SPDERS") are exchange-traded
shares of a closed-end investment company designed to replicate the price
performance and dividend yield of the Standard & Poor's 500 Composite Stock
Price Index. Another example is World Equity Benchmark Series ("WEBS") which are
exchange traded shares of open-end investment companies designed to replicate
the composition and performance of publicly traded issuers in particular
countries. Investments in index baskets involve the same risks associated with a
direct investment in the types of securities included in the baskets.

The Growth & Income Portfolio may invest in shares of closed-end investment
companies if bought in primary or secondary offerings with a fee or commission
no greater than the customary broker's commission. Shares of such investment
companies sometimes trade at a discount or premium in relation to their net
asset value.

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REITS. Certain of the Portfolios may invest in shares of real estate
investment trusts ("REITs"), which are pooled investment vehicles that invest in
real estate or real estate loans or interests. Investing in REITs involves risks
similar to those associated with investing in equity securities of small
capitalization companies. REITs are dependent upon management skills, are not
diversified, and are subject to risks of project financing, default by
borrowers, self-liquidation, and the possibility of failing to qualify for the
exemption from taxation under the Code.

MONEY MARKET INSTRUMENTS AND SHORT-TERM SECURITIES. Although the Mid Cap
Equity Portfolio intends to stay invested in equity and equity-related
securities to the extent practical in light of its investment objective, the
Portfolio may, under normal market conditions, establish and maintain cash
balances and may purchase money market instruments with maturities of less than
one year and short-term interest-bearing fixed income securities with maturities
of one to three years ("Short-Term Obligations") to maintain liquidity to meet
redemptions.

Money market instruments in which the Mid Cap Equity Portfolio invests will
be rated at the time of purchase P-1 by Moody's or A-1 or Duff-1 by S&P, Duff
and Fitch or, if unrated, determined by the Sub-Adviser to be of comparable
quality. Money market instruments and Short-Term Obligations include obligations
issued or guaranteed by the U.S. Government or any of its agencies and
instrumentalities, U.S. and foreign commercial paper, bank obligations,
repurchase agreements and other debt obligations of U.S. and foreign issuers. At
least 95% of the Mid Cap Equity Portfolio's assets that are invested in
Short-Term Obligations must be invested in obligations rated at the time of
purchase Aaa, Aa, A or P-1 by Moody's or AAA, AA, A, A-1 or Duff-1 by S&P, Duff
or Fitch or, if unrated, determined by the Sub-Adviser to be of comparable
credit quality. Up to 5% of the Mid Cap Equity Portfolio's total assets invested
in Short-Term Obligations may be invested in obligations rated Baa by Moody's or
BBB by S&P, Duff or Fitch or, if unrated, determined by the Sub-Adviser to be of
comparable credit quality.

Securities rated within the top three investment grade ratings (i.e., Aaa,
Aa, A or P-1 by Moody's or AAA, AA, A, A-1 or Duff-1 by S&P, Duff or Fitch) are
generally regarded as high grade obligations. Securities rated Baa by Moody's or
BBB by S&P, Duff or Fitch are generally considered medium grade obligations and
have some speculative characteristics. (See "Investment Risks--Risk Factors
Applicable to High-Yield/High-Risk Debt Securities.")

U.S. GOVERNMENT SECURITIES. Generally, these securities include U.S.
Treasury obligations and obligations issued or guaranteed by U.S. Government
agencies, instrumentalities or sponsored enterprises which are supported by (a)
the full faith and credit of the U.S. Treasury (such as GNMA), (b) the right of
the issuer to borrow from the U.S. Treasury (such as securities of the Student
Loan Marketing Association), (c) the discretionary authority of the U.S.
Government to purchase certain obligations of the issuer (such as FNMA and
FHLMC), or (d) only the credit of the agency. No assurance can be given that the
U.S. Government will provide financial support to U.S. Government agencies,
instrumentalities or sponsored enterprises in the future. U.S. Government
securities also include Treasury receipts, zero coupon bonds, deferred interest
securities and other stripped U.S. Government securities, where the interest and
principal components of stripped U.S. Government securities are traded
independently ("STRIPS").

TEMPORARY DEFENSIVE INVESTMENTS. Each Portfolio may adopt a temporary
defensive position during adverse market conditions by investing without limit
in high quality money market instruments, including short-term U.S. Government
securities, negotiable certificates of deposit, non-negotiable fixed time
deposits, bankers' acceptances, commercial paper, floating-rate notes and
repurchase agreements. To the extent a Portfolio is invested in temporary
defensive instruments, it will not be pursuing its investment objective.

PORTFOLIO DIVERSIFICATION AND CONCENTRATION. The Global Fixed Income
Portfolio is non-diversified which means that it may invest more than 5% of its
total assets in the securities of a single issuer. Investing a significant
amount of the Portfolio's assets in the securities of a small number of foreign
issuers will cause the Portfolio's net asset value to be more sensitive to
events affecting those issuers. The Portfolio will not

25
<PAGE>
concentrate (invest 25% or more of its total assets) in the securities of
issuers in any one industry. For purposes of this limitation, the staff of the
Securities and Exchange Commission considers (a) all supranational organizations
as a group to be a single industry and (b) each foreign government and its
political subdivisions to be a single industry.

INVESTMENT RISKS

FOREIGN SECURITIES

Investing in the securities of foreign issuers involves risks that are not
typically associated with investing in U.S. dollar-denominated securities of
domestic issuers. Investments in foreign issuers may be affected by changes in
currency rates, changes in foreign or U.S. laws or restrictions applicable to
such investments and in exchange control regulations (i.e., currency blockage).
A decline in the exchange rate of the currency (i.e., weakening of the currency
against the U.S. dollar) in which a portfolio security is quoted or denominated
relative to the U.S. dollar would reduce the value of the portfolio security.
Commissions may be higher and spreads may be greater on transactions in foreign
securities than those for similar transactions in domestic markets. In addition,
clearance and settlement procedures may be different in foreign countries and,
in certain markets, such procedures have on occasion been unable to keep pace
with the volume of securities transactions, thus making it difficult to conduct
such transactions.

Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign issuer
than about a U.S. issuer. In addition, there is generally less government
regulation of foreign markets, companies and securities dealers than in the U.S.
Most foreign securities markets may have substantially less trading volume than
U.S. securities markets and securities of many foreign issuers are less liquid
and more volatile than securities of comparable U.S. issuers. Furthermore, with
respect to certain foreign countries, there is a possibility of nationalization,
expropriation or confiscatory taxation, imposition of withholding or other taxes
on dividend or interest payments (or, in some cases, capital gains), limitations
on the removal of funds or other assets, political or social instability or
diplomatic developments which could affect investments in those countries.

