WELLIVER ROTHSCHILD FUNDS, N-1A, 1998-02-13

WELLIVER ROTHSCHILD FUNDS
N-1A, 1998-02-13

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Registration No. ________
ICA No. ________

As filed with the Securities and Exchange Commission on February 13, 1998

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 /X/

Pre-Effective Amendment No. ______ / /
Post-Effective Amendment No. ______ / /

and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 /X/

Amendment No. ______ / /
(Check Appropriate Box or Boxes)

Questar Funds, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)

The Hauppauge Corporate Center
150 Motor Parkway
Hauppauge, New York 11788
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)(Zip Code)

(516) 951-0500
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)

Michael Miola
Questar Funds, Inc.
The Hauppauge Corporate Center
150 Motor Parkway
Hauppauge, New York 11788
- --------------------------------------------------------------------------------
(Name and Address of Agent For Service)

With a copy to:

Thomas R. Westle, Esq.
Battle Fowler LLP
75 East 55th Street
New York, NY 10022

As soon as practicable after the effective date
- --------------------------------------------------------------------------------
(Approximate Date of Proposed Public Offering)

Shares of Beneficial Interest
- --------------------------------------------------------------------------------
(Title of Securities Being Registered)

662389.4

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It is proposed that this filing will become effective (check appropriate
box):

/ / 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).
/ / 75 days after filing pursuant to paragraph (a)(2).
/ / on (date) pursuant to paragraph (a)(2) of Rule 485.

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

662389.4

<PAGE>

QUESTAR FUNDS, INC.
REGISTRATION STATEMENT ON FORM N-1A

Cross Reference Sheet for Items Required by Form N-1A

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

1 Cover page
2 Transaction and Operating Expense Table
3 Not Applicable
4 General Information; Investment Objectives and Policies
5 Management
5A Not applicable
6 General Information; How to Purchase Shares
7 How to Purchase Shares; Valuation of Shares
8 How to Redeem Shares; Valuation of Shares
9 Not applicable

Caption in Statement of Additional Information
----------------------------------------------

10 Cover page
11 Table of Contents
12 Not applicable
13 Investment Objectives, Policies and Restrictions
14 Trustees and Executive Officers
15 Ownership of Common Stock
16 Investment Advisory and Other Services
17 Portfolio Transactions and Allocation of Brokerage
18 Ownership of Common Stock
19 Net Asset Value and Public Offering Price; Redemption
of Shares
20 Taxation
21 Investment Advisory and Other Services
22 Performance Comparisons
23 Financial Statements

662389.4

<PAGE>

QUESTAR FUNDS, INC.
WELLIVER ROTHSCHILD(TM) APOLLO FUND
WELLIVER ROTHSCHILD(TM) GEMINI FUND

The Welliver Rothschild Apollo Fund (the "Apollo Fund") and the Welliver
Rothschild Gemini Fund (the "Gemini Fund") are series of Questar Funds, Inc.
(the "Company"), a Maryland corporation. The investment objective of the Apollo
Fund is to provide shareholders with capital appreciation and income using a
value dividend approach. The investment objective of the Gemini Fund is to
provide shareholders with high current income and total return, with minimum
fluctuation of principal value and moderate liquidity by investing in a
portfolio consisting of stocks, bonds and money market instruments.

Each Fund is sold subject to an initial sales load of up to 4.50% and has
adopted a distribution and service plan under which each Fund pays distribution
fees equal to 0.25% of each Fund's average daily net assets and shareholder
servicing fees equal to 0.25% of each Fund's average daily net assets.

This Prospectus, dated _________, 1998, concisely describes the information
about each of the Funds that you ought to know before investing. Please read it
carefully before investing and retain it for future reference.

A Statement of Additional Information ("SAI") about the Funds, dated , 1998, is
available free of charge. The address of the Company is Questar Funds, Inc., The
Hauppauge Corporate Center, 150 Motor Parkway, Hauppauge, New York 11788 or
telephone (516) 951-0500. The SAI has been filed with the Securities and
Exchange Commission and is incorporated in its entirety by reference in this
Prospectus.

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

Welliver Rothschild(TM) is the trademark of D. B. Welliver & Co. Incorporated.

662389.4
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INTRODUCTION

Each of the Welliver Rothschild Apollo Fund and the Welliver Rothschild
Gemini Fund have been organized as series of Questar Funds, Inc. (the
"Company"). The Company is an open-end management investment company, the shares
of which may be offered in additional series. Each series has, and each future
series will have, its own investment objective, policies and investment
restrictions and is designed to meet different investment needs.

