VAN KAMPEN MERRITT SERIES TRUST, 485APOS, 1996-02-16

VAN KAMPEN MERRITT SERIES TRUST
485APOS, 1996-02-16

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Registration Nos. 33-16005
811-5252

==============================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 13 [X]

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 14 [X]

(Check appropriate box or boxes.)

VAN KAMPEN MERRITT SERIES TRUST
________________________________
(Exact name of registrant as specified in charter)

One Tower Lane, Suite 3000
Oakbrook Terrace, Illinois 60181-4644
_______________________________________ _____________
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code (708) 368-9060

Jeffery K. Hoelzel, Esq.
Secretary
Van Kampen Merritt Series Trust
One Tower Lane, Suite 3000
Oakbrook Terrace, Illinois 60181-4644

(Name and Address of Agent For Service)

Copy to:

Raymond A. O'Hara III, Esq.
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866

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)
___ on (date) pursuant to paragraph (a)(1)
_X_ 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.

Registrant has declared that it has registered an indefinite number or amount
of securities under the Securities Act of 1933 pursuant to Investment Company
Act Rule 24f-2 and the Rule 24f-2 Notice for Registrant's fiscal year 1995
will be filed on or before February 29, 1996.

<TABLE>
<CAPTION>
<S> <C> <C>
CROSS REFERENCE SHEET
(as required by Rule 495)

Item No. Location
- -------- -----------------------------------

PART A

Item 1. Cover Page......................... Cover Page
Item 2. Synopsis........................... Not Applicable
Item 3. Condensed Financial Information.... Financial Highlights
Item 4. General Description of Registrant.. The Trust; Investment Objectives
and Policies of the Portfolios;
Investment Practices
Item 5. Management of the Fund............. Management of the Trust
Item 6. Capital Stock and Other Securities. Description of the Trust
Item 7. Purchase of Securities Being
Offered........................ Description of the Trust
Item 8. Redemption or Repurchase........... Description of the Trust
Item 9. Pending Legal Proceedings.......... Not Applicable

PART B

Item 10. Cover Page......................... Cover Page
Item 11. Table of Contents.................. Table of Contents
Item 12. General Information and History.... Not Applicable
Item 13. Investment Objectives and Policies. Investment Objectives and Policies
Item 14. Management of the Fund............. Officers and Trustees
Item 15. Control Persons and Principal
Holders of Securities.......... Officers and Trustees
Item 16. Investment Advisory and Other
Services....................... Investment Advisory Agreement
Item 17. Brokerage Allocation and
Other Practices................ Portfolio Transactions
Item 18. Capital Stock and Other Securities. Description of the Trust (Part A)
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered....... Net Asset Values (Part A)
Item 20. Tax Status......................... Tax Status (Part A)
Item 21. Underwriters....................... Distribution and Redemption of
Shares (Part A)
Item 22. Calculation of Performance Data.... Fund Performance
Item 23. Financial Statements............... Financial Statements (Part B)
</TABLE>

PART C

Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.

EXPLANATORY NOTE
_____________________________________________________________________________

This Registration Statement contains eleven Portfolios of Van Kampen Merritt
Series Trust. Two versions of Prospectuses will be created from this
Registration Statement. The distribution system for each version of the
Prospectus is different. One version of the Prospectus will contain all
Portfolios except for the Large Capital Stock Portfolio. The other version of
the Prospectus will contain the following eight Portfolios: Money Market
Portfolio, Quality Income Portfolio, Stock Index Portfolio, Quality Bond
Portfolio, Small Capital Stock Portfolio, Large Capital Stock Portfolio,
Select Equity Portfolio and International Equity Portfolio. These Prospectuses
will be filed with the Commission pursuant to Rule 497 under the Securities
Act of 1933.

The Registrant undertakes to update this Explanatory Note each time a
Post-Effective Amendment is filed.
_____________________________________________________________________________

PART A

VAN KAMPEN MERRITT SERIES TRUST
ONE TOWER LANE, SUITE 3000
OAKBROOK TERRACE, ILLINOIS 60181-4644

VAN KAMPEN MERRITT SERIES TRUST ("Trust") is intended to meet differing
investment objectives with its separate Portfolios: Money Market Portfolio,
Quality Income Portfolio, High Yield Portfolio, Stock Index Portfolio, Growth
and Income Portfolio, Bond Debenture Portfolio, Quality Bond Portfolio, Small
Capital Stock Portfolio, Large Capital Stock Portfolio, Select Equity
Portfolio and International Equity Portfolio. SHARES OF THE HIGH YIELD
PORTFOLIO ARE NOT CURRENTLY AVAILABLE FOR SALE IN THE STATE OF CALIFORNIA.
The Trustees may provide for additional Portfolios from time to time. Each
Portfolio issues its own class of shares which has rights separate from the
other classes of shares.

This Prospectus concisely sets forth the information about the Trust that a
prospective investor should know before investing. Investors should read and
retain this Prospectus for future reference.

A Statement of Additional Information, dated May 1, 1996, containing
information about the Trust has been filed with the Securities and Exchange
Commission and is hereby incorporated by reference into this Prospectus. A
copy of the Statement of Additional Information may be obtained without charge
by calling (800) 831-LIFE, or writing Cova Financial Services Life Insurance
Company at One Tower Lane, Suite 3000, Oakbrook Terrace, Illinois 60181-4644.

PURCHASERS SHOULD BE AWARE THAT AN INVESTMENT IN THE MONEY MARKET PORTFOLIO IS
NEITHER INSURED NOR GUARANTEED BY THE U. S. GOVERNMENT. THERE CAN BE NO
ASSURANCE THAT THE MONEY MARKET PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE
NET ASSET VALUE OF $1.00 PER SHARE.

THE HIGH YIELD PORTFOLIO AND THE BOND DEBENTURE PORTFOLIO MAY INVEST A
SUBSTANTIAL PORTION OF THEIR ASSETS IN LOWER GRADE CORPORATE DEBT SECURITIES
COMMONLY KNOWN AS "JUNK BONDS." INVESTORS SHOULD BE AWARE THAT SUCH
INVESTMENTS INVOLVE A SIGNIFICANT DEGREE OF RISK. SEE "RISK FACTORS - SPECIAL
RISKS OF HIGH YIELD INVESTING."

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

THIS PROSPECTUS IS DATED: MAY 1, 1996.

TABLE OF CONTENTS
PAGE
SUMMARY
The Trust
Investment Adviser and Sub-Advisers
The Portfolios
Investment Risks
Sales and Redemptions

FINANCIAL HIGHLIGHTS

ADDITIONAL PERFORMANCE INFORMATION

THE TRUST

INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS
Money Market Portfolio
Quality Income Portfolio
High Yield Portfolio
Stock Index Portfolio
Growth and Income Portfolio
Bond Debenture Portfolio
Quality Bond Portfolio
Small Capital Stock Portfolio
Large Capital Stock Portfolio
Select Equity Portfolio
International Equity Portfolio

INVESTMENT PRACTICES
Investment Limitations

RISK FACTORS
Tax Considerations
Special Considerations Relating to Foreign Securities

PORTFOLIO TURNOVER RATES
Money Market Portfolio and Quality Income Portfolio
High Yield Portfolio and Bond Debenture Portfolio
Stock Index Portfolio
Growth and Income Portfolio
Quality Bond, Small Capital Stock, Large Capital Stock, Select Equity and
International Equity Portfolios

MANAGEMENT OF THE TRUST
The Trustees
Adviser
Portfolio Management
Expenses of the Trust
Sub-Advisers
Sub-Advisory Fees

DESCRIPTION OF THE TRUST
Shareholder Rights
Inquiries
Distribution and Redemption of Shares
Dividends
Tax Status
Net Asset Values

FUND PERFORMANCE

APPENDIX - DESCRIPTION OF CORPORATE BOND RATINGS

SUMMARY

THE TRUST

The Trust is an open-end management investment company established as a
Massachusetts business trust under a Declaration of Trust dated July 9, 1987.
Each Portfolio issues a separate class of shares. The Declaration of Trust
permits the Trustees to issue an unlimited number of full or fractional shares
of each class of stock.

Each Portfolio has distinct investment objectives and policies. (See
"Investment Objectives and Policies of the Portfolios.") Additional Portfolios
may be added to the Trust in the future. This Prospectus will be supplemented
to reflect the addition of new Portfolios.

INVESTMENT ADVISER AND SUB-ADVISERS

Subject to the authority of the Board of Trustees of the Trust, Cova
Investment Advisory Corporation (the "Adviser") serves as the Trust's
investment adviser and has responsibility for the overall management of the
investment strategies and policies of the Portfolios. The Adviser has engaged
Sub-Advisers for each of the Portfolios to make investment decisions and place
orders. The Sub-Advisers for the Portfolios are:

<TABLE>
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<S> <C>
SUB-ADVISER NAME OF PORTFOLIO

Van Kampen American Capital Money Market Portfolio
Investment Advisory Corp. Quality Income Portfolio
High Yield Portfolio
Stock Index Portfolio
Growth and Income Portfolio

Lord, Abbett & Co. Bond Debenture Portfolio

J.P. Morgan Investment Quality Bond Portfolio
Management, Inc. Small Capital Stock Portfolio
Large Capital Stock Portfolio
Select Equity Portfolio
International Equity Portfolio
</TABLE>

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

THE PORTFOLIOS

PORTFOLIOS MANAGED BY VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.:

MONEY MARKET PORTFOLIO. The investment objective of this Portfolio is to
provide high current income consistent with the preservation of capital and
liquidity through investment in a broad range of money market instruments that
will mature within 12 months of the date of purchase. An investment in the
Money Market Portfolio is neither insured nor guaranteed by the U.S.
Government.

QUALITY INCOME PORTFOLIO. The investment objective of this Portfolio is
to seek a high level of current income, consistent with safety of principal,
by investing in obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities or in various investment grade debt obligations
including mortgage pass-through certificates and collateralized mortgage
obligations.

HIGH YIELD PORTFOLIO. The investment objective of this Portfolio is the
maximization of total investment return through income and capital
appreciation. The Portfolio will pursue its investment objective by investing
in a portfolio substantially consisting of medium and lower grade domestic
corporate debt securities. The Portfolio may also invest up to 35% of its
assets in foreign government and foreign corporate debt securities of similar
quality. The Portfolio may also, from time to time, invest in cash or cash
equivalents due to market conditions or for other defensive purposes. Lower
grade corporate debt securities are commonly known as "junk bonds" and involve
a significant degree of risk. (See "Risk Factors - Special Risks of High Yield
Investing.")

STOCK INDEX PORTFOLIO. The investment objective of this Portfolio is to
achieve investment results that approximate the aggregate price and yield
performance of the Standard & Poor's 500 Composite Stock Price Index by
investing in common stocks, stock index futures contracts and options on stock
indexes and stock index futures contracts, and certain short-term fixed income
securities such as cash reserves.

"Standard & Poor's", "S&P", "S&P 500", "Standard & Poor's 500" and "500"
are trademarks of McGraw-Hill Inc. and have been licensed for use by Cova
Financial Services Life Insurance Company and its affiliates ("Cova Life").
The Stock Index Portfolio is not sponsored, endorsed, sold or promoted by
Standard & Poor's Corporation ("S&P") and S&P makes no representation
regarding the advisability of investing in the Stock Index Portfolio.

GROWTH AND INCOME PORTFOLIO. The investment objective of this Portfolio
is to seek long-term growth of both capital and income by investing in a
portfolio of common stocks which are considered by the Portfolio's Sub-Adviser
to have potential for capital appreciation and dividend growth. The Portfolio
may also invest up to 35% of its assets in common stocks which are considered
by the Portfolio's Sub-Adviser to have potential for capital appreciation but
which are issued by foreign corporations.

PORTFOLIO MANAGED BY LORD, ABBETT & CO.:

BOND DEBENTURE PORTFOLIO. The investment objective of this Portfolio is
high current income and the opportunity for capital appreciation to produce a
high total return through a professionally-managed portfolio consisting
primarily of convertible and discount debt securities, many of which are
lower-rated. These lower-rated debt securities entail greater risks than
investments in higher-rated debt securities. Investors should carefully
consider these risks set forth under "Risk Factors - Special Risks of High
Yield Investing" before investing.

PORTFOLIOS MANAGED BY J.P. MORGAN INVESTMENT MANAGEMENT, INC.:

QUALITY BOND PORTFOLIO. The investment objective of this Portfolio is to
provide a high total return consistent with moderate risk of capital and
maintenance of liquidity. Although the net asset value of the Portfolio will
fluctuate, the Portfolio attempts to preserve the value of its investments to
the extent consistent with its objective.

SMALL CAPITAL STOCK PORTFOLIO. The investment objective of this
Portfolio is to provide a high total return from a portfolio of equity
securities of small companies. The Portfolio will invest primarily in the
common stock of small U.S. companies. The small company holdings of the
Portfolio will be primarily securities included in the Russell 2000 Index.

LARGE CAPITAL STOCK PORTFOLIO. The investment objective of this
Portfolio is long-term growth of capital and income. The equity holdings of
the Portfolio will be primarily stocks of large- and medium-sized companies.
The Portfolio will be highly diversified and typically hold between 225 and
250 stocks.

SELECT EQUITY PORTFOLIO. The investment objective of this Portfolio is
long-term growth of capital and income. The equity holdings of the Portfolio
will be primarily stocks of large- and medium-sized companies. The Portfolio
will typically hold between 60 and 90 stocks.

INTERNATIONAL EQUITY PORTFOLIO. The investment objective of this
Portfolio is to provide a high total return from a portfolio of equity
securities of foreign corporations. The equity holdings of the Portfolio will
be primarily stocks of established companies based in developed countries
outside the United States. The Portfolio is actively managed and seeks to
outperform the Morgan Stanley Capital International Europe, Australia and Far
East Index.

The investment objectives of a Portfolio and policies and restrictions
specifically cited as fundamental may not be changed without the approval of a
majority of the outstanding shares of that Portfolio. Other investment
policies and practices described in this Prospectus and the Statement of
Additional Information are not fundamental, and the Board of Trustees may
change them without shareholder approval. A complete list of investment
restrictions, including those restrictions which cannot be changed without
shareholder approval, is contained in the Statement of Additional Information.
There is no assurance that a Portfolio will meet its stated objective.

INVESTMENT RISKS

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

SALES AND REDEMPTIONS

The Trust sells shares only to the separate accounts of Cova Life as a funding
vehicle for the variable annuity contracts offered by Cova Life. No fee is
charged upon the sale or redemption of the Trust's shares. Expenses of the
Trust are passed through to the separate accounts of Cova Life, and therefore,
are ultimately borne by variable annuity contract owners. In addition, other
fees and expenses are assessed by Cova Life at the separate account level.
(See the Prospectus for the variable annuity contract for a description of all
fees and charges relating to the variable annuity contract.)

FINANCIAL HIGHLIGHTS
(FOR ONE SHARE OUTSTANDING THROUGHOUT THE PERIOD)

The following schedule presents financial highlights for one share of the
Portfolio throughout the periods indicated. The financial highlights have been
audited by _______________________, independent auditors, for each of the
periods through December 31, 1995 presented below, and their report thereon
appears in the Portfolio's related Statement of Additional Information. This
information should be read in conjunction with the financial statements and
related notes thereto included in the Statement of Additional Information, a
copy of which may be obtained without charge as indicated elsewhere in this
Prospectus.

MONEY MARKET PORTFOLIO

July 1, 1991
(Commencement of
Investment
Year Ended December 31 Operations) to
-------- ----- -------- ----
1995 1994 1993 1992 December 31, 1991
-------- ----- -------- ---- -----------------

Net Asset Value, Beginning of Period

Net Investment Income

Less Distributions from Net Investment Income

Net Asset Value, End of Period

Total Investment Return* (Non-Annualized)

Net Assets at End of Period (in millions)

Ratio of Expenses to Average Net Assets*
(Annualized)

Ratio of Net Investment Income to Average
Net Assets* (Annualized)

*If certain expenses had not been assumed
by Cova Life (formerly known as Xerox
Financial Services Life Insurance Company),
total investment return would have been lower
and the ratios would have been as follows:

Ratio of Expenses to Average Net Assets
(Annualized)

Ratio of Net Investment Income to Average
Net Assets (Annualized)
</TABLE>

See Financial Statements and Notes Thereto

FINANCIAL HIGHLIGHTS
(FOR ONE SHARE OUTSTANDING THROUGHOUT THE PERIOD)

QUALITY INCOME PORTFOLIO

December 11, 1989
(Commencement of
Investment
Year Ended December 31 Operations) to
-------- ----- -------- ----
1995 1994 1993 1992 1991 1990 December 31, 1989
---- ---- -------- ----- -------- ---- -----------------

Net Asset Value, Beginning of Period

Net Investment Income

Net Realized and Unrealized Gain/Loss on
Investments

Total from Investment Operations

Less:
Distributions from Net Investment Income

Distributions from Net Realized Gain on
Investments

Total Distributions

Net Asset Value, End of Period

Total Investment Return (Non-Annualized)

Net Assets at End of Period (in millions)

Ratio of Expenses to Average Net Assets*
(Annualized)

Ratio of Net Investment Income to Average
Net Assets* (Annualized)

Portfolio Turnover

Ratio of Expenses to Average Net Assets
(Annualized)

Ratio of Net Investment Income to Average
Net Assets (Annualized)
</TABLE>

See Financial Statements and Notes Thereto

FINANCIAL HIGHLIGHTS
(FOR ONE SHARE OUTSTANDING THROUGHOUT THE PERIOD)

HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>

Net Asset Value, Beginning of Period

Net Investment Income

Net Realized and Unrealized Gain/Loss on
Investments

Total from Investment Operations

Less:
Distributions from Net Investment Income

Distributions from Net Realized Gain on
Investments

Total Distributions

Net Asset Value, End of Period

Total Investment Return (Non-Annualized)

Net Assets at End of Period (in millions)

Ratio of Expenses to Average Net Assets*
(Annualized)

Ratio of Net Investment Income to Average
Net Assets* (Annualized)

Portfolio Turnover

Ratio of Expenses to Average Net Assets
(Annualized)

Ratio of Net Investment Income to Average
Net Assets (Annualized)
</TABLE>

See Financial Statements and Notes Thereto

FINANCIAL HIGHLIGHTS
(FOR ONE SHARE OUTSTANDING THROUGHOUT THE PERIOD)

STOCK INDEX PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>

November 1, 1991
(Commencement of
Investment
Year Ended December 31 Operations) to
---- ----- -------- ----
1995 1994 1993 1992 December 31, 1991
---- ----- -------- ---- -----------------

Net Asset Value, Beginning of Period

Net Investment Income

Net Realized and Unrealized Gain/Loss on
Investments

Total from Investment Operations

Less:
Distributions from Net Investment Income

Distributions from Net Realized Gain on
Investments

Return of Capital Distributions

Total Distributions

Net Asset Value, End of Period

Total Investment Return (Non-Annualized)

Net Assets at End of Period (in millions)

Ratio of Expenses to Average Net Assets*
(Annualized)

Ratio of Net Investment Income to Average
Net Assets* (Annualized)

Portfolio Turnover

Ratio of Expenses to Average Net Assets
(Annualized)

Ratio of Net Investment Income to Average
Net Assets (Annualized)
</TABLE>

See Financial Statements and Notes Thereto

FINANCIAL HIGHLIGHTS
(FOR ONE SHARE OUTSTANDING THROUGHOUT THE PERIOD)

GROWTH AND INCOME PORTFOLIO

May 1, 1992
(Commencement of
Investment
Year Ended December 31 Operations) to
----------- ----- -----------
1995 1994 1993 December 31, 1992
----------- ----- ----------- -----------------

Net Asset Value, Beginning of Period

Net Investment Income

Net Realized and Unrealized Gain/Loss on
Investments

Total from Investment Operations

Less:
Distributions from Net Investment Income

Distributions from Net Realized Gain on
Investments

Total Distributions

Net Asset Value, End of Period

Total Investment Return (Non-Annualized)

Net Assets at End of Period (in millions)

Ratio of Expenses to Average Net Assets*
(Annualized)

Ratio of Net Investment Income to Average
Net Assets* (Annualized)

Portfolio Turnover

Ratio of Expenses to Average Net Assets
(Annualized)

Ratio of Net Investment Income to Average
Net Assets (Annualized)
</TABLE>

See Financial Statements and Notes Thereto

ADDITIONAL PERFORMANCE INFORMATION

Further information about the Trust's performance is contained in the Annual
Report to shareholders which may be obtained, without charge, by calling (800)
831-LIFE, or writing Cova Life at One Tower Lane, Suite 3000, Oakbrook
Terrace, Illinois 60181-4644.

THE TRUST

The Trust is currently comprised of eleven separate Portfolios: Money Market
Portfolio, Quality Income Portfolio, High Yield Portfolio, Growth and Income
Portfolio, Stock Index Portfolio, Bond Debenture Portfolio, Quality Bond
Portfolio, Small Capital Stock Portfolio, Large Capital Stock Portfolio,
Select Equity Portfolio and International Equity Portfolio. SHARES OF THE HIGH
YIELD PORTFOLIO ARE NOT CURRENTLY AVAILABLE FOR SALE IN THE STATE OF
CALIFORNIA. The Trustees may provide for additional Portfolios from time to
time. Each Portfolio issues a separate class of shares. The Declaration of
Trust permits the Trustees to issue an unlimited number of full or fractional
shares of each class of stock.

INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS

Each Portfolio of the Trust has a different investment objective which it
pursues through separate investment policies as described below. The risks and
opportunities of each Portfolio should be examined separately. The differences
in objectives and policies among the Portfolios can be expected to affect the
return of each Portfolio and the degree of market and financial risk of each
Portfolio.

There is no assurance that the investment objectives of the various Portfolios
will be met.

PORTFOLIOS MANAGED BY VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.:

MONEY MARKET PORTFOLIO

The investment objective of the Money Market Portfolio is to provide high
current income consistent with the preservation of capital and liquidity
through investment in a broad range of money market instruments that will
mature within 12 months of the date of purchase.

INVESTMENT PROGRAM

The Money Market Portfolio seeks to achieve its objective by investing only in
the following securities and instruments: (a) obligations of or guaranteed by
the U.S. government, its agencies or instrumentalities ("U.S. Government
Securities"); (b) obligations of banks subject to U.S. government regulation
as well as such other bank obligations as are insured by a U.S. government
agency ("Bank Obligations"); (c) commercial paper (including variable amount
master demand notes); and (d) debt obligations (other than commercial paper)
of corporate issuers.

U.S. Government Securities include Treasury Bills, Notes and Bonds issued by
the U.S. government and backed by the full faith and credit of the U.S.
government, as well as securities issued or guaranteed as to principal and
interest by agencies and instrumentalities of the U.S. government. Bank
Obligations include certificates of deposit and bankers' acceptances of
domestic banks (or Euro-dollar obligations of foreign branches of those
domestic banks) subject to U.S. government regulation and time deposits of
federal and state banks whose accounts are insured by a government agency as
well as the accounts themselves.

See "Risk Factors - Tax Considerations" for a discussion of special
diversification standards which the Portfolio will meet.

The Portfolio may lend portfolio securities. The Portfolio may also enter into
repurchase agreements but only if the underlying securities are either
Government securities or First Tier Securities (see "Investment Quality" and
"Portfolio Maturity", below). The Portfolio may purchase and sell securities
on a "when issued" and "delayed delivery" basis. The Portfolio may borrow up
to 10% of its net assets in order to pay for redemptions when liquidation of
portfolio securities is considered disadvantageous or inconvenient and may
pledge up to 10% of its net assets to secure borrowings. The Portfolio may
invest up to 10% of its net assets in restricted securities. A more complete
description of these investments and transactions is contained under
"Investment Practices".

The Portfolio may also invest in Floating Rate Securities. Floating Rate
Securities provide for automatic adjustment of the interest rate whenever some
specified interest rate index changes. The interest rate on Floating Rate
Securities is ordinarily determined by reference to or is a percentage of a
bank's prime rate, the 90-day U.S. Treasury bill rate, the rate of return on
commercial paper or bank certificates of deposit, an index of short-term
interest rates, or some other objective measure. Floating Rate Securities
often include a demand feature which entitles the holder to sell the
securities to the issuer at par. In many cases, the demand feature can be
exercised at any time on seven days' notice; in other cases, the demand
feature is exercisable at any time on 30 days' notice or on similar notice at
intervals of not more than one year. With respect to Floating Rate Securities,
the financial institution issuing the instrument is considered the issuer.
However, where the securities are backed by an irrevocable letter of credit or
by insurance, without which the securities would not qualify for purchase
under the Portfolio's quality restrictions, the issuer of the letter of credit
will be considered the issuer of the securities.

Although the securities in which the Portfolio invests are of high quality and
the transactions which it enters into entail low risk, there is still the
possibility of loss of principal. Corporate issuers may default on their
obligations. Repurchase agreements may be deemed to be collateralized loans
and the Portfolio could experience delay and expenses in liquidating
collateral in the event of the failure of the repurchasing party to honor its
agreement to repurchase. Agencies or instrumentalities of the U.S. government
could also default on their securities which may not be guaranteed by or be
backed by the full faith and credit of the U.S. government.

INVESTMENT QUALITY

(a) Eligible Securities

The Money Market Portfolio will invest only in United States
dollar-denominated instruments which, at the time of acquisition, are
determined to be eligible securities ("Eligible Securities") by the
Sub-Adviser and which are determined by the Sub-Adviser to present minimal
credit risks.

An Eligible Security is any security that has a remaining maturity of
less than one year and (i) which is rated in one of the two highest rating
categories for short-term debt obligations by any two nationally recognized
statistical rating organizations ("NRSROs") that have issued a rating with
respect to a security or class of debt obligations of an issuer, or if only
one NRSRO has issued a rating, that NRSRO ("Requisite NRSROs"); or (ii) has a
security that has been issued by an issuer that has outstanding short-term
debt obligations (or security within that class) that are comparable in
priority and security with the security ("CPS Security") which is rated, or
the issuer of which is rated, by the Requisite NRSROs in one of the two
highest rating categories for short-term debt obligations. An unrated security
may also be an Eligible Security if it is determined by the Sub-Adviser to be
of comparable quality ("Comparable Quality Security") to either a First Tier
Security or Second Tier Security, as those terms are defined below.

A First Tier Security is an Eligible Security that (i) is itself rated,
has a CPS Security rated or the issuer of which security is rated by the
Requisite NRSROs in the highest rating category for short-term debt
obligations or (ii) is a Comparable Quality Security which is determined by
the Sub-Adviser to be of comparable quality to a First Tier Security.

A Second Tier Security is (i) an Eligible Security that is itself rated,
has a CPS Security rated or the issuer of which security is rated by the
Requisite NRSROs in the second highest rating category for short-term debt
obligations, (ii) an instrument that has been rated in the highest rating
category for short-term debt obligations by one NRSRO and has been rated in
the second highest rating category for short-term debt obligations by one or
more other NRSROs or (iii) a Comparable Quality Security which is determined
by the Sub-Adviser to be of comparable quality to a Second Tier Security.

(b) Guidelines for Purchasing Eligible Securities

The Sub-Adviser, on behalf of the Money Market Portfolio, may (i) acquire
any First Tier Security that, at the time of acquisition, has received the
highest rating from any two NRSROs; (ii) acquire any Second Tier Security
that, at the time of acquisition, has received the second highest rating from
any two NRSROs, and (iii) acquire any First Tier Security or any Second Tier
Security that at time of purchase is rated by a single NRSRO, or any
Comparable Quality Security, subject to approval by the Board of Trustees of
the Trust.

PORTFOLIO MATURITY

The Money Market Portfolio may not purchase any instrument, other than a
Government security, with a remaining maturity of greater than one year. A
Government security is any security issued or guaranteed as to principal or
interest by the United States, or by a person controlled or supervised by and
acting as an instrumentality of the Government of the United States, or any
certificate of deposit for any of the above.

The Money Market Portfolio maintains a dollar-weighted average portfolio
maturity of ninety (90) days or less. The Portfolio determines the maturity of
portfolio investments in accordance with Rule 2a-7, a valuation and pricing
rule under the Investment Company Act of 1940, as amended.

QUALITY INCOME PORTFOLIO

The investment objective of the Quality Income Portfolio is to seek a high
level of current income, consistent with safety of principal, by investing in
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities or in various investment grade debt obligations including
mortgage pass-through certificates and collateralized mortgage obligations.

