VAN KAMPEN LIFE INVESTMENT TRUST, 485APOS, 1999-03-01

VAN KAMPEN LIFE INVESTMENT TRUST
485APOS, 1999-03-01

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 1, 1999

REGISTRATION NO. 33-00628
811-4424
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE

SECURITIES ACT OF 1933 [X]

POST-EFFECTIVE AMENDMENT NO. 26 [X]
REGISTRATION STATEMENT UNDER THE

INVESTMENT COMPANY ACT OF 1940 [X]

AMENDMENT NO. 28 [X]
</TABLE>

VAN KAMPEN LIFE INVESTMENT TRUST

(EXACT NAME OF REGISTRANT AS SPECIFIED IN DECLARATION OF TRUST)

1 PARKVIEW PLAZA, PO BOX 5555, OAKBROOK TERRACE, ILLINOIS 60181-5555

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
(630) 684-6000
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE

DENNIS J. MCDONNELL

EXECUTIVE VICE PRESIDENT

VAN KAMPEN INVESTMENTS INC.

1 PARKVIEW PLAZA

PO BOX 5555

OAKBROOK TERRACE, ILLINOIS 60181-5555

(NAME AND ADDRESS OF AGENT FOR SERVICE)

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

COPIES TO:

WAYNE W. WHALEN, ESQ.
THOMAS A. HALE, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
(312) 407-0700

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

Approximate Date of Proposed Public Offering: As soon as practicable following
effectiveness of this Registration Statement.

It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b)

[ ] on (date) pursuant to paragraph (b)

[ ] 60 days after filing pursuant to paragraph (a)(1)

[X] on April 30, 1999 pursuant to paragraph (a)(1)

[ ] 75 days after filing pursuant to paragraph (a)(2)

[ ] on (date) pursuant to paragraph (a)(2) of Rule 485

If appropriate, check the following box:

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

Title of Securities Being Registered: Shares of Beneficial Interest, par value
$0.01 per share
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

The information in this prospectus is not complete and may be changed. The
Fund may not sell these securities until the post-effective amendment to
the registration statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to sell these
securities and is not soliciting an offer to buy these securities.

[VAN KAMPEN FUNDS LOGO]

SUBJECT TO COMPLETION -- DATED MARCH 1, 1999

VAN KAMPEN

LIFE INVESTMENT TRUST

ASSET ALLOCATION PORTFOLIO

COMSTOCK PORTFOLIO

DOMESTIC INCOME PORTFOLIO

EMERGING GROWTH PORTFOLIO

ENTERPRISE PORTFOLIO

GLOBAL EQUITY PORTFOLIO

GOVERNMENT PORTFOLIO

GROWTH AND INCOME PORTFOLIO

MONEY MARKET PORTFOLIO

MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO

STRATEGIC STOCK PORTFOLIO

Shares of the Portfolios have not been approved or disapproved by the Securities
and Exchange Commission (SEC) or any state regulators, and neither the SEC nor
any state regulator has passed upon the accuracy or adequacy of this prospectus.
It is a criminal offense to suggest otherwise.

This prospectus is dated APRIL , 1999.

<PAGE> 3

TABLE OF CONTENTS

<TABLE>
<S> <C>
Risk/Return Summaries:
Asset Allocation Portfolio...................... 3
Comstock Portfolio.............................. 5
Domestic Income Portfolio....................... 7
Emerging Growth Portfolio....................... 10
Enterprise Portfolio............................ 13
Global Equity Portfolio......................... 15
Government Portfolio............................ 18
Growth and Income Portfolio..................... 21
Money Market Portfolio.......................... 24
Morgan Stanley Real Estate Securities
Portfolio.................................... 26
Strategic Stock Portfolio....................... 29
Comparative Performance........................... 31
Investment Objectives and Policies:
General Information............................. 33
Asset Allocation Portfolio...................... 33
Comstock Portfolio.............................. 35
Domestic Income Portfolio....................... 36
Emerging Growth Portfolio....................... 41
Enterprise Portfolio............................ 43
Global Equity Portfolio......................... 44
Government Portfolio............................ 48
Growth and Income Portfolio..................... 53
Money Market Portfolio.......................... 54
Morgan Stanley Real Estate Securities
Portfolio.................................... 55
Strategic Stock Portfolio....................... 58
Investment Practices.............................. 61
Investment Advisory Services...................... 67
Purchase of Shares................................ 73
Redemption of Shares.............................. 74
Dividends, Distributions and Taxes................ 74
Financial Highlights.............................. 76
Appendix A -- Description of Securities Ratings... A-1
</TABLE>

No dealer, salesperson, or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representation must not be relied upon
as having been authorized by the Portfolios, the Portfolios' investment adviser
or the Portfolios' distributor. This prospectus does not constitute an offer by
the Portfolios or by the Portfolios' distributor to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful for the Portfolios to make such an offer in such
jurisdiction.
<PAGE> 4

ASSET ALLOCATION

PORTFOLIO

RISK/RETURN SUMMARY

INVESTMENT OBJECTIVE

The Asset Allocation Portfolio is a mutual fund with an investment objective to
seek high total investment return consistent with prudent investment risk
through a fully managed investment policy utilizing equity securities as well as
investment grade intermediate and long-term debt securities and money market
securities. There can be no assurance that the Portfolio will achieve its
investment objective.

INVESTMENT STRATEGIES

Under normal market conditions, the Portfolio's management seeks to achieve the
investment objective by investing in a portfolio of equity securities,
investment grade intermediate and long-term debt securities, including preferred
stocks, convertible preferred stocks and convertible debt securities, and money
market securities. The composition of the Portfolio will vary from time to time
to reflect the investment adviser's views on economic and market trends and the
anticipated relative total investment return available from a particular type of
security. The Portfolio may invest up to 25% of its total assets in securities
of foreign issuers. The Portfolio may invest in certain derivatives, such as
options and futures, which may include additional risks.

INVESTMENT RISKS

Because of the following risks, you could lose money on your investment in the
Portfolio over the short or long term:

MARKET RISK. Market risk is the possibility that a security's price will
decline. Declines in the prices of equity securities may affect a single issuer,
industry, sector of the economy or the market as a whole. The Portfolio's
investments in equity securities are generally affected by changes in the stock
markets which fluctuate substantially over time, sometimes suddenly and sharply.
The prices of the Portfolio's equity securities may or may not fluctuate in
tandem with overall changes in the stock markets. The prices of debt securities
tend to fall as interest rates rise, and such declines may be greater among
securities with longer maturities. The prices of convertible securities are
affected by changes similar to those of debt and equity securities: the value of
a convertible security tends to decline as interest rates rise and, because of
the conversion feature, tends to vary with fluctuations in the market value of
the underlying common stock.

CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. Because the Portfolio generally invests in investment
grade quality securities, it is subject to a lower level of credit risk than a
portfolio investing more in lower grade quality securities.

FOREIGN RISKS. Because the Portfolio may own securities from foreign issuers, it
may be subject to risks not usually associated with owning securities of U.S.
issuers. These risks can include fluctuations in foreign currencies, foreign
currency exchange controls, political and economic instability, differences in
financial reporting, differences in securities regulation and trading, and
foreign taxation issues.

3
<PAGE> 5

futures are examples of derivatives. Such transactions involve risks different
from the direct investment in underlying securities such as imperfect
correlation between the value of the instruments and the underlying assets;
risks of default by the other party to certain transactions; risks that the
transactions may incur losses that partially or completely offset gains in
portfolio positions; risks that the transactions may not be liquid; and manager
risk.

MANAGER RISK. As with any managed fund, the Portfolio's management may not be
successful in selecting the best-performing securities and the Portfolio's
performance may lag behind that of similar funds.

An investment in the Portfolio is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.

INVESTOR PROFILE

In light of its objective and investment strategies, the Portfolio may be
appropriate for investors who:

- - Seek high total investment return over the long term.

- - Can withstand volatility in the value of their shares in the Portfolio.

- - Wish to add to their personal investment holdings a portfolio that invests in
a varying mix of equity, debt securities and money market securities seeking
high total investment return.

An investment in the Portfolio may not be appropriate for all investors. The
Portfolio is not intended to be a complete investment program, and investors
should consider their long-term investment goals and financial needs when making
an investment decision about the Portfolio. An investment in the Portfolio is
intended to be a long-term investment, and the Portfolio should not be used as a
trading vehicle.

ANNUAL PERFORMANCE

One way to measure the risks of investing in the Portfolio is to look at how its
performance varies from year to year. The following chart shows the annual
returns of the Portfolio over the past ten calendar years prior to the date of
this prospectus. Sales loads are not reflected in this chart. If these sales
loads had been included, the returns shown below would have been lower. Remember
that the past performance of the Portfolio is not indicative of its future
performance.

<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
'1989' 17.82
'1990' 1.89
'1991' 27.05
'1992' 7.29
'1993' 7.70
'1994' -3.66
'1995' 31.36
'1996' 13.87
'1997' 21.81
'1998' 15.67
</TABLE>

During the ten-year period shown in the bar chart, the highest quarterly return
was 11.04% (for the quarter ended December 31, 1998) and the lowest quarterly
return was -7.45% (for the quarter ended September 30, 1990).

4
<PAGE> 6

COMSTOCK PORTFOLIO

RISK/RETURN SUMMARY

INVESTMENT OBJECTIVE

The Comstock Portfolio is a mutual fund with an investment objective to seek
capital growth and income through investments in equity securities, including
common and preferred stocks and securities convertible into common and preferred
stocks. There can be no assurance that the Portfolio will achieve its investment
objective. As of the date of this prospectus, the Comstock Portfolio has not
commenced investment operations.

INVESTMENT STRATEGIES

Under normal market conditions, the Portfolio's management seeks to achieve the
investment objective by investing in a portfolio of equity securities, and
principally investing in common stocks. The Portfolio emphasizes a "value" style
of investing seeking well-established, undervalued companies. The Portfolio may
invest up to 15% of its total assets in securities of foreign issuers. The
Portfolio may invest in certain derivatives, such as options and futures, which
may include additional risks.

INVESTMENT RISKS

Investors seeking only long-term capital growth should be aware that the
Portfolio also seeks to generate income and that long-term capital growth is
only a part of the Portfolio's overall investment objective. Similarly,
investors seeking a more assured level of current income should be aware that
the Portfolio's income will fluctuate and that seeking income is only a part of
the Portfolio's overall investment objective.

Because of the following risks, you could lose money on your investment in the
Portfolio over the short or long term:

MARKET RISK. Market risk is the possibility that a security's price will
decline. Declines in the prices of equity securities may affect a single issuer,
industry, sector of the economy, or the market as a whole. The Portfolio's
investments in equity securities generally are affected by changes in the stock
markets which fluctuate substantially over time, sometimes suddenly and sharply.
The Portfolio emphasizes a "value" style of investing and the market values of
the Portfolio's equity securities may or may not fluctuate in tandem with
overall changes in the stock markets. During an overall stock market decline,
stock prices of small- or medium-sized companies (in which the Portfolio may
invest) often fluctuate more than prices of larger companies. The ability of the
Portfolio's investment holdings to generate income is dependent on the earnings
and the continuing declaration of dividends by the issuers of such securities.

5
<PAGE> 7

underlying securities such as imperfect correlation between the value of the
instruments and the underlying assets; risks of default by the other party to
certain transactions; risks that the transactions may incur losses that
partially or completely offset gains in portfolio positions; risks that the
transactions may not be liquid; and manager risk.

INVESTOR PROFILE

In light of its objective and investment strategies, the Portfolio may be
appropriate for investors who:

- - Seek capital growth and income over the long term.

- - Can withstand volatility in the value of their shares of the Portfolio.

- - Wish to add to their personal investment holdings a portfolio that invests
primarily in equity securities.

6
<PAGE> 8

DOMESTIC INCOME

PORTFOLIO

RISK/RETURN SUMMARY

INVESTMENT OBJECTIVES

The Domestic Income Portfolio is a mutual fund with a primary investment
objective to seek current income. When consistent with the primary investment
objective, capital appreciation is a secondary investment objective. There can
be no assurance that the Portfolio will achieve its investment objectives.

INVESTMENT STRATEGIES

The Portfolio's management seeks to achieve the investment objectives by
investing primarily in a diversified portfolio of income securities, including
convertible and non-convertible debt securities and preferred stocks. Under
normal market conditions, the Portfolio invests at least 80% of its total assets
in income securities rated at the time of purchase B or higher by Standard &
Poor's ("S&P") or rated B or higher by Moody's Investors Service, Inc.
("Moody's") or unrated securities judged by the Portfolio's investment adviser
to be of comparable quality at the time of purchase. Securities rated BB or
below by S&P or rated Ba or below by Moody's or unrated securities of comparable
quality are commonly referred to as "junk bonds" and involve special risks as
compared to investments in higher grade securities (see sidebar for an
explanation of quality ratings). The Portfolio may invest up to 25% of its total
assets in securities of foreign issuers. The Portfolio may purchase or sell
securities on a when-issued or delayed delivery basis.

UNDERSTANDING

QUALITY RATINGS

Security ratings are based on the issuer's ability to pay interest and
repay the principal. Securities with ratings above the line are
considered "investment grade," while those with ratings below the line
are regarded as "noninvestment grade," or "junk bonds." A detailed
explanation of these ratings can be found in the appendix to this
prospectus.

S&P Moody's Meaning

- ------------------------------------------------------------------
AAA Aaa Highest quality

................................................................................

AA Aa High quality

................................................................................

A A Above-average quality

................................................................................

BBB Baa Average quality

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

BB Ba Below-average quality

................................................................................

B B Marginal quality

................................................................................

CCC Caa Poor quality

................................................................................

CC Ca Highly speculative

................................................................................

C C Lowest quality

................................................................................

D -- In default

................................................................................

7
<PAGE> 9

INVESTMENT RISKS

With its holdings of medium and lower grade securities, the Portfolio has
greater risks than a portfolio owning only higher grade securities. Because of
the following risks, you could lose money on your investment in the Portfolio
over the short or long term:

MARKET RISK. Market risk is the possibility that a security's price will
decline. The prices of income securities tend to fall as interest rates rise.
This "market risk" is usually greater among securities with longer durations.
Because the Portfolio's investment adviser seeks to maintain the dollar-weighted
average duration of the Portfolio between four to six years, the Portfolio
generally will be subject to greater market risk than a portfolio that owns only
shorter term securities but less market risk than a portfolio that owns only
longer term securities. Lower grade securities, especially those with longer
durations or that do not make regular interest payments, may fluctuate more in
price in response to negative issuer or general economic news than higher grade
securities. When-issued and delayed delivery transactions are subject to changes
in market conditions from the time of the commitment until settlement. This may
adversely affect the prices or yields of the securities being purchased, as well
as any portfolio securities held for payment of such commitments. The greater
the Portfolio's outstanding commitments for these securities, the greater the
Portfolio's exposure to market price fluctuation.

CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. Because the Portfolio may invest in securities with
below investment grade credit quality, the Portfolio is subject to a higher
level of credit risk than a portfolio that buys only investment grade
securities. The credit quality of "noninvestment grade" securities is considered
speculative by recognized rating agencies with respect to the issuer's
continuing ability to pay interest and principal. Lower grade securities may
have less liquidity and a higher incidence of default than investments in higher
grade securities. The Portfolio may incur higher expenditures to protect the
Portfolio's interest in such securities. The credit risks and market prices of
lower grade securities are more sensitive to negative issuer developments, such
as reduced revenues or increased expenditures, or adverse economic conditions,
such as a recession, than are higher grade securities.

CALL RISK. If interest rates fall, it is possible that issuers of securities
with high interest rates will prepay or "call" their securities before their
maturity dates. In this event, the proceeds from the called securities would be
reinvested by the Portfolio in securities with the new, lower interest rates,
resulting in a possible decline in the Portfolio's income and distributions to
shareholders.

8
<PAGE> 10

INVESTOR PROFILE

In light of its objectives and investment strategies, the Portfolio may be
appropriate for investors who:

- - Seek current income and capital appreciation over the long term.

- - Are willing to take on the increased risks of medium and lower grade
securities in exchange for potentially higher income.

- - Wish to add to their personal investment holdings a portfolio that invests
primarily in income securities.

ANNUAL PERFORMANCE

<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
'1989' -5.44
'1990' -7.23
'1991' 21.23
'1992' 12.50
'1993' 16.32
'1994' -4.33
'1995' 21.37
'1996' 6.68
'1997' 11.90
'1998' 6.34
</TABLE>

During the ten-year period shown in the bar chart, the highest quarterly return
was 7.16% (for the quarter ended June 30, 1995) and the lowest quarterly return
was -8.33% (for the quarter ended December 31, 1989).

9
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EMERGING GROWTH

PORTFOLIO

RISK/RETURN SUMMARY

INVESTMENT OBJECTIVE

The Emerging Growth Portfolio is a mutual fund with an investment objective to
seek capital appreciation by investing in a portfolio of securities consisting
principally of common stocks of small and medium sized companies considered by
the Portfolio's management to be emerging growth companies. There can be no
assurance that the Portfolio will achieve its investment objective.

INVESTMENT STRATEGIES

Under normal market conditions, the Portfolio's management seeks to achieve the
investment objective by investing at least 65% of the Portfolio's total assets
in a portfolio of common stocks of small and medium sized (less than $2 billion
of market capitalization or annual sales) emerging growth companies. Emerging
growth companies are those domestic or foreign companies that the Portfolios's
management believes are in the early stages of their life cycles and have the
potential to become major enterprises. Investing in such companies involves
risks not ordinarily associated with investments in larger, more established
companies. The Portfolio may invest up to 20% of its total assets in securities
of foreign issuers. The Portfolio may invest in certain derivatives, such as
options and futures, which may include additional risks.

INVESTMENT RISKS

With its portfolio of common stocks of smaller and medium sized, less
established companies, the Portfolio has greater risks than a portfolio that
invests only in larger sized, more seasoned companies. Because of the following
risks, you could lose money on your investment in the Portfolio over the short
or long term:

MARKET RISK. Market risk is the possibility that a security's price will
decline. Declines in the prices of equity securities may affect a single issuer,
industry, sector of the economy or the market as a whole. The Portfolio's
investments in equity securities are generally affected by changes in the stock
markets which fluctuate substantially over time, sometimes suddenly and sharply.
The prices of the Portfolio's equity securities may or may not fluctuate in
tandem with overall changes in the stock markets. During an overall market
decline, stock prices of small and medium sized companies (such as those in
which the Portfolio invests) often fluctuate more and often fall more than the
prices of larger sized company stocks. It is possible that the stocks of small
and medium sized companies will be more volatile and underperform the overall
stock market. Historically, smaller and medium sized company stocks have
sometimes gone through extended periods when they did not perform as well as
larger company stocks.

RISKS OF EMERGING GROWTH COMPANIES. Companies that the Portfolio's management
believe are emerging growth companies are often companies with limited product
lines, markets, distribution channels or financial resources and the management
of such companies may be dependent upon one or a few key people. The stocks of
emerging growth companies can therefore be subject to more abrupt or erratic
market movements than stocks of larger, more established companies or the stock
market in general.

10
<PAGE> 12

RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options and futures are examples of derivatives.
Such transactions involve risks different from the direct investment in
underlying securities such as imperfect correlation between the value of the
instruments and the underlying assets; risks of default by the other party to
certain transactions; risks that the transactions may incur losses that
partially or completely offset gains in portfolio positions; risks that the
transactions may not be liquid; and manager risk.

INVESTOR PROFILE

In light of its objective and investment strategies, the Portfolio may be
appropriate for investors who:

- - Seek capital appreciation over the long term.

- - Are willing to take on the increased risks of investing in smaller and medium
sized, less established companies in exchange for potentially higher capital
appreciation.

- - Can withstand substantial volatility in the value of their shares of the
Portfolio.

- - Wish to add to their personal holdings a portfolio that invests primarily in
common stocks of small and medium sized emerging growth companies.

Investors should carefully consider the additional risks associated with
investments in smaller and medium sized, less established companies. An
investment in the Portfolio may not be appropriate for all investors. The
Portfolio is not intended to be a complete investment program, and investors
should consider their long-term investment goals and financial needs when making
an investment decision about the Portfolio. An investment in the Portfolio is
intended to be a long-term investment and the Portfolio should not be used as a
trading vehicle.

ANNUAL PERFORMANCE

One way to measure the risks of investing in the Portfolio is to look at how its
performance varies from year to year. The following chart shows the annual
returns of the Portfolio over the past four calendar years prior to the date of
this prospectus. Sales loads are not reflected in this chart. If these sales
loads had been included, the returns shown below would have been lower. Remember
that the past performance of the Portfolio is not indicative of its future
performance.

11
<PAGE> 13

<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
'1995*' 17.20
'1996' 16.65
'1997' 20.42
'1998' 37.56
</TABLE>

*The return for 1995 is for the period from July 3, 1995 (commencement of
investment operations) to December 31, 1995.

During the four-year period shown in the bar chart, the highest quarterly return
was 28.01% (for the quarter ended December 31, 1998) and the lowest quarterly
return was -12.05% (for the quarter ended September 30, 1998).

12
<PAGE> 14

ENTERPRISE PORTFOLIO

RISK/RETURN SUMMARY

INVESTMENT OBJECTIVE

The Enterprise Portfolio is a mutual fund with an investment objective to seek
capital appreciation through investments in securities believed by the
Portfolio's investment adviser to have above average potential for capital
appreciation. There can be no assurance that the Portfolio will achieve its
investment objective.

INVESTMENT STRATEGIES

Under normal market conditions, the Portfolio's management seeks to achieve the
investment objective by investing in a portfolio of securities consisting
primarily of common stocks of "growth" companies focusing on those securities
believed to offer a combination of strong business fundamentals at an attractive
price. The Portfolio may invest up to 10% of its total assets in securities of
foreign issuers. The Portfolio may invest in certain derivatives, such as
options and futures, which may include additional risks.

INVESTMENT RISKS

Because of the following risks, you could lose money on your investment in the
Portfolio over the short or long term:

MARKET RISK. Market risk is the possibility that a security's price will
decline. Declines in the values of common stocks may affect a single issuer,
industry, sector of the economy or the market as a whole. The Portfolio's
investments in common stocks are affected by changes in the stock markets which
fluctuate substantially over time, sometimes suddenly and sharply. The Portfolio
emphasizes a "growth" style of investing and the market values of the
Portfolio's common stocks may or may not fluctuate in tandem with overall
changes in the stock market. During an overall stock market decline, stock
prices of small or medium sized companies (in which the Portfolio may invest)
often fluctuate more than prices of larger companies.

13
<PAGE> 15

INVESTOR PROFILE

In light of its objective and investment strategies, the Portfolio may be
appropriate for investors who:

- - Seek capital appreciation over the long term.

- - Can withstand substantial volatility in the value of their shares of the
Portfolio.

- - Wish to add to their personal investment holdings a portfolio that invests
primarily in growth common stocks.

ANNUAL PERFORMANCE

<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
'1989 34.23
'1990 -6.84
'1991 36.41
'1992 7.48
'1993 8.98
'1994 -3.39
'1995 36.98
'1996 25.80
'1997 30.66
'1998 25.00
</TABLE>

During the ten-year period shown in the bar chart, the highest quarterly return
was 24.94% (for the quarter ended December 31, 1998) and the lowest quarterly
return was -16.52% (for the quarter ended September 30, 1990).

14
<PAGE> 16

GLOBAL EQUITY

PORTFOLIO

RISK/RETURN SUMMARY

INVESTMENT OBJECTIVE

The Global Equity Portfolio is a mutual fund with an investment objective to
seek long-term growth of capital through investments in an internationally
diversified portfolio of equity securities of companies of any nation including
the United States. There can be no assurance that the Portfolio will achieve its
investment objective.

INVESTMENT STRATEGIES

The Portfolio's management seeks to achieve the investment objective by
investing in an internationally diversified portfolio of equity securities,
including common stocks, preferred stocks and warrants or options to acquire
such securities. The Fund's management utilizes a "top-down" investment
management approach that emphasizes country selection and weighting rather than
individual security selection. Under normal market conditions, the Portfolio
invests at least 65% of its total assets in securities of issuers of at least
three countries (including the United States). Investments in securities of
foreign issuers include certain risks not typically associated with investments
in U.S. securities. The Portfolio may invest in certain derivatives, such as
options and futures, which may include additional risks.

INVESTMENT RISKS

Because of the following risks, you could lose money on your investment in the
Portfolio over the short or long term:

MARKET RISK. Market risk is the possibility that a security's price will
decline. Declines in the prices of equity securities may affect a single issuer,
industry, sector of the economy, or the market as a whole. The Portfolio's
investments in equity securities are affected by changes in the stock markets
which fluctuate substantially over time, sometimes suddenly and sharply. U.S.
markets may, but often do not, move in tandem with changes in foreign markets.
The Portfolio's investments, and particularly investments in foreign issuers,
may or may not fluctuate in tandem with overall changes in the stock markets.
During an overall stock market decline, stock prices of small and medium sized
companies (in which the Portfolio may invest) often fluctuate more than prices
of larger companies.

FOREIGN RISKS. Because the Portfolio will own securities from foreign issuers,
it may be subject to risks not usually associated with owning securities of U.S.
issuers. These risks can include fluctuations in foreign currencies, foreign
currency exchange controls, political and economic instability, differences in
financial reporting, differences in securities regulation and trading, and
foreign taxation issues. The risks of investing in developing or emerging
markets (in which the Portfolio may invest) are greater than the risks
associated with foreign investments generally including greater political
uncertainties, an economy's dependence on international development assistance,
currency transfer restrictions, and greater delays and disruptions in settlement
transactions.

RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options and futures are examples of derivatives.
Such transactions involve risks different from the direct investment in
underlying securities such as imperfect correlation between the value of the
instruments and the

15
<PAGE> 17

underlying assets; risks of default by the other party to certain transactions;
risks that the transactions may incur losses that partially or completely offset
gains in portfolio positions; risks that the transactions may not be liquid; and
manager risk.

INVESTOR PROFILE

In light of its objective and investment strategies, the Fund may be appropriate
for investors who:

- - Seek long-term growth of capital.

- - Are willing to take on the increased risks associated with investing in
foreign securities.

- - Can withstand volatility in the value of their shares in the Portfolio.

- - Wish to add to their personal investment holdings a portfolio that invests in
an international portfolio of equity securities.

16
<PAGE> 18

ANNUAL PERFORMANCE

One way to measure the risks of investing in the Portfolio is to look at how its
performance varies from year to year. The following chart shows the annual
returns of the Portfolio over the past four calendar years prior to the date of
this prospectus. Sales loads are not reflected in this chart. If these sales
loads had been included, the returns shown below would have been lower. Remember
that the past performance of the Portfolio is not indicative of its future
performance.

<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
'1995*' 3.00
'1996' 16.72
'1997' 15.85
'1998' 21.61
</TABLE>

*The return for 1995 is for the period from July 3, 1995 (commencement
of investment operations) to December 31, 1995.

During the four-year period shown in the bar chart, the highest quarterly return
was 16.90% (for the quarter ended December 31, 1998) and the lowest quarterly
return was -11.02% (for the quarter ended September 30, 1998).

17
<PAGE> 19

GOVERNMENT PORTFOLIO

RISK/RETURN SUMMARY

INVESTMENT OBJECTIVE

The Government Portfolio is a mutual fund with an investment objective to seek
to provide investors with a high current return consistent with preservation of
capital. There can be no assurance that the Portfolio will achieve its
investment objective.

INVESTMENT STRATEGIES

Under normal market conditions, the Portfolio's management seeks to achieve the
investment objective by investing at least 80% of the Portfolio's total assets
in debt securities issued or guaranteed by the U.S. government, its agencies or
its instrumentalities, including mortgage-related securities issued or
guaranteed by instrumentalities of the U.S. government. Under normal market
conditions, the Portfolio may invest up to 20% of its total assets in certain
government-related securities, including privately issued mortgage-related and
mortgage-backed securities not directly guaranteed by instrumentalities of the
U.S. government, privately issued certificates representing "stripped" U.S.
government or mortgage-related securities and repurchase agreements fully
collateralized by U.S. government securities. The Portfolio may invest in
certain derivatives, such as options, futures and options on futures, and
interest rate swaps or other interest rate-related transactions, which may
include additional risks. The Portfolio may purchase or sell securities on a
when-issued or delayed delivery basis.

INVESTMENT RISKS

Because of the following risks, you could lose money on your investment in the
Portfolio over the short or long term:

MARKET RISK. Market risk is the possibility that a security's price will
decline. The prices of debt securities tend to fall as interest rates rise. This
"market risk" is usually greater among debt securities with longer maturities or
longer durations. Although the Portfolio has no policy limiting the maturities
of its investments, the Portfolio's investment adviser seeks to moderate market
risk by normally maintaining a portfolio duration of four to six years. This
means that the Portfolio will be subject to greater market risk than a portfolio
investing solely in shorter-term securities (see sidebar for an explanation of
maturities and durations). The yields and market prices of U.S. government
securities may move differently and adversely compared to the yields and market
prices of the overall securities markets. These securities, while backed by the
U.S. government, are not guaranteed against declines in their market prices.

Like traditional debt securities, the prices of mortgage-backed securities tend
to fall as interest rates rise. However, mortgage-backed securities may benefit
less than traditional debt securities from declining interest rates because
prepayment of mortgages tends to accelerate during periods of declining interest
rates.

Market risk is often greater among certain types of debt securities, such as
zero-coupon securities or mortgage-related stripped securities, which do not
make regular interest payments but are instead bought at a discount to their
face values and paid in full upon maturity. As interest rates change, these
bonds often fluctuate more in price than bonds that make regular interest
payments. Because the Portfolio invests in zero-coupon bonds, it may be subject
to greater market risk than a portfolio that does not own this type of bond.

When-issued and delayed delivery transactions are subject to changes in market
conditions from the time of the commitment until settlement. This may adversely
affect the prices or yields of the securities being purchased, as well as any
portfolio securities held for payment of such commitments. The greater the
Portfolio's outstanding commitments for these securities, the greater the
Portfolio's exposure to market price fluctuation.

18
<PAGE> 20

UNDERSTANDING

MATURITIES

A debt security can be categorized according to its maturity, which is
the length of time before the issuer must repay the principal.

<TABLE>
<S> <S>
Term Maturity Level
- ------------------------------------------------------------
1-3 years Short
............................................................
4-10 years Intermediate
............................................................
More than 10 years Long
............................................................
</TABLE>

UNDERSTANDING

DURATION

Duration provides an alternative approach to assessing a security's
market risk. Duration measures the expected life of a security by
incorporating the security's yield, coupon interest payments, final
maturity and call features into one measure. While maturity focuses only
on the final principal repayment date of a security, duration looks at
the timing and present value of all of a security's principal, interest
or other payments. Typically, a debt security with interest payments due
prior to maturity has a duration less than maturity. A zero-coupon bond,
which does not make interest payments prior to maturity, would have the
same duration and maturity.

CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. Credit risk should be low for the Portfolio because
it invests substantially all of its assets in U.S. government securities.

INCOME RISK. The income you receive from the Portfolio is based primarily on
interest rates, which can vary widely over the short and long term. If interest
rates drop, your income from the Portfolio may drop as well. The more the Fund
invests in variable or floating rate securities or other securities subject to
prepayment risk, the greater the Fund's income risk.

PREPAYMENT RISK. If interest rates fall, the principal on debt securities held
by the Portfolio may be paid earlier than expected. If this happens, the
proceeds from a prepaid security would be reinvested by the Portfolio in
securities bearing the new, lower interest rates, resulting in a possible
decline in the Portfolio's income and distributions to shareholders.

The Portfolio may invest in pools of mortgages issued or guaranteed by private
organizations or U.S. government agencies. These mortgage-related securities are
especially sensitive to prepayment risk because borrowers often refinance their
mortgages when interest rates drop.

RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures and options on futures, interest
rate swaps and other interest-rate related transactions are examples of
derivatives. Such transactions involve risks different from the direct
investment in underlying securities such as imperfect correlation between the
value of the instruments and the underlying assets; risks of default by the
other party to certain transactions; risks that the transactions may incur
losses that partially or completely offset gains in portfolio positions; risks
that the transactions may not be liquid; and manager risk.

19
<PAGE> 21

INVESTOR PROFILE

In light of its objective and investment strategies, the Portfolio may be
appropriate for investors who:

- - Seek a high current return consistent with preservation of capital.

- - Wish to add to their personal investment holdings a portfolio that invests
primarily in debt securities issued or guaranteed by the U.S. government, its
agencies or its instrumentalities.

ANNUAL PERFORMANCE

<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
'1989' 14.31
'1990' 8.31
'1991' 16.23
'1992' 5.73
'1993' 7.86
'1994' -4.63
'1995' 17.16
'1996' 2.12
'1997' 9.61
'1998' 8.59
</TABLE>

During the ten-year period shown in the bar chart, the highest quarterly return
was 8.13% (for the quarter ended June 30, 1989) and the lowest quarterly return
was -3.98% (for the quarter ended March 31, 1994).

20
<PAGE> 22

GROWTH AND INCOME

PORTFOLIO

RISK/RETURN SUMMARY

INVESTMENT OBJECTIVE

The Growth and Income Portfolio is a mutual fund with an investment objective to
seek long-term growth of capital and income. There can be no assurance that the
Portfolio will achieve its investment objective.

INVESTMENT STRATEGIES

Under normal market conditions, the Portfolio's management seeks to achieve the
investment objective by investing primarily in a portfolio of income-producing
equity securities, including common stocks and convertible securities; although
investments are also made in non-convertible preferred stocks and debt
securities. The Portfolio may invest up to 15% of its total assets in securities
of foreign issuers. The Portfolio may invest in certain derivatives, such as
options and futures, which may include additional risks.

INVESTMENT RISKS

Investors seeking a more assured level of current income should be aware that
the Portfolio's income will fluctuate and that seeking income is only a part of
the Portfolio's overall investment objective. Similarly, investors seeking only
long-term growth should be aware that the Portfolio seeks to generate income and
that long-term growth of capital is only a part of the Portfolio's overall
investment objective. Because of the following risks, you could lose money on
your investment in the Portfolio over the short or long term:

MARKET RISK. Market risk is the possibility that a security's price will
decline. Market risk may affect a single issuer, industry, sector of the
economy, or the market as a whole. The Portfolio's investments in equity
securities generally are affected by changes in the stock markets which
fluctuate substantially over time, sometimes suddenly and sharply. During an
overall stock market decline, stock prices of small or medium-sized companies or
newly-formed companies (in which the Portfolio may invest) often fluctuate more
than prices of larger, more established companies. The ability of the
Portfolio's equity securities holdings to generate income is dependent on the
earnings and the continuing declaration of dividends by the issuers of such
securities. The values of income-producing equity securities may or may not
fluctuate in tandem with overall changes in the stock markets. The Portfolio's
investments in other fixed income or debt securities generally are affected by
changes in interest rates and creditworthiness of the issuer. The market prices
of such securities tend to fall as interest rates rise, and such declines may be
greater among securities with longer duration. The Portfolio's investments in
convertible securities are affected by changes similar to those of equity and
debt securities. The value of convertible securities tends to decline as
interest rates rise and, because of the conversion feature, tends to vary with
fluctuations in the market value of the underlying common stock.

21
<PAGE> 23

RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options and futures are examples of derivatives.
Such transactions involve risks different from the direct investment in
underlying securities such as imperfect correlation between the value of the
instruments and the underlying assets; risks of default by the other party to
certain transactions; risks that the transactions may incur losses that
partially or completely offset gains in portfolio positions; and risks that the
transactions may not be liquid; and manager risk.

INVESTOR PROFILE

In light of its objective and investment strategies, the Portfolio may be
appropriate for investors who:

- - Seek growth of capital and income over the long term.

- - Can withstand volatility in the value of their shares of the Portfolio.

- - Wish to add to their personal investment holding a portfolio that invests
primarily in income-producing equity securities.

22
<PAGE> 24

ANNUAL PERFORMANCE

One way to measure the risks of investing in the Portfolio is to look at how its
performance varies from year to year. The following chart shows the annual
returns of the Portfolio over the past three calendar years prior to the date of
this prospectus. Sales loads are not reflected in this chart. If these sales
loads had been included, the returns shown below would have been lower. Remember
that the past performance of the Portfolio is not indicative of its future
performance.

<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
'1996*' -0.3
'1997' 23.90
'1998' 19.61
</TABLE>

*The return for 1996 is for the period from December 23, 1996
(commencement of investment operations) to December 31, 1996.

During the three-year period shown in the bar chart, the highest quarterly
return was 15.84% (for the quarter ended December 31, 1998) and the lowest
quarterly return was -10.52% (for the quarter ended September 30, 1998).

23
<PAGE> 25

MONEY MARKET

PORTFOLIO

RISK/RETURN SUMMARY

INVESTMENT OBJECTIVE

The Money Market Portfolio is a mutual fund with an investment objective to seek
protection of capital and high current income through investments in money
market instruments. There can be no assurance that the Portfolio will achieve
its investment objective.

INVESTMENT STRATEGIES

The Portfolio seeks to maintain a constant net asset value of $1.00 per share by
investing in a diversified portfolio of money market instruments maturing within
one year with a dollar-weighted average maturity of 90 days or less. The
portfolio seeks high current income from these short-term investments to the
extent consistent with protection of capital.

INVESTMENT RISKS

Because of the following risks, you could lose money on your investment in the
Portfolio over the short or long term:

MARKET RISK. Market risk is the possibility that a security's price will
decline. An investment in the Portfolio is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although
the Portfolio seeks to preserve the value of your investment at $1.00 per share,
it is possible to lose money by investing in the Portfolio.

CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. Credit risk should be low for the Portfolio because
it invests in high-quality money market instruments.

INCOME RISK. The income you receive from the Portfolio is based primarily on
short-term interest rates, which can vary widely over time. If short-term
interest rates drop, your income from the Portfolio may drop as well.

INVESTOR PROFILE

In light of its objective and investment strategies, the Portfolio may be
appropriate for investors who:

- - Seek protection of capital and high current income through investments in
money market instruments.

24
<PAGE> 26

ANNUAL PERFORMANCE

<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
'1989' 9.13
'1990' 7.83
'1991' 5.60
'1992' 3.36
'1993' 2.66
'1994' 3.71
'1995' 5.46
'1996' 4.89
'1997' 5.06
'1998' 5.02
</TABLE>

During the ten-year period shown in the bar chart, the highest quarterly return
was 2.34% (for the quarter ended June 30, 1989) and the lowest quarterly return
was 0.65% (for the quarter ended June 30, 1993).

Investors can obtain the current seven-day yield of the Portfolio by calling
(800) 341-2911.

25
<PAGE> 27

MORGAN STANLEY

REAL ESTATE

SECURITIES PORTFOLIO

RISK/RETURN SUMMARY

INVESTMENT OBJECTIVES

The Morgan Stanley Real Estate Securities Portfolio is a mutual fund with a
primary investment objective to seek long-term growth of capital. Current income
is a secondary investment objective. There can be no assurance that the
Portfolio will achieve its investment objectives.

INVESTMENT STRATEGIES

Under normal market conditions, the Portfolio's management seeks to achieve the
investment objectives by investing at least 65% of the Portfolio's total assets
in a diversified portfolio of securities of companies operating in the real
estate industry, primarily equity securities of real estate investment trusts
("REITs"). A company operating in the real estate industry is one that derives
at least 50% of its assets, gross income or net profits from the ownership,
construction, management or sale of residential, commercial or industrial real
estate. Besides equity securities of REITs, the Portfolio may invest in equity
securities, including common stocks and convertible securities, or
non-convertible preferred stocks and debt securities of companies operating in
the real estate industry. The Portfolio's investments in debt securities are
rated at the time of purchase BBB or higher by Standard & Poor's ("S&P") or
rated Baa or higher by Moody's Investors Services, Inc. ("Moody's") or
comparably rated by another nationally recognized statistical rating
organization ("NRSRO") or unrated securities determined by the Portfolio's
investment adviser to be of comparable quality. The Portfolio may invest up to
35% of its total assets in securities of companies outside the real estate
industry. The Portfolio may invest up to 25% of its total assets in securities
of foreign issuers, some or all of which may be in the real estate industry. The
Fund may purchase debt securities on a when-issued or delay delivery basis. The
Portfolio may invest in certain derivatives, such as options and futures, which
may include additional risks.

INVESTMENT RISKS

Because of the Portfolio's policy of concentrating its investments in securities
of companies operating in the real estate industry, the Portfolio may be subject
to certain risks associated with the ownership of real estate and with the real
estate industry in general. Because of the following risks, you could lose money
on your investment in the Portfolio over the short or long term:

MARKET RISK. Market risk is the possibility that a security's price will
decline. Declines in the prices of equity securities may affect a single issuer,
industry, sector of the economy or the market as a whole. The Portfolio's
investments in equity securities generally are affected by changes in the stock
markets which fluctuate substantially over time, sometimes suddenly and sharply.
The prices of the Portfolio's investments in equity securities may or may not
change in tandem with overall changes in the equity markets. The prices of debt
securities tend to fall as interest rates rise, and such declines may be greater
among securities with longer maturities. When-issued and delayed delivery
transactions are subject to changes in market conditions from the time of the
commitment until settlement. This may adversely affect the prices or yields of
the securities being purchased, as well as any portfolio securities held for
payment of such

26
<PAGE> 28

commitments. The greater the Portfolio's outstanding commitment for these
securities, the greater the Portfolio's exposure to market price fluctuation.
Because the Portfolio's investments are concentrated in one industry, the value
of its investments may be more susceptible to any single economic, political or
regulatory occurrence affecting the real estate industry than a portfolio
without such an investment policy.

RISKS OF INVESTING IN REAL ESTATE. Because of the Portfolio's policy of
concentrating its of investments in securities of companies operating in the
real estate industry and because a substantial portion of the Portfolio's
investments may be comprised of REITs, the Portfolio is more susceptible to
risks associated with the ownership of real estate and with the real estate
industry in general. These risks can include fluctuations in the value of
underlying properties, defaults by borrowers or tenants, market saturation,
changes in general and local economic conditions, decreases in market rates for
rents and increases in competition, property taxes, capital expenditures,
operating expenses or other economic, political or regulatory occurrences
affecting the real estate industry. In addition, REITs are dependent upon
specialized management skills and the ability to qualify for certain income tax
status, and some REITs (especially mortgage REITs) are affected by risks similar
to those associated with investments in debt securities including changes in
interest rates and the quality of credit extended.

RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures, and forward contracts are
examples of derivatives. Such transactions involve risks different from the
direct investment in underlying securities such as imperfect correlation between
the value of the instruments and the underlying assets; risks of default by the
other party to certain transactions; risks that the transactions may incur
losses that partially or completely offset gains in portfolio positions; risks
that the transactions may not be liquid; and manager risk.

INVESTOR PROFILE

In light of its objective and investment strategies, the Portfolio may be
appropriate for investors who:

- - Seek to grow their capital over the long term.

- - Are willing to take on the increased risks of investing in companies operating
in the same industry.

- - Can withstand volatility in the value of their shares of the Portfolio.

- - Wish to add to their personal investment holdings a portfolio that invests
primarily in companies operating in the real estate industry.

27
<PAGE> 29

Investors should carefully consider the additional risks associated with the
Portfolio's policy of concentrating its investments in securities of companies
operating in the real estate industry. An investment in the Portfolio may not be
appropriate for all investors. The Portfolio is not intended to be a complete
investment program, and investors should consider their long-term investment
goals and financial needs when making an investment decision about the
Portfolio. An investment in the Portfolio is intended to be a long-term
investment and the Portfolio should not be used as a trading vehicle.

ANNUAL PERFORMANCE

One way to measure the risks of investing in the Portfolio is to look at how its
performance varies from year to year. The following chart shows the annual
returns of the Portfolio over the past four calendar years prior to the date of
this prospectus. Sales loads are not reflected in this chart. If these sales
loads had been included, the returns shown below would have been lower. Remember
that the past performance of the Portfolio is not indicative of its future
performance.

<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
'1995*' 8.35
'1996' 40.53
'1997' 21.47
'1998' -11.62
</TABLE>

*The return for 1995 is for the period from July 3, 1995 (commencement of
investment operations) to December 31, 1995.

During the four-year period shown in the bar chart, the highest quarterly return
was 19.89% (for the quarter ended December 31, 1996) and the lowest quarterly
return was -9.32% (for the quarter ended September 30, 1998).

28
<PAGE> 30

STRATEGIC STOCK

PORTFOLIO

RISK/RETURN SUMMARY

INVESTMENT OBJECTIVE

The Strategic Stock Portfolio is a mutual fund with an investment objective to
seek to provide investors with an above average total return through a
combination of potential capital appreciation and dividend income, consistent
with the preservation of invested capital. There can be no assurance that the
Portfolio will achieve its investment objective.

INVESTMENT STRATEGIES

Under normal market conditions, the Portfolio's management seeks to achieve the
investment objective by investing in a portfolio of high dividend yielding
equity securities of companies included in the Dow Jones Industrial Average (the
"DJIA") or in the Morgan Stanley Capital International USA Index (the "MSCI USA
Index"). The Portfolio may invest in certain derivatives, such as options and
futures, which may include additional risks.

INVESTMENT RISKS

Because of the following risks, you could lose money on your investment in the
Portfolio over the short or long term:

MARKET RISK. Market risk is the possibility that prices of a security will
decline. Market risk may affect a single issuer, industry, sector of the
economy, or the market as a whole. The Portfolio's investments in equity
securities generally are affected by changes in the stock markets which
fluctuate substantially over time, sometimes suddenly and sharply. The Portfolio
emphasizes high dividend yielding stocks and the market value of the Portfolio's
equity securities may or may not fluctuate in tandem with overall changes in the
stock markets. The ability of the Portfolio's investment holdings to generate
income is dependent on the earnings and the continuing declaration of dividends
by the issuers of such securities.

29
<PAGE> 31

INVESTOR PROFILE

In light of its objective and investment strategies, the Portfolio may be
appropriate for investors who:

- - Seek an above average total return through a combination of potential capital
appreciation and dividend income.

- - Can withstand volatility in the value of their shares in the Portfolio.

- - Wish to add their personal investment holdings a portfolio that invests
primarily in equity securities.

ANNUAL PERFORMANCE

One way to measure the risks of investing in the Fund is to look at how its
performance varies from year to year. The following chart shows the annual
returns of the Portfolio over the past two calendar years prior to the date of
this prospectus. Sales loads are not reflected in this chart. If these sales
loads had been included, the returns shown below would have been lower. Remember
that the past performance of the Portfolio is not indicative of its future
performance.

<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
'1997*' 2.45
'1998' 16.51
</TABLE>

*The return for 1997 is for the period from November 3, 1997
(commencement of investment operations) to December 31, 1997.

During the two-year period shown in the bar chart, the highest quarterly return
was 12.23% (for the quarter ended December 31, 1998) and the lowest quarterly
return was -5.51% (for the quarter ended September 30, 1998).

30
<PAGE> 32

COMPARATIVE

PERFORMANCE

This table shows how each Portfolio's performance compares with a broad-based
market index (or indices) that the Portfolio's management believes are
applicable benchmarks for the Portfolio. Average annual total returns, assuming
payment of the maximum sales charges, are shown for the periods ended December
31, 1998 (the most recently completed calendar year prior to the date of this
prospectus). The Comstock Portfolio had not commenced investment operations
prior to December 31, 1998 and has no information to report in this table.
Remember that the past performance of a Portfolio is not indicative of its
future performance.

<TABLE>
<CAPTION>
Average Annual
Total Returns Past 10
for the Years
Periods Ended Past Past or Since
December 31, 1998 1 Year 5 Years Inception
- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Asset Allocation
Portfolio 15.67% 15.22% 13.60%
...........................................................
Standard & Poor's
500-Stock Index % % %
...........................................................
Lipper Flexible
Portfolio Fund Index % % %
- -----------------------------------------------------------
Domestic Income
Portfolio 6.34% 8.07% 7.45%
...........................................................
Lehman Brothers
Index of BBB
Corporate Bonds % % %
- -----------------------------------------------------------
Emerging Growth
Portfolio 37.56% -- 26.31%(1)
...........................................................
Russell 2000 Stock
Index % % %
- -----------------------------------------------------------
Enterprise Portfolio 25.00% 21.95% 18.35%
...........................................................
Standard & Poor's
500-Stock Index % % %
- -----------------------------------------------------------
Global Equity
Portfolio 21.61% -- 16.30%(1)
...........................................................
MSCI World Index +
Dividends % % %
- -----------------------------------------------------------
</TABLE>

31
<PAGE> 33

<TABLE>
<CAPTION>
Average Annual
Total Returns Past 10
for the Years
Periods Ended Past Past or Since
December 31, 1998 1 Year 5 Years Inception
- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Government Portfolio 8.59% 6.32% 8.35%
...........................................................
Lehman Brothers
Mutual Fund
Government/Mortgage
Index % % %
- -----------------------------------------------------------
Growth and Income
Portfolio 19.61% -- 21.30%(2)
...........................................................
Standard & Poor's
500-Stock Index % % %
...........................................................
Lipper Growth and
Income Fund Index % % %
- -----------------------------------------------------------
Money Market
Portfolio 5.02% 4.82% 5.25%
- -----------------------------------------------------------
Morgan Stanley Real
Estate Securities
Portfolio -11.62% -- 15.09%(3)
...........................................................
Standard & Poor's
500-Stock Index % % %
...........................................................
- -----------------------------------------------------------
NAREIT Equity Index % % %
- -----------------------------------------------------------
Strategic Stock
Portfolio 16.51% -- 16.55%(4)
...........................................................
Dow Jones Industrial
Average % % %
...........................................................
- -----------------------------------------------------------
MSCI U.S.A. Index % % %
- -----------------------------------------------------------
</TABLE>

Inception dates: (1) 7/3/95, (2) 12/23/96, (3) 7/3/95, (4) 11/3/97.