The Investment Adviser

Each Fund is managed by Welliver Rothschild Investment Advisers, Inc. (the
"Adviser"). Each Fund will pay the Adviser, on a monthly basis, a fee for
managing its investment portfolio equal to 0.75% of such Fund's average daily
net assets. The Adviser may voluntarily waive some or all of its fees. See
"Management-Investment Adviser."

The Distributor

ADS Distributors, Inc. (the "Distributor"), an affiliate of American Data
Services, Inc. ("ADS"), the Funds' Administrator, serves as Distributor of each
Fund's shares. See "Distribution of Fund Shares."

Offering Price

Shares of each Fund are sold at their respective net asset values per share
next determined, plus any applicable sales load of up to 4.50%. See "How to
Purchase Shares."

Minimal Investments

The minimum initial investment for each Fund is $1,000. See "How to
Purchase Shares."

Redemption Price

Shares of each Fund may be redeemed at any time at their net asset value
next determined after a redemption request is received and accepted by the
Distributor. Each Fund reserves the right, upon 30 days' written notice, to
redeem your account if the net asset value of the shares in your Fund account
falls below $500. See "How to Redeem Shares."

662389.4
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Certain Risk Factors to Consider

There can be no assurance that each Fund will achieve its investment
objective. As set forth in detail under "Investment Objective and Policies," an
investment in each Fund is subject to certain risks and each Fund may engage in
the use of certain specified investment policies and techniques which involve
certain special risks.

Shareholder Inquiries

Any questions or communications regarding the Funds or a shareholder
account should be directed to ADS, to the attention of the specific Fund, at
(516) 951-0500.

662389.4
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TRANSACTION AND OPERATING EXPENSE TABLE

Apollo Gemini
Fund Fund
SHAREHOLDER TRANSACTION FEES:
Maximum Sales Load Imposed on Purchases (as 4.50% 4.50%
a percentage of the offering price)
ESTIMATED ANNUAL FUND OPERATING EXPENSES:
(as a percentage of net assets)
Advisory Fees (1) 0.75% 0.75%
Rule 12b-1 Fees 0.25% 0.25%
Other Expenses (2)(3) 1.25% 1.25%
Total Estimated Fund Operating Expenses (3) 2.50% 2.50%

EXAMPLE:
You would pay the following 1 year
expenses on a $1,000 3 years
investment, assuming a
5% annual return and
redemption at the end of
each time period:

The purpose of the above table is to help you understand the various costs
and expenses that you, as a shareholder, will bear directly or indirectly in
connection with an investment in each Fund offered by this Prospectus. The
example set forth above assumes reinvestment of all dividends and uses a 5%
annual rate of return as required by SEC regulations.

Neither the 5% rate of return nor the expenses shown above should be
considered indications of past or future returns and expenses. Actual returns
and expenses may be greater or less than those shown.

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

(1) The Adviser may, in its discretion, waive some or all of its advisory fees.
(2) Other Expenses include administrative and transfer agency fees as well as
shareholder servicing fees.
(3) Other Expenses and Total Estimated Fund Operating Expenses are based on
estimated amounts assuming net assets of $ in each Fund.

662389.4
4

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INVESTMENT OBJECTIVE AND POLICIES

Each Fund's investment objective is fundamental and may not be changed
without approval of the Fund's shareholders. The investment policies employed in
furtherance of each Fund's objective are not fundamental and may be changed or
eliminated by the Company's Board of Directors. Each Fund has also adopted
investment restrictions, some of which are fundamental and may not be changed
without shareholder approval, and some of which are not fundamental and may be
changed by the Company's Board of Directors. See "Investment Objective, Policies
and Restrictions" in the SAI.

WELLIVER ROTHSCHILD APOLLO FUND

Investment Objective

The Apollo Fund seeks to provide investors with capital appreciation and
current income using a value dividend approach. The Fund is designed for
investors seeking a diversified portfolio offering the opportunity for capital
appreciation while also providing current income. The Apollo Fund is not
intended to be a complete investment program, and there is no assurance it will
achieve its objective.

Investment Policies

The Apollo Fund invests primarily in common stocks that offer potential for
capital appreciation, current income, or both. The Apollo Fund may also purchase
corporate bonds, notes and debentures, preferred stocks, convertible securities
(both debt securities and preferred stocks) or U.S. Government securities, if
the Adviser determines that their purchase would help further the Fund's
investment objective. The types of securities held by the Apollo Fund may vary
from time to time in light of the Fund's investment objective, changes in
interest rates, and economic and other factors. The Apollo Fund may also hold a
portion of its assets in cash or money market instruments.