The Sub-Adviser will use the Lehman Brothers Government/Corporate Bond Index
as a benchmark against which it will gauge the performance of the Portfolio
and determine risk measurement. The Lehman Brothers Government/Corporate Bond
Index is comprised of all publicly issued, non-convertible, domestic debt of
the U.S. Government or any agency thereof, quasi-Federal corporation, or
corporate debt guaranteed by the U.S. Government and all publicly issued,
fixed-rate, non-convertible, domestic debt of the four major corporate
classifications: industrial, utility, financial and Yankee bond. Only notes
and bonds with a minimum outstanding principal amount of $50,000,000 and a
minimum maturity of one year are included. Bonds included must have a rating
of at least Baa by Moody's Investors Service, Inc. ("Moody's"), BBB by
Standard & Poor's Corporation ("S&P") or in the case of bank bonds not rated
by either Moody's or S&P, BBB by Fitch Investors Service, Inc.

Depending on market conditions and subject to the special diversification
provisions imposed on the Portfolio (see "Risk Factors"), the Portfolio may
invest a substantial portion of its assets in Government National Mortgage
Association ("GNMA") Certificates of the modified pass-through type. These
GNMA Certificates are debt securities issued by a mortgage holder (such as a
mortgage banker) and represent an interest in a pool of mortgages insured by
the Federal Housing Administration or the Farmers Home Administration or
guaranteed by the Veterans Administration. GNMA guarantees the timely payment
of monthly installments of principal and interest on the GNMA Certificates.
These guarantees are backed by the full faith and credit of the U.S.
government.

To the extent the Portfolio acquires GNMA Certificates at par or at discount,
the GNMA Certificates offer a high degree of safety of the principal
investment because of the GNMA guarantee. If the Portfolio buys GNMA
Certificates at a premium, however, mortgage foreclosures and repayments of
principal by mortgagors (which may be made at any time without penalty) may
result in some loss of the Portfolio's principal investment to the extent of
the premium paid. To avoid loss of this premium and of any gain in value of
its GNMA Certificates resulting from a decrease in interest rates generally,
the Portfolio may sell its GNMA Certificates which are selling at a
substantial premium. This practice may increase the Portfolio's portfolio
turnover rate. A more complete description of GNMA Certificates is contained
in the Statement of Additional Information.

The Portfolio, subject to the limitations on investments as described in "Risk
Factors", may invest in other obligations issued or guaranteed by the U.S.
government or by its agencies or instrumentalities. These instruments may be
either direct obligations of the Treasury (such as U.S. Treasury Notes, Bills
or Bonds) or securities issued or guaranteed by government agencies or
instrumentalities. Of the obligations issued or guaranteed by agencies or
instrumentalities of the U.S. government, some are backed by the full faith
and credit of the U.S. government (such as Maritime Administration Title XI
Ship Financing Bonds) and others are backed only by the rights of the issuer
to borrow from the U.S. Treasury (such as Federal Home Loan Bank Bonds and
Federal National Mortgage Association Bonds).

The Portfolio may also invest in one or more of the following:

(1) Marketable straight-debt securities of domestic issuers, and of
foreign issuers (payable in U.S. dollars) rated at the time of purchase within
the four highest grades assigned by Moody's (Aaa, Aa, A or Baa) or by S&P
(AAA, AA, A or BBB);

(2) Commercial paper rated at time of purchase Prime-3 by Moody's or A-3
by S&P;

(3) Bank obligations (including repurchase agreements and those
denominated in Eurodollars) of banks having total assets in excess of $1
billion; and

(4) Mortgage pass-through certificates and collateralized mortgage
obligations.

Securities rated Baa or BBB may have speculative characteristics and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case
with higher grade bonds. For a further description of the above investments
and the ratings used, see "Appendix - Description of Corporate Bond Ratings"
herein and "Description of Securities Ratings - Commercial Paper Ratings" in
the Statement of Additional Information.

The Portfolio may invest up to 35% of its assets in securities of foreign
issuers. These investments will be marketable straight-debt securities of
foreign issuers payable in U.S. dollars and rated at the time of purchase
within the four highest grades assigned by Moody's or by S&P. Investments in
foreign securities present certain risks not ordinarily found in investments
in securities of U.S. issuers. See "Risk Factors - Special Considerations
Relating to Foreign Securities."

The Portfolio may lend portfolio securities. The Portfolio may borrow under
certain circumstances. The Portfolio may also enter into repurchase
agreements, reverse repurchase agreements and may sell securities short. The
Portfolio may purchase and sell securities on a "when issued" and "delayed
delivery" basis. The Portfolio may invest in restricted securities. A more
complete description of these investments and transactions is contained under
"Investment Practices."

If the Sub-Adviser deems it appropriate to seek to partially hedge the
Portfolio's assets against market value changes, the Portfolio may enter into
various hedging transactions, such as futures contracts, financial index
futures contracts, and the related put or call options contracts on futures
contracts. Hedging is a means of offsetting, or neutralizing, the price
movement of an investment by making another investment, the price of which
should tend to move in the opposite direction from that of the original
investment. See "Investment Practices - Strategic Transactions" and the
Statement of Additional Information for a more complete description of these
transactions.

The Portfolio will be affected by general changes in interest rates resulting
in increases or decreases in the value of the Portfolio securities. Market
prices of debt securities tend to rise when interest rates fall and market
prices tend to fall when interest rates rise. Repurchase agreements may be
deemed to be collateralized loans and the Portfolio could experience delay and
expenses in liquidating such collateral in the event of the failure of the
repurchasing party to honor its agreement to repurchase. Agencies or
instrumentalities of the U.S. government could also default on their
securities which may not be guaranteed by or be backed by the full faith and
credit of the U.S. government.

See "Risk Factors - Tax Considerations" for a discussion of special
diversification standards which the Portfolio will meet.

HIGH YIELD PORTFOLIO

The investment objective of the High Yield Portfolio is the maximization of
total investment return through income and capital appreciation.

The High Yield Portfolio will pursue its investment objective by investing in
a portfolio substantially consisting of medium and lower grade domestic
corporate debt securities. The Portfolio may also invest up to 35% of its
assets in foreign government and foreign corporate debt securities of similar
quality. The Portfolio may also, from time to time, invest in cash or cash
equivalents due to market conditions or for other defensive purposes.

Lower grade corporate debt securities are commonly known as "junk bonds" and
involve a significant degree of risk. See "Risk Factors - Special Risks of
High Yield Investing."

Medium grade corporate securities are generally regarded as having adequate,
but not outstanding, capacity to pay interest and repay principal. Medium
grade securities are obligations that are rated A and Baa by Moody's or A and
BBB by S&P, or which are not rated by either Moody's or S&P but are considered
by the Sub-Adviser to be of comparable quality. Securities rated Baa or BBB
may have speculative characteristics and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade bonds.
Lower grade corporate securities are those that are rated Ba or B by Moody's
or BB or B by S&P, or which are unrated or considered by the Sub-Adviser to be
of comparable quality. If the Sub-Adviser deems it appropriate, the Portfolio
may invest in domestic corporate debt securities of a higher quality. For a
further description of these ratings, see "Appendix - Description of Corporate
Bond Ratings."

Many issuers of medium and lower grade securities choose not to have a rating
assigned to their obligations by one of the rating agencies. Therefore, the
Portfolio's assets may at times consist of a high proportion of unrated
securities. The Portfolio will purchase only those unrated securities which
the Sub-Adviser believes are comparable to rated securities that qualify for
purchase by the Portfolio pursuant to criteria established by the Board of
Trustees. Although the Portfolio will invest primarily in medium and lower
grade securities, from time to time the Portfolio may also invest in higher
grade securities if the Sub-Adviser considers it appropriate, as when the
difference in return between different grades of securities is very narrow,
when the Sub-Adviser expects interest rates to increase, or when the
availability of medium and lower grade securities is limited. These
investments may result in a lower current income than if the Portfolio were
fully invested in medium and lower grade securities.

The Portfolio may invest up to 35% of its assets in foreign government and
foreign corporate debt securities of similar quality. Investments in foreign
securities present certain risks not ordinarily found in investments in
securities of U.S. issuers. See "Risk Factors - Special Considerations
Relating to Foreign Securities."

If the Sub-Adviser deems it appropriate to seek to partially hedge the
Portfolio's assets against market value changes resulting from changes in
interest rates or (with respect to the foreign securities which the Portfolio
invests in) currency fluctuations, the Portfolio may also enter into various
hedging transactions, such as futures contracts, financial index futures
contracts, and related put or call options contracts on these contracts and
foreign currency contracts. In addition, if the Sub-Adviser deems it
appropriate, the Portfolio may enter into other hedging transactions, such as
forward foreign currency contracts, currency futures contracts, and related
options contracts in order to protect the U.S. dollar equivalent values of
those foreign securities in which the Portfolio invests against declines
resulting from currency value fluctuations.

Hedging is a means of offsetting, or neutralizing, the price movement of an
investment by making another investment, the price of which should tend to
move in the opposite direction from that of the original investment. See
"Investment Practices - Strategic Transactions" and the Statement of
Additional Information for a more complete discussion of these
transactions.

The Portfolio may lend portfolio securities. The Portfolio may borrow
under certain circumstances. The Portfolio may also enter into repurchase
agreements and reverse repurchase agreements. Repurchase agreements may be
deemed to be collateralized loans and the Portfolio could experience delay and
expenses in liquidating such collateral in the event of the failure of the
repurchasing party to honor its agreement to repurchase. The Portfolio may
invest in restricted securities. The Portfolio may purchase and sell
securities on a "when issued" and "delayed delivery" basis. A more complete
description of these investments and transactions is contained under
"Investment Practices."

See "Risk Factors - Tax Considerations" for a discussion of special
diversification standards which the Portfolio will meet.

ASSET COMPOSITION

At December 31, 1995, the High Yield Portfolio was invested in bonds rated by
Moody's as follows:

<TABLE>
<CAPTION>
<S> <C>
Moody's Ratings Percentage of Total Bond Investments in the Portfolio

Caa ___%
Ba1 ___%
Ba2 ___%
Ba3 ___%
B1 ___%
B2 ___%
B3 ___%
Other ___%
</TABLE>

STOCK INDEX PORTFOLIO

INVESTMENT OBJECTIVE

The investment objective of the Stock Index Portfolio is to achieve investment
results that approximate the aggregate price and yield performance of the
Standard & Poor's 500 Composite Stock Price Index (the "S&P 500 Index" or the
"Index").

The S&P 500 Index represents more than 70% of the total market value of all
publicly-traded common stocks, and is widely viewed among investors as a good
representative of the aggregate performance of publicly-traded common stocks.

"Standard & Poor's", "S&P", "S&P 500", "Standard & Poor's 500", and "500" are
trademarks of McGraw-Hill Inc. and have been licensed for use by Cova Life.
The Stock Index Portfolio is not sponsored, endorsed, sold or promoted by
Standard & Poor's Corporation ("S&P") and S&P makes no representation or
warranty, express or implied, to the owners of the Stock Index Portfolio or
any member of the public regarding the advisability of investing in securities
generally or in the Stock Index Portfolio particularly or the ability of the
S&P 500 Index to track general stock market performance. S&P's only
relationship to Cova Life is the licensing of certain trademarks and trade
names of S&P and of the S&P 500 Index which is determined, composed and
calculated by S&P without regard to Cova Life or the Stock Index Portfolio.
S&P has no obligation to take the needs of Cova Life or the owners of the
Stock Index Portfolio into consideration in determining, composing or
calculating the S&P 500 Index. S&P is not responsible for and has not
participated in the determination of the prices and amount of the Stock Index
Portfolio or the timing of the issuance or sale of the Stock Index Portfolio
or in the determination or calculation of the equation by which the Stock
Index Portfolio is to be converted into cash. S&P has no obligation or
liability in connection with the administration, marketing or trading of the
Stock Index Portfolio.

S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY COVA LIFE, OWNERS OF THE STOCK INDEX
PORTFOLIO, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR
ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND
EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA
INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P
HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL
DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH
DAMAGES.

INVESTMENT POLICIES

The Stock Index Portfolio is not managed according to traditional methods of
"active" investment management, which involve the buying and selling of
securities based upon economic, financial and market analysis and investment
judgment. Instead, the Portfolio, utilizing a "passive" or "indexing"
investment approach, attempts to duplicate the investment performance of the
respective index through statistical procedures.

The Sub-Adviser believes that the "indexing" approach described above is an
effective method of substantially duplicating percentage changes in the S&P
500 Index. It is a reasonable expectation that the correlation between the
performance of the Portfolio and that of the Index will be approximately 98%;
a figure of 100% would indicate perfect correlation. Perfect correlation would
be achieved when the net asset value per share of the Portfolio increases and
decreases in exact proportion to changes in the Index. The Board of Trustees
of the Trust will review the correlation between the Portfolio and the Index
on a quarterly basis. See the Statement of Additional Information for a
description of the monitoring procedures established by the Board.

In pursuing its investment objective, the Portfolio will invest in no fewer
than 100 stocks with the majority of the Portfolio consisting of those stocks
having the largest weightings in the Index. The Sub-Adviser will select stocks
for the Portfolio after taking into account their individual weights in the
Index and the weights in the Index of the industry groups to which they
belong.

Although the Portfolio will attempt to remain fully invested in common stocks,
it may also invest in certain short-term fixed income securities such as cash
reserves.

As described further below under "Implementation of Policies", the Portfolio
may also enter into stock index futures contracts and options on stock indexes
and stock index futures contracts for various reasons including to hedge
against changes in security prices. Hedging is a means of offsetting, or
neutralizing, the price movement of an investment by making another
investment, the price of which should tend to move in the opposite direction
from that of the original investment. See the Statement of Additional
Information for a more complete description of hedging and for a discussion of
the risks involved therein.

IMPLEMENTATION OF POLICIES

The S&P 500 Index is composed of 500 common stocks which are chosen by S&P to
be included in the unmanaged Index. Market value, liquidity and industry
representation are considered in the selection process. The inclusion of a
stock in the S&P 500 Index in no way implies that S&P believes the stock to be
an attractive investment. The 500 securities, 95% of which trade on the New
York Stock Exchange, represent approximately 75% of the market value of all
U.S. common stocks. Each stock in the S&P 500 Index is weighted by its market
value: its market price per share times the number of shares outstanding.

Because of the market-value weighting, the 50 largest companies in the S&P 500
Index currently account for approximately 50% of the Index. Typically,
companies included in the S&P 500 Index are the largest and most dominant
firms in their respective industries. As of December 31, 1995, the five
largest companies in the Index were: ______________________________________.
The largest industry categories were: _____________________________________.

Although the Portfolio will normally seek to remain substantially fully
invested in common stocks, the Portfolio may invest temporarily in certain
short-term fixed income securities. Such securities may be used to invest
uncommitted cash balances or to maintain liquidity to meet shareholder
redemptions. These securities include: obligations of the United States
government and its agencies or instrumentalities; commercial paper, bank
certificates of deposit and bankers' acceptances; and repurchase agreements
and reverse repurchase agreements collateralized by these securities.
Repurchase agreements may be deemed to be collateralized loans and the
Portfolio could experience delay and expenses in liquidating such collateral
in the event of the failure of the repurchasing party to honor its agreement
to repurchase.

The Portfolio will employ a combination of an indexing strategy known as
"sampling" and stock index futures contracts and options. Sampling is a method
that is used to attempt to replicate the return of the Index without having to
purchase a weighted portfolio containing all 500 stocks in the Index. This
process selects stocks for the Portfolio so that various industry weightings,
market capitalizations and fundamental characteristics (e.g. price to book,
price to earnings, debt to asset ratios and dividend yields) match those of
the Index. The use of sampling involves certain risks with respect to the
ability of the Portfolio to achieve the desired correlation with the Index.
(See "Risk Factors - Stock Index Portfolio - Sampling", below).

As indicated above, the Portfolio may utilize stock index futures contracts
and options on stock indexes and stock index futures contracts. Specifically,
the Portfolio may enter into futures contracts provided that not more than 5%
of its assets are required as a futures contract deposit.

Stock index futures contracts and options may be used for several reasons: to
maintain cash reserves while remaining fully invested, to facilitate trading,
to reduce transaction costs, to hedge against changes in securities prices, or
to seek higher investment returns when a futures contract is priced more
attractively than the underlying equity security or the Index.

The Portfolio may lend its investment securities to qualified institutional
investors for the purpose of realizing additional income. Loans of securities
by the Portfolio will be collateralized by cash or securities issued or
guaranteed by the U.S. government or its agencies. The collateral will equal
at least 100% of the current market value of the loaned securities. The
Portfolio may borrow money from a bank but only for temporary or emergency
purposes. The Portfolio may borrow money up to one-third of the value of its
total assets taken at current value. The Portfolio would borrow money only to
meet redemption requests prior to the settlement of securities already sold or
in the process of being sold by the Portfolio. To the extent that the
Portfolio borrows money prior to selling securities, the Portfolio may be
leveraged; at such times, the Portfolio may appreciate or depreciate in value
more rapidly than the Index. The Portfolio may purchase and sell securities on
a "when issued" and "delayed delivery" basis. The Portfolio may invest in
restricted securities and may sell securities short. See "Investment
Practices" for a description of these investments and transactions.

See "Risk Factors - Tax Considerations" for a discussion of special
diversification standards which the Portfolio will meet.

RISK FACTORS - STOCK INDEX PORTFOLIO

FUTURES CONTRACTS AND OPTIONS

The primary risks associated with the use of futures contracts and options
are: (i) imperfect correlation between the change in market value of the
stocks held by the Portfolio and the prices of futures contracts and options;
and (ii) possible lack of a liquid secondary market for a futures contract and
the resulting inability to close a futures position when desired. The risk of
imperfect correlation will be minimized by investing only in those contracts
whose behavior is expected to resemble that of the Portfolio's underlying
securities. The risk that the Portfolio will be unable to close out a futures
position will be minimized by entering into such transactions on a national
exchange with an active and liquid secondary market. See the Statement of
Additional Information for a more complete discussion of the risks involved
with respect to investment in stock index futures contracts and options on
stock indexes and stock index futures contracts.

MARKET RISK

As the Portfolio invests primarily in common stocks, the Portfolio is subject
to market risk - i.e. the possibility that common stock prices will decline
over short or even extended periods. The U.S. stock market tends to be
cyclical, with periods when stock prices generally rise and periods when
prices generally decline.

To illustrate the volatility of stock prices, the following table sets forth
the extremes for stock market returns as well as the average return for the
period from 1926 to 1990, as measured by the S&P 500 Index:

U.S. STOCK MARKET RETURNS (1926-1990)
OVER VARIOUS TIME HORIZONS

One Five Ten Twenty
Year Years Years Years
------- ------- ------- -------

Best +53.9% +23.9% +20.1% +16.9%
Worst - 43.3 - 12.5 - 0.9 + 3.1
Average +12.0 + 9.9 +10.2 +10.3
</TABLE>

As shown, from 1926 to 1990, common stocks, as measured by the S&P 500 Index,
have provided an average annual total return (capital appreciation plus
dividend income) of +12.0%. While this average return can be used as a guide
for setting reasonable expectations for future stock market returns, it may
not be useful for forecasting future returns in any particular period, as
stock returns are quite volatile from year to year.

SAMPLING

The use of the sampling technique may, particularly under certain market
conditions, result in a lower correlation between the Portfolio and the Index
than if the Portfolio owned all 500 stocks in the Index. The sampling
technique, when employed successfully, is effective primarily due to the
existence of long-term correlations between groups of stocks and whole
industry sectors within the Index. Sampling, by definition, creates a bias
toward the purchase by the Portfolio of the stocks of larger capitalization
companies. As a result, the Portfolio can be negatively impacted by the use of
sampling in a market where the stocks of smaller capitalization companies are
outperforming those of larger capitalization companies. When this happens, it
may result in the Portfolio underperforming the Index and not achieving its
anticipated degree of correlation with the Index. The Sub-Adviser will
actively monitor the effectiveness of its sampling technique and will
undertake corrective actions should the use of the sampling technique result
in underperformance or undercorrelation with respect to the Index. Such
corrective actions may include, but not necessarily be limited to, increasing
the number of companies represented in the Portfolio to incorporate more
secondary issues. As described under "Investment Policies" above, the Board of
Trustees of the Trust reviews the correlation between the Portfolio and the
Index on a quarterly basis. The Board has adopted monitoring procedures which
require, among other things, that the Sub-Adviser notify the Board in the
event that the correlation between the performance of the Portfolio and that
of the Index falls below 95%.

GROWTH AND INCOME PORTFOLIO

The investment objective of the Growth and Income Portfolio is to seek
long-term growth of both capital and income by investing in a portfolio of
common stocks which are considered by the Sub-Adviser to have potential for
capital appreciation and dividend growth. The Portfolio may also invest up to
35% of its assets in common stocks which are considered by the Sub-Adviser to
have potential for capital appreciation but which are issued by foreign
corporations.

The Portfolio seeks to achieve its objective by investing primarily in a
diversified portfolio of dividend paying common stocks of large established
companies which are considered by the Sub-Adviser to have potential for both
capital appreciation and dividend growth. The Portfolio's stocks are actively
traded in U.S. domestic markets, primarily on national securities exchanges,
and are selected principally on the basis of fundamental investment values as
determined by the Sub-Adviser. The Portfolio's investments are usually viewed
by the Sub-Adviser as having comparatively low price-earning ratios and
anticipated higher dividends than the S&P 500 average and, at the time of
purchase, are considered by the Sub-Adviser to be undervalued in the
marketplace.

The Portfolio may invest up to 35% of its assets in dividend paying common
stocks of large established companies which are considered by the Sub-Adviser
to have potential for both capital appreciation and dividend growth but which
are issued by foreign corporations of the same type as the U.S. securities
described above. There is no current intention that these investments will
exceed 20% of the Portfolio's assets. Investments in foreign securities
present certain risks not ordinarily found in investments in securities of
U.S. issuers. See "Risk Factors - Special Considerations Relating to Foreign
Securities".

If the the Sub-Adviser deems it appropriate to seek to partially hedge the
Portfolio's assets against market value changes resulting from changes in
interest rates or (with respect to the foreign securities which the Portfolio
invests in) currency fluctuations, the Portfolio may enter into various
hedging transactions, such as futures contracts, financial index futures
contracts, and related put or call options contracts on these contracts and
foreign currency contracts. In addition, if the Sub-Adviser deems it
appropriate, the Portfolio may enter into other hedging transactions, such as
forward foreign currency contracts, currency futures contracts, and related
options contracts in order to protect the U.S. dollar equivalent values of
those foreign securities in which the Portfolio invests against declines
resulting from currency value fluctuations. Hedging is a means of offsetting,
or neutralizing, the price movement of an investment by making another
investment, the price of which should tend to move in the opposite direction
from that of the original investment. See "Investment Practices - Strategic
Transactions" and the Statement of Additional Information for a more complete
description of these transactions.

The Portfolio may lend portfolio securities. The Portfolio may borrow under
certain circumstances. The Portfolio may also enter into repurchase
agreements, reverse repurchase agreements and may sell securities short. The
Portfolio may also invest in restricted securities. The Portfolio may purchase
and sell securities on a "when issued" and "delayed delivery" basis. A more
complete description of these investments and transactions is contained under
"Investment Practices".

See "Risk Factors - Tax Considerations" for a discussion of special
diversification standards which the Portfolio will meet.

As the Portfolio invests primarily in common stocks, the Portfolio is subject
to market risk - i.e. the possibility that common stock prices will decline
over short or even extended periods. Stock markets tend to be cyclical, with
periods when stock prices generally rise and periods when prices generally
decline.

The Portfolio's policy of investing in securities that have a potential for
growth means that the assets of the Portfolio generally will be subject to
greater risk than may be involved in investing in securities which are not
selected for such growth characteristics. Repurchase agreements may be deemed
to be collateralized loans and the Portfolio could experience delay and
expenses in liquidating such collateral in the event of the failure of the
repurchasing party to honor its agreement to repurchase.

PORTFOLIO MANAGED BY LORD, ABBETT & CO.:

BOND DEBENTURE PORTFOLIO

The investment objective of the Bond Debenture Portfolio is high current
income and the opportunity for capital appreciation to produce a high total
return through a professionally-managed portfolio consisting primarily of
convertible and discount debt securities, many of which are lower-rated. These
lower-rated debt securities entail greater risks than investments in
higher-rated debt securities. Investors should carefully consider these risks
set forth under "Risk Factors - Special Risks of High Yield Investing."

The Sub-Adviser believes that a high total return (current income and capital
appreciation) may be derived from an actively-managed, diversified debt-
security portfolio. In no event will the Portfolio voluntarily purchase any
securities other than debt securities, if, at the time of such purchase or
acquisition, the value of the debt securities in the Portfolio is less than
80% of the value of its total assets. The Portfolio seeks unusual values,
particularly in lower-rated debt securities, some of which are convertible
into common stocks or have warrants to purchase common stocks.

Higher yield on debt securities can occur during periods of inflation when the
demand for borrowed funds is high. Also, buying lower-rated bonds when the
credit risk is above average but, the Sub-Adviser thinks, likely to decrease,
can generate higher yields. Such debt securities normally will consist of
secured debt obligations of the issuer (i.e., bonds), general unsecured debt
obligations of the issuer (i.e., debentures) and debt securities which are
subordinate in right of payment to other debt of the issuer.

Capital appreciation potential is an important consideration in the selection
of portfolio securities. Capital appreciation may be obtained by (1) investing
in debt securities when the trend of interest rates is expected to be down;
(2) investing in convertible debt securities or debt securities with warrants
attached entitling the holder to purchase common stock; and (3) investing in
debt securities of issuers in financial difficulties when, in the
Sub-Adviser's opinion, the problems giving rise to such difficulties can be
successfully resolved, with a consequent improvement in the credit standing of
the issuers (such investments involve corresponding risks that interest and
principal payments may not be made if such difficulties are not resolved). In
no event will the Portfolio invest more than 10% of its gross assets at the
time of investment in debt securities which are in default as to interest or
principal.

Normally, the Sub-Adviser invests in long-term debt securities when the
Sub-Adviser believes that interest rates in the long run will decline and
prices of such securities generally will be higher. When the Sub-Adviser
believes that long-term interest rates will rise, the Sub-Adviser will
endeavor to shift the Portfolio into short-term debt securities whose prices
might not be affected as much by an increase in interest rates.

The following policies are subject to change without shareholder approval: (a)
the Portfolio must keep at least 20% of the value of its total assets in (1)
debt securities which, at the time of purchase, are rated within one of the
four highest grades determined either by Moody's or S&P, (2) debt securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, (3) cash or cash equivalents (short-term obligations of
banks, corporations or the U.S. Government), or (4) a combination of any of
the foregoing; (b) the Portfolio may invest up to 10% of its gross assets, at
market value, in debt securities primarily traded in foreign countries - such
foreign debt securities normally will be limited to issues where there does
not appear to be substantial risk of nationalization, exchange controls,
confiscation or other government restrictions; (c) subject to the percentage
limitations for purchases of other than debt securities described below, the
Portfolio may purchase common and preferred stocks; (d) the Portfolio may hold
or sell any property or securities which it may obtain through the exercise of
conversion rights or warrants or as a result of any reorganization,
recapitalization or liquidation proceedings for any issuer of securities owned
by it. In no event will the Portfolio voluntarily purchase any securities
other than debt securities, if, at the time of such purchase or acquisition,
the value of the property and securities, other than debt securities, in the
Portfolio is greater than 20% of the value of its gross assets. A purchase or
acquisition will not be considered "voluntary" if made in order to avoid loss
in value of a conversion or other premium; and (e) the Portfolio does not
purchase securities for short-term trading, nor does it purchase securities
for the purpose of exercising control of management.

The Portfolio may invest up to 15% of its net assets in illiquid securities.
Bonds which are subject to legal or contractual restrictions on resale, but
which have been determined by the Board of Trustees to be liquid, will not be
subject to this limit. Investment by the Portfolio in such securities,
initially determined to be liquid, could have the effect of diminishing the
level of the Portfolio's liquidity during periods of decreased market interest
in such securities.

The Portfolio may, but has no present intention to, commit more than 5% of its
gross assets to the lending of its portfolio securities.

The Portfolio will not change its investment objective without shareholder
approval.

The Portfolio may invest substantially in lower-rated bonds for their higher
yields which entail greater risks. Since the risk of default generally is
higher among lower-rated bonds, the research and analysis performed by the
Sub-Adviser is especially important in the selection of such bonds, which, if
rated BB/Ba or lower, often are described as "high-yield bonds" because of
their generally higher yields and referred to colloquially as "junk bonds"
because of their greater risks. In selecting lower-rated bonds for investment,
the Sub-Adviser does not rely upon ratings, which evaluate only the safety of
principal and interest, not market value risk, and which, furthermore, may not
accurately reflect an issuer's current financial condition. The Portfolio does
not have any minimum rating criteria for its investments in bonds and some
issuers may default as to principal and/or interest payments subsequent to the
purchase of their securities. Through portfolio diversification, good credit
analysis and attention to current developments and trends in interest rates
and economic conditions, investment risk can be reduced, although there is no
assurance that losses will not occur.