32
<PAGE> 34

INVESTMENT OBJECTIVES
AND POLICIES

GENERAL INFORMATION

Van Kampen Life Investment Trust (the "Trust") is a diversified, open-end
management investment company which offers shares in eleven separate Portfolios
(the "Portfolios"), each of which is described herein and offered pursuant to
this prospectus. Each Portfolio is in effect a separate mutual fund. Each
Portfolio has its own assets and liabilities and its own net asset value. Shares
of each Portfolio represent an interest only in that Portfolio. Shares are sold
only to separate accounts (the "Accounts") of various insurance companies to
fund the benefits of variable annuity or variable life insurance policies (the
"Contracts"). The Accounts may invest in shares of the Portfolios in accordance
with allocation instructions received from contract owners ("Contract Owners").
Such allocation rights are further described in the accompanying prospectus for
the Contracts.

Each Portfolio of the Trust has a different investment objective(s) which it
pursues through separate investment policies as described below. The section
entitled "Investment Practices" provides further discussion of certain
investment techniques, strategies or risks that are common to some or all of the
Portfolios. The investment objective(s) of each Portfolio, except the Morgan
Stanley Real Estate Securities Portfolio, is a fundamental policy and may not be
changed without shareholder approval of the holders of a majority of the
Portfolio's outstanding voting securities, as defined in the Investment Company
Act of 1940, as amended (the "1940 Act"). With respect to the Morgan Stanley
Real Estate Securities Portfolio, the investment objectives may be changed by
the Board of Trustees without shareholder approval, but no change is
anticipated. If there is a change in the objectives of such Portfolio,
shareholders should consider whether the Portfolio remains an appropriate
investment in light of their then current financial position and needs. The
differences in objectives and policies among the Portfolios can be expected to
affect the return of each Portfolio and the degree and types of risks to which
each Portfolio is subject. There are risks inherent in all investments in
securities; accordingly there can be no assurance that any Portfolio will
achieve its investment objective(s).

ASSET ALLOCATION PORTFOLIO

The investment objective of the Asset Allocation Portfolio is to seek a high
total investment return consistent with prudent investment risk through a fully
managed investment policy utilizing equity securities as well as investment
grade intermediate and long-term debt securities and money market securities.
Total investment return consists of current income, including dividends,
interest and discount accruals, and capital appreciation or depreciation. There
can be no assurance that the Portfolio will achieve its investment objective.

Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the investment objective by investing in a portfolio of equity
securities, investment grade intermediate and long-term debt securities,
including preferred stocks, convertible preferred stocks and convertible debt
securities, and money market securities. The Portfolio's investment adviser may
vary the composition of the Portfolio from time to time based upon its
evaluation of economic and market trends and the anticipated relative total
investment return available from a particular type of security. Accordingly, the
Portfolio may, at any given time, be substantially invested in equity
securities, debt securities or money market securities.

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<PAGE> 35

Achieving the Portfolio's investment objective depends on the investment
adviser's ability to assess the effect of economic and market trends on
different sectors of the market.

Common stocks are equity securities of a corporation or other entity that
entitle the holder to a pro rata share of the profits of a corporation, if any,
without preference over any other class of securities, including such entity's
debt securities, preferred stock or other senior equity security. Common stock
usually carries with it the right to vote and frequently an exclusive right to
do so. The Portfolio seeks to invest primarily in stocks of large capitalization
companies with characteristics including a strong balance sheet, good financial
resources, a satisfactory rate of return on capital, a good industry position
and superior management skills. The Portfolio's investment adviser believes that
companies that conform most closely to these characteristics often tend to
exhibit generally consistent earnings growth. The Portfolio's investments in
common stocks exhibit market risk, which at times can substantially impact
prices, sometimes suddenly and sharply.

The Portfolio may invest in intermediate and long-term debt securities
(including preferred stock, convertible preferred stock and convertible debt
securities) which are rated at the time of purchase BBB or better by Standard &
Poor's ("S&P") or rated Baa or better by Moody's Investor Services, Inc.
("Moody's"), or unrated securities determined by the Portfolio's investment
adviser to be of comparable quality at the time of purchase. To the extent
investments are made in fixed-income securities, the Portfolio will invest
primarily in such securities which are rated A or better by either rating
agency. A more complete description of security ratings is contained in the
appendix to this prospectus. The market prices of debt securities generally vary
inversely with changes in prevailing interest rates generally vary more for debt
securities with longer maturities. The Portfolio is not limited as to the
maturities of the debt securities it may purchase however the Portfolio
generally invests in debt securities with intermediate or longer maturities.
Debt securities with longer maturities generally tend to produce higher yields
but are subject to greater price fluctuation as a result of changes in interest
rates than debt securities with shorter maturities.

The Portfolio may invest in those money market securities which are described
herein under the Trust's Money Market Portfolio. Money market securities
generally have low market risk and credit risk but also generally have a low
potential for total investment return.

The Portfolio may invest up to 25% of its total assets, based on market value at
the time of each investment, in securities of foreign issuers. Such investments
include certain risks not typically associated with investments in U.S.
securities. See "Investment Practices -- Foreign Securities."

The Portfolio may engage in portfolio management strategies and techniques
involving options, futures contracts and options on futures contracts. See
"Investment Practices -- Using Options, Futures Contracts and Options on Futures
Contracts."

Other investment practices and risks of the Portfolio are described under the
heading "Investment Practices".

Because of the fully managed approach of the Portfolio, portfolio turnover may
be greater resulting in increased brokerage charges to the Portfolio.

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<PAGE> 36

COMSTOCK PORTFOLIO

The investment objective of the Comstock Portfolio is to seek capital growth and
income through investments in equity securities, including common and preferred
stocks and securities convertible into common and preferred stocks. There can be
no assurance that the Portfolio will achieve its investment objective.

Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the investment objective by investing in a portfolio of equity
securities, and principally investing in 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 class
of securities, including such entity's debt securities, preferred stock and
other senior equity securities. Common stock usually carries with it the right
to vote and frequently an exclusive right to do so.

While the Portfolio invests principally in common stocks, the Portfolio may
invest in preferred stock and securities convertible into common and preferred
stocks. Preferred stock generally has a preference as to dividends and
liquidation over an issuer's common stock but ranks junior to debt securities in
an issuer's capital structure. Unlike interest payments on debt securities,
preferred stock dividends are payable only if declared by the issuer's board of
directors. Preferred stock also may be subject to optional or mandatory
redemption provisions. A convertible security is a bond, debenture, note,
preferred stock, warrant or other security that may be converted into or
exchanged for a prescribed amount of common stock or other equity security of
the same or a different issuer within a particular period of time at a specified
price or formula. A convertible security generally entitles the holder to
receive interest paid or accrued on debt securities or the dividend paid on
preferred stock until the convertible security matures or is redeemed, converted
or exchanged. Before conversion, convertible securities generally have
characteristics similar to nonconvertible income securities in that they
ordinarily provide a stream of income with generally higher yields than those of
common stock of the same or similar issuers. Convertible securities generally
rank senior to common stock in a corporation's capital structure but are usually
subordinated to comparable nonconvertible securities.

In selecting securities for investment, the Portfolio will focus primarily on
the security's potential for capital growth and income. The Portfolio emphasizes
a "value" style of investing seeking well-established, undervalued companies.
The prices of value stocks are generally below average relative to the
companies' earnings or book value. The Portfolio's style presents the risk that
the Portfolio's holdings may or may not fluctuate in tandem with overall changes
in the market. The Portfolio may invest in issuers of small, medium or large
capitalization companies. The securities of small or medium sized companies may
be subject to more abrupt or erratic market movements than securities of larger
companies or the market averages in general. In addition, such companies
typically are subject to a greater degree of change in earnings and business
prospects than are larger companies. Thus, to the extent the Portfolio invests
in small and medium sized companies, the Portfolio may be subject to greater
investment risk than that assumed through investment in the equity securities of
larger capitalization companies.

The Portfolio may dispose of a security whenever, in the opinion of the
Portfolio's investment adviser, factors indicate it is desirable to do so. Such
factors include change in economic or market factors in general or with respect
to a particular industry, a change in the market trend or other factors
affecting an individual security, changes in the relative market performance or
appreciation possibilities offered by individual securities and other
circumstances bearing on the desirability of a given investment.

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<PAGE> 37

The Portfolio generally holds up to 10% of its total assets in high-quality
short-term debt securities and in investment grade corporate debt securities in
order to provide liquidity. High-quality short-term debt investments include
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities, prime commercial paper, bankers' acceptances and other
obligations of domestic banks having total assets of at least $500 million and
repurchaser agreements. Investment grade corporate debt securities include
securities rated BBB or better by Standard & Poor's ("S&P") or rated Baa or
better by Moody's Investors Service, Inc. ("Moody's") or unrated securities
judged by the investment adviser to be of comparable quality. A more complete
description of security ratings is contained in the appendix to this prospectus.
The market prices of such debt securities generally vary inversely with changes
in prevailing interest rates.

The Portfolio may invest up to 15% of its total assets in securities of foreign
issuers. Such investments include certain risks not typically associated with
investments in U.S. securities. See "Investment Practices -- Foreign
Securities."

The Portfolio may engage in portfolio management strategies and techniques
involving options, futures contracts and options on futures. See "Investment
Practices -- Using Options, Futures Contracts and Options on Futures Contracts."

Other investment practices and risks of the Portfolio are described under the
heading "Investment Practices".

DOMESTIC INCOME PORTFOLIO

The primary investment objective of the Domestic Income Portfolio is to seek
current income. When consistent with the primary investment objective, capital
appreciation is a secondary investment objective. There can be no assurance that
the Portfolio will achieve its investment objectives.

The Portfolio's investment adviser seeks to achieve these investment objectives
by investing primarily in a diversified portfolio of income securities,
including convertible and non-convertible debt securities and preferred stocks.
The Portfolio may invest in investment grade securities and lower rated and
unrated securities. Under normal market conditions, the Portfolio invests at
least 80% of its total assets in income securities rated at the time of purchase
B or higher by S&P or rated B or higher by Moody's or unrated securities judged
by the Portfolio's investments adviser to be of comparable quality. Securities
rated BB or below by S&P or Ba or below by Moody's or unrated securities of
comparable quality are commonly referred to as "junk bonds" and involve special
risks as compared to investments in higher grade securities. See "Risks of Lower
Grade Securities" below.

In general, the prices of income securities vary inversely with interest rates.
If interest rates rise, income security prices generally fall; if interest rates
fall, income security prices generally rise. In addition, for a given change in
interest rates, longer-maturity income securities fluctuate more in price
(gaining or losing more in value) than shorter-maturity income securities, and
generally offer higher yields than shorter-maturity income securities, all other
factors, including credit quality, being equal. This potential for a decline in
prices of income securities due to rising interest rates is referred to herein
as "market risk." While the Portfolio has no policy limiting the maturities of
the income securities in which it may invest, the Portfolio's investment adviser
seeks to moderate market risk by generally maintaining a portfolio duration
within a range of four to six years.

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<PAGE> 38

Duration is a measure of the expected life of an income security on a present
value basis expressed in years that incorporates a security's yield, coupon
interest payments, final maturity and call features into one measure.
Traditionally an income security's "term to maturity" has been used as a proxy
for the sensitivity of the security's price to changes in interest rates (which
impacts the "interest rate risk" or "market risk" of the security). However,
"term to maturity" measures only the time until an income security provides its
final payment taking no account of the pattern of the security's payments of
interest or principal prior to maturity. Duration measures the length of the
time interval between the present and the time when the interest and principal
payments are scheduled to be received (or in the case of a callable bond,
expected to be received), weighing them by the present value of the cash to be
received at each future point in time. In general, the lower the coupon rate of
interest or the longer the maturity, or the lower the yield-to-maturity of an
income security, the longer its duration; conversely, the higher the coupon rate
of interest, the shorter the maturity or the higher the yield-to-maturity of an
income security, the shorter its duration. With respect to some securities,
there are some situations where even a duration calculation does not properly
reflect the interest rate exposure of a security. In these and other similar
situations, the Portfolio's investment adviser will use more sophisticated
analytical techniques that incorporate the economic life of a security into the
determination of its interest rate exposure. The duration is likely to vary from
time to time as the investment adviser pursues seeking to maximize income and
capital appreciation while striving to maintain the value of the Portfolio's
capital.

The higher yields sought by the Portfolio are generally obtainable from
securities rated in the lower categories by recognized rating services or
unrated securities of comparable quality. These securities may be issued in
connection with corporate restructurings, such as leveraged buyouts, mergers,
acquisitions, debt recapitalization or similar events. These securities are
often issued by smaller, less creditworthy companies or companies with
substantial debt. These securities generally are subordinated to the prior
claims of banks and other senior lenders. The lower grade securities in which
the Portfolio may invest are regarded as predominately speculative with respect
to the issuer's continuing ability to make principal and interest payments. The
ratings of S&P and Moody's represent their opinions of the quality of the
securities they undertake to rate, but not the market risk of such securities.
It should be emphasized, however, that ratings are general and are not absolute
standards of quality. Consequently, securities with the same maturity, coupon
and rating may have different yields while securities of the same maturity and
coupon with different ratings may have the same yield. See "Risks of Lower Grade
Securities" below.

In purchasing securities for the Portfolio, the investment adviser considers,
among other thing, the security's current income potential, the rating assigned
to the security, the issuer's experience and managerial strength, the financial
soundness of the issuer and the outlook of its industry, changing financial
condition, borrowing requirements or debt maturity schedules, regulatory
concerns, and responsiveness to changes in business conditions and interest
rates. The Portfolio's investment adviser also may consider relative values
based on anticipated cash flow, interest or dividend coverage, balance sheet
analysis, and earnings prospects. The investment adviser evaluates each
individual income security for credit quality and value and attempts to identify
higher-yielding securities of companies whose financial condition has improved
since the issuance of such securities or is anticipated to improve in the
future. Because of the number of investment considerations involved in investing
in medium- and lower-grade securities, achievement of the Portfolio's investment
objectives may be more dependent upon the investment adviser's credit analysis
than is the case with investing in higher grade securities.

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<PAGE> 39

The income securities in which the Portfolio may invest include the following:

- --STRAIGHT INCOME SECURITIES. These include bonds and other debt obligations
which bear a fixed or variable rate of interest payable at regular intervals and
have a fixed or resettable maturity date, and preferred stock, which generally
has a fixed or variable dividend rate (and, unlike interest on debt securities,
such dividends must be declared by the issuer's board of directors before
becoming payable) and may be subject to optional or mandatory redemption
provisions. The particular terms of such securities vary and may include
features such as call provisions and sinking funds.

- --PAY-IN-KIND INCOME SECURITIES. These pay interest in additional income
securities rather than in cash.

- --ZERO-COUPON SECURITIES. These bear no interest obligation but are issued at a
discount from their value at maturity. When held to maturity, their entire
return equals the difference between their issue price and their maturity value.
Interest is however accrued by the Portfolio each day for accounting and federal
income tax purposes.

- --ZERO-FIXED-COUPON SECURITIES. These are zero-coupon securities which convert
on a specified date to interest-bearing income securities.

The Portfolio may invest in securities not producing immediate cash income, such
as zero-coupon securities, when their effective yield over comparable
instruments producing cash income make these investments attractive. Prices on
non-cash-paying instruments may be more sensitive to changes in the issuer's
financial condition, fluctuation in interest rates and market demand/supply
imbalances than cash-paying securities with similar credit ratings, and thus may
be more speculative. In addition, the non-cash interest income earned on such
instruments is included in investment company taxable income, thereby increasing
the required minimum distributions to shareholders (without providing the
corresponding cash flow with which to pay such distributions). The Portfolio's
investment adviser will weigh these concerns against the expected total returns
from such instruments.

The Portfolio may invest in securities rated below B by both S&P and Moody's,
common stocks or other equity securities and income securities on which interest
or dividends are not being paid when such investments are consistent with the
Portfolio's investment objectives or are acquired as part of a unit consisting
of a combination of income or equity securities. The Portfolio will not purchase
any such securities which will cause more than 20% of its total assets to be so
invested or which would cause more than 10% of its total assets to be invested
in common stocks or other equity securities. Equity securities as referred to
herein do not include preferred stocks (which the Portfolio considers income
securities). This limitation does not require the Portfolio to sell a portfolio
security because its rating has been changed.

Securities rated below B by both S&P and Moody's include debt obligations or
other securities of companies that are financially troubled, in default or are
in bankruptcy or reorganization. Securities of such companies are usually
available at a deep discount from the face value of the instrument. The
Portfolio may invest in deep discount securities when the Portfolio's investment
adviser believes that existing factors are likely to restore the company to a
healthy financial condition. Such factors include a restructuring of debt,
management changes, existence of adequate assets, or other unusual
circumstances.

A security purchased at a deep discount may pay a very high effective yield. In
addition, if the financial condition of the issuer improves, the underlying
value of the security may increase, resulting in a capital gain. If the company
defaults on its obligations or remains in default, or if the plan of
reorganization is

38
<PAGE> 40

insufficient for debtholders, the deep discount securities may stop generating
income and lose value or become worthless. The Portfolio's investment adviser
will balance the benefits of deep discount securities with their risks. While a
diversified portfolio may reduce the overall impact of a deep discount security
that is in default or loses its value, the risk cannot be eliminated.

The Portfolio may also purchase or sell U.S. government securities on a forward
commitment basis. See "When Issued and Delayed Delivery" below.

Although the Portfolio invests primarily in domestic income securities, the
Portfolio may invest up to 25% of its total assets based on the market value at
the time of investment in securities of foreign issuers. Such investments
include certain risks not typically associated with investments in U.S.
securities. See "Investment Practices -- Foreign Securities."

Other investment practices and risks of the Portfolio are described under the
heading "Investment Practices."

RISKS OF LOWER GRADE SECURITIES Securities which are in the lower grade
categories generally offer a higher current yield than is offered by higher
grade securities of similar maturities, but they also generally involve greater
risks, such as greater credit risk, greater market risk, greater liquidity
concerns and potentially greater manager risk. Investors should carefully
consider the risks of owning shares of a portfolio which invests in lower grade
securities before investing in the Portfolio.

Credit risk relates to the issuer's ability to make timely payment of interest
and principal when due. Increases in interest rates and changes in the economy
may adversely affect the ability of issuers of lower grade debt securities to
pay interest and to repay principal, to meet projected financial goals and to
obtain additional financing. In the event that an issuer of securities held by
the Portfolio experiences difficulties in the timely payment of principal and
interest and such issuer seeks to restructure the terms of its borrowings, the
Portfolio may incur additional expenses and may determine to invest additional
assets with respect to such issuer or the project or projects to which the
Portfolio's securities relate. Further, the Portfolio may incur additional
expenses to the extent that it is required to seek recovery upon a default in
the payment of interest or the repayment of principal on its portfolio holdings,
and the Portfolio may be unable to obtain full recovery on such amounts.

Market risk relates to the changes in market value that occur as a result of
variation in the level of prevailing interest rates and yield relationships in
the debt securities market and as a result of real or perceived changes in
credit risk. The value of the Portfolio's investments can be expected to
fluctuate over time. When interest rates decline, the value of a portfolio
invested in fixed income securities generally can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio invested in fixed
income securities generally can be expected to decline. However, the secondary
market prices of lower grade debt securities generally are less sensitive to
changes in interest rate and are more sensitive to general adverse economic
changes or specific developments with respect to the particular issuers than are
the secondary market prices of higher grade debt securities. A significant
increase in interest rates or a general economic downturn could severely disrupt
the market for lower grade securities and adversely affect the market value of
such securities. Such events also could lead to a higher incidence of default by
issuers of lower grade securities as compared with higher grade securities. In
addition, changes in credit risks, interest rates, the credit markets or periods
of general economic uncertainty can be expected to result in increased
volatility in the market price of the lower grade securities in the Portfolio
and thus in the net asset value of

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<PAGE> 41

the Portfolio. Adverse publicity and investor perceptions, whether or not based
on rational analysis, may affect the value and liquidity of lower grade
securities.

The markets for lower grade securities may be less liquid than the markets for
higher grade securities. Liquidity relates to the ability of a fund to sell a
security in a timely manner at a price which reflects the value of that
security. To the extent that there is no established retail market for some of
the lower grade securities in which the Portfolio may invest, trading in such
securities may be relatively inactive. Prices of lower grade securities may
decline rapidly in the event a significant number of holders decide to sell.
Changes in expectations regarding an individual issuer or lower grade securities
generally could reduce market liquidity for such securities and make their sale
by the Portfolio more difficult, at least in the absence of price concessions.
The effects of adverse publicity and investor perceptions may be more pronounced
for securities for which no established retail market exists as compared with
the effects on securities for which such a market does exist. An economic
downturn or an increase in interest rates could severely disrupt the market for
such securities and adversely affect the value of outstanding securities or the
ability of the issuers to repay principal and interest. Further, the Portfolio
may have more difficulty selling such securities in a timely manner and at their
stated value than would be the case for securities for which an established
retail market does exist.

The Portfolio's investment adviser is responsible for determining the net asset
value of the Portfolio, subject to the supervision of the Portfolio's Board of
Trustees. During periods of reduced market liquidity and in the absence of
readily available market quotations for lower grade securities held in the
Portfolio's portfolio, the ability of the Portfolio's investment adviser to
value the Portfolio's securities becomes more difficult and the investment
adviser's use of judgment may play a greater role in the valuation of the
Portfolio's securities due to the reduced availability of reliable objective
data.

New and proposed laws may have an impact on the market for lower grade
securities. The Portfolio's investment adviser is unable at this time to predict
what effect, if any, legislation may have on the market for lower grade
securities.

Special tax considerations are associated with investing in certain lower grade
securities, such as zero coupon or pay-in-kind securities. The Portfolio accrues
income on these securities prior to the receipt of cash payments. The Portfolio
must distribute substantially all of its income to its shareholders to qualify
for pass-through treatment under the tax laws and may, therefore, have to
dispose of its portfolio securities to satisfy distribution requirements.

The Portfolio will rely on its investment adviser's judgment, analysis and
experience in evaluating the creditworthiness of an issue. In its analysis, the
Portfolio's investment adviser may consider the credit ratings of S&P and
Moody's in evaluating securities although such investment adviser does not rely
primarily on these ratings. Ratings evaluate only the safety of principal and
interest payments, not the market value risk. Additionally, ratings are general
and not absolute standards of quality, and credit ratings are subject to the
risk that the creditworthiness of an issuer may change and the rating agencies
may fail to change such ratings in a timely fashion. The Portfolio's investment
adviser continuously monitors the issuers of securities held in the Portfolio.
Because of the number of investment considerations involved in investing in
lower grade securities, achievement of the Portfolio's investment objectives may
be more dependent upon the investment adviser's credit analysis than is the case
with investing in higher grade securities.

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<PAGE> 42

The table below sets forth the percentages of the Portfolio's assets invested
during the fiscal year ended December 31, 1998 in the various S&P's and Moody's
rating categories and in unrated securities determined by the Portfolio's
investment adviser to be of comparable quality. The percentages are based on the
dollar-weighted average of credit ratings of all securities held by the
Portfolio during the 1998 fiscal year computed on a monthly basis.

<TABLE>
<CAPTION>
Period Ended December 31, 1998
Unrated Securities of
Rated Securities Comparable Quality
(As a Percentage of (As a Percentage of
Rating Category Portfolio Value) Portfolio Value)
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AAA/Aaa % %
...........................................................................
AA/Aa % %
...........................................................................
A/A % %
...........................................................................
BBB/Baa % %
...........................................................................
BB/Ba % %
...........................................................................
B/B % %
...........................................................................
CCC/Ccc % %
...........................................................................
CC/Ca % %
...........................................................................
C/C % %
...........................................................................
D % %
...........................................................................
Percentage of Rated
and Unrated Securities % %
...........................................................................
</TABLE>

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase or sell
U.S. government securities on a "when-issued" or "delayed delivery" basis
("Forward Commitments"). These transactions occur when securities are purchased
or sold by the Portfolio with payment and delivery taking place in the future,
frequently a month or more after such transaction. The price is fixed on the
date of the commitment, and the seller continues to accrue interest on the
securities covered by the Forward Commitment until delivery and payment take
place. At the time of settlement, the market value of the securities may be more
or less than the purchase or sale price. The Portfolio may either settle a
Forward Commitment by taking delivery of the securities or may either resell or
repurchase a Forward Commitment on or before the settlement date in which event
the Portfolio may reinvest the proceeds in another Forward Commitment. When
engaging in Forward Commitments, the Portfolio relies on the other party to
complete the transaction, should the other party fail to do so, the Portfolio
might lose a purchase or sale opportunity that could be more advantageous than
alternative opportunities at the time of the failure. The Portfolio maintains a
segregated account (which is marked to market daily) of cash or liquid portfolio
securities with the Portfolio custodian in an aggregate amount equal to the
amount of its commitment as long as the obligation to purchase or sell
continues.

EMERGING GROWTH PORTFOLIO

The investment objective of the Emerging Growth Portfolio is to seek capital
appreciation by investing in a portfolio of securities consisting principally of
common stocks of small and medium sized companies

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<PAGE> 43

considered by the Portfolio's investment adviser to be emerging growth
companies. Any ordinary income received from portfolio securities is entirely
incidental. There can be no assurance that the Portfolio will achieve its
investment objective.

Under normal market conditions, the Portfolio invests at least 65% of its total
assets in common stocks of small and medium sized companies (less than $2
billion of market capitalization or annual sales), both domestic and foreign, in
the early stages of their life cycles that the Portfolio's investment adviser
believes have the potential to become major enterprises. This policy is a
fundamental policy of the Portfolio and like the Portfolio's investment
objective may not be changed without shareholder approval. Investments in such
companies may offer greater opportunities for growth of capital than larger,
more established companies, but also may involve certain special risks. Emerging
growth companies often have limited product lines, markets, distribution
channels or financial resources, and they may be dependent upon one or a few key
people for management. The securities of such companies may be subject to more
abrupt or erratic market movements than securities of larger, more established
companies or the market averages in general.

The Portfolio does not limit its investments to any single group or type of
security. The Portfolio may invest in securities involving special situations,
such as new management, special products and techniques, unusual developments,
mergers or liquidations. Investments in unseasoned companies and special
situations often involve much greater risks than are inherent in other types of
investments, because securities of such companies may be more likely to
experience unexpected fluctuations in price.

The Portfolio's primary approach is to seek what the Portfolio's investment
adviser believes to be unusually attractive growth investments on an individual
company basis. The Portfolio may invest in securities that have above average
volatility of price movement. Because prices of common stocks and other
securities fluctuate, the value of an investment in the Portfolio will vary
based upon the Portfolio's investment performance. The Portfolio attempts to
reduce overall exposure to risk from declines in securities prices by spreading
its investments over many different companies in a variety of industries. There
is, however, no assurance that the Portfolio will be successful in achieving its
objective.

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 class of securities, including such entity's debt
securities, preferred stock and other senior equity securities. Common stock
usually carries with it the right to vote and frequently an exclusive right to
do so.

While the Portfolio invests principally in common stocks, the Portfolio may
invest to a limited extent in other securities such as preferred stocks,
convertible securities and warrants. Preferred stock generally has a preference
as to dividends and liquidation over an issuer's common stock but ranks junior
to debt securities in an issuer's capital structure. Unlike interest payments on
debt securities, preferred stock dividends are payable only if declared by the
issuer's board of directors. Preferred stock also may be subject to optional or
mandatory redemption provisions. Generally, warrants are securities that may be
exchanged for a prescribed amount of common stock or other equity security of
the issuer within a particular period of time at a specified price or in
accordance with a specified formula.

The Portfolio may invest up to 20% of its total assets in securities of foreign
issuers. Such investments include certain risks not typically associated with
investments in U.S. securities. See "Investment Practices -- Foreign
Securities."

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<PAGE> 44

The Portfolio may engage in portfolio management strategies and techniques
involving options, futures contracts and related options. See "Investment
Practices -- Using Options, Futures Contracts and Options on Futures Contracts."

Other investment practices and risks of the Portfolio are described under the
heading "Investment Practices."

ENTERPRISE PORTFOLIO

The investment objective of the Enterprise Portfolio is to seek capital
appreciation through investments in securities believed by the Portfolio's
investment adviser to have above average potential for capital appreciation. Any
income received on such securities is incidental to the objective of capital
appreciation. There can be no assurance that the Portfolio will achieve its
investment objective.

The Portfolio's investment adviser seeks to achieve the investment objective by
investing primarily in common stocks which it believes have above average
potential for capital appreciation. The Portfolio's primary approach is to seek
what the Portfolio's investment adviser believes to be unusually attractive
growth investments on an individual company basis. The Portfolio may invest in
securities that have above average volatility of price movement. Because prices
of common stocks and other securities fluctuate, the value of an investment in
the Portfolio will vary based upon the Portfolio's investment performance. The
Portfolio attempts to reduce overall exposure to risk from declines in
securities prices by spreading its investments over many different companies in
a variety of industries. There is, however, no assurance that the Portfolio will
be successful in achieving its investment objective.

While the Portfolio invests principally in common stocks, the Portfolio may
invest in preferred stocks and warrants. Preferred stock generally has a
preference as to dividends and liquidation over an issuer's common stock but
ranks junior to debt securities in an issuer's capital structure. Unlike
interest payments on debt securities, preferred stock dividends are payable only
if declared by the issuer's board of directors. Preferred stock also may be
subject to optional mandatory redemption provisions. Generally, warrants are
securities that may be exchanged for a prescribed amount of common stock or
other equity security of the issuer within a particular period of time at a
specified price or in accordance with a specific formula.

In selecting securities for investment, the Portfolio will generally focus on
common stocks of "growth" companies, including companies with new products,
services or processes. The investment adviser seeks such securities which it
believes offer a combination of strong business fundamentals at an attractive
price. Growth companies generally include those companies with established
records of growth in sales or earnings that the Portfolio's investment adviser
believes are entering into a growth cycle in their respective businesses, with
the expectation that the stock of such companies will increase in value. Stocks
of different types, such as "growth" stocks or "value" stocks tend to shift in
and out of favor depending on market and economic conditions. Thus, the value of
the Portfolio's investments in "growth" stocks will vary and may at times be
lower or higher than that of other types of funds. The Portfolio may invest in
companies generating or applying new technologies, new or improved distribution
techniques or new services, which companies may benefit from changing consumer
demands or lifestyles, or companies that have projected

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earnings in excess of the average for their sector or industry. In each case,
such companies have prospects that the Portfolio's investment adviser believes
are favorable for above average capital appreciation. The Portfolio also may
focus its investments on stocks of companies in cyclical industries during
periods when their securities appear attractive for capital appreciation.

The companies in which the Portfolio invests may be in any market capitalization
range, provided the Portfolio's investment adviser believes the investment is
consistent with the Portfolio's objective. The securities of small- or
medium-sized companies may be subject to more abrupt or erratic market movements
than securities of larger companies or the market averages in general. In
addition, such companies typically are subject to a greater degree of change in
earnings and business prospects than are larger companies. Thus, to the extent
the Portfolio invests in small and medium sized companies, the Portfolio may be
subject to greater investment risk than that assumed through investment in the
equity securities of larger capitalization companies.

The Portfolio generally holds a portion of its assets in investment grade
short-term debt securities and in investment grade corporate debt securities in
order to provide liquidity. Investment grade short-term debt investments include
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities, prime commercial paper, bankers' acceptances and other
obligations of domestic banks having total assets of at least $500 million and
repurchase agreements. Investment grade corporate debt securities include
securities rated BBB or better by Standard & Poor's ("S&P") or Baa or higher by
Moody's Investor Services, Inc. ("Moody's"). A more complete description of
security ratings is contained in the appendix to this prospectus. The market
prices of such debt securities generally vary inversely with changes in
prevailing interest rates.

The Portfolio may invest up to 10% of its total assets, based on market value at
the time of each investment, in securities of foreign issuers. Such investments
include certain risks not typically associated with investments in U.S.
securities. See "Investment Practices -- Foreign Securities."

Other investment practices and risks of the Portfolio are described under the
heading "Investment Practices."

GLOBAL EQUITY PORTFOLIO

The investment objective of the Global Equity Portfolio is to seek long-term
growth of capital through investments in an internationally diversified
portfolio of equity securities of companies of any nation including the United
States. There can be no assurance that the Portfolio will achieve its investment
objective.

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<PAGE> 46

The Portfolio's investment adviser seeks to achieve the investment objective by
investing in an internationally diversified portfolio of equity securities,
including common stocks, preferred stocks and warrants or options to acquire
such securities. Under normal market conditions, the Portfolio invests at least
65% of its total assets in securities of issuers of at least three countries
(including the United States.)

The Portfolio's investment adviser, subject to the direction of the Portfolio's
Board of Trustees, provides the Portfolio with an overall investment program
consistent with the Portfolio's objective and policies. The Portfolio's
investments may be shifted among the world's various capital markets, including
developed and undeveloped countries, and among different types of securities in
accordance with the investment adviser's ongoing analysis of economic or market
trends and developments affecting such markets and securities.

In selecting investments for the Portfolio, the Portfolio's investment adviser
utilizes a "top-down" approach that emphasizes country selection and weighting
rather than individual security selection. This approach reflects the investment
adviser's philosophy for this Portfolio that a broad selection of securities
representing exposure to world markets based upon the economic outlook and
current valuation levels for each country is an effective way to maximize the
return and minimize the risk associated with global investment.

The Portfolio's investment adviser determines country allocations for the
Portfolio on an ongoing basis within policy ranges dictated by each country's
market capitalization and liquidity. The Portfolio will invest in the United
States and other industrialized countries throughout the world that comprise the
Morgan Stanley Capital International World Index. In addition, the Portfolio may
invest a portion of its assets in securities of certain developing or emerging
markets countries.

By analyzing a variety of macroeconomic and political factors, the Portfolio's
investment adviser develops fundamental projections on interest rates,
currencies, corporate profits and economic growth for each country. These
country projections are then used to determine what the investment adviser
believes to be a fair value for the stock market of each country. Discrepancies
between actual value and fair value, as determined by the investment adviser,
provide an expected return for each stock market. The expected return is
adjusted by currency return expectations derived from the investment adviser's
purchasing-power parity exchange rate model to arrive at an expected total
return in U.S. dollars. The final country allocation decision is then reached by
considering the expected total return in light of various country specific
considerations such as market size, volatility, liquidity and country risk.

Within a particular country, investments are made through the purchase of equity
securities which, in the aggregate, replicate a broad market index for that
country, which in most cases will be the Morgan Stanley Capital International
Index ("MSCI Index") for the particular country. The MSCI Indices measure the
performance of stock markets worldwide and are based on the share prices of
companies listed on the local stock exchange of the specified country or
countries within a specified region. The combined market capitalization of
companies in these indices represent approximately 60% of the aggregate market
value of the covered stock exchanges. Companies included in the MSCI Index for a
country replicate the industry composition of the local market and are a
representative sampling of large, medium and small companies, subject to
liquidity. Non-domiciled companies traded on the country's local exchange and
companies with restricted float due to dominant shareholders or cross-ownership
are avoided. The Portfolio's investment adviser may overweight or underweight an
industry segment of a particular index if it concludes this would be
advantageous to the Portfolio.

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<PAGE> 47

The Portfolio may invest in equity securities including common stocks, preferred
stocks and warrants or options to acquire such securities. 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 class of securities, including such entity's debt securities, preferred
stock and other senior equity securities. Common stock usually carries with it
the right to vote and frequently an exclusive right to do so. Preferred stock
generally has a preference as to dividends and liquidation over an issuer's
common stock but ranks junior to debt securities in an issuer's capital
structure. Unlike interest payments on debt securities, preferred stock
dividends are payable only if declared by the issuer's board of directors.
Preferred stock also may be subject to optional or mandatory redemption
provisions.

The Portfolio may invest in issuers of small, medium or large capitalization
companies. The securities of small or medium sized companies may be subject to
more abrupt or erratic market movements than securities of larger companies or
the market averages in general. In addition, such companies typically are
subject to a greater degree of change in earnings and business prospects than
are larger companies. Thus, to the extent the Portfolio invests in small and
medium sized companies, the Portfolio may be subject to greater investment risk
than that assumed through investment in the equity securities of larger
capitalization companies.

The Portfolio may purchase foreign securities in the form of American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs") or other securities
representing underlying shares of foreign companies. These securities may not
necessarily be denominated in the same currency as the underlying securities but
generally are denominated in the currency of the market in which they are
traded. ADRs are receipts typically issued by an American bank or trust company
which evidence ownership of underlying securities issued by foreign
corporations. ADRs are publicly traded on exchanges or over-the-counter in the
United States and are issued through "sponsored" or "unsponsored" arrangements.
In a sponsored ADR arrangement, the foreign issuer assumes the obligations to
pay some or all of the depositary's transaction fees, whereas under an
unsponsored arrangement, the foreign issuer assumes no obligations and the
depositary's transaction fees are paid by the ADR holders. In addition, less
information generally is available for an unsponsored ADR than a sponsored ADR.
The Portfolio may invest in ADRs through both sponsored and unsponsored
arrangements. EDRs are receipts issued in Europe by banks or depositaries which
evidence similar ownership arrangements.

The Portfolio may engage in portfolio management strategies and techniques
involving options, futures contracts and options on futures contracts. See
"Investment Practices--Using Options, Futures Contracts and Options in Futures
Contracts".

The Portfolio generally holds a portion of its assets in short-term debt
securities and in investment grade corporate debt securities in order to provide
liquidity. Short-term debt securities include securities issued or guaranteed by
the U.S. government or foreign governments, their agencies or instrumentalities,
prime commercial paper, bankers' acceptances, certificates of deposit, and other
obligations of banks having total assets of at least $500 million and repurchase
agreements. Investment grade corporate debt securities, whether domestic or
foreign, include securities rated BBB or better by Standard & Poor's ("S&P") or
Baa or better by Moody's Investors Service, Inc. ("Moody's") or unrated
securities judged by the Portfolio's investment adviser to for comparable
quality.

Other investment practices and risks of the Portfolio are described under the
heading "Investment Practices".

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<PAGE> 48

RISK FACTORS OF INVESTING IN SECURITIES OF FOREIGN ISSUERS. An investment in the
Portfolio involves risks similar to those of investing in foreign common stocks
generally. The Portfolio invests in securities denominated in U.S. dollars and
in currencies other than U.S. dollars. The percentage of assets invested in
securities of a particular country or denominated in a particular currency will
vary in accordance with the investment adviser's assessment of the relative
yield, appreciation potential and relationship of a country's currency to the
U.S. dollar, which is based upon such factors as fundamental economic strength,
credit quality and interest rate trends. Investments in foreign securities
present certain risks not ordinarily associated with investments in securities
of U.S. issuers. These risks include fluctuations in foreign currency exchange
rates, political or economic developments (including war or other instability,
expropriation of assets, nationalization and confiscatory taxation), imposition
of foreign exchange limitations (including currency blockage), withholding taxes
on dividend or interest payments or capital transactions or other restrictions,
higher transaction costs, and possible difficulty in enforcing contractual
obligations or taking judicial action.

In addition, there often is less publicly available information about many
foreign issuers and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, reporting and disclosure
requirements than domestic issuers. Such securities may be less liquid and may
be subject to greater fluctuations in price than the securities of domestic
issuers. There is generally less government regulation of stock exchanges,
brokers and listed companies abroad than in the U.S., and, with respect to
certain foreign countries, there is a possibility of expropriation or
confiscatory taxation, or diplomatic developments which could affect investment
in those countries. Because there is usually less supervision and governmental
regulation of exchanges, brokers and dealers than there is in the U.S., the
Portfolio may experience settlement difficulties or delays not usually
encountered in the U.S.

In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities, including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement or
custodial costs. The risks of foreign investments should be considered carefully
by an investor in the Fund.

Since the Portfolio invests in securities denominated or quoted in currencies
other than the U.S. dollar, the Portfolio will be affected by changes in foreign
currency exchange rates (and exchange control regulations) which affect the
value of securities in the Portfolio and the income or dividends and
appreciation or depreciation of Portfolio investments. Changes in foreign
currency exchange ratios relative to the U.S. dollar will affect the U.S. dollar
value of the Portfolio's assets denominated in that currency and the Portfolio's
yield on such assets. In addition, the Portfolio will incur costs in connection
with conversions between various currencies. The Portfolio's foreign currency
exchange transactions generally will be conducted on a spot basis (that is, cash
basis) at the spot rate for purchasing or selling currency prevailing in the
foreign currency exchange market. The Portfolio purchases and sells foreign
currency on a spot basis in connection with the settlement of transactions in
securities traded in such foreign currency. The Portfolio does not purchase and
sell foreign currencies as an investment.

The Portfolio also may enter into contracts with banks or other foreign currency
brokers or dealers to purchase or sell foreign currencies at a future date
("forward contracts") and purchase and sell foreign currency futures contracts
to hedge against changes in foreign currency exchange rates. A foreign currency
forward contract is a negotiated agreement between the contracting parties to
exchange a specified amount of currency at a specified future time at a
specified rate. The rate can be higher or lower than the spot rate between the
currencies that are the subject of the contract.

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The Portfolio may attempt to hedge against changes in the value of the U.S.
dollar in relation to a foreign currency by entering into a forward contract for
the purchase or sale of the amount of foreign currency invested or to be
invested, or by buying or selling a foreign currency futures contract for such
amount. Such hedging strategies may be employed before the Portfolio purchases a
foreign security traded in the hedged currency which the Portfolio anticipates
acquiring or between the date the foreign security is purchased or sold and the
date on which payment therefor is made or received. Hedging against a change in
the value of a foreign currency in the foregoing manner does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Furthermore, such hedging transactions reduce
or preclude the opportunity for gain if the value of the hedged currency should
move in the direction opposite to the hedged position. Unanticipated changes in
currency prices may result in poorer overall performance for the Portfolio than
if it had not entered into such contracts. The Portfolio will not speculate in
foreign currency forward or futures contracts or through the purchase and sale
of foreign currencies.

The Portfolio's custodian will place cash or liquid securities in a segregated
account having a value equal to the aggregate amount of the Portfolio's
commitments under forward contracts entered into with respect to position hedges
and cross-hedges. If the value of the securities placed in the segregated
account declines, additional cash or securities are placed in the account on a
daily basis so that the value of the account equals the amount of the
Portfolio's commitments with respect to such contracts. As an alternative to
maintaining all or part of the segregated account, the Portfolio may purchase a
call option permitting the Portfolio to purchase the amount of foreign currency
being hedged by a forward sale contract at a price no higher than the forward
contract price or the Portfolio may purchase a put option permitting the
Portfolio to sell the amount of foreign currency subject to a forward purchase
contract at a price as high or higher than the forward contract price.

GOVERNMENT PORTFOLIO

The investment objective of the Government Portfolio is to seek to provide
investors with high current return consistent with preservation of capital.
There can be no assurance that the Portfolio will achieve its investment
objective.

Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the investment objective by investing at least 80% of the Portfolio's
total assets in debt securities issued or guaranteed by the U.S. government, its
agencies or its instrumentalities, including mortgage-related securities issued
or guaranteed by instrumentalities of the U.S. government. Under normal market
conditions, the Portfolio may invest up to 20% of its total assets in certain
government-related securities, including privately issued mortgage-related and
mortgage-backed securities not directly guaranteed by instrumentalities of the
U.S. government, privately issued certificates representing "stripped" U.S.
government or mortgage-related securities and repurchase agreements fully
collateralized by U.S. government securities. While securities purchased for the
Portfolio's investments may be issued or guaranteed by the U.S. government, the
shares issued by the Portfolio to investors are not insured or guaranteed by the
U.S. government, its agencies or instrumentalities or any other person or
entity. For more information on the Portfolio's investments, see "U.S.
Government Securities" and "Other Government Related Securities" below.

The prices of debt securities generally vary inversely with interest rates. If
interest rates rise, debt security prices generally fall; if interest rates
fall, debt security prices generally rise. Debt securities with longer
maturities generally offer higher yields than debt securities with shorter
maturities assuming all other

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factors, including credit quality, being equal. For a given change in interest
rates, the market prices of longer-maturity debt securities generally fluctuate
more than the market prices of shorter-maturity debt securities. This potential
for a decline in prices of debt securities due to rising interest rates is
referred to herein as "market risk." While the Portfolio has no policy limiting
the maturities of the individual debt securities in which it may invest, the
Portfolio's investment adviser seeks to moderate market risk by generally
maintaining a portfolio duration of four to six years. Duration is a measure of
the expected life of a debt security that was developed as an alternative to the
concept of "term to maturity." Duration incorporates a debt security's yield,
coupon interest payments, final maturity and call features into one measure. A
duration calculation looks at the present value of a security's entire payment
stream whereas term to maturity is based solely on the date of a security's
final principal repayment.

The Portfolio may purchase debt securities at a premium over the principal or
face value in order to obtain higher current income. The amount of any premium
declines during the term of the security to zero at maturity. Such decline
generally is reflected in the market price of the security and thus in the
Portfolio's net asset value. Any such decline is realized for accounting
purposes as a capital loss at maturity or upon resale. Prior to maturity or
resale, such decline in value could be offset, in whole or part, or increased by
changes in the value of the security due to changes in interest rate levels.

In order to hedge against changes in interest rates, the Portfolio may purchase
or sell options and engage in transactions involving futures contracts and
options on such contracts. By using such strategies, the Portfolio seeks to
limit its exposure to adverse interest rate changes, but the Portfolio also
reduces its potential for capital appreciation on debt securities if interest
rates decline. The purchase and sale of such securities may result in a higher
portfolio turnover rate than if the Portfolio had not purchased or sold such
securities. See "Interest Rate Transactions" and "Investment Practices -- Using
Options, Futures Contracts and Options on Futures Contracts."

Other investment practices and risks of the Portfolio are described under the
heading "Investment Practices."

The Portfolio intends to invest in U.S. Treasury securities and in securities
issued by at least four U.S. government agencies or instrumentalities in the
amounts necessary to permit the Accounts to meet certain diversification
requirements imposed by Section 817(h) of the Internal Revenue Code of 1986, as
amended (the "Code") at the end of each quarter of the year (or within 30 days
thereafter). See "Dividends, Distributions and Taxes." In the event the
Portfolio does not meet the diversification requirements of Section 817(h) of
the Code, the policies funded by shares of the Portfolio will not be treated as
life insurance for federal income tax purposes and the owners of the policies
will be subject to taxation on their share of the dividends and distributions
paid by the Portfolio.

U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by the U.S.
government, its agencies or its instrumentalities include: (1) U.S. Treasury
obligations, which differ in their interest rates, maturities and times of
issuance: U.S. Treasury bills (maturity of one year or less), U.S. Treasury
notes (maturity of one to ten years), and U.S. Treasury bonds (generally
maturities of greater than ten years), including the principal components or the
interest components issued by the U.S. government under the Separate Trading of
Registered Interest and Principal Securities program (i.e. "STRIPS"), all of
which are backed by the full faith and credit of the U.S.; and (2) obligations
issued or guaranteed by U.S. government agencies or instrumentalities, including
government guaranteed mortgage-related securities, some of which are backed by
the full faith and credit of the U.S. Treasury, some of which are supported by
the

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right of the issuer to borrow from the U.S. government and some of which are
backed only by the credit of the issuer itself.

Mortgage loans made by banks, savings and loan institutions, and other lenders
are often assembled into pools. Interests in such pools may then be issued by
private entities or also may be issued or guaranteed by an agency or
instrumentality of the U.S. government. Interests in such pools are what this
prospectus calls "mortgage-related securities." Mortgage-related securities
include, but are not limited to, obligations issued or guaranteed by the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
GNMA is a wholly owned corporate instrumentality of the U.S. whose securities
and guarantees are backed by the full faith and credit of the U.S. FNMA, a
federally chartered and privately owned corporation, and FHLMC, a federal
corporation, are instrumentalities of the U.S. The securities and guarantees of
FNMA and FHLMC are not backed, directly or indirectly, by the full faith and
credit of the U.S. Although the Secretary of the Treasury of the U.S. has
discretionary authority to lend amounts to FNMA up to certain specified limits,
neither the U.S. government nor any agency thereof is obligated to finance
FNMA's or FHLMC's operations or to assist FNMA or FHLMC in any other manner.
Securities of FNMA and FHLMC include those issued in principal only or interest
only components.

Mortgage-related securities are characterized by monthly payments to the holder,
reflecting the monthly payments made by the borrowers who received the
underlying mortgage loans less fees paid to the guarantor and the servicer of
such mortgage loans. The payments to the holders of mortgage-related securities
(such as the Portfolio), like the payments on the underlying mortgage loans,
represent both principal and interest. Although the underlying mortgage loans
are for specified periods of time, such as 20 or 30 years, the borrowers can,
and typically do, pay them off sooner. Thus, the holders of mortgage-related
securities frequently receive prepayments of principal, in addition to the
principal which is part of the regular monthly payment. A borrower is more
likely to prepay a mortgage which bears a relatively high rate of interest. This
means that in times of declining interest rates, some of the Portfolio higher
yielding securities might be converted to cash, and the Portfolio will be forced
to accept lower interest rates when that cash is used to purchase additional
securities. The increased likelihood of prepayment when interest rates decline
also limits market price appreciation of mortgage-related securities. If the
Portfolio buys mortgage-related securities at a premium, mortgage foreclosures
or mortgage prepayments may result in a loss to the Portfolio of up to the
amount of the premium paid since only timely payment of principal and interest
is guaranteed.

Collateralized mortgage obligations ("CMOs") are debt obligations collateralized
by a pool of mortgage loans or mortgaged-related securities held under an
indenture issued by financial institutions or other mortgage lenders or issued
or guaranteed by agencies or instrumentalities of the U.S. government. Real
estate mortgage investment conduits ("REMICs") are private entities formed for
the purpose of holding a fixed pool of mortgages secured by an interest in real
property. CMOs and REMICs are issued in a number of classes or series with
different maturities. The classes or series are retired in sequence as the
underlying mortgages are repaid. Prepayment may shorten the stated maturity of
the obligation and can result in a loss of premium, if any has been paid.
Certain of these securities may have variable or floating interest rates and
others may be stripped (securities which provide only the principal or interest
feature of the underlying security). U.S. government securities may include CMOs
or REMICs issued or guaranteed by agencies or instrumentalities of the U.S.
government.