The Adviser will utilize both fundamental and technical analysis in
managing the assets of the Apollo Fund. Bottom-up research is the primary tool
used by the Adviser in locating equity bargains worldwide. The Adviser will also
utilize other analysis in managing the assets of the Apollo Fund such as net
return on equity, low P.E. ratios, quality management, net present value,
intrinsic value, profit analysis and momentum

662389.4
5

<PAGE>

investing. The Apollo Fund will invest primarily in liquid securities of medium
to large capitalization companies that pay an above-average relative historical
yield or have a greater dividend yield growth. There is no predetermined
percentage of the Apollo Fund's assets that will be invested in such securities;
however, the Adviser reserves the right to invest 25% or more of the Fund's
assets in the securities of small capitalization companies, aggressive growth
stocks, restricted securities and the stocks of emerging growth companies when
the Adviser believes that making such investments will add value and, as a
result, be advantageous to the Apollo Fund and its shareholders.

The Apollo Fund will not concentrate in any one industry or market sector.
The Adviser, however, believes that utilizing an active sector or industry
grouping approach is important; therefore, the Apollo Fund may, from time to
time, invest up to but no more than 25% of its assets in the securities of
issuers in the same market sector.

At times the Adviser may determine that conditions in the securities
markets make pursuing the Apollo Fund's investment objective inconsistent with
the best interests of its shareholders. At such times, the Adviser may
temporarily use alternative defensive policies primarily designed to reduce
fluctuations in the value of Fund assets by investing up to 100% of the Fund's
assets in debt securities or preferred stocks, or any other securities the
Adviser considers consistent with such defensive policies. It is impossible to
predict when, or for how long, these alternative defensive policies will be
used.

WELLIVER ROTHSCHILD GEMINI FUND

Investment Objective

The Gemini Fund seeks to provide investors with high current income and
total return, with minimum fluctuation of principal value and moderate liquidity
by investing in a portfolio consisting of stocks, bonds and money market
instruments. The Adviser generally will manage the Gemini Fund so that the Fund
has a maximum fixed income exposure of 70% and a maximum equity exposure of 30%.
The Gemini Fund is not intended to be a complete investment program, and there
is no assurance it will achieve its objective.

662389.4
6

<PAGE>

Investment Policies

The Gemini Fund may invest in debt securities, including both intermediate
U.S. Government and corporate obligations, preferred stocks and growth stocks.
Intermediate securities generally have a maturity of 5-10 years. The Gemini Fund
may also hold a portion of its assets in cash or money market instruments.

At times the Adviser may determine that conditions in the securities
markets make pursuing the Gemini Fund's investment objective inconsistent with
the best interests of its shareholders. At such times, the Adviser may
temporarily use alternative defensive policies, primarily designed to reduce
fluctuations in the value of Fund assets by investing without limit in money
market instruments and in U.S. Government or agency obligations, or in any other
securities the Adviser considers consistent with such defensive policies. It is
impossible to predict when, or for how long, these alternative strategies would
be used.

Types of Investments

Foreign Investments

Each of the Apollo Fund and the Gemini Fund may invest up to 35% of its
assets in securities principally traded in foreign markets in the form of
American Depositary Receipts, European Depositary Receipts, Global Depositary
Receipts or other similar securities representing securities of foreign issues
(collectively, "Depositary Receipts"). Each Fund treats Depositary Receipts as
interests in the underlying securities for purposes of its investment policies.
Each Fund will limit its investment in Depositary Receipts not sponsored by the
issuer of the underlying securities to no more than 5% of the value of its
assets (at the time of investment). Each of the Apollo Fund and the Gemini Fund
may also purchase Eurodollar certificates of deposit without regard to the 35%
limit. Since foreign securities are normally denominated and traded in foreign
currencies, the values of each Fund's assets may be affected favorably or
unfavorably by currency exchange rates and exchange control regulations. There
may be less information publicly available about a foreign company than about a
U.S. company, and foreign companies are not generally subject to accounting,
auditing, and financial reporting standards and practices comparable to those in
the United States.

662389.4
7

<PAGE>

The securities of some foreign companies are less liquid and at times more
volatile than securities of comparable U.S. companies. Foreign brokerage
commissions and other fees are also generally higher than those in the United
States. Foreign settlement procedures and trade regulations may involve certain
risks (such as delay in payment or delivery of securities or in the recovery of
Fund assets held abroad) and expenses not present in the settlement of domestic
investments.