INVESTING IN EMERGING MARKETS

Certain Portfolios may invest in securities of issuers in emerging markets,
including issuers in Asia, Eastern Europe, Latin and South America, the
Mediterranean, Russia and Africa. Certain Portfolios may also invest in
currencies of such countries and may engage in Strategic Transactions in the
markets of such countries. Investments in securities of issuers in emerging
markets may involve a high degree of risk and many may be considered
speculative. Investments in emerging markets involve risks in addition to those
generally associated with investments in foreign securities. Political and
economic structures in many emerging markets may be undergoing significant
evolution and rapid development, and such countries may lack the social,
political and economic stability characteristics of more developed countries. As
a result, the risks described above relating to investments in foreign
securities, including the risks of nationalization or expropriation of assets,
may be heightened. In addition, unanticipated political or social developments
may affect the values of a Portfolio's investments and the availability to the
Portfolio of additional investments in such emerging markets. The small size of
the securities markets in certain emerging markets and the limited volume of
trading in securities in those markets may make a Portfolio's investments in
such countries less liquid and more volatile than investments in countries with
more developed securities markets (such as the U.S., Japan and most Western
European countries).

CURRENCY RISKS

The U.S. dollar value of securities denominated in a foreign currency will
vary with changes in currency exchange rates, which can be volatile.
Accordingly, changes in the value of these currencies against the U.S. dollar
will result in corresponding changes in the U.S. dollar value of a Portfolio's
assets

26
<PAGE>
quoted in those currencies. Exchange rates are generally affected by the forces
of supply and demand in the international currency markets, the relative merits
of investing in different countries and the intervention or failure to intervene
of U.S. or foreign governments and central banks. Some countries in emerging
markets also may have managed currencies, which do not float freely against the
U.S. dollar and may restrict the free conversion of their currencies into other
currencies. Any devaluations in the currencies in which a Portfolio's securities
are denominated may have a detrimental impact on the Portfolio's net asset
value. A Portfolio may utilize various investment strategies to seek to minimize
the currency risks described above. These strategies include the use of currency
transactions such as currency forward and futures contracts, cross currency
forward and futures contracts, currency swaps and options and cross currency
options on currencies or currency futures.

DEBT SECURITIES

Investments in debt securities are subject to certain risks including
interest rate risk, default risk and call and extension risk.

INTEREST RATE RISK. When interest rates decline, the market value of fixed
income securities tends to increase. Conversely, when interest rates increase,
the market value of fixed income securities tends to decline.

The volatility of a security's market value will differ depending upon the
security's duration, the issuer and the type of instrument.

DEFAULT RISK/CREDIT RISK. Investments in fixed income securities are
subject to the risk that the issuer of the security could default on its
obligations causing a Portfolio to sustain losses on such investments. A default
could impact both interest and principal payments.

CALL RISK AND EXTENSION RISK. Fixed income securities may be subject to
both call risk and extension risk. Call risk exists when the issuer may exercise
a right to pay principal on an obligation earlier than scheduled which would
cause cash flows to be returned earlier than expected. This typically results
when interest rates have declined and a Portfolio will suffer from having to
reinvest in lower yielding securities. Extension risk exists when the issuer may
exercise a right to pay principal on an obligation later than scheduled which
would cause cash flows to be returned later than expected. This typically
results when interest rates have increased and a Portfolio will suffer from the
inability to invest in higher yield securities.

RISK FACTORS APPLICABLE TO HIGH-YIELD/HIGH-RISK DEBT SECURITIES

Certain Portfolios may invest in high-yield/high-risk debt securities. Lower
rated bonds involve a higher degree of credit risk, the risk that the issuer
will not make interest or principal payments when due. In the event of an
unanticipated default, a Portfolio would experience a reduction in its income,
and could expect a decline in the market value of the securities so affected.
More careful analysis of the financial condition of each issuer of lower grade
securities is therefore necessary.

During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress which would adversely
affect their ability to service their principal and interest payment
obligations, to meet projected business goals and to obtain additional
financing.

The market prices of lower grade securities are generally less sensitive to
interest rate changes than higher rated investments, but more sensitive to
adverse economic or political changes or, in the case of corporate issuers,
individual corporate developments. Periods of economic or political uncertainty
and change can be expected to result in volatility of prices of these
securities. Since the last major economic recession, there has been a
substantial increase in the use of high-yield debt securities to fund highly
leveraged corporate acquisitions and restructurings, so past experience with
high-yield securities in a prolonged economic downturn may not provide an
accurate indication of future performance during such periods. Lower rated
securities also may have less liquid markets than higher rated securities, and
their

27
<PAGE>
liquidity as well as their value may be adversely affected by adverse economic
conditions. Adverse publicity and investor perceptions, as well as new or
proposed laws, may also have a negative impact on the market for
high-yield/high-risk bonds.

Credit quality of high-yield/high risk securities (so-called "junk bonds")
can change suddenly and unexpectedly and even recently issued credit ratings may
not fully reflect the actual risks posed by a particular high-yield/high-risk
security. For these reasons, it is the Portfolios' policy not to rely primarily
on ratings issued by established credit rating agencies, but to utilize such
ratings in conjunction with each Sub-Adviser's own independent and ongoing
review of credit quality.

COMMON STOCKS

A Portfolio investing in common stocks is subject to market risk. Market
risk is the possibility that stock prices in general will decline over short or
even extended periods of time. Stock markets tend to be cyclical, with periods
when stock prices generally rise and periods when stock prices generally
decline.

There is also the risk that a Portfolio's performance during a specific
period may not meet or exceed that of the stock market as a whole.

COVERED CALL OPTIONS

Certain Portfolios may engage in covered call options as described herein.
Up to 25% of the Balanced Portfolio's total assets may be subject to covered
call options. By writing covered call options, a Portfolio gives up the
opportunity, while the option is in effect, to profit from any price increase in
the underlying security above the option exercise price. In addition, a
Portfolio's ability to sell the underlying security will be limited while the
option is in effect unless the Portfolio effects a closing purchase transaction.
A closing purchase transaction cancels out a Portfolio's position as the writer
of an option by means of an offsetting purchase of an identical option prior to
the expiration of the option it has written.