The Portfolio may invest in the securities markets of foreign countries.
Investments in foreign securities present certain risks not ordinarily found
in investments in securities of U.S. issuers. See "Risk Factors - Special
Considerations Relating to Foreign Securities."

PORTFOLIOS MANAGED BY J.P. MORGAN INVESTMENT MANAGEMENT, INC.:

QUALITY BOND PORTFOLIO

The investment objective of the Portfolio is to provide a high total return
consistent with moderate risk of capital and maintenance of liquidity. Total
return will consist of income plus realized and unrealized capital gains and
losses.

The Portfolio is designed for investors who seek a total return over time that
is higher than that generally available from a portfolio of shorter-term
obligations while recognizing the greater price fluctuation of longer-term
instruments. It may also be a convenient way to add fixed income exposure to
diversify an existing portfolio.

The Sub-Adviser actively manages the Portfolio's duration, the allocation of
securities across market sectors, and the selection of specific securities
within sectors. Based on fundamental, economic and capital markets research,
the Sub-Adviser adjusts the duration of the Portfolio in light of market
conditions and the Sub-Adviser's interest rate outlook. For example, if
interest rates are expected to fall, the duration may be lengthened to take
advantage of the expected associated increase in bond prices. The Sub-Adviser
also actively allocates the Portfolio's assets among the broad sectors of the
fixed income market including, but not limited to, U.S. Government and agency
securities, corporate securities, private placements, and asset-backed and
mortgage related securities. Specific securities which the Sub-Adviser
believes are undervalued are selected for purchase within the sectors using
advanced quantitative tools, analysis of credit risk, the expertise of a
dedicated trading desk, and the judgment of fixed income portfolio managers
and analysts. Under normal circumstances, the Sub-Adviser intends to keep the
Portfolio essentially fully invested with at least 65% of the Portfolio's
assets invested in bonds.

Duration is a measure of the weighted average maturity of the bonds held in
the Portfolio and can be used as a measure of the sensitivity of the
Portfolio's market value to changes in interest rates. Under normal market
conditions the Portfolio's duration will range between one year shorter and
one year longer than the duration of the U.S. investment grade fixed income
universe, as represented by Salomon Brothers Broad Investment Grade Bond
Index, the Portfolio's benchmark. Currently, the benchmark's duration is
approximately 4.5 years. The maturities of the individual securities in the
Portfolio may vary widely, however.

The Portfolio intends to manage its portfolio actively in pursuit of its
investment objective. Portfolio transactions are undertaken principally to
accomplish the Portfolio's objective in relation to expected movements in the
general level of interest rates, but the Portfolio may also engage in
short-term trading consistent with its objective. To the extent the Portfolio
engages in short-term trading, it may incur increased transaction costs.

CORPORATE BONDS, ETC. The Portfolio may invest in a broad range of debt
securities of domestic and foreign issuers. These include debt securities of
various types and maturities, e.g., debentures, notes, mortgage securities,
equipment trust certificates and other collateralized securities and zero
coupon securities. Collateralized securities are backed by a pool of assets
such as loans or receivables which generate cash flow to cover the payments
due on the securities. Collateralized securities are subject to certain risks,
including a decline in the value of the collateral backing the security,
failure of the collateral to generate the anticipated cash flow or in certain
cases more rapid prepayment because of events affecting the collateral, such
as accelerated prepayment of mortgages or other loans backing these securities
or destruction of equipment subject to equipment trust certificates. In the
event of any such prepayment the Portfolio will be required to reinvest the
proceeds of prepayments at interest rates prevailing at the time of
reinvestment, which may be lower. In addition, the value of zero coupon
securities which do not pay interest is more volatile than that of interest
bearing debt securities with the same maturity. The Portfolio does not intend
to invest in common stock but may invest to a limited extent in convertible
debt or preferred stock. The Portfolio does not expect to invest more than 25%
of its assets in securities of foreign issuers. If the Portfolio invests in
non-U.S. dollar denominated securities, it hedges the foreign currency
exposure into the U.S. dollar. See "Investment Practices" and "Risk Factors"
for further information on foreign investments and convertible securities.

GOVERNMENT OBLIGATIONS, ETC. The Portfolio may invest in obligations
issued or guaranteed by the U.S. Government and backed by the full faith and
credit of the United States. These securities include Treasury securities,
GNMA Certificates, and obligations of the Farmers Home Administration and the
Export Import Bank. GNMA Certificates are mortgage-backed securities which
evidence an undivided interest in mortgage pools. These securities are subject
to more rapid repayment than their stated maturity would indicate because
prepayments of principal on mortgages in the pool are passed through to the
holder of the securities. During periods of declining interest rates,
prepayments of mortgages in the pool can be expected to increase. The
pass-through of these prepayments would have the effect of reducing the
Portfolio's positions in these securities and requiring the Portfolio to
reinvest the prepayments at interest rates prevailing at the time of
reinvestment. The Portfolio may also invest in obligations issued or
guaranteed by U.S. Government agencies or instrumentalities where the
Portfolio must look principally to the issuing or guaranteeing agency for
ultimate repayment; some examples of agencies or instrumentalities issuing
these obligations are the Federal Farm Credit System, the Federal Home Loan
Banks and the Federal National Mortgage Association. Although these
governmental issuers are responsible for payments on their obligations, they
do not guarantee their market value.

The Portfolio may also invest in municipal obligations which may be general
obligations of the issuer or payable only from specific revenue sources.
However, the Portfolio will invest only in municipal obligations that have
been issued on a taxable basis or have an attractive yield excluding tax
considerations. In addition, the Portfolio may invest in debt securities of
foreign governments and governmental entities. See "Investment Practices" and
"Risk Factors" for further information on foreign investments.

MONEY MARKET INSTRUMENTS. The Portfolio may purchase money market
instruments to invest temporary cash balances or to maintain liquidity to meet
withdrawals. However, the Portfolio may also invest in money market
instruments as a temporary defensive measure taken during, or in anticipation
of, adverse market conditions. The money market investments permitted for the
Portfolio include U.S. Government Securities, other debt securities,
commercial paper, bank obligations and repurchase agreements. For more
detailed information about these money market investments, see "Investment
Objectives and Policies" in the Statement of Additional Information.

QUALITY INFORMATION. It is a current policy of the Portfolio that under
normal circumstances at least 65% of its total assets will consist of
securities that are rated at least A by Moody's or S&P or that are unrated and
in the Sub-Adviser's opinion are of comparable quality. In the case of 30% of
the Portfolio's investments, the Portfolio may purchase debt securities that
are rated Baa or better by Moody's or BBB or better by S&P or are unrated and
in the Sub-Adviser's opinion are of comparable quality. The remaining 5% of
the Portfolio's assets may be invested in debt securities that are rated Ba or
better by Moody's or BB or better by S&P or are unrated and in the
Sub-Adviser's opinion are of comparable quality. Securities rated Baa by
Moody's or BBB by S&P are considered investment grade, but have some
speculative characteristics. Securities rated Ba by Moody's or BB by S&P are
below investment grade and considered to be speculative with regard to payment
of interest and principal. These standards must be satisfied at the time an
investment is made. If the quality of the investment later declines, the
Portfolio may continue to hold the investment. See "Appendix - Description of
Corporate Bond Ratings" for more detailed information on these ratings.

The Portfolio may also purchase and sell obligations on a when-issued or
delayed delivery basis, enter into repurchase and reverse repurchase
agreements, loan its portfolio securities, purchase certain privately placed
securities and enter into certain hedging transactions that may involve
options on securities and securities indexes, futures contracts and options on
futures contracts. For a discussion of these investments and investment
techniques, see "Investment Practices" and "Risk Factors."

SMALL CAPITAL STOCK PORTFOLIO

The investment objective of the Portfolio is to provide a high total return
from a portfolio of equity securities of small companies. Total return will
consist of realized and unrealized capital gains and losses plus income. The
Portfolio invests primarily in the common stock of small U.S. companies. The
small company holdings of the Portfolio are primarily companies included in
the Russell 2000 Index.

The Portfolio is designed for investors who are willing to assume the
somewhat higher risk of investing in small companies in order to seek a
higher return over time than might be expected from a portfolio of stocks of
large companies. The Portfolio may also serve as an efficient vehicle to
diversify an existing portfolio by adding the equities of smaller U.S.
companies.

The Sub-Adviser seeks to enhance the Portfolio's total return relative to that
of the U.S. small company universe. To do so, the Sub-Adviser uses fundamental
research, systematic stock valuation and a disciplined portfolio construction
process. The Sub-Adviser continually screens the universe of small
capitalization companies to identify for further analysis those companies
which exhibit favorable characteristics such as significant and predictable
cash flow and high quality management. Based on fundamental research and using
a dividend discount model, the Sub-Adviser ranks these companies within
economic sectors according to their relative value. The Sub-Adviser then
selects for purchase the most attractive companies within each economic
sector.

The Sub-Adviser uses a disciplined portfolio construction process to seek to
enhance returns and reduce volatility in the market value of the Portfolio
relative to that of the U.S. small company universe. The Sub-Adviser believes
that under normal market conditions, the Portfolio will have sector weightings
comparable to that of the U.S. small company universe, although it may
moderately under- or over-weight selected economic sectors. In addition, as a
company moves out of the market capitalization range of the small company
universe, it generally becomes a candidate for sale by the Portfolio.

The Portfolio intends to manage its investments actively in pursuit of its
investment objective. Since the Portfolio has a long-term investment
perspective, it does not intend to respond to short-term market fluctuations
or to acquire securities for the purpose of short-term trading; however, it
may take advantage of short-term trading opportunities that are consistent
with its objective. To the extent the Portfolio engages in short-term trading,
it may incur increased transaction costs.

EQUITY INVESTMENTS. During ordinary market conditions, the Sub-Adviser
intends to keep the Portfolio essentially fully invested with at least 65% of
the Portfolio's net assets invested in equity securities consisting of common
stocks and other securities with equity characteristics such as preferred
stocks, warrants, rights and convertible securities. The Portfolio's primary
equity investments are the common stocks of small U.S. companies and, to a
limited extent, similar securities of foreign corporations. The common stock
in which the Portfolio may invest includes the common stock of any class or
series or any similar equity interest, such as trust or limited partnership
interests. The small company holdings of the Portfolio are primarily
companies included in the Russell 2000 Index. These equity investments may or
may not pay dividends and may or may not carry voting rights. The Portfolio
invests in securities listed on a securities exchange or traded in an
over-the-counter market, and may invest in certain restricted or unlisted
securities.

FOREIGN INVESTMENTS. The Portfolio may invest in equity securities of
foreign issuers that are listed on a national securities exchange or
denominated or principally traded in U.S. dollars. However, the Portfolio does
not expect to invest more than 5% of its assets at the time of purchase in
foreign equity securities. For further information on foreign investments and
foreign currency exchange transactions, see "Investment Practices" and "Risk
Factors."

The Portfolio may also purchase and sell securities on a when-issued or
delayed delivery basis, enter into repurchase and reverse repurchase
agreements, loan its portfolio securities, purchase certain privately placed
securities and money market instruments, and enter into certain hedging
transactions that may involve options on securities and securities indexes,
futures contracts and options on futures contracts. For a discussion of these
investments and investment techniques, see "Investment Practices" and "Risk
Factors."

LARGE CAPITAL STOCK PORTFOLIO

The investment objective of the Portfolio is long-term growth of capital and
income. The Portfolio seeks to achieve its objective consistent with
reasonable investment risk.

The Portfolio is designed for investors who want an actively managed portfolio
of medium- to large-cap equity securities that seeks to outperform the total
return of the S&P 500.

Ordinarily, the Portfolio pursues its investment objective by investing
primarily in dividend-paying common stock. The Portfolio may also invest in
other equity securities, consisting of, among other things,
non-dividend-paying common stock, preferred stock, and securities convertible
into common stock, such as convertible preferred stock and convertible bonds,
and warrants. The Portfolio may also invest in ADRs and in various foreign
securities if U.S. exchange-listed.

STOCK SELECTION. The Portfolio is not subject to any limit on the size
of companies in which it may invest, but intends, under normal circumstances,
to be fully invested to the extent practicable in the stock of large- and
medium-sized companies primarily included in the S&P 500. In managing the
Portfolio, the potential for appreciation and dividend growth is given more
weight than current dividends. Nonetheless, the Sub-Adviser will normally
strive for gross income for the Portfolio at a level not less than 75% of the
dividend income generated on the stocks included in the S&P 500, although this
income level is merely a guideline and there can be no certainty that this
income level will be achieved.

The Portfolio does not seek to achieve its objective with any individual
portfolio security, but rather it aims to manage the portfolio as a whole in
such a way as to achieve its objective. The Portfolio attempts to reduce risk
by investing in many different economic sectors, industries and companies. The
Sub-Adviser may under- or over-weight selected economic sectors against the
S&P 500's sector weightings to seek to enhance the Portfolio's total return or
reduce fluctuations in market value relative to the S&P 500. In selecting
securities, the Sub-Adviser may emphasize securities that it believes to be
undervalued. Securities of a company may be undervalued for a variety of
reasons such as an overreaction by investors to unfavorable news about a
company, an industry, or the stock markets in general; or as a result of a
market decline, poor economic conditions, tax-loss selling, or actual or
anticipated unfavorable developments affecting a company.

The Sub-Adviser uses a dividend discount model to rank companies within
economic sectors according to their relative value and then separates them
into quintiles by sector. The Portfolio will typically be comprised, based on
the dividend discount model, of approximately 35% of stocks from the first
quintile, 35% of stocks from the second quintile and 30% of stocks from the
third quintile. The Portfolio will be highly diversified and will typically
hold between 225 and 250 stocks.

OTHER SECURITIES. During ordinary market conditions, the Sub-Adviser
will keep the Portfolio as fully invested as practicable in the equity
securities described above. The Portfolio may also invest in money market
instruments, including U.S. Government Securities, short term bank obligations
rated in the highest two rating categories by Moody's or S&P, or, if unrated,
determined to be of equal quality by the Sub-Adviser, certificates of deposit,
time deposits and banker's acceptances issued by U.S. and foreign banks and
savings and loan institutions with assets of at least $500 million as of the
end of their most recent fiscal year; and commercial paper and corporate
obligations, including variable rate demand notes, that are issued by U.S. and
foreign issuers and that are rated in the highest two rating categories by
Moody's or S&P, or if unrated, determined to be of equal quality by the
Sub-Adviser. Under normal circumstances, the Portfolio will invest in such
money market instruments to invest temporary cash balances or to maintain
liquidity to meet redemptions or expenses. The Portfolio may also, however,
invest in these instruments, without limitation, as a temporary defensive
measure taken during, or in anticipation of, adverse market conditions.

Convertible bonds and other fixed income securities (other than money market
instruments) in which the Portfolio may invest will, at the time of
investment, be rated Baa or better by Moody's or BBB or better by S&P or, if
not rated by Moody's or S&P, will be of comparable quality as determined by
the Sub-Adviser. In the event that an existing holding is downgraded below
these ratings, the Portfolio may nonetheless retain the security.

OTHER TECHNIQUES. In pursuing its investment objective, the Portfolio may
purchase and sell put and call options on securities and stock indexes. In
addition, the Portfolio may purchase or sell stock index futures contracts and
options thereon. These investment techniques may involve a greater degree or
different type of risk than those inherent in more conservative investment
approaches. See "Investment Practices" and "Risk Factors."

SELECT EQUITY PORTFOLIO

The investment objective of the Portfolio is long-term growth of capital and
income. The Portfolio seeks to achieve its objective consistent with
reasonable investment risk.

The Portfolio is designed for investors who want an actively managed portfolio
of selected equity securities that seeks to outperform the total return of the
S&P 500.

The Sub-Adviser uses a dividend discount model to rank companies within
economic sectors according to their relative value and then separates them
into quintiles by sector. The Portfolio will primarily consist of stocks of
companies from the first and second quintiles. The Portfolio will typically
hold between 60 and 90 stocks.

INTERNATIONAL EQUITY PORTFOLIO

The investment objective of the Portfolio is to provide a high total return
from a portfolio of equity securities of foreign corporations. Total return
will consist of realized and unrealized capital gains and losses plus income.

The Portfolio is designed for investors with a long-term investment horizon
who want to diversify their portfolios by investing in an actively managed
portfolio of non-U.S. securities that seeks to outperform the Morgan Stanley
Capital International Europe, Australia and Far East Index (the "EAFE Index").

The Portfolio seeks to achieve its investment objective through country
allocation, stock selection and management of currency exposure. The
Sub-Adviser uses a disciplined portfolio construction process to seek to
enhance returns and reduce volatility in the market value of the Portfolio
relative to that of the EAFE Index.

Based on fundamental research, quantitative valuation techniques, and
experienced judgment, the Sub-Adviser uses a structured decision-making
process to allocate the Portfolio primarily across the developed countries of
the world outside the United States by under- or over-weighting selected
countries in the EAFE Index. Currently, Japan has the heaviest weighting in
the EAFE Index (approximately __%). The Portfolio will not invest more than
25% of its net assets in Japan notwithstanding the Japan weighting in the EAFE
Index.

Using a dividend discount model and based on analysts' industry expertise,
securities within each country are ranked within economic sectors according to
their relative value. Based on this valuation, the Sub-Adviser selects the
securities which appear the most attractive for the Portfolio. The Sub-Adviser
believes that under normal market conditions, economic sector weightings
generally will be similar to those of the EAFE Index.

Finally, the Sub-Adviser actively manages currency exposure, in conjunction
with country and stock allocation, in an attempt to protect and possibly
enhance the Portfolio's market value. Through the use of forward foreign
currency exchange contracts, the Sub-Adviser will adjust the Portfolio's
foreign currency weightings to reduce its exposure to currencies deemed
unattractive and, in certain circumstances, increase exposure to currencies
deemed attractive, as market conditions warrant, based on fundamental
research, technical factors, and the judgment of a team of experienced
currency managers. For further information on foreign currency exchange
transactions, see "Investment Practices" and "Risk Factors."

The Portfolio intends to manage its portfolio actively in pursuit of its
investment objective. The Portfolio does not expect to trade in securities for
short-term profits; however, when circumstances warrant, securities may be
sold without regard to the length of time held. To the extent the Portfolio
engages in short-term trading, it may incur increased transaction costs.

EQUITY INVESTMENTS. In normal circumstances, the Sub-Adviser intends to
keep the Portfolio essentially fully invested with at least 65% of the value
of its total assets in equity securities of foreign issuers, consisting of
common stocks and other securities with equity characteristics such as
preferred stock, warrants, rights and convertible securities. The Portfolio's
primary equity investments are the common stock of established companies based
in developed countries outside the United States. Such investments will be
made in at least three foreign countries. The common stock in which the
Portfolio may invest includes the common stock of any class or series or any
similar equity interest such as trust or limited partnership interests. The
Portfolio may also invest in securities of issuers located in developing
countries. See "Investment Practices" and "Risk Factors." The Portfolio
invests in securities listed on foreign or domestic securities exchanges and
securities traded in foreign or domestic over-the-counter markets, and may
invest in certain restricted or unlisted securities.

The Portfolio may also invest in money market instruments denominated in U.S.
dollars and other currencies, purchase and sell securities on a when-issued or
delayed delivery basis, enter into repurchase and reverse repurchase
agreements, loan its portfolio securities, purchase certain privately placed
securities, enter into forward contracts on foreign currencies and enter into
certain hedging transactions that may involve options on securities and
securities indexes, futures contracts and options on futures contracts. For a
discussion of these investments and investment techniques, see "Investment
Practices" and "Risk Factors."

INVESTMENT PRACTICES

In connection with the investment policies of the Portfolios described above,
the Portfolios may engage in certain investment practices subject to the
limitations set forth below. These investments entail risks.

STRATEGIC TRANSACTIONS. The Quality Income Portfolio, Growth and Income
Portfolio, High Yield Portfolio, and each of the Portfolios for which J.P.
Morgan Investment Management Inc. acts as Sub-Adviser, may purchase and sell
exchange-listed and over-the-counter put and call options on securities,
financial futures, fixed-income and equity indices and other financial
instruments and purchase and sell financial futures contracts. The Growth and
Income Portfolio, High Yield Portfolio, and each of the Portfolios for which
J.P. Morgan Investment Management Inc. acts as Sub-Adviser, may enter into
various currency transactions such as currency forward contracts, currency
futures contracts, currency swaps or options on currencies or currency
futures. The Stock Index Portfolio may enter into stock index futures
contracts and options on stock indexes and stock index futures contracts.
Collectively, all of the above are referred to as "Strategic Transactions."
Strategic Transactions are hedging transactions which may be used to attempt
to protect against possible changes in the market value of securities held in
or to be purchased for a Portfolio, to protect a Portfolio's unrealized gains
in the value of its portfolio securities, to facilitate the sale of such
securities for investment purposes, to manage the effective interest rate
exposure of a Portfolio, to protect against changes in currency exchange
rates, or to establish a position in the derivatives markets as a temporary
substitute for purchasing or selling particular securities. Any or all of
these investment techniques may be used at any time and there is no particular
strategy that dictates the use of one technique rather than another, as use of
any Strategic Transaction is a function of numerous variables including market
conditions. The ability of a Portfolio to utilize these Strategic Transactions
successfully will depend on a Sub-Adviser's ability to predict pertinent
market movements, which cannot be assured. The Portfolios will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments.

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

REPURCHASE AGREEMENTS. All of the Portfolios may enter into repurchase
agreements with selected commercial banks and broker-dealers, under which the
Portfolio acquires securities and agrees to resell the securities at an agreed
upon time and at an agreed upon price. The Portfolio accrues as interest the
difference between the amount it pays for the securities and the amount it
receives upon resale. At the time the Portfolio enters into a repurchase
agreement, the value of the underlying security including accrued interest
will be equal to or exceed the value of the repurchase agreement and, for
repurchase agreements that mature in more than one day, the seller will agree
that the value of the underlying security including accrued interest will
continue to be at least equal to the value of the repurchase agreement. Each
Sub-Adviser will monitor the value of the underlying security in this regard.
The Portfolio will enter into repurchase agreements only with commercial banks
whose deposits are insured by the Federal Deposit Insurance Corporation and
whose assets exceed $500 million or broker-dealers who are registered with the
Securities and Exchange Commission. In determining whether the Portfolio
should enter into a repurchase agreement with a bank or broker-dealer, the
Sub-Adviser will take into account the credit-worthiness of the party and will
monitor its credit-worthiness on an ongoing basis in accordance with standards
established by the Board of Trustees. In the event of a default by the party,
the delays and expenses potentially involved in establishing the Portfolio's
rights to, and in liquidating, the security may result in a loss to the
Portfolio. The Money Market Portfolio may not invest in repurchase agreements
which mature in more than seven days.

There are additional limitations and restrictions relating to the ability of
the Money Market Portfolio to invest in repurchase agreements which have been
adopted by the Board of Trustees of the Trust and which relate primarily to
investment quality and diversification.

WHEN ISSUED AND DELAYED DELIVERY TRANSACTIONS. All Portfolios may purchase and
sell securities on a "when issued" and "delayed delivery" basis, that is,
obligate themselves to purchase or sell securities with delivery and payment
to occur at a later date in order to secure what is considered to be an
advantageous price and yield to the Portfolio at the time of entering into the
obligation. When a Portfolio engages in such transactions, the Portfolio
relies on the buyer or seller, as the case may be, to consummate the sale. No
income accrues to or is earned by the Portfolio on portfolio securities in
connection with such transactions prior to the date the Portfolio actually
takes delivery of such securities. These transactions are subject to market
fluctuation; the value of such securities at delivery may be more or less than
their purchase price, and yields generally available on such securities when
delivery occurs may be higher than yields on such securities obtained pursuant
to such transactions. Because the Portfolio relies on the buyer or seller, as
the case may be, to consummate the transaction, 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. When the
Portfolio is the buyer in such a transaction, however, it will maintain, in a
segregated account with its custodian, cash or high-grade portfolio securities
having an aggregate value equal to the amount of such purchase commitments
until payment is made. The Portfolio will make commitments to purchase
securities on such basis only with the intention of actually acquiring these
securities, but the Portfolio may sell such securities prior to the settlement
date if such sale is considered to be advisable. To the extent the Portfolio
engages in when issued and delayed delivery transactions, it will do so for
the purpose of acquiring securities for the Portfolio consistent with the
Portfolio's investment objective and policies and not for the purposes of
investment leverage. No specific limitation exists as to the percentage of any
Portfolio's assets which may be used to acquire securities on a when issued or
delayed delivery basis. See the Statement of Additional Information for
additional discussion of these transactions.

RESTRICTED AND ILLIQUID SECURITIES. The Portfolios may each invest up to 15%
(10% with respect to the Portfolios for which Van Kampen American Capital
Investment Advisory Corp. acts as Sub-Adviser) of their respective net assets
in securities the disposition of which is subject to substantial legal or
contractual restrictions on resale and securities that are not readily
marketable. The sale of restricted and illiquid securities often requires more
time and results in higher brokerage charges or dealer discounts and other
selling expenses than does the sale of securities eligible for trading on
national securities exchanges or in the over-the-counter markets. Restricted
securities may sell at a price lower than similar securities that are not
subject to restrictions on resale. Restricted and illiquid securities in all
Portfolios will be valued at fair value as determined in good faith by or at
the direction of the Trustees for the purposes of determining the net asset
value of each Portfolio. Restricted securities salable among qualified
institutional buyers without restriction pursuant to Rule 144A under the
Securities Act of 1933 that are determined to be liquid by the Sub-Adviser
under guidelines adopted by the Board of Trustees of the Trust (under which
guidelines the Sub-Adviser will consider factors such as trading activities
and the availability of price quotations) will not be treated as restricted
securities by the Portfolios pursuant to such rules.

LOANS OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, all of the Portfolios may lend their securities to selected
commercial banks or broker-dealers up to a maximum of 25% of the assets of
each Portfolio (but up to 50% with respect to the Utility Portfolio). Such
loans must be callable at any time and be continuously secured by collateral
deposited by the borrower in a segregated account with the Trust's custodian
consisting of cash or of securities issued or guaranteed by the U.S.
Government or its agencies, which collateral is equal at all times to at least
100% of the value of the securities loaned, including accrued interest. A
Portfolio will receive amounts equal to earned income for having made the
loan. Any cash collateral pursuant to these loans will be invested in
short-term instruments. A Portfolio is the beneficial owner of the loaned
securities in that any gain or loss in the market price during the loan inures
to the Portfolio and its shareholders. Thus, when the loan is terminated, the
value of the securities may be more or less than their value at the beginning
of the loan. In determining whether to lend its portfolio securities to a bank
or broker-dealer, a Portfolio will take into account the credit-worthiness of
such borrower and will monitor such credit-worthiness on an ongoing basis in
as much as a default by the other party may cause delays or other collection
difficulties. A Portfolio may pay finders' fees in connection with loans of
its portfolio securities.

REVERSE REPURCHASE AGREEMENTS AND BORROWINGS. All of the Portfolios may enter
into reverse repurchase agreements with selected commercial banks or
broker-dealers with respect to securities which could otherwise be sold by the
Portfolios. Reverse repurchase agreements involve sales by a Portfolio of
Portfolio assets concurrently with an agreement by the Portfolio to repurchase
the same assets at a later date at a fixed price which is greater than the
sales price. The difference between the amount the Portfolio receives for the
securities and the amount it pays on repurchase is deemed to be a payment of
interest by the Portfolio. Each Portfolio will maintain, in a segregated
account with its custodian, cash, Treasury bills, or other U.S. Government
Securities having an aggregate value equal to the amount of commitment to
repurchase, including accrued interest, until payment is made. Each Portfolio
will enter into reverse repurchase agreements only with commercial banks whose
deposits are insured by the Federal Deposit Insurance Corporation and whose
assets exceed $500 million or broker-dealers who are registered with the SEC.
In determining whether a Portfolio should enter into a reverse repurchase
agreement with a bank or broker-dealer, each Sub-Adviser will take into
account the credit-worthiness of the party and will monitor the
credit-worthiness on an ongoing basis. During the reverse repurchase agreement
period, a Portfolio continues to receive principal and interest payments on
these securities. Reverse repurchase agreements involve the risk that the
market value of the securities retained by the Portfolio may decline below the
price of the securities the Portfolio has sold but is obligated to repurchase
under the agreement. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, a Portfolio's
use of the proceeds of the agreement may be restricted pending a determination
by the other party, or its trustee or receiver, whether to enforce the
Portfolio's obligation to repurchase the securities. Reverse repurchase
agreements create leverage and will be treated as borrowings for the purposes
of each Portfolio's investment restriction on borrowings.