Legal remedies available to investors in certain foreign countries may be
limited. The laws of some foreign countries may limit investments in securities
of certain issuers located in those foreign countries. Special tax
considerations apply to foreign securities.

The risks described above are typically increased for investments in
securities principally traded in, or issued by issuers located in,
underdeveloped and developing nations, which are sometimes referred to as
"emerging markets."

Each Fund may engage in a variety of foreign currency exchange transactions
in connection with its foreign investments, including transactions involving
futures contracts, forward contracts and options. For a further discussion of
the risks associated with purchasing and selling futures contracts and options,
see "Futures and Options Portfolio Strategies." The SAI also contains
information concerning these transactions.

The decision as to whether and to what extent the Apollo Fund or the Gemini
Fund will engage in foreign currency exchange transactions will depend on a
number of factors, including prevailing market conditions, the composition of
each Fund's portfolio and the availability of suitable transactions.
Accordingly, there can be no assurance that a Fund will engage in foreign
currency exchange transactions at any given time or from time to time.

A more detailed explanation of foreign investments, and the risks and
special tax considerations associated with them, is included in the SAI.

662389.4
8

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Investments In Fixed-Income Securities and Risk Factors

The Apollo Fund may invest up to 25% of its net assets in higher-rated,
investment grade and lower-rated fixed-income securities, and is not subject to
investment limitations based on credit ratings. Like those of other fixed-income
securities, the values of lower-rated fixed-income securities fluctuate in
response to changes in interest rates. A decrease in interest rates will
generally result in an increase in the value of Fund assets. Conversely, during
periods of rising interest rates, the value of Fund assets will generally
decline. The values of lower-rated securities generally fluctuate more than
those of higher-rated or investment grade securities. Securities in the lower
rating categories may, depending on the rating, have large uncertainties or
major risk exposure to adverse conditions.

The Gemini Fund will invest at least 75% of the 70% of its net assets to be
invested in fixed-income securities in medium to high-quality fixed income
securities. The Gemini Fund will not invest more than 25% of the 70% of its
assets in issues considered not to be investment grade, i.e., with a ranking of
"A" or less by a nationally recognized securities rating agency, such as
Standard & Poor's ("S&P") or Moody's Investors Service, Inc. ("Moody's"), or in
unrated securities determined by the Adviser to be of comparable quality.

The foregoing investment limitations will be measured at the time of
purchase and, to the extent a security is assigned a different rating by one or
more of the various rating agencies, the Adviser will use the highest rating
assigned by any agency. The rating services' descriptions of securities in the
various rating categories, including the speculative characteristics of
securities in the lower rating categories, are set forth in the Appendix to this
prospectus.

The market value of each Fund's investments will change in response to
changes in interest rates and other factors. During periods of falling interest
rates, the values of long-term fixed-income securities generally rise.
Conversely, during periods of rising interest rates, the values of such
securities generally decline. Changes by recognized rating services in their
ratings of fixed-income securities and changes in the ability of an issuer to
make payments of interest and principal will also affect the value of these
investments. Changes in the value of a Fund's portfolio securities will not
affect interest income derived from such securities but will affect the Fund's
net asset value.

662389.4
9

<PAGE>

The securities in the lower rating categories are subject to greater risk
that adverse changes in the financial condition of their issuers, or in general
economic conditions, or both, or an unanticipated rise in interest rates, may
impair the ability of their issuers to make payments of interest and principal.
In addition, under such circumstances the values of such securities may be more
volatile, and the markets for such securities may be less liquid, than those for
higher-rated securities, and each Fund may as a result find it more difficult to
determine the fair value of such securities. The Adviser seeks to minimize the
risks of investing in non-investment grade securities through careful investment
analysis. When a Fund invests in securities in the lower rating categories, the
achievement of the Fund's goals is more dependent on the Adviser's ability than
would be the case if the Fund were investing in securities in the higher rating
categories. Investors should carefully consider their ability to assume the
risks of owning shares of a mutual fund that invests in non-investment grade
securities before making an investment.

Each Fund will not necessarily dispose of a security when its rating is
reduced below its rating at the time of purchase. However, the Adviser will
consider such reduction in its determination of whether a Fund should continue
to hold the security in its portfolio.

Certain securities held by a Fund may permit the issuer at its option to
"call," or redeem, its securities. If an issuer were to redeem securities held
by a Fund during a time of declining interest rates, the Fund may not be able to
reinvest the proceeds in securities providing the same investment return as the
securities redeemed.