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OTHER GOVERNMENT RELATED SECURITIES. The Portfolio may invest up to 20% of its
assets in other government related securities, including privately issued
mortgage-related and mortgage-backed securities not directly guaranteed by
instrumentalities of the U.S. government, privately issued certificates
representing stripped U.S. government or mortgage-related securities and
repurchase agreements fully collateralized by U.S. government securities.

The Portfolio may invest in private mortgage-related securities ("Private
Pass-Throughs") as opposed to mortgage-related securities issued or guaranteed
by GNMA, FNMA, and FHLMC only if such Private Pass-Throughs are rated at the
time of purchase in the two highest grades by a nationally recognized
statistical rating agency ("NRSRO") or in any unrated debt security considered
by the Portfolio's investment adviser to be of comparable quality. CMOs and
REMICs issued by private entities and not directly guaranteed by any government
agency or instrumentality are secured by the underlying collateral of the
private issuer. The Portfolio will invest in such privately issued securities
only if they are 100% collateralized at the time of issuance by securities
issued or guaranteed by the U.S. government, its agencies or its
instrumentalities. The Portfolio intends to invest in privately issued CMOs and
REMICs only if they are rated at the time of purchase in the two highest grades
by a NRSRO. A more complete description of security ratings, is contained in the
appendix to this prospectus.

The Portfolio may invest in the principal only or interest only components of
U.S. government securities. In the last few years agencies or instrumentalities
of the U.S. government and a number of banks and brokerage firms have separated
("stripped") the principal portions from the coupon portions of the U.S.
Treasury bonds and notes and sold them separately in the form of receipts or
certificates representing undivided interests in these instruments (which
instruments are often held by a bank in a custodial or trust account). Such
custodial receipts or certificates of private issuers are not considered by the
Fund to be U.S. government securities. The principal only securities are not
entitled to any periodic payments of interest prior to maturity. Such securities
usually trade at a deep discount from their face or par value and are subject to
greater fluctuations of market value in response to changing interest rates than
debt obligations of comparable maturities which make current distributions of
interest. Current federal tax law requires that a holder (such as the Portfolio)
of a principal only security accrue a portion of the discount at which the
security was purchased as income each year even though the Portfolio received no
interest payment in cash on the security during the year. In order to generate
sufficient cash to make distributions of such income, the Portfolio may have to
dispose of securities that it would otherwise continue to hold, which, in some
cases may be disadvantageous to the Fund.

Stripped mortgage-related securities (hereinafter referred to as "Stripped
Mortgage Securities") are derivative multiclass mortgage securities. Stripped
Mortgage Securities may be issued by agencies or instrumentalities of the U.S.
government, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing. Stripped
Mortgage Securities usually are structured with two classes that receive
different proportions of the interest and principal distributions on a pool of
mortgage assets. A common type of Stripped Mortgage Securities will have one
class receiving some of the interest and most of the principal from the mortgage
assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive all
of the interest (the interest-only or "IO" class), while the other class will
receive all of the principal (the principal-only or "PO" class). The yield to
maturity on an IO class is extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets, and a rapid
rate of principal payments may have a material adverse effect on the securities'
yield to maturity. If the underlying mortgage assets

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experience greater than anticipated prepayments of principal, the Portfolio may
fail to fully recoup its initial investment in these securities even if the
security is rated the highest quality by a NRSRO. Holders of PO securities are
not entitled to any periodic payments of interest prior to maturity.
Accordingly, such securities usually trade at a deep discount from their face or
par value and are subject to greater fluctuations of market value in response to
changing interest rates than debt obligations of comparable maturities which
make current distributions of interest. Current federal tax law requires that a
holder (such as the Portfolio) of principal only securities accrue a portion of
the discount at which the security was purchased as income each year even though
the holder receives no interest payment in cash on the certificate during the
year. In order to generate sufficient cash to make distributions of such income,
the Portfolio may have to dispose of securities that it would otherwise continue
to hold, which, in some cases may be disadvantageous to the Portfolio. Such
securities may involve greater risk than securities issued directly by the U.S.
government, its agencies or its instrumentalities.

Although the market for stripped securities is increasingly liquid, certain of
such securities may not be readily marketable and will be considered illiquid
for purposes of the Portfolio's limitation on investments in illiquid
securities. The Portfolio's Board of Trustees will establish guidelines and
standards for determining whether a particular stripped security is liquid.
Generally, such a security may be deemed liquid if it can be disposed of
promptly in the ordinary course of business at a value reasonably close to that
used in the calculation of the net asset value per share. Stripped Mortgage
Securities, other than government-issued IO and PO securities backed by
fixed-rate mortgages, are presently considered by the staff of the SEC to be
illiquid securities and thus subject to the Portfolio's limitation on investment
in illiquid securities.

INTEREST RATE TRANSACTIONS. The Portfolio may enter into interest rate swaps and
may purchase or sell interest rate caps, floors and collars. The Portfolio
expects to enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of its portfolio. The Fund may also
enter into these transactions to protect against any increase in the price of
securities the Portfolio anticipates purchasing at a later date. Interest rate
swaps, caps, floors and collars will be treated as illiquid securities for the
purposes of the Portfolio's investment restriction limiting investment in
illiquid securities. Besides liquidity, such transactions include market risk,
risk of default by the other party to the transaction, risk of imperfect
correlation and manager risk. Such transactions may involve commissions or other
costs. A more complete discussion of interest rate transactions and their risks
is contained in the Statement of Additional Information.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase or sell
debt securities on a "when-issued" or "delayed delivery" basis ("Forward
Commitments"). These transactions occur when securities are purchased or sold by
the Portfolio with payment and delivery taking place in the future, frequently a
month or more after such transaction. The price is fixed on the date of the
commitment, and the seller continues to accrue interest on the securities
covered by the Forward Commitment until delivery and payment take place. At the
time of settlement, the market value of the securities may be more or less than
the purchase or sale price. The Portfolio may either settle a Forward Commitment
by taking delivery of the securities or may either resell or repurchase a
Forward Commitment on or before the settlement date in which event the Portfolio
may reinvest the proceeds in another Forward Commitment. When engaging in
Forward Commitments, the Portfolio relies on the other party to complete the
transaction, should the other party fail to do so, the Portfolio might lose a
purchase or sale opportunity that could be more advantageous than alternative
opportunities at the time of the failure. The Portfolio maintains a segregated
account (which is marked to market daily) of cash or liquid portfolio securities
with the

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Portfolio custodian in an aggregate amount equal to the amount of its commitment
as long as the obligation to purchase or sell continues.

GROWTH AND INCOME PORTFOLIO

The investment objective of the Growth and Income Portfolio is to seek long-term
growth of capital and income. There can be no assurance that the Portfolio will
achieve its investment objective.

Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the investment objective by investing primarily in a portfolio of
income-producing equity securities, including common stocks and convertible
securities; although investments are also made in non-convertible preferred
stocks and debt securities rated "investment grade," which are securities rated
within the four highest grades assigned by Standard & Poor's ("S&P") or by
Moody's Investors Services, Inc. ("Moody's"). A more complete description of
security ratings is contained in the appendix to this prospectus.

A convertible security is a bond, debenture, note, preferred stock, warrant or
other security that may be converted into or exchanged for a prescribed amount
of common stock or other equity security of the same or a different issuer
within a particular period of time at a specified price or formula. A
convertible security generally entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities generally have characteristics similar to nonconvertible
income securities in that they ordinarily provide a stream of income with
generally higher yields than those of common stock of the same or similar
issuers. The prices of income securities tend to fall as interest rates rise and
such declines may be greater among securities with longer maturities.
Convertible securities generally rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Convertible bonds and preferred stocks generally do not participate
in any dividend increases or decreases of the underlying common stocks although
the market prices of convertible securities may be affected by any such dividend
changes or other changes in the underlying common stock.

While the Portfolio invests primarily in income-producing equity securities, the
Portfolio may invest in non-convertible adjustable or fixed rate preferred stock
and debt securities. Preferred stock generally has a preference as to dividends
and liquidation over an issuer's common stock but ranks junior to debt
securities in an issuer's capital structure. Unlike interest payments on debt
securities, preferred stock dividends are payable only if declared by the
issuer's board of directors. Preferred stock also may be subject to optional or
mandatory redemption provisions. The Portfolio may invest in debt securities of
various maturities. The Portfolio invests only in debt securities rated
investment grade at the time of investment, and a subsequent reduction in rating
does not require the Portfolio to dispose of a security. Securities rated BBB by
S&P or Baa by Moody's are in the lowest of the four investment grades and are
considered by the rating agencies to be medium grade obligations which possess
speculative characteristics so that changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than in the case of higher rated securities. A more
complete description of security ratings is contained in the appendix to this
prospectus. The market prices

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of debt securities generally fluctuate inversely with changes in interest rates
so that the value of investments in such securities can be expected to decrease
as interest rates rise and increase as interest rates fall and such fluctuations
generally are larger among securities with longer durations.

In selecting common stocks for investment, the Portfolio will focus primarily on
the security's potential for capital growth and income. The Portfolio investment
adviser may focus on larger capitalization companies which it believes possess
characteristics for improved valuation. The Portfolio may invest in issuers of
small, medium or large capitalization companies. The securities of small or
medium sized companies may be subject to more abrupt or erratic market movements
than securities of larger, more established companies or the market averages in
general. In addition, such companies typically are subject to a greater degree
of change in earnings and business prospects than are larger, more established
companies. Thus, the Portfolio may be subject to greater investment risk than
that assumed through investment in the equity securities of larger, more
established capitalization companies.

The Portfolio may invest up to 15% of its total assets in securities of foreign
issuers. See "Investment Practices -- Foreign Securities."

Other investment practices and risks of the Portfolio are described under the
heading "Investment Practices."

MONEY MARKET PORTFOLIO

The investment objective of the Money Market Portfolio is to seek protection of
capital and high current income through investments in money market instruments.
There can be no assurance that the Portfolio will achieve its investment
objective.

The Portfolio seeks to maintain a constant net asset value of $1.00 per share by
investing in a diversified portfolio of money market instruments maturing within
one year with a dollar-weighted average maturity of 90 days or less. The
Portfolio seeks high current income from these short-term investments to the
extent consistent with protection of capital.

The investment policies, the percentage limitations, and the kinds of securities
in which the Portfolio can invest may be changed by the Portfolio's Board of
Trustees, unless expressly governed by those limitations stated under
"Investment Restrictions" in the Statement of Additional Information which can
be changed only by action of the shareholders of the Portfolio. It is not the
intention of the Portfolio's Trustees, however, to change these policies without
prior notice to shareholders.

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There are risks inherent in all investments in securities, accordingly there can
be no assurance that the Portfolio will achieve its investment objective or that
the Portfolio will be able at all times to preserve the value of your investment
at $1.00 per share. In addition, the daily dividend rate paid by the Portfolio
may be expected to fluctuate. The Portfolio uses the amortized cost method for
valuing portfolio securities purchased at a discount. The Fund may invest in
money market instruments of the following types, all of which will be U.S.
dollar obligations:

OBLIGATIONS OF THE U.S. GOVERNMENT, ITS AGENCIES OR ITS INSTRUMENTALITIES. The
Portfolio may invest in obligations issued or guaranteed as to principal and
interest by the U.S. government, its agencies or its instrumentalities which are
supported by any of the following: (a) the full faith and credit of the U.S.
government, (b) the right of the issuer to borrow an amount limited to a
specific line of credit from the U.S. government, (c) discretionary authority of
the U.S. government to purchase obligations of its agencies or instrumentalities
or (d) the credit of the instrumentality. Such agencies or instrumentalities
include, but are not limited to, the Federal National Mortgage Association, the
Government National Mortgage Association, Federal Land Banks, and the Farmer's
Home Administration.

BANK OBLIGATIONS. The Portfolio may invest in negotiable time deposits,
certificates of deposit and bankers' acceptances which are obligations of
domestic banks having total assets in excess of $1 billion as of the date of
their most recently published financial statements. The Portfolio is also
authorized to invest up to 5% of its total assets in certificates of deposit
issued by domestic banks having total assets of less than $1 billion, provided
that the principal amount of the certificate of deposit acquired by the
Portfolio is insured in full by the Federal Deposit Insurance Corporation.

COMMERCIAL PAPER. The Portfolio may invest in short-term commercial paper
obligations of companies which at the time of investment are (a) rated in one of
the two highest categories by at least two nationally recognized statistical
organizations (or one rating organization if the obligation was rated by only
one such organization) or (b) if unrated, are of comparable quality as
determined in accordance with procedures established by the Portfolio's Board of
Trustees. Commercial paper consists of short-term (usually from 1 to 270 days)
unsecured promissory notes issued by corporations in order to finance their
current operations. The Portfolio's current policy is to limit investments in
commercial paper to obligations rated in the highest rating category. A more
complete description of security ratings is in the appendix to this prospectus.

REPURCHASE AGREEMENTS. The Portfolio may enter into repurchase agreements with
banks and broker-dealers which involve certain risks in the event of a default
by the other party. See "Investment Practices -- Repurchase Agreements" below
and in the Statement of Additional Information.

Other investment practices and risks of the Portfolio are described under the
heading "Investment Practices".

MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO

The primary investment objective of the Morgan Stanley Real Estate Securities
Portfolio is to seek long-term growth of capital. Current income is a secondary
investment objective. There can be no assurance that the Portfolio will achieve
its investment objectives.

The Portfolio's investment adviser seeks to achieve the investment objectives by
investing primarily in a diversified portfolio of securities of companies
operating in the real estate industry, primarily equity

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securities of REITs. A company operating in the real estate industry is one that
derives at least 50% of its assets (marked to market), gross income or net
profits from the ownership, construction, management or sale of residential,
commercial or industrial real estate. Real estate industry companies include,
among others: equity real estate investment trusts, which pool investors' funds
for investment primarily in commercial real estate properties; mortgage real
estate investment trusts, which invest pooled funds in real estate related
loans; brokers or real estate developers; and companies with substantial real
estate holdings, such as paper and lumber products and hotel and entertainment
companies. Because of the Portfolio's policy of concentrating its investments in
real estate securities, the Portfolio may be more susceptible to economic,
political or regulatory occurrences affecting the real estate industry than a
portfolio without such a policy.

Under normal market conditions, the Portfolio invests at least 65% of its total
assets in securities of companies operating in the real estate industry,
primarily equity securities of REITs. Besides equity securities of REITs, the
Portfolio invests in equity securities, including common stocks and convertible
securities, or non-convertible preferred stocks and debt securities of real
estate industry companies. REITs pool investors' funds for investment primarily
in income producing real estate or real estate related loans or interests. REITs
can generally be classified as equity REITs, mortgage REITs or a combination of
both. Equity REITs, which invest the majority of their assets directly in real
property, derive their income from rents. Equity REITs can also realize capital
gains by selling properties that have appreciated in value. Mortgage REITs,
which invest the majority of their assets in real estate mortgagees, derive
their income primarily from interest payments. REITs are not taxed on income
distributed to shareholders provided such REITs comply with several requirements
of the Internal Revenue Code of 1986, as amended (the "Code").

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

Preferred stock generally has a preference as to dividends and liquidation over
an issuer's common stock but ranks junior to debt securities in an issuer's
capital structure. Unlike interest payments on debt securities, preferred stock
dividends are payable only if declared by an issuer's board of directors.
Preferred stock may be subject to optional or mandatory redemption provisions.
The ability of common stocks and preferred stocks to generate income is
dependent on the earnings and continuing declaration of dividends by the issuers
of such securities.

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Debt securities of a corporation or other entity generally entitle the holder to
receive interest, at a fixed, variable or floating interest rate, during the
term of the security and repayment of principal at maturity or redemption. The
Portfolio invests in debt securities rated at the time of investment BBB or
higher by S&P or rated Baa or higher by Moody's or comparably rated by another
NRSRO or unrated securities considered by the Portfolio's investment adviser to
be of comparable quality. Credit quality at the time of purchase determines
which securities may be acquired, and a subsequent reduction in ratings does not
require the Portfolio to dispose of a security. Securities rated BBB by S&P or
Baa by Moody's are considered to be medium grade obligations which possess
speculative characteristics so that changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than in the case of higher rated securities. The ratings
assigned by the ratings agencies represent their opinions of the quality of the
debt securities they undertake to rate, but not the market value risk of such
securities. It should be emphasized that ratings are general and are not
absolute standards of quality.

Under normal market conditions, the Portfolio may invest up to 35% of its total
assets in securities of companies outside the real estate industry.

The Portfolio may invest up to 25% of its total assets in securities issued by
foreign issuers, some or all of which also may be in the real estate industry.
See "Investment Practices -- Foreign Securities."

Other investment practices and risks of the Portfolio are described under the
heading "Investment Practices."

RISK FACTORS OF INVESTING IN REAL ESTATE SECURITIES. Although the Portfolio does
not invest directly in real estate, an investment in the Portfolio generally
will be subject to the risks associated with real estate because of its policy
of concentrating in the securities of companies operating in the real estate
industry. These risks include, among others: declines in the value of real
estate; defaults by borrowers or tenants; risks related to general and local
economic conditions; overbuilding and increased competition; increases in
property taxes, capital expenditures or and operating expenses; changes in
zoning laws; casualty or condemnation losses; variations in rental income;
changes in neighborhood values; the appeal of properties to tenants; and changes
in interest rates. The value of securities of companies which service the real
estate industry also will be affected by such risks. If the Portfolio has rental
income or income from the disposition of real property acquired as a result of a
default on securities the Portfolio owns, the receipt of such income may
adversely affect its ability to retain its tax status as a regulated investment
company.

Equity REITs may be affected by changes in the value of the underlying property
owned by the trusts, while mortgage REITs may be affected by the quality of
credit extended. Equity and mortgage REITs are dependent upon management skill,
may not be diversified and are subject to the risks of financing projects. Such
REITs are also subject to heavy cash flow dependency, defaults by borrowers,
self-liquidation and the possibility of failing to qualify for tax-free
pass-through of income under the Code and to maintain exemption from the
Investment Company Act of 1940, as amended (the "1940 Act"). REITs are not taxed
on income distributed to shareholders provided they comply with several
requirements of the Code.

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In addition, the Portfolio indirectly will bear its proportionate share of any
expenses paid by the REITs in which it invests.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase and sell
debt securities on a "when-issued" or "delayed delivery" basis whereby the
Portfolio buys or sells a security with payment and delivery taking place in the
future. The payment obligation and the interest rate are fixed at the time the
Portfolio enters into the commitment. No income accrues to the Portfolio on
securities in connection with such transactions prior to the date the Portfolio
actually takes delivery of such securities. These transactions are subject to
market risk as the value or yield of a security at delivery may be more or less
than the purchase price or the yield generally available on securities when
delivery occurs. In addition, the Portfolio is subject to counterparty risk
because it relies on the buyer or seller, as the case may be, to consummate the
transaction, and failure by the other party to complete the transaction may
result in the Portfolio missing the opportunity of obtaining a price or yield
considered to be advantageous. The Portfolio will only make commitments to
purchase such securities with the intention of actually acquiring the
securities, but the Portfolio may sell these securities prior to settlement date
if it is deemed advisable. No specific limitation exists as to the percentage of
the Portfolio's assets which may be used to acquire securities on a
"when-issued" or "delayed delivery" basis.

STRATEGIC STOCK PORTFOLIO

The investment objective of the Strategic Stock Portfolio is to seek to provide
investors with an above average total return through a combination of potential
capital appreciation and dividend income, consistent with the preservation of
invested capital. There can be no assurance that the Portfolio will achieve its
investment objective.

Under normal market conditions, the Portfolio's investment adviser seeks to
achieve the investment objective by investing in a portfolio of high dividend
yielding equity securities of companies included in the DJIA or in the MSCI USA
Index. The DJIA was first published in The Wall Street Journal in 1896.
Initially consisting of just 12 stocks, the DJIA expanded to 20 stocks in 1916
and to its present size of 30 stocks on October 1, 1928. The MSCI USA Index
consists of approximately 370 large domestic companies in the United States and
has existed since January 1, 1970.

In selecting securities for the Portfolio, the Adviser intends to follow the
following policies (the "Strategic Selection Policies"):

The ten highest dividend yielding securities in the DJIA are identified for
investment. In addition, all companies having securities in the MSCI USA Index
are reviewed by the Portfolio's investment adviser. Securities of companies in
the financial or utility sectors and of companies having securities included in
the DJIA are excluded. The remaining pool of MSCI USA Index securities is
further evaluated and securities of companies that do not have positive one- and
three-year sales and earnings growth rates and two years of positive dividend
growth are excluded. The Portfolio's investment adviser also excludes MSCI USA
Index securities that are in the bottom 25% of all MSCI USA Index securities
measured in terms of total annual trading volume. MSCI USA Index securities of
the remaining companies are ranked by dividend yield, and the ten
highest-yielding such MSCI USA Index securities are identified for investment.
In the event that this process results in less than 10 remaining MSCI USA Index
securities, those companies with the most favorable one- and three-year sales
and earnings performance and two-year dividend performance as determined by the
Portfolio's investment adviser are added back until the number of MSCI USA Index

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securities equals 10. Dividend yield for purposes of applying the foregoing
investment policies is calculated for each security by annualizing the last
quarterly or semi-annual ordinary dividend declared on the security and dividing
the result by the security's closing sale price on the applicable date. This
yield is historical and there can be no assurance that any dividends will be
declared or paid in the future.

At the commencement of the Portfolio's investment operations, the 20 securities
so identified at that time represented the Portfolio's initial investments. The
Portfolio's investment adviser periodically employs the same Strategic Selection
Policies to identify a new list of 20 strategic securities and reviews and
adjusts a portion or all of the Portfolio's assets so as to invest that portion
of the Portfolio's assets approximately equally in the new list of 20 strategic
securities. For a more detailed discussion of the Portfolio's investment
policies, including the frequency of security re-evaluations and the portion of
the Portfolio's assets that the Portfolio's investment adviser presently expects
to re-evaluate at the end of each period, see the Statement of Additional
Information.

The Portfolio's investment adviser generally seeks to allocate cash available
for investment due to the sale of new shares of the Portfolio and the receipt of
dividends and interest income from Portfolio investments approximately
proportionately among its current list of strategic securities in the Portfolio.
To the extent that the Portfolio is required to dispose of securities in order
to satisfy redemption requests, make distributions, pay expenses or otherwise
raise cash for operational purposes, the Portfolio's investment adviser
generally intends to sell approximately proportionate amounts of securities from
all securities in the Portfolio.

Application of the foregoing Strategic Selection Policies will be subject to and
limited by certain of the Portfolio's other investment policies and
restrictions, including restrictions and limitations which must be met in order
for the Portfolio to qualify for U.S. federal income tax purposes as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), or in order to comply with requirements of the
1940 Act. The Portfolio is subject to investment diversification requirements
that generally provide that the Portfolio may not, with respect to 75% of its
assets, invest more than 5% of its assets in the securities of any one issuer or
purchase more than 10% of the outstanding voting securities of any one issuer.
Further, the Portfolio generally may not invest more than 25% of the value of
its total assets in securities of issuers in any particular industry. The
Portfolio's satisfaction of these requirements will take precedent over the
Strategic Selection Policies. In addition, the Portfolio's investment adviser
will try to avoid transacting in odd-lots of securities in order to minimize
transaction costs. These limitations may, at times, cause the composition of the
Portfolio's investment portfolio to differ significantly from that which would
have resulted had the Strategic Selection Policies been fully implemented. In
selecting securities for investment or disposition at times that the Portfolio's
investment policies and restrictions do not permit full implementation of the
Strategic Selection Policies, the Portfolio's investment adviser will have sole
discretion to select securities for purchase or sale and generally will make
such selections in a manner that is consistent with the Portfolio's investment
objective and in a manner that it believes is consistent with the investment
rationale that is the basis for the Strategic Selection Policies.

The Portfolio will continue to hold securities, even though such securities may
not be included in the most recent list of strategic securities determined for
the review and adjustment of a portion of the Portfolio's assets. In addition,
although each new list of strategic securities will include only 20 securities,
because only a portion of the Portfolio's assets may be reviewed and adjusted at
any given time, the Portfolio's

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investment adviser expects that the number of securities held by the Portfolio
may over time increase and that the Portfolio may at times hold forty or more
different securities.

The Portfolio may invest up to 5% of its total assets in options on equity
securities indices, futures contracts on such indices and options on such
futures contracts for both hedging purposes and in an attempt to enhance gain.
The Portfolio also may invest up to 5% of its total assets in securities of
other registered investment companies that seek to provide investment results
that generally correspond to the performance of securities included in one or
more broad market indices. Investment in securities of other investment
companies will subject the Portfolio to additional and potentially duplicative
costs and expenses, including investment management fees charged by such
registered investment companies. Pending investment and for temporary defensive
purposes the Portfolio may invest without limit in short-term, high quality
fixed income securities and in money-market instruments.

The DJIA is the property of Dow Jones & Company, Inc. Dow Jones & Company, Inc.
has not granted to the Portfolio a license to use the DJIA. Dow Jones & Company,
Inc. has not participated in any way in the creation of the Portfolio or in the
selection of the stocks included in such Portfolio and has not approved any
information herein relating thereto. Shares of the Portfolio are not designed so
that their prices will parallel or correlate with any movements in the DJIA, and
it is expected that their prices will not parallel or correlate with such
movements.

The Portfolio is not sponsored, endorsed, sold or promoted by Morgan Stanley.
Morgan Stanley makes no representation or warranty, express or implied, to the
owners of shares of the Portfolio or any member of the public regarding the
advisability of investing in investment portfolios generally or in the Portfolio
particularly or the ability of the MSCI USA Index to track general stock market
performance. Morgan Stanley is the licensor of certain trademarks, service marks
and trade names of Morgan Stanley and of the MSCI USA Index which is determined,
composed and calculated by Morgan Stanley without regard to this Portfolio.
Morgan Stanley has no obligation to take the needs of this Portfolio or the
owners of this Portfolio into consideration in determining, composing or
calculating the MSCI USA Index. Morgan Stanley is not responsible for and has
not participated in the determination of the timing of, prices at, or quantities
of this Portfolio to be issued. Morgan Stanley has no obligation or liability to
owners of this Portfolio in connection with the administration, marketing or
trading of this Portfolio.

ALTHOUGH MORGAN STANLEY SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN
THE CALCULATION OF THE INDICES FROM SOURCES WHICH MORGAN STANLEY CONSIDERS
RELIABLE, NEITHER MORGAN STANLEY NOR ANY OTHER PARTY GUARANTEES THE ACCURACY
AND/OR THE COMPLETENESS OF THE INDICES OR ANY DATA INCLUDED THEREIN. NEITHER
MORGAN STANLEY NOR ANY OTHER PARTY MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO
RESULTS TO BE OBTAINED BY LICENSEE, LICENSEE'S CUSTOMERS AND COUNTERPARTIES,
OWNERS OF THE PORTFOLIO, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE
INDICES OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED
HEREUNDER OR FOR ANY OTHER USE. NEITHER MORGAN STANLEY NOR ANY OTHER PARTY MAKES
ANY EXPRESS OR IMPLIED WARRANTIES, AND MORGAN STANLEY HEREBY EXPRESSLY DISCLAIMS
ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH
RESPECT TO THE INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL MORGAN STANLEY OR ANY OTHER PARTY HAVE ANY
LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY
OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF
SUCH DAMAGES.

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RISK FACTORS. There is no guarantee that the investment objective of the
Portfolio will be achieved because it is subject to the continuing ability of
the respective issuers of equities in which the Portfolio invests to declare and
pay dividends and because the market value of such equities can be affected by a
variety of factors. Common stocks may be especially susceptible to general stock
market movements and to volatile increases and decreases of value as market
confidence in and perceptions of the issuers change. There can be no assurance
that the value of the underlying securities will increase or that the issuers of
the securities will pay dividends on outstanding securities. The declaration of
dividends by any issuer depends upon several factors including the financial
condition of the issuer and general economic conditions. Risks associated with
an investment in the Portfolio include the possible deterioration of either the
financial condition of the issuers or the general condition of the stock market,
and general price volatility. The relatively high dividend yield of certain
securities that the Portfolio will acquire may reflect the market's assessment
of the risk that the company may reduce or eliminate the dividend in the current
period or in the future, or otherwise reflect the market's unfavorable
assessment of the company's performance outlook. The Portfolio's investment
adviser generally will not take these considerations into account in
implementing the Strategic Selection Policies and, accordingly, the Portfolio
may at times acquire securities of companies that the market and the Portfolio's
investment adviser believe are more susceptible to financial difficulty and
corresponding adverse market performance than are other companies with
securities included in the DJIA or in the MSCI USA Index.

In addition, investors should be aware that the Portfolio is not "actively
managed." Except to raise cash for operational purposes, the Portfolio
ordinarily will not sell securities or re-evaluate its investments except as
periodically determined by the Portfolio's investment adviser. In addition, only
a portion of the Portfolio's assets may be reviewed and adjusted for any given
period. As a result, although the Portfolio may (but need not) dispose of a
security in certain events such as the issuer having defaulted on the payment on
any of its outstanding obligations or the price of a security having declined to
such an extent or other factors existing so that in the opinion of the
Portfolio's investment adviser the retention of such security would be
detrimental to the Portfolio, the adverse financial condition of a company will
not result in its elimination from the Portfolio prior to scheduled review and
adjustment except under extraordinary circumstances. Similarly, securities held
in the Portfolio ordinarily will not be sold by the Portfolio for the purpose of
taking advantage of market fluctuations or changes in anticipated rates of
appreciation.

Other investment practices and risks of the Portfolio are described under the
heading "Investment Practices".

INVESTMENT PRACTICES

REPURCHASE AGREEMENTS

Each Portfolio may enter into repurchase agreements with banks or broker-dealers
in order to earn a return on temporarily available cash. A repurchase agreement
is a short-term investment in which the purchaser (i.e., the Portfolio) acquires
ownership of a debt security and the seller agrees to repurchase the

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obligation at a future time and set price, thereby determining the yield during
the holding period. Repurchase agreements involve certain risks in the event of
default by the other party. Each Portfolio may enter into repurchase agreements
with banks or broker-dealers deemed to be creditworthy by the Portfolio's
investment adviser under guidelines approved by the Portfolio's Board of
Trustees. No Portfolio will invest in repurchase agreements maturing in more
than seven days if any such investment, together with any other illiquid
securities held by such Portfolio, would exceed the Portfolio's limitation on
illiquid securities described below. In the event of the bankruptcy or other
default of a seller of a repurchase agreement, a Portfolio could experience both
delays in liquidating the underlying securities and losses including: (a)
possible decline in the value of the underlying security during the period while
the Portfolio seeks to enforce its rights thereto; (b) possible lack of access
to income on the underlying security during this period; and (c) expenses of
enforcing its rights.

For the purpose of investing in repurchase agreements, a Portfolio's investment
adviser may aggregate the cash that certain funds or portfolios advised or
subadvised by the investment adviser or certain of its affiliates would
otherwise invest separately into a joint account. The cash in the joint account
is then invested in repurchase agreements and the funds or portfolios that
contributed to the joint account share pro rata in the net revenue generated.
The investment adviser believes that the joint account produces efficiencies and
economies of scale that may contribute to reduced transaction costs, higher
returns, higher quality investments and greater diversity of investments for the
participating Portfolio than would be available to the Portfolio investing
separately. The manner in which the joint account is managed is subject to
conditions set forth in an exemptive order from the SEC authorizing this
practice, which conditions are designed to ensure the fair administration of the
joint account and to protect the amounts in that account.

Repurchase agreements are fully collateralized by the underlying debt securities
and are considered to be loans under the 1940 Act. A Portfolio pays for such
securities only upon physical delivery or evidence of book entry transfer to the
account of a custodian or bank acting as agent. The seller under a repurchase
agreement will be required to maintain the value of the underlying securities
marked-to-market daily at not less than the repurchase price. The underlying
securities (normally securities of the U.S. government, or its agencies and
instrumentalities) may have maturity dates exceeding one year. A Portfolio does
not bear the risk of a decline in value of the underlying security unless the
seller defaults under its repurchase obligation.

FOREIGN SECURITIES

The Portfolios listed below may invest in securities issued by foreign issuers
up to the following limits:

<TABLE>
<S> <C> <C> <C>
Asset Allocation Portfolio Up to 25% of total assets
...................................................................
Comstock Portfolio Up to 15% of total assets
...................................................................
Domestic Income Portfolio Up to 25% of total assets
...................................................................
Emerging Growth Portfolio Up to 20% of total assets
...................................................................
Enterprise Portfolio Up to 10% of total assets
...................................................................
Global Equity Portfolio Up to 100% of total assets
...................................................................
Growth and Income Portfolio Up to 15% of total assets
...................................................................
Morgan Stanley Real Estate
Securities Portfolio Up to 25% of total assets
...................................................................
</TABLE>

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<PAGE> 64

Such foreign securities may be denominated in U.S. dollars or in currencies
other than U.S. dollars. Investments in foreign securities present certain risks
not ordinarily associated with investments in securities of U.S. issuers. These
risks include fluctuations in foreign currency exchange rates, political or
economic developments (including war or other instability, expropriation of
assets, nationalization and confiscatory taxation), imposition of foreign
exchange limitations (including currency blockage), withholding taxes on
dividend or interest payments or capital transactions or other restrictions,
higher transaction costs and possible difficulty in enforcing contractual
obligations or taking judicial action. In addition, there often is less publicly
available information about many foreign issuers and issuers of foreign
securities are subject to different, often less comprehensive, auditing,
accounting reporting and disclosure requirements than domestic issuers. Such
securities may be less liquid than the securities of domestic issuers. Such
securities may be subject to greater fluctuations in price than securities of
domestic issuers. There is generally less government regulation of stock
exchanges, brokers and listed companies abroad than in the U.S., and, with
respect to certain foreign countries, there is a possibility of expropriation or
confiscatory taxation, or diplomatic developments which could affect investment
in those countries. Because there is usually less supervision and governmental
regulation of exchanges, brokers and dealers than there is in the U.S., a
Portfolio may experience settlement difficulties or delays not usually
encountered in the U.S. In addition to the increased risks of investing in
foreign securities, there are often increased transactions costs associated with
investing in foreign securities, including the costs incurred in connection with
converting currencies, higher foreign brokerage or dealer costs and higher
settlement or custodial costs. The risks of foreign investments should be
considered carefully by an investor in a Portfolio that invests in foreign
securities.

FOREIGN CURRENCY TRANSACTIONS

A Portfolio's securities that are denominated or quoted in currencies other than
the U.S. dollar will be affected by changes in foreign currency exchange rates
(and exchange control regulations) which affects the value of the securities in
the Portfolio and the income or dividends and appreciation or depreciation of
its investments. In addition, the Portfolio will incur costs in connection with
conversions between various currencies. A Portfolio's foreign currency exchange
transactions generally will be conducted on a spot basis (that is, cash basis)
at the spot rate for purchasing or selling currency prevailing in the foreign
currency exchange market. A Portfolio purchases and sells foreign currency on a
spot basis in connection with the settlement of transactions in securities
traded in such foreign currency. The Portfolios do not purchase and sell foreign
currencies as an investment.

A Portfolio also may enter into contracts with banks or other foreign currency
brokers and dealers to purchase or sell foreign currencies at a future date
("forward contracts") and purchase and sell foreign currency futures contracts
to hedge against changes in foreign currency exchange rates. A foreign currency
forward contract is a negotiated agreement between the contracting parties to
exchange a specified amount of currency at a specified future time at a
specified rate. The rate can be higher or lower than the spot rate between the
currencies that are the subject of the contract.

A Portfolio may attempt to hedge against changes in the value of the U.S. dollar
in relation to a foreign currency by entering into a forward contract for the
purchase or sale of the amount of foreign currency invested or to be invested,
or by buying or selling a foreign currency futures contract for such amount.
Such hedging strategies may be employed before a Portfolio purchases a foreign
security traded in the hedged currency which a Portfolio anticipates acquiring
or between the date the foreign security is purchased or sold and the date on
which payment therefore is made or received. Hedging against a change

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<PAGE> 65

in the value of a foreign currency in the foregoing manner does not eliminate
fluctuations in the price of portfolio securities or prevent losses if the
prices of such securities decline. Furthermore, such hedging transactions reduce
or preclude the opportunity for gain if the value of the hedged currency should
move in the direction opposite to the hedged position. Unanticipated changes in
currency prices may result in poorer overall performance for the Portfolio than
if it had not entered into such contracts. A Portfolio will not speculate in
foreign currency forward or futures contracts or through the purchase and sale
of foreign currencies.

ILLIQUID SECURITIES

The Portfolios listed below may invest in illiquid securities up to the
following limits:

<TABLE>
<S> <C> <C> <C>
Asset Allocation Portfolio Up to 5% of net assets
.................................................................
Comstock Portfolio Up to 5% of net assets
.................................................................
Domestic Income Portfolio Up to 5% of net assets
.................................................................
Emerging Growth Portfolio Up to 15% of net assets
.................................................................
Enterprise Portfolio Up to 5% of net assets
.................................................................
Global Equity Portfolio Up to 15% of net assets
.................................................................
Government Portfolio Up to 5% of net assets
.................................................................
Growth and Income Portfolio Up to 15% of net assets
.................................................................
Money Market Portfolio Up to 5% of net assets
.................................................................
Morgan Stanley Real Estate
Securities Portfolio Up to 15% of net assets
.................................................................
Strategic Stock Portfolio Up to 15% of net assets
.................................................................
</TABLE>

Such securities may be difficult or impossible to sell at the time and the price
that the Portfolio would like. Thus, the Portfolio may have to sell such
securities at a lower price, sell other securities instead to obtain cash or
forego other investment opportunities.

USING OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

The Asset Allocation Portfolio, the Comstock Portfolio, the Emerging Growth
Portfolio, the Enterprise Portfolio, the Global Equity Portfolio, the Government
Portfolio, the Growth and Income Portfolio, the Morgan Stanley Real Estate
Securities Portfolio and the Strategic Stock Portfolio expect to utilize
options,

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<PAGE> 66

futures contracts or options on futures contracts in several different ways,
depending upon the status of a Portfolio's portfolio securities and the
investment adviser's expectations concerning the securities or currency markets.
See the Statement of Additional Information for a discussion of options, futures
contracts and options on futures contracts.

In times of stable or rising stock prices, the Portfolios generally seeks to be
fully invested. Even when the Portfolios are fully invested, however, prudent
management requires that at least a small portion of assets be available as cash
to honor redemption requests and for other short-term needs. The Portfolios may
also have cash on hand that has not yet been invested. The portion of the
Portfolios' assets that is invested in cash or cash equivalents does not
fluctuate with stock market prices, so that, in times of rising market prices,
the Portfolios may underperform the market in proportion to the amount of cash
or cash equivalents in its Portfolio. By purchasing stock index futures
contracts, however, the Portfolios can compensate for the cash portion of its
assets and may obtain performance equivalent to investing all of its assets in
equity securities.

If the Portfolios' investment adviser forecasts a market decline, the Portfolios
may seek to reduce its exposure to the securities markets by increasing its cash
position. By selling stock index futures contracts instead of Portfolio
securities, a similar result can be achieved to the extent that the performance
of the futures contracts correlates to the performance of the Portfolios'
investments. Sales of futures contracts frequently may be accomplished more
rapidly and at less cost than the actual sale of securities. Once the desired
hedged position has been effected, the Portfolios could then liquidate
securities in a more deliberate manner, reducing its futures position
simultaneously to maintain the desired balance, or it could maintain the hedged
position.

As an alternative to futures contracts, the Portfolios can engage in options (or
stock index options or stock index futures options) to manage the Portfolios'
risk in advancing or declining markets. For example, the value of a put option
generally increases as the underlying security declines below a specified level,
value is protected against a market decline to the degree the performance of the
put correlates with the performance of the Portfolios' investment portfolio. If
the market remains stable or advances, the Portfolios can refrain from
exercising the put and the Portfolios will participate in the advance, having
incurred only the premium cost for the put.

The Portfolios are authorized to purchase and sell listed and over-the-counter
options ("OTC Options"). OTC Options are subject to certain additional risks
including default by the other party to the transaction and the liquidity of the
transactions.

In addition to futures and options on securities, the Portfolios may engage in
foreign currency futures and options. The Portfolios may use currency options to
increase its gross income or to protect it against declines in the U.S. dollar
value of foreign currency denominated securities and against increases in the
U.S. dollar cost of such securities to be acquired. As in the case of other
kinds of options, however, the selling of an option on a foreign currency
constitutes only a partial hedge, up to the amount of the premium received, and
the Portfolios could be required to cover its position by purchasing or selling
foreign currencies at disadvantageous exchange rates, thereby incurring losses.
The purchase of an option on a foreign currency may constitute an effective
hedge against fluctuations in exchange rates although, in the event of rate
movements adverse to the Portfolios' position, the Portfolios may forfeit the
entire amount of the premium plus related transaction costs. Options on foreign
currencies in which the

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<PAGE> 67

Portfolios invest are traded on U.S. and foreign exchanges or over-the-counter.
There is no specific percentage limitation on the Portfolios' investments in
options on foreign currencies.

In certain cases, the options and futures markets provide investment or risk
management opportunities that are not available from direct investments in
securities. In addition, some strategies can be performed with greater ease and
at lower cost by utilizing the options and futures markets rather than
purchasing or selling portfolio securities or currencies. However, such
transactions involve risks different from the direct investment in underlying
securities such as imperfect correlation between the value of the instruments
and the underlying assets, risks of default by the other party to certain
transactions, risks that the transactions may incur losses that partially or
completely offset gains in portfolio positions, risks that the transactions may
not be liquid and manager risk. In addition, such transactions may involve
commissions and other costs, which may increase the Portfolios' expenses and
reduce its return. A more complete discussion of options, futures contracts and
related options and their risks is contained in the Statement of Additional
Information.

SHORT SALES

The Global Equity Portfolio may from time to time make short sales of securities
it owns or has the right to acquire through conversion or exchange of other
securities it owns. A short sale is "against the box" to the extent that the
Global Equity Portfolio contemporaneously owns or has the right to obtain at no
added cost securities identical to those sold short. In a short sale, the Global
Equity Portfolio does not immediately deliver the securities sold and does not
receive the proceeds from the sale. The Global Equity Portfolio is said to have
a short position in the securities sold until it delivers the securities sold,
at which time it receives the proceeds of the sale. The Global Equity Portfolio
may not make short sales or maintain a short position if to do so would cause
more than 25% of its total assets, taken at market value, to be held as
collateral for such sales. To secure its obligation to deliver the securities
sold short, the Portfolio will deposit in escrow in a separate account with its
custodian an equal amount of the securities sold short or securities convertible
into or exchangeable for such securities. The Global Equity Portfolio may close
out a short position by purchasing and delivering an equal amount of the
securities sold short, rather than by delivering securities already held by the
Global Equity Portfolio, because it may want to continue to receive interest and
dividend payments on its investments that are convertible into the securities
sold short.

OTHER INVESTMENT PRACTICES AND RISK FACTORS

Although the Portfolios do not intend to engage in substantial short-term
trading, each may sell securities without regard to the length of time they have
been held in order to take advantage of new investment opportunities or when the
Portfolio's management believes the securities potential for income or capital
appreciation has lessened or otherwise. Each Portfolio's turnover rate is shown
under the heading "Financial Highlights." The portfolio turnover rate for each
Portfolio may be expected to vary from year to year. A high portfolio turnover
rate (100% or more) increases the Portfolio's transaction costs, including
brokerage commissions or dealer costs, and may result in the realization of more
short-term capital gains than if the Portfolio had lower portfolio turnover. The
turnover rate will not be a limiting factor, however, if the Portfolio's
investment adviser considers portfolio changes appropriate.

When market conditions dictate a more "defensive" investment strategy, each
Portfolio may invest on a temporary basis a portion or all of its assets in
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities, prime commercial paper, certificates of deposit, bankers'
acceptances and

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<PAGE> 68

other obligations of domestic banks having total assets of at least $500
million, and repurchase agreements. Except with respect to the Money Market
Portfolio, the effect of taking such a defensive position may be that such
Portfolio does not achieve its investment objective.

Further information about these types of investments and other investment
practices that may be used by the Portfolios is contained in the Statement of
Additional Information which can be obtained by investors free of charge as
described on the back cover of this prospectus.

YEAR 2000 RISKS

Like other mutual funds, financial and business organizations and individuals
around the world, the Portfolios could be adversely affected if the computer
systems used by the Portfolios' investment adviser and other service providers
do not properly process and calculate date-related information and data from and
after January 1, 2000. This is commonly known as the "Year 2000 Problem." The
Portfolios' investment adviser is taking steps that it believes are reasonably
designed to address the Year 2000 Problem with respect to computer systems that
it uses and to obtain reasonable assurances that comparable steps are being
taken by the Portfolios' other major service providers. At this time, there can
be no assurances that these steps will be sufficient to avoid any adverse impact
to the Portfolios. In addition, the Year 2000 Problem may adversely affect the
markets and the issuers of securities in which the Portfolios may invest which,
in turn, may adversely affect the net asset values of the Portfolios. Improperly
functioning trading systems may result in settlement problems and liquidity
issues. In addition, corporate and governmental data processing errors may
result in production problems for individual companies or issuers and overall
economic uncertainty. Earnings of individual issuers will be affected by
remediation costs, which may be substantial and may be reported inconsistently
in U.S. and foreign financial statements. Accordingly, the Portfolios'
investments may be adversely affected. The statements above are subject to the
Year 2000 Information and Readiness Disclosure Act which Act may limit the legal
rights regarding the use of such statements in the case of a dispute.

INVESTMENT ADVISORY

SERVICES

THE INVESTMENT ADVISER

Van Kampen Asset Management Inc. is the investment adviser for each of the
Portfolios (the "Adviser"). The Adviser is a wholly owned subsidiary of Van
Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen Investments is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and more
than $75 billion under management or supervision. Van Kampen Investments' more
than 50 open-end and 39 closed-end funds and more than 2,500 unit investment
trusts are professionally distributed by leading financial advisers nationwide.
Van Kampen Funds Inc., the distributor of the Portfolios (the "Distributor") and
the sponsor of the funds mentioned above, is also a wholly owned subsidiary of
Van Kampen Investments. Van Kampen Investments is an indirect wholly owned
subsidiary of Morgan Stanley Dean Witter & Co. The Adviser's principal office is
located at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.

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<PAGE> 69

As of April , 1999, the Distributor owned beneficially and of record
approximately % and % of the outstanding shares of the Comstock
Portfolio and the Global Equity Portfolio, respectively, and therefore, may be
deemed to control these Portfolios.

THE INVESTMENT SUBADVISER

Morgan Stanley Dean Witter Investment Management Inc. is the subadviser (the
"Subadviser") for the Global Equity Portfolio and the Morgan Stanley Real Estate
Securities Portfolio. The Subadviser is a wholly owned subsidiary of Morgan
Stanley Dean Witter & Co., and is an affiliate of the Adviser. The Subadviser's
address is 1221 Avenue of the Americas, New York, New York 10020.

ADVISORY AGREEMENTS

Each Portfolio retains the Adviser to manage the investment of its assets and to
place orders for the purchase and sale of its portfolio securities. Under an
investment advisory agreement (the "Combined Advisory Agreement") between the
Adviser and the Trust, on behalf of the Asset Allocation Portfolio, the Domestic
Income Portfolio, the Enterprise Portfolio, the Government Portfolio and the
Money Market Portfolio (the "Combined Portfolios") and under six additional
advisory agreements between the Adviser and the Trust on behalf of each
remaining Portfolio, the Trust pays the Adviser a monthly fee computed based
upon an annual rate applied to average daily net assets of the Portfolios as
follows:

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

Asset Allocation, Domestic Income, Enterprise, Government
and Money Market Portfolios (based upon their combined
average daily net assets)
First $500 million..................................... 0.50%
Next $500 million...................................... 0.45%
Over $1 billion........................................ 0.40%
(The resulting fee is prorated to each of these
Portfolios based upon their respective average daily
net assets.)
Comstock Portfolio and Growth and Income Portfolio (based
upon each Portfolio's average daily net assets)
First $500 million..................................... 0.60%
Over $500 million...................................... 0.55%
Emerging Growth Portfolio................................... 0.70%
Global Equity Portfolio..................................... 1.00%
Morgan Stanley Real Estate Securities Portfolio............. 1.00%
Strategic Stock Portfolio
First $500 million..................................... 0.50%
Over $500 million...................................... 0.45%
</TABLE>

In relation to Global Equity Portfolio and Morgan Stanley Real Estate Securities
Portfolio, the Adviser has entered into subadvisory agreements (the "Subadvisory
Agreements") with the Subadviser to assist the

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Adviser in performing its investment advisory functions. Under the Subadvisory
Agreements, the Subadviser receives on an annual basis 50% of the advisory fees
received by the Adviser with respect to such Portfolios.

The Combined Advisory Agreement provides that if the ordinary business expenses
of each Combined Portfolio exceed a specified level, the Adviser will waive
certain fees and/or reimburse the Portfolio for certain expenses. For a more
detailed explanation of the Combined Advisory Agreement, see the Statement of
Additional Information.