Each of the Portfolios except the Money Market Portfolio is permitted to
borrow money up to one-third of the value of its net assets taken at current
value. The Money Market Portfolio may borrow up to 10% of its net assets.
Borrowing by these Portfolios may be only from banks as a temporary measure
for extraordinary or emergency purposes and not for investment leverage. The
Portfolios may each enter into reverse repurchase agreements in an amount not
exceeding 5% of the net assets of each such Portfolio (33 1/3% together with
any other borrowings with respect to the Portfolios for which J.P. Morgan
Investment Management, Inc. acts as Sub-Adviser) at the time of entering into
any agreement.

As a matter of operating policy, the Money Market Portfolio, the Quality
Income Portfolio, the Stock Index Portfolio and the Growth and Income
Portfolio will not borrow more than 10% of their net asset value when
borrowing is for any general purpose and 25% of their net asset value when
borrowing is a temporary measure to facilitate redemptions.

Borrowing by a Portfolio creates an opportunity for increased net income but,
at the same time, creates special risk considerations such as changes in the
net asset value of the shares and in the yield on the Portfolio. Although the
principal of such borrowings will be fixed, the Portfolio's assets may change
in value during the time the borrowing is outstanding. Borrowing will create
interest expenses for the Portfolio which can exceed the income from the
assets retained. To the extent the income derived from securities purchased
with borrowed funds exceeds the interest the Portfolio will have to pay, the
Portfolio's net income will be greater than if borrowing were not used.
Conversely, if the income from the assets retained with borrowed funds is not
sufficient to cover the cost of borrowing, the net income of the Portfolio
will be less than if borrowing were not used.

SHORT SALES. The Quality Income Portfolio, Stock Index Portfolio and the
Growth and Income Portfolio may utilize short sales on securities to implement
their investment objectives. A short sale is effected when it is believed that
the price of a particular investment will decline, and involves the sale of an
investment which the Portfolio does not own in the hope of purchasing the same
investment at a later date at a lower price. To make delivery to the buyer,
the Portfolio must borrow the investment, and the Portfolio is obligated to
return the investment to the lender, which is accomplished by a later purchase
of the investment by the Portfolio.

The Portfolio will incur a loss as a result of the short sale if the price of
the investment increases between the date of the short sale and the date on
which the Portfolio purchases the investment to replace the borrowed
investment. The Portfolio will realize a gain if the investment declines in
price between those dates. The amount of any gain will be decreased and the
amount of any loss increased by any premium or interest the Portfolio may be
required to pay in connection with a short sale. It should be noted that
possible losses from short sales differ from those that could arise from a
cash investment in that the former may be limitless while the latter can only
equal the total amount of the Portfolio's investment in the investment. For
example, if the Portfolio purchases a $10 investment, the most that can be
lost is $10. However, if the Portfolio sells a $10 investment short, it may
have to purchase the investment for return to the lender when the market value
is $50, thereby incurring a loss of $40. The amount of any gain or loss on a
short sale transaction is also dependent on brokerage and other transaction
costs.

CONVERTIBLE SECURITIES. The convertible securities in which a Portfolio may
invest include any debt securities or preferred stock which may be converted
into common stock or which carry the right to purchase common stock.
Convertible securities entitle the holder to exchange the securities for a
specified number of shares of common stock, usually of the same company, at
specified prices within a certain period of time.

WARRANTS. A Portfolio may invest in warrants, which entitle the holder to buy
common stock from the issuer at a specific price (the strike price) for a
specific period of time. The strike price of warrants sometimes is much lower
than the current market price of the underlying securities, yet warrants are
subject to similar price fluctuations. As a result, warrants may be more
volatile investments than the underlying securities.

Warrants do not entitle the holder to dividends or voting rights with respect
to the underlying securities and do not represent any rights in the assets of
the issuing company. Also, the value of the warrant does not necessarily
change with the value of the underlying securities and a warrant ceases to
have value if it is not exercised prior to the expiration date.

MONEY MARKET INSTRUMENTS. Certain Portfolios are permitted to invest in money
market instruments although they intend to stay invested in equity securities
to the extent practical in light of their objectives and long-term investment
perspective. These Portfolios may make money market investments pending other
investment or settlement, for liquidity or in adverse market conditions. The
money market investments permitted for these Portfolios include U.S.
Government Securities, other debt securities, commercial paper, bank
obligations and repurchase agreements. These Portfolios may also invest in
short-term obligations of sovereign foreign governments, their agencies,
instrumentalities and political subdivisions. For more detailed information
about these money market investments, see "Investment Objectives and Policies"
in the Statement of Additional Information.

INVESTMENT LIMITATIONS

In addition to the investment policies set forth above, certain additional
restrictive policies relating to the investment of assets of the Portfolios
have been adopted by the Trust. The Investment Limitations of the Trust are
deemed fundamental and may not be changed without the approval of the holders
of a majority of the outstanding voting shares of each Portfolio affected
(which for this purpose and under the Investment Company Act of 1940 means the
lesser of (i) 67% of the shares represented at a meeting at which more than
50% of the outstanding shares are present or represented by proxy and (ii)
more than 50% of the outstanding shares). A change in policy affecting only
one Portfolio may be effected with the approval of a majority of the
outstanding shares of the Portfolio. Details as to the policies are set forth
in the Statement of Additional Information.

RISK FACTORS

TAX CONSIDERATIONS

The Trust was established as the underlying investment for variable contracts
issued by Cova Life.

Section 817(h) of the Internal Revenue Code of 1986, as amended (the "Code"),
imposes certain diversification standards on the underlying assets of variable
contracts held in the Portfolios of the Trust. The Code provides that a
variable contract shall not be treated as an annuity contract for any period
(and any subsequent period) for which the investments are not, in accordance
with regulations prescribed by the Treasury Department, adequately
diversified. Disqualification of the variable contract as an annuity contract
would result in imposition of federal income tax on contract owners with
respect to earnings allocable to the variable contract prior to the receipt of
payments under the variable contract. Section 817(h)(2) of the Code is a safe
harbor provision which provides that contracts such as the variable contracts
meet the diversification requirements if, as of the close of each quarter, the
underlying assets meet the diversification standards for a regulated
investment company and no more than fifty-five percent (55%) of the total
assets consists of cash, cash items, U.S. government securities and securities
of other regulated investment companies.

On March 2, 1989, the Treasury Department issued Regulations (Treas. Reg.
1.817-5), which established diversification requirements for the investment
portfolios underlying variable contracts. The Regulations amplify the
diversification requirements for variable contracts set forth in Section
817(h) of the Code and provide an alternative to the safe harbor provision
described above. Under the Regulations, an investment portfolio will be deemed
adequately diversified if (i) no more than 55 percent of the value of the
total assets of the portfolio is represented by any one investment; (ii) no
more than 70 percent of such value is represented by any two investments;
(iii) no more than 80 percent of such value is represented by any three
investments; and (iv) no more than 90 percent of such value is represented by
any four investments. For purposes of these Regulations, all securities of the
same issuer are treated as a single investment.

The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable
contracts by Section 817(h) of the Code have been met, "each United States
government agency or instrumentality shall be treated as a separate issuer".

Each Portfolio of the Trust will be managed in such a manner as to comply with
these diversification requirements. It is possible that in order to comply
with the diversification requirements, less desirable investment decisions may
be made which would affect the investment performance of the Portfolios.

SPECIAL CONSIDERATIONS RELATING TO FOREIGN SECURITIES

All of the Portfolios may invest in foreign securities. The Stock Index
Portfolio, however, may only invest in foreign securities to the extent that
it invests in American Depositary Receipts ("ADRs") for foreign securities.
ADRs are dollar-denominated receipts issued generally by domestic banks and
representing the deposit with the bank of a security of a foreign issuer. ADRs
are publicly traded on exchanges or over-the-counter in the United States. The
Growth and Income Portfolio, High Yield Portfolio and Quality Income Portfolio
may invest up to 35% in foreign securities. The J.P. Morgan International
Equity Portfolio may invest without limitation in foreign securities. However,
the Trust has no current intention that these investments will exceed 20% of a
Portfolio's assets except with respect to the J.P. Morgan International Equity
Portfolio. Investments in the 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. Where a Portfolio invests in
securities denominated or quoted in currencies other than the United States
dollar, changes in foreign currency exchange rates may affect the value of
investments in the Portfolio and the accrued income and unrealized
appreciation or depreciation of investments. Changes in foreign currency
exchange rates relative to the U.S. dollar will affect the U.S. dollar value
of a Portfolio's assets denominated in that currency and the Portfolio's yield
on such assets. With respect to certain foreign countries, there is the
possibility of expropriation of assets, confiscatory taxation, political or
social instability or diplomatic developments which could affect investment in
those countries. There may be less publicly available information about a
foreign security than about a United States security, and foreign entities may
not be subject to accounting, auditing and financial reporting standards and
requirements comparable to those of United States entities. In addition,
certain foreign investments made by a Portfolio may be subject to foreign
withholding taxes, which would reduce the Portfolio's total return on such
investments and the amounts available for distributions by the Portfolio to
its shareholders. Foreign financial markets, while growing in volume, have,
for the most part, substantially less volume than United States markets, and
securities of many foreign companies are less liquid and their prices more
volatile than securities of comparable domestic companies. The foreign markets
also have different clearance and settlement procedures and in certain markets
there have been times when settlements have been unable to keep pace with the
volume of securities transactions making it difficult to conduct such
transactions. Delays in settlement could result in temporary periods when
assets of a Portfolio are not invested and no return is earned thereon. The
inability of a Portfolio to make intended security purchases due to settlement
problems could cause the Portfolio to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to a Portfolio due to subsequent
declines in value of the portfolio security or, if a Portfolio has entered
into a contract to sell the security, could result in possible liability to
the purchaser. Costs associated with transactions in foreign securities,
including custodial costs and foreign brokerage commissions, are generally
higher than with transactions in United States securities. In addition, a
Portfolio will incur costs in connection with conversions between various
currencies. There is generally less government supervision and regulation of
exchanges, financial institutions and issuers in foreign countries than there
is in the United States.

As a matter of operating policy, each Portfolio will comply with the
following:

1. a Portfolio will be invested in a minimum of five different foreign
countries at all times. However, this minimum is reduced to four when foreign
country investments comprise less than 80% of the Portfolio's net asset value;
to three when less than 60% of such value; to two when less than 40% of such
value; and to one when less than 20% of such value.

2. except as set forth in items 3 and 4 below, a Portfolio will have no
more than 20% of its net asset value invested in securities of issuers located
in any one country.

3. a Portfolio may have an additional 15% of its value invested in
securities of issuers located in any one of the following countries:
Australia, Canada, France, Japan, the United Kingdom or Germany.

4. a Portfolio's investments in United States issuers are not subject to
the foregoing operating policies.

SPECIAL RISKS OF HIGH YIELD INVESTING

Each of the High Yield Portfolio and the Bond Debenture Portfolio intends to
invest a substantial portion of its assets in medium and lower grade corporate
debt securities.

Debt securities which are in those medium and lower grade categories generally
offer a higher current yield than is offered by securities which are in the
higher grade categories, but they also generally involve greater price
volatility and greater credit and market risk. Credit risk relates to the
issuer's ability to make timely payments of principal and interest when due as
well as fundamental developments in an issuer's business. 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 securities
market. Typically, market prices tend to fall as interest rates rise and tend
to rise as interest rates fall. Generally, prices tend to fluctuate more for
lower grade issues than for higher grade issues, and, for any given change in
interest rates, prices for longer maturity issues tend to fluctuate more than
for shorter maturity issues. Yields on lower-rated securities will fluctuate
over time.

The prices of lower-grade securities, while generally less sensitive to
interest rate changes than higher-rated investments, tend to be more sensitive
to adverse economic changes or individual corporate developments. During an
economic downturn or substantial period of rising interest rates, the ability
of a highly leveraged issuer to service its principal and interest payment
obligations, to meet projected business goals and to obtain additional
financing may be adversely affected. An economic downturn could disrupt the
market for high yield bonds, adversely affect the value of outstanding bonds
and the ability of the issuers of such bonds to repay principal and interest,
cause increased volatility in the market prices of high yield bonds and a
Portfolio's net asset value and may result in a higher incidence of defaults
by issuers on bond obligations. If the issuer of a bond defaults, a Portfolio
may incur additional expenses to seek recovery. A Portfolio will seek to
reduce risk through portfolio diversification, credit analysis, and attention
to current developments and trends in the industries and with the issuers
involved. The Portfolios' Sub-Advisers will continuously monitor the condition
of the economy and the financial and credit markets.

To the extent that there is no established retail secondary market for high
yield bonds, such bonds may be thinly traded, making the bonds less liquid
than investment grade bonds. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may decrease the values and
liquidity of high yield bonds, especially in a thinly traded market. In the
event of an illiquid secondary market, or in the absence of readily available
market quotations, the responsibility of the Board of Trustees of the Trust to
value the securities becomes more difficult and will involve a greater degree
of judgment in that there is less reliable, objective data available.

If the market for high yield bonds is restricted by the enactment of
legislation, or if steps are taken to limit the use of such securities, or
other advantages of such securities, the value of the securities and the
Portfolio's ability to acquire them may be adversely affected.

A description of the corporate bond ratings is contained in the Appendix.
Purchasers should be aware, however, that credit ratings evaluate the safety
of principal and interest payments and not the market value risk of high yield
bonds. In addition, credit ratings may not always be modified on a timely
basis to reflect events subsequent to the most recent ratings which may have a
material impact on the securities rated. However, the Portfolios' Sub-Advisers
will continuously monitor the issuers of high yield bonds in the Portfolios to
determine if the issuers will have sufficient cash flow and profits to meet
required principal and interest payments, and to assure the bonds' liquidity.
Achievement of the investment objectives of the Portfolios may be more
dependent on the credit analysis of the Portfolios' Sub-Advisers than is the
case with higher quality bonds.

The Portfolios may also invest in unrated corporate securities. Although
unrated securities are not necessarily of lower quality than rated securities,
the market for them may not be as broad and, accordingly, they may carry
greater risk and higher yield than rated securities.

PORTFOLIO TURNOVER RATES

MONEY MARKET PORTFOLIO AND QUALITY INCOME PORTFOLIO

Although the Money Market and Quality Income Portfolios are not subject to
specific restrictions on portfolio turnover, they generally do not seek
profits by short-term trading. However, they may dispose of a portfolio
security prior to its maturity where disposition seems advisable because of a
revised credit evaluation of the issuer or other considerations. Because
brokerage commissions are not customarily charged on the investments invested
in by each of the two Portfolios, a high turnover rate should not affect the
net asset value.

HIGH YIELD PORTFOLIO AND BOND DEBENTURE PORTFOLIO

The Portfolios will not generally engage in trading of securities for the
purpose of realizing short-term profits, but they will adjust their portfolios
as they deem advisable in view of prevailing or anticipated market conditions
to accomplish their investment objectives. For example, the Portfolios may
sell securities in anticipation of a movement in interest rates or to avoid
loss of premiums paid and unrealized capital gains earned on GNMA Certificates
selling at a substantial premium. Frequency of portfolio turnover will not be
a limiting factor if the Sub-Adviser considers it advantageous to purchase or
sell securities. Each Portfolio anticipates that its portfolio turnover rate
will normally be less than 200%, and may be significantly less in a period of
stable or rising interest rates. For the years ended December 31, 1995 and
1994, the portfolio turnover rates for the High Yield Portfolio were ____% and
____%, respectively. The Bond-Debenture Portfolio has only recently commenced
investment operations. A high rate of portfolio turnover involves
correspondingly higher brokerage commissions and transaction expenses than a
lower rate, which expenses must be borne by the Portfolio and its
shareholders.

STOCK INDEX PORTFOLIO

Although the Portfolio generally seeks to invest for the long term, the
Portfolio retains the right to sell securities irrespective of how long they
have been held. However, because of the "passive" investment management
approach of the Portfolio, the portfolio turnover rate is expected to be under
50%, a generally lower turnover rate than for most other investment companies.
A portfolio turnover rate of 50% would occur if one-half of the Portfolio's
securities were sold within one year. Ordinarily, securities will be sold from
the Portfolio only to reflect certain administrative changes in the Index
(including mergers or changes in the composition of the Index) or to
accommodate cash flows into and out of the Portfolio while maintaining the
similarity of the Portfolio to the Index. For the years ended December 31,
1995 and 1994, the portfolio turnover rates for the Stock Index Portfolio were
_____% and _____%, respectively.

GROWTH AND INCOME PORTFOLIO

The Portfolio will not generally engage in trading of securities for the
purpose of realizing short-term profits, but it will adjust its portfolio as
it deem advisable in view of prevailing or anticipated market conditions to
accomplish the Portfolio's investment objectives. For example, the Portfolio
may sell portfolio securities in anticipation of a movement in interest rates.

Other than for tax purposes, frequency of portfolio turnover will not be a
limiting factor if the Portfolio considers it advantageous to purchase or sell
securities. The Portfolio anticipates that its annual portfolio turnover rate
will normally be less than 200%. A high rate of portfolio turnover involves
correspondingly higher brokerage commissions and transaction expenses than a
lower rate, which expenses must be borne by the Portfolio and its
shareholders. For the years ended December 31, 1995 and 1994, the portfolio
turnover rates for the Growth and Income Portfolio were _____% and _____%,
respectively.

QUALITY BOND, SMALL CAPITAL STOCK, LARGE CAPITAL STOCK, SELECT EQUITY AND
INTERNATIONAL EQUITY PORTFOLIOS

Portfolio transactions for these Portfolios will be undertaken principally to
accomplish their respective investment objectives, and the Portfolios may
engage in short-term trading consistent with their respective objectives. A
portfolio turnover rate of 100% indicates that the equivalent of all of a
Portfolio's assets have been sold and reinvested in a year. Overall, high
portfolio turnover may result in increased portfolio transaction costs and the
realization of substantial net capital gains or losses. To the extent net
short term capital gains are realized, any distributions resulting from such
gains are considered ordinary income for general income tax purposes. The
Quality Bond Portfolio's annual turnover rate is not expected to exceed 300%.
The turnover rate for each of the Small Capital Stock, Large Capital Stock,
Select Equity and International Equity Portfolios is not expected to exceed
100%.

MANAGEMENT OF THE TRUST

THE TRUSTEES

The Trust is organized as a Massachusetts business trust. The overall
responsibility for the supervision of the affairs of the Trust vests in the
Trustees. The Trustees have entered into an Investment Advisory Agreement with
the Adviser to handle the day-to-day affairs of the Trust (see below). The
Trustees meet periodically to review the affairs of the Trust and to establish
certain guidelines which the Adviser is expected to follow in implementing the
investment policies and objectives of the Trust.

ADVISER

Under an Investment Advisory Agreement dated _________, 1996, the Adviser
located at One Tower Lane, Suite 3000, Oakbrook Terrace, Illinois 60181-4644,
manages the business and affairs of the Portfolios and the Trust, subject to
the control of the Trustees.

The Adviser is an Illinois corporation which was incorporated on August 31,
1993 under the name Oakbrook Investment Advisory Corporation and which is
registered with the Securities and Exchange Commission as an investment
adviser under the Investment Advisers Act of 1940. The Adviser is a
wholly-owned subsidiary of Cova Life Management Company, a Delaware
corporation, which in turn, is a wholly-owned subsidiary of Cova Corporation,
a Missouri corporation, which in turn, is a wholly-owned subsidiary of General
American Life Insurance Company ("General American"), a St. Louis-based mutual
company. General American has more than $235 billion of life insurance in
force and approximately $9.6 billion in assets. The Adviser has had no
previous experience in advising a mutual fund.

Under the terms of the Investment Advisory Agreement, the Adviser is obligated
to (i) manage the investment and reinvestment of the assets of each Portfolio
of the Trust in accordance with each Portfolio's investment objective and
policies and limitations, or (ii) in the event that Adviser shall retain a
sub-adviser or sub-advisers, to supervise and implement the investment
activities of any Portfolio for which any such sub-adviser has been retained,
including responsibility for overall management and administrative support
including managing, providing for and compensating any sub-advisers; and to
administer the Trust's affairs. The Investment Advisory Agreement further
provides that Adviser agrees, among other things, to administer the business
affairs of each Portfolio, to furnish offices and necessary facilities and
equipment to each Portfolio, to provide administrative services for each
Portfolio, to render periodic reports to the Board of Trustees of the Trust
with respect to each Portfolio, and to permit any of its officers or
employees, or those of any sub-adviser to serve without compensation as
trustees or officers of the Portfolio if elected to such positions.

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

Average Daily
Portfolio Net Assets % Per Annum

Money Market Portfolio First $500 million .500 of 1%
Over $500 million .400 of 1%

Quality Income Portfolio First $500 million .500 of 1%
Over $500 million .450 of 1%

High Yield Portfolio First $500 million .750 of 1%
Over $500 million .650 of 1%

Growth and Income Portfolio First $500 million .600 of 1%
Over $500 million .500 of 1%

Stock Index Portfolio __________________ .500 of 1%

Bond Debenture Portfolio __________________ .75%

Quality Bond Portfolio First $75 million .55%
Over $75 million .50%

International Equity First $50 million .85%
Portfolio Over $50 million .75%

Select Equity Portfolio First $50 million .75%
Over $50 million .65%

Large Capital Stock Portfolio ___________________ .65%

Small Capital Stock Portfolio ___________________ .85%
</TABLE>

The advisory fee of .750 of 1% to be deducted on the first $500 million of
assets of the High Yield Portfolio is higher than fees paid by many other
investment companies with similar investment objectives.

PORTFOLIO MANAGEMENT

Prior to the date of this Prospectus, Van Kampen American Capital Investment
Advisory Corp. served as the investment adviser to the Trust. For the year
ended December 31, 1995, Van Kampen American Capital Investment Advisory Corp.
was paid advisory fees as follows: $______, with respect to the Quality Income
Portfolio, $______, with respect to the High Yield Portfolio, $______ with
respect to the Stock Index Portfolio and $______, with respect to the Growth
and Income Portfolio. Van Kampen American Capital Investment Advisory Corp.
waived its advisory fees of $______, with respect to the Money Market
Portfolio.

EXPENSES OF THE TRUST

Although each Portfolio must bear the expenses directly attributable to it,
the Portfolios are expected to experience cost savings over the aggregate
amount that would be payable if each Portfolio were a separate fund, because
they have the same Trustees, accountants, attorneys and other general and
administrative expenses. Any expenses which are not directly attributable to a
specific Portfolio are allocated on the basis of the net assets of the
respective Portfolios.

For the year ended December 31, 1995, the expenses, taking into account the
waivers and expense assumptions, borne by the Quality Income Portfolio
amounted to $________ or __% of its average net assets on an annualized basis;
the net expenses borne by the High Yield Portfolio amounted to $______ or ___%
of its average net assets on an annualized basis; the expenses borne by the
Money Market Portfolio amounted to $_______ or ___% of its average net assets
on an annualized basis; the net expenses borne by the Stock Index Portfolio
amounted to $_______ or ___% of its average net assets on an annualized basis;
and the net expenses borne by the Growth and Income Portfolio amounted to
$________ or ___% of its average net assets on an annualized basis.

Cova Life may at its discretion, but is not obligated to, assume all or any
portion of Trust expenses. For the year ended December 31, 1995, Xerox
Financial Services Life Insurance Company (now known as Cova Financial
Services Life Insurance Company) assumed expenses of $_______ with respect to
the Quality Income Portfolio; $______ with respect to the High Yield
Portfolio; $_______ with respect to the Money Market Portfolio; $_______ with
respect to the Stock Index Portfolio and $_______ with respect to the Growth
and Income Portfolio.

SUB-ADVISERS accordance with each Portfolio's investment objective and
policies and under the supervision of Adviser and the Trust's Board of
Trustees, each Portfolio's Sub-Adviser is responsible for the day-to-day
investment management of the Portfolio, makes investment decisions for the
Portfolio and places orders on behalf of the Portfolio to effect the
investment decisions made as provided in separate Sub-Advisory Agreements
among each Sub-Adviser, the Adviser and the Trust. The following
organizations act as Sub-Advisers to the Portfolios:

VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP. ("VKAC"), One Parkview
Plaza, Oakbrook Terrace, Illinois 60181. VKAC, formerly known as Van Kampen
Merritt Investment Advisory Corp., served as the investment adviser to the
Trust from its commencement of operations until the date of the Prospectus.
VKAC is the Sub-Adviser for the Quality Income, High Yield, Stock Index, Money
Market and Growth and Income Portfolios of the Trust. VKAC is a wholly-owned
subsidiary of Van Kampen American Capital, Inc. which in turn is a
wholly-owned subsidiary of VKAC Holding, Inc. VKAC Holding, Inc. is
indirectly controlled by Clayton & Dubilier Associates IV Limited Partnership,
the general partners of which are Joseph L. Rice, III, B. Charles Ames,
William A. Barbe, Alberto Cribiore, Donald J. Gogel, Leon J. Hendrix, Jr.,
Hubbard C. Howe and Andrall E. Pearson, each of whom is a principal of
Clayton, Dubilier & Rice, Inc., a New York based private investment
partnership.

Van Kampen American Capital, Inc. is a diversified asset management company
with more than two million retail investor accounts and nearly $50 billion
under management or supervision. Van Kampen American Capital, Inc.'s over 40
open-end and 38 closed-end funds and more than 2,700 unit investment trusts
are distributed by financial advisers nationwide. In connection with advising
the Trust, VKAC utilizes at its own expense credit analysis and research
services provided by its affiliate, McCarthy, Crisanti & Maffei, Inc.

Pete Papageorgakis has been a member of VKAC since 1992 and is currently
the Portfolio Manager for the Stock Index Portfolio of the Trust.
Additionally, he serves as a Portfolio Analyst for Institutional Accounts and
is responsible for both equity and corporate bond securities. Prior to his
current duties, he assisted in the management of the Van Kampen Merritt Growth
& Income Fund, the Growth and Income Portfolio of the Trust, the Van Kampen
Merritt Utility Fund and the Van Kampen Merritt Balanced Fund. Mr.
Papageorgakis received his B.S. degree, Summa Cum Laude, in Finance from the
University of Illinois at Urbana-Champaign. He is currently working towards
receiving his Chartered Financial Analyst (CFA) designation, having
successfully completed the CFA Level II Exam.

James A. Gilligan is the Portfolio Manager for the Growth and Income
Portfolio of the Trust. Mr. Gilligan is also the Portfolio Manager for the
American Capital Equity Income Fund and American Capital Growth & Income Fund.
Mr. Gilligan has nine years investment experience. Prior to joining VKAC in
1985, as Securities Analyst, he was an Auditor, Credit Analyst, and Financial
Analyst for Gulf Oil Corporation. Mr. Gilligan holds a BS in Business
Administration from Miami University and an MBA from the University of
Pittsburgh. He is a Chartered Financial Analyst and Certified Public
Accountant.

Anne Lorsung is Vice President of VKAC and the Portfolio Manager for the
High Yield Portfolio of the Trust. Ms. Lorsung joined VKAC in January, 1994,
as a high yield "desk" analyst, where her responsibilities were that of an
Associate Portfolio Manager and included credit analysis, value assessment,
and trading. As of May, 1995, Ms. Lorsung took over as the Portfolio Manager
for the Van Kampen American Capital High Yield Fund, the Van Kampen Series
Trust High Yield Fund, the Van Kampen Intermediate Term High Income Trust, and
the Van Kampen Limited Term High Income Trust. Prior to joining Van Kampen
American Capital, Ms. Lorsung was a Group Vice President in the high yield
research area of Duff & Phelps and its predecessor (McCarthy, Crisanti &
Maffei) where responsibilities included supervising other analysts as well as
covering the casino industry. She started in high yield/corporate bond
research in 1984 at Kidder, Peabody & Co., in New York. Since that time, Ms.
Lorsung has analyzed high yield bond investments in a variety of industries,
including cable/media, housing and health care. Ms. Lorsung is a Chartered
Financial Analyst. She received a B.A. degree, cum laude, in economics from
Dartmouth College.

Reid J. Hill is the Portfolio Manager for the Money Market Portfolio of
the Trust. Mr. Hill is also the Portfolio Manager for the Van Kampen American
Capital Tax Free Money Fund and the Van Kampen Series Trust Money Market Fund.
Mr. Hill has two years of experience in the taxable and tax free fixed income
sector. Mr. Hill is also responsible for the management of the short term cash
for the entire complex of Van Kampen funds. Mr. Hill received his B.S. degree
in Finance and Marketing from Bradley University.