Upon the termination of a Portfolio's obligation under a covered call option
other than through exercise of the option, the Portfolio will realize a
short-term capital gain or loss. Any gain realized by a Portfolio from the
exercise of an option will be short- or long-term depending on the period for
which the stock was held. The writing of covered call options creates a straddle
that is potentially subject to the straddle rules, which may override some of
the foregoing rules and result in a deferral of some losses for tax purposes.

REPURCHASE AGREEMENTS

The use of repurchase agreements involves certain risks. For example, if the
seller of the agreement defaults on its obligation to repurchase the underlying
securities at a time when the value of these securities has declined, a
Portfolio may incur a loss upon disposition of them. If the seller of the
agreement becomes insolvent and subject to liquidation or reorganization under
the Bankruptcy Code or other laws, disposition of the underlying securities may
be delayed pending court proceedings. Finally, it is possible that a Portfolio
may not be able to perfect its interest in the underlying securities. While a
Portfolio's management acknowledges these risks, it is expected that they can be
controlled through stringent security selection criteria and careful monitoring
procedures.

28
<PAGE>
OTHER RISKS

RISK FACTORS APPLICABLE TO YEAR 2000 ISSUE

Like other mutual funds, as well as other financial and business
organizations around the world, the Fund could be adversely affected if the
computer systems used by the Adviser, the Sub-Advisers and other service
providers, in performing their administrative functions do not properly process
and calculate date-related information and data as of and after January 1, 2000.
This is commonly known as the "Year 2000 Issue." The Adviser and the
Sub-Advisers are taking steps that they believe are reasonably designed to
address the Year 2000 Issue with respect to computer systems that they use and
to obtain reasonable assurances that comparable steps are being taken by the
Fund's other major service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact to the
Fund.

INVESTMENT RESTRICTIONS

The Portfolios are subject to certain investment restrictions relating to
the investment of assets which are set forth in the SAI. Certain of these
investment restrictions are deemed fundamental and may not be changed without
the approval of the holders of a majority of the outstanding shares of the
Portfolio (which for this purpose and under the 1940 Act means the lesser of (i)
67% of the shares represented at a meeting at which more than 50% of the
outstanding shares are present or represented by proxy or (ii) more than 50% of
the outstanding shares).

PORTFOLIO TURNOVER

Although the Portfolios do not purchase securities with a view to rapid
turnover, each Portfolio's Sub-Adviser, in pursuit of each Portfolio's
investment objective, will continuously monitor the Portfolio's investments and
make changes to the Portfolio whenever changes in the markets, industry trends
or the outlook for any portfolio security indicates to them that the objective
could be better achieved by investment in another security, regardless of
portfolio turnover. Portfolio turnover may increase as a result of large amounts
of purchases and redemptions of shares of a Portfolio due to economic, market or
other factors that are not within the control of the Portfolio's management.

Portfolio turnover will tend to rise during periods of economic turbulence
and decline during periods of stable growth. It is expected that under normal
market conditions, the annual portfolio turnover rate for each of the Portfolios
will not exceed 100%. High rates of portfolio turnover necessarily result in
correspondingly greater brokerage and portfolio trading costs, which are paid by
the Portfolios. Trading in fixed-income securities does not generally involve
the payment of brokerage commissions, but does involve indirect transaction
costs. In addition, high rates of portfolio turnover may adversely affect each
Portfolio's status as a "regulated investment company" ("RIC") under Section 851
of the Code.

MANAGEMENT OF THE FUND

The management and affairs of the Fund are supervised by the Board of
Directors under the laws of the State of Maryland. The Directors have approved
agreements under which, as described below, certain companies provide essential
management services to the Fund.

INVESTMENT ADVISER

Investors Mark Advisors, LLC (the "Adviser"), 700 Karnes Boulevard, Kansas
City, Missouri 64108, serves as the investment adviser of each Portfolio and, as
such, provides each Portfolio with professional investment supervision and
management pursuant to an Investment Advisory Agreement dated July 15, 1997. The
Adviser, a Delaware limited liability company, is a wholly-owned subsidiary of
Jones & Babson, Inc. ("Jones & Babson"). Jones & Babson is a wholly-owned
subsidiary of Business Men's

29
<PAGE>
Assurance Company of America ("BMA"). Assicurazioni Generali S.p.A., an
insurance organization founded in 1831 based in Trieste, Italy, is the ultimate
parent of BMA.

The Adviser is newly formed and thus has no previous experience in advising
a mutual fund. However, pursuant to a Services Agreement between the Adviser and
Jones & Babson, personnel of Jones & Babson will provide the Adviser with
experienced professional fund administration and portfolio accounting for which
Jones & Babson will receive from the Adviser, as compensation for its services,
an annual fee, payable monthly, equal to 0.06% of the average total net assets
of the Fund. Jones & Babson, founded in 1960, serves as the investment manager
of numerous other mutual funds.

Under the Investment Advisory Agreement, the Adviser is obligated to
formulate a continuing program for the investment of the assets of each
Portfolio of the Fund in a manner consistent with each Portfolio's investment
objectives, policies and restrictions and to determine from time to time
securities to be purchased, sold, retained or lent by the Fund and implement
those decisions. The Investment Advisory Agreement also provides that the
Adviser shall manage the Fund's business and affairs and shall provide such
services required for effective administration of the Fund as are now provided
by employees or other agents engaged by the Fund. The Investment Advisory
Agreement further provides that the Adviser shall furnish the Fund with office
space and necessary personnel, pay ordinary office expenses, pay all executive
salaries of the Fund and furnish, without expense to the Fund, the services of
such members of its organization as may be duly elected officers or Directors of
the Fund. The Investment Advisory Agreement provides that the Adviser may retain
sub-advisers, at the Adviser's own cost and expense, for the purpose of making
investment recommendations and research information available to the Fund.

As full compensation for its services under the Investment Advisory
Agreement, the Fund pays the Adviser a monthly fee at the following annual rates
shown in the table below based on the average daily net assets of each
Portfolio.

<TABLE>
<CAPTION>
ADVISORY FEE
(ANNUAL RATE BASED ON
AVERAGE DAILY NET ASSETS
PORTFOLIO OF EACH PORTFOLIO)
- -------------------------------------------------------------------------------- ---------------------------
<S> <C>
Intermediate Fixed Income....................................................... .60%
Mid Cap Equity.................................................................. .80%
Money Market.................................................................... .40%
Global Fixed Income............................................................. .75%
Small Cap Equity................................................................ .95%
Large Cap Growth................................................................ .80%
Large Cap Value................................................................. .80%
Growth & Income................................................................. .80%
Balanced........................................................................ .80%
</TABLE>

The Adviser may enter into administrative services agreements with
Participating Insurance Companies pursuant to which the Adviser will compensate
such companies for administrative responsibilities relating to the Fund which
are performed by such Participating Insurance Companies.