The Adviser has voluntarily agreed to reimburse the Portfolios for all expenses
as a percent of average daily net assets in excess of the following:

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

Asset Allocation, Domestic Income, Enterprise, Government
and Money Market Portfolios................................. 0.60%
Comstock Portfolio.......................................... *
Emerging Growth Portfolio................................... 0.85%
Global Equity Portfolio..................................... 1.20%
Growth and Income Portfolio................................. 0.75%
Morgan Stanley Real Estate Securities Portfolio............. 1.10%
Strategic Stock Portfolio................................... 0.65%
</TABLE>

Applying these schedules, the Trust paid the Adviser on behalf of the Portfolios
an advisory fee after fee waivers at the effective rate of the Portfolios'
average daily net assets for the Trust's fiscal year ended December 31, 1998 as
follows:

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

Asset Allocation Portfolio.................................. 0.38%
Comstock Portfolio.......................................... *
Domestic Income Portfolio................................... 0.01%
Emerging Growth Portfolio................................... 0.32%
Enterprise Portfolio........................................ 0.46%
Global Equity Portfolio..................................... 0.00%
Government Portfolio........................................ 0.37%
Growth and Income Portfolio................................. 0.26%
Money Market Portfolio...................................... 0.11%
Morgan Stanley Real Estate Securities Portfolio............. 0.00%
Strategic Stock Portfolio................................... 0.00%
</TABLE>

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

* As of December 31, 1998, the Comstock Profile had not
commenced investment operations and, accordingly, had no
assets nor paid advisory fees from which an effective
rate could be derived.

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The Adviser may utilize at is own expense credit analysis, research and trading
support services provided by its affiliate, Van Kampen Investment Advisory Corp.
("Advisory Corp.").

PERSONAL INVESTMENT POLICIES

The Trust, the Adviser and the Subadviser have adopted Codes of Ethics designed
to recognize the fiduciary relationship between the Trust, the Adviser and the
Subadviser and their employees. The Codes permit directors, trustees, officers
and employees to buy and sell securities for their personal accounts subject to
certain restrictions. Persons with access to certain sensitive information are
subject to preclearance and other procedures designed to prevent conflicts of
interest.

PORTFOLIO MANAGEMENT

The Portfolios have different portfolio managers. Except as described below for
the Global Equity Portfolio and the Morgan Stanley Real Estate Securities
Portfolio, each portfolio manager is an employee of the Adviser.

John Cunniff is responsible for allocating the Asset Allocation Portfolio's
assets between the equity and fixed-income categories in which the Asset
Allocation Portfolio invests. The Asset Allocation Portfolio's equity
investments are managed by a management team headed by B. Robert Baker. Mr.
Baker has been primarily responsible for managing the Asset Allocation
Portfolio's equity investments. Jason Leder and Edie Terreson are responsible as
co-managers for the day-to-day management of the Asset Allocation Portfolio's
equity investments. Walter W. Stabell, III manages the Asset Allocation
Portfolio's fixed income investments. Mr. Cunniff has managed the Asset
Allocation Portfolio's investment portfolio since March 1996, Mr. Baker has
managed the Asset Allocation Portfolio's investment portfolio since May 1994 and
Mr. Stabell has managed the Asset Allocation Portfolio's investment portfolio
since May 1998. Mr. Cunniff has been Vice President, Director of Equity Research
with the Adviser since October 1995. Prior to that he was a portfolio manager
with Templeton Quantitative Advisors, a subsidiary of the Franklin Group. Mr.
Baker has been Vice President and Portfolio Manager of the Adviser since June
1995. Prior to that he was Associate Portfolio Manager of the investment
Adviser. Mr. Leder has been Assistant Vice President of the Adviser since
October 1996. Prior to that he was Associate Portfolio Manager of the Adviser.
Prior to February 1995, he was a Securities Analyst with Salomon Brothers, Inc.
Prior to August 1992, he was a Securities Analyst with Fidelity Management and
Research. Ms. Terreson has been Assistant Vice President of the Adviser since
December 1997. Prior to that she was Associate Portfolio Manager of the Adviser.
Prior to March 1997, she was a Securities Analyst and Associate Portfolio
Manager with Delaware Investment Advisers. Prior to May 1996, she was a
Securities Analyst and Associate Portfolio Manager with J.W. Seligman & Co. Mr.
Stabell is currently Vice President and Portfolio Manager of the Adviser. From
December 1986 to August 1989, Mr. Stabell was a Senior Securities Analyst of the
Adviser.

The Comstock Portfolio is managed by a management team headed by B. Robert
Baker. Mr. Baker is primarily responsible for managing the Comstock Portfolio's
investment portfolio. Mr. Baker has been Vice President and Portfolio Manager of
the Adviser and Advisory Corp. since June 1995. Prior to that time, Mr. Baker
was Associate Portfolio Manager of the Adviser. Jason Leder and Edie Terreson
are responsible as co-managers for the day-to-day management of the Comstock
Portfolio's investment portfolio. Mr. Leder has been Assistant Vice President of
the Adviser and Advisory Corp. since October 1996. Prior to that time, Mr. Leder
was Associate Portfolio Manager of the Adviser. Prior to February 1995, Mr.
Leder was a Securities Analyst with Salomon Brothers, Inc. Prior to August 1992,

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Mr. Leder was a Securities Analyst with Fidelity Management and Research. Ms.
Terreson has been Assistant Vice President of the Adviser and Advisory Corp.
since December 1997. Prior to that time, Ms. Terreson was Associate Portfolio
Manager of the Adviser. Prior to March 1997, Ms. Terreson was a Securities
Analyst and Associate Portfolio Manager with Delaware Investment Advisers. Prior
to May 1996, Ms. Terreson was a Securities Analyst and Associate Portfolio
Manager with J.W. Seligman & Co.

Walter W. Stabell, III is primarily responsible for the day-to-day management of
the Domestic Income Portfolio's investment portfolio. Mr. Stabell is a Vice
President and Portfolio Manager of the Adviser. From December 1986 to August
1989, Mr. Stabell was a Senior Securities Analyst of the Adviser. Mr. Stabell
has been primarily responsible for managing the Domestic Income Portfolio's
investment portfolio since June, 1990.

The Emerging Growth Portfolio is managed by a management team headed by Gary M.
Lewis. Mr. Lewis has been primarily responsible for managing the Emerging Growth
Portfolio's investment portfolio since its inception. Mr. Lewis has been Senior
Vice President and Portfolio Manager of the Adviser since October 1995. Prior to
that Mr. Lewis was Vice President and Portfolio Manager of the Adviser. Dudley
Brickhouse, David Walker and Janet Willis are responsible as co-managers for the
day-to-day management of the Emerging Growth Portfolio's investment portfolio.
Mr. Brickhouse has been an Associate Portfolio Manager of the Adviser since
September 1997. Prior to that Mr. Brickhouse was with NationsBank Investment
Management. Mr. Walker has been an Assistant Vice President of the Adviser since
June 1995. Prior to that Mr. Walker was a Quantitative Analyst of the Adviser.
Ms. Willis has been an Assistant Vice President of the Adviser since December
1997. Prior to that Ms. Willis was Associate Portfolio Manager of the Adviser.
Prior to July 1995, Ms. Willis was with AIM Capital Management, Inc.

The Enterprise Portfolio is managed by a management team headed by Jeff New. Mr.
New has been affiliated with the Portfolio since 1991, has assisted in
co-managing the Enterprise Portfolio's investment portfolio since July 1994 and
has been the Senior Portfolio Manager of the Enterprise Portfolio's investment
portfolio since December 1994. Mr. New has been Senior Vice President and Senior
Portfolio Manager of the Adviser since December 1997. Prior to December 1997,
Mr. New was Vice President and Portfolio Manager of the Adviser. Prior to
December 1994, he was Associate Portfolio Manager of the Adviser. He joined the
Adviser in 1990. Michael Davis and Mary Jayne Maly are the portfolio managers
responsible for the day-to-day management of the Enterprise Portfolio's
investment portfolio. Mr. Davis has been Vice President and Portfolio Manager of
the Adviser since March 1998. Prior to March 1998 he was the owner of Davis
Equity Research, a stock research company. Mr. Davishas been an investment
professional since 1983. Ms. Maly has been Vice President and Portfolio Manager
of the Adviser since July 1998. From July 1997 to June 1998, she was a Vice
President at the Subadviser and assisted in the management of the Morgan Stanley
Institutional Real Estate Funds and the Van Kampen Real Estate Securities Fund.
Prior to July 1997, she was a Vice President and Portfolio Manager of the
Adviser. Prior to November 1992, she was a Vice President and Senior Equity
Analyst at Texas Commerce Investment Management Company.

Effective April 1, 1997, Barton M. Biggs, Madhav Dhar, Francine J. Bovich and
Ann D. Thivierge assumed the primary responsibility for the day-to-day
management of the Global Equity Portfolio. Since 1980, Mr. Biggs has been
Chairman and a director of the Subadviser, and a Managing Director of the
Subadviser and Morgan Stanley & Co. Incorporated since 1975. Mr. Biggs is a
director of Morgan Stanley Group, Inc. and a director and chairman of other
investment companies of the Subadviser. Mr. Biggs holds a B.A. from Yale
University

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<PAGE> 73

and an M.B.A. from New York University. Mr. Dhar is Managing Director of the
Subadviser and Morgan Stanley & Co. Incorporated. He has been with the
Subadviser since 1984. Mr. Dhar is a co-head of the Subadviser's emerging
markets group, and has been involved in the launching of the Subadviser's
country funds. Mr. Dhar holds a B.S. from St. Stephens College in Delhi
University (India) and an M.B.A. from Carnegie-Mellon University. Ms. Bovich has
been with the Subadviser since 1993. She is responsible for portfolio management
and communication of the Subadviser's asset allocation strategy to institutional
investor clients. Prior to 1993, Ms. Bovich was a Principal and Executive Vice
President of Westwood Management Corp. Prior to that, Ms. Bovich was a Managing
Director of Citicorp Investment Management, Inc. where she was responsible for
the Institutional Investment Management group. Ms. Bovich holds a B.A. in
Economics from Connecticut College and an M.B.A. in Finance from New York
University. Ms. Thivierge is a Principal of the Subadviser. She is a member of
the Subadviser's asset allocation committee, primarily representing the Total
Fund Management team since its inception in 1991. Ms. Thivierge has been with
the Subadviser since 1986. Ms. Thivierge holds a B.A. in International Relations
from James Madison College, Michigan State University, and an M.B.A. in Finance
from New York University.

John R. Reynoldson is primarily responsible for the day-to-day management of the
Government Portfolio's investment portfolio. Mr. Reynoldson has been Senior Vice
President of the Adviser since July, 1991. Mr. Reynoldson has been primarily
responsible for managing the Government Portfolio's investment portfolio since
December 1989.

The Growth and Income Portfolio is managed by a management team headed by James
A. Gilligan. Scott Carroll is responsible as co-manager for the day-to-day
management of the Growth and Income Portfolio's investment portfolio. Mr.
Gilligan has been responsible for managing the Portfolio's investment portfolio
since its inception. Mr. Gilligan has been Senior Vice President and Portfolio
Manager of the Adviser since September 1995. Prior to that Mr. Gilligan was Vice
President and Portfolio Manager of the Adviser. Mr. Carroll has been Associate
Portfolio Manager of the Adviser since December 1996. Prior to that Mr. Carroll
was an Equity Analyst with Lincoln Capital Management Company. Prior to
September 1992, Mr. Carroll was a Senior Internal Auditor with Pittway
Corporation.

Russell C. Platt and Theodore R. Bigman assumed responsibility for the
day-to-day management of the Morgan Stanley Real Estate Securities Portfolio's
investment portfolio effective January 1, 1997. Mr. Platt became Executive Vice
President of the Adviser on December 31, 1996. Since 1994, Mr. Platt has also
been a Principal, and as of December 1, 1996, a Managing Director, of the
Subadviser where he has primary responsibility for managing the real estate
securities investment business for the Subadviser and serves as a member of the
Investment Committee of The Morgan Stanley Real Estate Fund. From 1991 to 1993,
Mr. Platt was head of Morgan Stanley Realty's Transaction Development Group.
From 1990 to 1991, Mr. Platt was based in Morgan Stanley Realty's London Office.
Prior to this he had extensive transaction responsibilities involving portfolio,
retail, office, hotel and apartment sales and financings. Mr. Bigman became
Senior Vice President of the Adviser on December 31, 1996. Since 1995, Mr.
Bigman has also been a Vice President, and as of December 1, 1996, a Principal,
of the Subadviser where, together with Mr. Platt, he is responsible for the
Subadviser's real estate securities research. Prior to joining the Subadviser,
he was a Director at CS First Boston, where he worked for eight years in the
Real Estate Group.

John Cunniff has been primarily responsible for the day-to-day management of the
Strategic Stock Portfolio's investment portfolio since its inception. Mr.
Cunniff is a Vice President of the Adviser and Advisory Corp. and has been
employed by the Adviser since October 1995. Prior to that time, Mr. Cunniff was
Vice President, Portfolio Manager at Templeton Quantitative Advisors.

72
<PAGE> 74

PURCHASE OF SHARES

The Trust is offering its shares only to Accounts of various insurance companies
to fund the benefits of variable annuity or variable life insurance contracts.
The Trust does not foresee any disadvantage to holders of Contracts arising out
of the fact that the interests of the holders may differ from the interests of
holders of life insurance policies and that holders of one insurance policy may
differ from holders of other insurance policies. Nevertheless, the Trust's
Trustees intend to monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken. The Contracts are described in the separate
prospectuses issued by participating insurance companies. The Trust continuously
offers shares in each of the Portfolios to the Accounts at prices equal to the
respective per share net asset value of the Portfolio. The Distributor, located
at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, Illinois 60181-5555, acts as
the distributor of the shares. Net asset value is determined in the manner set
forth below under "Determination of Net Asset Value."

DETERMINATION OF NET ASSET VALUE

Net asset value per share is computed for each Portfolio as of the close of
trading (currently 4:00 p.m., New York time) each day the New York Stock
Exchange is open. See the accompanying prospectus for the policies for
information regarding holidays observed by the insurance company. Net asset
value of each Portfolio is determined by adding the total market value of all
portfolio securities held by the Portfolio, cash and other assets, including
accrued interest. All liabilities, including accrued expenses, of the Portfolio
are subtracted. The resulting amount is divided by the total number of
outstanding shares of the Portfolio to arrive at the net asset value of each
share. See "Determination of Net Asset Value" in the Statement of Additional
Information for further information.

Securities listed or traded on a national securities exchange are valued at the
last sale price. Unlisted securities and listed securities for which the last
sales price is not available are valued at the mean between the last reported
bid and asked prices. U.S. government and agency obligations are valued at the
mean between the last reported bid and asked prices. Listed options are valued
at the last reported sale price on the exchange on which such option is traded
or, if no sales are reported, at the mean between the last reported bid and
asked prices. Private placement securities are valued at the last reported bid
price. Securities for which market quotations are not readily available and
other assets are valued at a fair value by the Adviser based on procedures
approved by the Portfolio's Board of Trustees. Short-term investments for all
Portfolios other than the Money Market Portfolio are valued as described in the
notes to financial statements in the Statement of Additional Information.

The Money Market Portfolio's assets are valued on the basis of amortized cost,
which involves valuing a portfolio security at its cost, assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the security. While this
method provides certainty in valuation, it may result in periods in which value
as determined by amortized cost is higher or lower than the price the Portfolio
would receive if it sold the security. During such periods, the yield to
investors in the Portfolio may differ somewhat from that obtained in a similar
fund which uses available market quotations to value all of its portfolio
securities.

73
<PAGE> 75

REDEMPTION OF SHARES

Payment for shares tendered for redemption by the insurance company is made
ordinarily in cash within seven days after tender in proper form, except under
unusual circumstances as determined by the SEC. The redemption price will be the
net asset value next determined after the receipt of a request in proper form.
The market value of the securities in each Portfolio is subject to daily
fluctuations and the net asset value of each Portfolio's shares will fluctuate
accordingly. Therefore, the redemption value may be more or less than the
investor's cost.

DIVIDENDS,

DISTRIBUTIONS

AND TAXES

All dividends and capital gains distributions of each Portfolio are
automatically reinvested by the Account in additional shares of such Portfolio.

Shares of the Money Market Portfolio and Government Portfolio become entitled to
income distributions declared on the day the shareholder service agent receives
payment of the purchase price in the form of federal funds. Such shares do not
receive income distributions declared on the date of redemption.

DIVIDENDS OF THE MONEY MARKET PORTFOLIO. The Money Market Portfolio declares
income dividends each business day payable monthly. The Money Market Portfolio's
net income for dividend purposes is calculated daily and consists of interest
accrued or discount earned, plus or minus any net realized gains or losses on
portfolio securities, less any amortization of premium and the expenses of the
Money Market Portfolio.

DIVIDENDS AND DISTRIBUTIONS OF THE ASSET ALLOCATION PORTFOLIO, THE COMSTOCK
PORTFOLIO, THE DOMESTIC INCOME PORTFOLIO, THE EMERGING GROWTH PORTFOLIO,
ENTERPRISE PORTFOLIO, THE GLOBAL EQUITY PORTFOLIO, THE GOVERNMENT PORTFOLIO, THE
GROWTH AND INCOME PORTFOLIO, THE MORGAN STANLEY REAL ESTATE SECURITIES
PORTFOLIO, AND THE STRATEGIC STOCK PORTFOLIO. Dividends from stocks and interest
earned from other investments are the main source of income for these
Portfolios. Substantially all of this income, less expenses, is distributed on
an annual basis. When a Portfolio sells portfolio securities, it may realize
capital gains or losses, depending on whether the prices of the securities sold
are higher or lower than the prices the Portfolio paid to purchase them. Net
realized capital gains represent the total profit from sales of securities minus
total losses from sales of securities including any losses carried forward from
prior years. Each of these Portfolios distributes any net realized capital gains
to Accounts no less frequently than annually.

TAX STATUS OF THE PORTFOLIOS. Each Portfolio has elected to be taxed as a
"regulated investment company" under the Code. By maintaining its qualification
as a "regulated investment company," a Portfolio is not subject to federal
income taxes to the extent it distributes its net investment income and net
capital gains. If for any taxable year a Portfolio does not qualify for the
special tax treatment afforded regulated investment companies, all of its
taxable income, including any net capital gains, would be subject to tax at
regular corporate rates (without any deduction for distributions to
shareholders).

74
<PAGE> 76

TAX TREATMENT TO INSURANCE COMPANY AS SHAREHOLDER. The Accounts are subject to
the diversification requirements of Section 817(h) of the Code, which must be
met at the end of each quarter of the year (or within 30 days thereafter).
Regulations issued by the Secretary of the Treasury have the effect of requiring
the Accounts to invest no more than 55% of their total assets in securities of
any one issuer, no more than 70% in the securities of any two issuers, no more
than 80% in the securities of any three issuers, and no more than 90% in the
securities of any four issuers. For this purpose, the U.S. Treasury and each
U.S. Government agency and instrumentality is considered to be a separate
issuer.

Dividends paid by each Portfolio from its ordinary income and distributions of
each Portfolio's net short-term capital gains are includable in the insurance
company's gross income. The tax treatment of such dividends and distributions
depends on the insurance company's tax status. To the extent that income of a
Portfolio represents dividends on equity securities rather than interest income,
its distributions are eligible for the 70% dividends received deduction
applicable in the case of a life insurance company as provided in the Code. The
Trust will send to the Account a written notice required by the Code designating
the amount and character of any distributions made during such year.

Under the Code, any distribution designated as being made from a Portfolio's net
long-term capital gains are taxable to the insurance company as long-term
capital gains. Such distributions of long-term capital gains will be designated
as a capital gains distribution in a written notice to the Account which
accompanies the distribution payment. Long-term capital gains distributions are
not eligible for the dividends received deduction. Dividends and capital gain
distributions to the insurance company may also be subject to state and local
taxes.

As described in the accompanying prospectus for the Contracts, the insurance
company reserves the right to assess the Account a charge for any taxes paid by
it.

CERTAIN INVESTMENT PRACTICES OF PORTFOLIOS. Certain investment practices of a
Portfolio may be subject to special provisions of the Code that, among other
things, may defer the use of certain losses of the Portfolio and affect the
holding period of the securities held by the Portfolio and the character of the
gains or losses realized by the Portfolio. These provisions may also require the
Portfolio to recognize income or gain without receiving cash with which to make
distributions in the amounts necessary to maintain the Portfolio's qualification
as a regulated investment company and avoid income and excise taxes. Each
Portfolio will monitor its transactions and may make certain tax elections in
order to mitigate the effect of these rules and prevent disqualification of the
Portfolio as a regulated investment company.

75
<PAGE> 77

FINANCIAL HIGHLIGHTS

The financial highlights tables are intended to help you understand each
Portfolio's financial performance for the past five years. The Comstock
Portfolio had not commenced investment operations prior to December 31, 1998 and
has no historical financial highlights to report. Certain information reflects
financial results for a single share of a Portfolio. The total returns in the
table represent the rate that an investor would have earned (or lost) on an
investment in a Portfolio (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose reports, along with each Portfolio's financial
statements, are included in the Statement of Additional Information and may be
obtained by shareholders without charge by calling the telephone number on the
back cover of this prospectus. This information should be read in conjunction
with the financial statements and notes thereto included in the Statement of
Additional Information.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
ASSET ALLOCATION PORTFOLIO 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $11.352 $11.64 $9.99 $11.80
------- ------- ------- ------ ------
Net Investment Income..................................... .513 .482 .48 .45
Net Realized and Unrealized Gain/Loss..................... 1.897 1.083 2.6425 (.89)
------- ------- ------- ------ ------
Total from Investment Operations............................ 2.410 1.565 3.1225 (.44)
------- ------- ------- ------ ------
Less:
Distributions from Net Investment Income.................. .518 .478 .4775 .45
Distributions from Net Realized Gain...................... 1.334 1.375 .995 .90
Distributions in Excess of Net Realized Gain.............. - - - .02
------- ------- ------- ------ ------
Total Distributions......................................... 1.852 1.853 1.4725 1.37
------- ------- ------- ------ ------
Net Asset Value, End of the Period.......................... $11.910 $11.352 $11.64 $9.99
======= ======= ======= ====== ======
Total Return*............................................... 21.81% 13.87% 31.36% (3.66%)
Net Assets at End of the Period (In millions)............... $63.3 $63.9 $63.0 $56.6
Ratio of Expenses to Average Net Assets*.................... .60% .60% .60% .60%
Ratio of Net Investment Income to Average Net Assets*....... 3.86% 3.78% 3.85% 3.70%
Portfolio turnover.......................................... 58% 118% 124% 163%
*If certain expenses had not been assumed by the Adviser,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets..................... .71% .81% .74% .72%
Ratio of Net Investment Income to Average Net Assets........ 3.75% 3.57% 3.71% 3.58%
</TABLE>

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

76
<PAGE> 78

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
DOMESTIC INCOME PORTFOLIO 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE

Net Asset Value, Beginning of the Period.................... $8.008 $8.21 $7.35 $8.58
------- ------ ------ ------ -------

Net Investment Income..................................... .704 .755 .71 .85
Net Realized and Unrealized Gain/Loss..................... .252 (.212) .8525 (1.2275)
------- ------ ------ ------ -------

Total from Investment Operations............................ .956 .543 1.5625 (.3775)
------- ------ ------ ------ -------

Distributions from Net Investment Income.................. .712 .745 .7025 .8525

Distributions from Net Realized Gain...................... - - - -
------- ------ ------ ------ -------

Total Distributions......................................... .712 .745 .7025 .8525
------- ------ ------ ------ -------

Net Asset Value, End of the Period.......................... $8.252 $8.008 $8.21 $7.35
======= ====== ====== ====== =======

Total Return*............................................... 11.90% 6.68% 21.37% (4.33%)
Net Assets at End of the Period (In millions)............... $17.2 $19.8 $26.6 $21.3
Ratio of Expenses to Average Net Assets*.................... .60% .60% .60% .60%
Ratio of Net Investment Income to Average Net Assets*....... 7.74% 7.97% 8.11% 8.35%

Portfolio Turnover.......................................... 78% 77% 54% 94%

*If certain expenses had not been assumed by the Adviser,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets..................... 1.05% 1.29% .93% .95%
Ratio of Net Investment Income to Average Net Assets........ 7.29% 7.28% 7.78% 8.00%
</TABLE>

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

<TABLE>
<CAPTION>
JULY 3, 1995
(COMMENCEMENT OF
YEAR ENDED DECEMBER 31, INVESTMENT OPERATIONS) TO
EMERGING GROWTH PORTFOLIO 1998 1997 1996 DECEMBER 31, 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $13.660 $11.72 $10.00
------- ------- ------- ------

Net Investment Loss....................................... (.007) (.016) (.08)
Net Realized and Unrealized Gain.......................... 2.797 1.956 1.80
------- ------- ------- ------

Total from Investment Operations............................ 2.790 1.940 1.72
------- ------- ------- ------

Net Asset Value, End of the Period.......................... $16.450 $13.660 $11.72
======= ======= ======= ======

Total Return*............................................... 20.42% 16.55% 17.20%**
Net Assets at End of the Period (In millions)............... $10.5 $5.2 $2.3
Ratio of Expenses to Average Net Assets*.................... .85% .85% 2.50%
Ratio of Net Investment Loss to Average Net Assets*......... (.11%) (.17%) (1.45%)
Portfolio Turnover.......................................... 116% 102% 41%**

*If certain expenses had not been assumed by the Adviser,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets..................... 2.14% 3.28% 5.40%
Ratio of Net Investment Loss to Average Net Assets.......... (1.40%) (2.60%) (4.35%)
</TABLE>

** Non-Annualized

77
<PAGE> 79

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
ENTERPRISE PORTFOLIO 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $16.262 $14.69 $12.39 $14.57
------- ------- ------- ------ ------
Net Investment Income..................................... .091 .113 .32 .25
Net Realized and Unrealized Gain/Loss..................... 4.734 3.417 4.22 (.7625)
------- ------- ------- ------ ------

Total from Investment Operations............................ 4.825 3.530 4.54 (.5125)
------- ------- ------- ------ ------

Less:

Distributions from Net Investment Income.................. .096 .109 .3175 .25

Distributions from Net Realized Gain...................... 2.885 1.849 1.9225 1.4175
------- ------- ------- ------ ------

Total Distributions......................................... 2.981 1.958 2.24 1.6675
------- ------- ------- ------ ------

Net Asset Value, End of the Period.......................... $18.106 $16.262 $14.69 $12.39
======= ======= ======= ====== ======

Total Return*............................................... 30.66% 24.80% 36.98% (3.39%)
Net Assets at End of the Period (In millions)............... $98.7 $84.8 $76.0 $67.5
Ratio of Expenses to Average Net Assets*.................... .60% .60% .60% .60%
Ratio of Net Investment Income to Average Net Assets*....... .47% .68% 2.06% 1.72%
Portfolio Turnover.......................................... 82% 152% 145% 153%

*If certain expenses had not been assumed by the Adviser.
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expense to Average Net Assets...................... .66% .75% .68% .68%
Ratio of Net Investment Income to Average Net Assets........ .41% .53% 1.98% 1.64%
</TABLE>

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

<TABLE>
<CAPTION>
JULY 3, 1995
(COMMENCEMENT OF
YEAR ENDED DECEMBER 31, INVESTMENT OPERATIONS) TO
GLOBAL EQUITY PORTFOLIO 1998 1997 1996 DECEMBER 31, 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $11.658 $10.30 $10.00
------- ------- ------- ------

Net Investment Income/Loss................................ .110 .035 (.16)
Net Realized and Unrealized Gain.......................... 1.696 1.687 .46
------- ------- ------- ------

Total from Investment Operations............................ 1.806 1.722 .30
------- ------- ------- ------

Less:

Distributions from and in Excess of Net Investment
Income.................................................. .106 .188 -

Distributions from Net Realized Gain...................... 2.354 .176 -
------- ------- ------- ------

Total Distributions......................................... 2.460 .364 -
------- ------- ------- ------

Net Asset Value, End of the Period.......................... $11.004 $11.658 $10.30
======= ======= ======= ======

Total Return*............................................... 15.85% 16.72% 3.00%**
Net Assets at End of the Period (In millions)............... $3.0 $2.5 $2.4
Ratio of Expenses to Average Net Assets*.................... 1.20% 1.20% 4.35%
Ratio of Net Investment Income/Loss to Average Net
Assets*................................................... .76% .27% (2.76%)
Portfolio Turnover.......................................... 132% 94% 42%**

*If certain expenses had not been assumed by the Adviser,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets..................... 6.78% 7.43% 8.27%
Ratio of Net Investment Loss to Average Net Assets.......... (4.82%) (5.96%) (6.68%)
</TABLE>

** Non-Annualized

78
<PAGE> 80

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
GOVERNMENT PORTFOLIO 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $8.666 $9.06 $8.28 $9.26
------ ------ ------ ------ ------

Net Investment Income..................................... .566 .569 .60 .56
Net Realized and Unrealized Gain/Loss..................... .231 (.388) .78 (.985)
------ ------ ------ ------ ------

Total From Investment Operations............................ .797 .181 1.38 (.425)
------ ------ ------ ------ ------

Less Distributions from and in Excess of Net Investment
Income.................................................... .543 .575 .60 .555
------ ------ ------ ------ ------

Net Asset Value, End of the Period.......................... $8.920 $8.666 $9.06 $8.28
====== ====== ====== ====== ======

Total Return*............................................... 9.61% 2.12% 17.17% (4.63%)
Net Assets at End of the Period (In millions)............... $52.6 $57.3 $67.0 $65.5
Ratio of Expenses to Average Net Assets*.................... .60% .60% .60% .60%
Ratio of Net Investment Income to Average Net Assets*....... 6.51% 6.56% 6.89% 6.71%
Portfolio Turnover.......................................... 119% 143% 164% 192%

*If certain expenses had not been assumed by the Adviser,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets..................... .74% .80% .72% .70%
Ratio of Net Investment Income to Average Net Assets........ 6.37% 6.36% 6.77% 6.61%
</TABLE>

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

<TABLE>
<CAPTION>
DECEMBER 23, 1996
(COMMENCEMENT OF
YEAR ENDED DECEMBER 31, INVESTMENT OPERATIONS) TO
GROWTH AND INCOME PORTFOLIO 1998 1997 DECEMBER 31, 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $9.970 $10.000
------- ------- -------

Net Investment Income..................................... .072 .011
Net Realized and Unrealized Gain/Loss..................... 2.309 (.041)
------- ------- -------

Total From Investment Operations............................ 2.381 (.030)
------- ------- -------

Less:
Distributions from Net Investment Income.................. .065 -0-
Distributions from and in Excess of Net Realized Gain..... .163 -0-
------- ------- -------

Total Distributions......................................... .228 -0-
------- ------- -------

Net Asset Value, End of the Period.......................... $12.123 $9.970
======= ======= =======

Total Return*............................................... 23.90% (.30%) **
Net Assets at End of the Period (In millions)............... $11.7 $0.5
Ratio of Expenses to Average Net Assets*.................... .75% .75%
Ratio of Net Investment Income to Average Net Assets*....... 1.19% 4.47%
Portfolio Turnover.......................................... 96% 0%**

*If certain expenses had not been assumed by the Adviser,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets..................... 1.63% 45.97%
Ratio of Net Investment Income/Loss to Average Net Assets... .31% (40.74%)
</TABLE>

** Non-Annualized

79
<PAGE> 81

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
MONEY MARKET PORTFOLIO 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- -----

Net Investment Income..................................... .049 .048 .0533 .0365

Less Distributions from Net Investment Income............... .049 .048 .0533 .0365
----- ----- ----- ----- -----

Net Asset Value, End of the Period.......................... $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== =====

Total Return*............................................... 5.06% 4.89% 5.46% 3.71%
Net Assets at End of the Period (In millions)............... $19.7 $19.6 $21.6 $28.5
Ratio of Expenses to Average Net Assets*.................... .60% .60% .60% .60%
Ratio of Net Investment Income to Average Net Assets*....... 4.95% 4.78% 5.33% 3.63%

*If certain expenses had not been assumed by the Adviser,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets..................... .98% 1.29% .93% .87%
Ratio of Net Investment Income to Average Net Assets........ 4.57% 4.10% 5.00% 3.37%
</TABLE>

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

<TABLE>
<CAPTION>
JULY 3, 1995
(COMMENCEMENT OF
YEAR ENDED DECEMBER 31, INVESTMENT OPERATIONS) TO
MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO 1998 1997 1996 DECEMBER 31, 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $14.784 $10.74 $10.00
------- ------- ------- ------

Net Investment Income..................................... .464 .217 .20
Net Realized and Unrealized Gain.......................... 2.617 4.117 .6325
------- ------- ------- ------

Total from Investment Operations............................ 3.081 4.334 .8325
------- ------- ------- ------

Less:

Distributions from Net Investment Income.................. .470 .199 .0925

Distributions from Net Realized Gain...................... 1.549 .091 -0-
------- ------- ------- ------

Total Distributions......................................... 2.019 .290 .0925

Net Asset Value, End of the Period.......................... $15.846 $14.784 $10.74
======= ======= ======= ======

Total Return*............................................... 21.47% 40.53% 8.35%**
Net Assets at End of the Period (In millions)............... $299.4 $167.5 $8.6
Ratio of Expenses to Average Net Assets*.................... 1.07% 1.10% 2.50%
Ratio of Net Investment Income to Average Net Assets*....... 3.42% 5.06% 3.75%
Portfolio Turnover.......................................... 177% 84% 85%**

*If certain expenses had not been assumed by the Adviser,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets..................... N/A 1.27% 2.90%
Ratio of Net Investment Income to Average Net Assets........ N/A 4.89% 3.36%
</TABLE>

** Non-Annualized

N/A = Not Applicable

80
<PAGE> 82

<TABLE>
<CAPTION>
NOVEMBER 3, 1997
(COMMENCEMENT OF
YEAR ENDED INVESTMENT OPERATIONS) TO
STRATEGIC STOCK PORTFOLIO DECEMBER 31, 1998 DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $10.000
------- -------

Net Investment Income..................................... .027
Net Realized and Unrealized Gain.......................... .218
------- -------

Total from Investment Operations............................ .245
------- -------

Net Asset Value, End of the Period.......................... $10.245
======= =======

Total Return*............................................... 2.45%**
Net Assets at End of the Period (In millions)............... $2.5
Ratio of Expenses to Average Net Assets*.................... .61%
Ratio of Net Investment Income to Average Net Assets*....... 2.67%
Portfolio Turnover.......................................... 0%**

*If certain expenses had not been assumed by the Adviser,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets..................... 2.59%
Ratio of Net Investment Income to Average Net Assets........ .68%
</TABLE>

** Non-Annualized

81
<PAGE> 83

APPENDIX -- DESCRIPTION

OF SECURITIES RATINGS

STANDARD & POOR'S -- A brief description of the applicable Standard & Poor's
(S&P) rating symbols and their meanings (as published by S&P) follow:

A S&P corporate or municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.

The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.

The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. S&P does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of, such information, or based on other
circumstances.

The ratings are based, in varying degrees, on the following considerations:

1. Likelihood of payment--capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation:

2. Nature of and provisions of the obligation:

3. Protection afforded by, and relative position of, the obligation in the event
of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditor's rights.

1. LONG-TERM DEBT -- INVESTMENT GRADE

AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to meet
its financial commitment on the obligation is extremely strong.

AA: Debt rated "AA" differs from the highest rated issues only in small degree.
Capacity to meet its financial commitment on the obligation is very strong.

A: Debt rated "A" is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rated
categories. Capacity to meet its financial commitment on the obligation is still
strong.

BBB: Debt rated "BBB" exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet its financial commitment on the obligation.

A- 1
<PAGE> 84

SPECULATIVE GRADE

BB, B, CCC, CC, C: Debts rated "BB", "B", "CCC", "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.

BB: Debt rated "BB" is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.

B: Debt rated "B" is more vulnerable to nonpayment than obligations rated "BB",
but the obligor currently has the capacity to meet its financial commitment on
the obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.

CCC: Debt rated "CCC" is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.

CC: Debt rated "CC" is currently highly vulnerable to nonpayment.

C: The "C" rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.

D: Debt rated "D" is in payment default. The "D" rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The 'D' rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.

PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk--such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.

DEBT OBLIGATIONS OF ISSUERS OUTSIDE THE UNITED STATES AND ITS TERRITORIES are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.

BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain ratings or
other standards

A- 2
<PAGE> 85

for obligations eligible for investment by savings banks, trust companies,
insurance companies and fiduciaries generally.

2. COMMERCIAL PAPER

A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.

Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:

A-1: The highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.

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

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

B: Issues rated "B" are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.

C: This rating is assigned to short-term debt obligations currently vulnerable
to nonpayment and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the obligation.

D: Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The "D" rating also will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.

A commercial paper rating is not a recommendation to purchase, sell or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained from other sources it considers reliable. S&P does
not perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.

3. PREFERRED STOCK

A S&P preferred stock rating is an assessment of the capacity and willingness of
an issuer to pay preferred stock dividends and any applicable sinking fund
obligations. A preferred stock rating differs from a bond

A- 3
<PAGE> 86

rating inasmuch as it is assigned to an equity issue, which issue is
intrinsically different from, and subordinated to, a debt issue. Therefore, to
reflect this difference, the preferred stock rating symbol will normally not be
higher than the bond rating symbol assigned to, or that would be assigned to,
the senior debt of the same issuer.

The preferred stock ratings are based on the following considerations:

i. Likelihood of payment-capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation.

ii. Nature of, and provisions of, the issuer.

iii. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangements under the laws of bankruptcy and other laws affecting
creditors' rights.

AAA: This is the highest rating that may be assigned by S&P to a preferred stock
issue and indicates an extremely strong capacity to pay the preferred stock
obligations.

AA: A preferred stock issue rated "AA" also qualifies as a high-quality, fixed
income security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated "AAA".

A: An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.

BBB: An issue rated "BBB" is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the "A" category.

BB, B and CCC: Preferred stock rated "B", "B", and "CCC" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations.

"BB" indicates the lowest degree of speculation and "CCC" the highest. While
such issues will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.

CC: The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments, but that is currently paying.

C: A preferred stock rated "C" is a nonpaying issue.

D: A preferred stock rated "D" is a nonpaying issue with the issuer in default
on debt instruments.

NR: This indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy. PLUS (+) or MINUS (-): To provide more
detailed indications of preferred stock quality, ratings from "AA" to

A- 4
<PAGE> 87

"CCC" may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.

A preferred stock rating is not a recommendation to purchase, sell, or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.

MOODY'S INVESTORS SERVICE -- a brief description of the applicable Moody's
Investors Service (Moody's) rating symbols and their meanings (as published by
Moody's Investor Service) follows:

1. LONG-TERM DEBT

Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long- term risks appear somewhat larger than the Aaa securities.

A: Bonds which are rated a possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.

Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payment
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

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

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

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

A- 5
<PAGE> 88

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

Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the issue ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.

ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities that are not rated as a
matter of policy.

3. There is a lack of essential data pertaining to the issue or issuer.

4. The issue was privately placed, in which case the rating is not published in
Moody's publications.

Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.

2. SHORT-TERM DEBT

Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year unless explicitly noted.

Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issues:

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

- -- Leading market positions in well-established industries.

- -- High rates of return on funds employed.

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

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

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

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

Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more

A- 6
<PAGE> 89

pronounced. Variability in earnings and profitability may result in changes of
the level of debt protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.

Issuers rated Not Prime do not fall within any of the Prime rating categories.

3. PREFERRED STOCK

Preferred stock rating symbols and their definitions are as follows:

AAA: As issue which is rated "AAA" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.

AA: An issue which is rated "AA" is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings and
asset protection will remain relatively well maintained in the foreseeable
future.

A: An issue which is rated "A" is considered to be an upper-medium-grade
preferred stock. While risks are judged to be somewhat greater than in the "AAA"
and "AA" classifications, earnings and asset protections are, nevertheless,
expected to be maintained at adequate levels.

BAA: An issue which is rated "BAA" is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.

BA: An issue which is rated "BA" is considered to have speculative elements and
its future cannot be considered well assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.

B: An issue which is rated "B" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.

CAA: An issue which is rated "CAA" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.

CA: An issue which is rated "CA" is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payment.

C: This is the lowest rated class of preferred or preference stock. Issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

Moody's applies numerical modifiers 1, 2 and 3 in each rating classification.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category, the modifier 2 indicates a mid-range ranking, and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.

A- 7
<PAGE> 90

FOR MORE INFORMATION

EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS

Call your broker or (800) 341-2911

7:00 a.m. to 7:00 p.m. Central time Monday through Friday

DEALERS

For dealer information, selling agreements, wire orders, or redemptions, call
the Distributor at (800) 421-5666

TELECOMMUNICATIONS DEVICE FOR THE DEAF

For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833

FUND INFO(R)

For automated telephone services, call (800) 847-2424

WEB SITE

www.vankampen.com

VAN KAMPEN LIFE INVESTMENT TRUST

1 Parkview Plaza

PO Box 5555

Oakbrook Terrace, IL 60181-5555

Investment Adviser

VAN KAMPEN ASSET MANAGEMENT INC.

1 Parkview Plaza

PO Box 5555

Oakbrook Terrace, IL 60181-5555

Investment Subadviser -- Global Equity and Morgan Stanley

Real Estate Securities Portfolios only

MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.

1221 Avenue of the Americas

New York, NY 10020

Distributor

VAN KAMPEN FUNDS INC.

1 Parkview Plaza

PO Box 5555

Oakbrook Terrace, IL 60181-5555

Transfer Agent

VAN KAMPEN INVESTOR SERVICES INC.

PO Box 418256

Kansas City, MO 64141-9256

Attn: Van Kampen Life Investment Trust

Custodian

STATE STREET BANK AND TRUST COMPANY

225 West Franklin Street, PO Box 1713

Boston, MA 02105-1713

Attn: Van Kampen Life Investment Trust

Legal Counsel

SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)

333 West Wacker Drive

Chicago, IL 60606

Independent Accountants

PRICEWATERHOUSECOOPERS LLP

200 East Randolph Drive

Chicago, IL 60601

<PAGE> 91

VAN KAMPEN

LIFE INVESTMENT TRUST

PROSPECTUS

APRIL , 1999

A Statement of Additional Information, which
contains more details about the Portfolios, is
incorporated by reference in its entirety into
this prospectus.

You will find additional information about the
Portfolios in their annual and semiannual
reports, which explain the market conditions
and investment strategies affecting the
Portfolios' recent performance.

You can ask questions or obtain a free copy of
the Portfolios' reports or the Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833. A free copy of the
Portfolios' reports can also be ordered from
our web site at www.vankampen.com.

Information about the Portfolios, including
their reports and Statement of Additional
Information, has been filed with the
Securities and Exchange Commission (SEC). It
can be reviewed and copied at the SEC Public
Reference Room in Washington, DC or online at
the SEC's web site (http://www.sec.gov). For
more information, please call the SEC at (800)
SEC-0330. You can also request these materials
by writing the Public Reference Section of the
SEC, Washington DC, 20549-6009, and paying a
duplication fee.

[VAN KAMPEN FUNDS LOGO]

Investment Company Act File No.
811-4424.
LIT PRO 4/99

<PAGE> 92

The information in this statement of additional information is not complete and
may be changed. The Fund may not sell these securities until the post-effective
amendment to the registration statement filed with the Securities and Exchange
Commission is effective. This statement of additional information is not a
prospectus. This statement of additional information is not an offer to sell
these securities and is not soliciting an offer to buy these securities.

SUBJECT TO COMPLETION -- DATED MARCH 1, 1999

STATEMENT OF ADDITIONAL INFORMATION

VAN KAMPEN LIFE INVESTMENT TRUST

Van Kampen Life Investment Trust (the "Trust") is an open-end management
investment company with eleven Portfolios (the "Portfolios"): Asset Allocation
Portfolio (formerly Multiple Strategy Fund), Comstock Portfolio, Domestic Income
Portfolio (formerly Domestic Strategic Income Fund), Emerging Growth Portfolio
(formerly Emerging Growth Fund), Enterprise Portfolio (formerly Common Stock
Fund), Global Equity Portfolio (formerly Global Equity Fund), Government
Portfolio (formerly Government Fund), Growth and Income Portfolio (formerly
Growth and Income Fund), Money Market Portfolio (formerly Money Market Fund),
Morgan Stanley Real Estate Securities Portfolio (formerly Real Estate Securities
Portfolio) and Strategic Stock Portfolio. Each Portfolio is in effect a separate
diversified mutual fund issuing its own shares.

This Statement of Additional Information is not a Prospectus. This
Statement of Additional Information should be read in conjunction with the
Trust's applicable prospectus (the "Prospectus") dated as of the same date as
this Statement of Additional Information. This Statement of Additional
Information does not include all the information a prospective investor should
consider before purchasing shares of the Trust. Investors should obtain and read
a Prospectus containing disclosure with respect to the Portfolio in which the
investor wishes to invest prior to purchasing shares of such Portfolio. A
Prospectus may be obtained without charge by writing or calling Van Kampen Funds
Inc. (the "Distributor") at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace,
Illinois 60181-5555 at (800) 421-5666.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information......................................... B-2
Investment Practices........................................ B-6
Options, Futures Contracts and Options on Futures
Contracts................................................. B-13
Investment Restrictions..................................... B-21
Trustees and Officers....................................... B-37
Investment Advisory Agreements.............................. B-46
Distributor................................................. B-50
Transfer Agent.............................................. B-50
Portfolio Transactions and Brokerage Allocation............. B-50
Portfolio Turnover.......................................... B-53
Determination of Net Asset Value............................ B-53
Purchase and Redemption of Shares........................... B-55
Tax Status.................................................. B-55
Portfolio Performance....................................... B-56
Money Market Portfolio Yield Information.................... B-59
Other Information........................................... B-60
Report of Independent Accountants........................... F-
Financial Statements........................................ F-
Notes to Financial Statements............................... F-
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED APRIL , 1999.

<PAGE> 93

GENERAL INFORMATION

Van Kampen Life Investment Trust, formerly known as Van Kampen American
Capital Life Investment Trust (the "Trust") was originally organized as a
business trust under the laws of the Commonwealth of Massachusetts on June 3,
1985 under the name American Capital Life Investment Trust. As of September 16,
1995, the Trust was reorganized as a business trust under the laws of the State
of Delaware and changed its name. On July 14, 1998, the Trust adopted its
current name.

Van Kampen Asset Management Inc. (the "Adviser"), Van Kampen Funds Inc.
(the "Distributor"), and Van Kampen Investor Services Inc. ("Investor Services")
are wholly owned subsidiaries of Van Kampen Investments Inc. ("Van Kampen
Investments"), which is an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co. The principal office of the Fund, the Adviser, the Distributor
and Van Kampen Investments is located at 1 Parkview Plaza, PO Box 5555, Oakbrook
Terrace, Illinois 60181-5555.

Morgan Stanley Dean Witter & Co. and various of its directly or indirectly
owned subsidiaries, including Morgan Stanley Dean Witter Investment Management
Inc., an investment adviser (the "Subadviser"), Morgan Stanley & Co.
Incorporated, a registered broker-dealer and investment adviser, and Morgan
Stanley International, are engaged in a wide range of financial services. Their
principal businesses include securities underwriting, distribution and trading;
merger, acquisition, restructuring and other corporate finance advisory
activities; merchant banking; stock brokerage and research services; credit
services; asset management; trading of futures, options, foreign exchange,
commodities and swaps (involving foreign exchange, commodities, indices and
interest rates); real estate advice, financing and investing; and global
custody, securities clearance services and securities lending.

The authorized capitalization of the Trust consists of an unlimited number
of shares of beneficial interest, par value $0.01 per share, which can be
divided into series, such as the Portfolios. Each share represents an equal
proportionate interest in the assets of the series with each other share in such
series and no interest in any other series. No series is subject to the
liabilities of any other series. The Declaration of Trust provides that
shareholders are not liable for any liabilities of the Trust or any of its
series, requires inclusion of a clause to that effect in every agreement entered
into by the Trust or any of its series and indemnifies shareholders against any
such liability.

Shares of the Trust entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series. For example, a change in investment policy for a series would be voted
upon by shareholders of only the series involved. Except as otherwise described
in the Prospectus or herein, shares do not have cumulative voting rights,
preemptive rights or any conversion, subscription or exchange rights. The Trust
does not contemplate holding regular meetings of shareholders to elect Trustees
or otherwise. However, the holders of 10% or more of the outstanding shares may
by written request require a meeting to consider the removal of Trustees by a
vote of two-thirds of the shares then outstanding cast in person or by proxy at
such meeting. The Trust will assist such holders in communicating with other
shareholders of the Trust to the extent required by the Investment Company Act
of 1940, as amended (the "1940 Act"), or rules or regulations promulgated by the
Securities and Exchange Commission ("SEC").

The Trustees may amend the Declaration of Trust (including with respect to
any series) in any manner without shareholder approval, except that the Trustees
may not adopt any amendment adversely affecting the rights of shareholders of
any series without approval by a majority of the shares of each affected series
present at a meeting of shareholders (or such higher vote as may be required by
the 1940 Act or other applicable law) and except that the Trustees cannot amend
the Declaration of Trust to impose any liability on shareholders, make any
assessment on shares or impose liabilities on the Trustees without approval from
each affected shareholder or Trustee, as the case may be.

Statements contained in this Statement of Additional Information as to the
contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which
this Statement of Additional Information forms a part, each such statement being
qualified in all respects by such reference.

As of April , 1999, no person was known by the Trust to own beneficially
or to hold of record 5% or more of the outstanding shares of any portfolio
except as set forth below. The Trust offers its shares only to

B-2
<PAGE> 94

separate accounts of various insurance companies. Those separate accounts have
authority to vote shares from which they have not received instructions from the
Contract Owners, but only in the same proportion with respect to "yes" votes,
"no" votes or abstentions as is the case with respect to shares for which
instructions were received.