Robert J. Hickey, an officer of VKAC, is the Portfolio Manager for the
Quality Income Portfolio of the Trust.

J.P. MORGAN INVESTMENT MANAGEMENT, INC., 522 Fifth Avenue, New York, New York
10036, a Delaware corporation, and a wholly-owned subsidiary of J.P. Morgan &
Co., Incorporated, is the Sub-Adviser for the Quality Bond, International
Equity, Select Equity, Large Capital Stock and Small Capital Stock Portfolios
of the Trust.

Ronald Arons, Vice President of the Sub-Adviser, is the Portfolio Manager
for the Quality Bond Portfolio. Mr. Arons is a member of the Fixed Income
Group, specializing in portfolio management for active fixed income and
insurance company clients. He joined Morgan from MetLife Investment Management
Corp. where he managed active and structured bond portfolios. Mr. Arons is a
graduate of George Washington University and received his M.B.A. at New York
University. He is a Chartered Financial Analyst.

Anne Richards, Assistant Vice President of the Sub-Adviser, is the
Portfolio Manager for the International Equity Portfolio. Ms. Richards joined
J.P. Morgan in 1994 as an international equity portfolio manager. Previously
she has held positions as an engineering analyst with Alliance Capital, a
project engineer for Cambridge Consultants and a research fellow for CERN,
European Laboratory for Particle Physics. Ms. Richards holds a BSc from the
University of Edinburgh and an MBA from INSEAD, France.

James B. Otness, Managing Director of the Sub-Adviser, is the Portfolio
Manager for the Small Capital Stock Portfolio. Mr. Otness is a member of the
Equity and Balanced Accounts Group. Mr. Otness co-manages Morgan's Small
Company Fund and other client portfolios employing a small company investment
approach. Mr. Otness joined Morgan in 1970 after graduation from Harvard
University and service in the U.S. Marine Corps Reserve. Prior to his current
assignment, he managed large capitalization equities and before that was unit
head in the Investment Research Department. Mr. Otness is a Chartered
Financial Analyst with 23 years of investment experience.

James Wiess, Vice President of the Sub-Adviser, is the Portfolio Manager
for the Large Capital Stock Portfolio. Mr. Wiess is a member of the Equity and
Balanced Accounts Group, with responsibility for portfolio rebalancing and
product research and development in structured equity strategies. Prior to
joining Morgan in 1992, Mr. Wiess gained experience in stock index arbitrage
during seven years at Oppenheimer & Co. He also was a financial markets
consultant at Data Resources. Mr. Wiess earned his undergraduate degree from
the Wharton School at the University of Pennsylvania.

Michael J. Kelly, Vice President of the Sub-Adviser, is the Portfolio
Manager for the Select Equity Portfolio. Mr. Kelly is an institutional
portfolio manager with responsibility for a number of employee benefit,
foundation, and endowments clients. Prior to assuming his current position, he
was in the Equity Research Group covering capital goods, electrical equipment,
and conglomerates. Mr. Kelly also served as the group's generalist. Before
joining Morgan in 1985, he held a position at the economic firm
Townsend-Greenspan & Co., Inc. Mr. Kelly served as President of the Machinery
Analysts of New York, Vice President of the Electrical Products Group,
committee member for the AIMR and is a member of the Money Marketeers of New
York. Mr. Kelly has an undergraduate degree from Gettysburg College and an
M.B.A. from The Wharton School. Mr. Kelly is a Chartered Financial Analyst.

LORD, ABBETT & CO. ("LORD ABBETT"), The General Motor Building, 767 Fifth
Avenue, New York, New York 10153-0203. Lord Abbett has been an investment
manager for over 62 years and currently manages approximately $16 billion in a
family of mutual funds and other advisory accounts. Lord Abbett is the
Sub-Adviser for the Bond Debenture Portfolio.

Morais A. Taylor is the Portfolio Manager for the Bond Debenture
Portfolio of the Trust. Mr. Taylor also is the Portfolio Manager of the Lord
Abbett Bond-Debenture Fund, Inc. Mr. Taylor joined Lord Abbett in 1969.

SUB-ADVISORY FEES

Under the terms of the Sub-Advisory Agreements, the Adviser shall pay to the
Sub-Advisers, as full compensation for services rendered under the respective
Agreements with respect to the various Portfolios, monthly fees at the
following annual rates shown in the table below based on the average daily net
assets of each Portfolio.

Average Daily
Portfolio Net Assets Sub-Advisory Fee

Money Market First $500 million .25%
Over $500 million .15%

Quality Income First $500 million .25%
Over $500 million .20%

High Yield First $500 million .50%
Over $500 million .40%

Growth and Income First $500 million .35%
Over $500 million .25%

Stock Index __________________ .25%

Bond Debenture __________________ .50%

Quality Bond First $75 million .30%
Over $75 million .25%

International Equity First $50 million .60%
Over $50 million .50%

Select Equity First $50 million .50%
Over $50 million .40%

Large Capital Stock ___________________ .40%

Small Capital Stock ___________________ .60%
</TABLE>

DESCRIPTION OF THE TRUST

SHAREHOLDER RIGHTS

The Trust is an unincorporated business trust established under the laws of
the Commonwealth of Massachusetts by a Declaration of Trust dated July 9,
1987. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares.

Each Portfolio issues its own class of shares. Each share represents an equal
proportionate interest in the assets of the Portfolio with each other share in
the Portfolio. On any matter submitted to a vote of shareholders, all shares
of the Trust then issued and outstanding and entitled to vote will be voted in
the aggregate and not by class except for matters concerning only one class.
The holders of each share of stock of the Trust will be entitled to one vote
for each full share and a fractional vote for each fractional share of stock.
Shares of one class may not bear the same economic relationship to the Trust
as another class.

In accordance with its view of present applicable law, the separate account(s)
of Cova Life, as shareholder(s) of the Trust, have the right to vote Trust
shares at any meeting of shareholders and will provide pass-through voting
privileges to all contract owners. Cova Life will vote shares of the Trust
held in the separate account(s) for which no timely voting instructions from
contract owners are received, as well as shares it owns, in the same
proportion as those shares for which voting instructions are received.
Additional information concerning voting rights is described in the Variable
Account Prospectus attached hereto under the caption, "The Variable Account -
Voting Rights".

The Trust is not required to hold annual meetings of shareholders and does not
plan to do so. The Trustees may call special meetings of shareholders for
action by shareholder vote as may be required by the Investment Company Act of
1940, as amended, or the Declaration of Trust. The Trust will hold a
shareholder meeting to fill existing vacancies on the Board in the event that
less than a majority of Trustees were elected by the shareholders. The
Trustees shall also call a meeting of shareholders for the purpose of voting
upon the question of removal of any Trustee when requested in writing to do so
by the record holders of not less than 10 percent of the outstanding shares.

The Trust has an obligation to assist shareholder communications.

The Declaration of Trust provides that shareholders are not liable for any
liabilities of the Trust, requires inclusion of a clause to that effect in
every agreement entered into by the Trust and indemnifies shareholders against
any liability. Although shareholders of an unincorporated business trust
established under Massachusetts law may, under certain limited circumstances,
be held personally liable for the obligations of the Trust as though they were
general partners in a partnership, the provisions of the Declaration of Trust
described in the foregoing sentence make the likelihood of personal liability
remote.

The Trustees may amend the Declaration of Trust in any manner without
shareholder approval, except that the Trustees may not adopt any amendment
adversely affecting the rights of shareholders without approval by a
majority of the shares present at a meeting of shareholders (or higher vote as
may be required by the Investment Company Act of 1940, as amended, 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.

INQUIRIES

Any inquiries should be directed to Cova Life, One Tower Lane, Suite 3000,
Oakbrook Terrace, Illinois 60181-4644. The telephone number is (800) 831-LIFE.

DISTRIBUTION AND REDEMPTION OF SHARES

Shares of the Trust are currently issued and redeemed only in connection with
investment in and payments under certain variable annuity contracts ("variable
contracts") issued by Cova Life. The shares of the Trust are purchased and
redeemed at net asset value (see below). Redemptions will be effected by the
separate accounts to meet obligations under the variable contracts. Contract
Owners do not deal directly with the Trust with respect to acquisition or
redemption of shares.

DIVIDENDS

All dividends are distributed to the separate accounts and will be
automatically reinvested in Trust shares. Dividends and distributions made by
the Portfolios are taxable, if at all, to Cova Life; they are not taxable to
variable annuity contract owners.

TAX STATUS

It is the intention of the Trust to qualify as a "regulated investment
company" under Sub-chapter M of the Internal Revenue Code. If the Trust so
qualifies and distributes each year to its shareholders at least 90% of its
net investment income in each year, it will not be required to pay federal
income taxes on any income distributed to shareholders. Each Portfolio of the
Trust distributes all of its net income and gains to its shareholders (the
separate accounts). Each Portfolio is treated as a separate entity for Federal
income tax purposes and, therefore, the investments and results of the
Portfolio are determined separately for purposes of determining whether the
Trust qualifies as a "regulated investment company" and for purposes of
determining net ordinary income (or loss) and net realized capital gains (or
losses).

Some of the Trust's investment practices are subject to special provisions of
the Code that, among other things, may defer the use of certain losses of the
Trust and affect the holding period of the securities held by the Trust and
the character of the gains or losses realized by the Trust. These provisions
may also require the Trust to mark-to-market some of the positions in its
portfolio (i.e., treat them as if they were closed out), which may cause the
Trust to recognize income without receiving cash with which to make
distributions in amounts necessary to satisfy the 90% distribution requirement
and the distribution requirements for avoiding income and excise taxes. The
Trust will monitor its transactions and may make certain tax elections in
order to mitigate the effect of these rules and prevent disqualification of
the Trust as a regulated investment company.

Investments of the Trust in securities issued at a discount or providing for
deferred interest or payment of interest in kind are subject to special tax
rules that will affect the amount, timing and character of distributions to
shareholders. For example, with respect to securities issued at a discount,
the Trust will be required to accrue as income each year a portion of the
discount and to distribute such income each year in order to maintain its
qualification as a regulated investment company and to avoid income and excise
taxes. In order to generate sufficient cash to make distributions necessary
to satisfy the 90% distribution requirement and to avoid income and excise
taxes, the Trust may have to dispose of securities that it would otherwise have
continued to hold.

The Trust's ability to dispose of portfolio securities may be limited by the
requirement for qualification as a regulated investment company that less than
30% of the Trust's annual gross income be derived from the disposition of
securities held for less than three months.

NET ASSET VALUES

Portfolio shares are sold and redeemed at a price equal to the share's net
asset value. The net asset value of a Portfolio is determined by calculating
the total value of the Portfolio's assets, deducting its total liabilities,
and dividing the result by the number of shares outstanding. The net asset
value for each Portfolio is computed once daily as of the close of the New
York Stock Exchange, Monday through Friday, except on customary business
holidays, or except on any day on which no purchase or redemption orders are
received, or there is not a sufficient degree of trading in the Portfolio's
investments so that the Portfolio's net asset value per share might be
materially affected. The Trust reserves the right to calculate the net asset
value and to adjust the public offering price based thereon more frequently
than once a day if deemed desirable.

Securities that are listed on a securities exchange are valued at their
closing sales price on the day of the valuation. Price valuations for listed
securities are based on market quotations where the security is primarily
traded or, if not available, are valued at the mean of the bid and asked
prices on any valuation date. Unlisted securities in a Portfolio are primarily
valued based on their latest quoted bid price or, if not available, are valued
by a method determined by the Trustees to accurately reflect fair value. Money
market instruments maturing in 60 days or less are valued on the basis of
amortized cost, which means that securities are valued at their acquisition
cost to reflect a constant amortization rate to maturity of any premium or
discount, rather than at current market value.

The Money Market Portfolio values its securities on the basis of amortized
cost, which means that securities are valued at their acquisition cost to
reflect a constant amortized rate to maturity of any premium or discount,
rather than at current market value. Calculations are made to compare the
amortized cost valuation of the securities with current market values. Money
market valuations are obtained by using market quotations provided by market
makers, estimates of market values, or values obtained from published yield
data of money market instruments. If a deviation of of 1% or more were to
occur between the net asset value calculated by reference to market values and
the Portfolio's $1.00 per share net asset value, or if there were any other
deviation which the Trustees believe would result in a material dilution to
shareholders, the Trustees would promptly consider what action, if any, should
be initiated. Other assets are valued at fair value as determined in good
faith by the Trustees. The method of calculating yields is described in the
Statement of Additional Information.

FUND PERFORMANCE

From time to time advertisements and other sales materials for the Trust may
include information concerning the historical performance of the Trust. Such
advertisements will also describe the performance of the relevant insurance
company separate accounts. Any such information will include the average total
return of the Trust calculated on a compounded basis for specified periods of
time. Total return information will be calculated pursuant to rules
established by the Securities and Exchange Commission. In lieu of or in
addition to total return calculations, such information may include
performance rankings and similar information from independent organizations
such as Lipper Analytical Services, Inc., Morningstar, Business Week, Forbes
or other industry publications.

The Trust calculates average compounded total return by determining the
redemption value at the end of specified periods (assuming reinvestment of all
dividends and distributions) of a $1,000 investment in the Trust at the
beginning of the period, deducting the initial $1,000 investment, annualizing
the increase or decrease over the specified period and expressing the result
as a percentage.

Total return figures utilized by the Trust are based on historical performance
and are not intended to indicate future performance. Total return and net
asset value per share can be expected to fluctuate over time, and accordingly,
upon redemption, shares may be worth more or less than their original cost.

PUBLIC FUND PERFORMANCE

The Quality Bond Portfolio, Small Capital Stock Portfolio and International
Equity Portfolio, each of which is managed by J.P. Morgan Investment
Management, Inc., and the Bond Debenture Portfolio, which is managed by Lord,
Abbett & Co., are newly organized and do not yet have their own performance
records. However, each of these Portfolios has the same investment objective
and follows substantially the same investment strategies as a mutual fund
("public fund") whose shares are sold to the public and managed by the same
portfolio managers of J.P. Morgan Investment Management, Inc. and Lord, Abbett
& Co., respectively.

Set forth below is the historical performance of these public funds. Investors
should not consider the performance data of the public funds as an indication
of the future performance of the respective Portfolios. The performance
figures shown below reflect the deduction of the historical fees and expenses
paid by the public funds, and not those to be paid by the Portfolios. The
figures also do not reflect the deduction of any insurance fees or charges
which are imposed by Cova Life in connection with its sale of variable annuity
contracts. Investors should refer to the separate account prospectus
describing the variable annuity contracts for information pertaining to these
insurance fees and charges. The insurance separate account fees will have a
detrimental effect on the performance of a Portfolio. The results shown
reflect the reinvestment of dividends and distributions, and were calculated
in the same manner that will be used by each Portfolio to calculate its own
performance.

The following tables show average annualized total returns for the time
periods shown for each of the public funds as well as a comparison with a
relevant index.

QUALITY BOND PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>

Corresponding Since Inception
- --------------------------------- ---------- ---------
Public Fund/Index 1 Year 5 Year Inception Date
- --------------------------------- ------- ------- ---------- ---------

The Pierpont Bond Fund ____% ____% ____% 3/11/88

Salomon Brothers Broad Investment
Grade Bond Index ____% ____% ____% ________
</TABLE>

SMALL CAPITAL STOCK PORTFOLIO
<TABLE>
<CAPTION>

Corresponding Since Inception
- -------------------- ---------- ---------
Public Fund/Index 1 Year 5 Year 10 Year Inception Date
- -------------------- ------- ------- -------- ---------- ---------

The Pierpont Capital
Appreciation Fund ____% ____% ____% ____% 6/27/85

Russell 2000 Index ____% ____% ____% ____% ________
</TABLE>

INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>

Corresponding Since Inception
- ---------------------------------- ---------- ---------
Public Fund/Index 1 Year 5 Year Inception Date
- ---------------------------------- ------- ------- ---------- ---------

The Pierpont International
Equity Fund ____% ____% ____% 6/1/90

Morgan Stanley Capital
International Europe, Australia
and Far East Index ____% ____% ____% ________
</TABLE>

BOND DEBENTURE PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>

Corresponding Since Inception
- --------------------------- ---------- ---------
Public Fund/Index 1 Year 5 Year Inception Date
- --------------------------- ------- ------- ---------- ---------

Lord Abbett Bond -
Debenture Fund, Inc. ____% ____% ____% ________

Salomon Brothers High Yield
Index-Composite ____% ____% ____% ________
</TABLE>

PRIVATE ACCOUNT PERFORMANCE

The Select Equity Portfolio and the Large Capital Stock Portfolio, each of
which is managed by J.P. Morgan Investment Management, Inc., are newly
organized and do not yet have their own performance records. However, each of
these Portfolios has investment objectives, policies and strategies which are
substantially similar to those employed by J.P. Morgan Investment Management,
Inc. with respect to certain private accounts.

Set forth below is the historical composite performance of these private
accounts. Investors should not consider the performance data of these private
accounts as an indication of the future performance of the respective
Portfolios. The composite performance figures shown below reflect the
deduction of the fees and expenses paid by the private accounts, and not those
to be paid by the Portfolios. The figures also do not reflect the deduction of
any insurance fees or charges which are imposed by Cova Life in connection
with its sale of variable annuity contracts. Investors should refer to the
separate account prospectus describing the variable annuity contracts for
information pertaining to these insurance fees and charges. The insurance
separate account fees will have a detrimental effect on the performance of a
Portfolio.

The performance of the Portfolios may be at variance with the composite
performance of the private accounts in that such accounts are not mutual funds
and thus not subject to the various requirements and limitations applicable to
mutual funds under the Investment Company Act of 1940 and the Internal Revenue
Code.

SELECT EQUITY PORTFOLIO

Account/Index 1 Year 5 Year 10 Year
- ------------------------------- ------- ------- --------

Private Accounts ____% ____% ____%

Standard & Poor's 500 Composite
Stock Price Index ____% ____% ____%
</TABLE>

LARGE CAPITAL STOCK PORTFOLIO

Account/Index 1 Year 5 Year 10 Year
- ------------------------------- ------- ------- --------

Private Accounts ____% ____% ____%

Standard & Poor's 500 Composite
Stock Price Index ____% ____% ____%
</TABLE>

APPENDIX - DESCRIPTION OF CORPORATE BOND RATINGS

STANDARD & POOR'S CORPORATION. A brief description of the applicable Standard
& Poor's Corporation ("S&P") rating symbols and their meanings (as published
by S&P) follows:

An 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 obligers 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 for other
circumstances.

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

1. Likelihood of default - capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal 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 creditors' rights.

LONG-TERM CORPORATE BONDS.

AAA Debt rated 'AAA' has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.

A Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB Debt rated 'BBB' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

BB Debt rated 'BB', 'B', 'CCC', or 'CC' is regarded,

B on balance, as predominantly speculative with

CCC respect to capacity to pay interest and repay

CC principal in accordance with the terms of the obligation. 'BB' indicates
the lowest degree of speculation and 'CC' the highest degree of speculation.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to adverse
conditions.

C This rating is reserved for income bonds on which no interest is being
paid.

D Debt rated 'D' is in default, and payment of interest and/or repayment of
principal is in arrears.

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

PROVISIONAL RATINGS: The letter "p" indicates that the rating is provisional.
A provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit
quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise judgment with respect to such likelihood and risk.

L The letter 'L' indicates that the rating pertains to the principal amount
of those bonds where the underlying deposit collateral is fully insured by the
Federal Deposit Insurance Corp.

l Continuance of the rating is contingent upon S&P's receipt of closing
documentation confirming investments and cash flow.

* Continuance of the rating is contingent upon S&P's receipt of an executed
copy of the escrow agreement.

NR Indicates 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.

Moody's Investors Service, Inc. A brief description of the applicable Moody's
Investors Service, Inc. rating symbols and their meanings (as published by
Moody's Investors Service, Inc.) follows:

LONG-TERM CORPORATE BONDS.

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 edge". 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 in 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 sometime 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 payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba - Bonds 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.

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: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa
1, A 1, Baa 1, Ba 1 and B 1.

PART B

STATEMENT OF ADDITIONAL INFORMATION

VAN KAMPEN MERRITT SERIES TRUST
ONE PARKVIEW PLAZA
OAKBROOK TERRACE, ILLINOIS 60181

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS BUT SHOULD
BE READ IN CONJUNCTION WITH THE PROSPECTUS FOR VAN KAMPEN MERRITT SERIES
TRUST, DATED MAY 1, 1996 (the "PROSPECTUS"). A COPY OF THE PROSPECTUS MAY BE
OBTAINED WITHOUT CHARGE BY CALLING (800) 831-LIFE, OR WRITING COVA FINANCIAL
SERVICES LIFE INSURANCE COMPANY AT ONE TOWER LANE, SUITE 3000, OAKBROOK
TERRACE, ILLINOIS 60181-4644.

The Prospectus and this Statement of Additional Information omit certain
of the information contained in the registration statement filed with the
Securities and Exchange Commission, Washington, D.C. These items may be
obtained from the Commission upon payment of the fee prescribed, or inspected
at the Commission's office at no charge.

THIS STATEMENT OF ADDITIONAL INFORMATION IS
DATED MAY 1, 1996.

TABLE OF CONTENTS
PAGE

INVESTMENT OBJECTIVES AND POLICIES
Objectives
GNMA Certificates
Government National Mortgage Association
Nature of GNMA Certificates
Life of GNMA Certificates
Yield Characteristics of GNMA Certificates
Market for GNMA Certificates
Lower Grade Securities
Strategic Transactions
General Characteristics of Options
General Characteristics of Futures
Options on Securities Indices and Other Financial Indices
Currency Transactions
Risks of Currency Transactions
Combined Transactions
Swaps, Caps, Floors and Collars
Eurodollar Instruments
Risks of Strategic Transactions Outside the United States
Use of Segregated and Other Special Accounts
Growth and Income Portfolio - Debt Securities Investments

STOCK INDEX PORTFOLIO - MONITORING PROCEDURES
Monitoring Procedures

INVESTMENT LIMITATIONS
Quality Income, High Yield, Money Market, Growth and Income and Stock Index
Portfolios

DESCRIPTION OF SECURITIES RATINGS
Commercial Paper Ratings
Variable Rate Demand Bond Ratings
Preferred Stock Ratings (Standard & Poor's)
Preferred Stock Ratings (Moody's)

YIELD INFORMATION FOR MONEY MARKET PORTFOLIO

OFFICERS AND TRUSTEES

SUBSTANTIAL SHAREHOLDERS

OWNERSHIP BY CERTAIN BENEFICIAL OWNERS

CUSTODIAN

LEGAL COUNSEL AND INDEPENDENT AUDITORS

INVESTMENT ADVISORY AGREEMENT
Investment decisions

PORTFOLIO TRANSACTIONS

FINANCIAL STATEMENTS

INVESTMENT OBJECTIVES AND POLICIES

OBJECTIVES

For a description of the objectives of the Portfolios, see "Prospectus -
Investment Objectives." The following information is provided for those
investors wishing to have more comprehensive information than that contained
in the Prospectus.

ADDITIONAL INFORMATION - INVESTMENT OBJECTIVES AND POLICIES OF PORTFOLIOS
MANAGED BY J.P. MORGAN INVESTMENT MANAGEMENT, INC.

QUALITY BOND PORTFOLIO. The Quality Bond Portfolio is designed to be an
economical and convenient means of making substantial investments in a broad
range of corporate and government debt obligations and related investments of
domestic and foreign issuers, subject to certain quality and other
restrictions. See "Quality and Diversification Requirements." The Portfolio's
investment objective is to provide a high total return consistent with
moderate risk of capital and maintenance of liquidity. Although the net asset
value of the Portfolio will fluctuate, the Portfolio attempts to conserve the
value of its investments to the extent consistent with its objective.

The Portfolio attempts to achieve its investment objective by investing
in high grade corporate and government debt obligations and related securities
of domestic and foreign issuers described in the Prospectus and this Statement
of Additional Information.

INVESTMENT PROCESS

Duration/yield curve management: The Sub-Adviser's duration decision
begins with an analysis of real yields, which its research indicates are
generally a reliable indicator of longer term interest rate trends. Other
factors the Sub-Adviser studies in regard to interest rates include economic
growth and inflation, capital flows and monetary policy. Based on this
analysis, the Sub-Adviser forms a view of the most likely changes in the level
and shape of the yield curve -- as well as the timing of those changes -- and
sets the Portfolio's duration and maturity structure accordingly. The
Sub-Adviser typically limits the overall duration of the Portfolio to a range
between one year shorter and one year longer than that of the Salomon Brothers
Broad Investment Grade Bond Index, the benchmark index.

Sector allocations: Sector allocations are driven by the Sub-Adviser's
fundamental and quantitative analysis of the relative valuation of a broad
array of fixed income sectors. Specifically, the Sub-Adviser utilizes market
and credit analysis to assess whether the current risk-adjusted yield spreads
of various sectors are likely to widen or narrow. The Sub-Adviser then
overweights (underweights) those sectors its analysis indicates offer the most
(least) relative value, basing the speed and magnitude of these shifts on
valuation considerations.

Security selection: Securities are selected by the portfolio manager,
with substantial input from the Sub-Adviser's fixed income analysts and
traders. Using quantitative analysis as well as traditional valuation methods,
the Sub-Adviser's applied research analysts aim to optimize security selection
within the bounds of the Portfolio's investment objective. In addition, credit
analysts -- supported by the Sub-Adviser's equity analysts -- assess the
creditworthiness of issuers and counterparties. A dedicated trading desk
contributes to security selection by tracking new issuance, monitoring dealer
inventories, and identifying attractively priced bonds. The traders also
handle all transactions for the Portfolio.

SELECT EQUITY PORTFOLIO AND LARGE CAPITAL STOCK PORTFOLIO. These
Portfolios are designed for investors who want an actively managed portfolio
of selected equity securities that seeks to outperform the S&P 500 Index. The
investment objective of each Portfolio is to provide a high total return from
a portfolio of selected equity securities.

In normal circumstances, at least 65% of each Portfolio's net assets will
be invested in equity securities consisting of common stocks and other
securities with equity characteristics comprised of preferred stock, warrants,
rights, convertible securities, trust certifications, limited partnership
interests and equity participations (collectively, "Equity Securities"). Each
Portfolio's primary equity investments are the common stock of large and
medium sized U.S. corporations and, to a limited extent, similar securities of
foreign corporations.

INVESTMENT PROCESS

Fundamental research: The Sub-Adviser's domestic equity analysts, each an
industry specialist with an average of ___ years of experience, follow 700
predominantly large- and medium-sized U.S. companies -- 500 of which form the
universe for each Portfolio's investments. Their research goal is to forecast
normalized, longer term earnings and dividends for the most attractive
companies among those they cover. In doing this, they may work in concert with
the Sub-Adviser's international equity analysts in order to gain a broader
perspective for evaluating industries and companies in today's global economy.

Systematic valuation: The analysts' forecasts are converted into
comparable expected returns by a dividend discount model, which calculates
those expected returns by comparing a company's current stock price with the
"fair value" price forecasted by its estimated long term earnings power.
Within each sector, companies are ranked by their expected return and grouped
into quintiles: those with the highest expected returns (Quintile 1) are
deemed the most undervalued relative to their long-term earnings power, while
those with the lowest expected returns (Quintile 5) are deemed the most
overvalued.

Disciplined portfolio construction: A diversified portfolio is
constructed using disciplined buy and sell rules. The specific names selected
reflect the portfolio manager's judgment concerning the soundness of the
underlying forecasts, the likelihood that the perceived misvaluation will be
corrected within a reasonable time frame and the magnitude of the risks versus
the rewards. The portfolio seeks to hold sector weightings close to those of
the S&P 500 Index, reflecting the Sub-Adviser's belief that its research has
the potential to add value at the individual stock level, but not at the
sector level. Sector neutrality is also seen as a way to help protect the
portfolio from macroeconomic risks, and -- together with diversification --
represents an important element of the Sub-Adviser's risk control strategy. A
dedicated trading desk handles all transactions for the Portfolio.

SMALL CAPITAL STOCK PORTFOLIO. This Portfolio is designed for investors
who are willing to assume the somewhat higher risk of investing in small
companies in order to seek a higher return over time than might be expected
from a portfolio of stocks of large companies. The Portfolio's investment
objective is to provide a high total return from a portfolio of Equity
Securities of small companies.

The Portfolio attempts to achieve its investment objective by investing
primarily in the common stock of small U.S. companies included in the Russell
2000 Index, which is composed of 2000 common stocks of U.S. companies with
market capitalizations ranging between $100 million and $1.5 billion.