Certain investment grade securities in which the Funds may invest share
some of the risk factors discussed above with respect to non-investment grade
securities. For additional information concerning the risks associated with
investing in securities in the non-investment grade categories, see the SAI.

Each Fund at times may invest in so-called "zero-coupon" bonds and
"payment-in-kind" bonds. Zero-coupon bonds are issued at a significant discount
from their principal amount and pay interest only at maturity rather than at
intervals during the life of the security. Payment-in-kind bonds allow the
issuer, at its option, to make current interest payments on the bonds either in
cash or in additional bonds. Both zero-coupon bonds and payment-in-kind bonds
allow an issuer to avoid the need to generate cash to meet current interest
payments. Accordingly,

662389.4
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such bonds may involve greater credit risks than bonds paying interest in cash
currently. The values of zero-coupon bonds and payment-in-kind bonds are also
subject to greater fluctuation in response to changes in market interest rates
than bonds that pay interest in cash currently.

Even though such bonds do not pay current interest in cash, each Fund
nonetheless is required to accrue interest income on these investments and to
distribute the interest income on a current basis. Thus, a Fund could be
required at times to liquidate other investments in order to satisfy its
distribution requirements.

Investments In Premium Securities

At times, the Gemini Fund may invest in securities bearing coupon rates
higher than prevailing market rates. Such "premium" securities are typically
purchased at prices greater than the principal amounts payable on maturity. The
Gemini Fund does not amortize the premium paid for these securities in
calculating its net investment income for tax purposes. As a result, the
purchase of premium securities provides a higher level of investment income
distributable to shareholders on a current basis than if the Fund purchased
securities bearing current market rates of interest. Because the value of
premium securities tends to approach the principal amount as they approach
maturity (or call price in the case of securities approaching their first call
date), the purchase of such securities may increase the risk of capital loss if
such securities are held to maturity (or first call date).

During a period of declining interest rates, many of the Gemini Fund's
portfolio investments will likely bear coupon rates that are higher than the
current market rates, regardless of whether the securities were originally
purchased at a premium. These securities would generally carry premium market
values that would be reflected in the net asset value of Fund shares. As a
result, an investor who purchases Fund shares during such periods would
initially receive higher taxable monthly distributions (derived from the higher
coupon rates payable on the Fund's investments) than might be available from
alternative investments bearing current market interest rates, but the investor
may face an increased risk of capital loss as these higher coupon securities
approach maturity (or first call date). In evaluating the potential performance
of an investment in the Gemini Fund, investors may find it useful to compare the
Fund's current dividend rate with its "yield," which is computed on a yield-to-

662389.4
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maturity basis in accordance with SEC regulations and which reflects
amortization of market premiums.

Futures and Options Portfolio Strategies

The Apollo Fund may buy and sell stock index futures contracts. An "index
future" is a contract to buy or sell units of a particular stock index at an
agreed price on a specified future date. Depending on the change in value of the
index between the time the Apollo Fund enters into and terminates an index
futures transaction, the Fund realizes a gain or loss. In addition to or as an
alternative to purchasing or selling index futures, the Apollo Fund may buy and
sell call and put options on index futures or stock indexes. The Apollo Fund may
engage in index futures and options transactions for hedging purposes and for
non-hedging purposes, such as to adjust its exposure to relevant markets or as a
substitute for direct investment. The use of index futures and related options
involves certain special risks. Futures and options transactions involve costs
and may result in losses. Certain risks arise from the possibility of imperfect
correlations among movements in the prices of financial futures and options
purchased or sold by the Fund, of the underlying stock index and, in the case of
hedging transactions, of the securities that are the subject of the hedge. The
successful use of the strategies described above further depends on the
Adviser's ability to forecast market movements correctly.

The Gemini Fund may engage in a variety of transactions involving the use
of options and futures contracts. The Gemini Fund may purchase and sell futures
contracts in order to hedge against changes in the values of securities the Fund
owns or expects to purchase or to hedge against interest rate changes. For
example, if the Adviser expected interest rates to increase, the Gemini Fund
might sell futures contracts on U.S. Government securities. If rates were to
increase, the value of the Fund's fixed-income securities would decline, but
this decline might be offset in whole or in part by an increase in the value of
the futures contracts. The Gemini Fund may also purchase and sell call and put
options on futures contracts or on securities the Fund is permitted to purchase
directly in addition to or as an alternative to purchasing and selling futures
contracts. The Gemini Fund will engage in these transactions for hedging
purposes and, to the extent permitted by applicable law, for non-hedging
purposes, such as to manage the effective duration of the Fund's portfolio or as
a substitute for direct investment.