EXPENSE LIMITATION AGREEMENT

In the interest of limiting expenses of the Portfolios, the Adviser has
entered into an expense limitation agreement with the Fund ("Expense Limitation
Agreement"), with respect to each Portfolio, pursuant to which the Adviser has
agreed to limit the expenses of the Portfolios to the extent necessary to limit
the total annual operating expenses (expressed as a percentage of each
Portfolio's average daily net assets) to not more than .90% of the average daily
net assets of each of the Mid Cap Equity, Large Cap Growth, Large Cap Value,
Growth & Income and Balanced Portfolios; to not more than .80% of the average
daily net assets of the Intermediate Fixed Income Portfolio; to not more than
.50% of the average daily net assets of the Money Market Portfolio; to not more
than 1.00% of the average daily net assets of

30
<PAGE>
the Global Fixed Income Portfolio; and to not more than 1.05% of the average
daily net assets of the Small Cap Equity Portfolio. This expense limitation may
be modified or terminated in the discretion of the Adviser at any time without
notice to shareholders after April 30, 1999. Reimbursement by the Portfolios of
expenses paid by the Adviser pursuant to the Expense Limitation Agreement may be
made at a later date when the Portfolios have reached a sufficient asset size to
permit reimbursement to be made without causing the total annual expense ratio
of each Portfolio to exceed the Total Operating Expense percentages described
above.

EXPENSES OF THE FUND

The organizational expenses of the Fund will be paid by the Adviser and
Jones & Babson.

SUB-ADVISERS

In accordance with each Portfolio's investment objective and policies and
under the supervision of the Adviser and the Fund's Board of Directors, each
Sub-Adviser is responsible for the day-to-day investment management of the
Portfolio(s) and for making investment decisions for the Portfolio(s) and
placing orders on behalf of the Portfolio(s) to effect the investment decisions
made as provided in separate Sub-Advisory Agreements among each Sub-Adviser, the
Adviser and the Fund. The following organizations act as Sub-Advisers to the
Portfolios:

STANDISH, AYER & WOOD, INC. ("Standish"), One Financial Center, Boston,
Massachusetts 02111, is the Sub-Adviser for the Intermediate Fixed Income, Mid
Cap Equity and Money Market Portfolios of the Fund. Standish is a Massachusetts
corporation incorporated in 1933 and is a registered investment adviser under
the Investment Advisers Act of 1940. Standish provides fully discretionary
management services and counseling and advisory services to a broad range of
clients throughout the United States and abroad. As of December 31, 1997,
Standish managed approximately $39 billion of assets.

The Intermediate Fixed Income Portfolio manager is Caleb F. Aldrich. Mr.
Aldrich also manages the Standish Fixed Income Fund. During the past five years,
Mr. Aldrich has served as a Managing Director and Vice President of Standish.

The Mid Cap Equity Portfolio managers are Ralph S. Tate and David C.
Cameron. Mr. Tate and Mr. Cameron also manage the Equity Portfolio of the
Standish, Ayer & Wood Master Portfolio. During the past five years, Mr. Tate has
served as a Managing Director of Standish (since 1995) and President of Standish
International Management Company, L.P. ("SIMCO") (since 1996) and both Messrs.
Tate and Cameron have served as a Director and Vice President of Standish and a
Director of SIMCO (since 1995 for Mr. Cameron).

The Money Market Portfolio manager is Jennifer A. Pline. Ms. Pline also
manages the Standish Short-Term Asset Reserve Fund. During the past five years,
Ms. Pline has served as a Vice President of Standish.

Under the terms of the Sub-Advisory Agreement, the Adviser shall pay to
Standish, as full compensation for services rendered under the Sub-Advisory
Agreement with respect to the Intermediate Fixed Income, Mid Cap Equity and
Money Market Portfolios, the following annual fees based on the average daily
net assets of each Portfolio:

<TABLE>
<S> <C>
Intermediate Fixed Income Portfolio.................................. .20%
Mid Cap Equity Portfolio............................................. .35%
Money Market Portfolio............................................... .15%
</TABLE>

SIMCO, One Financial Center, Boston, Massachusetts 02111, is the Sub-Adviser
for the Global Fixed Income Portfolio of the Fund. SIMCO is a Delaware limited
partnership organized in 1991 and is a registered investment adviser under the
Investment Advisers Act of 1940. The general partner of the Adviser is Standish
which holds a 99.98% partnership interest. The limited partners, who each hold a

31
<PAGE>
0.01% interest in SIMCO, are Walter M. Cabot, Sr., a Senior Adviser to SIMCO and
Standish, and D. Barr Clayson, Chairman and Vice President of the Board of SIMCO
and Director and Vice President of Standish. Ralph S. Tate, Managing Director of
Standish, is President and a Director of SIMCO. Richard S. Wood, Vice President
and a Managing Director of Standish, is the Executive Vice President of SIMCO.
Standish and SIMCO provide fully discretionary management services and
counseling and advisory services to a broad range of clients throughout the
United States and abroad.

The Global Fixed Income Portfolio manager is Richard S. Wood. Mr. Wood also
manages the Standish International Fixed Income Fund and the Standish Global
Fixed Income Portfolio. During the past five years, Mr. Wood has served as a
Vice President and a Managing Director (since 1995) of Standish and Executive
Vice President of SIMCO.

Under the terms of the Sub-Advisory Agreement, the Adviser shall pay to
SIMCO, as full compensation for services rendered under the Sub-Advisory
Agreement with respect to the Global Fixed Income Portfolio, the following
annual fee based on the average daily net assets of the Portfolio:

<TABLE>
<S> <C>
Global Fixed Income Portfolio........................................ .35%
</TABLE>

STEIN ROE & FARNHAM INCORPORATED ("Stein Roe"), One South Wacker Drive,
Chicago, Illinois 60606, is the Sub-Adviser for the Large Cap Growth and Small
Cap Equity Portfolios of the Fund. Stein Roe is registered as an investment
adviser under the Investment Advisers Act of 1940. Stein Roe was organized in
1986 to succeed to the business of Stein Roe & Farnham, a partnership that had
advised and managed mutual funds since 1949. Stein Roe is a wholly-owned
subsidiary of Liberty Financial Companies, Inc. ("Liberty Financial"), which in
turn is a majority owned indirect subsidiary of Liberty Mutual Insurance
Company.