<TABLE>
<CAPTION>
AMOUNT OF RECORD OWNERSHIP
NAME AND ADDRESS OF OF THE PORTFOLIO PERCENTAGE
RECORD HOLDER AT APRIL , 1999 OWNERSHIP
------------------- -------------------------- ----------
<S> <C> <C>
ASSET ALLOCATION FUND
Nationwide Life Insurance Co. %
Nationwide VL1 -- Separate Account
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance Co.
Nationwide Variable Account -- 3
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
DOMESTIC INCOME PORTFOLIO
American General Life Insurance Co.
Separate Account D
Attn. James A. Totten
P.O. Box 1591
Houston, TX 77251-1591
Nationwide Life Insurance Co.
Nationwide VLI Separate Account
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance Co.
Nationwide Variable Account -- 3
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Van Kampen American Capital
Generations Variable Annuities
c/o American General Life Insurance Co.
P.O. Box 1591
Houston, TX 77251-1591
EMERGING GROWTH PORTFOLIO
Van Kampen American Capital
Generations Variable Annuities
c/o American General Life Insurance Co.
P.O. Box 1591
Houston, TX 77251-1591
Nationwide Life Insurance Co.
Nationwide Variable Account -- 3
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
</TABLE>

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<TABLE>
<CAPTION>
AMOUNT OF RECORD OWNERSHIP
NAME AND ADDRESS OF OF THE PORTFOLIO PERCENTAGE
RECORD HOLDER AT APRIL , 1999 OWNERSHIP
------------------- -------------------------- ----------
<S> <C> <C>
Nationwide Life Insurance Co.
Nationwide VLI Separate Account
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Northbrook Life Insurance Co.
MSDWVA II
3100 Sanders Road Station N4A
Northbrook, IL. 60062-7156
ENTERPRISE PORTFOLIO
American General Life Insurance Co.
Separate Account -- D
Attn. James A. Totten
P.O. Box 1591
Houston, TX 77251-1591
Nationwide Life Insurance Co.
Nationwide Variable Account -- 3
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance Co.
Nationwide VLI Separate Account
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Van Kampen American Capital
Generations Variable Annuities
c/o American General Life Insurance Co.
P.O. Box 1591
Houston, TX 77251-1591
GLOBAL EQUITY PORTFOLIO
Van Kampen Funds Inc.
One Chase Manhattan Plaza
37th Fl.
New York, NY 10005
Nationwide Life Insurance Co.
Nationwide VLI Separate Account
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance Co.
Nationwide Variable Account -- 3
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
</TABLE>

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<PAGE> 96

<TABLE>
<CAPTION>
AMOUNT OF RECORD OWNERSHIP
NAME AND ADDRESS OF OF THE PORTFOLIO PERCENTAGE
RECORD HOLDER AT APRIL , 1999 OWNERSHIP
------------------- -------------------------- ----------
<S> <C> <C>
GOVERNMENT PORTFOLIO
Nationwide Life Insurance Co.
Nationwide VLI Separate Account
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance Co.
Nationwide Variable Account -- 3
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
GROWTH AND INCOME PORTFOLIO
Van Kampen American Capital
Generations Variable Annuities
c/o American General Life Insurance Co.
P.O. Box 1591
Houston, TX 77251-1591
MONEY MARKET PORTFOLIO
American General Life Insurance Co.
Separate Account D
Attn. James A. Totten
P.O. Box 1591
Houston, TX 77251-1591
Nationwide Life Insurance Co.
Nationwide VLI Separate Account
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance Co.
Nationwide Variable Account -- 3
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Van Kampen American Capital
Generations Variable Annuities
c/o American General Life Insurance Co.
P.O. Box 1591
Houston, TX 77251-1591
MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO
Nationwide Life Insurance Co.
Nationwide Variable Account II
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance Co.
NWVA-9
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
</TABLE>

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<PAGE> 97

<TABLE>
<CAPTION>
AMOUNT OF RECORD OWNERSHIP
NAME AND ADDRESS OF OF THE PORTFOLIO PERCENTAGE
RECORD HOLDER AT APRIL , 1999 OWNERSHIP
------------------- -------------------------- ----------
<S> <C> <C>
STRATEGIC STOCK PORTFOLIO
Van Kampen American Capital
Generations Variable Annuities
c/o American General Life Insurance Co.
P.O. Box 1591
Houston, TX 77251-1591
Hartford Life and Annuity Insurance Co.
Separate Account Three
MSDW Select Dimensions
Attn. Carol Lewis
P.O. Box 2999
Hartford, CT 06104-2999
</TABLE>

INVESTMENT PRACTICES

The following disclosures supplement disclosures set forth in the
prospectus and do not, standing alone, present a complete or accurate
explanation of the matters disclosed. Readers must refer also to this caption in
the prospectus for a complete presentation of the matters disclosed below.

FOREIGN SECURITIES

The Portfolios also may purchase foreign securities in the form of American
Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs") or other
securities representing underlying shares of foreign companies. These securities
may not necessarily be denominated in the same currency as the underlying
securities. ADRs are receipts typically issued by an American bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. ADRs are publicly traded on exchanges or over-the-counter in the
United States and are issued through "sponsored" or "unsponsored" arrangement.
In a sponsored ADR arrangement, the foreign issuer assumes the obligation to pay
some or all of the depositary's transaction fees, whereas under an unsponsored
arrangement, the foreign issuer assumes no obligation and the depositary's
transaction fees are paid by the ADR holders. In addition, less information is
available in the United States about an unsponsored ADR than about a sponsored
ADR and the financial information about a company may not be as reliable for an
unsponsored ADR as it is for a sponsored ADR. The Portfolios may invest in ADRs
through both sponsored and unsponsored arrangements. EDRs are receipts issued in
Europe by banks or depositaries which evidence similar ownership arrangement.

DURATION

Duration is a measure of the expected life of a debt security that was
developed as an alternative to the concept of "term to maturity." Duration
incorporates a debt security's yield, coupon interest payments, final maturity
and call features into one measure. Traditionally a debt security's "term to
maturity" has been used as a proxy for the sensitivity of the security's price
to changes in interest rates (which is the "interest rate risk" or "price
volatility" of the security). However, "term to maturity" measures only the time
until a debt security provides its final payment taking no account of the
pattern of the security's payments of interest or principal prior to maturity.
Duration is a measure of the expected life of a debt security on a present value
basis expressed in years. It measures the length of the time interval between
the present and the time when the interest and principal payments are scheduled
(or in the case of a callable bond, expected to be received), weighing them by
the present value of the cash to be received at each future point in time. For
any debt security with interest payments occurring prior to the payment of
principal, duration is always less than maturity, and for zero coupon issues,
duration and term to maturity are equal. In general, the lower the coupon rate
of interest or the longer the maturity, or the lower the yield-to-maturity of a
debt security, the longer its

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duration; conversely, the higher the coupon rate of interest, the shorter the
maturity or the higher the yield-to-maturity of a debt security, the shorter its
duration. There are some situations where even the standard duration calculation
does not properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final maturities of ten or more
years; however, their interest rate exposure corresponds to the frequency of the
coupon reset. Another example where the interest rate exposure is not properly
captured by duration is the case of mortgage pass-through securities. The stated
final maturity of such securities is generally 30 years, but current prepayment
rates are more critical in determining the securities' interest rate exposure.
In these and other similar situations, the Adviser will use more sophisticated
analytical techniques that incorporate the economic life of a security into the
determination of its interest rate exposure.

MORTGAGE-RELATED SECURITIES

The Government Portfolio invests in mortgage-related securities.
Mortgage-related securities may be issued or guaranteed by an agency or
instrumentality of the U.S. government, but not necessarily by the U.S.
government itself. One type of mortgage-related security is a Government
National Mortgage Association ("GNMA") Certificate which is backed as to
principal and interest by the full faith and credit of the U.S. government.
Another type of mortgage-related security is a Federal National Mortgage
Association ("FNMA") Certificate. Principal and interest payments of FNMA
Certificates are guaranteed only by FNMA itself, not by the full faith and
credit of the U.S. government. A third type of mortgage-related security is a
Federal Home Loan Mortgage Association ("FHLMC") Participation Certificate. This
type of security is backed by FHLMC as to payment of principal and interest but,
like a FNMA security, it is not backed by the full faith and credit of the U.S.
government.

GNMA Certificates

Government National Mortgage Association. The Government National Mortgage
Association is a wholly owned corporate instrumentality of the United States
within the U.S. Department of Housing and Urban Development. GNMA's principal
programs involve its guarantees of privately issued securities backed by pools
of mortgages.

Nature of GNMA Certificates. GNMA Certificates are mortgage-backed
securities. The Certificates evidence part ownership of a pool of mortgage
loans. The Certificates which the Fund purchases are of the modified
pass-through type. Modified pass-through Certificates entitle the holder to
receive all interest and principal payments owned on the mortgage pool, net of
fees paid to the GNMA Certificate issuer and GNMA, regardless of whether or not
the mortgagor actually makes the payment.

GNMA Certificates are backed by mortgages and, unlike most bonds, their
principal amount is paid back by the borrower over the length of the loan rather
than in a lump sum at maturity. Principal payments received by the Portfolio
will be reinvested in additional GNMA Certificates or in other permissible
investments.

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

Life of GNMA Certificates. The average life of a GNMA Certificate is
likely to be substantially less than the original maturity of the mortgage pools
underlying the securities. Prepayments of principal by mortgagors and mortgage
foreclosures will result in the return of a portion of principal invested before
the maturity of the mortgages in the pool.

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<PAGE> 99

As prepayment rates of individual mortgage pools will vary widely, it is
not possible to predict accurately the average life of a particular issue of
GNMA Certificates. However, statistics published by the FHA are normally used as
an indicator of the expected average life of GNMA Certificates. These statistics
indicate that the average life of single-family dwelling mortgages with 25-30
year maturities (the type of mortgages backing the vast majority of GNMA
Certificates) is approximately twelve years. For this reason, it is customary
for pricing purposes to consider GNMA Certificates as 30-year mortgage-backed
securities which prepay fully in the twelfth year.

Yield Characteristics of GNMA Certificates. The coupon rate of interest of
GNMA Certificates is lower than the interest rate paid on the VA-guaranteed or
FHA-insured mortgages underlying the Certificates, but only by the amount of the
fees paid to GNMA and the GNMA Certificate issuer.

The coupon rate by itself, however, does not indicate the yield which will
be earned on the Certificates for the following reasons:

1. Certificates are usually issued at a premium or discount, rather than at
par.

2. After issuance, Certificates usually trade in the secondary market at a
premium or discount.

3. Interest is paid monthly rather than semi-annually as is the case for
traditional bonds. Monthly compounding has the effect of raising the
effective yield earned on GNMA Certificates.

4. The actual yield of each GNMA Certificate is influenced by the
prepayment experience of the mortgage pool underlying the Certificate.
If mortgagors prepay their mortgages, the principal returned to
Certificate holders may be reinvested at higher or lower rates.

In quoting yields for GNMA Certificates, the customary practice is to
assume that the Certificates will have a twelve-year life. Compared on this
basis, GNMA Certificates have historically yielded roughly 1/4 of 1.00% more
than high grade corporate bonds and 1/2 of 1.00% more than U.S. government and
U.S. government agency bonds. As the life of individual pools may vary widely,
however, the actual yield earned on any issue of GNMA Certificates may differ
significantly from the yield estimated on the assumption of a twelve-year life.

Market for GNMA Certificates. Since the inception of the GNMA
mortgage-backed securities program in 1970, the amount of GNMA Certificates
outstanding has grown rapidly. The size of the market and the active
participation in the secondary market by securities dealers and many types of
investors make GNMA Certificates highly liquid instruments. Quotes for GNMA
Certificates are readily available from securities dealers and depend on, among
other things, the level of market rates, the Certificate's coupon rate and the
prepayment experience of the pool of mortgages backing each Certificate.

FNMA Securities

The Federal National Mortgage Association ("FNMA") was established in 1938
to create a secondary market in mortgages insured by the FHA. FNMA issues
guaranteed mortgage pass-through certificates ("FNMA Certificates"). FNMA
Certificates resemble GNMA Certificates in that each FNMA Certificate represents
a pro rata share of all principal and interest payments made and owed on the
underlying pool. FNMA guarantees timely payment of interest and principal on
FNMA Certificates. The FNMA guarantee is not backed by the full faith and credit
of the United States.

FHLMC Securities

The Federal Home Loan Mortgage Corporation ("FHLMC") was created in 1970 to
promote development of a nationwide secondary market in conventional residential
mortgages. The FHLMC issues two types of mortgage pass-through securities
("FHLMC Certificates"): mortgage participation certificates ("PCs") and
guaranteed mortgage certificates ("GMCs"). PCs resemble GNMA Certificates in
that each

B-8
<PAGE> 100

PC represents a pro rata share of all interest and principal payments made and
owed on the underlying pool. The FHLMC guarantees timely monthly payment of
interest on PCs and the ultimate payment of principal. GMCs also represent a pro
rata interest in a pool of mortgages. However, these instruments pay interest
semi-annually and return principal once a year in guaranteed minimum payments.
The expected average life of these securities is approximately ten years. The
FHLMC guarantee is not backed by the full faith and credit of the United States.

COLLATERALIZED MORTGAGE OBLIGATIONS

The Government Portfolio may invest in collateralized mortgage obligations.
Collateralized mortgage obligations are debt obligations issued generally by
agencies or instrumentalities of the U.S. Government, or by private originators
of, or investors in, mortgages which are secured by mortgage-related securities,
including GNMA Certificates, FHLMC Certificates and FNMA Certificates, together
with certain funds and other collateral. Scheduled distributions on the
mortgage-related securities pledged to secure the collateralized mortgage
obligations, together with certain funds and other collateral and reinvestment
income thereon at an assumed reinvestment rate, will be sufficient to make
timely payments of interest on the obligations and to retire the obligations not
later than their stated maturity. Since the rate of payment of principal of any
collateralized mortgage obligation will depend on the rate of payment (including
prepayments) of the principal of the mortgage loans underlying the
mortgage-related securities, the actual maturity of the obligation could occur
significantly earlier than its stated maturity. Collateralized mortgage
obligations may be subject to redemption under certain circumstances. The rate
of interest borne by collateralized mortgage obligations may be either fixed or
floating. In addition, certain collateralized mortgage obligations do not bear
interest and are sold at a substantial discount (i.e., a price less than the
principal amount). Purchases of collateralized mortgage obligations at a
substantial discount involves a risk that the anticipated yield on the purchase
may not be realized if the underlying mortgage loans prepay at a slower than
anticipated rate, since the yield depends significantly on the rate of
prepayment of the underlying mortgages. Conversely, purchases of collateralized
mortgage obligations at a premium involve additional risk of loss of principal
in the event of unanticipated prepayments of the mortgage loans underlying the
mortgage-related securities since the premium may not have been fully amortized
at the time the obligation is repaid. The market value of collateralized
mortgage obligations purchased at a substantial premium of discount is extremely
volatile and the effects of prepayments on the underlying mortgage loans may
increase such volatility.

Although payment of the principal and interest on the mortgage-backed
certificates pledged to secure collateralized mortgage obligations may be
guaranteed by GNMA, FHLMC or FNMA, the collateralized mortgage obligations
represent obligations solely of their issuers and generally are not insured or
guaranteed by GNMA, FHLMC, FNMA or any other governmental agency or
instrumentality, or by any other person or entity. The issuers of collateralized
mortgage obligations typically have no significant assets other than those
pledged as collateral for the obligations.

LENDING OF SECURITIES

Consistent with applicable regulatory requirements and applicable
investment restrictions, certain Portfolios may lend portfolio securities to
broker-dealers and other financial institutions provided that such loans are
callable at any time by the Portfolio, and are at all times secured by cash
collateral that is at least equal to the market value, determined daily, of the
loaned securities. The advantage of such loans is that the Portfolio continues
to receive the interest on the loaned securities, while at the same time earning
interest on the collateral which will be invested in short-term obligations. The
Portfolio pays lending fees and custodial fees in connection with loans of its
securities. There is no assurance as to the extent to which securities loans can
be effected.

A loan may be terminated by the borrower on one business day's notice, or
by the Portfolio at any time. If the borrower fails to maintain the requisite
amount of collateral, the loan automatically terminates, and the Portfolio could
use the collateral to replace the securities while holding the borrower liable
for any excess of

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<PAGE> 101

replacement cost over collateral. As with any extensions of credit, there are
risks of delay in recovery and in some cases even loss of rights in the
collateral should the borrower of the securities fail financially. However,
these loans of portfolio securities will only be made to firms deemed by the
Adviser to be creditworthy and when the consideration which can be earned from
such loans is believed to justify the attendant risks. The Portfolio would not
lend any portfolio securities to brokers affiliated with the Adviser. On
termination of the loan, the borrower is required to return the securities to
the Portfolio; any gain or loss in the market price during the loan would inure
to the Portfolio.

When voting or consent rights which accompany loaned securities pass to the
borrower, the Portfolio will follow the policy of calling the loan, whole or in
part as may be appropriate, to permit the exercise of such rights if the matters
involved would have a material effect on the Portfolio's investment in the
securities which are the subject of the loan.

FORWARD COMMITMENTS

Each of the Government Portfolio, Domestic Income Portfolio and Morgan
Stanley Real Estate Securities Portfolio may purchase or sell securities on a
"when-issued" or "delayed-delivery" basis ("Forward Commitments"). These
transactions occur when securities are purchased or sold by the Portfolio with
payment and delivery taking place in the future, frequently a month or more
after such transaction. The price is fixed on the date of the commitment, and
the seller continues to accrue interest on the securities covered by the Forward
Commitment until delivery and payment takes place. At the time of settlement,
the market value of the securities may be more or less than the purchase or sale
price. The Portfolio may either settle a Forward Commitment by taking delivery
of the securities or may either resell or repurchase a Forward Commitment on or
before the settlement date in which event the Portfolio may reinvest the
proceeds in another Forward Commitment.

Relative to a Forward Commitment purchase, the Portfolio maintains a
segregated account (which is marked-to-market daily) of cash or liquid
securities (which may have maturities which are longer than the term of the
Forward Commitment) with the Portfolio's custodian in an aggregate amount equal
to the amount of its commitment as long as the obligation to purchase continues.
Since the market value of both the securities subject to the Forward Commitment
and the securities held in the segregated account may fluctuate, the use of
Forward Commitments may magnify the impact of interest rate changes on the
Portfolio's net asset value.

A Forward Commitment sale is covered if the Portfolio owns or has the right
to acquire the underlying securities subject to the Forward Commitment. A
Forward Commitment sale is for cross-hedging purposes if it is not covered, but
is designed to provide a hedge against a decline in value of a security or
currency which the Portfolio owns or has the right to acquire. Only the
Government Portfolio and the Real Estate Securities Portfolio may engage in
forward commitment transactions for cross-hedging purposes. In either
circumstance, the Portfolio maintains in a segregated account (which is marked
to market daily) either the security covered by the Forward Commitment or cash
or liquid securities with the Portfolio's custodian in an aggregate amount equal
to the amount of its commitment as long as the obligation to sell continues. By
entering into a Forward Commitment sale transaction, the Portfolio foregoes or
reduces the potential for both gain and loss in the security which is being
hedged by the Forward Commitment sale.

When engaging in Forward Commitments, the Fund relies on the other party to
complete the transaction. Should the other party fail to do so, the Fund might
lose a purchase or sale opportunity that could be more advantageous than
alternative opportunities at the time of the failure. Forward Commitments are
not traded on an exchange and thus may be less liquid than exchange traded
contracts.

INTEREST RATE TRANSACTIONS

The Government Portfolio may enter into interest rate swaps and may
purchase or sell interest rate caps, floors and collars. The Portfolio expects
to enter into these transactions primarily to preserve a return or spread

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<PAGE> 102

on a particular investment or portion of its portfolio. The Portfolio may also
enter into these transactions to protect against any increase in the price of
securities the Portfolio anticipates purchasing at a later date. The Portfolio
does not intend to use these transactions as speculative investments and will
not enter into interest rate swaps or sell interest rate caps or floors where it
does not own or have the right to acquire the underlying securities or other
instruments providing the income stream the Portfolio may be obligated to pay.
Interest rate swaps involve the exchange by the Portfolio with another party of
their respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed-rate payments. The purchase of an interest rate
cap entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments of interest on a
contractually-based principal amount from the party selling the interest rate
cap. The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index falls below a predetermined interest rate, to
receive payments of interest on a contractually-based principal amount from the
party selling the interest rate floor. An interest rate collar combines the
elements of purchasing a cap and selling a floor. The collar protects against an
interest rate rise above the maximum amount but foregoes the benefit of an
interest rate decline below the minimum amount. Interest rate swaps, caps,
floors and collars will be treated as illiquid securities and will, therefore,
be subject to the Portfolio's investment restriction limiting investment in
illiquid securities.

The Portfolio may enter into interest rate swaps, caps, floors and collars
on either an asset-based or liability-based basis, and will usually enter into
interest rate swaps on a net basis, i.e., the two payment streams are netted
out, with the Portfolio receiving or paying, as the case may be, only the net
amount of the two payments. The net amount of the excess, if any, of the
Portfolio's obligations over its entitlements with respect to each interest rate
swap will be accrued on a daily basis and an amount of cash or liquid securities
having an aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by the Portfolio's custodian. If the
Portfolio enters into an interest rate swap on other than a net basis, the
Portfolio would maintain a segregated account in the full amount accrued on a
daily basis of the Portfolio's obligations with respect to the swap. Interest
rate transactions do not constitute senior securities under the 1940 Act when
the Portfolio segregates assets to cover the obligations under the transactions.
The Portfolio will enter into interest rate swap, cap or floor transactions only
with counterparties approved by the Trustees. The Adviser will monitor the
creditworthiness of counterparties to its interest rate swap, cap, floor and
collar transactions on an ongoing basis. If there is a default by the other
party to such a transaction, the Portfolio will have contractual remedies
pursuant to the agreements related to the transaction. To the extent the
Portfolio sells (i.e., writes) caps, floors and collars, it will maintain in a
segregated account cash or liquid securities having an aggregate net asset value
at least equal to the full amount, accrued on a daily basis, of the Portfolio's
net obligations with respect to the caps, floors or collars. The use of interest
rate swaps is a highly specialized activity which involves investment techniques
and risks different from those associated with ordinary portfolio securities
transactions. If the Adviser is incorrect in its forecasts of the market values,
interest rates and other applicable factors, the investment performance of the
Portfolio would diminish compared with what it would have been if these
investment techniques were not used. The use of interest rate swaps, caps,
collars and floors may also have the effect of shifting the recognition of
income between current and future periods.

These transactions do not involve the delivery of securities or other
underlying assets or principal. Accordingly, the risk of loss with respect to
interest rate swaps is limited to the net amount of interest payments that the
Portfolio is contractually obligated to make. If the other party to an interest
rate swap defaults, the Portfolio's risk of loss consists of the net amount of
interest payments that the Portfolio contractually is entitled to receive.

PORTFOLIO TURNOVER

A Portfolio's turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for a fiscal year by the average
monthly value of the Portfolio's portfolio securities during such fiscal year.
The turnover rate may vary greatly from year to year as well as within a year. A
Portfolio's portfolio turnover rate (the lesser of the value of the securities
purchased or securities sold divided by the average value of the securities held
in the Portfolio's portfolio excluding all securities whose maturities at
acquisition were one year or less) is shown in the table of "Financial
Highlights" in the Prospectus. A high portfolio turnover rate (100%

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<PAGE> 103

or more) increases the Portfolio's transaction costs, including brokerage
commissions, and may result in the realization of more short-term capital gains
than if the Portfolio had a lower portfolio turnover. The turnover rate will not
be a limiting factor, however, if the Adviser deems portfolio changes
appropriate.

ILLIQUID SECURITIES

Each Portfolio, subject to its investment restrictions, may invest a
portion of its assets in illiquid securities, which includes securities that are
not readily marketable, repurchase agreements which have a maturity of longer
than seven days and generally includes securities that are restricted from sale
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"). Restricted securities are often purchased at a discount from
the market price of unrestricted securities of the same issuer reflecting the
fact that such securities may not be readily marketable without some time delay.
Investments in securities which have no ready market are valued at fair value as
determined in good faith by the Adviser in accordance with procedures approved
by the Portfolio's Trustees. Ordinarily, the Portfolio would invest in
restricted securities only when it receives the issuer's commitment to register
the securities without expense to the Portfolio. However, registration and
underwriting expenses (which may range from 7% to 15% of the gross proceeds of
the securities sold) may be paid by the Portfolio. Restricted securities which
can be offered and sold to qualified institutional buyers under Rule 144A under
the 1933 Act ("144A Securities") and are determined to be liquid under
guidelines adopted by and subject to the supervision of the Portfolio's Board of
Trustees are not subject to the limitation on illiquid securities. Such 144A
Securities are subject to monitoring and may become illiquid to the extent
qualified institutional buyers become, for a time, uninterested in purchasing
such securities. Factors used to determine whether 144A Securities are liquid
include, among other things, a security's trading history, the availability of
reliable pricing information, the number of dealers making quotes or making a
market in such security and the number of potential purchasers in the market for
such security. For purposes hereof, investments by the Portfolio in securities
of other investment companies will not be considered investments in restricted
securities to the extent permitted by (i) the 1940 Act, as amended from time to
time, (ii) the rules and regulations promulgated by the SEC under the 1940 Act,
as amended from time to time, or (iii) an exemption or other relief from the
provisions of the 1940 Act.

MONEY MARKET PORTFOLIO

The Money Market Portfolio seeks to maintain a net asset value of $1.00 per
share for purchases and redemptions. To do so, the Portfolio uses the amortized
cost method of valuing the Portfolio's securities pursuant to Rule 2a-7 under
the 1940 Act, certain requirements of which are summarized below.

In accordance with Rule 2a-7, the Portfolio is required to maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase only
instruments having remaining maturities of thirteen months or less and invest
only in U.S. dollar denominated securities determined in accordance with
procedures established by the Trustees to present minimal credit risks and which
are rated in one of the two highest rating categories for debt obligations by at
least two nationally recognized statistical rating organizations (or one rating
organization if the instrument was rated by only one such organization) or, if
unrated, are of comparable quality as determined in accordance with procedures
established by the Trustees. The nationally recognized statistical rating
organizations currently rating instruments of the type the Portfolio may
purchase are Moody's Investors Service, Inc., Standard & Poor's, Fitch Investors
Services, Inc., Duff and Phelps, Inc. and IBCA Limited and IBCA Inc.

In addition, the Portfolio will not invest more than 5% of its total assets
in the securities (including the securities collateralizing a repurchase
agreement) of, or subject to puts issued by, a single issuer, except that (i)
the Portfolio may invest more than 5% of its total assets in a single issuer for
a period of up to three business days in certain limited circumstances, (ii) the
Portfolio may invest in obligations issued or guaranteed by the U.S. government
without any such limitation, and (iii) the limitation with respect to puts does
not apply to unconditional puts if no more than 10% of the Portfolio's total
assets is invested in securities issued or guaranteed by the issuer of the
unconditional put. Investments in rated securities not rated in the

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highest category by at least two rating organizations (or one rating
organization if the instrument was rated by only one such organization), and
unrated securities not determined by the Trustees to be comparable to those
rated in the highest category, will be limited to 5% of the Portfolio's total
assets, with the investment in any one such issuer being limited to no more than
the greater of one percent of the Portfolio's total assets or $1,000,000. As to
each security, these percentages are measured at the time the Portfolio
purchases the security. There can be no assurance that the Portfolio will be
able to maintain a stable net asset value of $1.00 per share.

STRATEGIC STOCK PORTFOLIO

The Strategic Stock Portfolio invests primarily in dividend paying equity
securities of companies included in the DJIA or in the MSCI USA Index. In
selecting securities for the Portfolio, the Adviser presently intends to follow
the following procedures, subject to and limited by the Portfolio's other
investment policies and restrictions.

The Portfolio will reflect on its books twelve separate sub-accounts (each
a "Strategic Sub-Account"). Strategic Sub-Accounts will be successively
designated Strategic Sub-Account 1 through Strategic Sub-Account 12.

As of the close of business on (i) the business day immediately prior to
the Portfolio's commencement of investment operations and (ii) the last business
day of each month thereafter (each a "Strategic Determination Date"), the
Adviser will identify 20 securities pursuant to the Strategic Selection Policies
discussed in the Prospectus (the "Current Period Strategic Securities").

As of commencement of investment operations, the Portfolio will invest the
assets of Strategic Sub-Account 1 approximately equally in each of the Current
Period Strategic Securities determined on the first Strategic Determination
Date. This will result in approximately 5% of the Portfolio's assets being
invested in each of the initial Current Period Strategic Securities. On each of
the eleven subsequent Strategic Determination Dates, the Adviser will invest the
cash available for investment due to the sale of new shares and the receipt of
dividend and interest income in the next successive Strategic Sub-Account
approximately equally in each of the Current Period Strategic Securities for
that Strategic Determination Date. Following the twelfth Strategic Determination
Date the assets of one Strategic Sub-Account will be evaluated and adjusted each
month so that the assets of each Strategic Sub-Account will be reviewed and
adjusted once every 12 months.

Consistent with the Portfolio's investment objective, the Adviser may
modify these procedures without prior notice to investors to adjust the
frequency of portfolio review and adjustment and to adjust the portion of the
Portfolio's assets that is reviewed and adjusted during each period.

The following disclosures supplement disclosures set forth in the
Prospectus. Readers must refer also to the Prospectus for a complete
presentation.

OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

All of the Portfolios except the Domestic Income Portfolio and the Money
Market Portfolio may engage in transactions in options, futures contracts and
options on futures contracts. Set forth below is certain additional information
regarding options, futures contracts and options on futures contracts. See the
Prospectus for further information.

WRITING CALL AND PUT OPTIONS

Purpose. Options may be utilized to hedge various market or to obtain,
through receipt of premiums, a greater current return than would be realized on
the underlying securities alone. The Portfolio's current return can be expected
to fluctuate because premiums earned from an option writing program and dividend
or

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interest income yields on portfolio securities vary as economic and market
conditions change. Writing options on portfolio securities also is likely to
result in a higher portfolio turnover.

Writing Options. The purchaser of a call option pays a premium to the
writer (i.e., the seller) for the right to buy the underlying security from the
writer at a specified price during a certain period. Each Portfolio writes call
options only on a covered basis and only the Government Portfolio and Comstock
Portfolio write call options either on a covered basis or for cross-hedging
purposes. A call option is covered if at all times during the option period the
Portfolio owns or has the right to acquire securities of the type that it would
be obligated to deliver if any outstanding option were exercised. Thus, the
Government Portfolio may write options on mortgage-related or other U.S.
Government securities or forward commitments of such securities. An option is
for cross-hedging purposes if it is not covered, but is designed to provide a
hedge against a security which a Portfolio owns or has the right to acquire. In
such circumstances, a Portfolio collateralizes the option by maintaining in a
segregated account with a Portfolio's custodian, cash or liquid securities in an
amount not less than the market value of the underlying security, marked to
market daily, while the option is outstanding.

The purchaser of a put option pays a premium to the writer (i.e., the
seller) for the right to sell the underlying security to the writer at a
specified price during a certain period. A Portfolio would write put options
only on a secured basis, which means that, at all times during the option
period, the Portfolio would maintain in a segregated account with its custodian
cash or liquid securities in an amount of not less than the exercise price of
the option, or would hold a put on the same underlying security at an equal or
greater exercise price.

Closing Purchase Transactions and Offsetting Transactions. In order to
terminate its position as a writer of a call or put option, a Portfolio could
enter into a "closing purchase transaction," which is the purchase of a call
(put) on the same underlying security and having the same exercise price and
expiration date as the call (put) previously written by the Portfolio. The
Portfolio would realize a gain (loss) if the premium plus commission paid in the
closing purchase transaction is less (greater) than the premium it received on
the sale of the option. A Portfolio would also realize a gain if an option it
has written lapses unexercised.

A Portfolio could write options that are listed on an exchange as well as
options which are privately negotiated in over-the-counter transactions. A
Portfolio could close out its position as writer of an option only if a liquid
secondary market exists for options of that series, but there is no assurance
that such a market will exist, particularly in the case of over-the-counter
options, since they can be closed out only with the other party to the
transaction. Alternatively, a Portfolio could purchase an offsetting option,
which would not close out its position as a writer, but would provide an asset
of equal value to its obligation under the option written. If a Portfolio is not
able to enter into a closing purchase transaction or to purchase an offsetting
option with respect to an option it has written, it will be required to maintain
the securities subject to the call or the collateral underlying the put until a
closing purchase transaction can be entered into (or the option is exercised or
expires), even though it might not be advantageous to do so.

The exercise price of call options may be below ("in-the-money"), equal to
("at-the-money"), or above ("out-of-the-money") the current market value of the
underlying securities or futures contracts at the time the options are written.
The converse applies to put options.

Risks of Writing Options. By writing a call option, a Portfolio loses the
potential for gain on the underlying security above the exercise price while the
option is outstanding; by writing a put option a Portfolio might become
obligated to purchase the underlying security at an exercise price that exceeds
the then current market price.

PURCHASING CALL AND PUT OPTIONS

A Portfolio could purchase call options to protect (i.e., hedge) against
anticipated increases in the prices of securities it wishes to acquire. In
addition, the Comstock Portfolio, the Emerging Growth Portfolio, the Enterprise
Portfolio, the Growth and Income Portfolio, the Real Estate Securities Portfolio
and the Strategic
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Stock Portfolio may purchase call options for capital appreciation. Since the
premium paid for a call option is typically a small fraction of the price of the
underlying security, a given amount of funds will purchase call options covering
a much larger quantity of such security than could be purchased directly. By
purchasing call options, a Portfolio could benefit from any significant increase
in the price of the underlying security to a greater extent than had it invested
the same amount in the security directly. However, because of the very high
volatility of option premiums, a Portfolio would bear a significant risk of
losing the entire premium if the price of the underlying security did not rise
sufficiently, or if it did not do so before the option expired.

Put options may be purchased to protect (i.e., hedge) against anticipated
declines in the market value of either specific portfolio securities or of a
Portfolio's assets generally. In addition, the Comstock Portfolio, the Emerging
Growth Portfolio, the Enterprise Portfolio, the Growth and Income Portfolio, the
Real Estate Securities Portfolio and the Strategic Stock Portfolio may purchase
put options for capital appreciation in anticipation of a price decline in the
underlying security and a corresponding increase in the value of the put option.
The purchase of put options for capital appreciation involves the same
significant risk of loss as described above for call options.

In any case, the purchase of options for capital appreciation would
increase a Portfolio's volatility by increasing the impact of changes in the
market price of the underlying securities on the Portfolio's net asset value.

The Government Portfolio will not purchase call or put options on
securities if as a result, more than ten percent of its net assets would be
invested in premiums on such options.

A Portfolio may purchase either listed or over-the-counter options.

RISK FACTORS APPLICABLE TO OPTIONS ON U.S. GOVERNMENT SECURITIES

Treasury Bonds and Notes. Because trading interest in options written on
Treasury bonds and notes tends to center on the most recently auctioned issues,
the exchanges will not continue indefinitely to introduce options with new
expirations to replace expiring options on particular issues. Instead, the
expirations introduced at the commencement of options trading on a particular
issue will be allowed to run their course, with the possible addition of a
limited number of new expirations as the original ones expire. Options trading
on each issue of bonds or notes will thus be phased out as new options are
listed on more recent issues, and options representing a full range of
expirations will not ordinarily be available for every issue on which options
are traded.

Treasury Bills. Because the deliverable Treasury bill changes from week to
week, writers of Treasury bill calls cannot provide in advance for their
potential exercise settlement obligations by acquiring and holding the
underlying security. However, if the Portfolio holds a long position in Treasury
bills with a principal amount of the securities deliverable upon exercise of the
option, the position may be hedged from a risk standpoint by the writing of a
call option. For so long as the call option is outstanding, the Portfolio will
hold the Treasury bills in a segregated account with its custodian so that it
will be treated as being covered.

Mortgage-Related Securities. The following special considerations will be
applicable to options on mortgage-related securities. Currently such options are
only traded over-the-counter. Since the remaining principal balance of a
mortgage-related security declines each month as a result of mortgage payments,
the Portfolio as a writer of a mortgage-related call holding mortgage-related
securities as "cover" to satisfy its delivery obligation in the event of
exercise may find that the mortgage-related securities it holds no longer have a
sufficient remaining principal balance for this purpose. Should this occur, the
Portfolio will purchase additional mortgage-related securities from the same
pool (if obtainable) or replacement mortgage-related securities in the cash
market in order to maintain its cover. A mortgage-related security held by the
Portfolio to cover an option position in any but the nearest expiration month
may cease to represent cover for the option in the event of a decline in the
coupon rate at which new pools are originated under the FHA/VA loan ceiling in
effect at any given time. If this should occur, the Portfolio will no longer be
covered, and the Portfolio will either enter into a closing purchase transaction
or replace such mortgage-related security with a mortgage-related security which
represents cover. When the Portfolio closes its position or replaces such
mortgage-related security, it may realize an unanticipated loss and incur
transaction costs.
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OPTIONS ON STOCK INDEXES (ASSET ALLOCATION PORTFOLIO, COMSTOCK PORTFOLIO,
EMERGING GROWTH PORTFOLIO, ENTERPRISE PORTFOLIO, GLOBAL EQUITY PORTFOLIO, GROWTH
AND INCOME PORTFOLIO, REAL ESTATE SECURITIES PORTFOLIO AND STRATEGIC STOCK
PORTFOLIO ONLY)

Options on stock indexes are similar to options on stock, but the delivery
requirements are different. Instead of giving the right to take or make delivery
of stock at a specified price, an option on a stock index gives the holder the
right to receive an amount of cash which amount will depend upon the closing
level of the stock index upon which the option is based being greater than (in
the case of a call) or less than (in the case of a put) the exercise price of
the option. The amount of cash received will be the difference between the
closing price of the index and the exercise price of the option, multiplied by a
specified dollar multiple. The writer of the option is obligated, in return for
the premium received, to make delivery of this amount.

Some stock index options are based on a broad market index such as the
Standard & Poor's 500 or the New York Stock Exchange Composite Index, or a
narrower index such as the Standard & Poor's 100. Indices are also based on an
industry or market segment such as the AMEX Oil and Gas Index or the Computer
and Business Equipment Index. A stock index fluctuates with changes in the
market values of the stocks included in the index. Options are currently traded
on The Chicago Board Options Exchange, the American Stock Exchange and other
exchanges.

Gain or loss to a Portfolio on transactions in stock index options will
depend on price movements in the stock market generally (or in a particular
industry or segment of the market) rather than price movements of individual
securities. As with stock options, the Portfolio may offset its position in
stock index options prior to expiration by entering into a closing transaction
on an exchange, or it may let the option expire unexercised.

FOREIGN CURRENCY OPTIONS

Certain Portfolios may purchase put and call options on foreign currencies
to reduce the risk of currency exchange fluctuation. Premiums paid for such put
and call options will be limited to no more than five percent of the Portfolio's
net assets at any given time. Options on foreign currencies operate similarly to
options on securities, and are traded primarily in the over-the-counter market,
although options on foreign currencies are traded on United States and foreign
exchanges. Exchange-traded options are expected to be purchased by the Portfolio
from time to time and over-the-counter options may also be purchased, but only
when the Adviser believes that a liquid secondary market exists for such
options, although there can be no assurance that a liquid secondary market will
exist for a particular option at any specific time. Options on foreign
currencies are affected by all of those factors which influence foreign exchange
rates and investment generally. See "Investment Practices -- Using Options,
Futures Contracts and Options on Futures Contracts" in the Prospectus.

The value of a foreign currency option is dependent upon the value of the
underlying foreign currency relative to the U.S. dollar. As a result, the price
of the option position may vary with changes in the value of either or both
currencies and has no relationship to the investment merits of a foreign
security. Because foreign currency transactions occurring in the interbank
market (conducted directly between currency traders, usually large commercial
banks, and their customers) involve substantially larger amounts than those that
may be involved in the use of foreign currency options, investors may be
disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.

There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Quotation information available is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (i.e., less than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a global, around-the-clock market. To
the extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open,

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significant price and rate movements may take place in the underlying markets
that cannot be reflected in the options markets.

FUTURES CONTRACTS

Certain Portfolios may engage in transactions involving futures contracts
and related options in accordance with rules and interpretations of the
Commodity Futures Trading Commission ("CFTC") under which the Trust and its
Portfolios would be exempt from registration as a "commodity pool."

Types of Contracts. An interest rate futures contract is an agreement
pursuant to which a party agrees to take or make delivery of a specified debt
security (such as U.S. Treasury bonds, U.S. Treasury notes, U.S. Treasury bills
and GNMA Certificates) at a specified future time and at a specified price.
Interest rate futures contracts also include cash settlement contracts based
upon a specified interest rate such as the London interbank offering rate for
dollar deposits, LIBOR.

A stock index futures contract is an agreement pursuant to which a party
agrees to take or make delivery of cash equal to a specified dollar amount times
the difference between the stock index value at a specified time and the price
at which the futures contract is originally struck. No physical delivery of the
underlying stocks in the index is made. Currently, stock index futures contracts
can be purchased with respect to the Standard & Poor's 500 Stock Index on the
Chicago Mercantile Exchange ("CME"), the New York Stock Exchange Composite Index
on the New York Futures Exchange and the Value Line Stock Index on the Kansas
City Board of Trade. Differences in the stocks included in the indexes may
result in differences in correlation of the futures contracts with movements in
the value of the securities being hedged.

A Portfolio also may invest in foreign stock index futures traded outside
the United States. Such foreign stock index futures traded outside the United
States include the Nikkei Index of 225 Japanese stocks traded on the Singapore
International Monetary Exchange ("Nikkei Index"), Osaka Index of 50 Japanese
stocks traded on the Osaka Exchange, Financial Times Stock Exchange Index of the
100 largest stocks on the London Stock Exchange, the All Ordinaries Share Price
Index of 307 stocks on the Sydney, Melbourne Exchanges, Hang Seng Index of 33
stocks on the Hong Kong Stock Exchange, Barclays Share Price Index of 40 stocks
on the New Zealand Stock Exchange and Toronto Index of 35 stocks on the Toronto
Stock Exchange. Futures and futures options on the Nikkei Index are traded on
the Chicago Mercantile Exchange and United States commodity exchanges may
develop futures and futures options on other indices of foreign securities.
Futures and options on United States devised index of foreign stocks are also
being developed. Investments in securities of foreign entities and securities
denominated in foreign currencies involve risks not typically involved in
domestic investment, including fluctuations in foreign exchange rates, future
foreign political and economic developments, and the possible imposition of
exchange controls or other foreign or United States governmental laws or
restrictions applicable to such investments.

Initial and Variation Margin. In contrast to the purchase or sale of a
security, no price is paid or received upon the purchase or sale of a futures
contract. Initially, a Portfolio is required to deposit with its custodian in an
account in the broker's name an amount of cash or liquid securities equal to a
percentage (which will normally range between 2% and 10%) of the contract
amount. This amount is known as initial margin. The nature of initial margin in
futures transactions is different from that of margin in securities transactions
in that futures contract margin does not involve the borrowing of funds by the
customer to finance the transaction. Rather, the initial margin is in the nature
of a performance bond or good faith deposit on the contract, which is returned
to the Portfolio upon termination of the futures contract and satisfaction of
its contractual obligations. Subsequent payments to and from the broker, called
variation margin, are made on a daily basis as the price of the underlying
securities or index fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as marking to market.

For example, when a Portfolio purchases a futures contract and the price of
the underlying security or index rises, that position increases in value, and
the Portfolio receives from the broker a variation margin payment equal to that
increase in value. Conversely, where the Portfolio purchases a futures contract
and the

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value of the underlying security or index declines, the position is less
valuable, and the Portfolio is required to make a variation margin payment to
the broker.

At any time prior to expiration of the futures contract, the Portfolio may
elect to terminate the position by taking an opposite position. A final
determination of variation margin is then made, additional cash is required to
be paid by or released to the Portfolio, and the Portfolio realizes a loss or a
gain.

Futures Strategies. When a Portfolio anticipates a significant market or
market sector advance, the purchase of a futures contract affords a hedge
against not participating in the advance at a time when the Portfolio is
otherwise fully invested ("anticipatory hedge"). Such purchase of a futures
contract serves as a temporary substitute for the purchase of individual
securities, which may be purchased in an orderly fashion once the market has
stabilized. As individual securities are purchased, an equivalent amount of
futures contracts could be terminated by offsetting sales. A Portfolio may sell
futures contracts in anticipation of or in a general market or market sector
decline that may adversely affect the market value of the Portfolio's securities
("defensive hedge"). To the extent that the Portfolio's portfolio of securities
changes in value in correlation with the underlying security or index, the sale
of futures contracts substantially reduces the risk to a Portfolio of a market
decline and, by so doing, provides an alternative to the liquidation of
securities positions in the Portfolio with attendant transaction costs.
Ordinarily commissions on futures transactions are lower than transaction costs
incurred in the purchase and sale of securities.

In the event of the bankruptcy of a broker through which a Portfolio
engages in transactions in options, futures or related options, the Portfolio
could experience delays or losses in liquidating open positions purchased or
incur a loss of all or part of its margin deposits with the broker. Transactions
are entered into by a Portfolio only with brokers or financial institutions
deemed creditworthy by the Adviser.

Special Risks Associated with Futures Transactions. There are several risks
connected with the use of futures contracts as a hedging device. These include
the risk of imperfect correlation between movements in the price of the futures
contracts and of the underlying securities, the risk of market distortion, the
illiquidity risk and the risk of error in anticipating price movement.

There may be an imperfect correlation (or no correlation) between movements
in the price of the futures contracts and of the securities being hedged. The
risk of imperfect correlation increases as the composition of the securities
being hedged diverges from the securities upon which the futures contract is
based. If the price of the futures contract moves less than the price of the
securities being hedged, the hedge will not be fully effective. To compensate
for this imperfect correlation, a Portfolio could buy or sell futures contracts
in a greater dollar amount than the dollar amount of securities being hedged if
the historical volatility of the securities being hedged is greater than the
historical volatility of the securities underlying the futures contract.
Conversely, a Portfolio could buy or sell futures contracts in a lesser dollar
amount than the dollar amount of the securities being hedged if the historical
volatility of the securities being hedged is less than the historical volatility
of the securities underlying the futures contract. It is also possible that the
value of futures contracts held by a Portfolio could decline at the same time as
portfolio securities being hedged; if this occurred, the Portfolio would lose
money on the futures contract in addition to suffering a decline in value in the
portfolio securities being hedged.

There is also the risk that the price of futures contracts may not
correlate perfectly with movements in the securities, currency or index
underlying the futures contract due to certain market distortions. First, all
participants in the futures market are subject to margin depository and
maintenance requirements. Rather than meet additional margin depositary
requirements, investors may close futures contracts through offsetting
transactions, which could distort the normal relationship between the futures
market and the securities or index underlying the futures contract. Second, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities markets. Therefore,
increased participation by speculators in the futures markets may cause
temporary price distortions. Due to the possibility of price distortion in the
futures markets and because of the imperfect correlation between movements in
futures contracts and movements in the securities underlying them, a correct
forecast of general

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market trends by the Adviser may still not result in a successful hedging
transaction judged over a very short time frame.

There is also the risk that futures markets may not be sufficiently liquid.
Futures contracts may be closed out only on an exchange or board of trade that
provides a market for such futures contracts. Although a Portfolio intends to
purchase or sell futures only on exchanges and boards of trade where there
appears to be an active secondary market, there can be no assurance that an
active secondary market will exist for any particular contract or at any
particular time. In the event of such illiquidity, it might not be possible to
close a futures position and, in the event of adverse price movement, a
Portfolio would continue to be required to make daily payments of variation
margin. Since the securities being hedged would not be sold until the related
futures contract is sold, an increase, if any, in the price of the securities
may to some extent offset losses on the related futures contract. In such event,
the Portfolio would lose the benefit of the appreciation in value of the
securities.

Successful use of futures is also subject to the Advisers' ability
correctly to predict the direction of movements in the market. For example, if
the Portfolio hedges against a decline in the market, and market prices instead
advance, the Portfolio will lose part or all of the benefit of the increase in
value of its securities holdings because it will have offsetting losses in
futures contracts. In such cases, if the Portfolio has insufficient cash, it may
have to sell portfolio securities at a time when it is disadvantageous to do so
in order to meet the daily variation margin.

Although the Portfolio intends to enter into futures contracts only if
there is an active market for such contracts, there is no assurance that an
active market will exist for the contracts at any particular time. Most U.S.
futures exchanges and boards of trade limit the amount of fluctuation permitted
in futures contract prices during a single trading day. Once the daily limit has
been reached in a particular contract, no trades may be made that day at a price
beyond that limit. It is possible that futures contract prices would move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses. In such event, and in the event of
adverse price movements, the Portfolio would be required to make daily cash
payments of variation margin. In such circumstances, an increase in the value of
the portion of the portfolio being hedged, if any, may partially or completely
offset losses on the futures contract. However, there is no guarantee that the
price of the securities being hedged will, in fact, correlate with the price
movements in a futures contract and thus provide an offset to losses on the
futures contract.

A Portfolio will not enter into a futures contract or option (except for
closing transactions) for other than for bona fide hedging purposes if,
immediately thereafter, the sum of the amount of its initial margin and premiums
on open futures contracts and options would exceed 5% of the Portfolio's total
assets (taken at current value); however, in the case of an option that is
in-the-money at the time of the purchase, the in-the-money amount may be
excluded in calculating the 5% limitation. Certain state securities laws to
which a Portfolio may be subject may further restrict the Portfolio's ability to
engage in transactions in futures contracts and related options. In order to
prevent leverage in connection with the purchase of futures contracts by a
Portfolio, an amount of cash or liquid securities equal to the market value of
the obligation under the futures contracts (less any related margin deposits)
will be maintained in a segregated account with the custodian.

OPTIONS ON FUTURES CONTRACTS

A Portfolio could also purchase and write options on futures contracts. An
option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option period. As a writer of an option on
a futures contract, a Portfolio is subject to initial margin and maintenance
requirements similar to those applicable to futures contracts. In addition, net
option premiums received by a Portfolio are required to be included as initial
margin deposits. When an option on a futures contract is exercised, delivery of
the futures position is accompanied by cash representing the difference between
the current market price of the futures contract and the exercise price of the
option. A Portfolio could purchase put options on futures contracts in lieu of,
and for the same purposes as the sale of a

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futures contract; at the same time, it could write put options at a lower strike
price (a "put bear spread") to offset part of the cost of the strategy to the
Portfolio. The purchase of call options on futures contracts is intended to
serve the same purpose as the actual purchase of the futures contract.