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Options and futures transactions involve costs and may result in losses.
The effective use of options and futures strategies depends on the Gemini Fund's
ability to terminate options and futures positions at times when the Adviser
deems it desirable to do so. Options on certain U.S. Government securities are
traded in significant volume on securities exchanges. However, other options
which the Gemini Fund may purchase or sell are traded in the "over-the-counter"
market rather than on an exchange. This means that the Gemini Fund will enter
into such option contracts with particular securities dealers who make markets
in these options. The Gemini Fund's ability to terminate options positions in
the over-the-counter market may be more limited than for exchange-traded options
and may also involve the risk that securities dealers participating in such
transactions might fail to meet their obligations to the Fund.

The use of options and futures strategies also involves the risk of
imperfect correlation among movements in the prices of the securities underlying
the futures and options purchased and sold by a Fund, of the options and futures
contracts themselves, and, in the case of hedging transactions, of the
securities which are the subject of a hedge.

Each Fund's ability to engage in options and futures transactions and to
sell related securities may be limited by tax considerations and by certain
regulatory requirements.

Other risks arise from the potential inability to close out index futures
or options positions. There can be no assurance that a liquid secondary market
will exist for any index future or option at any particular time. A Fund's
ability to terminate option positions established in the over-the-counter market
may be more limited than for exchange-traded options and may also involve the
risk that securities dealers participating in such transactions would fail to
meet their obligations to the Fund. Certain provisions of the Internal Revenue
Code and certain regulatory requirements may limit the use of index futures and
options transactions. A more detailed explanation of index futures and options
transactions, including the risks associated with them, is included in the SAI.

Mortgage-Backed and Asset-Backed Securities

The Gemini Fund may invest a portion of its assets in mortgage-backed
securities, including collateralized mortgage obligations ("CMOs") and certain
stripped mortgage-backed securities. CMOs and other mortgage-backed securities
represent

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participations in, or are secured by, mortgage loans and include: certain
securities issued or guaranteed by the U.S. Government or one of its agencies or
instrumentalities; securities issued by private issuers that represent an
interest in or are secured by mortgage-backed securities issued or guaranteed by
the U.S. Government or one of its agencies or instrumentalities; and securities
issued by private issuers that represent an interest in or are secured by
mortgage loans or mortgage-backed securities without a government guarantee but
usually having some form of private credit enhancement.

Stripped mortgage-backed securities are usually structured with two classes
that receive different portions of the interest and principal distributions on a
pool of mortgage loans. The Gemini Fund may invest in both the interest-only or
"IO" class and the principal-only or "PO" class.

The Gemini Fund may also invest in asset-backed securities. Asset-backed
securities are structured like mortgage-backed securities, but instead of
mortgage loans or interests in mortgage loans, the underlying assets may include
such items as motor vehicle installment sales or installment loan contracts,
leases of various types of real and personal property, and receivables from
credit card agreements. The ability of an issuer of asset-backed securities to
enforce its security interest in the underlying assets may be limited.

Prepayment risk. Mortgage-backed and asset-backed securities have yield and
maturity characteristics corresponding to the underlying assets. Unlike
traditional debt securities, which may pay a fixed rate of interest until
maturity when the entire principal amount comes due, payments on certain
mortgage-backed and asset-backed securities include both interest and a partial
payment of principal. Besides the scheduled repayment of principal, payments of
principal may result from the voluntary prepayment, refinancing, or foreclosure
of the underlying mortgage loans.

Mortgage-backed and asset-backed securities are less effective than other
types of securities as a means of "locking in" attractive long-term interest
rates. One reason is the need to reinvest prepayments of principal; another is
the possibility of significant unscheduled prepayments resulting from declines
in interest rates. These prepayments would have to be reinvested at lower rates.
As a result, these securities may have less potential for capital appreciation
during periods of declining interest rates than other securities of comparable
maturities, although they may have a similar risk of decline in market value

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during periods of rising interest rates. Prepayments may also significantly
shorten the effective maturities of these securities, especially during periods
of declining interest rates. Conversely, during periods of rising interest
rates, a reduction in prepayments may increase the effective maturities of these
securities, subjecting them to a greater risk of decline in market value in
response to rising interest rates than traditional debt securities, and,
therefore, potentially increasing the volatility of the Gemini Fund.