INVESTMENT PROCESS

Fundamental Research: The Sub-Adviser's domestic equity analysts -- each
an industry specialist with an average of ___ years of experience --
continuously monitor the small cap stocks in their respective sectors with the
aim of identifying companies that exhibit superior financial strength and
operating returns. Meetings with management and on-site visits play a key role
in shaping their assessments. Their research goal is to forecast normalized,
long-term earnings and dividends for the most attractive small cap companies
among those they monitor -- a universe that generally contains a total of
300-350 names. Because the Sub-Adviser's analysts follow both the larger and
smaller companies in their industries -- in essence, covering their industries
from top to bottom -- they are able to bring broad perspective to the research
they do on both.

Systematic valuation: The analysts' forecasts are converted into
comparable expected returns by the Sub-Adviser's dividend discount model,
which calculates those returns by comparing a company's current stock price
with the "fair value" price forecasted by its estimated long-term earnings
power. Within each industry, companies are ranked by their expected returns
and grouped into quintiles: those with the highest expected returns (Quintile
1) are deemed the most undervalued relative to their long-term earnings power,
while those with the lowest expected returns (Quintile 5) are deemed the most
overvalued.

Disciplined portfolio construction: A diversified portfolio is
constructed using disciplined buy and sell rules. Purchases are concentrated
among the stocks in the top two quintiles of the rankings: the specific names
selected reflect the portfolio manager's judgment concerning the soundness of
the underlying forecasts, the likelihood that the perceived misevaluation will
soon be corrected and the magnitude of the risks versus the rewards. Once a
stock falls into the third quintile -- because its price has risen or its
fundamentals have deteriorated -- it generally becomes a sale candidate. The
portfolio manager seeks to hold sector weightings close to those of the
Russell 2000 Index, the Portfolio's benchmark, reflecting the Sub-Adviser's
belief that its research has the potential to add value at the individual
stock level, but not at the sector level. Sector neutrality is also seen as a
way to help to protect the portfolio from macroeconomic risks, and -- together
with diversification -- represents an important element of the Sub-Adviser's
investment strategy.

INTERNATIONAL EQUITY PORTFOLIO. This Portfolio is designed for investors
with a long-term investment horizon who want to diversify their portfolios by
investing in an actively managed portfolio of non-U.S. securities that seeks
to outperform the Morgan Stanley Capital International Europe, Australia and
Far East Index (the "EAFE Index"). The Portfolio's investment objective is to
provide a high total return from a portfolio of Equity Securities of foreign
corporations.

The Portfolio seeks to achieve its investment objective by investing
primarily in the Equity Securities of foreign corporations. Under normal
circumstances, the Portfolio expects to invest at least 65% of its total
assets in such securities. The Portfolio does not intend to invest in U.S.
securities (other than money market instruments), except temporarily, when
extraordinary circumstances prevailing at the same time in a significant
number of developed foreign countries render investments in such countries
inadvisable.

INVESTMENT PROCESS

Country allocation: The Sub-Adviser's country allocation decision begins
with a forecast of equity risk premiums, which provide a valuation signal by
measuring the relative attractiveness of stocks versus bonds. Using a
proprietary approach, the Sub-Adviser calculates this risk premium for each of
the nations in the Portfolio's universe, determines the extent of its
deviation -- if any -- from its historical norm, and then ranks countries
according to the size of those deviations. Countries with high (low) rankings
are overweighted (underweighted) in comparisons to the EAFE Index to reflect
the above-average (below-average) attractiveness of their stock markets. In
determining weightings, the Sub-Adviser analyzes a variety of qualitative
factors as well -- including the liquidity, earnings momentum and interest
rate climate of the market at hand. These qualitative assessments can change
the magnitude but not the direction of the country allocations called for by
the risk premium forecast. The Sub-Adviser places limits on the total size of
the Portfolio's country over- and under-weightings relative to the EAFE Index.

Stock selection: The Sub-Adviser's ___ international equity analysts,
each an industry and country specialist, forecast normalized earnings and
dividend payouts for roughly 1,000 non-U.S. companies -- taking a long-term
perspective rather than the short time frame common to consensus estimates.
These forecasts are converted into comparable expected returns by a dividend
discount model, and then companies are ranked from most to least attractive by
industry and country. A diversified portfolio is constructed using disciplined
buy and sell rules. The portfolio manager's objective is to concentrate the
purchases in the top third of the rankings, and to keep sector weightings
close to those of the EAFE Index, the Portfolio's benchmark. Once a stock
falls into the bottom third of the rankings, it generally becomes a sales
candidate. Where available, warrants and convertibles may be purchased instead
of common stock if they are deemed a more attractive means of investing in an
undervalued company.

Currency management: Currency is actively managed, in conjunction with
country and stock allocation, with the goal of protecting and possibly
enhancing the Portfolio's return. The Sub-Adviser's currency decisions are
supported by a proprietary tactical mode which forecasts currency movements
based on an analysis of four fundamental factors -- trade balance trends,
purchasing power parity, real short-term interest differentials and real bond
yields -- plus a technical factor designed to improve the timing of
transactions. Combining the output of this model with a subjective assessment
of economic, political and market factors, the Sub-Adviser's currency group
recommends currency strategies that are implemented in conjunction with the
Portfolio's investment strategy.

MONEY MARKET INSTRUMENTS

As discussed in the Prospectus, each Portfolio may invest in money market
instruments to the extent consistent with its investment objective and
policies. A description of the various types of money market instruments that
may be purchased by the Portfolios appears below. See "Quality and
Diversification Requirements."

U.S. TREASURY SECURITIES. Each of the Portfolios may invest in direct
obligations of the U.S. Treasury, including Treasury bills, notes and bonds,
all of which are backed as to principal and interest payments by the full
faith and credit of the United States.

ADDITIONAL U.S. GOVERNMENT OBLIGATIONS. Each of the Portfolios may invest
in obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by the "full
faith and credit" of the United States. In the case of securities not backed
by the full faith and credit of the United States, each Portfolio must look
principally to the federal agency issuing or guaranteeing the obligations for
ultimate repayment, and may not be able to assert a claim against the United
States itself in the event the agency or instrumentality does not meet its
commitments. Securities in which each Portfolio may invest that are not backed
by the full faith and credit of the United States include, but are not limited
to, obligations of the Tennessee Valley Authority, the Federal Home Loan
Mortgage Corporation and the U.S. Postal Service, each of which has the right
to borrow from the U.S. Treasury to meet its obligations, and obligations of
the Federal Farm Credit System and the Federal Home Loan Banks, both of whose
obligations may be satisfied only by the individual credits of each issuing
agency. Securities which are backed by the full faith and credit of the United
States include obligations of the Government National Mortgage Association,
the Farmers Home Administration, and the Export-Import Bank.

FOREIGN GOVERNMENT OBLIGATIONS. Each of the Portfolios, subject to its
applicable investment policies, may also invest in short-term obligations of
foreign sovereign governments or of their agencies, instrumentalities,
authorities or political subdivisions. These securities may be denominated in
the U.S. dollar or in another currency. See "Foreign Investments."

BANK OBLIGATIONS. Each of the Portfolios, unless otherwise noted in the
Prospectus or below, may invest in negotiable certificates of deposit, time
deposits and bankers' acceptances of (i) banks, savings and loan associations
and savings banks which (for those Portfolios managed by J.P. Morgan
Investment Management, Inc. except the International Equity Portfolio) have
more than $2 billion in total assets (the "Asset Limitation") and are
organized under the laws of the United States or any state, (ii) foreign
branches of these banks or of foreign banks of equivalent size (Euros) and
(iii) U.S. branches of foreign banks of equivalent size (Yankees) with respect
to the Portfolios managed by J.P. Morgan Investment Management, Inc. See
"Foreign Investments." The Portfolios will not invest in obligations for which
J.P. Morgan Investment Management, Inc., or any of its affiliated persons, is
the ultimate obligor or accepting bank. Each of the Portfolios may also invest
in obligations of international banking institutions designated or supported
by national governments to promote economic reconstruction, development or
trade between nations (e.g., the European Investment Bank, the Inter-American
Development Bank, or the World Bank).

COMMERCIAL PAPER. Each of the Portfolios may invest in commercial paper,
including master demand obligations. Master demand obligations are obligations
that provide for a periodic adjustment in the interest rate paid and permit
daily changes in the amount borrowed. The monies loaned to the borrower come
from accounts managed by a Sub-Adviser or its affiliates, pursuant to
arrangements with such accounts. Interest and principal payments are credited
to such accounts. The Sub-Adviser, acting as a fiduciary on behalf of its
clients, has the right to increase or decrease the amount provided to the
borrower under an obligation. The borrower has the right to pay without
penalty all or any part of the principal amount then outstanding on an
obligation together with interest to the date of payment. Since these
obligations typically provide that the interest rate is tied to the Federal
Reserve commercial paper composite rate, the rate on master demand obligations
is subject to change. Repayment of a master demand obligation to participating
accounts depends on the ability of the borrower to pay the accrued interest
and principal of the obligations on demand which is continuously monitored by
the Sub-Adviser. Since master demand obligations typically are not rated by
credit rating agencies, the Portfolios may invest in such unrated obligations
only if at the time of an investment the obligation is determined by the
Sub-Adviser to have a credit quality which satisfies the Portfolio's quality
restrictions. See "Quality and Diversification Requirements." Although there
is no secondary market for master demand obligations, such obligations are
considered by the Portfolios to be liquid because they are payable upon
demand. The Portfolios do not have any specific percentage limitation on
investments in master demand obligations.

REPURCHASE AGREEMENTS. Each of the Portfolios may enter into repurchase
agreements with brokers, dealers or banks that meet the credit guidelines
approved by the Trustees of the Trust. In a repurchase agreement, a Portfolio
buys a security from a seller that has agreed to repurchase the same security
at a mutually agreed upon date and price. The resale price normally is in
excess of the purchase price, reflecting an agreed upon interest rate. This
interest rate is effective for the period of time the Portfolio is invested in
the agreement and is not related to the coupon rate on the underlying
security. A repurchase agreement may also be viewed as a fully collateralized
loan of money by a Portfolio to the seller. The period of these repurchase
agreements will usually be short, from overnight to one week, and at no time
will the Portfolios invest in repurchase agreements for more than thirteen
months. The securities which are subject to repurchase agreements, however,
may have maturity dates in excess of thirteen months from the effective date
of the repurchase agreement. The Portfolios will always receive securities as
collateral whose market value is, and during the entire term of the agreement
remains, at least equal to 100% of the dollar amount invested by the
Portfolios in each agreement plus accrued interest, and the Portfolios will
make payment for such securities only upon physical delivery or upon evidence
of book entry transfer to the account of the Custodian. The Money Market
Portfolio will be fully collateralized within the meaning of paragraph (a)(3)
of Rule 2a-7 under the Investment Company Act of 1940, as amended (the "1940
Act"). If the seller defaults, a Portfolio might incur a loss if the value of
the collateral securing the repurchase agreement declines and might incur
disposition costs in connection with liquidating the collateral. In addition,
if bankruptcy proceedings are commenced with respect to the seller of the
security, realization upon disposal of the collateral by a Portfolio may be
delayed or limited.

Each of the Portfolios may make investments in other debt securities with
remaining effective maturities of not more than thirteen months, including
without limitation corporate and foreign bonds, asset-backed securities and
other obligations described in the prospectus or this Statement of Additional
Information.

CORPORATE BONDS AND OTHER DEBT SECURITIES

As discussed in the Prospectus, certain of the Portfolios may invest in
bonds and other debt securities of domestic and foreign issuers to the extent
consistent with their investment objectives and policies. A description of
these investments appears in the prospectus and below. See "Quality and
Diversification Requirements." For information on short-term investments in
these securities, see "Money Market Instruments."

ASSET-BACKED SECURITIES. Asset-backed securities directly or indirectly
represent a participation interest in, or are secured by and payable from, a
stream of payments generated by particular assets such as motor vehicle or
credit card receivables. Payments of principal and interest may be guaranteed
up to certain amounts and for a certain time period by a letter of credit
issued by a financial institution unaffiliated with the entities issuing the
securities. The asset-backed securities in which a Portfolio may invest are
subject to the Portfolio's overall credit requirements. However, asset-backed
securities, in general, are subject to certain risks. Most of these risks are
related to limited interests in applicable collateral. For example, credit
card debt receivables are generally unsecured and the debtors are entitled to
the protection of a number of state and federal consumer credit laws, many of
which give such debtors the right to set off certain amounts on credit card
debt thereby reducing the balance due. Additionally, if the letter of credit
is exhausted, holders of asset-backed securities may also experience delays in
payments or losses if the full amounts due on underlying sales contracts are
not realized. Because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of the market cycle has not been tested.

EQUITY INVESTMENTS

As discussed in the prospectus, certain of the Portfolios invest
primarily in Equity Securities. The Equity Securities in which these
Portfolios invest include those listed on any domestic or foreign securities
exchange or traded in the over-the-counter market as well as certain
restricted or unlisted securities. A discussion of the various types of equity
investments which may be purchased by these Portfolios appears in the
prospectus and below. See "Quality and Diversification Requirements."

EQUITY SECURITIES. The Equity Securities in which these Portfolios may
invest may or may not pay dividends and may or may not carry voting rights.
Common stock occupies the most junior position in a company's capital
structure.

The convertible securities in which these Portfolios may invest include
any debt securities or preferred stock which may be converted into common
stock or which carry the right to purchase common stock. Convertible
securities entitle the holder to exchange the securities for a specified
number of shares of common stock, usually of the same company, at specified
prices within a certain period of time.

The terms of any convertible security determine its ranking in a
company's capital structure. In the case of subordinated convertible
debentures, the holders' claims on assets and earnings are subordinated to the
claims of other creditors, and are senior to the claims of preferred and
common shareholders. In the case of convertible preferred stock, the holders'
claims on assets and earnings are subordinated to the claims of all creditors
and are senior to the claims of common shareholders.

WARRANTS

Certain of the Portfolios may invest in warrants, which entitle the
holder to buy common stock from the issuer at a specific price (the strike
price) for a specific period of time. The strike price of warrants sometimes
is much lower than the current market price of the underlying securities, yet
warrants are subject to similar price fluctuations. As a result, warrants may
be more volatile investments than the underlying securities.

Warrants do not entitle the holder to dividends or voting rights with
respect to the underlying securities and do not represent any rights in the
assets of the issuing company. Also, the value of the warrant does not
necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to the expiration date.

FOREIGN INVESTMENTS

Each of the Portfolios may invest in foreign securities. The
International Equity Portfolio may make substantial investments in foreign
countries. The Money Market, Quality Bond, Select Equity, Large Capital Stock
and Small Capital Stock Portfolios may invest in certain foreign securities.
The Quality Bond Portfolio may invest in dollar-denominated fixed income
securities of foreign issuers. The Select Equity and Large Capital Stock
Portfolios may invest in equity securities of foreign corporations included in
the S&P 500 Index or listed on a national securities exchange. The Small
Capital Stock Portfolio may invest in equity securities of foreign issuers
that are listed on a national securities exchange or denominated or
principally traded in the U.S. dollar. The Quality Bond Portfolio, Select
Equity Portfolio, Large Capital Stock Portfolio and the Small Capital Stock
Portfolio do not expect to invest more than 25%, 5%, 5%, and 5%, respectively,
of their total assets at the time of purchase in securities of foreign
issuers. All investments of the Money Market Portfolio must be U.S.
dollar-denominated. In the case of the Money Market and Quality Bond
Portfolios, any foreign commercial paper must not be subject to foreign
withholding tax at the time of purchase. Foreign investments may be made
directly in securities of foreign issuers or in the form of American
Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs").
Generally, ADRs and EDRs are receipts issued by a bank or trust company that
evidence ownership of underlying securities issued by a foreign corporation
and that are designed for use in the domestic, in the case of ADRs, or
European, in the case of EDRs, securities markets.

Since investments in foreign securities may involve foreign currencies,
the value of a Portfolio's assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, including currency blockage. Certain of the Portfolios may enter
into forward commitments for the purchase or sale of foreign currencies in
connection with the settlement of foreign securities transactions or to manage
the Portfolios' currency exposure related to foreign investments. The
Portfolios will not enter into such commitments for speculative purposes.

For a description of the risks associated with investing in foreign
securities, see "Investment Practices" and "Risk Factors" in the Prospectus.

INVESTING IN JAPAN. Investing in Japanese securities may involve the
risks associated with investing in foreign securities generally. In addition,
because it invests in Japan, the International Equity Portfolio will be
subject to the general economic and political conditions in Japan.

Share prices of companies listed on Japanese stock exchanges and on the
Japanese OTC market reached historical peaks (which were later referred to as
the "bubble") as well as historically high trading volumes in 1989 and 1990.
Since then, stock prices in both markets decreased significantly, with listed
stock prices reaching their lowest levels in the third quarter of 1992 and OTC
stock prices reaching their lowest levels in the fourth quarter of 1992.
During the period from January 1, 1989 through December 31, 1994, the highest
Nikkei stock average and Nikkei OTC average were 38,915.87 and 4,149.20,
respectively, and the lowest for each were 14,309.41 and 1,099.32,
respectively. There can be no assurance that additional market corrections
will not occur.

The common stocks of many Japanese companies continue to trade at high
price earnings ratios in comparison with those in the United States, even
after the recent market decline. Differences in accounting methods make it
difficult to compare the earnings of Japanese companies with those of
companies in other countries, especially the United States.

Since the International Equity Portfolio invests in securities
denominated in yen, changes in exchange rates between the U.S. dollar and the
yen affect the U.S. dollar value of the International Equity Portfolio's
assets. Such rate of exchange is determined by forces of supply and demand on
the foreign exchange markets. These forces are in turn affected by the
international balance of payments and other economic, political and financial
conditions, government intervention, speculation and other factors. See
Foreign Currency Exchange Transactions.

Japanese securities held by the International Equity Portfolio are not
registered with the SEC nor are the issuers thereof subject to its reporting
requirements. There may be less publicly available information about issuers
of Japanese securities than about U.S. companies and such issuers may not be
subject to accounting, auditing and financial reporting standards and
requirements comparable to those to which U.S. companies are subject.

Although the Japanese economy has grown substantially over the past four
decades, recently the rate of growth had slowed substantially. During 1991,
1992 and 1993, the Japanese economy grew at rates of 4.3%, 1.1% and 0.1%,
respectively, as measured by real gross domestic product.

Japan's success in exporting its products has generated a sizeable trade
surplus. Such trade surplus has caused tensions at times between Japan and
some of its trading partners. In particular, Japan's trade relations with the
United States have recently been the subject of discussion and negotiation
between the two nations. The United States has imposed certain measures
designed to address trade issues in specific industries. These measures and
similar measures in the future may adversely affect the performance of the
International Equity Portfolio.

Japan's economy has typically exhibited low inflation and low interest
rates. There can be no assurance that low inflation and low interest rates
will continue, and it is likely that a reversal of such factors would
adversely affect the Japanese economy. Moreover, the Japanese economy may
differ, favorably or unfavorably, from the U.S. economy in such respects as
growth of gross national product, rate of inflation, capital reinvestment,
resources, self-sufficiency and balance of payments position.

Japan has a parliamentary form of government. In 1993, a coalition
government was formed which, for the first time since 1955, did not include
the Liberal Democratic Party. Since mid-1993, there have been several changes
in leadership in Japan. What, if any, effect the current political situation
will have on prospective regulatory reforms of the economy in Japan cannot be
predicted. Recent and future developments in Japan and neighboring Asian
countries may lead to changes in policy that might adversely affect the
International Equity Portfolio.

ADDITIONAL INVESTMENTS

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each of the Portfolios may
purchase securities on a when-issued or delayed delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the purchase commitment. The purchase price and the interest
rate payable, if any, on the securities are fixed on the purchase commitment
date or at the time the settlement date is fixed. The value of such securities
is subject to market fluctuation and no interest accrues to a Portfolio until
settlement takes place. At the time a Portfolio makes the commitment to
purchase securities on a when-issued or delayed delivery basis, it will record
the transaction, reflect the value each day of such securities in determining
its net asset value and, if applicable, calculate the maturity for the
purposes of average maturity from that date. At the time of settlement a
when-issued security may be valued at less than the purchase price. To
facilitate such acquisitions, each Portfolio will maintain with the Custodian
a segregated account with liquid assets, consisting of cash, U.S. Government
securities or other appropriate securities, in an amount at least equal to
such comments. On delivery dates for such transactions, each Portfolio will
meet its obligations from maturities or sales of the securities held in the
segregated account and/or from cash flow. If a Portfolio chooses to dispose of
the right to acquire a when-issued security prior to its acquisition, it
could, as with the disposition of any other portfolio obligation, incur a gain
or loss due to market fluctuation. It is the current policy of each Portfolio
not to enter into when-issued commitments exceeding in the aggregate 15% of
the market value of the Portfolio's total assets, less liabilities other than
the obligations created by when-issued commitments.

INVESTMENT COMPANY SECURITIES. Securities of other investment companies
may be acquired by each of the Portfolios to the extent permitted under the
1940 Act. These limits require that, as determined immediately after a
purchase is made, (i) not more than 5% of the value of a Portfolio's total
assets will be invested in the securities of any one investment company, (ii)
not more than 10% of the value of its total assets will be invested in the
aggregate in securities of investment companies as a group, and (iii) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by a Portfolio.

REVERSE REPURCHASE AGREEMENTS. Each of the Portfolios may enter into
reverse repurchase agreements. In a reverse repurchase agreement, a Portfolio
sells a security and agrees to repurchase the same security at a mutually
agreed upon date and price. For purposes of the 1940 Act it is also considered
as a borrowing of money by the Portfolio and, therefore, a form of leverage.
The Portfolios will invest the proceeds of borrowings under reverse repurchase
agreements. In addition, a Portfolio will enter into a reverse repurchase
agreement only when the interest income to be earned from the investment of
the proceeds is greater than the interest expense of the transaction. A
Portfolio will not invest the proceeds of a reverse repurchase agreement for a
period which exceeds the duration of the reverse repurchase agreement. A
Portfolio may not enter into reverse repurchase agreements exceeding in the
aggregate one-third of the market value of its total assets, less liabilities
other than the obligations created by reverse repurchase agreements. Each
Portfolio will establish and maintain with the Custodian a separate account
with a segregated portfolio of securities in an amount at least equal to its
purchase obligations under its reverse repurchase agreements.

MORTGAGE DOLLAR ROLL TRANSACTIONS. Certain of the Portfolios of the Trust
may engage in mortgage dollar roll transactions with respect to mortgage
securities issued by the Government National Mortgage Association, the Federal
National Mortgage Association and the Federal Home Loan Mortgage Corporation,
In a mortgage dollar roll transaction, the Portfolio sells a mortgage backed
security and simultaneously agrees to repurchase a similar security on a
specified future date at an agreed upon price. During the roll period, the
Portfolio will not be entitled to receive any interest or principal paid on
the securities sold. The Portfolio is compensated for the lost interest on the
securities sold by the difference between the sales price and the lower price
for the future repurchase as well as by the interest earned on the
reinvestment of the sales proceeds. The Portfolio may also be compensated by
receipt of a commitment fee. When the Portfolio enters into a mortgage dollar
roll transaction, liquid assets in an amount sufficient to pay for the future
repurchase are segregated with the Custodian. Mortgage dollar roll
transactions are considered reverse repurchase agreements for purposes of the
Portfolio's investment restrictions.

LOANS OF PORTFOLIO SECURITIES. Each of the Portfolios may lend its
securities if such loans are secured continuously by cash or equivalent
collateral or by a letter of credit in favor of the Portfolio at least equal
at all times to 100% of the market value of the securities loaned, plus
accrued interest. While such securities are on loan, the borrower will pay the
Portfolio any income accruing thereon. Loans will be subject to termination by
the Portfolios in the normal settlement time, generally five business days
after notice, or by the borrower on one day's notice. Borrowed securities must
be returned when the loan is terminated. Any gain or loss in the market price
of the borrowed securities which occurs during the term of the loan inures to
a Portfolio and its respective investors. The Portfolios may pay reasonable
finders' and custodial fees in connection with a loan. In addition, a
Portfolio will consider all facts and circumstances including the
creditworthiness of the borrowing financial institution, and no Portfolio will
make any loans in excess of one year.

PRIVATELY PLACED AND CERTAIN UNREGISTERED SECURITIES. The Portfolios may
invest in privately placed, restricted, Rule 144A or other unregistered
securities as described in the Prospectus.

As to illiquid investments, a Portfolio is subject to a risk that should
the Portfolio decide to sell them when a ready buyer is not available at a
price the Portfolio deems representative of their value, the value of the
Portfolio's net assets could be adversely affected. Where an illiquid security
must be registered under the Securities Act of 1933, as amended (the "1933
Act") before it may be sold, a Portfolio may be obligated to pay all or part
of the registration expenses, and a considerable period may elapse between the
time of the decision to sell and the time the Portfolio may be permitted to
sell a security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, a Portfolio might obtain a
less favorable price than prevailed when it decided to sell.

QUALITY AND DIVERSIFICATION REQUIREMENTS

Each of the Portfolios intends to meet the diversification requirements
of the 1940 Act. To meet these requirements, 75% of the assets of these
Portfolios is subject to the following fundamental limitations: (1) the
Portfolio may not invest more than 5% of its total assets in the securities of
any one issuer, except obligations of the U.S. Government, its agencies and
instrumentalities, and (2) the Portfolio may not own more than 10% of the
outstanding voting securities of any one issuer. As for the other 25% of the
Portfolio's assets not subject to the limitation described above, there is no
limitation on investment of these assets under the 1940 Act, so that all of
such assets may be invested in securities of any one issuer, subject to the
limitation of any applicable state securities laws, or with respect to the
Money Market Portfolio, as described below. Investments not subject to the
limitations described above could involve an increased risk to a Portfolio
should an issuer, or a state or its related entities, be unable to make
interest or principal payments or should the market value of such securities
decline.

QUALITY BOND AND QUALITY INCOME PORTFOLIOS. These Portfolios invest
principally in a diversified portfolio of "high grade" and "investment grade"
securities. Investment grade debt is rated, on the date of investment, within
the four highest ratings of Moody's, currently Aaa, Aa, A and Baa, or of
Standard & Poor's, currently AAA, AA, A and BBB, while high grade debt is
rated, on the date of the investment, within the two highest of such ratings.
The Quality Bond Portfolio may also invest up to 5% of its total assets in
securities which are "below investment grade." Such securities must be rated,
on the date of investment, Ba by Moody's or BB by Standard & Poor's. The
Portfolios may invest in debt securities which are not rated or other debt
securities to which these ratings are not applicable, if in the opinion of the
Sub-Adviser, such securities are of comparable quality to the rated securities
discussed above. In addition, at the time the Portfolios invest in any
commercial paper, bank obligation or repurchase agreement, the issuer must
have outstanding debt rated A or higher by Moody's or Standard & Poor's, the
issuer's parent corporation, if any, must have outstanding commercial paper
rated Prime-1 by Moody's or A-1 by Standard & Poor's, or if no such ratings
are available, the investment must be of comparable quality in the
Sub-Adviser's opinion.

CONVERTIBLE DEBT SECURITIES. Certain of the Portfolios may invest in
convertible debt securities, for which there are no specific quality
requirements. In addition, at the time a Portfolio invests in any commercial
paper, bank obligation or repurchase agreement, the issuer must have
outstanding debt rated A or higher by Moody's or Standard & Poor's, the
issuer's parent corporation, if any, must have outstanding commercial paper
rated Prime-1 by Moody's or A-1 by Standard & Poor's, of ir no such ratings
are available, the investment must be of comparable quality in the
Sub-Adviser's opinion. At the time the Portfolio invests in any other
short-term debt securities, they must be rated A or higher by Moody's or
Standard & Poor's, or if unrated, the investment must be of comparable quality
in the Sub-Adviser's opinion.

In determining suitability of investment in a particular unrated
security, the Sub-Adviser takes into consideration asset and debt service
coverage, the purpose of the financing, history of the issuer, existence of
other rated securities of the issuer, and other relevant conditions, such as
comparability to other issuers.

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 Portfolio purchases are of the modified
pass-through type. Modified pass-through Certificates entitle the holder to
receive all interest and principal payments owed 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 of and interest on securities backed by a pool
of mortgages insured by the Federal Housing Administration or the Farmers Home
Administration or guaranteed by the Veterans Administration. 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. The net asset
value and return of the Portfolio will, however, fluctuate depending on market
conditions and other factors.

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.