The Large Cap Growth Portfolio manager is Erik P. Gustafson. Mr. Gustafson
also manages the Growth Stock Portfolio of SR&F Base Trust and had managed Stein
Roe Growth Stock Fund since 1994. Mr. Gustafson is a senior vice president and
senior portfolio manager with Stein Roe which he joined in 1992. From 1989 to
1992 he was an attorney with Fowler, White, Burnett, Hurley, Banick &
Strickroot. He holds a B.A. from the University of Virginia (1985) and M.B.A.
and J.D. degrees from Florida State University (1989). Mr. Gustafson was
responsible for managing $1.8 billion in mutual fund net assets at December 31,
1997. David P. Brady is associate portfolio manager. Mr. Brady is a vice
president of Stein Roe, which he joined in 1993, and was an equity investment
analyst with State Farm Mutual Automobile Insurance Company from 1986 to 1993.

The Small Cap Equity Portfolio managers are Richard B. Peterson and John S.
McLandsborough. Mr. Peterson and Mr. McLandsborough also manage the Special
Venture Portfolio of SR&F Base Trust. Mr. Peterson had been a co-portfolio
manager of Special Fund since 1991 and of Special Venture Fund since its
inception in 1994. Mr. Peterson is a senior vice president of the Sub-Adviser.
Mr. Peterson, who began his investment career at Stein Roe & Farnham in 1965
after graduating with a B.A. from Carleton College (1962) and the Woodrow Wilson
School at Princeton University (1964) with a Masters in Public Administration,
rejoined Stein Roe in 1991 after 15 years of equity research and portfolio
management experience with State Farm Investment Management Corp. As of December
31, 1997, Mr. Peterson was responsible for co-managing $475 million in mutual
fund net assets. Prior to joining Stein Roe in April 1996, Mr. McLandsborough
was an equity research analyst with CS First Boston from June 1994 until January
1996 and with National City Bank of Cleveland prior thereto. Mr. McLandsborough,
a chartered financial analyst, earned a bachelor's degree in finance in 1989
from Miami University and a master's degree in 1992 from Indiana University.

Under the terms of the Sub-Advisory Agreement, the Adviser shall pay to
Stein Roe, as full compensation for services rendered under the Sub-Advisory
Agreement with respect to the Large Cap

32
<PAGE>
Growth and Small Cap Equity Portfolios, the following annual fees based on the
average daily net assets of each Portfolio:

<TABLE>
<S> <C>
Large Cap Growth Portfolio........................................... .45%
Small Cap Equity Portfolio........................................... .55%
</TABLE>

DAVID L. BABSON & CO. INC. ("Babson"), One Memorial Drive, Cambridge,
Massachusetts 02142-1300, is the Sub-Adviser for the Large Cap Value Portfolio
of the Fund. Babson, a registered investment adviser under the Investment
Advisers Act of 1940, is an indirect subsidiary of Massachusetts Mutual Life
Insurance Company headquartered in Springfield, Massachusetts. Massachusetts
Mutual Life Insurance Company is an insurance organization founded in 1851 and
is considered to be a controlling person of Babson under the 1940 Act.

The Large Cap Value Portfolio manager is Roland W. Whitridge. Mr. Whitridge
also manages the Babson Value Fund and has done so since its inception in 1984.
Mr. Whitridge, a Chartered Financial Analyst, joined Babson in 1974, and has
over 30 years of investment management experience.

Under the terms of the Sub-Advisory Agreement, the Adviser shall pay to
Babson, as full compensation for services rendered with respect to the Large Cap
Value Portfolio, the following annual fees based on the average daily net assets
of the Portfolio:

<TABLE>
<S> <C>
Large Cap Value .45% of first $40 million
Portfolio
.40% of average daily net assets over
and above $40 million
</TABLE>

LORD, ABBETT & CO. ("Lord Abbett"), The General Motors Building, 767 Fifth
Avenue, New York, New York 10153-0203, is the Sub-Adviser for the Growth &
Income Portfolio of the Fund. Lord Abbett, a registered investment adviser under
the Investment Advisers Act of 1940, has been an investment manager for nearly
70 years. As of December 31, 1997, Lord Abbett managed approximately $25 billion
in a family of mutual funds and other advisory accounts.

The Growth & Income Portfolio manager is W. Thomas Hudson, Jr. Mr. Hudson
has been employed by Lord Abbett since 1982. Mr. Hudson has been a portfolio
manager since 1989 and became a Partner of Lord Abbett in 1997.

Under the terms of the Sub-Advisory Agreement, the Adviser shall pay to Lord
Abbett, as full compensation for services rendered under the Sub-Advisory
Agreement with respect to the Growth & Income Portfolio, the following annual
fee based on the average daily net assets of the Portfolio:

<TABLE>
<S> <C>
Growth & Income .45% of first $40 million
Portfolio .40% of average daily net assets over
and above $40 million
</TABLE>

KORNITZER CAPITAL MANAGEMENT, INC. ("Kornitzer"), 7715 Shawnee Mission
Parkway, Shawnee Mission, Kansas 66202, is the Sub-Adviser for the Balanced
Portfolio of the Fund. Kornitzer, a registered investment adviser under the
Investment Advisers Act of 1940, is an independent investment counseling firm
founded in 1989. It serves a broad variety of individual, corporate and other
institutional clients by maintaining an extensive research and analytical staff.
Kornitzer is a closely held corporation and has limitations in the ownership of
its stock designed to maintain control in those who are active in management.
Owners of 5% or more of Kornitzer are John C. Kornitzer, Kent W. Gasaway,
Willard R. Lynch, Thomas W. Laming and Susan Stack. Kornitzer manages over $1.3
billion including the Buffalo family of mutual funds.

The Balanced Portfolio utilizes a team approach to both research and
portfolio management.

33
<PAGE>
Under the terms of the Sub-Advisory Agreement, the Adviser shall pay to
Kornitzer, as full compensation for services rendered under the Sub-Advisory
Agreement with respect to the Balanced Portfolio, the following annual fee based
on the average daily net assets of the Portfolio:

<TABLE>
<S> <C>
Balanced Portfolio .40% of first $40 million
.35% of average daily net assets over
and above $40 million
</TABLE>

SUB-ADVISORY FEE WAIVERS

The Sub-Advisers have voluntarily agreed to waive their sub-advisory fees
for a period of time to assist the Adviser in subsidizing Other Expenses.