At times, some of the mortgage-backed and asset-backed securities in which
the Gemini Fund may invest will have higher than market interest rates and
therefore will be purchased at a premium above their par value. Prepayments may
cause losses in securities purchased at a premium, as unscheduled prepayments,
which are made at par, will cause the Gemini Fund to experience a loss equal to
any unamortized premium.

Collateralized Mortgage Obligations. CMOs are issued with a number of
classes or series that have different maturities and that may represent
interests in some or all of the interest or principal on the underlying
collateral. Payment of interest or principal on some classes or series of CMOs
may be subject to contingencies or some classes or series may bear some or all
of the risk of default on the underlying mortgages. CMOs of different classes or
series are generally retired in sequence as the underlying mortgage loans in the
mortgage pool are repaid. If enough mortgages are repaid ahead of schedule, the
classes or series of a CMO with the earliest maturities generally will be
retired prior to their maturities. Thus, the early retirement of particular
classes or series of a CMO would have the same effect as the prepayment of
mortgages underlying other mortgage-backed securities. Conversely, slower than
anticipated prepayments can extend the effective maturities of CMOs, subjecting
them to a greater risk of decline in market value in response to rising interest
rates than traditional debt securities, and therefore, potentially increasing
the volatility of the Gemini Fund.

Stripped mortgage-backed securities. The yield to maturity on an IO or PO
class of stripped mortgage-backed securities is extremely sensitive not only to
changes in prevailing interest rates but also to the rate of principal payments
(including prepayments) on the underlying assets. A rapid rate of principal
prepayments may have a measurably adverse effect on the Gemini Fund's yield to
maturity to the extent it invests in IOs. If the assets underlying the IOs
experience greater than anticipated prepayments of principal, the Gemini Fund
may fail to recoup fully its initial investment in these securities. Conversely,

662389.4
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<PAGE>

POs tend to increase in value if prepayments are greater than anticipated and
decline if prepayments are slower than anticipated.

In either event, the secondary market for stripped mortgage-backed
securities may be more volatile and less liquid than that for other
mortgage-backed securities, potentially limiting the Gemini Fund's ability to
buy or sell those securities at any particular time.

Portfolio Turnover

The length of time the Apollo Fund or the Gemini Fund has held a particular
security is not generally a consideration in investment decisions. As a result
of each Fund's investment policies, under certain market conditions,
particularly in periods of volatile markets, its portfolio turnover rate may be
higher than that of other mutual funds. In general, however, the Apollo Fund's
portfolio turnover rate is expected to range from 50% to 150% and the Gemini
Fund's portfolio turnover rate is expected to range from 50% to 250%. Portfolio
turnover generally involves some expense, including brokerage commissions or
dealer markups and other transaction costs on the sale of securities and
reinvestment in other securities. These transactions may also result in
realization of taxable capital gains, some or all of which may be short-term
capital gains not eligible for favored tax treatment.

Diversification

Each of the Apollo Fund and the Gemini Fund is a "diversified" investment
company under the Investment Company Act of 1940. This means that with respect
to 75% of its total assets, (a) each Fund may not invest more than 5% of its
total assets in the securities of any one issuer (except U.S. Government
securities) and (b) each Fund may not own more than 10% of the outstanding
voting securities of any one issuer. The remaining 25% of its total assets is
not subject to this restriction. To the extent the Apollo Fund or the Gemini
Fund invests a significant portion of its assets in the securities of a
particular issuer, it will be subject to an increased risk of loss if the market
value of such issuer's securities declines.

Derivatives

Certain of the instruments in which the Apollo Fund or the Gemini Fund may
invest, such as options and forward contracts,

662389.4
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<PAGE>

are considered to be "derivatives." Derivatives are financial instruments whose
value depends upon, or is derived from, the value of an underlying asset, such
as a security or an index. Further information about these instruments and the
risks involved in their use is included elsewhere in this prospectus and in the
SAI.

Other Investment Practices

Securities lending. Each Fund may lend portfolio securities amounting to
not more than 25% of its assets to broker-dealers. These transactions must be
fully collateralized at all times with cash and short-term debt obligations.
These transactions involve some risk to a Fund if the other party should default
on its obligation and the Fund is delayed or prevented from recovering the
collateral. Each Fund may also enter into repurchase agreements.