Risks of Transactions in Options on Futures Contracts. In addition to the
risks described above which apply to all options transactions, there are several
special risks relating to options on futures. The Adviser will not purchase
options on futures on any exchange unless, in the Adviser's opinion, a liquid
secondary exchange market for such options exists. Compared to the use of
futures, the purchase of options on futures involves less potential risk to a
Portfolio because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However there may be circumstances, such as when there
is no movement in the level of the index, when the use of an option on a future
would result in a loss to the Portfolio when the use of a future would not.

ADDITIONAL RISKS OF OPTIONS AND FUTURES TRANSACTIONS

Each of the United States exchanges has established limitations governing
the maximum number of call or put options on the same underlying security or
futures contract (whether or not covered) which may be sold by a single
investor, whether acting alone or in concert with others (regardless of whether
such options are written on the same or different exchanges or are held or
written on one or more accounts or through one or more brokers). Option
positions of all investment companies advised by the Adviser are combined for
purposes of these limits. An exchange may order the liquidation of positions
found to be in violation of these limits and it may impose other sanctions or
restrictions. These position limits may restrict the number of listed options
which the Portfolio may write.

ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND OPTIONS
ON FOREIGN CURRENCIES

Unlike transactions entered into by a Portfolio in futures contracts,
options on foreign currencies and forward contracts are not traded on contract
markets regulated by the CFTC or (with the exception of certain foreign currency
options) by the Securities and Exchange Commission ("SEC"). To the contrary,
such instruments are traded through financial institutions acting as
market-makers, although foreign currency options are also traded on certain
national securities exchanges, such as the Philadelphia Stock Exchange and the
Chicago Board Options Exchange, subject to SEC regulation. Similarly, options on
currencies may be traded over-the-counter. In an over-the-counter trading
environment, many of the protections afforded to exchange participants will not
be available. For example, there are no daily price fluctuation limits, and
adverse market movements could, therefore, continue to an unlimited extent over
a period of time. Although the purchaser of an option cannot lose more than the
amount of the premium plus related transaction costs, this entire amount could
be lost. Moreover, the option seller and a trader of forward contracts could
lose amounts substantially in excess of their initial investments, due to the
margin and collateral requirements associated with such positions.

Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Further, a liquid secondary
market in options traded on a national securities exchange may be more readily
available than in the over-the-counter market, potentially permitting the
Portfolio to liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market movements.

The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it
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determines that foreign governmental restrictions or taxes would prevent the
orderly settlement of foreign special procedures on exercise and settlement,
such as technical changes in the mechanics of delivery of currency, the fixing
of dollar settlement prices or prohibitions, on exercise.

In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in the United
States of data on which to make trading decisions, (iii) delays in the
Portfolio's ability to act upon economic events occurring in foreign markets
during nonbusiness hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.

INVESTMENT RESTRICTIONS

Each Portfolio has adopted the following restrictions which may not be
changed without approval by the vote of a majority of its outstanding voting
shares; which is defined by the 1940 Act as the lesser of (i) 67% or more of the
voting securities present at a meeting, if the holders of more than 50% of the
outstanding voting securities of the Portfolio are present or represented by
proxy; or (ii) more than 50% of the Portfolio's outstanding voting securities.
The percentage limitations need only be met at the time the investment is made
or after relevant action is taken. The Portfolios are subject to the
restrictions set forth below (Those restrictions that are only applicable to
certain Portfolios are noted as such).

THE FOLLOWING RESTRICTIONS ARE APPLICABLE TO THE ASSET ALLOCATION PORTFOLIO, THE
DOMESTIC INCOME PORTFOLIO, THE EMERGING GROWTH PORTFOLIO, THE ENTERPRISE
PORTFOLIO, THE GLOBAL EQUITY PORTFOLIO, THE GOVERNMENT PORTFOLIO, THE GROWTH AND
INCOME PORTFOLIO AND THE MONEY MARKET PORTFOLIO:

A Portfolio shall not:

1. Invest in securities of any company if any officer or trustee of the
Portfolio or of the Adviser owns more than 1/2 of 1% of the outstanding
securities of such company, and such officers and trustees own more than
5% of the outstanding securities of such issuer;

2. Invest in companies for the purpose of acquiring control or management
thereof except that the Portfolio may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by
the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act;

3. Underwrite securities of other companies, except insofar as a Portfolio
might be deemed to be an underwriter for purposes of the Securities Act
of 1933 in the resale of any securities owned by the Portfolio; or

4. Lend its portfolio securities in excess of 10% of its total assets,
both taken at market value provided that any loans shall be in
accordance with the guidelines established for such loans by the Board
of Trustees of the Trust as described under "Loans of Portfolio
Securities," including the maintenance of collateral from the borrower
equal at all times to the current market value of the securities loaned.

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THE FOLLOWING ADDITIONAL RESTRICTIONS ARE APPLICABLE TO THE ASSET ALLOCATION
PORTFOLIO AND THE ENTERPRISE PORTFOLIO:

A Portfolio shall not:

1. With respect to 75% of its assets, invest more than 5% of its assets in
the securities of any one issuer (except obligations of the United
States Government, its agencies or instrumentalities and repurchase
agreements secured thereby) or purchase more than 10% of the outstanding
voting securities of any one issuer except that the Portfolio may
purchase securities of other investment companies to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act;

2. Invest in securities issued by other investment companies except as part
of a merger, reorganization or other acquisition and except to the
extent permitted by (i) the 1940 Act, as amended from time to time, (ii)
the rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act;

3. Make any investment in real estate, commodities or commodities
contracts, except that the Portfolio may enter into transactions in
options, futures contracts or options on futures contracts and may
purchase securities secured by real estate or interests therein; or
issued by companies, including real estate investment trusts, which
invest in real estate or interests therein;

4. Invest in interests in oil, gas, or other mineral exploration or
development programs;

5. Purchase a restricted security or a security for which market quotations
are not readily available if as a result of such purchase more than 5%
of the Portfolio's assets would be invested in such securities except
that the Portfolio may purchase securities of other investment companies
to the extent permitted by (i) the 1940 Act, as amended from time to
time, (ii) the rules and regulations promulgated by the SEC under the
1940 Act, as amended from time to time, or (iii) an exemption or other
relief from the provisions of the 1940 Act;

6. Lend money, except that a Portfolio may invest in repurchase agreements
in accordance with applicable requirements set forth in the Prospectus
and may acquire debt securities which the Portfolio's investment
policies permit. A Portfolio will not invest in repurchase agreements
maturing in more than seven days (unless subject to a demand feature) if
any such investment, together with any illiquid securities (including
securities which are subject to legal or contractual restrictions on
resale) held by the Portfolio, exceeds 10% of the market or other fair
value of its total net assets; provided, however, that this limitation
excludes shares of other open-end investment companies owned by the
Portfolio but includes the Portfolio's pro rata portion of the
securities and other assets owned by any such investment company. See
"Repurchase Agreements";

7. Invest more than 25% of the value of its total assets in securities of
issuers in any particular industry (except obligations of the United
States Government, its agencies or instrumentalities and repurchase
agreements secured thereby); provided, however, that this limitation
excludes shares of other open-end investment companies owned by the
Portfolio but includes the Portfolio's pro rata portion of the
securities and other assets owned by any such investment company;

8. Make short sales of securities, unless at the time of the sale the
Portfolio owns or has the right to acquire an equal amount of such
securities. Notwithstanding the foregoing, the Portfolio may engage in
transactions in options, futures contracts and options on futures
contracts;

9. Purchase securities on margin, except that a Portfolio may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities. The deposit or payment by the Portfolio of
initial or maintenance margin in connection with transactions in
options, futures contracts or options on futures contracts is not
considered the purchase of a security on margin;

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10. Invest more than 5% of its assets in companies having a record,
together with predecessors, of less than three years continuous
operation except that the Portfolio may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by
the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act; or

11. Borrow in excess of 10% of the market or other fair value of its total
assets, or pledge its assets to an extent greater than 5% of the market
or other fair value of its total assets. Any such borrowings shall be
from banks and shall be undertaken only as a temporary measure for
extraordinary or emergency purposes. Deposits in escrow in connection
with the writing of covered call or secured put options, or in
connection with the purchase or sale of futures contracts and related
options are not deemed or to be a pledge or other encumbrance.

In addition, the following restrictions apply to, and may not be changed
without the approval of the holders of a majority of the shares of, the
Portfolio indicated:

The Enterprise Portfolio may not invest more than 5% of its net assets
in warrants or rights valued at the lower of cost or market, nor more than
2% of its net assets in warrants or rights (valued on such basis) which are
not listed on the New York or American Stock Exchanges. Warrants or rights
acquired in units or attached to other securities are not subject to the
foregoing limitation. Furthermore, the Enterprise Portfolio may not invest
in the securities of a foreign issuer if, at the time of acquisition, more
than 10% of the value of the Enterprise Portfolio's total assets would be
invested in such securities. Foreign investments may be subject to special
risks, including future political and economic developments, the possible
imposition of additional withholding taxes on dividend or interest income
payable on the securities, or the seizure or nationalization of companies,
or establishment of exchange controls or adoption of other restrictions
which might adversely affect the investment.

The Asset Allocation Portfolio may not invest in the securities of a
foreign issuer if, at the time of acquisition, more than 25% of the value
of the Asset Allocation Portfolio's total assets would be invested in such
securities.

THE FOLLOWING ADDITIONAL RESTRICTIONS ARE APPLICABLE TO THE DOMESTIC INCOME
PORTFOLIO:

The Domestic Income Portfolio shall not:

3. Make any investment in real estate, commodities or commodities
contracts, except that the Portfolio may purchase securities secured by
real estate or interests therein; or issued by companies, including real
estate investment trusts, which invest in real estate or interests
therein;

4. Invest in interests in oil, gas, or other mineral exploration or
development programs;

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<PAGE> 115

except that the Portfolio may purchase securities of other investment
companies to the extent permitted by (i) the 1940 Act, as amended from
time to time, (ii) the rules and regulations promulgated by the SEC
under the 1940 Act, as amended from time to time, or (iii) an exemption
or other relief from the provisions of the 1940 Act;

6. Lend money, except that the Portfolio may invest in repurchase
agreements in accordance with applicable requirements set forth in the
Prospectus and may acquire debt securities which the Portfolio's
investment policies permit. The Portfolio will not invest in repurchase
agreements maturing in more than seven days (unless subject to a demand
feature) if any such investment, together with any illiquid securities
(including securities which are subject to legal or contractual
restrictions on resale) held by the Portfolio, exceeds 10% of the market
or other fair value of its total net assets. See "Repurchase
Agreements";

8. Make short sales of securities, unless at the time of the sale the
Portfolio owns or has the right to acquire an equal amount of such
securities;

9. Purchase securities on margin, except that the Portfolio may obtain
such short-term credits as may be necessary for the clearance of
purchases and sales of securities;

11. Write put or call options;

12. Borrow in excess of 10% of the market or other fair value of its total
assets, or pledge its assets to an extent greater than 5% of the market
or other fair value of its total assets. Any such borrowings shall be
from banks and shall be undertaken only as a temporary measure for
extraordinary or emergency purposes. Deposits in escrow in connection
with the writing of covered call or secured put options, or in
connection with the purchase or sale of futures contracts and related
options are not deemed or to be a pledge or other encumbrance; or

13. Invest in the securities of a foreign issuer if, at the time of
acquisition, more than 25% of the value of the Portfolio's total assets
would be invested in such securities.

THE FOLLOWING RESTRICTIONS ARE APPLICABLE TO THE COMSTOCK PORTFOLIO:

The Comstock Portfolio shall not:

1. With respect to 75% of its assets, invest more than 5% of its assets in
the securities of any one issuer (except the United States Government)
or purchase more than 10% of the outstanding voting securities of any
one issuer, except that the Portfolio may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act.

2. Make short sales or purchase securities on margin; but it may obtain
such short-term credits as may be necessary for the clearance of
purchases and sales of securities, and it may engage in transactions in
options, futures contracts and related options and make margin deposits
and payments in connection therewith.

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<PAGE> 116

3. Pledge any of its assets, except that the Portfolio may pledge assets
having a value of not more than 10% of its total assets in order to
secure permitted borrowings from banks. Such borrowings may not exceed
5% of the value of the Portfolio's assets and can be made only as a
temporary measure for extraordinary or emergency purposes.
Notwithstanding the foregoing, the Portfolio may engage in transactions
in options, futures contracts and related options, segregate or deposit
assets to cover or secure options written, and make margin deposits and
payments for futures contracts and related options.

4. Invest in securities issued by other investment companies, except part
of a merger, reorganization or other acquisition and except to the
extent permitted by (i) 1940 Act, as amended from time to time, (ii)
the rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act.

5. Invest in real estate, commodities or commodities contracts, except
that the Portfolio may engage in transactions in futures contracts and
related options.

6. Invest in securities of a company for the purpose of exercising
management or control, although the Portfolio retains the right to vote
securities held by it, except that the Portfolio may purchase
securities of other investment companies to the extent permitted by (i)
the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions
of the 1940 Act.

7. Engage in the underwriting of securities of other issuers, except that
the Portfolio may sell an investment position even though it may be
deemed to be an underwriter as that term is defined under the
Securities Act of 1933.

8. Purchase a restricted security or a security for which market
quotations are not readily available if as a result of such purchase
more than 5% of the Portfolio's assets would be invested in such
securities, except that the Portfolio may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act.

9. Invest more than 25% of its total net asset value in any one industry,
except that the Portfolio may purchase securities of other investment
companies to the extent permitted by (i) the 1940 Act, as amended from
time to time, (ii) the rules and regulations promulgated by the SEC
under the 1940 Act, as amended from time to time, or (iii) an exemption
or other relief from the provisions of the 1940 Act.

10. Make loans except by the purchase of bonds or other debt obligations of
types commonly offered publicly or privately and purchased by financial
institutions, including investment in repurchase agreements, provided
that the Portfolio will not make any investment in repurchase
agreements maturing in more than seven days if such investments,
together with any illiquid securities held by the Portfolio, would
exceed 10% of the value of its net assets.

In addition to the foregoing fundamental policies which may not be changed
without shareholder approval, the Comstock Portfolio is subject to the following
policies which may be amended by the Trustees. The Portfolio shall not:

1. Invest in the securities of a foreign issuer if, at the time of
acquisition, more than 15% of the value of the Portfolio's total assets
would be invested in securities of foreign issuers.

2. Invest more than 5% of its net assets in warrants or rights valued at
the lower of cost or market, nor more than 2% of its net assets in
warrants or rights (valued on such basis) which are not listed on the
New York Stock Exchange or American Stock Exchange. Warrants or rights
acquired in units or attached to other securities are not subject to
the foregoing limitations.

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<PAGE> 117

3. Invest in interests in oil, gas, or other mineral exploration or
development programs.

4. Invest more than 5% of its assets in companies having a record,
together with predecessors, of less than three years continuous
operation and in securities not having readily available market
quotations, except that the Portfolio may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act.

5. Purchase or retain securities of any issuer if those officers and
trustees of the Portfolio or its investment adviser who own
individually more than 1/2 of 1% of the securities of such issuer
together own more than 5% of the securities of such issuer.

6. Invest more than 5% of its assets in the securities of any one issuer
other than the United States government, except that the Portfolio may
purchase securities of other investment companies to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act.

7. Pledge, mortgage or hypothecate its portfolio securities to the extent
that at any time the percentage of pledged securities plus the sales
load will exceed 10% of the offering price of the Fund's shares.
Notwithstanding the foregoing, the Fund may engage in transactions in
options, futures contracts and related options, segregate or deposit
assets to cover or secure options written, and make margin deposits or
payments for futures contracts and related options.

8. Invest more than 10% of its net assets (determined at the time of
investment) in illiquid securities and repurchase agreements that have
a maturity of longer than seven days.

THE FOLLOWING RESTRICTIONS ARE APPLICABLE TO THE EMERGING GROWTH PORTFOLIO:

The Emerging Growth Portfolio shall not:

1. Invest directly in real estate interests of any nature, although the
Portfolio may invest indirectly through media such as real estate
investment trusts;

2. Invest in commodities or commodity contracts, except that the Portfolio
may enter into transactions in futures contracts or related options;

3. Issue any of its securities for (a) services or (b) property other than
cash or securities (including securities of which the Portfolio is the
issuer), except as a dividend or distribution to its shareholders in
connection with a reorganization;

4. Issue senior securities and shall not borrow money except from banks as
a temporary measure for extraordinary or emergency purposes and in an
amount not exceeding five percent of the Portfolio's total assets.
Notwithstanding the foregoing, the Portfolio may enter into transactions
in options, futures contracts and related options and may make margin
deposits and payments in connection therewith;

5. Invest more than 25% of the value of its total assets in securities of
issuers in any particular industry (except obligations of the United
States Government, its agencies or instrumentalities and repurchase
agreements secured hereby); provided, however, that this limitation
excludes shares of other open-end investment companies owned by the
Portfolio but includes the Portfolio's pro rata portion of the
securities and other assets owned by any such investment company;

6. Invest in securities issued by other investment companies except as part
of a merger, reorganization or other acquisition and except to the
extent permitted by (i) the 1940 Act, as amended from time to

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time, (ii) the rules and regulations promulgated by the SEC under the
1940 Act, as amended from time to time, or (iii) an exemption or other
relief from the provisions of the 1940 Act;

7. Sell short or borrow for short sales. Short sales "against the box" are
not subject to this limitation;

8. With respect to 75% of its assets, invest more than 5% of its assets in
the securities of any one issuer (except obligations of the United
States Government, it agencies or instrumentalities and repurchase
agreements secured thereby) or purchase more than 10% of the outstanding
voting securities of any one issuer except that the Portfolio may
purchase securities of other investment companies to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act;

9. Invest in warrants in excess of 5% of its net assets (including, but not
to exceed 2% in warrants which are not listed on the New York or
American Stock Exchanges);

10. Purchase securities of issuers which have a record of less than three
years continuous operation if such purchase would cause more than 5% of
the Portfolio's total assets to be invested in securities of such
issuers except that the Portfolio may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by
the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act;

11. Invest more than 15% of its net assets in illiquid securities,
including securities that are not readily marketable, restricted
securities and repurchase agreements that have a maturity of more than
seven days except that the Portfolio may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by
the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act;

12. Invest in interests in oil, gas, or other mineral exploration or
developmental programs, except through the purchase of liquid securities
of companies which engage in such businesses; or

13. Pledge, mortgage or hypothecate its portfolio securities or other
assets to the extent that the percentage of pledged assets plus the
sales load exceeds 10% of the offering price of the Portfolio's shares.

THE FOLLOWING RESTRICTIONS ARE APPLICABLE TO THE GLOBAL EQUITY PORTFOLIO:

The Global Equity Portfolio shall not:

1. Invest more than 25% of the value of its total assets in securities of
issuers in any particular industry (except obligations of the United
States Government, its agencies or instrumentalities and repurchase
agreements secured thereby); provided, however, that this limitation
excludes shares of other open-end investment companies owned by the
Portfolio but includes the Portfolio's pro rata portion of the
securities and other assets owned by any such investment company;

2. With respect to 75% of its assets, invest more than 5% of its assets in
the securities of any one issuer (except obligations of the United
States Government, its agencies or instrumentalities and repurchase
agreements secured thereby) or purchase more than 10% of the outstanding
voting securities of any one issuer, except that the Portfolio may
purchase securities of other investment companies to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act;

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3. Borrow money except temporarily from banks to facilitate payment of
redemption requests and then only in amounts not exceeding 33 1/3% of
its net assets, or pledge more than 10% of its net assets in connection
with permissible borrowings or purchase additional securities when money
borrowed exceeds 5% of its net assets. Margin deposits or payments in
connection with the writing of options or in connection with the
purchase or sale of forward contracts, futures, foreign currency futures
and related options are not deemed to be a pledge or other encumbrance;

4. Lend money except through the purchase of (i) United States and foreign
government securities, commercial paper, bankers' acceptances,
certificates of deposit similar evidences of indebtedness, both foreign
and domestic, and (ii) repurchase agreements; or lend securities in an
amount exceeding 15% of the total assets of the Portfolio. The purchase
of a portion of an issue of securities described under (i) above
distributed publicly, whether or not the purchase is made on the
original issuance, is not considered the making of a loan;

5. Make short sales of securities, unless at the time of the sale it owns
or has the right to acquire an equal amount of such securities; provided
that this prohibition does not apply to the writing of options or the
sale of forward contracts, futures, foreign currency futures or related
options;

6. Purchase securities on margin but the Portfolio may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities. The deposit or payment by the Portfolio of
initial or maintenance margin in connection with forward contracts,
futures, foreign currency futures or related options is not considered
the purchase of a security on margin;

7. Buy or sell real estate or interests in real estate including real
estate limited partnerships, provided that the foregoing prohibition
does not apply to a purchase and sale of publicly traded (i) securities
which are secured by real estate, (ii) securities representing interests
in real estate, and (iii) securities of companies principally engaged in
investing or dealing in real estate;

8. Invest in commodities or commodity contracts, except that the Portfolio
may enter into transactions in options, futures contracts or related
options including foreign currency futures contracts and related options
and forward contracts;

9. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Portfolio from (i)
making and collateralizing any permitted borrowings, (ii) making any
permitted loans of its portfolio securities or (iii) entering into
repurchase agreements, utilizing options, futures contracts, options on
futures contracts, forward contracts, forward commitments and other
investment strategies and instruments that would be considered "senior
securities" but for the maintenance by the Portfolio of a segregated
account with its custodian or some other form of "cover;"

10. Invest in the securities of other open-end investment companies, or
invest in the securities of closed-end investment companies except (a)
through purchase in the open market in a transaction involving no
commission or profit to a sponsor or dealer (other than the customary
broker's commission) or as part of a merger, consolidation or other
acquisition; or (b) to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by
the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act;

11. Invest more than 5% of its net assets in warrants or rights valued at
the lower of cost or market, nor more than 2% of its net assets in
warrants or rights (valued on such basis) which are not listed on the
New York or American Stock Exchanges. Warrants or rights acquired in
units or attached to other securities are not subject to the foregoing
limitation;

12. Invest in interests in oil, gas, or other mineral exploration or
development programs or invest in oil, gas, or mineral leases, except
that the Portfolio may acquire securities of public companies which
themselves are engaged in such activities;
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<PAGE> 120

13. Invest more than 5% of its total assets in securities of unseasoned
issuers which have been in operation directly or through predecessors
for less than three years, except that the Portfolio may purchase
securities of other investment companies to the extent permitted by (i)
the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions
of the 1940 Act;

14. Purchase or otherwise acquire any security if, as a result, more than
15% of its net assets (taken at current value) would be invested in
securities that are illiquid by virtue of the absence of a readily
available market. This policy includes repurchase agreements maturing in
more than seven days and over-the-counter options held by the Portfolio
and that portion of assets used to cover such options. This policy does
not apply to restricted securities eligible for resale pursuant to Rule
144A under the Securities Act of 1933 which the Trustees or the Adviser
under Board approved guidelines, may determine are liquid nor does it
apply to other securities, for which, notwithstanding legal or
contractual restrictions on resale, a liquid market exists.
Notwithstanding the foregoing, this limitation excludes shares of other
open-end investment companies owned by the Portfolio but includes the
Portfolio's pro rata portion of the securities and other assets owned by
any such investment company.

THE FOLLOWING ADDITIONAL RESTRICTIONS ARE APPLICABLE TO THE GOVERNMENT
PORTFOLIO:

The Government Portfolio shall not:

1. With respect to 75% of its assets, invest more than 5% of its assets in
the securities of any one issuer (except obligations of the United
States Government, its agencies or instrumentalities and repurchase
agreements secured thereby) or purchase more than 10% of the outstanding
voting securities of any one issuer, except that the Portfolio may
purchase securities of other investment companies to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act;

3. Make any investment in real estate, commodities or commodities
contracts, except that the Portfolio may invest in interest rate futures
and related options and may purchase securities secured by real estate
or interests therein; or issued by companies, including real estate
investment trusts, which invest in real estate or interests therein;

4. Invest in interests in oil, gas, or other mineral exploration or
development programs;

5. Purchase a restricted security or a security for which market quotations
are not readily available if as a result of such purchase more than 5%
of the Portfolio's assets would be invested in such securities except
that the Fund may purchase securities of other investment companies to
the extent permitted by (i) the 1940 Act, as amended from time to time,
(ii) the rules and regulations promulgated by the SEC under the 1940
Act, as amended from time to time, or (iii) an exemption or other relief
from the provisions of the 1940 Act;

B-29
<PAGE> 121

restrictions on resale) held by the Portfolio, exceeds ten percent of
the market or other fair value of its total net assets. See "Repurchase
Agreements";

8. Make short sales of securities, unless at the time of the sale the
Portfolio owns or has the right to acquire an equal amount of such
securities. Notwithstanding the foregoing, the Portfolio may make short
sales by entering into forward commitments for hedging or cross-hedging
purposes and the Portfolio may engage in transactions in options, future
contracts and related options;

9. Purchase securities on margin, except that the Portfolio may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities. The deposit or payment by the Portfolio of
initial or maintenance margin in connection with interest rate futures
contracts or related options transactions is not considered the purchase
of a security on margin;

11. Borrow in excess of 10% of the market or other fair value of its total
assets, or pledge its assets to an extent greater than 5% of the market
or other fair value of its total assets. Any such borrowings shall be
from banks and shall be undertaken only as a temporary measure for
extraordinary or emergency purposes. Deposits in escrow in connection
with the writing of options, or in connection with the purchase or sale
of futures contracts and related options are not deemed to be a pledge
or other encumbrance; or

12. Write, purchase or sell puts, calls or combinations thereof, except
that the Portfolio may (a) write covered or fully collateralized call
options, write secured put options, and enter into closing or offsetting
purchase transactions with respect to such options, (b) purchase options
to the extent that the premiums paid for all such options owned at any
time do not exceed 10% of its total assets, and enter into closing or
offsetting transactions with respect to such options, and (c) engage in
transactions in interest rate futures contracts and related options
provided that such transactions are entered into for bona fide hedging
purposes (or that the underlying commodity value of the Portfolio's long
positions do not exceed the sum of certain identified liquid investments
as specified in CFTC regulations), provided further that the aggregate
initial margin and premiums do not exceed 5% of the fair market value of
the Portfolio's total assets, and provided further that the Portfolio
may not purchase futures contracts or related options if more than 30%
of the Portfolio's total assets would be so invested.

THE FOLLOWING ADDITIONAL RESTRICTIONS ARE APPLICABLE TO THE GROWTH AND INCOME
PORTFOLIO:

The Growth and Income Portfolio shall not:

1. Borrow money, except from a bank and then only as a temporary measure
for extraordinary or emergency purposes but not for making additional
investments and not in excess of 5% of the total net assets of the
Portfolio taken at cost. In connection with any borrowing the Portfolio
may pledge up to 15% of its total assets taken at cost. Notwithstanding
the foregoing, the Portfolio may engage in transactions in options,
futures contracts and related options, segregate or deposit assets to
cover or secure options written, and make margin deposits or payments
for futures contracts and related options.

B-30
<PAGE> 122

2. Purchase or sell interests in real estate, except readily marketable
securities, including securities of real estate investment trusts.

3. Purchase or sell commodities or commodities contracts, except that the
Portfolio may enter into transactions in futures contracts and related
options.

4. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Portfolio from (i)
making and collateralizing any permitted borrowings, (ii) making any
permitted loans of its portfolio securities, or (iii) entering into
repurchase agreements, utilizing options, futures contracts, options on
futures contracts and other investment strategies and instruments that
would be considered "senior securities" but for the maintenance by the
Portfolio of a segregated account with its custodian or some other form
of "cover."

5. Invest more than 25% of its total net asset value in any one industry
provided, however, that this limitation excludes shares of other
open-end investment companies owned by the Portfolio but includes the
Portfolio's pro rata portion of the securities and other assets owned by
any such company.

6. Invest more than 5% of the market value of its total assets at the time
of purchase in the securities (except U.S. Government securities) of any
one issuer or purchase more than 10% of the outstanding voting
securities of such issuer except that the Portfolio may purchase
securities of other investment companies to the extent permitted by (i)
the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions
of the 1940 Act.

In addition to the foregoing fundamental policies which may not be changed
without shareholder approval, the Growth and Income Portfolio is subject to the
following policies which may be amended by the Trustees.

1. Purchase securities on margin, or sell securities short, but the
Portfolio may enter into transactions in options, futures contracts and
related options and may make margin deposits and payments in connection
therewith.

2. The Portfolio may not invest in interests in oil, gas, or other mineral
exploration or development programs, except that the Portfolio may
acquire securities of public companies which themselves are engaged in
such activities.

3. Purchase securities of a corporation in which a trustee of the Portfolio
owns a controlling interest.

4. Permit officers or trustees of the Portfolio to profit by selling
securities to or buying them from the Portfolio. However, companies with
which the officers and trustees of the Portfolio are connected may enter
into underwriting agreements with the Portfolio to sell its shares, sell
securities to, and purchase securities from the Portfolio when acting as
broker or dealer at the customary and usual rates and discounts, to the
extent permitted by the 1940 Act.

5. Investments in repurchase agreements and purchases by the Portfolio of a
portion of an issue of publicly distributed debt securities shall not be
considered the making of a loan.

6. Purchase a restricted security or a security for which market quotations
are not readily available if as a result of such purchase more than 15%
of the value of the Portfolio's net assets would be invested in such
securities except that the Portfolio may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by
the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act.

7. Invest more than 5% of the market value of its total assets in companies
having a record together with predecessors of less than three years
continuous operation and in securities not having readily
B-31
<PAGE> 123

available market quotations except that the Portfolio may purchase
securities of other investment companies to the extent permitted by (i)
the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions
of the 1940 Act.

THE FOLLOWING ADDITIONAL RESTRICTIONS ARE APPLICABLE TO THE MONEY MARKET
PORTFOLIO:

The Money Market Portfolio shall not:

1. With respect to 75% of its assets, invest more than 5% of its assets in
the securities of any one issuer (except obligations of the United
States Government, its agencies or instrumentalities and repurchase
agreements secured thereby) or purchase more than 10% of the outstanding
voting securities of any one issuer except that the Fund may purchase
securities of other investment companies to the extent permitted by (i)
the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions
of the 1940 Act;;

4. Invest in interests in oil, gas, or other mineral exploration or
development programs;

5. Purchase a restricted security or a security for which market quotations
are not readily available if as a result of such purchase more than 5%
of the Portfolio's assets would be invested in such securities except
that the Fund may purchase securities of other investment companies to
the extent permitted by (i) the 1940 Act, as amended from time to time,
(ii) the rules and regulations promulgated by the SEC under the 1940
Act, as amended from time to time, or (iii) an exemption or other relief
from the provisions of the 1940 Act;

8. Make short sales of securities, unless at the time of the sale the
Portfolio owns or has the right to acquire an equal amount of such
securities;

9. Purchase securities on margin, except that the Portfolio may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities;

10. Invest more than 5% of its assets in companies having a record,
together with predecessors, of less than three years continuous
operation except that the Fund may purchase securities of other

B-32
<PAGE> 124

investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by
the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act;

11. Write put or call options;

13. Purchase any security which matures more than one year from the date of
purchase.

THE FOLLOWING RESTRICTIONS ARE APPLICABLE TO THE MORGAN STANLEY REAL ESTATE
SECURITIES PORTFOLIO.

The Morgan Stanley Real Estate Securities Portfolio shall not:

1. Engage in the underwriting of securities of other issuers, except that
the Portfolio may sell an investment position even though it may be
deemed to be an underwriter under the federal securities laws;

2. With respect to 75% of its total assets, invest more than 5% of its
assets in the securities of any one issuer (except the U.S. Government,
its agencies and instrumentalities and repurchase agreements secured
thereby) or purchase more than 10% of the outstanding voting securities
of any one issuer, except that the Portfolio may purchase securities of
other investment companies to the extent permitted by (i) the 1940 Act,
as amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act;

3. Borrow money except temporarily from banks to facilitate payment of
redemption requests and then only in amounts not exceeding 33 1/3% of
its net assets, or pledge more than 10% of its net assets in connection
with permissible borrowings or purchase additional securities when money
borrowed exceeds 5% of its net assets. Margin deposits or payments in
connection with the writing of options, or in connection with the
purchase or sale of forward contracts, futures, foreign currency futures
and related options, are not deemed to be a pledge or other encumbrance;

4. Lend money or securities except by the purchase of a portion of an issue
of bonds, debentures or other obligations of types commonly distributed
to institutional investors publicly or privately (in the latter case the
investment will be subject to the stated limits on investments in
"restricted securities"), and except by the purchase of securities
subject to repurchase agreements;

5. Buy or sell real estate including real estate limited partnerships,
provided that the foregoing prohibition does not apply to a purchase and
sale of (i) securities which are secured by real estate, (ii) securities
representing interests in real estate, and (iii) securities of companies
operating in the real estate industry, including real estate investment
trusts. The Portfolio may hold and sell real estate acquired as a result
of the ownership of its securities;

6. Invest in commodities or commodity contracts, except that the Portfolio
may enter into transactions in options, futures contracts or related
options including foreign currency futures contracts and related options
and forward contracts;

7. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Portfolio from (i)
making and collateralizing any permitted borrowings, (ii) making any
permitted loans of its portfolio securities or (iii) entering into
repurchase agreements, utilizing

B-33
<PAGE> 125

options, futures contracts, options on futures contracts, forward
contracts, forward commitments and other investment strategies and
instruments that would be considered "senior securities" but for the
maintenance by the Portfolio of a segregated account with its custodian
or some other form of "cover";

8. Concentrate its investment in any one industry, except that the
Portfolio will invest more than 25% of its total assets in the real
estate industry. This limitation excludes shares of other open-end
investment companies owned by the Portfolio but includes the Portfolio's
pro rata portion of the securities and other assets owned by any such
company;

9. Write, purchase or sell puts, calls or combinations thereof, except that
the Portfolio may (a) write covered or fully collateralized call
options, write secured put options, and enter into closing or offsetting
purchase transactions with respect to such options, (b) purchase and
sell options to the extent that the premiums paid for all such options
owned at any time do not exceed 10% of its total assets and (c) engage
in transactions in futures contracts and related options transactions
provided that such transactions are entered into for bona fide hedging
purposes (or meet certain conditions as specified in CFTC regulations),
and provided further that the aggregate initial margin and premiums do
not exceed 5% of the fair market value of the Portfolio's total assets;
or

10. The Portfolio may not make short sales of securities, unless at the
time of the sale it owns or has the right to acquire an equal amount of
such securities; provided that this prohibition does not apply to the
writing of options or the sale of forward contracts, futures, foreign
currency futures or related options.

In addition to the foregoing fundamental policies which may not be changed
without shareholder approval, the Morgan Stanley Real Estate Securities
Portfolio is subject to the following policies which may be amended by the
Morgan Stanley Real Estate Securities Portfolio's Trustees and which apply at
the time of purchase of portfolio securities.

1. The Portfolio may not make investments for the purpose of exercising
control or management although the Portfolio retains the right to vote
securities held by it except that the Portfolio may purchase securities
of other investment companies to the extent permitted by (i) the 1940
Act, as amended from time to time, (ii) the rules and regulations
promulgated by the SEC under the 1940 Act, as amended from time to time,
or (iii) an exemption or other relief from the provisions of the 1940
Act;

2. The Portfolio may not purchase securities on margin but the Portfolio
may obtain such short-term credits as may be necessary for the clearance
of purchases and sales of securities. The deposit or payment by the
Portfolio of initial or maintenance margin in connection with forward
contracts, futures, foreign currency futures or related options is not
considered the purchase of a security on margin;

3. The Portfolio may not invest in the securities of other open-end
investment companies, or invest in the securities of closed-end
investment companies except through purchase in the open market in a
transaction involving no commission or profit to a sponsor or dealer
(other than the customary broker's commission) or as part of a merger,
consolidation or other acquisition except that the Portfolio may
purchase securities of other investment companies to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act;

4. The Portfolio may not invest more than 5% of its net assets in warrants
or rights valued at the lower of cost or market, nor more than 2% of its
net assets in warrants or rights (valued on such basis) which are not
listed on the New York or American Stock Exchanges. Warrants or rights
acquired in units or attached to other securities are not subject to the
foregoing limitation;

B-34
<PAGE> 126

5. The Portfolio may not invest in securities of any company if any officer
or trustee of the Portfolio or of the Adviser owns more than 1/2 of 1%
of the outstanding securities of such company, and such officers and
trustees who own more than 1/2 of 1% own in the aggregate more than 5%
of the outstanding securities of such issuer;

6. The Portfolio may not invest in interests in oil, gas, or other mineral
exploration or development programs or invest in oil, gas, or mineral
leases, except that the Portfolio may acquire securities of public
companies which themselves are engaged in such activities;

7. The Portfolio may not invest more than 5% of its total assets in
securities of unseasoned issuers which have been in operation directly
or through predecessors for less than three years, except that the
Portfolio may purchase securities of other investment companies to the
extent permitted by (i) the 1940 Act, as amended from time to time, (ii)
the rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act; or

8. The Portfolio may not purchase or otherwise acquire any security if, as
a result, more than 15% of its net assets (taken at current value) would
be invested in securities that are illiquid by virtue of the absence of
a readily available market. This policy does not apply to restricted
securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 which the Trustees or the Adviser under approved
guidelines, may determine are liquid nor does it apply to other
securities for which, notwithstanding legal or contractual restrictions
on resale, a liquid market exists.

THE FOLLOWING RESTRICTIONS ARE APPLICABLE TO THE STRATEGIC STOCK PORTFOLIO.

The Strategic Stock Portfolio shall not:

2. Purchase any securities (other than obligations issued or guaranteed by
the United States Government or by its instrumentalities), if, as a
result, more than 5% of the Portfolio's total assets (taken at current
value) would then be invested in securities of a single issuer or, if as
a result, such Portfolio would hold more than 10% of the outstanding
voting securities of an issuer, except that up to 25% of the Portfolio's
total assets may be invested without regard to such limitations. Neither
limitation shall apply to the acquisition of shares of other open-end
investment companies to the extent permitted by rule or order of the SEC
exempting the Portfolio from the limitations imposed by Section 12(d)(1)
of the 1940 Act.

3. Invest more than 25% of its assets in a single industry, provided,
however, that this limitation excludes shares of other open-end
investment companies owned by the Portfolio but includes the Portfolio's
pro rata portion of the securities and other assets owned by any such
company. (Neither the U.S. Government nor any of its agencies or
instrumentalities will be considered an industry for purposes of this
restriction.)

4. Buy or sell real estate including real estate limited partnerships,
provided that the foregoing prohibition does not apply to a purchase and
sale of (i) securities which are secured by real estate, (ii) securities
representing interests in real estate, and (iii) securities of companies
operating in the real estate industry, including real estate investment
trusts. The Portfolio may hold and sell real estate acquired as a result
of the ownership of its securities;

5. Invest in commodities or commodity contracts, except that the Portfolio
may enter into transactions in options, futures contracts or related
options including foreign currency futures contracts and related options
and forward contracts;

B-35
<PAGE> 127

6. Issue senior securities, borrow money from banks or enter into reverse
repurchase agreements with banks in the aggregate in excess of 33 1/3%
of the Portfolio's total assets (after giving effect to any such
borrowing); which amount does not include borrowings and reverse
repurchase agreements with any entity where such borrowings and reverse
repurchase agreements are in an amount not exceeding 5% of its total
assets and for temporary purposes only. The Portfolio will not mortgage,
pledge or hypothecate any assets other than in connection with issuances
of senior securities, borrowings, delayed delivery, and when issued
transactions, options, futures contracts, options on futures contracts,
forward contracts, forward commitments and other investment strategies
and instruments;

7. Make loans of money or property to any person, except (i) to the extent
the securities in which the Portfolio may invest are considered to be
loans, (ii) through the loan of portfolio securities, and (iii) to the
extent that the Portfolio may lend money or property in connection with
maintenance of the value of, or the Portfolio's interest with respect
to, the securities owned by the Portfolio.

In addition to the foregoing fundamental policies which may not be changed
without shareholder approval, the Strategic Stock Portfolio is subject to the
following policies which may be amended by the Strategic Stock Portfolio's
Trustees and which apply at the time of purchase of portfolio securities.

1. The Portfolio may not make short sales of securities, unless at the time
of the sale it owns or has the right to acquire an equal amount of such
securities; provided that this prohibition does not apply to the writing
of options or the sale of forward contracts, futures, foreign currency
futures or related options.

2. The Portfolio may not make investments for the purpose of exercising
control or management although the Portfolio retains the right to vote
securities held by it except that the Portfolio may purchase securities
of other investment companies to the extent permitted by (i) the 1940
Act, as amended from time to time, (ii) the rules and regulations
promulgated by the SEC under the 1940 Act, as amended from time to time,
or (iii) an exemption or other relief from the provisions of the 1940
Act;

3. The Portfolio may not purchase securities on margin but the Portfolio
may obtain such short-term credits as may be necessary for the clearance
of purchases and sales of securities. The deposit or payment by the
Portfolio of initial or maintenance margin in connection with forward
contracts, futures, foreign currency futures or related options is not
considered the purchase of a security on margin;

4. The Portfolio may not invest in the securities of other open-end
investment companies, or invest in the securities of closed-end
investment companies except as part of a merger, consolidation or other
acquisition and except that the Portfolio may purchase securities of
other investment companies to the extent permitted by (i) the 1940 Act,
as amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act;

5. The Portfolio may not invest more than 5% of its net assets in warrants
or rights valued at the lower of cost or market, nor more than 2% of its
net assets in warrants or rights (valued on such basis) which are not
listed on the New York or American Stock Exchanges. Warrants or rights
acquired in units or attached to other securities are not subject to the
foregoing limitation;

6. The Portfolio may not invest in securities of any company if any officer
or trustee of the Portfolio or of the Adviser owns more than 1/2 of 1%
of the outstanding securities of such company, and such officers and
trustees who own more than 1/2 of 1% own in the aggregate more than 5%
of the outstanding securities of such issuer;

B-36
<PAGE> 128

7. The Portfolio may not invest in interests in oil, gas, or other mineral
exploration or development programs or invest in oil, gas, or mineral
leases, except that the Portfolio may acquire securities of public
companies which themselves are engaged in such activities;

8. The Portfolio may not invest more than 5% of its total assets in
securities of unseasoned issuers which have been in operation directly
or through predecessors for less than three years, except that the
Portfolio may purchase securities of other investment companies to the
extent permitted by (i) the 1940 Act, as amended from time to time, (ii)
the rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act; or

9. The Portfolio may not purchase or otherwise acquire any security if, as
a result, more than 15% of its net assets (taken at current value) would
be invested in securities that are illiquid by virtue of the absence of
a readily available market. This policy does not apply to restricted
securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 which the Trustees or the Adviser under approved
guidelines, may determine are liquid nor does it apply to other
securities for which, notwithstanding legal or contractual restrictions
on resale, a liquid market exists.

TRUSTEES AND OFFICERS

The business and affairs of the Fund are managed under the direction of the
Fund's Board of Trustees and the Fund's officers appointed by the Board of
Trustees. The tables below list the trustees and officers of the Fund and
executive officers of the Fund's investment adviser and their principal
occupations for the last five years and their affiliations, if any, with Van
Kampen Investments Inc. ("Van Kampen Investments"), Van Kampen Investment
Advisory Corp. ("Advisory Corp."), Van Kampen Asset Management Inc. ("Asset
Management"), Van Kampen Funds Inc. (the "Distributor"), Van Kampen Management
Inc., Van Kampen Advisors Inc., Van Kampen Insurance Agency of Illinois Inc.,
Van Kampen Insurance Agency of Texas Inc., Van Kampen System Inc., Van Kampen
Recordkeeping Services Inc., American Capital Contractual Services, Inc., Van
Kampen Trust Company, Van Kampen Exchange Corp. and Van Kampen Investor Services
Inc. ("Investor Services"). Advisory Corp. and Asset Management sometimes are
referred to herein collectively as the "Advisers". For purposes hereof, the term
"Fund Complex" includes each of the open-end investment companies advised by the
Advisers (excluding Van Kampen Exchange Fund).

TRUSTEES

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
J. Miles Branagan......................... Private investor. Co-founder, and prior to August 1996,
1632 Morning Mountain Road Chairman, Chief Executive Officer and President, MDT
Raleigh, NC 27614 Corporation (now known as Getinge/Castle, Inc., a
Date of Birth: 07/14/32 subsidiary of Getinge Industrier AB), a company which
develops, manufactures, markets and services medical and
scientific equipment. Trustee/Director of each of the
funds in the Fund Complex.
</TABLE>

B-37
<PAGE> 129

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Richard M. DeMartini*..................... Chairman and Chief Executive Officer of International
Two World Trade Center Private Client Group, a division of Morgan Stanley Dean
66th Floor Witter & Co. Chairman of Dean Witter Futures & Currency
New York, NY 10048 Management Inc. and Demeter Management Corporation.
Date of Birth: 10/12/52 Director of Dean Witter Reynolds Inc. Chairman and
Director of Dean Witter Capital Corporation. Chairman,
Chief Executive Officer, President and a Director of Dean
Witter Alliance Capital Corporation, Director of the
National Healthcare Resources, Inc., Morgan Stanley Dean
Witter Distributors, Inc., Dean Witter Realty Inc., Dean
Witter Reynolds Venture Equities Inc., DW Window Covering
Holding, Inc., and is a member of the Morgan Stanley Dean
Witter Management Committee. Prior to December of 1998,
Mr. DeMartini was President and Chief Operating Officer
of Morgan Stanley Dean Witter Individual Asset Management
and a Director of Morgan Stanley Dean Witter Trust FSB.
Formerly Vice Chairman of the Board of the National
Association of Securities Dealers, Inc. and Chairman of
the Board of the Nasdaq Stock Market, Inc. Trustee of the
TCW/DW Funds, Director of the Morgan Stanley Dean Witter
Funds and Trustee/Director of each of the funds in the
Fund Complex.
Linda Hutton Heagy........................ Managing Partner of Heidrick & Stuggles, an executive
Sears Tower search firm. Prior to 1997, Partner, Ray & Berndtson,
233 South Wacker Drive Inc., an executive recruiting and management consulting
Suite 7000 firm. Formerly, Executive Vice President of ABN AMRO,
Chicago, IL 60606 N.A., a Dutch bank holding company. Prior to 1992,
Date of Birth: 06/03/48 Executive Vice President of La Salle National Bank.
Trustee on the University of Chicago Hospitals Board,
Vice Chair of the Board of The YMCA of Metropolitan
Chicago and a member of the Women's Board of the
University of Chicago. Prior to 1996, Trustee of The
International House Board. Trustee/Director of each of
the funds in the Fund Complex.
R. Craig Kennedy.......................... President and Director, German Marshall Fund of the
11 DuPont Circle, N.W. United States. Formerly, advisor to the Dennis Trading
Washington, D.C. 20036 Group Inc. Prior to 1992, President and Chief Executive
Date of Birth: 02/29/52 Officer, Director and Member of the Investment Committee
of the Joyce Foundation, a private foundation.
Trustee/Director of each of the funds in the Fund
Complex.
Jack E. Nelson............................ President, Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President, Nelson Ivest Brokerage Services Inc.,
Date of Birth: 02/13/36 a member of the National Association of Securities
Dealers, Inc. ("NASD") and Securities Investors
Protection Corp. ("SIPC"). Trustee/Director of each of
the funds in the Fund Complex.
</TABLE>

B-38
<PAGE> 130

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Don G. Powell*............................ Currently a member of the board of governors and
3 Wexford Court executive committee for the Investment Company Institute,
Houston, TX 77024 and a member of the Board of Trustees of the Houston
Date of Birth: 10/19/39 Museum of Natural Science. Immediate past Chairman of the
Investment Company Institute. Prior to January 1999,
Chairman and a Director of Van Kampen Investments, the
Advisers, the Distributor and Investor Services and
Director or officer of certain other subsidiaries of Van
Kampen Investments. Prior to July of 1998, Director and
Chairman of VK/AC Holding, Inc. Prior to November 1996,
President, Chief Executive Officer and a Director of
VK/AC Holding, Inc. Trustee/Director of each of the funds
in the Fund Complex and Trustee of other funds advised by
the Advisers or Van Kampen Management Inc.
Phillip B. Rooney......................... Vice Chairman and Director of The ServiceMaster Company,
One ServiceMaster Way a business and consumer services company. Director of
Downers Grove, IL 60515 Illinois Tool Works, Inc., a manufacturing company and
Date of Birth: 07/08/44 the Urban Shopping Centers Inc., a retail mall management
company. Trustee, University of Notre Dame. Prior to
1998, Director of Stone Smurfit Container Corp., a paper
manufacturing company. Formerly, President, Chief
Executive Officer and Chief Operating Officer of Waste
Management, Inc., an environmental services company.
Trustee/Director of each of the funds in the Fund
Complex.
Fernando Sisto............................ Professor Emeritus and, prior to 1995, Dean of the
155 Hickory Lane Graduate School, Stevens Institute of Technology.
Closter, NJ 07624 Director, Dynalysis of Princeton, a firm engaged in
Date of Birth: 08/02/24 engineering research. Trustee/Director of each of the
funds in the Fund Complex.
Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom (Illinois), legal counsel to the funds in the Fund
Chicago, IL 60606 Complex, and other open-end and closed-end funds advised
Date of Birth: 08/22/39 by the Advisers or Van Kampen Management Inc.
Trustee/Director of each of the funds in the Fund
Complex, and Trustee/Managing General Partner of other
open-end and closed-end funds advised by the Advisers or
Van Kampen Management Inc.
Paul G. Yovovich.......................... Private investor. Prior to April 1996, President of
Sears Tower Advance Ross Corporation. Director of 3Com Corporation,
233 South Wacker Drive APAC Customer Services, Inc., and COMARCO, Inc.
Suite 9700 Trustee/Director of each of the Funds in the Fund
Chicago, IL 60606 Complex.
Date of Birth: 10/29/53
</TABLE>

- ------------------------------------
* Such trustee is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act). Mr. Whalen is an interested person of the Fund by reason of
his firm currently acting as legal counsel to the Fund. Messrs. DeMartini and
Powell are interested persons of the Fund and the Advisers by reason of their
current or former positions with Morgan Stanley Dean Witter & Co. or its
affiliates.