PERFORMANCE ADVERTISING

From time to time, each Portfolio may advertise its yield and total return.
These figures will be based on historical earnings and are not intended to
indicate future performance. No representation can be made regarding actual
future yields or returns. Yield refers to the annualized income generated by an
investment in the Portfolio over a specified 30-day period. The yield is
calculated by assuming that the same amount of income generated by the
investment during that period is generated in each 30-day period over one year
and is shown as a percentage of the investment.

The total return of each Portfolio refers to the average compounded rate of
return on a hypothetical investment for designated time periods (including but
not limited to the period from which the Portfolio commenced operations through
the specified date), assuming that the entire investment is redeemed at the end
of each period and assuming the reinvestment of all dividend and capital gain
distributions.

Total returns quoted for a Portfolio include the effect of deducting the
Portfolio's expenses, but may not include charges and expenses attributable to
any particular Variable Contract. Accordingly, the prospectus of the sponsoring
Participating Insurance Company separate account should be carefully reviewed
for information on relevant charges and expenses. Excluding these charges and
expenses from quotations of a Portfolio's performance has the effect of
increasing the performance quoted, and the effect of these charges should be
considered when comparing a Portfolio's performance to that of other mutual
funds.

Each Portfolio may periodically compare its performance to that of other
mutual funds tracked by mutual fund rating services (such as Lipper Analytical
Services, Inc.) or by financial and business publications and periodicals, broad
groups of comparable mutual funds, unmanaged indices which may assume investment
of dividends but generally do not reflect deductions for administrative and
management costs and other investment alternatives. Each Portfolio may quote
services such as Morningstar, Inc., a service that ranks mutual funds on the
basis of risk-adjusted performance, and Ibbotson Associates of Chicago,
Illinois, which provides historical returns of the capital markets in the U.S.
Each Portfolio may use long-term performance of these capital markets to
demonstrate general long-term risk versus reward scenarios and could include the
value of a hypothetical investment in any of the capital markets. Each Portfolio
may also quote financial and business publications and periodicals as they
relate to fund management, investment philosophy, and investment techniques.

Each Portfolio may quote various measures of volatility and benchmark
correlation in advertising and may compare these measures to those of other
funds. Measures of volatility attempt to compare historical share price
fluctuations or total returns to a benchmark while measures of benchmark
correlation indicate how valid a comparative benchmark might be. Measures of
volatility and correlation are calculated using averages of historical data and
cannot be calculated precisely.

34
<PAGE>
PUBLIC FUND PERFORMANCE

The Portfolios are newly organized and, therefore, have not yet established
meaningful performance records. However, certain of the Portfolios have the same
investment objectives and follow substantially the same investment strategies as
certain public mutual funds ("public funds") whose shares are currently sold to
the public and managed by the Sub-Advisers.

Set forth below is the historical performance of each of the corresponding
public funds. Investors should not consider the performance data of the public
funds as an indication of the future performance of the Portfolios. The
performance figures shown below reflect the deduction of the historical fees and
expenses paid by the corresponding public funds, and NOT THOSE TO BE PAID BY THE
PORTFOLIOS. Purchasers should be aware that the total anticipated expenses of
the Intermediate Fixed Income, Mid Cap Equity and Global Fixed Income Portfolios
are materially higher than those of the corresponding public funds. The figures
also do not reflect the deduction of any insurance fees or charges which are
imposed by the Participating Insurance Company in connection with its sale of
the VA Contracts and VLI Policies. Investors should refer to the separate
account prospectuses describing the VA Contracts and VLI Policies. Any such fees
and charges will have a detrimental effect on the performance of the Portfolios.
Additionally, although it is anticipated that each Portfolio and its
corresponding public fund will hold similar securities, their investment results
are expected to differ. In particular, differences in asset size and in cash
flow resulting from purchases and redemptions of Portfolio shares may result in
different security selections, differences in the relative weightings of
securities or differences in the price paid for particular portfolio holdings.
In addition, there are certain diversification requirements under Section 817 of
the Code which the Portfolios intend to comply with which are not applicable
with respect to public funds. (See "Internal Revenue Service Requirements.") The
results shown reflect the reinvestment of dividends and distributions, and were
calculated in the same manner that will be used by the Portfolios to calculate
their own performance.

The following tables show average annualized total returns for the time
periods shown for the public funds.
<TABLE>
<CAPTION>
10 YEARS OR
INTERMEDIATE FIXED INCOME PORTFOLIO 1 YEAR* 5 YEARS* SINCE INCEPTION*
- --------------------------------------------------------------------------- ----------- ----------- -----------------
<S> <C> <C> <C>
Corresponding Series of the Public Fund

Standish, Ayer & Wood
Investment Trust--Standish Fixed Income Fund 9.54% 8.35% 9.74%

10 YEARS OR
MID CAP EQUITY PORTFOLIO 1 YEAR* 5 YEARS* SINCE INCEPTION*
- --------------------------------------------------------------------------- ----------- ----------- -----------------
<S> <C> <C> <C>
Corresponding Series of the Public Fund

Standish, Ayer & Wood
Investment Trust--Standish Equity Fund 36.27% 22.55% 22.06%
<CAPTION>

10 YEARS OR
GLOBAL FIXED INCOME PORTFOLIO 1 YEAR* 5 YEARS* SINCE INCEPTION*
- --------------------------------------------------------------------------- ----------- ----------- -----------------
<S> <C> <C> <C>
Corresponding Series of the Public Fund

Standish, Ayer & Wood
Investment Trust--Standish Global Fixed Income Fund 11.68% N/A 8.50%
<CAPTION>

10 YEARS OR
SMALL CAP EQUITY PORTFOLIO 1 YEAR* 5 YEARS* SINCE INCEPTION*
- --------------------------------------------------------------------------- ----------- ----------- -----------------
<S> <C> <C> <C>
Corresponding Series of the Public Fund

Stein Roe Investment Trust--Stein Roe Special Venture Fund 9.67% N/A 21.77%
</TABLE>

35
<PAGE>
<TABLE>
<CAPTION>
10 YEARS OR
LARGE CAP GROWTH PORTFOLIO 1 YEAR* 5 YEARS* SINCE INCEPTION*
- --------------------------------------------------------------------------- ----------- ----------- -----------------
Corresponding Series of the Public Fund
<S> <C> <C> <C>

Stein Roe Investment Trust--Stein Roe Growth Stock Fund 31.62% 16.40% 16.61%
<CAPTION>

10 YEARS OR
LARGE CAP VALUE PORTFOLIO 1 YEAR* 5 YEARS* SINCE INCEPTION*
- --------------------------------------------------------------------------- ----------- ----------- -----------------
<S> <C> <C> <C>
Corresponding Public Fund

Babson Value Fund, Inc. 26.51% 20.89% 16.93%
<CAPTION>

10 YEARS OR
BALANCED PORTFOLIO 1 YEAR* 5 YEARS* SINCE INCEPTION*
- --------------------------------------------------------------------------- ----------- ----------- -----------------
<S> <C> <C> <C>
Corresponding Public Fund

Buffalo Balanced Fund, Inc. 15.09% N/A 14.91%
</TABLE>

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

* Results shown are through the year ended December 31, 1997 for each public
fund shown. The inception dates for each public fund with less than 10 years
of performance history are June 2, 1991 for the Standish Equity Fund,
January 3, 1994 for the Standish Global Fixed Income Fund, October 17, 1994
for the Stein Roe Special Venture Fund and August 12, 1994 for the Buffalo
Balanced Fund, Inc.