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 Federal Housing
Administration 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 12
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. For the most common
type of mortgage pool, containing single-family dwelling mortgages, GNMA
receives an annual fee of 0.06 of 1% of the outstanding principal for
providing its guarantee, and the GNMA Certificate issuer is paid an annual
servicing fee of 0.44 of 1% for assembling the mortgage pool and for passing
through monthly payments of interest and principal to Certificate holders.

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 12-year life. Compared on this
basis, GNMA Certificates have historically yielded roughly 1/4 of 1% more than
high grade corporate bonds and 1/2 of 1% 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 12-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.

LOWER GRADE SECURITIES

Certain of the Portfolios may invest in lower-grade income securities.
(The High Yield Portfolio may invest a substantial portion of its assets in
medium and lower grade corporate debt securities entailing certain risks. See
"Special Risks of High Yield Investing" in the Prospectus.) Such lower grade
securities are rated BB or B by S&P or Ba or B by Moody's and are commonly
referred to as "junk bonds." Investment in such securities involves special
risks, as described herein. Liquidity relates to the ability of the Portfolio
to sell a security in a timely manner at a price which reflects the value of
that security. As discussed below, the market for lower grade securities is
considered generally to be less liquid than the market for investment grade
securities. The relative illiquidity of some of the Portfolio's portfolio
securities may adversely affect the ability of the Portfolio to dispose of
such securities in a timely manner and at a price which reflects the value of
such security in the Sub-Adviser's judgment. The market for less liquid
securities tends to be more volatile than the market for more liquid
securities and market values of relatively illiquid securities may be more
susceptible to change as a result of adverse publicity and investor
perceptions than are the market values of higher grade, more liquid
securities.

The Portfolio's net asset value will change with changes in the value of
its portfolio securities. Because the Portfolio will invest in fixed income
securities, the Portfolio's net asset value can be expected to change as
general levels of interest rates fluctuate. When interest rates decline, the
value of a portfolio invested in fixed income securities can be expected to
rise. Conversely, when interest rates rise, the value of a portfolio invested
in fixed income securities can be expected to decline. Net asset value and
market value may be volatile due to the Portfolio's investment in lower grade
and less liquid securities. Volatility may be greater during periods of
general economic uncertainty.

The Sub-Adviser values the Portfolio's investments pursuant to guidelines
adopted and periodically reviewed by the Board of Trustees. To the extent
that there is no established retail market for some of the securities in which
the Portfolio may invest, there may be relatively inactive trading in such
securities and the ability of the Sub-Adviser to accurately value such
securities may be adversely affected. During periods of reduced market
liquidity and in the absence of readily available market quotations for
securities held in the Portfolio's portfolio, the responsibility of the
Sub-Adviser to value the Portfolio's securities becomes more difficult and the
Sub-Adviser's judgment may play a greater role in the valuation of the
Portfolio's securities due to the reduced availability of reliable objective
data. To the extent that the Portfolio invests in illiquid securities and
securities which are restricted as to resale, the Portfolio may incur
additional risks and costs. Illiquid and restricted securities are
particularly difficult to dispose of.

Lower grade securities generally involve greater credit risk than higher
grade securities. A general economic downturn or a significant increase in
interest rates could severely disrupt the market for lower grade securities
and adversely affect the market value of such securities. In addition, in
such circumstances, the ability of issuers of lower grade securities to repay
principal and to pay interest, to meet projected financial goals and to obtain
additional financing may be adversely affected. Such consequences could lead
to an increased incidence of default for such securities and adversely affect
the value of the lower grade securities in the Portfolio's portfolio and thus
the Portfolio's net asset value. The secondary market prices of lower grade
securities are less sensitive to changes in interest rates than are those for
higher rated securities, but are more sensitive to adverse economic changes or
individual issuer developments. Adverse publicity and investor perceptions,
whether or not based on rational analysis, may also affect the value and
liquidity of lower grade securities.

Yields on the Portfolio's portfolio securities can be expected to
fluctuate over time. In addition, periods of economic uncertainty and changes
in interest rates can be expected to result in increased volatility of the
market prices of the lower grade securities in the Portfolio's portfolio and
thus in the net asset value of the Portfolio. Net asset value and market
value may be volatile due to the Portfolio's investment in lower grade and
less liquid securities. Volatility may be greater during periods of general
economic uncertainty. The Portfolio may incur additional expenses to the
extent it is required to seek recovery upon a default in the payment of
interest or a repayment of principal on its portfolio holdings, and the
Portfolio may be unable to obtain full recovery thereof. In the event that an
issuer of securities held by the Portfolio experiences difficulties in the
timely payment of principal or interest and such issuer seeks to restructure
the terms of its borrowings, the Portfolio may incur additional expenses and
may determine to invest additional capital with respect to such issuer or the
project or projects to which the Portfolio's portfolio securities relate.

The Portfolio will rely on the Sub-Adviser's judgment, analysis and
experience in evaluating the creditworthiness of an issue. In this
evaluation, the Sub-Adviser will take into consideration, among other things,
the issuer's financial resources, its sensitivity to economic conditions and
trends, its operating history, the quality of the issuer's management and
regulatory matters. The Sub-Adviser also may consider, although it does not
rely primarily on, the credit ratings of S&P and Moody's in evaluating
fixed-income securities. Such ratings evaluate only the safety of principal
and interest payments, not market value risk. Additionally, because the
creditworthiness of an issuer may change more rapidly than is able to be
timely reflected in changes in credit ratings, the Sub-Adviser continuously
monitors the issuers of such securities held in the Portfolio's portfolio.
The Portfolio may, if deemed appropriate by the Sub-Adviser, retain a security
whose rating has been downgraded below B by S&P or below B by Moody's, or
whose rating has been withdrawn.

With respect to Portfolios which may invest in these unrated income
securities, achievement by the Portfolio of its investment objective may be
more dependent upon the Sub-Adviser's investment analysis than would be the
case if the Portfolio were investing exclusively in rated securities.

STRATEGIC TRANSACTIONS

As described in the Prospectus, certain Portfolios of the Trust may, but
are not required to, utilize various other investment strategies as described
below to hedge various market risks (such as interest rates, currency exchange
rates and broad or specific market movements) or to manage the effective
maturity or duration of a Portfolio's income securities. Such strategies are
generally accepted by modern portfolio managers and are regularly utilized by
many mutual funds and other institutional investors. Techniques and
instruments may change over time as new instruments and strategies are
developed or regulatory changes occur.

In the course of pursuing these investment strategies, a Portfolio may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or
currency futures (collectively, all the above are called "Strategic
Transactions"). Strategic Transactions are hedging transactions which may be
used to attempt to protect against possible changes in the market value of
securities held in or to be purchased for a Portfolio's portfolio resulting
from securities markets or exchange rate fluctuations, to protect a
Portfolio's unrealized gains in the value of its portfolio securities, to
facilitate the sale of such securities for investment purposes, to manage the
effective maturity or duration of a Portfolio's portfolio, or to establish a
position in the derivatives markets as a temporary substitute for purchasing
or selling particular securities.

Any or all of these investment techniques may be used at any time and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of a Portfolio to utilize
these Strategic Transactions successfully will depend on the Sub-Adviser's
ability to predict pertinent market movements, which cannot be assured. A
Portfolio will comply with applicable regulatory requirements when
implementing these strategies, techniques and instruments.

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

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

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

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

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

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

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

Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with a Portfolio or fails to make a cash
settlement payment due in accordance with the terms of that option, the
Portfolio will lose any premium it paid for the option as well as any
anticipated benefit of the transaction. Accordingly, the Sub-Adviser must
assess the creditworthiness of each such Counterparty or any guarantor or
credit enhancement of the Counterparty's credit to determine the likelihood
that the terms of the OTC option will be satisfied. A Portfolio will engage
in OTC option transactions only with United States government securities
dealers recognized by the Federal Reserve Bank of New York as "primary
dealers", or broker dealers, domestic or foreign banks or other financial
institutions which have received (or the guarantors of the obligation of which
have received) a short-term credit rating of "A-1" from Standard & Poor's
Corporation or "P-1" from Moody's Investors Service, Inc. or an equivalent
rating from any other nationally recognized statistical rating organization
("NRSRO"). The staff of the SEC currently takes the position that, in
general, OTC options on securities other than U.S. government securities
purchased by a Portfolio, and portfolio securities "covering" the amount of
the Portfolio's obligation pursuant to an OTC option sold by it (the cost of
the sell-back plus the in-the-money amount, if any) are illiquid, and are
subject to each Portfolio's limitation on investing no more than 10% of its
assets in restricted securities (15% with respect to the World Equity
Portfolio and the Utility Portfolio).

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

A Portfolio may purchase and sell call options on securities, including
U.S. Treasury and agency securities, municipal obligations, mortgage-backed
securities, corporate debt securities, equity securities (including
convertible securities) and Eurodollar instruments that are traded on U.S. and
foreign securities exchanges and in the over-the-counter markets and or
securities indices, currencies and futures contracts. All calls sold by a
Portfolio must be "covered" (i.e., the Portfolio must own the securities or
futures contract subject to the call) or must meet the asset segregation
requirements described below as long as the call is outstanding. Even though
a Portfolio will receive the option premium to help protect it against loss, a
call sold by a Portfolio exposes the Portfolio during the term of the option
to possible loss of opportunity to realize appreciation in the market price of
the underlying security or instrument and may require the Portfolio to hold a
security or instrument which it might otherwise have sold. In selling calls
on securities not owned by the Portfolio, the Portfolio may be required to
acquire the underlying security at a disadvantageous price in order to satisfy
its obligations with respect to the call.

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

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

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

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

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

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

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

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

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

To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, a Portfolio may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the
Portfolio's portfolio is exposed is difficult to hedge or to hedge against the
dollar. Proxy hedging entails entering into a forward contract to sell a
currency whose changes in value are generally considered to be linked to a
currency or currencies in which some or all of the Portfolio's portfolio
securities are or are expected to be denominated, and to buy U.S. dollars.
For example, if the Sub-Adviser considers the Austrian schilling as being
linked to the German deutschemark (the "D-mark") and the Trust holds
securities denominated in schillings and the Sub-Adviser believes that the
value of schillings will decline against the U.S. dollar, the Sub-Adviser may
enter into a contract to sell D-marks and buy dollars. Currency hedging
involves some of the same risks and considerations as other transactions with
similar instruments. Currency transactions can result in losses to a
Portfolio if the currency being hedged fluctuates in value to a degree or in a
direction that is not anticipated. Further, there is the risk that the
perceived linkage between various currencies may not be present or may not be
present during the particular time that the Portfolio is engaging in proxy
hedging. If a Portfolio enters into a currency hedging transaction, the
Portfolio will comply with the asset segregation requirements described below.

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

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

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

A Portfolio will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or
dates specified in the instrument, with the Portfolio receiving or paying, as
the case may be, only the net amount of the two payments. Inasmuch as these
swaps, caps, floors and collars are entered into for good faith hedging
purposes, the Sub-Adviser and the Portfolio believe such obligations do not
constitute senior securities under the Investment Company Act of 1940, as
amended, and, accordingly, will not treat them as being subject to its
borrowing restrictions. A Portfolio will not enter into any swap, cap, floor
or collar transaction unless, at the time of entering into such transaction,
the unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least "A" by S&P or Moody's or has an equivalent
equity rating from an NRSRO or is determined to be of equivalent credit
quality by the Sub-Adviser. If there is a default by the Counterparty, the
Portfolio may have contractual remedies pursuant to the agreements related to
the transaction. The swap market has grown substantially in recent years with
a large number of banks and investment banking firms acting both as principals
and agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps, floors and collars are more recent
innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.

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

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

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

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

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

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

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

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

The Trust's activities involving Strategic Transactions may be limited by
the requirements of Subchapter M of the Internal Revenue Code for
qualification as a regulated investment company. See "Tax Status" in the
Prospectus.

GROWTH AND INCOME PORTFOLIO - DEBT SECURITIES INVESTMENTS

The Growth and Income Portfolio may invest up to 5% of its assets in
various debt securities. These include obligations issued or guaranteed by
the U.S. government or its agencies or instrumentalities or in various
investment grade debt obligations including mortgage pass-through certificates
and collateralized mortgage obligations. These securities may also include
corporate debt securities, some of which may be medium and lower grade
quality. Lower grade corporate debt securities are commonly known as "junk
bonds" and involve a significant degree of risk.

STOCK INDEX PORTFOLIO - MONITORING PROCEDURES

MONITORING PROCEDURES

The Board of Trustees of the Trust reviews the correlation between the
Portfolio and the Index on a quarterly basis. The Board of Trustees has
adopted monitoring procedures which it believes are reasonably designed to
assure a high degree of correlation between the performance of the Portfolio
and the S&P 500 Index. The procedures, which are reviewed and reconfirmed
annually by the Board, provide that in the event that the correlation between
the performance of the Portfolio and that of the S&P 500 Index falls below
95%, the Sub-Adviser will promptly notify the Board which shall consider what
action, if any, should be taken.

INVESTMENT LIMITATIONS

The Trust has adopted the following restrictions and policies relating to
the investment of assets of the Portfolios and their activities. These are
fundamental policies and may not be changed without the approval of the
holders of a majority of the outstanding voting shares of each Portfolio
affected (which for this purpose and under the Investment Company Act of 1940
means the lesser of (i) 67% of the shares represented at a meeting at which
more than 50% of the outstanding shares are present or represented by proxy
and (ii) more than 50% of the outstanding shares). A change in policy
affecting only one Portfolio may be effected with the approval of a majority
of the outstanding shares of such Portfolio.

QUALITY INCOME, HIGH YIELD, MONEY MARKET, GROWTH AND INCOME AND STOCK INDEX
PORTFOLIOS

Each of the Quality Income, High Yield, Money Market, Growth and Income
and Stock Index Portfolios of the Trust may not:

1. Borrow money which is in excess of one-third of the value of its
total assets taken at market value (including the amount borrowed) (except the
Money Market Portfolio which is limited to 10% of the value of its total
assets) and then only from banks as a temporary measure for extraordinary or
emergency purposes. This borrowing provision is not for investment leverage
but solely to facilitate management of the Portfolio by enabling the Trust to
meet redemption requests where the liquidation of the Portfolio's investment
is deemed to be inconvenient or disadvantageous. Monies used to pay interest
on borrowed funds will not be available for investment. The Portfolio will
not make additional investments while it has borrowings outstanding;

2. Underwrite securities of other issuers;

3. Invest 25% or more of a Portfolio's assets taken at market value in
any one industry. Investing in cash items (including bank time and demand
deposits such as certificates of deposit), U.S. Treasury bills or securities
issued or guaranteed by the U.S. government, its agencies or
instrumentalities, or instruments secured by those money market instruments,
such as repurchase agreements, will not be considered investments in any one
industry;

4. Purchase or sell commodities, commodity contracts, foreign exchange
or real estate, or invest in oil, gas or other mineral development or
exploration programs, except as noted in connection with hedging transactions.
(This does not prohibit investment in the securities of corporations which
own interests in commodities, foreign exchange, real estate or oil, gas or
other mineral development or exploration programs);

5. Invest more than 5% of the value of the assets of a Portfolio in
securities of any one issuer (except in the case of the securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities), or, if,
as a result, the 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;

6. Invest in securities of a company for the purpose of exercising
control or management;

7. Invest in securities issued by any other registered investment
company;

8. Purchase or sell real estate, except the Portfolios may purchase
securities which are issued by companies which invest in real estate or
interests therein;

9. Issue senior securities as defined in the Investment Company Act of
1940, except insofar as a Portfolio may be deemed to have issued a senior
security by reason of (a) entering into any repurchase agreement; (b)
borrowing money in accordance with restrictions described above; (c) lending
Portfolio securities; (d) purchasing securities on a when-issued or delayed
delivery basis; (e) accommodating short sales; (f) implementing the hedging
transactions described above. If the asset coverage falls below 300%, when
taking into account items (a) through (e), the Portfolio may be required to
liquidate investments to be in compliance with the Investment Company Act of
1940;

10. Lend portfolio securities in excess of twenty-five percent (25%) of
the value of a Portfolio's assets. Any loans of a Portfolio's securities will
be made according to guidelines established by the Trustees, including
maintenance of collateral of the borrower at least equal at all times to the
current market value of the securities loaned;

11. Invest in securities subject to legal or contractual restrictions on
resale and repurchase agreements maturing in more than seven days if, as a
result of the investment, more than 10% of the total assets of the Portfolio
(taken at market value at the time of such investment) would be invested in
the securities;

12. Make loans (the acquisition of a portion of an issue of publicly
distributed bonds, debentures, notes and other securities as permitted by the
investment objectives of the Portfolios will not be deemed to be the making of
loans) except that the Portfolios may purchase securities subject to
repurchase agreements under policies established by the Trustees or lend
portfolio securities pursuant to restriction 10 above;

13. Purchase securities on margin (but the Portfolios may obtain such
short-term credits as may be necessary for the clearance of transactions or to
implement the hedging transactions described above); and

14. Make short sales of securities or maintain a short position, unless
not more than 10% of the Portfolio's net assets (taken at current value) is
held as collateral for the sales at any one time, or unless at all times when
a short position is open the Portfolio owns an equal amount of the securities
or securities convertible into or exchangeable, without payment of any further
consideration (or for additional cash consideration held in a segregated
account by the Trust's custodian), for securities of the same issue as, and
equal in amount to, the securities sold short ("short sale against-the-box").

ADDITIONAL INVESTMENT LIMITATION - STOCK INDEX PORTFOLIO

The Stock Index Portfolio may not invest more than 5% of assets in the
securities of companies that have a continuous operating history of less than
3 years. However, such period of three years may include the operation of any
predecessor company or companies, partnership or individual enterprise if the
company whose securities are proposed as an investment for funds of the
Portfolio has come into existence as the result of a merger, consolidation,
reorganization or the purchase of substantially all of the assets of such
predecessor company or companies, partnership or individual enterprise.

ADDITIONAL INVESTMENT LIMITATIONS - MONEY MARKET PORTFOLIO

Rule 2a-7 under the Investment Company Act of 1940, which contains
certain requirements relating to the diversification, quality and maturity of
a money market fund's investments, was recently amended by the Securities and
Exchange Commission. The Board of Trustees of the Trust has modified its Rule
2a-7 procedures in order to comply with the Rule, as amended. As part of that
modification, the Board has adopted certain additional investment restrictions
pertaining to the diversification of the investments of the Money Market
Portfolio. These investment limitations, which are not fundamental policies
and which therefore may be changed without shareholder approval, are as
follows:

The Money Market Portfolio shall not acquire any instrument, including
puts, repurchase agreements and bank instruments, which, as measured at the
time of acquisition, would cause the Portfolio to:

1. invest, at any time, more than 5% of its total assets in the First
Tier Securities (as that term is defined in the Trust Prospectus) of a single
issuer (including puts written by, and repurchase agreements entered into
with, such issuer); except that the Portfolio may invest more than 5% of its
total assets in Government securities; and, for purposes of this calculation,
entering into a repurchase agreement shall be deemed to be an acquisition of
the underlying securities to the extent that the repurchase agreement is
collateralized fully;

2. invest, at any time, more than 5% of its total assets in securities
which when acquired by the Portfolio were Second Tier Securities (as that term
is defined in the Trust Prospectus); or

3. invest, at any time, more than the greater of 1% of the Portfolio's
total assets or $1,000,000 in securities of a single issuer which were Second
Tier Securities when acquired by the Portfolio.

QUALITY BOND PORTFOLIO

The Quality Bond Portfolio of the Trust may not:

1. Borrow money, except from banks for extraordinary or emergency
purposes and then only in amounts up to 30% of the value of the Portfolio's
total assets, taken at cost at the time of such borrowing and except in
connection with reverse repurchase agreements permitted by Investment
Restriction No. 8. Mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing in amounts up to 30% of the value of the
Portfolio's net assets at the time of such borrowing. The Portfolio will not
purchase securities while borrowings (including reverse repurchase agreements)
exceed 5% of the Portfolio's total assets; provided, however, that the
Portfolio may increase its interest in an open-end management investment
company with the same investment objective and restrictions as the Portfolio's
while such borrowings are outstanding. This borrowing provision facilitates
the orderly sale of portfolio securities, for example, in the event of
abnormally heavy redemption requests. This provision is not for investment
purposes. Collateral arrangements for premium and margin payments in
connection with the Portfolio's's hedging activities are not deemed to be a
pledge of assets;

2. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Portfolio's
total assets would be invested in securities or other obligations of any one
such issuer; provided, however, that the Portfolio may invest all or part of
its investable assets in an open-end management investment company with the
same investment objective and restrictions as the Portfolio's. This
limitation shall not apply to securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities or to permitted investments of
up to 25% of the Portfolio's total assets;

3. Purchase the securities of an issuer if, immediately after such
purchase, the Portfolio owns more than 10% of the outstanding voting
securities of such issuer; provided, however, that the Portfolio may invest
all or part of its investable assets in an open-end management investment
company with the same investment objective and restrictions as the
Portfolio's. This limitation shall not apply to permitted investments of up
to 25% of the Portfolio's total assets;

4. Purchase securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase the value of its investments in such industry would exceed 25% of the
value of the Portfolio's total assets; provided, however, that the Portfolio
may invest all or part of its investable assets in an open-end management
investment company with the same investment objective and restrictions as the
Portfolio's. For purposes of industry concentration, there is no percentage
limitation with respect to investments in U.S. Government securities;

5. Make loans, except through the purchase or holding of debt
obligations (including privately placed securities) or the entering into of
repurchase agreements, or loans of portfolio securities in accordance with the
Portfolio's investment objective and policies;

6. Purchase or sell puts, calls, straddles, spreads, or any combination
thereof, real estate, commodities, commodity contracts, except for the
Portfolio's interest in hedging activities as described under "Investment
Objectives and Policies"; or interests in oil, gas, or mineral exploration or
development programs. However, the Portfolio may purchase debt obligations
secured by interests in real estate or issued by companies which invest in
real estate or interests therein including real estate investment trusts;

7. Purchase securities on margin, make short sales of securities, or
maintain a short position in securities, except in the course of the
Portfolio's hedging activities, unless at all times when a short position is
open the Portfolio owns an equal amount of such securities, provided that this
restriction shall not be deemed to be applicable to the purchase or sale of
when-issued securities or delayed delivery securities;

8. Issue any senior security, except as appropriate to evidence
indebtedness which constitutes a senior security and which the Portfolio is
permitted to incur pursuant to Investment Restriction No. 1 and except that
the Portfolio may enter into reverse repurchase agreements, provided that the
aggregate of senior securities, including reverse repurchase agreement, shall
not exceed one-third of the market value of the Portfolio's total assets, less
liabilities other than obligations created by reverse repurchase agreements.
The Portfolio's arrangements in connection with its hedging activities as
described in "Investment Objectives and Policies" shall not be considered
senior securities for purposes hereof;

9. Acquire securities of other investment companies, except as permitted
by the 1940 Act; or

10. Act as an underwriter of securities.

SELECT EQUITY, LARGE CAPITAL STOCK AND SMALL CAPITAL STOCK PORTFOLIOS

Each of the Select Equity, Large Capital Stock and Small Capital Stock
Portfolios may not:

1. Purchase the securities or other obligations of issuers conducting
their principal business activity in the same industry if, immediately after
such purchase the value of its investments in such industry would exceed 25%
of the value of the Portfolio's total assets; provided, however, that the
Portfolio may invest all or part of its investable assets in an open-end
management investment company with the same investment objective and
restrictions as the Portfolio's. For purposes of industry concentration,
there is no percentage limitation with respect to investments in U.S.
Government securities;

2. Borrow money, except from banks for extraordinary or emergency
purposes and then only in amounts not to exceed 10% of the value of the
Portfolio's total assets, taken at cost, at the time of such borrowing.
Mortgage, pledge, or hypothecate any assets except in connection with any such
borrowing and in amounts not to exceed 10% of the value of the Portfolio's net
assets at the time of such borrowing. The Portfolio will not purchase
securities while borrowings exceed 5% of the Portfolio's total assets;
provided, however, that the Portfolio may increase its interest in an open-end
management investment company with the same investment objective and
restrictions as the Portfolio's while such borrowings are outstanding. This
borrowing provision is included to facilitate the orderly sale of portfolio
securities, for example, in the event of abnormally heavy redemption requests,
and is not for investment purposes. Collateral arrangements for premium and
margin payments in connection with the Portfolio's hedging activities are not
deemed to be a pledge of assets;

3. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Portfolio's
total assets would be invested in securities or other obligations of any one
such issuer; provided, however, that the Portfolio may invest all or part of
its investable assets in an open-end management investment company with the
same investment objective and restrictions as the Portfolio's. This
limitation shall not apply to issues of the U.S. Government, its agencies or
instrumentalities and to permitted investments of up to 25% of the Portfolio's
total assets;

4. Purchase the securities of an issuer if, immediately after such
purchase, the Portfolio owns more than 10% of the outstanding voting
securities of such issuer; provided, however, that the Portfolio may invest
all or part of its investable assets in an open-end management investment
company with the same investment objective and restrictions as the
Portfolio's;

5. Make loans, except through the purchase or holding of debt
obligations (including privately placed securities), or the entering into of
repurchase agreements, or loans of portfolio securities in accordance with the
Portfolio's investment objective and policies (see "Investment Objectives and
Policies");

6. Purchase or sell puts, calls, straddles, spreads, or any combination
thereof, real estate, commodities, or commodity contracts, except for the
Portfolio's interest in hedging activities as described under "Investment
Objectives and Policies"; or interests in oil, gas, or mineral exploration or
development programs. However, the Portfolio may purchase securities or
commercial paper issued by companies which invest in real estate or interests
therein, including real estate investment trusts;

7. Purchase securities on margin, make short sales of securities, or
maintain a short position, except in the course of the Portfolio's hedging
activities, provided that this restriction shall not be deemed to be
applicable to the purchase or sale of when-issued securities or delayed
delivery securities;

8. Acquire securities of other investment companies, except as permitted
by the 1940 Act;

9. Act as an underwriter of securities;

10. Issue any senior security, except as appropriate to evidence
indebtedness which the Portfolio is permitted to incur pursuant to Investment
Restriction No. 2. The Portfolio's arrangements in connection with its
hedging activities as described in "Investment Objectives and Policies" shall
not be considered senior securities for purposes hereof; or

11. Purchase any equity security if, as a result, the Portfolio would
then have more than 5% of its total assets invested in securities of companies
(including predecessors) that have been in continuous operation for fewer than
three years.

INTERNATIONAL EQUITY PORTFOLIO

The International Equity Portfolio may not:

1. Borrow money, except from banks for extraordinary or emergency
purposes and then only in amounts up to 30% of the value of the Portfolio's
net assets at the time of borrowing, and except in connection with reverse
repurchase agreements and then only in amounts up to 33 1/3% of the value of
the Portfolio's net assets; or purchase securities while borrowings, including
reverse repurchase agreements, exceed 5% of the Portfolio's total assets;
provided, however, that the Portfolio may increase its interest in an open-end
management investment company with the same investment objective and
restrictions as the Portfolio's while such borrowings are outstanding. The
Portfolio will not mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not to exceed 30% of the
value of the Portfolio's net assets at the time of such borrowing;

4. Purchase the securities or other obligations of issuers conducting
their principal business activity in the same industry if, immediately after
such purchase, the value of its investments in such industry would exceed 25%
of the value of the Portfolio's total assets; provided, however, that the
Portfolio may invest all or part of its investable assets in an open-end
management investment company with the same investment objective and
restrictions as the Portfolio's. For purposes of industry concentration,
there is no percentage limitation with respect to investments in U.S.
Government securities;

5. Make loans, except through the purchase or holding of debt
obligations (including restricted securities), or the entering into of
repurchase agreements, or loans of portfolio securities in accordance with the
Portfolio's investment objective and policies, see "Additional Investment
Information" in the Prospectus and "Investment Objectives and Policies" in
this Statement of Additional Information;

6. Purchase or sell puts, calls, straddles, spreads, or any combination
thereof, real property, including limited partnership interests, commodities,
or commodity contracts, except for the Portfolio's interests in hedging and
foreign exchange activities as described under "Additional Investment
Information" in the Prospectus; or interests in oil, gas, mineral or other
exploration or development programs or leases. However, the Portfolio may
purchase securities or commercial paper issued by companies that invest in
real estate or interests therein including real estate investment trusts;

7. Purchase securities on margin, make short sales of securities, or
maintain a short position in securities, except to obtain such short-term
credit as necessary for the clearance of purchases and sales of securities,
provided that this restriction shall not be deemed to apply to the purchase or
sale of when-issued securities or delayed delivery securities;

8. Acquire securities of other investment companies, except as permitted
by the 1940 Act;

9. Act as an underwriter of securities, except insofar as the Portfolio
may be deemed to be an underwriter under the 1933 Act by virtue of disposing
of portfolio securities; or

10. Issue any senior security, except as appropriate to evidence
indebtedness which the Portfolio is permitted to incur pursuant to Investment
Restriction No. 1. The Portfolio's arrangements in connection with its
hedging activities as described in "Additional Investment Information" in the
Prospectus shall not be considered senior securities for purposes hereof.