B-39
<PAGE> 131

OFFICERS

Messrs. McDonnell, Hegel, Sullivan, Wood, Dalmaso, Martin, Wetherell and
Hill are located at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, IL
60181-5555. The Fund's other officers are located at 2800 Post Oak Blvd.,
Houston, TX 77056.

<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
<S> <C>
Dennis J. McDonnell.................. Executive Vice President and a Director of Van Kampen
Date of Birth: 05/20/42 Investments. President, Chief Operating Officer and a
President Director of the Advisers, Van Kampen Advisors Inc., and Van
Kampen Management Inc. Prior to July of 1998, Director and
Executive Vice President of VK/AC Holding, Inc. Prior to
April of 1998, President and a Director of Van Kampen
Merritt Equity Advisors Corp. Prior to April of 1997, Mr.
McDonnell was a Director of Van Kampen Merritt Equity
Holdings Corp. Prior to September of 1996, Mr. McDonnell was
Chief Executive Officer and Director of MCM Group, Inc.,
McCarthy, Crisanti & Maffei, Inc. and Chairman and Director
of MCM Asia Pacific Company, Limited and MCM (Europe)
Limited. Prior to July of 1996, Mr. McDonnell was President,
Chief Operating Officer and Trustee of VSM Inc. and VCJ Inc.
President of each of the funds in the Fund Complex.
President, Chairman of the Board and Trustee/Managing
General Partner of other investment companies advised by the
Advisers or their affiliates.

Peter W. Hegel....................... Executive Vice President of the Advisers, Van Kampen
Date of Birth: 06/25/56 Management Inc. and Van Kampen Advisors Inc. Prior to July
Vice President of 1996, Mr. Hegel was a Director of VSM Inc. Prior to
September of 1996, he was a Director of McCarthy, Crisanti &
Maffei, Inc. Vice President of each of the funds in the Fund
Complex and certain other investment companies advised by
the Advisers or their affiliates.

John L. Sullivan..................... First Vice President of Van Kampen Investments and the
Date of Birth: 08/20/55 Advisers. Treasurer, Vice President and Chief Financial
Treasurer, Vice President and Chief Officer of each of the funds in the Fund Complex and certain
Financial Officer other investment companies advised by the Advisers or their
affiliates.

Curtis W. Morell..................... Senior Vice President of the Advisers, Vice President and
Date of Birth: 08/04/46 Chief Accounting Officer of each of the funds in the Fund
Vice President and Chief Accounting Complex and certain other investment companies advised by
Officer the Advisers or their affiliates.

Paul R. Wolkenberg................... Executive Vice President and Director of Van Kampen
Date of Birth: 11/10/44 Investments. Executive Vice President of Asset Management
Vice President and the Distributor. President and a Director of Investor
Services. President and Chief Operating Officer of Van
Kampen Recordkeeping Services Inc. Prior to July of 1998,
Director and Executive Vice President of VK/AC Holding, Inc.
Vice President of each of the funds in the Fund Complex and
certain other investment companies advised by the Advisers
or their affiliates.

Edward C. Wood III................... Senior Vice President of the Advisers, Van Kampen
Date of Birth: 01/11/56 Investments and Van Kampen Management Inc. Senior Vice
Vice President President and Chief Operating Officer of the Distributor.
Vice President of each of the funds in the Fund Complex and
certain other investment companies advised by the Advisers
or their affiliates.
</TABLE>

B-40
<PAGE> 132

<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
<S> <C>
Tanya M. Loden....................... Vice President of Van Kampen Investments and the Advisers.
Date of Birth: 11/19/59 Controller of each of the funds in the Fund Complex and
Controller other investment companies advised by the Advisers or their
affiliates.

Nicholas Dalmaso..................... Associate General Counsel and Assistant Secretary of Van
Date of Birth: 03/01/65 Kampen Investments. Vice President, Associate General
Assistant Secretary Counsel and Assistant Secretary of the Advisers, the
Distributor, Van Kampen Advisors Inc. and Van Kampen
Management Inc. Assistant Secretary of each of the funds in
the Fund Complex and other investment companies advised by
the Advisers or their affiliates.

Scott E. Martin...................... Senior Vice President, Deputy General Counsel and Assistant
Date of Birth: 08/20/56 Secretary of Van Kampen Investments. Senior Vice President,
Assistant Secretary Deputy General Counsel and Secretary of the Advisers, the
Distributor, Investor Services, American Capital Contractual
Services, Inc., Van Kampen Management Inc., Van Kampen
Exchange Corp., Van Kampen Advisors Inc., Van Kampen
Insurance Agency of Illinois Inc., Van Kampen System Inc.
and Van Kampen Recordkeeping Services Inc. Prior to July of
1998, Senior Vice President, Deputy General Counsel and
Assistant Secretary of VK/AC Holding, Inc. Prior to April of
1998, Van Kampen Merritt Equity Advisors Corp. Prior to
April of 1997, Senior Vice President, Deputy General Counsel
and Secretary of Van Kampen American Capital Services, Inc.
and Van Kampen Merritt Holdings Corp. Prior to September of
1996, Mr. Martin was Deputy General Counsel and Secretary of
McCarthy, Crisanti & Maffei, Inc., and prior to July of
1996, he was Senior Vice President, Deputy General Counsel
and Secretary of VSM Inc. and VCJ Inc. Assistant Secretary
of each of the funds in the Fund Complex and other
investment companies advised by the Advisers or their
affiliates.

Weston B. Wetherell.................. Vice President, Associate General Counsel and Assistant
Date of Birth: 06/15/56 Secretary of Van Kampen Investments, the Advisers, the
Assistant Secretary Distributor, Van Kampen Management Inc. and Van Kampen
Advisors Inc. Prior to September of 1996, Mr. Wetherell was
Assistant Secretary of McCarthy, Crisanti & Maffei, Inc.
Assistant Secretary of each of the funds in the Fund Complex
and other investment companies advised by the Advisers or
their affiliates.

Steven M. Hill....................... Vice President of Van Kampen Investments and the Advisers.
Date of Birth: 10/16/64 Assistant Treasurer of each of the funds in the Fund Complex
Assistant Treasurer and other investment companies advised by the Advisers or
their affiliates.

Michael Robert Sullivan.............. Assistant Vice President of the Advisers. Assistant
Date of Birth: 03/30/33 Controller of each of the funds in the Fund Complex and
Assistant Controller other investment companies advised by the Advisers or their
affiliates.
</TABLE>

Each trustee/director holds the same position with each of the funds in the
Fund Complex. As of the date of this Statement of Additional Information, there
are 65 operating funds in the Fund Complex. Each trustee/director who is not an
affiliated person of Van Kampen Investments, the Advisers or the Distributor
(each a "Non-Affiliated Trustee") is compensated by an annual retainer and
meeting fees for services to the funds in the Fund Complex. Each fund in the
Fund Complex (except the money market series of the Van Kampen Series Fund Inc.)
provides a deferred compensation plan to its Non-Affiliated Trustees that allows
trustees/directors to defer receipt of their compensation and earn a return on
such deferred amounts.

B-41
<PAGE> 133

Deferring compensation has the economic effect as if the Non-Affiliated Trustee
reinvested his or her compensation into the funds. Each fund in the Fund Complex
(except the money market series of the Van Kampen Series Fund Inc.) provides a
retirement plan to its Non-Affiliated Trustees that provides Non-Affiliated
Trustees with compensation after retirement, provided that certain eligibility
requirements are met as more fully described below.

The compensation of each Non-Affiliated Trustee includes an annual retainer
in an amount equal to $50,000 per calendar year, due in four quarterly
installments on the first business day of each quarter. Payment of the annual
retainer is allocated among the funds in the Fund Complex (except the money
market series of the Van Kampen Series Fund Inc.) on the basis of the relative
net assets of each fund as of the last business day of the preceding calendar
quarter. The compensation of each Non-Affiliated Trustee includes a per meeting
fee from each fund in the Fund Complex (except the money market series of the
Van Kampen Series Fund Inc.) in the amount of $200 per quarterly or special
meeting attended by the Non-Affiliated Trustee, due on the date of the meeting,
plus reasonable expenses incurred by the Non-Affiliated Trustee in connection
with his or her services as a trustee, provided that no compensation will be
paid in connection with certain telephonic special meetings.

Under the deferred compensation plan, each Non-Affiliated Trustee generally
can elect to defer receipt of all or a portion of the compensation earned by
such Non-Affiliated Trustee until retirement. Amounts deferred are retained by
the Fund and earn a rate of return determined by reference to the return on the
common shares of such Fund or other funds in the Fund Complex as selected by the
respective Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund Complex. To
the extent permitted by the 1940 Act, the Fund may invest in securities of those
funds selected by the Non-Affiliated Trustees in order to match the deferred
compensation obligation. The deferred compensation plan is not funded and
obligations thereunder represent general unsecured claims against the general
assets of the Fund.

Under the retirement plan, a Non-Affiliated Trustee who is receiving
compensation from such Fund prior to such Non-Affiliated Trustee's retirement,
has at least 10 years of service (including years of service prior to adoption
of the retirement plan) and retires at or after attaining the age of 60, is
eligible to receive a retirement benefit equal to $2,500 per year for each of
the ten years following such retirement from such Fund. Non-Affiliated Trustees
retiring prior to the age of 60 or with fewer than 10 years but more than 5
years of service may receive reduced retirement benefits from such Fund. Each
trustee/director has served as a member of the Board of Trustees of the Fund
since he or she was first appointed or elected in the year set forth below. The
retirement plan contains a Fund Complex retirement benefit cap of $60,000 per
year.

B-42
<PAGE> 134

Additional information regarding compensation and benefits for trustees is
set forth below for the periods described in the notes accompanying the table.

COMPENSATION TABLE

<TABLE>
<CAPTION>
Fund Complex
-------------------------------------------
Aggregate
Aggregate Estimated
Pension or Maximum Total
Aggregate Retirement Annual Compensation
Compensation Benefits Benefits from before
before Accrued as the Fund Deferral from
Deferral from Part of Upon Fund
Name the Fund(2) Expenses(3) Retirement(4) Complex(5)
---- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
J. Miles Branagan $ $ $60,000 $
Linda Hutton Heagy 60,000
R. Craig Kennedy 60,000
Jack E. Nelson 60,000
Phillip B. Rooney 60,000
Dr. Fernando Sisto 60,000
Wayne W. Whalen 60,000
Paul G. Yovovich (1) 60,000 $
</TABLE>

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

(1) Mr. Yovovich joined the Board of Trustees on October 22, 1998 and therefore
does not have a full fiscal year of information to report. Trustees not
eligible for compensation are not included in the Compensation Table.

(2) The amounts shown in this column represent the Aggregate Compensation before
Deferral with respect to the Fund's fiscal year ended December 31, 1998. The
following trustees deferred compensation from the Fund during the fiscal
year ended December 31, 1998: Mr. Branagan, $ ; Ms. Heagy, $ ; Mr.
Kennedy, $ ; Mr. Nelson, $ ; Mr. Rooney, $ ; Dr. Sisto, $ ;
Mr. Whalen, $ ; and Mr. Yovovich, $ . Amounts deferred are retained
by the Fund and earn a rate of return determined by reference to either the
return on the common shares of the Fund or other funds in the Fund Complex
as selected by the respective Non-Affiliated Trustee, with the same economic
effect as if such Non-Affiliated Trustee had invested in one or more funds
in the Fund Complex. To the extent permitted by the 1940 Act, each Fund may
invest in securities of those funds selected by the Non-Affiliated Trustees
in order to match the deferred compensation obligation. The cumulative
deferred compensation (including interest) accrued with respect to each
trustee, including former trustees, from the Fund as of December 31, 1998 is
as follows: Mr. Branagan, $ ; Dr. Caruso, $ ; Mr. Gaughan, $ ;
Ms. Heagy, $ ; Mr. Kennedy, $ ; Mr. Miller, $ ; Mr. Nelson,
$ ; Mr. Rees, $ ; Mr. Rooney, $ ; Dr. Sisto, $ ; Mr. Whalen,
$ ; and Mr. Yovovich, $ . The deferred compensation plan is
described above the Compensation Table.

(3) The amounts shown in this column represent the sum of the retirement
benefits expected to be accrued by the operating investment companies in the
Fund Complex for their respective fiscal years ended in 1999. The retirement
plan is described above the Compensation Table.

(4) For each trustee, this is the sum of the estimated maximum annual benefits
payable by the operating investment companies in the Fund Complex for each
year of the 10-year period commencing in the year of such trustee's
anticipated retirement. The Retirement Plan is described above the
Compensation Table.

B-43
<PAGE> 135

(5) The amounts shown in this column represent the aggregate compensation paid
by all operating investment companies in the Fund Complex as of December 31,
1998 before deferral by the trustees under the deferred compensation plan.
Because the funds in the Fund Complex have different fiscal year ends, the
amounts shown in this column are presented on a calendar year basis. Certain
trustees deferred all or a portion of their aggregate compensation from the
Fund Complex during the calendar year ended December 31, 1998. The deferred
compensation earns a rate of return determined by reference to the return on
the shares of the funds in the Fund Complex as selected by the respective
Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund
Complex. To the extent permitted by the 1940 Act, the Fund may invest in
securities of those investment companies selected by the Non-Affiliated
Trustees in order to match the deferred compensation obligation. The
Advisers and their affiliates also serve as investment adviser for other
investment companies; however, with the exception of Mr. Whalen, the
Non-Affiliated Trustees were not trustees of such investment companies.
Combining the Fund Complex with other investment companies advised by the
Advisers and their affiliates, Mr. Whalen received Total Compensation of
$ during the calendar year ended December 31, 1998.

As of April , 1999, the trustees and officers of the Fund as a group
owned less than 1% of the shares of the Fund.

B-44
<PAGE> 136

TABLE A

1998 AGGREGATE COMPENSATION FROM THE TRUST AND EACH PORTFOLIO

<TABLE>
<CAPTION>
TRUSTEE
-----------------------------------------------------------------------------
PORTFOLIO NAME BRANAGAN HEAGY KENNEDY NELSON ROONEY SISTO WHALEN YOVOVICH
-------------- -------- ----- ------- ------ ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIT Asset Allocation Portfolio...................
LIT Comstock Portfolio...........................
LIT Domestic Income Portfolio....................
LIT Emerging Growth Portfolio....................
LIT Enterprise Portfolio.........................
LIT Global Equity Portfolio......................
LIT Government Portfolio.........................
LIT Growth and Income Portfolio..................
LIT Money Market Portfolio.......................
LIT Morgan Stanley Real Estate Securities
Portfolio......................................
LIT Strategic Stock Portfolio....................
------ ------ ------ ------- ------- ------ ------- -------
Life Investment Trust Total....................
====== ====== ====== ======= ======= ====== ======= =======
</TABLE>

TABLE B

1998 AGGREGATE COMPENSATION DEFERRED FROM THE TRUST AND EACH PORTFOLIO

<TABLE>
<CAPTION>
TRUSTEE
---------------------------------------------------------------------------
PORTFOLIO NAME BRANAGAN HEAGY KENNEDY NELSON ROONEY SISTO WHALEN YOVOVICH
-------------- -------- ----- ------- ------ ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIT Asset Allocation Portfolio......................
LIT Comstock Portfolio..............................
LIT Domestic Income Portfolio.......................
LIT Emerging Growth Portfolio.......................
LIT Enterprise Portfolio............................
LIT Global Equity Portfolio.........................
LIT Government Portfolio............................
LIT Growth and Income Portfolio.....................
LIT Money Market Portfolio..........................
LIT Morgan Stanley Real Estate Securities
Portfolio.........................................
LIT Strategic Stock Portfolio.......................
------ ------ ------ ------ ------ ------ ------- -------
Life Investment Trust Total:......................
====== ====== ====== ====== ====== ====== ======= =======
</TABLE>

TABLE C

CUMULATIVE COMPENSATION DEFERRED (PLUS INTEREST) FROM THE TRUST
AND EACH PORTFOLIO

<TABLE>
<CAPTION>
TRUSTEE
---------------------------------------------------------------------------------------------------
PORTFOLIO NAME BRANAGAN HEAGY KENNEDY NELSON ROONEY SISTO WHALEN YOVOVICH CARUSO GAUGHAN
-------------- -------- ----- ------- ------ ------ ----- ------ -------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIT Asset Allocation
Portfolio..................
LIT Comstock Portfolio.......
LIT Domestic Income
Portfolio..................
LIT Emerging Growth
Portfolio..................
LIT Enterprise Portfolio.....
LIT Global Equity
Portfolio..................
LIT Government Portfolio.....
LIT Growth and Income
Portfolio..................
LIT Money Market Portfolio...
LIT Morgan Stanley Real
Estate Securities
Portfolio..................
LIT Strategic Stock
Portfolio..................
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Life Investment Trust
Total....................
======= ======= ======= ======= ======= ======= ======= ======= ======= =======

<CAPTION>
TRUSTEE
------------------------------------------------
PORTFOLIO NAME LIPSHIE MILLER REES ROBINSON VERNON
-------------- ------- ------ ---- -------- ------
<S> <C> <C> <C> <C> <C>
LIT Asset Allocation
Portfolio..................
LIT Comstock Portfolio.......
LIT Domestic Income
Portfolio..................
LIT Emerging Growth
Portfolio..................
LIT Enterprise Portfolio.....
LIT Global Equity
Portfolio..................
LIT Government Portfolio.....
LIT Growth and Income
Portfolio..................
LIT Money Market Portfolio...
LIT Morgan Stanley Real
Estate Securities
Portfolio..................
LIT Strategic Stock
Portfolio..................
------- ------- ------- ------- -------
Life Investment Trust
Total....................
======= ======= ======= ======= =======
</TABLE>

B-45
<PAGE> 137

TABLE D

YEAR OF ELECTION OR APPOINTMENT TO EACH PORTFOLIO OF THE TRUST

<TABLE>
<CAPTION>
TRUSTEE
-------------------------------------------------------------------------
PORTFOLIO NAME BRANAGAN HEAGY KENNEDY NELSON ROONEY SISTO WHALEN YOVOVICH
- -------------- -------- ----- ------- ------ ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIT Asset Allocation Portfolio....................... 1991 1995 1995 1995 1997 1987 1995 1998
LIT Comstock Portfolio............................... 1998 1998 1998 1998 1998 1998 1998 1998
LIT Domestic Income Portfolio........................ 1991 1995 1995 1995 1997 1987 1995 1998
LIT Emerging Growth Portfolio........................ 1995 1995 1995 1995 1997 1995 1995 1998
LIT Enterprise Portfolio............................. 1991 1995 1995 1995 1997 1986 1995 1998
LIT Global Equity Portfolio.......................... 1995 1995 1995 1995 1997 1995 1995 1998
LIT Government Portfolio............................. 1991 1995 1995 1995 1997 1986 1995 1998
LIT Growth and Income Portfolio...................... 1995 1995 1995 1995 1997 1995 1995 1998
LIT Money Market Portfolio........................... 1991 1995 1995 1995 1997 1986 1995 1998
LIT Morgan Stanley Real Estate Securities
Portfolio.......................................... 1995 1995 1995 1995 1997 1995 1995 1998
LIT Strategic Stock Portfolio........................ 1997 1997 1997 1997 1997 1997 1997 1998
</TABLE>

As of the date of this Statement of Additional Information the Comstock
Portfolio had not commenced investment operations.

INVESTMENT ADVISORY AGREEMENTS

The Trust and the Adviser are parties to an investment advisory agreement
(the "Combined Advisory Agreement") pursuant to which the Trust retains the
Adviser to manage the investment of assets and to place orders for the purchase
and sale of portfolio securities for certain portfolios including the Asset
Allocation Portfolio, the Domestic Income Portfolio, the Enterprise Portfolio,
the Government Portfolio and the Money Market Portfolio (collectively, the
"Combined Portfolios"). The Combined Advisory Agreement also provides that, in
the event the ordinary business expenses of any of the Combined Portfolios for
any fiscal year exceed 0.95% of the average daily net assets, the compensation
due the Adviser will be reduced by the amount of such excess and that, if a
reduction in and refund of the advisory fee is insufficient, the Adviser will
pay the Combined Portfolios monthly an amount sufficient to make up the
deficiency, subject to readjustment during the year. Ordinary business expenses
do not include (1) interest and taxes, (2) brokerage commissions, (3) any
distribution expenses which may be incurred in the event the Combined
Portfolios' Distribution Plan is implemented, and (4) certain litigation and
indemnification expenses as described in the Combined Advisory Agreement. The
Trust and the Adviser are also parties to other investment advisory agreements
pursuant to which the Adviser manages the investment of assets and places orders
for the purchase and sale of portfolio securities for the remaining Portfolios
including six advisory agreements designated herein as "Comstock Advisory
Agreement," "Emerging Growth Advisory Agreement," "Global Equity Advisory
Agreement," "Growth and Income Advisory Agreement", "Morgan Stanley Real Estate
Securities Advisory Agreement" and the "Strategic Stock Advisory Agreement" for
the Comstock Portfolio, the Emerging Growth Portfolio, the Global Equity
Portfolio, the Growth and Income Portfolio, the Morgan Stanley Real Estate
Securities Portfolio and the Strategic Stock Portfolio, respectively (such
advisory agreements together with the Combined Advisory Agreement are referred
to herein collectively as the "Advisory Agreements"). Under the Advisory
Agreements, the Adviser is responsible for obtaining and evaluating economic,
statistical, and financial data and for formulating and implementing investment
programs in furtherance of each Portfolio's investment objectives. The Adviser
also furnishes at no cost to the Portfolios (except as noted herein) the
services of sufficient executive and clerical personnel for the Trust as are
necessary to prepare registration statements, prospectuses, shareholder reports,
and notices and proxy solicitation materials. In addition, the Adviser furnishes
at no cost to the Portfolio the services of a President of the Trust, one or
more Vice Presidents as needed, and a Secretary.

Under the Advisory Agreements, the Trust bears the cost of its accounting
services, which includes maintaining its financial books and records and
calculating the daily net asset value of each Portfolio. The costs of such
accounting services include the salaries and overhead expenses of a Treasurer or
other principal financial officer and the personnel operating under his
direction. The services are provided at cost

B-46
<PAGE> 138

which is allocated among the investment companies advised by the Adviser. A
portion of these amounts are paid to the Adviser or its parent as reimbursement
of personnel, office space, facilities and equipment costs attributable to the
provision of accounting services to the Trust. The Trust also pays custodian
fees, legal and auditing fees, the costs of reports to shareholders and all
other ordinary expenses not specifically assumed by the Adviser. The Advisory
Agreements also provide that the Adviser shall not be liable to the company for
any actions or omissions if it acted without willful misfeasance, bad faith,
negligence or reckless disregard of its obligations.

Under the Advisory Agreements, the Trust pays to the Adviser as
compensation for the services rendered, facilities furnished, and expenses paid
by it, an annual fee payable monthly computed on average daily net assets as
follows:

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

Asset Allocation, Domestic Income, Enterprise, Government
and Money Market Portfolios (based upon their combined
average daily net assets)
First $500 million................................... 0.50%
Next $500 million.................................... 0.45%
Over $1 billion...................................... 0.40%
(The resulting fee is prorated to each of these
Portfolios based upon their respective average daily
net assets.)
Comstock Portfolio and Growth and Income Portfolio (based
on each Portfolio's average daily net assets)
First $500 million................................... 0.60%
Over $500 million.................................... 0.55%
Emerging Growth Portfolio................................. 0.70%
Global Equity Portfolio................................... 1.00%
Morgan Stanley Real Estate Securities Portfolio........... 1.00%
Strategic Stock Portfolio.................................
First $500 million................................... 0.50%
Over $500 million.................................... 0.45%
</TABLE>

In relation to Global Equity Portfolio and Morgan Stanley Real Estate Securities
Portfolio, the Adviser has entered into subadvisory agreements (the "Subadvisory
Agreement") to assist the Adviser in performing its investment advisory
functions. Under the Subadvisory Agreements, the Subadviser receives on an
annual basis 50% of the advisory fees received by the Adviser with respect to
such Portfolios.

The Combined Advisory Agreement also provides that, in the event the
ordinary business expenses of any of the Combined Portfolios for any fiscal year
exceed 0.95% of the average daily net assets, the compensation due the Adviser
will be reduced by the amount of such excess and that, if a reduction in and
refund of the advisory fee is insufficient, the Adviser will pay the Combined
Portfolios monthly an amount sufficient to make up the deficiency, subject to
readjustment during the year. Ordinary business expenses do not include (1)
interest and taxes, (2) brokerage commissions, (3) any distribution expenses
which may be incurred in the event the Combined Portfolios' Distribution Plan is
implemented, and (4) certain litigation and indemnification expenses as
described in the Combined Advisory Agreement.

B-47
<PAGE> 139

The Adviser has voluntarily agreed to reimburse the Portfolios for all expenses
as a percent of average daily net assets in excess of the following:

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

Asset Allocation, Domestic Income, Enterprise, Government
and Money Market Portfolios (based upon their combined
average daily net assets)................................. 0.60%
Comstock Portfolio........................................ *
Emerging Growth Portfolio................................. 0.85%
Global Equity Portfolio................................... 1.20%
Growth and Income Portfolio............................... 0.75%
Morgan Stanley Real Estate Securities Portfolio........... 1.10%
Strategic Stock Portfolio................................. 0.65%
</TABLE>

Applying these schedules, the Trust paid the Adviser on behalf of the
Portfolios, an advisory fee at the effective rate of the Portfolios' average
daily net assets for the Trust's fiscal year ended December 31, 1998 as follows:

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

Asset Allocation Portfolio................................ 0.38%
Comstock Portfolio........................................ *
Domestic Income Portfolio................................. 0.01%
Emerging Growth Portfolio................................. 0.32%
Enterprise Portfolio...................................... 0.46%
Global Equity Portfolio................................... 0.00%
Government Portfolio...................................... 0.37%
Growth and Income Portfolio............................... 0.26%
Money Market Portfolio.................................... 0.11%
Morgan Stanley Real Estate Securities Portfolio........... 0.00%
Strategic Stock Portfolio................................. 0.00%
</TABLE>

*As of December 31, 1998, the Comstock Profile had not
commenced investment operations and, accordingly, had no
assets nor paid advisory fees from which an effective rate
could be derived.

The average daily net assets of a Portfolio is determined by taking the
average of all of the determinations of net assets of that Portfolio for each
business day during a given calendar month. The fee is payable for each calendar
month as soon as practicable after the end of that month. The fee payable to the
Adviser is reduced by any commissions, tender solicitation and other fees,
brokerage or similar payments received by the Adviser

B-48
<PAGE> 140

or any other direct or indirect majority owned subsidiary of Van Kampen
Investments, in connection with the purchase and sale of portfolio investments
of the Portfolios, less any direct expenses incurred by such subsidiary of Van
Kampen Investments in connection with obtaining such payments. The Adviser
agrees to use its best efforts to recapture tender solicitation fees and
exchange offer fees for the Portfolios benefit, and to advise the Trustees of
the Portfolios of any other commissions, fees, brokerage or similar payments
which may be possible under applicable laws for the Adviser or any other direct
or indirect majority owned subsidiary of Van Kampen Investments, to receive in
connection with the Portfolios investment transactions or other arrangements
which may benefit the Portfolios.

The following table shows expenses paid under the Advisory Agreements
during the periods ended December 31, 1998, 1997 and 1996.

GROWTH
ASSET DOMESTIC EMERGING GLOBAL AND
PERIOD ENDING ALLOCATION COMSTOCK INCOME GROWTH ENTERPRISE EQUITY GOVERNMENT INCOME
DECEMBER 31, 1998: PORTFOLIO PORTFOLIO* PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------ ---------- ---------- --------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>

Advisory fees $ n/a $ $ $ $ $ $ --
Accounting Services $ 33,100 n/a $ 23,600 $22,900 $ 42,800 $ 38,100 $ 32,700 $24,500
Contractual expense
reimbursement $ -- n/a $ -- $ -- $ -- $ -- $ -- $ --
Voluntary expense
reimbursement $ n/a $ $ $ $ $ $ --

<CAPTION>
MORGAN
STANLEY
REAL
MONEY ESTATE STRATEGIC
PERIOD ENDING MARKET SECURITIES STOCK
DECEMBER 31, 1998: PORTFOLIO PORTFOLIO PORTFOLIO
------------------ --------- ---------- ---------
<S> <C> <C> <C>
Advisory fees $ $ $ --
Accounting Services $ 25,200 $ 73,500 $17,500
Contractual expense
reimbursement $ -- $ -- $ --
Voluntary expense
reimbursement $ $ $ --
</TABLE>

<TABLE>
<CAPTION>
PERIOD ENDING
DECEMBER 31, 1997:
------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Advisory fees $311,514 n/a $ 86,700 $48,713 $467,494 $ 31,290 $267,568 $30,777 $106,891
Accounting Services $ 14,290 n/a $ 8,861 $ 9,145 $ 19,566 $ 21,596 $ 13,895 $ 4,410 $ 10,155
Contractual expense
reimbursement $ -- n/a $ 17,857 $ -- $ -- $ -- $ -- $ -- $ 6,147
Voluntary expense
reimbursement $ 68,780 n/a $ 60,681 $89,683 $ 55,090 $174,632 $ 72,820 $45,369 $ 74,791

<CAPTION>
PERIOD ENDING
DECEMBER 31, 1997:
------------------
<S> <C> <C>
Advisory fees $2,269,511 $ 1,083
Accounting Services $ 32,983 $ --
Contractual expense
reimbursement $ -- $ --
Voluntary expense
reimbursement $ -- $ 4,892
</TABLE>

<TABLE>
<CAPTION>
PERIOD ENDING
DECEMBER 31, 1996:
------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Advisory fees $316,002 n/a $110,243 $28,284 $407,693 $ 28,416 $303,695 $ 74 $104,808
Accounting Services $ 56,837 n/a $ 44,328 $41,089 $ 52,282 $ 29,400 $ 55,531 $ -- $ 76,975
Contractual expense
reimbursement $ -- n/a $ 73,932 $ -- $ -- $ -- $ -- $ -- $ 70,526
Voluntary expense
reimbursement $113,873 n/a $ 77,170 $97,987 $123,582 $177,139 $122,474 $ 5,591 $ 73,366

<CAPTION>
PERIOD ENDING
DECEMBER 31, 1996:
------------------
<S> <C> <C>
Advisory fees $ 428,166 $ --
Accounting Services $ 44,869 $ --
Contractual expense
reimbursement $ -- $ --
Voluntary expense
reimbursement $ 70,941 $ --
</TABLE>

*As of December 31, 1998, the Comstock Portfolio had not commenced
investment operations and, accordingly, no expenses have been paid under the
Comstock Advisory Agreement.

The Advisory Agreements with respect to each subject Portfolio may be
continued from year to year if specifically approved at least annually (a)(i) by
the Trustees or (ii) by vote of a majority of such Portfolio's outstanding
voting securities and (b) by the affirmative vote of a majority of the Trustees
who are not parties to the agreement or interested persons of any such party by
votes cast in person at a meeting called for such purpose. The Advisory
Agreements provide that an agreement shall terminate automatically if assigned
and that it may be terminated without penalty by either party on 60 days'
written notice.

B-49
<PAGE> 141

DISTRIBUTOR

The Distributor acts as the principal underwriter of the shares of the
Trust pursuant to a written agreement (the "Distribution and Service
Agreement"). The Distributor's obligation is an agency or "best efforts"
arrangement under which the Distributor is not obligated to sell any stated
number of shares. The Distribution and Service Agreement is renewable from year
to year if approved (a) by the Trust's Trustees or by a vote of a majority of
the Trust's outstanding voting securities and (b) by the affirmative vote of a
majority of Trustees who are not parties to the Distribution and Service
Agreement or interested persons of any party, by votes cast in person at a
meeting called for that purpose. The Distribution and Service Agreement provides
that it will terminate if assigned, and that it may be terminated without
penalty by either party on 90 days' written notice.

The Distributor bears the cost of printing (but not typesetting)
prospectuses used in connection with this offering and certain other costs
including the cost of supplemental sales literature and advertising. The Trust
pays all expenses attributable to the registrations of its shares under federal
law, including registration and filing fees, the cost of preparation of the
prospectuses, related legal and auditing expenses, and the cost of printing
prospectuses for current shareholders.

TRANSFER AGENT

The Fund's transfer agent is Van Kampen Investor Services Inc., PO Box
418256, Kansas City, MO 64141-9256. For the fiscal years ended December 31,
1998, 1997 and 1996, Investor Services, as shareholder service agent and
dividend disbursing agent for the Portfolios received fees in the amount of
$ from each of the Portfolios of the Trust for such services, except the
Growth and Income Portfolio from which Investor Services received $ and the
Strategic Stock Portfolio from which Investor Services received no fees and
excluding the Comstock Portfolio which had not yet commenced investment
operations as of December 31, 1998. Prior to 1998, these services were provided
at cost plus a profit. Beginning in 1998, the transfer agency prices are
determined through negotiations with the Board of Trustees of the Trust and are
based on competitive market benchmarks.

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION

The Adviser is responsible for decisions to buy and sell securities for the
Portfolios, the selection of brokers and dealers to effect the transactions and
the negotiation of prices and any brokerage commissions on such transactions.
While the Adviser will be primarily responsible for the placement of the
Portfolios' investments, the policies and practices in this regard will at all
times be subject to review by the Trustees.

Transactions in debt securities generally made by the Fund are principal
transactions at net prices with little or no brokerage costs. Such securities
are normally purchased directly from the issuer or in the over-the-counter
market from an underwriter or market maker for the securities. Purchases from
underwriters of portfolio securities include a commission or concession paid by
the issuer to the underwriter and purchases from dealers serving as market
makers include a spread or markup to the dealer between the bid and asked price.
Sales to dealers are effected at bid prices. The Portfolios may also purchase
certain money market instruments directly from an issuer, in which case no
commissions or discounts are paid, or may purchase and sell listed bonds on a
exchange, which are effected through brokers who charge a commission for their
services.

The Adviser is responsible for placing portfolio transactions and does so
in a manner deemed fair and reasonable to the Portfolios and not according to
any formula. The primary consideration in all portfolio transactions is prompt
execution of orders in an effective manner at the most favorable price. In
selecting broker/dealers and in negotiating prices and any brokerage commissions
on such transactions, the Adviser considers the firm's reliability, integrity
and financial condition and the firm's execution capability, the size and
breadth of the market for the security, the size of and difficulty in executing
the order, and the best net price. There are many instances when, in the
judgment of the Adviser, more than one firm can offer

B-50
<PAGE> 142

comparable execution services. In selecting among such firms, consideration may
be given to those firms which supply research and other services in addition to
execution services. The Adviser is authorized to pay higher commissions to
brokerage firms that provide it with investment and research information than to
firms which do not provide such services if the Adviser determines that such
commissions are reasonable in relation to the overall services provided. No
specific value can be assigned to such research services which are furnished
without cost to the Adviser. Since statistical and other research information is
only supplementary to the research efforts of the Adviser to the Portfolios and
still must be analyzed and reviewed by its staff, the receipt of research
information is not expected to reduce its expenses materially. The investment
advisory fee is not reduced as a result of the Adviser's receipt of such
research services. Services provided may include (a) furnishing advice as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or pur-chasers or sellers of
securities; (b) furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy, and the performance
of accounts; and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody). Research
services furnished by firms through which the Fund effects its securities
transactions may be used by the Adviser in servicing all of its advisory
accounts; not all of such services may be used by the Adviser in connection with
the Fund.

The Adviser also may place portfolio transactions, to the extent permitted
by law, with brokerage firms affiliated with the Portfolios, the Adviser or the
Distributor and with brokerage firms participating in the distribution of the
Portfolios' shares if it reasonably believes that the quality of execution and
the commission are comparable to that available from other qualified firms.
Similarly, to the extent permitted by law and subject to the same considerations
on quality of execution and comparable commission rates, the Adviser may direct
an executing broker to pay a portion or all of any commissions, concessions or
discounts to a firm supplying research or other services or to a firm
participating in the distribution of the Portfolios' shares.

The Adviser may place Portfolio transactions at or about the same time for
other advisory accounts, including other investment companies. The Adviser seeks
to allocate portfolio transactions equitably whenever concurrent decisions are
made to purchase or sell securities for the Portfolios and another advisory
account. In some cases, this procedure could have an adverse effect on the price
or the amount of securities available to the Portfolios. In making such
allocations among the Portfolios and other advisory accounts, the main factors
considered by the Adviser are the respective sizes of the Portfolios and other
advisory accounts, the respective investment objectives, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held and
opinions of the persons responsible for recommending the investment.

Effective October 31, 1996, Morgan Stanley Group Inc. ("Morgan Stanley")
became an affiliate of the Adviser. Effective May 31, 1997, Dean Witter Discover
& Co. ("Dean Witter") became an affiliate of the Adviser. The trustees have
adopted certain policies incorporating the standards of Rule 17e-1 issued by the
SEC under the 1940 Act which requires that the commissions paid to affiliates of
the Portfolios must be reasonable and fair compared to the commissions, fees or
other remuneration received or to be received by other brokers in connection
with comparable transactions involving similar securities during a comparable
period of time. The rule and procedures also contain review requirements and
require the Adviser to furnish reports to the trustees and to maintain records
in connection with such reviews. After consideration of all factors deemed
relevant, the trustees will consider from time to time whether the advisory fee
for the Fund will be reduced by all or a portion of the brokerage commission
given to affiliated brokers.

B-51
<PAGE> 143

The Portfolios paid the following commissions to these brokers during the
periods shown:

<TABLE>
<CAPTION>
AFFILIATED BROKERS
-----------------------------------------------------
ALL BROKERS MORGAN STANLEY DEAN WITTER
----------- -------------- -----------
<S> <C> <C> <C>
Fiscal year Ended 1998................ 0 0
Fiscal year Ended 1997................ $10,732(AssetAllocationPortfolio) N/A
18,166(EnterprisePortfolio) N/A
------- ---
Fiscal year Ended 1996 (for all
Portfolios)......................... N/A N/A
Fiscal year 1998 Percentages:
Commissions with affiliate to total
commissions...................... 0 0
Value of brokerage transactions with
affiliate to total
transactions..................... 0 0
</TABLE>

B-52
<PAGE> 144

The following table summarizes for each portfolio the total brokerage
commissions paid, the amount of commissions paid to brokers selected primarily
on the basis of research services provided to the Adviser and the value of these
specific transactions.

ASSET DOMESTIC EMERGING GLOBAL
ALLOCATION COMSTOCK ENTERPRISE GOVERNMENT INCOME GROWTH EQUITY
PORTFOLIO PORTFOLIO* PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ---------- ----------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1998
- ------------------------
Total brokerage
commissions $ N/A $ $ -- $ $
Commissions for
research services $ N/A $ -- -- $ --
Value of research
transactions $ N/A $ -- -- $ --
1997
- ------------------------
Total brokerage
commissions $ 100,020 N/A $ 140,036 $30,799 -- $ 10,436 $2,119,980
Commissions for
research services $ 27,325 N/A $ 47,085 -- -- $ 5,597 --
Value of research
transactions $17,590,482 N/A $51,189,635 -- -- $9,900,077 --
1996
- ------------------------
Total brokerage
commissions $ 160,187 N/A $ 203,035 $49,075 $134 $ 7,373 $ 12,654
Commissions for
research services $ 62,566 N/A $ 118,119 -- -- $ 5,803 --
Value of research
transactions $28,024,814 N/A $68,820,181 -- -- $5,170,364 --

<CAPTION>
MORGAN STANLEY GROWTH
REAL ESTATE AND MONEY STRATEGIC
SECURITIES INCOME MARKET STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- --------- --------- ----------
<S> <C> <C> <C> <C>
1998
- ------------------------
Total brokerage
commissions $ $ -- $
Commissions for
research services $ -- -- $
Value of research
transactions $ -- -- $
1997
- ------------------------
Total brokerage
commissions $ 1,823,718 $ 13,809 -- $ 1,172
Commissions for
research services $ 1,446,147 -- -- $ 1,172
Value of research
transactions $656,816,992 -- -- $2,327,597
1996
- ------------------------
Total brokerage
commissions $ 222,173 -- -- --
Commissions for
research services $ 163,059 $ 187 -- --
Value of research
transactions $ 19,899,335 $481,917 -- --
</TABLE>

* As of December 31, 1998 the Comstock Portfolio had not commenced investment
operations and, accordingly, no tabular information is included for the
Comstock Portfolio.

PORTFOLIO TURNOVER

The portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for a fiscal year by the average
monthly value of each Portfolio's investment portfolio securities during such
fiscal year. Securities which mature in one year or less at the time of
acquisition are not included in this computation. The turnover rate may vary
greatly from year to year as well as within a year. The Portfolio's investment
portfolio turnover rate for prior years is shown under "Financial Highlights" in
the Prospectus.

DETERMINATION OF NET ASSET VALUE

The net asset value of the shares of each Portfolio is computed by dividing
the value of all securities held by the Portfolio plus other assets, less
liabilities, by the number of shares outstanding. This computation is determined
for each Portfolio as of the close of business of the New York Stock Exchange
(the "Exchange") (currently 4:00 p.m., New York time) on each business day on
which the Exchange is open.

MONEY MARKET PORTFOLIO NET ASSET VALUATION

The Portfolio's use of the amortized cost method of valuing its portfolio
securities is permitted by a rule adopted by the SEC. Under this rule, the
Portfolio must maintain a dollar-weighted average portfolio maturity of 90 days
or less, purchase only instruments having remaining maturities of thirteen
months or less and invest only in securities determined by the Adviser to be of
eligible quality with minimal credit risks. The valuation of each Portfolio's
investments is based upon their amortized cost, which does not take into account
unrealized capital gains or losses. Amortized cost valuation involves initially
valuing an instrument at its cost and thereafter, assuming a constant
amortization to maturity of any discount or premium, regardless of the impact

B-53
<PAGE> 145

of fluctuating interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price that
the Portfolio would receive if it sold the instrument.

The Portfolio's have established procedures reasonably designed, taking
into account current market conditions and the Portfolios investment objectives,
to stabilize the net asset value per share for purposes of sales and redemptions
at $1.00. These procedures include review by the Trustees, at such intervals as
the Portfolios or the Trustees deem appropriate, to determine the extent, if
any, to which the new asset value per share calculated by using available market
quotations deviates from $1.00 per share based on amortized cost. In the event
such deviation should exceed four tenths of one percent, the Trustees are
required to promptly consider what action, if any, should be initiated. If the
Trustees believe that the extent of any deviation from a $1.00 amortized cost
price per share may result in material dilution or other unfair results to new
or existing shareholders, it will take such steps as it considers appropriate to
eliminate or reduce these consequences to the extent reasonably practicable.
Such steps may include selling portfolio securities prior to maturity;
shortening the average maturity of the portfolio; withholding or reducing
dividends; or utilizing a net asset value per share determined by using
available market quotations.

ASSET ALLOCATION, COMSTOCK, DOMESTIC INCOME, EMERGING GROWTH, ENTERPRISE, GLOBAL
EQUITY, GROWTH AND INCOME, MORGAN STANLEY REAL ESTATE SECURITIES AND STRATEGIC
STOCK PORTFOLIOS NET ASSET VALUATION

The net asset value of these Portfolios is computed by (i) valuing
securities listed or traded on a national securities exchange at the last sale
price, or if there has been no sale that day at the mean between the last
reported bid and asked prices (ii) valuing unlisted securities for which
over-the-counter market quotations are readily available at the most recent bid
price as supplied by National Association of Securities Dealers Automated
Quotations ("NASDAQ") or by broker-dealers, and (iii) valuing any securities for
which market quotations are not readily available, and any other assets at fair
value as determined in good faith by the Adviser based on procedures approved by
the Trustees. Options, futures contracts and options thereon, which are traded
on exchanges, are valued at their last sale or settlement price as of the close
of such exchanges or if no sales are reported, at the mean between the last
reported bid and asked prices. Securities with a remaining maturity of 60 days
or less are valued on an amortized cost basis, which approximates market value.
Securities for which market quotations are not readily available, and any other
assets are valued at fair value as determined in good faith by the Adviser based
on procedures approved by the Trustees.

GOVERNMENT PORTFOLIO NET ASSET VALUATION

U.S. Government securities are traded in the over-the-counter market and
are valued at the mean between the last reported bid and asked prices. Such
valuations are based on quotations of one or more dealers that make markets in
the securities as obtained from such dealers or from a pricing service. Options,
interest rate futures contracts and options thereon, which are traded on
exchanges, are valued at their last sale or settlement price as of the close of
such exchanges or if no sales are reported, at the mean between the last
reported bid and asked prices. Securities with a remaining maturity of 60 days
or less are valued on an amortized cost basis, which approximates market value.
Securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith by the Adviser based on
procedures approved by the Trust's Trustees.

FAIR VALUE PRICING

With respect to certain Portfolios, trading in securities on European and
Far Eastern securities exchanges and over-the-counter markets is normally
completed well before the close of business on each business day in New York
(i.e., a day on which the Exchange is open). In addition, European or Far
Eastern securities trading generally or in a particular country or countries may
not take place on all business days in New York. Furthermore, trading takes
place on all business days in Japanese markets, on certain Saturdays, and in
various foreign markets on days which are not business days in New York, and on
which such Portfolios net

B-54
<PAGE> 146

asset value is not calculated, and on which such Portfolios does not effect
sales, redemptions and repurchases of its shares. There may be significant
variations in the net asset value of Portfolio shares on days when net asset
value is not calculated and on which shareholders cannot redeem on account of
changes in prices of stocks traded in foreign stock markets.

PURCHASE AND REDEMPTION OF SHARES

The purchase of shares of the Portfolios is currently limited to the
Accounts as explained in the Prospectus. Such shares are sold and redeemed at
their respective net asset values as described in the Prospectus.

Redemptions are not made on days during which the Exchange is closed. The
right of redemption may be suspended and the payment therefor may be postponed
for more than seven days during any period when (a) the Exchange is closed for
other than customary weekends or holidays; (b) trading on the Exchange is
restricted; (c) an emergency exists as a result of which disposal by the
Portfolio of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Portfolio to fairly determine the value of its
net assets; or (d) the SEC, by order, so permits.

TAX STATUS

The Trust and each of its Portfolios will be treated as separate
corporations for federal income tax purposes. A Portfolio will be subject to tax
if, among other things, it fails to distribute net capital gains, or if its
annual distributions, as a percentage of its income, are less than the
distributions required by tax laws.

B-55
<PAGE> 147

PORTFOLIO PERFORMANCE

The average annual total return (computed in the manner described in the
Prospectus) and yield, if applicable, for each Portfolio are shown in the table
below. These results are based on historical earnings and asset value
fluctuations and are not intended to indicate future performance. Such
information should be considered in light of each Portfolio's investment
objectives and policies as well as the risks incurred in each Portfolio's
investment practices. All total return figures are for the Trust's fiscal year
ended December 31, 1998.

<TABLE>
<CAPTION>
TOTAL RETURN TOTAL RETURN TOTAL RETURN
FOR ONE YEAR FOR FIVE YEAR FOR TEN YEAR TOTAL RETURN
PERIOD PERIOD PERIOD SINCE INCEPTION YIELD
------------ ------------- ------------ --------------- -----
<S> <C> <C> <C> <C> <C>
Asset Allocation Portfolio
commencement date 06/30/87......... % % % %
Domestic Income Portfolio*
commencement date 11/04/87......... % % % % %*
Emerging Growth Portfolio
commencement date 07/03/95......... % %
Enterprise Portfolio
commencement date 04/07/86......... % % % %
Global Equity Portfolio
commencement date 07/03/95......... % %
Government Portfolio*
commencement date 04/07/86......... % % % % %*
Growth and Income Portfolio
commencement date 12/23/96......... % %
Money Market Portfolio**
commencement date 04/07/86......... %*
Morgan Stanley Real Estate Securities
Portfolio
commencement date 07/03/95......... % %
Strategic Stock Portfolio
commencement date 11/03/97......... %
</TABLE>

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

* For the 30-day period ended December 31, 1998. The Portfolios' yields are not
fixed and will fluctuate in response to prevailing interest rates and the
market value of portfolio securities, and as a function of the type of
securities owned by a Portfolio, Portfolio maturity and the Portfolio's
expenses.

** For the seven-day period ended December 31, 1998. The compound effective
yield for this same period was %.

As of December 31, 1998, the Comstock Portfolio had not commenced
investment operations and, accordingly, no performance information is included
for the Comstock Portfolio.

From time to time, the Portfolios, except the Money Market Portfolio, may
advertise their total return for prior periods. Any such advertisement would
include at least average annual total return quotations for one, five and ten
year periods or for the life of the Portfolio. Other total return quotations,
aggregate or average, over other time periods may also be included. Total return
calculations do not take into account expenses at the "wrap" or contractholder
level as explained in the prospectus. Investors should also review total return
calculations that include those expenses.