CORRESPONDING PORTFOLIO PERFORMANCE

The Growth & Income Portfolio is newly organized and, therefore, has not yet
established a meaningful performance record. However, this Portfolio has the
same investment objective and follows substantially the same investment
strategies as a portfolio ("Corresponding Portfolio") of a mutual fund, managed
by one of the Sub-Advisers whose shares are offered only (i) to life insurance
companies for allocation to certain of their separate accounts established for
the purpose of funding variable annuity contracts and variable life insurance
policies and (ii) to tax-qualified pension and retirement plans.

Set forth below is the historical performance of the Corresponding
Portfolio. Investors should not consider the performance data of the
Corresponding Portfolio as an indication of the future performance of the
Portfolio. The performance figures shown below reflect the deduction of the
historical fees and expenses paid by the Corresponding Portfolio, and NOT THOSE
TO BE PAID BY THE PORTFOLIO. Purchasers should be aware that the total
anticipated expenses of the Growth & Income Portfolio are materially higher than
those of the Corresponding Portfolio. The figures also do not reflect the
deduction of any insurance fees or charges which are imposed by the
Participating Insurance Company in connection with its sale of the VA Contracts
and VLI Policies. Investors should refer to the separate account prospectuses
describing the VA Contracts and VLI Policies for information pertaining to these
fees and charges. These fees and charges will have a detrimental effect on the
performance of the Portfolio.

Additionally, although it is anticipated that the Portfolio and its
Corresponding Portfolio will hold similar securities, their investment results
are expected to differ. In particular, differences in asset size and in cash
flow resulting from purchases and redemptions of Portfolio shares may result in
different security selections, differences in the relative weightings of
securities or differences in the price paid for particular portfolio holdings.
The results shown reflect the reinvestment of dividends and distributions, and
were calculated in the same manner that will be used by the Portfolio to
calculate its own performance.

36
<PAGE>
The following table shows average annualized total returns for the time
periods shown for the Corresponding Portfolio.

<TABLE>
<CAPTION>
10 YEARS OR
GROWTH & INCOME PORTFOLIO 1 YEAR* 5 YEARS* SINCE INCEPTION*
- --------------------------------------------------------------------------- ----------- ----------- -----------------
<S> <C> <C> <C>
Corresponding Portfolio

Lord Abbett Series Fund, Inc.--Growth & Income Portfolio 24.34% 17.87% 16.56%
</TABLE>

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

* Results shown are through the period ended December 31, 1997 for the
Corresponding Portfolio. The inception date for the Corresponding Portfolio
was December 11, 1989.

PURCHASES AND REDEMPTIONS

Individual investors may not purchase or redeem shares of the Portfolios
directly; shares may be purchased or redeemed only through VA Contracts and VLI
Policies offered by separate accounts of Participating Insurance Companies.
Please refer to the prospectus of the sponsoring Participating Insurance Company
separate account for instructions on purchasing a VA Contract or VLI Policy and
on how to select the Portfolios as investment options for a VA Contract or VLI
Policy.

PURCHASES. All investments in the Portfolios are credited to a
Participating Insurance Company's separate account immediately upon acceptance
of the investments by the Portfolios. Each Participating Insurance Company
receives orders from its contract owners to purchase or redeem shares of each
Portfolio on each day that the Portfolio calculates its net asset value (a
"Business Day"). That night, all orders received by the Participating Insurance
Company prior to the close of regular trading on the New York Stock Exchange
Inc. (the "NYSE") (currently 4:00 p.m., Eastern time) on that Business Day are
aggregated, and the Participating Insurance Company places a net purchase or
redemption order for shares of the Portfolios during the morning of the next
Business Day. These orders are executed at the net asset value (described below
under "Net Asset Value") next computed after receipt of such order by the
Participating Insurance Company.

The Portfolios reserve the right to reject any specific purchase order.
Purchase orders may be refused if, in the Adviser's opinion, they are of a size
that would disrupt the management of the Portfolio. A Portfolio may discontinue
sales of its shares if management believes that a substantial further increase
in assets may adversely effect the Portfolio's ability to achieve its investment
objective. In such event, however, it is anticipated that existing VA Contract
owners and VLI Policy owners would be permitted to continue to authorize
investments in the Portfolios.

REDEMPTIONS. Shares of a Portfolio may be redeemed on any Business Day.
Redemption orders which are received by a Participating Insurance Company prior
to the close of regular trading on the NYSE on any Business Day and transmitted
to the Fund or its specified agent during the morning of the next Business Day
will be processed at the next net asset value computed after receipt of such
order by the Participating Insurance Company. Redemption proceeds will normally
be wired to the Participating Insurance Company on the Business Day following
receipt of the redemption order by the Participating Insurance Company, but in
no event later than seven days after receipt of such order.

NET ASSET VALUE

Each Portfolio calculates the net asset value of a share by dividing the
total value of its assets, less liabilities, by the number of shares
outstanding. Shares are valued as of the close of trading on the NYSE (currently
4:00 p.m., Eastern time). Portfolio securities listed on an exchange or quoted
on a national market system are valued at the last sales price. Other securities
are quoted at the mean between the most recent bid and asked prices. Short-term
obligations, including all securities held in the Money Market Portfolio, are
valued at amortized cost. Securities for which market quotations are not readily
available and

37
<PAGE>
other assets held by the Fund, if any, are valued at their fair value as
determined in good faith by the Board of Directors. See "Determination of Net
Asset Value" in the SAI.

TAX STATUS, DIVIDENDS AND DISTRIBUTIONS

TAXES

For a discussion of the tax status of a VA Contract or VLI Policy, refer to
the Participating Insurance Company separate account prospectus.