BOND DEBENTURE PORTFOLIO

The Bond Debenture Portfolio of the Trust may not:

1. Sell short or buy on margin, although it may obtain short-term credit
as needed to clear purchases of securities;

2. Buy or sell put or call options, although it may buy, hold or sell
warrants acquired with debt securities;

3. Borrow in excess of 5% of the Portfolio's gross assets taken at cost
or market value whichever is lower at the time of borrowing, and then only as
a temporary measure for extraordinary or emergency purposes;

4. Act as an underwriter of securities issued by others, except where it
may be deemed to be an underwriter by selling a portfolio security requiring
registration under the Securities Act of 1933;

5. Invest knowingly more than 15% of its gross assets in illiquid
securities;

6. Make loans, except for (a) time or demand deposits with banks, (b)
purchasing commercial paper or publicly-offered debt securities at original
issue or otherwise, (c) short-term repurchase agreements with sellers of
securities the Portfolio has bought and (d) loans of portfolio securities to
registered broker-dealers if 100% secured by cash or cash equivalents, made in
full compliance with applicable regulations and which, in management's
opinion, do not expose the Portfolio to significant risks or impair its
qualification for pass-through tax treatment under the Internal Revenue Code;

7. Pledge, mortgage, or hypothecate its assets;

8. Buy or sell real estate (including limited partnership interests but
excluding securities of companies, such as real estate investment trusts,
which deal in real estate or interests therein) or oil, gas or other mineral
leases, or commodities, or commodity contracts although it may buy securities
of companies that deal in such interests (however, the Portfolio may hold and
sell any of the aforementioned or any other property acquired through
ownership of other securities, although the Portfolio may not purchase
securities for the purpose of acquiring those interests);

9. Buy securities issued by any other open-end investment company
(except pursuant to a plan of merger, consolidation or acquisition of assets),
although it may invest up to 5% of its gross assets, taken at market value at
the time of investment, in closed-end investment companies, provided such
purchase is made in the open market and does not involve the payment of a fee
or commission greater than the customary broker's commission;

10. Invest more than 5% of its gross assets, taken at market value at
the time of investment in securities of companies with less than three years'
continuous operation, including predecessor companies;

11. With respect to 75% of its gross assets, buy the securities of any
issuer if the purchase causes it (a) to have more than 5% of its gross assets
invested in the securities of such issuer (except obligations of the United
States, its agencies or instrumentalities) or (b) to own more than 10% of the
outstanding voting securities of such issuer;

12. Hold securities of any issuer, any of whose officers, directors or
security holders is an officer, director or partner of the Adviser or
Sub-Adviser or an officer or director of the Portfolio, if after the purchase
of the securities of such issuer, one or more of such persons owns
beneficially more than 1/2 of 1% of the securities of such issuer and such
persons together own beneficially more than 5% of such securities;

13. Concentrate its investments in a particular industry, though, if it
is deemed appropriate to its investment objective, up to 25% of the market
value of its gross assets at the time of investment may be invested in any one
industry classification used for investment purposes;

14. Buy from or sell to any of the Trust's directors, employees, or the
Investment Adviser or Sub-Adviser or any of its officers, directors, partners
or employees, any securities other than shares of the Portfolio's common
stock; or

15. Invest more than 10% of the market value of its gross assets at the
time of investment in debt securities which are in default as to interest or
principal.

With respect to investment restriction 5. above, securities subject to
legal or contractual restrictions on resale, which are determined by the Board
of Trustees, or by the Sub-Adviser pursuant to delegated authority, to be
liquid are considered liquid securities.

NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - QUALITY BOND PORTFOLIO, SELECT
EQUITY PORTFOLIO, LARGE CAPITAL STOCK PORTFOLIO AND INTERNATIONAL EQUITY
PORTFOLIO

The investment restriction described below is not a fundamental policy of
these Portfolios and may be changed by the Trustees. This non-fundamental
investment policy requires that each such Portfolio may not (i) acquire any
illiquid securities, such as repurchase agreements with more than seven days
to maturity or fixed time deposits with a duration of over seven calendar
days, if as a result thereof, more than 15% of the market value of the
Portfolio's total assets would be in investments that are illiquid.

NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - INTERNATIONAL EQUITY PORTFOLIO

The investment restrictions described below are not fundamental policies
of the Portfolio and may be changed by the Trustees. These non-fundamental
investment policies require that the Portfolio may not:

1. Purchase any equity security if, as a result, the Portfolio would
then have more than 5% of its total assets invested in securities of companies
(including predecessors) that have been in continuous operation for fewer than
three years;

2. Invest in warrants (other than warrants acquired by the Portfolio as
part of a unit or attached to securities at the time of purchase) if, as a
result, the investments (valued at the lower of cost or market) would exceed
5% of the value of the Portfolio's net assets or if, as a result, more than 2%
of the Portfolio's net assets would be invested in warrants not listed on a
recognized U.S. or foreign stock exchange, to the extent permitted by
applicable state securities laws; or

3. Invest in any securities issued by an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of the Trust,
or is an officer of the Investment Adviser or Sub-Adviser, if after the
Portfolio's purchase of the securities of such issuer, one or more of such
persons owns beneficially more than 1/2 of 1% of the shares or securities, or
both, all taken at market value, of such issuer, and such persons owning more
than 1/2 of 1% of such shares or securities together own beneficially more
than 5% of such shares or securities, or both, all taken at market value.

NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - SELECT EQUITY PORTFOLIO, LARGE
CAPITAL STOCK PORTFOLIO AND SMALL CAPITAL STOCK PORTFOLIO

The investment restrictions described below are not fundamental policies
of these Portfolios and may be changed by the Trustees. These non-fundamental
investment policies require that each such Portfolio may not:

1. Invest in warrants (other than warrants acquired by the Portfolio as
part of a unit or attached to securities at the time of purchase) if, as a
result, the investments (valued at the lower of cost or market) would exceed
5% of the value of the Portfolio's net assets or if, as a result, more than 2%
of the Portfolio's net assets would be invested in warrants not listed on
recognized U.S. or foreign stock exchange, to the extent permitted by
applicable state securities laws; or

2. Invest in any securities issued by an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of the Trust,
or is an officer of the Investment Adviser or Sub-Adviser, if after the
Portfolio's purchase of the securities of such issuer, one or more of such
persons owns beneficially more than 1/2 of 1% of the shares or securities, or
both, all taken at market value, of such issuer, and such persons owning more
than 1/2 of 1% of such shares or securities together own beneficially more
than 5% of such shares or securities, or both, all taken at market value;

3. Invest in real estate limited partnership interests; or

4. Invest in oil, gas or other mineral leases.

DESCRIPTION OF SECURITIES RATINGS

A description of Corporate Bond Ratings is found in the Appendix to the
Prospectus.

COMMERCIAL PAPER RATINGS

COMMERCIAL PAPER

A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt having an original maturity of no
more than 365 days. Ratings are graded into four categories, ranging from "A"
for the highest quality obligations to "D" for the lowest. The four
categories are as follows:

A Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with
the numbers 1, 2 and 3 to indicate the relative degree of safety. Those
issues determined to possess overwhelming safety characteristics are
denoted with a plus (+) sign designation.

A-1 This designation indicates that the degree of safety regarding timely
payment is very strong.

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

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

B Issues rated "B" are regarded as having only an adequate capacity for timely
payment. However, such capacity may be damaged by changing conditions or
short-term adversities.

C&D These ratings indicate that the issue is either in default or is expected
to be in default upon maturity.
</TABLE>

Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers:

Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.

Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations.

Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations.

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

VARIABLE RATE DEMAND BOND RATINGS

Standard & Poor's assigns "dual" ratings to all long-term debt issues
that have as part of their provisions a variable rate demand or double
feature.

The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols are used to denote the put
option (for example, 'AAA/A-1') or if the nominal maturity is short, a rating
of 'SP-1+/AAA' is assigned.

NOTES

A Standard & Poor's note rating reflects the liquidity concerns and
market access risks unique to notes. Notes due in 3 years or less will likely
receive a note rating. Notes maturing beyond 3 years will most likely receive
a long-term debt rating. The following criteria will be used in making that
assignment:

- - Amortization schedule (the longer the final maturity relative to
other maturities the more likely it will be treated as a note).

- - Source of payment (the more dependent the issue is on the market
for its refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:

SP-1 Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.

SP-2 Satisfactory capacity to pay principal and interest.

SP-3 Speculative capacity to pay principal and interest.

PREFERRED STOCK RATINGS (STANDARD & POOR'S)

AAA This is the highest rating that may be assigned by Standard &
Poor's 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 Preferred stock rated 'BB', 'B' and 'CCC' is regarded, on balance,
as
B Predominantly speculative with respect to the issuer's capacity to
pay

CCC preferred stock obligations. 'BB' indicates the lowest degree of
speculation and 'CCC' the highest degree of speculation. 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 non-paying issue.

D A preferred stock rated 'D' is a non-paying issue with the issuer
in default on debt instruments.

PLUS (+) or MINUS (-): To provide more detailed indications of
preferred stock quality, the ratings from 'AA' to 'B' may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

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.

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, INC. - A brief description of the applicable
Moody's Investors Service, Inc. rating symbols with respect to preferred stock
and their meanings (as published by Moody's Investors Service, Inc.) follows:

PREFERRED STOCK RATINGS (MOODY'S)

Preferred stock rating symbols and their definitions are as follows:

aaa: An 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
preferred stock. While risks are judged to be somewhat greater than in the
'aaa' and 'aa' classifications, earnings and asset protection 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.

NOTE: Beginning May 3, 1982, Moody's began applying numerical modifiers
1, 2 and 3 in each rating classification from "aa" through "b" in its
preferred stock rating system. 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.

YIELD INFORMATION FOR MONEY MARKET PORTFOLIO

There are two methods by which the Money Market Portfolio's yield for a
specified period of time is calculated. Normally a seven day period will be
used in determining yields in published or mailed advertisements.

The first method, which results in an amount referred to as the "current
yield," assumes an account containing exactly one share at the beginning of
the period. (The net asset value of this share will be $1.00 except under
extraordinary circumstances.) The net change in the value of the account
during the period is then determined by subtracting this beginning value from
the value of the account at the end of the period; however, capital changes
and unrealized appreciation or depreciation of the Portfolio's assets are
excluded from this calculation. This net change in the account value is then
divided by the value of the account at the beginning of the period (i.e.,
normally $1.00 as discussed above) and the resulting figure (referred to as
the "base period return") is then annualized by multiplying it by 365 and
dividing by the seven days of the period; the result is the "current yield,"
usually expressed to the nearest one-hundredth of one percent.

The second method results in an amount referred to as the "compounded
effective yield." This represents an annualization of the current yield with
dividends reinvested daily. This compounded effective yield, calculated again
for a seven day period, would be computed by compounding the unannualized base
period return by adding one to the base period return, raising the sum to a
power equal to 365 divided by seven and subtracting one from the result.

In addition to using the yields in advertisements or information furnished
to present or prospective stockholders, the Portfolio also may quote rankings,
yields or returns as published by recognized statistical services or
publishers, such as Lipper Analytical Services, Inc., Morningstar,
Weisenberger Investment Companies, Donoghue's Money Fund Report, or others.

Yield information may be useful to investors in reviewing the Portfolio's
performance. However, a number of factors should be taken into account before
using yield information as a basis for comparison with alternative
investments. An investment in the Portfolio is not insured and its yields are
not guaranteed. They normally will fluctuate on a daily basis. Accordingly
they cannot be compared to yields on those savings accounts or other
investment alternatives which provide a guaranteed fixed yield for a stated
period of time and which may be insured by a government agency. The yields
for any given past period are not an indication or representation by the
Portfolio of future yields or rates of return on the Portfolio's shares. In
comparing the yields of one money market fund to another, consideration should
be given to each fund's investment policy, portfolio quality, portfolio
maturity, type of instruments held and operating expenses.

OFFICERS AND TRUSTEES

MANAGEMENT OF THE TRUST

Lorry J. Stensrud* President and Chief President of Cova Financial Services
One Tower Lane, Suite 3000 Executive Officer Life Insurance Company ("Cova Life")
Oakbrook Terrace, IL 60181-4644 since June, 1995; prior thereto,
Age: __ Executive Vice President of Cova
Life

William C. Mair* Vice President, Treasurer, Vice President and Controller of
One Tower Lane, Suite 3000 Controller, Chief Cova Life; Vice President, Treasurer
Oakbrook Terrace, IL 60181-4644 Financial Officer, Chief and Controller of Cova Investment
Age: 54 Accounting Officer and Advisory Corporation
Trustee

Stephen M. Alderman Trustee Partner in the law firm of Garfield
211 West Wacker Drive & Merel
Chicago, IL 60606
Age: 36

Theodore A. Myers Trustee Executive Vice President and Chief
1940 East 6th Street Financial Officer of Qualitech
Cleveland, OH 44114 Steel Corporation, a producer of
Age: 65 high quality engineered steels for
automotive, transportation and
capital goods industries; Director
of McClouth Steel Co.; Prior to
August, 1993, Senior Vice President,
Chief Financial Officer and a
Director of Doskocil Companies,
Inc., a food processing and
distribution company; Trustee of
other investment companies advised
by VKAC

Deborah A. Vohasek Trustee Principal, Vohasek Oetjen Marketing
601 South LaSalle Street
Chicago, IL 60605
Age: 32

R. Kevin Williams Trustee Partner in the law firm of
20 North Wacker Drive O'Donnell, Byrne & Williams from
Chicago, IL 60606 June 1993 through the present;
Age: 41 Associate Attorney, Sonnenberg,
Anderson, O'Donnell & Rodriguez,
September 1988 through May 1993

William H. Wilton Vice President Vice President & Actuary of Cova
One Tower Lane, Suite 3000 Life; Prior to October, 1992,
Oakbrook Terrace, IL 60181-4844 Associate Actuary, Allstate Life
Age: __ Insurance Co., Northbrook, IL

Jeffery K. Hoelzel Senior Vice President and Senior Vice President, General
One Tower Lane, Suite 3000 Secretary Counsel, Secretary and Director of
Oakbrook Terrace, IL 60181-4644 Cova Life; Secretary and Director of
Age: 32 Cova Investment Advisory Corporation;
prior to June, 1992, Associate
Attorney with the law firm of Lord,
Bissell & Brook in Chicago
<FN>
* Interested person of the Trust within the meaning of the 1940 Act.
</TABLE>

Each Trustee of the Trust who is not an interested person of the Trust or
Adviser or Sub-Adviser receives an annual fee of $10,000 and an additional fee
of $1,000 for each Trustees' meeting attended. In addition, disinterested
Trustees who are members of any Board committees will receive a separate
$1,000 fee for attendance of any committee meeting that is held on a day on
which no Board meeting is held.

SUBSTANTIAL SHAREHOLDERS

Shares of the Trust are issued and redeemed only in connection with
investments in and payments under certain variable annuity contracts
("variable contracts") issued by Cova Financial Services Life Insurance
Company and its affiliated insurance companies. On February 1, 1996, Cova
Variable Annuity Account One, a separate account of Cova Life, was known to
the Board of Trustees and the management of the Trust to own of record ___% of
the shares of the Trust and Cova Variable Annuity Account Five, a separate
account of Cova Financial Life Insurance Company, was known to own of record
_____ shares. Cova Life contributed the initial capital to the Trust.

OWNERSHIP BY CERTAIN BENEFICIAL OWNERS

Cova Life has advised the Trust that as of _________________, there were
no persons owning variable contracts which would entitle them to instruct Cova
Life with respect to more than 5% of the voting securities of any Portfolio of
the Trust.

CUSTODIAN

State Street Bank and Trust Company, 225 Franklin Street, P.O. Box 1912,
Boston, Massachusetts 02105, is the custodian of the Trust and has custody of
all securities and cash of the Trust. The custodian, among other things,
attends to the collection of principal and income, and payment for and
collection of proceeds of securities bought and sold by the Trust.

LEGAL COUNSEL AND INDEPENDENT AUDITORS

Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut is counsel to
the Trust and passes upon the legality of the Trust's shares.

The independent auditors for the Trust are __________________________,
_____________. The selection of independent auditors will be subject to
ratification by the shareholders of the Trust.

INVESTMENT ADVISORY AGREEMENT

Cova Investment Advisory Corporation (the "Investment Adviser"), One
Tower Lane, Suite 3000, Oakbrook Terrace, Illinois 60181-4644 is an Illinois
corporation which was incorporated on August 31, 1993 under the name Oakbrook
Investment Advisory Corporation and which is registered with the Securities
and Exchange Commission as an investment adviser under the Investment Advisers
Act of 1940. The Investment Adviser is a wholly-owned subsidiary of Cova Life
Management Company, a Delaware corporation, which in turn, is a wholly-owned
subsidiary of Cova Corporation, a Missouri corporation, which in turn, is a
wholly-owned subsidiary of General American Life Insurance Company ("General
American"), a St. Louis-based mutual company. General American has more than
$235 billion of life insurance in force and approximately $9.6 billion in
assets.

The Investment Adviser commenced providing investment advisory services
to all Portfolios of the Trust as of May 1, 1996 pursuant to an Investment
Advisory Agreement dated __________, 1996 ("Investment Advisory Agreement").
Prior to this date, VKAC had acted as the investment adviser to all Portfolios
of the Trust. The Investment Advisory Agreement, between the Investment
Adviser and the Trust, was approved by shareholders of the Trust at a Special
Meeting of Shareholders held on February 9, 1996 and was also approved by the
Board of Trustees of the Trust on that same date.

Under the terms of the Investment Advisory Agreement, the Investment
Adviser is obligated to (i) manage the investment and reinvestment of the
assets of each Portfolio of the Trust in accordance with each Portfolio's
investment objective and policies and limitations, or (ii) in the event that
the Investment Adviser shall retain a sub-adviser or sub-advisers, to
supervise and implement the investment activities of any Portfolio for which
any such sub-adviser has been retained, including responsibility for overall
management and administrative support including managing, providing for and
compensating any sub-advisers; and to administer the Trust's affairs. The
Investment Advisory Agreement further provides that the Investment Adviser
agrees, among other things, to administer the business affairs of each
Portfolio, to furnish offices and necessary facilities and equipment to each
Portfolio, to provide administrative services for each Portfolio, to render
periodic reports to the Board of Trustees of the Trust with respect to each
Portfolio, and to permit any of its officers or employees, or those of any
sub-adviser to serve without compensation as trustees or officers of the
Portfolio if elected to such positions.

The Investment Advisory Agreement provides that the Investment Adviser
will not be liable for any error in judgment or of law, or for any loss
suffered by the Trust in connection with the matters to which the agreement
relates, except a loss resulting from willful misfeasance, bad faith, or gross
negligence on the part of the Investment Advisor in the performance of its
obligations and duties, or by reason of its reckless disregard of its
obligations and duties under the Agreement.

The Investment Adviser's activities are subject to the review and
supervision of the Trust's Trustees to whom the Investment Adviser renders
periodic reports of the Trust's investment activities.

The Investment Advisory Agreement may be terminated without penalty upon
60 days written notice by either party and will automatically terminate in the
event of assignment.

INVESTMENT DECISIONS

Investment decisions for the Trust and for the other investment advisory
clients of the Sub-Advisers are made with a view to achieving their respective
investment objectives and after consideration of such factors as their current
holdings, availability of cash for investment, and the size of their
investments generally. Frequently, a particular security may be bought or sold
for only one client or in different amounts and at different times for more
than one but less than all clients. Likewise, a particular security may be
bought for one or more clients when one or more other clients are selling the
security. In addition, purchases or sales of the same security may be made for
two or more clients of a Sub-Adviser on the same day. In such event, such
transactions will be allocated among the clients in a manner believed by the
Sub-Adviser to be equitable to each. In some cases, this procedure could have
an adverse effect on the price or amount of the securities purchased or sold
by the Trust. Purchase and sale orders for the Trust may be combined with
those of other clients of a Sub-Adviser in the interest of achieving the most
favorable net results for the Trust.

PORTFOLIO TRANSACTIONS

Transactions on U.S. stock exchanges and other agency transactions involve the
payment by the Trust of negotiated brokerage commissions. Such commissions
vary among different brokers. Also, a particular broker may charge different
commissions according to such factors as the difficulty and size of the
transaction. Transactions in foreign securities often involve the payment of
fixed brokerage commissions, which are generally higher than those in the
United States. There is generally no stated commission in the case of
securities traded in the over-the-counter markets, but the price paid by the
Trust usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the Trust includes a disclosed,
fixed commission or discount retained by the underwriter or dealer.

It is currently intended that the Sub-Advisers will place all orders for the
purchase and sale of portfolio securities for the Trust and buy and sell
securities for the Trust through a substantial number of brokers and dealers.
In so doing, the Sub-Advisers will use their best efforts to obtain for the
Trust the best price and execution available. In seeking the best price and
execution, the Sub-Advisers, having in mind the Trust's best interests, will
consider all factors they deem relevant, including, by way of illustration,
price, the size of the transaction, the nature of the market for the security,
the amount of the commission, the timing of the transaction taking into
account market prices and trends, the reputation, experience, and financial
stability of the broker-dealer involved, and the quality of service rendered
by the broker-dealer in other transactions.

It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional
investors to receive research, statistical, and quotation services from
broker-dealers who execute portfolio transactions for the clients of such
advisers. Consistent with this practice, the Sub-Advisers may receive
research, statistical, and quotation services from any broker-dealers with
whom they place the Trust's portfolio transactions. These services, which in
some cases may also be purchased for cash, include such matters as general
economic and security market reviews, industry and company reviews,
evaluations of securities, and recommendations as to the purchase and sale of
securities. Some of these services may be of value to the Sub-Advisers and/or
their affiliates in advising various other clients (including the Trust),
although not all of these services are necessarily useful and of value in
managing the Trust. The management fees paid by the Trust are not reduced
because the Sub-Advisers and/or their affiliates may receive such services.

As permitted by Section 28(e) of the Securities Exchange Act of 1934, a
Sub-Adviser may cause a Portfolio to pay a broker-dealer who provides
brokerage and research services to the Sub-Adviser an amount of disclosed
commission for effecting a securities transaction for the Portfolio in excess
of the commission which another broker- dealer would have charged for
effecting that transaction provided that the Sub-Adviser determines in good
faith that such commission was reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer viewed in terms
of that particular transaction or in terms of all of the accounts over which
investment discretion is so exercised. A Sub-Adviser's authority to cause a
Portfolio to pay any such greater commissions is also subject to such policies
as the Adviser or the Trustees may adopt from time to time.

FINANCIAL STATEMENTS

[TO BE FILED BY AMENDMENT]

PART C

PART C
OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(a) FINANCIAL STATEMENTS

[To be filed by amendment]

(b) EXHIBITS

(1) Declaration of Trust*
(2) By-laws of Trust*
(3) Not Applicable
(4) Not Applicable
(5)(a) Form of Investment Advisory Agreement (to be filed by
amendment)
(5)(b) Form of Sub-Advisory Agreement (to be filed by amendment)
(6)(a) Principal Underwriters Agreement**
(6)(b) Form of Addendum to Principal Underwriters Agreement****
(7) Not Applicable
(8)(a) Form of Custodian Contract*
(8)(b) Form of Transfer Agency Agreement*
(9) Agency and Service Agreement*
(10) Consent and Opinion of Counsel****
(11) Consent of Independent Auditors (to be filed by amendment)
(12) Not Applicable
(13) Agreement Governing Contribution of Capital*
(14) Not Applicable
(15) Not Applicable
(16) Not Applicable
<FN>
* incorporated by reference to Registrant's initial registration on Form
N-1A filed on July 23, 1987.

** incorporated by reference to Registrant's Post-Effective Amendment No.
8 filed on May 1, 1993.

**** incorporated by reference to Registrant's Post-Effective Amendment No.
10 filed on January 14, 1994.
</TABLE>

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

The shares of the Trust are currently sold to Cova Variable Annuity Account
One of Xerox Financial Services Life Insurance Company and Cova Variable
Annuity Account Five of Cova Financial Life Insurance Company. Cova Variable
Annuity Account One and Cova Variable Annuity Account Five currently control
all Portfolios of the Trust through their share ownership thereof.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES
Variable Annuity Account One and Cova Variable Annuity Account Five own all
shares of beneficial interest of the Trust.

ITEM 27. INDEMNIFICATION

Please see Article 5.3 of the Registrant's Agreement and Declaration of Trust
(Exhibit 1) for indemnification of officers and trustees. Registrant's
trustees and officers are also covered by an Errors and Omissions Policy.
Section 5 of the Investment Advisory Agreement between the Registrant and Van
Kampen Merritt Investment Advisory Corp. ("Advisor") provides that in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of the obligations or duties under the Investment Advisory Agreement
on the part of the Advisor, the Advisor shall not be liable to the Registrant
or to any shareholder of the Registrant for any error in judgment or of law,
or for any loss suffered by the Registrant in connection with the matters to
which the Investment Advisory Agreement relates. The Principal Underwriters
Agreement provides that the Registrant will indemnify the Distributor and
certain persons related thereto for any loss or liability arising from any
alleged misstatement of a material fact (or alleged omission to state a
material fact) contained in, among other things, the Registration Statement or
Prospectus except to the extent the misstated fact or omission was made in
reliance upon information provided by or on behalf of such Distributor.

Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to trustees, officers and controlling persons of the
Registrant and the Advisor and Distributor 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 a trustee,
officer, or controlling person of the Registrant, Advisor and the Distributor
in connection with the successful defense of any action, suit or proceeding)
is asserted against the Registrant by such trustee, officer or controlling
person, Advisor or the Distributor 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 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

See "Management of the Trust" in the Prospectus and "Officers and Trustees" in
the Statement of Additional Information for information regarding the
Investment Advisor. For information as to the business, profession, vocation
or employment of a substantial nature of each of the officers and directors of
the Investment Advisor, reference is made to the Investment Advisor's current
Form ADV filed under the Investment Advisers Act of 1940, incorporated herein
by reference (File No. 18161).

ITEM 29. PRINCIPAL UNDERWRITER

Not Applicable

ITEM 30. 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 One Tower Lane,
Suite 3000, Oakbrook Terrace, Illinois 60181-4644 or at the State Street Bank
and Trust Company, 1776 Heritage Drive, North Quincy, Massachusetts 02105; and
(ii) by the Advisor will be maintained at its offices, located at One Tower
Lane, Suite 3000, Oakbrook Terrace, Illinois 60181-4644.

ITEM 31. MANAGEMENT SERVICES

Not Applicable.

ITEM 32. UNDERTAKINGS

The Registrant will furnish each person to whom a prospectus is delivered with
a copy of the Registrant's latest Annual Report upon request and without
charge.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment No. 13 to its Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Oakbrook Terrace,
and State of Illinois on the 9th day of February, 1996.

VAN KAMPEN MERRITT SERIES TRUST

By: /S/LORRY J. STENSRUD
-------------------------------
Lorry J. Stensrud
President
</TABLE>

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 13 has been signed below by the following persons
in the capacities and on the date indicated.

SIGNATURE TITLE DATE

/S/LORRY J. STENSRUD President 2/12/96
- ---------------------- --------
Lorry J. Stensrud (Principal Executive Officer)

Vice President, Treasurer,
/S/WILLIAM C. MAIR Controller and Trustee (Prin- 2/9/96
- ---------------------- --------
William C. Mair cipal Financial Officer and
Principal Accounting Officer)

/S/WILLIAM H. WILTON Vice President 2/9/96
- ---------------------- --------
William H. Wilton

/S/JEFFERY K. HOELZEL Senior Vice President 2/9/96
- ---------------------- --------
Jeffery K. Hoelzel and Secretary

/S/STEPHEN M. ALDERMAN Trustee 2/9/96
- ---------------------- --------
Stephen M. Alderman

/S/THEODORE A. MYERS Trustee 2/9/96
- ---------------------- --------
Theodore A. Myers

/S/DEBORAH A. VOHASEK Trustee 2/9/96
- ---------------------- --------
Deborah A. Vohasek

/S/R. KEVIN WILLIAMS Trustee 2/9/96
- ---------------------- --------
R. Kevin Williams
</TABLE>