The total return of a Portfolio for a particular period represents the
increase (or decrease) in the value of a hypothetical investment in the
Portfolio from the beginning to the end of the period. Total return is
calculated by subtracting the value of the initial investment from the ending
value and showing the difference as a percentage of the initial investment; the
calculation assumes the initial investment is made at the maximum public
offering price and that all income dividends or capital gains distributions
during the period are reinvested in Portfolio shares at net asset value. Total
return is based on historical earnings and asset value fluctuations and is not
intended to indicate future performance. A Portfolio's total return will vary
depending

B-56
<PAGE> 148

on market conditions, the securities comprising the Portfolio's investment
holdings, the Portfolio's operating expenses and unrealized net capital gains or
losses during the period. No adjustments are made to reflect any income taxes
payable by shareholders on dividends and distributions paid by the Portfolio.

Average annual total return quotations for periods of two or more years are
computed by finding the average annual compounded rate of return over the period
that would equate the initial amount invested to the ending redeemable value.

A Portfolio may, in supplemental sales literature, advertise
non-standardized total return figures representing the cumulative,
non-annualized total return of the Portfolio from a given date to a subsequent
given date. Cumulative non-standardized total return is calculated by measuring
the value of an initial investment in a Portfolio at a given time, determining
the value of all subsequent reinvested distributions, and dividing the net
change in the value of the investment as of the end of the period by the amount
of the initial investment and expressing the result as a percentage.
Non-standardized total return will be calculated separately for each Portfolio.

In addition to total return information, certain Portfolios may also
advertise their current "yield." Yield figures are based on historical earnings
and are not intended to indicate future performance. Yield is determined by
analyzing the Portfolio's net income per share for a 30-day (or one-month)
period (which period will be stated in the advertisement), and dividing by the
maximum offering price per share on the last day of the period. A "bond
equivalent" annualization method is used to reflect a semiannual compounding.
Yield calculations do not take into account expenses at the "wrap" or
contractholder level as expanded in the prospectus. Investors should also review
yield calculations that include those expenses.

For purposes of calculating yield quotations, net income is determined by a
standard formula prescribed by the SEC to facilitate comparison with yields
quoted by other investment companies. Net income computed for this formula
differs from net income reported by a Portfolio in accordance with generally
accepted accounting principles and from net income computed for federal income
tax reporting purposes. Thus the yield computed for a period may be greater or
lesser than a Portfolio's then current dividend rate.

A Portfolio's yield is not fixed and will fluctuate in response to
prevailing interest rates and the market value of portfolio securities, and as a
function of the type of securities owned by a Portfolio, portfolio maturity and
a Portfolio's expenses.

Yield quotations should be considered relative to changes in the net asset
value of a Portfolio's shares, a Portfolio's investment policies, and the risks
of investing in shares of a Portfolio. The investment return and principal value
of an investment in a Portfolio will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.

The Adviser may, from time to time, waive advisory fees or reimburse a
certain amount of the future ordinary business expenses of a Portfolio. Such
waiver/reimbursement will increase the yield or total return of such Portfolio.
The Adviser may stop waiving fees or reimbursing expenses at any time without
prior notice.

From time to time the Money Market Portfolio advertises its "yield" and
"effective yield." Both yield figures are based on historical earnings and are
not intended to indicate future performance. The "yield" of the Portfolio refers
to the income generated by an investment in the Money Market Portfolio over a
seven-day period (which period will be stated in the advertisement). This income
is then "annualized." That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in the Money
Market Portfolio is assumed to be reinvested. The "effective yield" will be
slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment.

Since yield fluctuates, yield data cannot necessarily be used to compare an
investment in a Portfolio's shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that yield
is generally a

B-57
<PAGE> 149

function of the kind and quality of the instrument held in a portfolio,
portfolio maturity, operating expenses and market conditions.

From time to time, certain Portfolios may include in sales literature and
shareholder reports a quotation of the current "distribution rate" for shares of
such Portfolios. Distribution rate is a measure of the level of income and
short-term capital gain dividends, if any, distributed for a specified period.
Distribution rate differs from yield, which is a measure of the income actually
earned by a Portfolio's investments, and from total return, which is a measure
of the income actually earned by, plus the effect of any realized and unrealized
appreciation or depreciation of, such investments during a stated period.
Distribution rate is, therefore, not intended to be a complete measure of a
Portfolio's performance. Distribution rate may sometimes be greater than yield
since, for instance, it may not include the effect of amortization of bond
premiums, and may include non-recurring short-term capital gains and premiums
from futures transactions engaged in by the Portfolios.

From time to time marketing materials may provide a portfolio manager
update, an adviser update or discuss general economic conditions and outlooks. A
Portfolio's marketing materials may also show the Portfolio's asset class
diversification, top five sectors, ten largest holdings and other Portfolio
asset structures, such as duration, maturity, coupon, NAV, rating breakdown, AMT
exposure and number of issues in the portfolio. Materials may also mention how
the Distributor believes a Portfolio compares relative to other Portfolio's of
the Adviser. Materials may also discuss the Dalbar Financial Services study from
1984 to 1994 which studied investor cash flow into and out of all types of
mutual funds. The ten year study found that investors who bought mutual fund
shares and held such shares outperformed investors who bought and sold. The
Dalbar study conclusions were consistent regardless of if shareholders purchased
their funds in direct or sales force distribution channels. The study showed
that investors working with a professional representative have tended over time
to earn higher returns than those who invested directly. The Portfolios will
also be marketed on the internet.

In reports or other communications to shareholders or in advertising
material, a Portfolio may compare its performance with that of other mutual
funds as listed in the ratings or rankings prepared by Lipper Analytical
Services, Inc., CDA, Morningstar Mutual Funds or similar independent services
which monitor the performance of mutual funds, with the Consumer Price Index,
the Dow Jones Industrial Average Index, Standard & Poor's indices, NASDAQ
Composite Index, other appropriate indices of investment securities, or with
investment or savings vehicles. The performance information may also include
evaluations of such Portfolio published by nationally recognized ranking
services and by nationally recognized financial publications. Such comparative
performance information will be stated in the same terms in which the
comparative data or indices are stated. Such advertisements and sales material
may also include a yield quotation as of a current period. In each case, such
total return and yield information, if any, will be calculated pursuant to rules
established by the SEC and will be computed separately for each Portfolio. For
these purposes, the performance of the Portfolios, as well as the performance of
other mutual funds or indices, do not reflect various charges, the inclusion of
which would reduce portfolio performance.

The Portfolios may also utilize performance information in hypothetical
illustrations. For example, the Portfolios may, from time to time: (1)
illustrate the benefits of tax-deferral by comparing taxable investments to
investments made through tax-deferred retirement plans; (2) illustrate in graph
or chart form, or otherwise, the benefits of dollar cost averaging by comparing
investments made pursuant to a systematic investment plan to investments made in
a rising market; (3) illustrate allocations among different types of mutual
funds for investors of different stages of their lives; and (4) in reports or
other communications to shareholders or in advertising material, illustrate the
benefits of compounding at various assumed rates of return.

The Trust's Annual Report and Semi-Annual Report prior to the date hereof,
contain additional performance information about each of the Trust's portfolios;
however, the Comstock Portfolio had not commenced investment operations and,
accordingly, no information regarding the Comstock Portfolio is contained
therein. A copy of the Annual Report or Semi-Annual Report may be obtained
without charge by calling or writing the Trust at the telephone number and
address printed on the back cover of the Prospectus.

B-58
<PAGE> 150

Performance of Investment Adviser. The Adviser manages the Van Kampen
Comstock Fund (the "Comstock Fund"), which served as the model for the Comstock
Portfolio. The Comstock Portfolio has substantially the same investment
objective, policies and strategies as the Comstock Fund. In addition, the
Adviser intends the Portfolio to be managed by the same personnel and to
continue to have closely similar investment strategies, techniques and
characteristics as the Comstock Fund. Past investment performance of the
Comstock Fund, as shown in the table below, may be relevant to your
consideration of investment in the Portfolio. The investment performance of the
Comstock Fund is not necessarily indicative of future performance of the
Comstock Portfolio. As of the date of this Prospectus, the Portfolio has not yet
commenced investment operations and therefore has no performance of its own.
Also, the operating expenses of the Portfolio will be different from the
operating expenses of the Comstock Fund. The investment performance of the
Comstock Fund is provided merely to indicate the experience of the Adviser in
managing a similar investment portfolio. The data does not reflect any fees that
may be accessed at the contract level as explained in the Prospectus. Such fees
would reduce the total return figures shown below.

The data set forth below are adjusted to reflect the Comstock Portfolio's
projected operating expenses and to eliminate a maximum 5.75% initial sales
charge applicable to purchases of Class A shares of the Comstock Fund, which
will not be applicable to purchases of shares of the Comstock Portfolio.

Average Annual Total Return for Van Kampen Comstock Fund's Class A Shares

(A Separate Mutual Fund from the Comstock Portfolio)

For the Periods Ended June 30, 1998

(adjusted to reflect projected operating expenses of the Comstock Portfolio

and the elimination of maximum sales charges of the Comstock Fund)

<TABLE>
<CAPTION>
Total Return Excluding
Sales Charge 1 Year 3 Years 5 Years 10 Years
---------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Comstock Fund Class A Shares......................... 29.03% 26.23% 19.54% 16.28%
</TABLE>

The past performance of the Comstock Fund is no guarantee of the future
performance of the Comstock Fund or the Comstock Portfolio.

MONEY MARKET PORTFOLIO YIELD INFORMATION

The yield of the Portfolio is its net income expressed in annualized terms.
The Securities and Exchange Commission requires by rule that a yield quotation
set forth in an advertisement for a "money market" fund be computed by a
standardized method based on a historical seven calendar day period. The
standardized yield is computed by determining the net change (exclusive of
realized gains and losses and unrealized appreciation and depreciation) in the
value of a hypothetical pre-existing account having a balance of one share at
the beginning of the period, dividing the net change in account value by the
value of the account at the beginning of the base period to obtain the base
period return, and multiplying the base period return by 365/7. The
determination of net change in account value reflects the value of additional
shares purchased with dividends from the original share, dividends declared on
both the original share and such additional shares, and all fees that are
charged to all shareholder accounts, in proportion to the length of the base
period and the Portfolio's average account size. The Portfolio may also
calculate its effective yield by compounding the unannualized base period return
(calculated as described above) by adding 1 to the base period return, raising
the sum to a power equal to 365 divided by 7, and subtracting one.

The yield quoted at any time represents the amount being earned on a
current basis for the indicated period and is a function of the types of
instruments in the Portfolio, their quality and length of maturity, and the
Portfolio's operating expenses. The length of maturity for the Portfolio is the
average dollar weighted maturity of the Portfolio. This means that the Portfolio
has an average maturity of a stated number of days for all of its issues. The
calculation is weighted by the relative value of the investment.

B-59
<PAGE> 151

The yield fluctuates daily as the income earned on the investments of the
Portfolio fluctuates. Accordingly, there is no assurance that the yield quoted
on any given occasion will remain in effect for any period of time. It should
also be emphasized that the Portfolio is an open-end investment company and that
there is no guarantee that the net asset value will remain constant. A
shareholder's investment in the Portfolio is not insured. Investors comparing
results of the Portfolio with investment results and yields from other sources
such as banks or savings and loan associations should understand this
distinction. The yield quotation may be of limited use for comparative purposes
because it does not reflect charges imposed at the Account level which, if
included, would decrease the yield.

Other portfolios of the money market type as well as banks and savings and
loan associations may calculate their yield on a different basis, and the yield
quoted by the Portfolio could vary upwards or downwards if another method of
calculation or base period were used.

OTHER INFORMATION

CUSTODY OF ASSETS -- All securities owned by the Portfolios and all cash,
including proceeds from the sale of shares of the Portfolios and of securities
in each Portfolio's investment portfolio, are held by State Street Bank and
Trust Company, 225 West Franklin Street, Boston, Massachusetts 02110, as
Custodian. With respect to investments in foreign securities, the custodian
enters into agreements with foreign sub-custodians which are approved by the
Trustees pursuant to Rule 17f-5 under the 1940 Act. The Custodian and
sub-custodians generally domestically, and frequently abroad, do not actually
hold certificates for the securities in their custody, but instead have book
records with domestic and foreign securities depositories, which in turn have
book records with the transfer agents of the issuers of the securities.

SHAREHOLDER REPORTS -- Semi-annual statements of the Trust containing
information about each of the Portfolios, are furnished to shareholders, and
annually such statements are audited by the independent accountants whose
selection is ratified annually by shareholders.

INDEPENDENT ACCOUNTANTS -- PricewaterhouseCoopers LLP, 200 East Randolph Drive,
Chicago, Illinois 60601, the independent accountants for the Trust, performs an
annual audit of the Trust's financial statements.

LEGAL COUNSEL -- Skadden, Arps, Slate, Meagher & Flom (Illinois).

B-60
<PAGE> 152

PART C. OTHER INFORMATION

ITEM 23. EXHIBITS.

<TABLE>
<C> <S> <C>
(a) (1) First Amended and Restated Agreement and Declaration of
Trust(2)
(2) Certificate of Amendment(2)
(3) Second Certificate of Amendment+
(4) Second Amended and Restated Certificate of Designation of
Enterprise Portfolio(7)
(5) Second Amended and Restated Certificate of Designation of
Domestic Income Portfolio(7)
(6) Amended and Restated Certificate of Designation of Emerging
Growth Portfolio(7)
(7) Amended and Restated Certificate of Designation of Global
Equity Portfolio(7)
(8) Amended and Restated Certificate of Designation of
Government Portfolio(7)
(9) Amended and Restated Certificate of Designation of Money
Market Portfolio(7)
(10) Second Amended and Restated Certificate of Designation of
Asset Allocation Portfolio(7)
(11) Second Amended and Restated Certificate of Designation of
Morgan Stanley Real Estate Securities Portfolio(7)
(12) Amended and Restated Certificate of Designation of Growth
and Income Portfolio(7)
(13) Certificate of Designation of Strategic Stock Portfolio(7)
(14) Certificate of Designation of Comstock Portfolio(8)
(b) Amended and Restated Bylaws(2)
(c) Not applicable
(d) (1) Investment Advisory Agreement for Asset Allocation
Portfolio, Domestic Income Portfolio, Enterprise Portfolio,
Government Portfolio and Money Market Portfolio(7)
(2) Investment Advisory Agreement for Emerging Growth
Portfolio(7)
(3) Investment Advisory Agreement for Global Equity Portfolio(7)
(4) Investment Sub-Advisory Agreement for Global Equity
Portfolio(7)
(5) Investment Advisory Agreement for Morgan Stanley Real Estate
Securities Portfolio(7)
(6) Investment Advisory Agreement for Growth and Income
Portfolio(7)
(7) Investment Advisory Agreement for Strategic Stock
Portfolio(7)
(8) Investment Advisory Agreement for Comstock Portfolio(8)
(e) (1) Distribution and Service Agreement(7)
(f) (1) Trustee Deferred Compensation Plan++
(2) Trustee Retirement Plan++
(g) (1) Custodian Contract(5)
(2) Transfer Agency and Service Agreement(8)
(h) (1) Data Access Services Agreement(4)
(2) Fund Accounting Agreement(8)
(i) Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom
(Illinois)(8)
(j) Consent of Independent Accountants++
(k) Not applicable
(l) (1) Investment Letter(1)
(2) Investment Letter dated July 3, 1995 for the Emerging Growth
Portfolio, Global Equity Portfolio and Morgan Stanley Real
Estate Securities Portfolio(3)
(m) Not applicable
(n) Financial Data Schedules++
</TABLE>

C-1
<PAGE> 153

(o) Not applicable
(p) Power of Attorney+
(z) (1) List of certain investment companies in response to Item
27(a)+
(2) List of officers and directors of Van Kampen Funds Inc. in
response to Item 27(b)+

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

(1) Incorporated herein by reference to Pre-Effective Amendment No. 3 to
Registrant's Registration Statement on Form N-1A, File Number 33-628, filed
April 11, 1986.

(2) Incorporated herein by reference to Post-Effective Amendment No. 20 to
Registrant's Registration Statement on Form N-1A, File Number 33-628, filed
December 22, 1995.

(3) Incorporated herein by reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-1A, File Number 33-628, filed
March 6, 1996.

(4) Incorporated herein by reference to Post-Effective Amendment No. 22 to
Registrant's Registration Statement on Form N-1A, File Number 33-628, filed
April 30, 1997.

(5) Incorporated herein by reference to Post-Effective Amendment No. 75 to the
Registration Statement on Form N-1A of Van Kampen American Capital Growth
and Income Fund, File Number 2-21657, filed March 27, 1998.

(6) Incorporated herein by reference to Post-Effective Amendment No. 50 to the
Registration Statement on Form N-1A of Van Kampen American Capital Comstock
Fund, File Number 2-7778, filed April 27, 1998.

(7) Incorporated herein by reference to Post-Effective Amendment No. 24 to
Registrant's Registration Statement on Form N-1A, File Number 33-628, filed
April 30, 1998.

(8) Incorporated herein by reference to Post-Effective Amendment No. 25 to
Registrant's Registration Statement on Form N-1A, File Number 33-628, filed
May 18, 1998.

+ Filed herewith.

++ To be filed by further amendment.

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

None.

ITEM 25. INDEMNIFICATION.

Reference is made to Article 8, Section 8.4 of the Registrant's Amended and
Restated Agreement and Declaration of Trust.

Article 8; Section 8.4 of the Amended and Restated Agreement and
Declaration of Trust provides that each officer and trustee of the Registrant
shall be indemnified by the Registrant against all liabilities incurred in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, in which the officer or trustee may be or
may have been involved by reason of being or having been an officer or trustee,
except that such indemnity shall not protect any such person against a liability
to the Registrant or any shareholder thereof to which such person would
otherwise be subject by reason of (i) not acting in good faith in the reasonable
belief that such person's actions were not in the best interest of the Trust,
(ii) willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his or her office, (iii) for a criminal
proceeding, not having a reasonable cause to believe that such conduct was
unlawful (collectively "Disabling Conduct"). Absent a court determination that
an officer or trustee seeking indemnification was not liable on the merits or
guilty of Disabling Conduct in the conduct of his or her office, the decision by
the Registrant to indemnify such person must be based upon the reasonable
determination of independent counsel or non-party independent trustees, after
review of the facts, that such officer or trustee is not guilty of Disabling
Conduct in the conduct of his or her office.

The Registrant has purchased insurance on behalf of its officers and
trustees protecting such persons from liability arising from their activities as
officers or trustees of the Registrant. The insurance does not protect or

C-2
<PAGE> 154

purport to protect such persons from liability to the Registrant or to its
shareholders to which such officer or trustee would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of their office.

Conditional advancing of indemnification monies may be made if the trustee
or officer undertakes to repay the advance unless it is ultimately determined
that he or she is entitled to the indemnification and only if the following
conditions are met: (1) the trustee or officer provides a security for the
undertaking; (2) the Registrant is insured against losses arising from lawful
advances; or (3) a majority of a quorum of the Registrant's disinterested,
non-party trustees, or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts, that a recipient of
the advance ultimately will be found entitled to indemnification.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by the trustee, officer, or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.

See "Investment Advisory Services" in the Prospectus and "Trustees and
Officers" in the Statement of Additional Information for information regarding
the business of Van Kampen Asset Management Inc. (the "Adviser"). For
information as to the business, profession, vocation and employment of a
substantial nature of directors and officers of the Adviser, reference is made
to the Adviser's current Form ADV (File No. 801-1669) filed under the Investment
Advisers Act of 1940, as amended, incorporated herein by reference.

ITEM 27. PRINCIPAL UNDERWRITERS.

(a) The sole principal underwriter is Van Kampen Fund Inc. (the
"Distributor"), which acts as principal underwriter for certain investment
companies and unit investment trusts. See Exhibit (z)(1).

(b) Van Kampen Funds Inc., which is an affiliated person of an affiliated
person of Registrant, is the sole principal underwriter for Registrant. The
name, principal business address and positions and offices with the Distributor
of each of the directors and officers are disclosed in Exhibit (z)(2)
incorporated herein by reference. Except as disclosed under the heading,
"Trustees and Executive Officers" in Part B of this Registration Statement, none
of such persons has any position or office with Registrant.

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.

All accounts, books and other documents required by Section 31(a) of the
Investment Company Act of 1940 and the Rules thereunder to be maintained (i) by
Registrant will be maintained at its offices, located at 1 Parkway Plaza, PO Box
5555 Oakbrook Terrace, Illinois 60181-5555, Van Kampen Investor Services Inc.,
7501 Tiffany Springs Parkway, Kansas City, Missouri 64153, or at the State
Street Bank and Trust Company, 1776 Heritage Drive, North Quincy, MA; (ii) by
the Adviser, will be maintained at its offices, located at 1 Parkview Plaza, PO
Box 5555 Oakbrook Terrace, Illinois 60181-5555; and (iii) by the Distributor,
the principal underwriter, will be maintained at its offices located at 1
Parkview Plaza, PO Box 5555 Oakbrook Terrace, Illinois 60181-5555.

C-3
<PAGE> 155

ITEM 29. MANAGEMENT SERVICES.

Not applicable.

ITEM 30. UNDERTAKINGS.

Not applicable

C-4
<PAGE> 156
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, VAN KAMPEN LIFE INVESTMENT
TRUST, has duly caused this Amendment to the Registration Statement to be signed
on its behalf by the undersigned, thereto duly authorized in the City of
Oakbrook Terrace and State of Illinois, on the 1st day of March, 1999.

VAN KAMPEN LIFE INVESTMENT TRUST

By /s/ DENNIS J. MCDONNELL

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

Dennis J. McDonnell,

Vice President and Secretary

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed on March 1, 1999 by the following
persons in the capacities indicated:

Principal Executive Officer:

/s/ DENNIS J. MCDONNELL President
- -----------------------------------------------------
Dennis J. McDonnell

Principal Financial Officer:

/s/ JOHN L. SULLIVAN* Vice President, Chief
- ----------------------------------------------------- Financial Officer, and Treasurer
John L. Sullivan

Trustees:

/s/ J. MILES BRANAGAN* Trustee
- -----------------------------------------------------
J. Miles Branagan

/s/ RICHARD M. DEMARTINI* Trustee
- -----------------------------------------------------
Richard M. DeMartini

/s/ LINDA HUTTON HEAGY* Trustee
- -----------------------------------------------------
Linda Hutton Heagy

/s/ R. CRAIG KENNEDY* Trustee
- -----------------------------------------------------
R. Craig Kennedy

/s/ JACK E. NELSON* Trustee
- -----------------------------------------------------
Jack E. Nelson

/s/ DON G. POWELL* Trustee
- -----------------------------------------------------
Don G. Powell

/s/ PHILLIP B. ROONEY* Trustee
- -----------------------------------------------------
Phillip B. Rooney

/s/ FERNANDO SISTO, SC.D.* Trustee
- -----------------------------------------------------
Fernando Sisto, Sc.D.

/s/ WAYNE W. WHALEN* Trustee and Chairman
- -----------------------------------------------------
Wayne W. Whalen

/s/ PAUL G. YOVOVICH* Trustee
- -----------------------------------------------------
Paul G. Yovovich

* Signed by Dennis J. McDonnell pursuant to a
power of attorney filed herewith.

/s/ DENNIS J. MCDONNELL
- -----------------------------------------------------
Dennis J. McDonnell
Attorney-in-Fact
</TABLE>

March 1, 1999

<PAGE> 157

SCHEDULE OF EXHIBITS TO

POST-EFFECTIVE AMENDMENT NO. 26 FORM N-1A

AS SUBMITTED TO THE
SECURITIES AND EXCHANGE COMMISSION

ON MARCH 1, 1999

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<C> <S> <C>

(a) (3) Second Certificate of Amendment
(p) Power of Attorney
(z) (1) List of certain investment companies in response to Item
27(a)
(z) (2) List of officers and directors of Van Kampen Funds Inc. in
response to Item 27(b)
</TABLE>

<PAGE> 1

EXHIBIT (a)(3)

SECOND CERTIFICATE OF AMENDMENT DATED JULY 14, 1998
TO
FIRST AMENDED AND RESTATED AGREEMENT
AND DECLARATION OF TRUST DATED JUNE 21, 1995

WHEREAS, the Trustees of Van Kampen American Capital Life Investment Trust,
a Delaware business trust (the "Trust") have approved the amendment of the
Trust's First Amended and Restated Agreement and Declaration of Trust dated June
21, 1995 ("Declaration of Trust") in accordance with Section 9.5 thereof;

WHEREAS, the Trustees have authorized the proper officers of the Trust,
including the officer whose name appears below, to effect such amendment;

NOW, THEREFORE, the Declaration of Trust is amended as follows:

1. The first sentence of Section 1.1 is amended and restated in its entirety
to read as follows:

1.1 Name. The name of the Trust shall be

"VAN KAMPEN LIFE INVESTMENT TRUST"

and so far as may be practicable, the Trustees shall conduct the
Trust's activities, execute all documents and sue or be sued under
that name, which name (and the word "Trust" wherever used in this
Agreement and Declaration of Trust, except where the context
otherwise requires) shall refer to the Trustees in their capacity as
Trustees, and not individually or personally, and shall not refer to
the officers, agents or employees of the Trust or of such Trustees,
or to the holders of the Shares of the Trust or any Series. If the
Trustees determine that the use of such name is not practicable,
legal or convenient at any time or in any jurisdiction, or if the
Trust is required to discontinue the use of such name pursuant to
Section 10.7 hereof, then subject to that Section, the Trustees may
use such other designation, or they may adopt such other name for
the Trust as they deem proper, and the Trust may hold property and
conduct its activities under such designation or name.

EXECUTED, to be effective as of July 14, 1998

/s/ Ronald A. Nyberg
__________________________________
Ronald A. Nyberg,
Secretary

<PAGE> 1

EXHIBIT (p)

POWER OF ATTORNEY

The undersigned, being officers and trustees of each of the Van Kampen
Open End Trusts (individually, a "Trust") as indicated on Schedule 1 attached
hereto and incorporated by reference, each a Delaware business trust except for
the Van Kampen Pennsylvania Tax Free Income Fund being a Pennsylvania business
trust (individually, a "Trust"), and being officers and directors of the Van
Kampen Series Fund, Inc. (the "Corporation"), a Maryland corporation, do hereby,
in the capacities shown below, appoint Dennis J. McDonnell of Oakbrook Terrace,
Illinois, as agent and attorney-in-fact with full power of substitution and
resubstitution, for each of the undersigned, to execute and deliver, for and on
behalf of the undersigned, any and all amendments to the Registration Statement
filed by each Trust or the Corporation with the Securities and Exchange
Commission pursuant to the provisions of the Securities Act of 1933 and the
Investment Company Act of 1940.

This Power of Attorney may be executed in multiple counterparts, each
of which shall be deemed an original, but which taken together shall constitute
one instrument.

Dated: January 12, 1999

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ DENNIS J. MCDONNELL President
----------------------------------
Dennis J. McDonnell

/s/ JOHN L. SULLIVAN Vice President, Chief Financial Officer
---------------------------------- and Treasurer
John L. Sullivan

/s/ J. MILES BRANAGAN Trustee/Director
----------------------------------
J. Miles Branagan

/s/ RICHARD M. DEMARTINI Trustee/Director
----------------------------------
Richard M. DeMartini

/s/ LINDA HUTTON HEAGY Trustee/Director
----------------------------------
Linda Hutton Heagy

/s/ R. CRAIG KENNEDY Trustee/Director
----------------------------------
R. Craig Kennedy

/s/ JACK E. NELSON Trustee/Director
----------------------------------
Jack E. Nelson

/s/ DON G. POWELL Trustee/Director
----------------------------------
Don G. Powell

/s/ PHILLIP B. ROONEY Trustee/Director
----------------------------------
Phillip B. Rooney

/s/ FERNANDO SISTO, SC.D. Trustee/Director
----------------------------------
Fernando Sisto, Sc. D.

/s/ WAYNE W. WHALEN Trustee/Director and Chairman
----------------------------------
Wayne W. Whalen

/s/ PAUL G. YOVOVICH Trustee/Director
----------------------------------
Paul G. Yovovich
</TABLE>

<PAGE> 2
SCHEDULE 1

VAN KAMPEN U.S. GOVERNMENT TRUST
VAN KAMPEN TAX FREE TRUST
VAN KAMPEN TRUST
VAN KAMPEN EQUITY TRUST
VAN KAMPEN PENNSYLVANIA TAX FREE INCOME FUND
VAN KAMPEN TAX FREE MONEY FUND
VAN KAMPEN COMSTOCK FUND
VAN KAMPEN CORPORATE BOND FUND
VAN KAMPEN EMERGING GROWTH FUND
VAN KAMPEN ENTERPRISE FUND
VAN KAMPEN EQUITY INCOME FUND
VAN KAMPEN LIMITED MATURITY GOVERNMENT FUND
VAN KAMPEN GLOBAL MANAGED ASSETS FUND
VAN KAMPEN GOVERNMENT SECURITIES FUND
VAN KAMPEN GROWTH AND INCOME FUND
VAN KAMPEN HARBOR FUND
VAN KAMPEN HIGH INCOME CORPORATE BOND FUND
VAN KAMPEN LIFE INVESTMENT TRUST
VAN KAMPEN PACE FUND
VAN KAMPEN REAL ESTATE SECURITIES FUND
VAN KAMPEN RESERVE FUND
VAN KAMPEN SMALL CAPITALIZATION FUND
VAN KAMPEN TAX-EXEMPT TRUST
VAN KAMPEN U.S. GOVERNMENT TRUST FOR INCOME
VAN KAMPEN WORLD PORTFOLIO SERIES TRUST

<PAGE> 1
EXHIBIT(z)(1)

Item 27(a)
- ----------
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
VAN KAMPEN ADVANTAGE PENNSYLVANIA MUNICIPAL INCOME TRUST
VAN KAMPEN BOND FUND
VAN KAMPEN CALIFORNIA MUNICIPAL TRUST
VAN KAMPEN CALIFORNIA QUALITY MUNICIPAL TRUST
VAN KAMPEN CALIFORNIA VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN COMSTOCK FUND
VAN KAMPEN CONVERTIBLE SECURITIES FUND
VAN KAMPEN CORPORATE BOND FUND
VAN KAMPEN EMERGING GROWTH FUND
VAN KAMPEN ENTERPRISE FUND
VAN KAMPEN EQUITY TRUST
VAN KAMPEN AGGRESSIVE GROWTH FUND
VAN KAMPEN GREAT AMERICAN COMPANIES FUND
VAN KAMPEN GROWTH FUND
VAN KAMPEN MID CAP VALUE FUND
VAN KAMPEN PROSPECTOR FUND
VAN KAMPEN UTILITY FUND
VAN KAMPEN EQUITY INCOME FUND
THE EXPLORER INSTITUTIONAL TRUST
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
VAN KAMPEN AMERICAN CAPITAL EXCHANGE FUND
VAN KAMPEN FLORIDA MUNICIPAL OPPORTUNITY TRUST
VAN KAMPEN FLORIDA QUALITY MUNICIPAL TRUST
VAN KAMPEN GLOBAL MANAGED ASSETS FUND
VAN KAMPEN GOVERNMENT SECURITIES FUND
VAN KAMPEN GROWTH AND INCOME FUND
VAN KAMPEN HARBOR FUND
VAN KAMPEN HIGH INCOME CORPORATE BOND FUND
VAN KAMPEN HIGH INCOME TRUST
VAN KAMPEN HIGH INCOME TRUST II
VAN KAMPEN INCOME TRUST
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
VAN KAMPEN LIFE INVESTMENT TRUST
on behalf of its Series
ASSET ALLOCATION PORTFOLIO
COMSTOCK PORTFOLIO
DOMESTIC INCOME PORTFOLIO
EMERGING GROWTH PORTFOLIO
ENTERPRISE PORTFOLIO
GLOBAL EQUITY PORTFOLIO
GOVERNMENT PORTFOLIO
GROWTH AND INCOME PORTFOLIO
MONEY MARKET PORTFOLIO
MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO
STRATEGIC STOCK PORTFOLIO
VAN KAMPEN LIMITED MATURITY GOVERNMENT FUND
VAN KAMPEN MASSACHUSETTS VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN MUNICIPAL INCOME TRUST
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST

<PAGE> 2

VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
VAN KAMPEN MUNICIPAL TRUST
VAN KAMPEN NEW JERSEY VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN NEW YORK QUALITY MUNICIPAL TRUST
VAN KAMPEN NEW YORK VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN OHIO QUALITY MUNICIPAL TRUST
VAN KAMPEN OHIO VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN PACE FUND
VAN KAMPEN PENNSYLVANIA QUALITY MUNICIPAL TRUST
VAN KAMPEN PENNSYLVANIA TAX FREE INCOME FUND
VAN KAMPEN PENNSYLVANIA VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN PRIME RATE INCOME TRUST
VAN KAMPEN REAL ESTATE SECURITIES FUND
VAN KAMPEN RESERVE FUND
VAN KAMPEN SELECT SECTOR MUNICIPAL TRUST
VAN KAMPEN SENIOR FLOATING RATE FUND
VAN KAMPEN SENIOR INCOME TRUST
VAN KAMPEN SERIES FUND, INC.
VAN KAMPEN AGGRESSIVE EQUITY FUND
VAN KAMPEN AMERICAN VALUE FUND
VAN KAMPEN ASIAN GROWTH FUND
VAN KAMPEN EMERGING MARKETS DEBT FUND*
VAN KAMPEN EMERGING MARKETS FUND
VAN KAMPEN EQUITY GROWTH FUND*
VAN KAMPEN EUROPEAN EQUITY FUND*
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
VAN KAMPEN GLOBAL EQUITY FUND
VAN KAMPEN GLOBAL FIXED INCOME FUND
VAN KAMPEN GLOBAL FRANCHISE FUND*
MORGAN STANLEY GOVERNMENT OBLIGATIONS MONEY MARKET FUND
VAN KAMPEN GROWTH AND INCOME FUND II*
VAN KAMPEN HIGH YIELD & TOTAL RETURN FUND
VAN KAMPEN INTERNATIONAL MAGNUM FUND
VAN KAMPEN JAPANESE EQUITY FUND*
VAN KAMPEN LATIN AMERICAN FUND
VAN KAMPEN MID CAP GROWTH FUND*
MORGAN STANLEY MONEY MARKET FUND
MORGAN STANLEY TAX-FREE MONEY MARKET FUND*
VAN KAMPEN VALUE FUND
VAN KAMPEN WORLDWIDE HIGH INCOME FUND
VAN KAMPEN STRATEGIC SECTOR MUNICIPAL TRUST
VAN KAMPEN TAX-EXEMPT TRUST
on behalf of its Series
HIGH YIELD MUNICIPAL FUND
VAN KAMPEN TAX FREE TRUST
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
VAN KAMPEN CALIFORNIA TAX FREE INCOME FUND*
VAN KAMPEN FLORIDA INSURED TAX FREE INCOME FUND
VAN KAMPEN INSURED TAX FREE INCOME FUND
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND

<PAGE> 3

VAN KAMPEN MICHIGAN TAX FREE INCOME FUND*
VAN KAMPEN MISSOURI TAX FREE INCOME FUND*
VAN KAMPEN MUNICIPAL INCOME FUND
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
VAN KAMPEN OHIO TAX FREE INCOME FUND*
VAN KAMPEN TAX FREE HIGH INCOME FUND
VAN KAMPEN TAX FREE MONEY FUND
VAN KAMPEN TRUST
VAN KAMPEN HIGH YIELD FUND
VAN KAMPEN SHORT-TERM GLOBAL INCOME FUND
VAN KAMPEN STRATEGIC INCOME FUND
VAN KAMPEN TRUST FOR INSURED MUNICIPALS
VAN KAMPEN TRUST FOR INVESTMENT GRADE CALIFORNIA MUNICIPALS
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
VAN KAMPEN TRUST FOR INVESTMENT GRADE NEW JERSEY MUNICIPALS
VAN KAMPEN TRUST FOR INVESTMENT GRADE NEW YORK MUNICIPALS
VAN KAMPEN TRUST FOR INVESTMENT GRADE PENNSYLVANIA MUNICIPALS
VAN KAMPEN U.S. GOVERNMENT TRUST
VAN KAMPEN U.S. GOVERNMENT FUND
VAN KAMPEN U.S. GOVERNMENT TRUST FOR INCOME
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN WORLD PORTFOLIO SERIES TRUST
on behalf of its Series
VAN KAMPEN GLOBAL GOVERNMENT SECURITIES FUND

* Funds have not commenced investment operations.
<PAGE> 4

<TABLE>
<S> <C>
Insured Municipals Income Trust Series 404
California Insured Municipals Income Trust Series 177
Colorado Insured Municipals Income Trust Series 87
Connecticut Insured Municipals Income Trust Series 38
Florida Insured Municipals Income Trust Series 123
Georgia Insured Municipals Income Trust Series 88
Maryland Investors' Quality Tax-Exempt Trust Series 87
Michigan Insured Municipals Income Trust Series 152
Minnesota Insured Municipals Income Trust Series 62
Missouri Insured Municipals Income Trust Series 108
New Jersey Insured Municipals Income Trust Series 124
New York Insured Municipals Income Trust Series 147
North Carolina Investors' Quality Tax-Exempt Trust Series 96
Ohio Insured Municipals Income Trust Series 110
Pennsylvania Insured Municipals Income Trust Series 239
South Carolina Investors' Quality Tax-Exempt Trust Series 86
Tennessee Insured Municipals Income Trust Series 41
Virginia Investors' Quality Tax-Exempt Trust Series 82
Van Kampen American Capital Insured Income Trust Series 72
Internet Trust Series 12
The Dow SM Strategic 10 Trust November 1998
Series
The Dow SM Strategic 10 Trust November 1998
Traditional
Series
The Dow SM Strategic 5 Trust November 1998
Series
The Dow SM Strategic 5 Trust November 1998
Traditional
Series
EAFE Strategic 20 Trust November 1998
Series
EURO Strategic 20 Trust November 1998
Series
Strategic Picks Opportunity Trust November 1998
Series
Great International Firms Trust Series 5
Dow 30 Index Trust Series 5
Dow 30 Index and Treasury Trust Series 7
Baby Boomer Opportunity Trust Series 5
Global Energy Trust Series 7
Brand Name Equity Trust Series 7
Edward Jones Select Growth Trust July 1998
Series
Banking Trust Series 4
Morgan Stanley High-Technology 35 Index Trust Series 4
Health Care Trust Series 4
Telecommunications Trust Series 4
Utility Trust Series 4
Financial Services Trust Series 4
Morgan Stanley Euro Tec Trust Series 1
Natcity Investments, Inc. Great American Equities Trust Series 1
Gruntal Global Transport Trust Series 1
Josepthal Financial Institutions Growth & Consolidation Trust Series 2001
Northern Illinois Equity Value Trust Series
Euro/Pacific Strategy Series 1
</TABLE>

<PAGE> 1
EXHIBIT (z)(2)

Item 27(b)
- ----------

<TABLE>
<S> <C> <C>
Powers, Richard F. III Chairman & Chief Executive Officer Oakbrook Terrace, IL
Zimmermann, III, John H. President Oakbrook Terrace, IL
Gehman, Douglas B. Executive Vice President Houston, TX
Rybak, William R. Executive Vice President & Chief Financial Officer Oakbrook Terrace, IL
Santo, Michael H. Executive Vice President & Chief
Administrative Officer Oakbrook Terrace, IL
Wolkenberg, Paul R. Executive Vice President Oakbrook Terrace, IL
Althoff, Laurence Joseph Senior Vice President & Controller Oakbrook Terrace, IL
DeMoss, Gary R. Senior Vice President Oakbrook Terrace, IL
Doyle, John E. Senior Vice President Oakbrook Terrace, IL
Golod, Richard G. Senior Vice President Annapolis, MD
Martin, Scott Evan Sen. V.P., Deputy Gen. Coun. and Sec. Oakbrook Terrace, IL
Millington, Charles G. Senior Vice President and Treasurer Oakbrook Terrace, IL
Rein, Walter E. Senior Vice President Oakbrook Terrace, IL
Saucedo, Colette M. Senior Vice President Houston, TX
Shepherd, Frederick Senior Vice President Houston, TX
Sorenson, Steven P. Senior Vice President Oakbrook Terrace, IL
Stallard, Michael L. Senior Vice President Oakbrook Terrace, IL
West, Robert Scott Senior Vice President Oakbrook Terrace, IL
Wood, Edward C, III Senior Vice President & Chief Operating Officer Oakbrook Terrace, IL
Cackovic, Glenn M. First Vice President Laguna Nigel, CA
Hargens, Eric J. First Vice President Orlando, FL
Hogaboom, David S. First Vice President Oakbrook Terrace, IL
Martellaro, Dominic C. First Vice President Danville, CA
Mayfield, Carl First Vice President Lakewood, CO
McClure, Mark R. First Vice President Oakbrook Terrace, IL
Ryan, James J. First Vice President Oakbrook Terrace, IL
Vogel, George J. First Vice President Oakbrook Terrace, IL
Woelfel, Patrick J. First Vice President Oakbrook Terrace, IL
Abreu, Robert J. Vice President New York, NY
Ambrosio, James K. Vice President Massapequa, NY
Arcara, Brian P. Vice President Buffalo, NY
Bemstiel, Scott C. Vice President Plainsboro, NJ
Bettlach, Patricia A. Vice President Chesterfield, Mo
Biegel, Carol S. Vice President Oakbrook Terrace, IL
Bisaillon, Chistopher M. Vice President Oakbrook Terrace, IL
Boos, Michal P. Vice President Oakbrook Terrace, IL
Boyne, James Joseph V.P., Associate Gen. Coun. & Asst. Sec. Oakbrook Terrace, IL
Brooks, Robert C. Vice President Oakbrook Terrace, IL
Burke, Jr., William F. Vice President Mendham, NJ
Burket, Loren Vice President Plymouth, MN
Byrum, Christine Cleary Vice President Tampa, FL
Chambers, Daniel R. Vice President Austin, TX
</TABLE>

<PAGE> 2
[CAPTION]
<TABLE>

<S> <C> <C>
Charlino, Richard J. Vice President Houston, TX
Chiaro, Deanne Margaret Vice President Oakbrook Terrace, IL
Chriske, Scott A. Vice President Plano, TX
Clavijo, German Vice President Atlanta, GA
Cloud, Eleanor M. Vice President Oakbrook Terrace, IL
Cogliandro, Dominick Vice President and Assistant Treasurer New York, NY
Colston, Michael Vice President Louisville, KY
Cummings, Suzanne Vice President Oakbrook Terrace, IL
Dalmaso, Nicholas V.P., Associate Gen. Coun. & Asst. Sec. Oakbrook Terrace, IL
Eccleston, Michael E. Vice President Oakbrook Terrace, IL
Egan, Christopher J. Vice President Oakbrook Terrace, IL
Fow, William J. Vice President Redding, CT
Foxhoven, Nicholas J. Vice President Englewood, CO
Friday, Charles Vice President Gibsonia, PA
Griffith, Timothy D. Vice President Kirkland, WA
Haas, Kyle D. Vice President Oakbrook Terrace, IL
Hamilton, Daniel Vice President Austin, TX
Hansen, John G. Vice President Oakbrook Terrace, IL
Hays, Joseph Vice President Cherry Hill, NJ
Heffington, Gregory Vice President Ft. Collins, CO
Hill, Susan Jean Vice President and Senior Attorney Oakbrook Terrace, IL
Hindelang, Thomas R. Vice President Gilbert, AZ
Hoggard, Bryn M. Vice President Houston, TX
Hughes, Michael B. Vice President Oakbrook Terrace, IL
Hunt, Robert S. Vice President Phoenix, MD
Jackson, Lowell Vice President Norcross, GA
Jajuga, Kevin G. Vice President Baltimore, MD
Johnson, Steven T. Vice President Oakbrook Terrace, IL
Klein, Dana R. Vice President Oakbrook Terrace, IL
Kohly, Frederick Vice President Miami, FL
Kowalski, David Richard Vice President & Director of Compliance Oakbrook Terrace, IL
Kozlowski, Richard D. Vice President Atlanta, GA
Lathrop, Patricia D. Vice President Tampa, FL
Laux, Brian Vice President Staten Island, NY
Leal, Tony E. Vice President Daphne, AL
Lehew III, S. William Vice President Charlotte, NC
Levinson, Eric Vice President San Francisco, CA
Linstra, Jonathan Vice President Oakbrook Terrace, IL
Lundgren, Richard M. Vice President Oakbrook Terrace, IL
Lynn, Walter Vice President Flower Mound, TX
MacAyeal, Linda S. Vice President and Senior Attorney Oakbrook Terrace, IL
Marsh, Kevin S. Vice President Bellevue, WA

</TABLE>
<PAGE> 3
[CAPTION]
<TABLE>
<S> <C> <C>
McCartney, Brooks D. Vice President Puyallup, WA
McGrath, Anne Therese Vice President Los Gatos, CA
McGrath, Maura A. Vice President New York, NY
Mills, John Vice President Kenner, LA
Morrow, Ted Vice President Dallas, TX
Muller, Jr. Robert F. Vice President Cypress, TX
Nicolas, Peter Vice President Beverly, MA
Page, Todd W. Vice President Oakbrook Terrace, IL
Parker, Gregory S. Vice President Houston, TX
Petrungaro, Christopher Vice President Oakbrook Terrace, IL
Poli, Richard J. Vice President Philadelphia, PA
Pratt, Ronald E. Vice President Marletta, GA
Prichard, Craig S. Vice President Fairlawn, OH
Reams, Daniel D. Vice President Royal Oak, MI
Rohr, Michael W. Vice President Oakbrook Terrace, IL
Rose, Jeffrey L. Vice President Houston, TX
Rothberg, Suzette N. Vice President Plymouth, MN
Rourke, Jeffrey Vice President Oakbrook Terrace, IL
Rowley, Thomas Vice President St. Louis, MO
Sabo, Heather R. Vice President Richmond, VA
Scarlata, Stephanie Vice President Bedford Corners, NY
Scherer, Andrew J. Vice President Oakbrook Terrace, IL
Schuster, Ronald J. Vice President Tampa, FL
Shaneyfelt, Gwen L. Vice President Oakbrook Terrace, IL
Shirk, Jefferey C. Vice President Swampscott, MA
Sorensen, Traci T. Vice President Oakbrook Terrace, IL
Spangler, Kimberly M. Vice President Fairfax, VA
Stabler, Darren D. Vice President Phoenix, AZ
Staniforth, Christopher Vice President Leawood, KS
Stefanec, Richard Vice President Los Angeles, CA
Stevens, James D. Vice President North Andover, MA
Strafford, William C. Vice President Granger, IN
Syswerda, Mark A. Vice President Oakbrook Terrace, IL
Tierney, John F. Vice President Oakbrook Terrace, IL
Ulvestad, Curtis L. Vice President Red Wing, MN
Volkman, Todd A. Vice President Austin, TX
Waldron, Daniel B. Vice President Oakbrook Terrace, IL
Warland, Jeff Vice President Oakbrook Terrace, IL
Wetherell, Weston B. V.P., Associate Gen. Coun. & Asst. Sec Oakbrook Terrace, IL
Wheeler, Frank L. Vice President Oakbrook Terrace, IL
Whitworth III, Harold Vice President Oakbrook Terrace, IL
Wilson, Thomas M. Vice President Oakbrook Terrace, IL
Withers, Barbara A. Vice President Oakbrook Terrace, IL
Wynn, David M. Vice President Phoenix, AZ
Yount, James R. Vice President Mercer Island, WA

</TABLE>

<PAGE> 4
[CAPTION]
<TABLE>
<S> <C> <C>

Zacchea, Patrick M. Vice President Oakbrook Terrace, IL
Becker, Scott F. Assistant Vice President Oakbrook Terrace, IL
Binder, Brian E. Assistant Vice President Oakbrook Terrace, IL
Blackwood, Joan E. Assistant Vice President Oakbrook Terrace, IL
Bronaugh, Billie J. Assistant Vice President Houston, TX
Brunk, Gregory T. Assistant Vice President Oakbrook Terrace, IL
Costello, Gina Assistant Vice President & Assistant Secretary Oakbrook Terrace, IL
Gieser, Sarah K. Assistant Vice President Oakbrook Terrace, IL
Gray, Walter C. Assistant Vice President Houston, TX
Jones, Laurie L. Assistant Vice President Houston, TX
Jordan, Robin R. Assistant Vice President Oakbrook Terrace, IL
Lowe, Ivan R. Assistant Vice President Houston, TX
Moehlman, Stuart R. Assistant Vice President Houston, TX
Norvid, Steven R. Assistant Vice President Oakbrook Terrace, IL
Putong, Christine K. Assistant Vice President & Assistant Secretary Oakbrook Terrace, IL
Robbins, David P. Assistant Vice President Oakbrook Terrace, IL
Rosen, Regina Assistant Vice President Oakbrook Terrace, IL
Salley, Pamela S. Assistant Vice President Houston, TX
Sanchez, Vanessa M. Assistant Vice President Oakbrook Terrace, IL
Sauerborn, Thomas J. Assistant Vice President New York, NY
Saxon, Bruce Assistant Vice President Oakbrook Terrace, IL
Saylor, David T. Assistant Vice President Oakbrook Terrace, IL
Schmieder, Christina L. Assistant Vice President Oakbrook Terrace, IL
Sinai, Lauren B. Assistant Vice President Oakbrook Terrace, IL
Transier, Kristen L. Assistant Vice President Houston, TX
Villarreal, David H. Assistant Vice President Oakbrook Terrace, IL
Wells, Sharon M.C. Assistant Vice President Oakbrook Terrace, IL
Napoli, Cathy Assistant Secretary Oakbrook Terrace, IL
Brown, Elizabeth M. Officer Houston, TX
Browning, John Officer Oakbrook Terrace, IL
George, Leticia Officer Houston, TX
McLaughlin, William D. Officer Houston, TX
Newman, Rebecca Officer Houston, TX
Renn, Theresa M. Officer Oakbrook Terrace, IL
Vickrey, Larry Officer Houston, TX
Yovanovic, John Officer Houston, TX
Powers, Richard F. III Director
Rybak, William R. Director
Zimmermann, III, John H. Director

</TABLE>