Each Portfolio intends to qualify and elect to be treated as a regulated
investment company that is taxed under the rules of Subchapter M of the Code. As
such, a Portfolio will not be subject to federal income tax on its net ordinary
income and net realized capital gains to the extent such income and gains are
distributed to the separate accounts of Participating Insurance Companies which
hold its shares. Because shares of the Portfolios may be purchased only through
VA Contracts and VLI Policies, it is anticipated that any income, dividends or
capital gain distributions from the Portfolios are taxable, if at all, to the
Participating Insurance Companies and will be exempt from current taxation of
the VA Contract owner and VLI Policy owner if left to accumulate within the VA
Contract or VLI Policy.

INTERNAL REVENUE SERVICE REQUIREMENTS

The Portfolios intend to comply with the diversification requirements
currently imposed by the Internal Revenue Service on separate accounts of
insurance companies as a condition of maintaining the tax-deferred status of VA
Contracts and VLI Policies. See the SAI for more specific information.

DIVIDENDS AND DISTRIBUTIONS

Each of the Portfolios will declare and distribute dividends from net
ordinary income at least annually and will distribute its net realized capital
gains, if any, at least annually. Distributions of ordinary income and capital
gains will be made in shares of such Portfolios unless an election is made on
behalf of a separate account of a Participating Insurance Company to receive
distributions in cash. Participating Insurance Companies will be informed at
least annually about the amount and character of distributions from the Fund for
federal income tax purposes.

GENERAL INFORMATION

THE FUND

The Fund, an open-end management investment company, was incorporated in
Maryland in 1997. All consideration received by the Fund for shares of any
Portfolio and all assets of such Portfolio belong to that Portfolio and are
subject to liabilities related thereto. The Fund reserves the right to create
and issue shares of additional series.

Each Portfolio of the Fund pays its respective expenses relating to its
operation, including fees of its service providers, audit and legal expenses,
expenses of preparing prospectuses, proxy solicitation material and reports to
shareholders, costs of custodial services and registering the shares of the
Portfolio under federal securities laws, pricing and insurance expenses and pays
additional expenses including litigation and other extraordinary expenses,
brokerage costs, interest charges and taxes.

THE TRANSFER AGENT

Jones & Babson, Kansas City, Missouri serves as the transfer agent, dividend
disbursing agent and shareholder servicing agent for the Fund under a transfer
agent agreement with the Fund.

From time to time, the Fund may pay amounts to third parties that provide
sub-transfer agency and other administrative services relating to the Fund to
persons who beneficially own interests in the Fund.

38
<PAGE>
These services may include, among other things, sub-accounting services,
answering inquiries relating to the Fund, delivering, on behalf of the Fund,
proxy statements, annual reports, updated Prospectuses, other communications
regarding the Fund, and related services as the Fund or the beneficial owners
may reasonably request.

THE DISTRIBUTOR

Jones & Babson serves as principal underwriter of the Fund. Jones & Babson
receives no compensation for serving in such capacity.

VOTING RIGHTS

Each share held entitles the shareholder of record to one vote. Shareholders
of each Portfolio will vote separately on matters relating solely to it, such as
approval of advisory agreements and changes in fundamental policies, and matters
affecting some but not all Portfolios of the Fund will be voted on only by
shareholders of the affected Portfolios. Shareholders of all Portfolios of the
Fund will vote together in matters affecting the Fund generally, such as the
election of Directors or selection of accountants. As a Maryland corporation,
the Fund is not required to hold annual meetings of shareholders but shareholder
approval will be sought for certain changes in the operation of the Fund and for
the election of Directors under certain circumstances. In addition, a Director
may be removed by the remaining Directors or by shareholders at a special
meeting called upon written request of shareholders owning at least 10% of the
outstanding shares of the Fund. In the event that such a meeting is requested,
the Fund will provide appropriate assistance and information to the shareholders
requesting the meeting. Under current law, a Participating Insurance Company is
required to request voting instructions from VA Contract owners and VLI Policy
owners and must vote all shares held in the separate account in proportion to
the voting instructions received. For a more complete discussion of voting
rights, refer to the Participating Insurance Company separate account
prospectus.

CONFLICTS OF INTEREST. Each Portfolio currently offers its shares to VA
Contracts and VLI Policies offered through separate accounts of Participating
Insurance Companies which may or may not be affiliated with each other. Due to
differences of tax treatment and other considerations, the interests of VA
Contract and VLI Policy owners participating in the Portfolios may conflict. The
Board will monitor the Portfolios for any material conflicts that may arise and
will determine what action, if any, should be taken. If a conflict occurs, the
Board may require one or more Participating Insurance Company separate accounts
to withdraw its investments in the Portfolios. As a result, the Portfolios may
be forced to sell securities at disadvantageous prices and orderly portfolio
management could be disrupted. In addition, the Board may refuse to sell shares
of the Portfolios to any VA Contract or VLI Policy or may suspend or terminate
the offering of shares of the Portfolios if such action is required by law or
regulatory authority or is in the best interests of the shareholders of the
Portfolios.

CODE OF ETHICS

To mitigate the possibility that a Portfolio will be adversely affected by
personal trading of employees, the Fund, the Adviser and the Sub-Advisers have
adopted Codes of Ethics under Rule 17j-1 of the 1940 Act. These Codes contain
policies restricting securities trading in personal accounts of the portfolio
managers and others who normally come into possession of information on
portfolio transactions. These Codes comply, in all material respects, with the
recommendations of the Investment Company Institute.

REPORTING

The Fund issues unaudited financial information semi-annually, and audited
financial statements annually for each Portfolio. The Fund also furnishes
periodic reports and, as necessary, proxy statements to shareholders of record.

39
<PAGE>
COUNSEL AND INDEPENDENT AUDITORS

Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut, serves as counsel
to the Fund. Ernst & Young, LLP, Kansas City, Missouri, serves as the
independent auditors of the Fund.

CUSTODIANS

UMB Bank, N.A., Kansas City, Missouri, serves as the custodian for the Small
Cap Equity, Large Cap Growth, Large Cap Value, Growth & Income and Balanced
Portfolios of the Fund. Investors Fiduciary Trust Company ("IFTC"), Kansas City,
Missouri, serves as the custodian for the Intermediate Fixed Income, Mid Cap
Equity, Money Market and Global Fixed Income Portfolios of the Fund. UMB Bank,
N.A. and IFTC may be referred to collectively in this Prospectus and in the SAI
as the "Custodian". The Custodian holds cash, securities and other assets of the
Fund as required by the 1940 Act.

IFTC also provides fund accounting services to the Portfolios for which it
serves as Custodian.