Repurchase Agreements. Each Fund may enter into repurchase agreements
collateralized by the securities in which it may invest. A repurchase agreement
involves the purchase by the Fund of securities with the condition that the
original seller (a bank or broker-dealer) will buy back the same securities
("collateral") at a predetermined price or yield. Repurchase agreements involve
certain risks not associated with direct investments in securities. In the event
the original seller defaults on its obligation to repurchase, the Fund will seek
to sell the collateral, which could involve costs or delays. To the extent
proceeds from the sale of collateral are less than the repurchase price, the
Fund would suffer a loss.

Reverse Repurchase Agreements. Each Fund may enter into reverse repurchase
agreement transactions with the same parties with whom it may enter into
repurchase agreements. Under a reverse repurchase agreement, the Fund sells
securities and agrees to repurchase them at a mutually agreed date and price.
Reverse repurchase agreements involve the risk that the market value of the
securities retained in lieu of sale by the Fund may decline below the price of
the securities the Fund has sold but is obligated to repurchase. In the event
the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Fund's
obligation to repurchase the securities and the Fund's use of the proceeds of
the reverse repurchase agreement may effectively be restricted pending such
decisions.

662389.4
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<PAGE>

When-Issued Securities and Forward Commitment Agreements. Each Fund may
engage in securities transactions on a when-issued or forward commitment basis
in which the transaction price and yield are each fixed at the time the
commitment is made, but payment and delivery occur at a future date (typically
15 to 45 days later). When purchasing securities on a when-issued or forward
commitment basis, the Fund assumes the rights and risks of ownership, including
the risks of price and yield fluctuations. Each Fund will limit when-issued or
forward commitment transactions to 30% of its net assets.

Put Options. To help assure appropriate liquidity, each Fund may acquire
securities which provide for the right to resell them to the issuer, a bank or a
broker-dealer at a specified price within a specified period of time prior to
the maturity date of such obligation. Such a right to resell, commonly known as
a put option, may be sold, transferred or assigned only with the underlying
security.

Illiquid Securities. Each Fund may invest up to 15% of its respective net
assets in illiquid securities. Illiquid securities may offer a higher yield than
securities which are more readily marketable, but they may not always be
marketable on advantageous terms. The sale of illiquid securities often requires
more time and results in higher brokerage charges or dealer discounts than does
the sale of securities eligible for trading on national securities exchanges or
in the over-the-counter markets.

"Restricted securities" are securities which were originally sold in
private placements and which have not been registered under the Securities Act
of 1933. Such securities generally have been considered illiquid, since they may
be resold only subject to statutory restrictions and delays or if registered. In
1990, however, the SEC adopted Rule 144A, which provides a safe harbor exemption
from the registration requirements for resales of restricted securities to
"qualified institutional buyers," as

662389.4
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<PAGE>

defined in the rule. The result of this rule has been the development of a more
liquid and efficient institutional resale market for restricted securities.
Thus, restricted securities are no longer necessarily illiquid. Each Fund may
therefore invest in Rule 144A securities and treat them as liquid when they have
been determined to be liquid by the Board of Directors of the Company.

Borrowing. Each Fund may borrow money from banks for temporary or emergency
purposes in order to meet redemption requests. To reduce its indebtedness, a
Fund may have to sell a portion of its investments at a time when it may be
disadvantageous to do so. In addition, interest paid by a Fund on borrowed funds
would decrease the net earnings of the Fund.

MANAGEMENT

Board of Directors

The Company's Board of Directors has the primary responsibility for
overseeing the overall management of the Company and electing its officers.

Investment Adviser

Welliver Rothschild(TM) Investment Advisers, Inc. (the "Adviser") has been
retained under an Investment Advisory Agreement with the Company to act as each
Fund's investment adviser subject to the authority of the Board of Directors.
Mr. David Welliver will be responsible for the overall management of each Fund's
portfolio.

It is expected that the Adviser may also act as the investment adviser for
certain future series of the Company. The Adviser also serves as investment
adviser to various other investors, including pension and profit-sharing funds,
corporate funds and individuals. The Adviser has not served as an investment
adviser to any mutual funds prior to the Funds. As of December 31, 1997, the
Adviser rendered investment advice and consulting services regarding
approximately $290,000,000 of assets. The Adviser is wholly-owned by David B.
Welliver, the Chairman and President of the Company. Other entities owned or
controlled by Mr. Welliver are involved in various aspects of the financial
services industry. The address of the Adviser is First National Bank Building,
332 Minnesota St., W-1072, St. Paul, MN 55101.

662389.4
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<PAGE>

The Adviser furnishes each Fund with investment advice and supervises the
management and investment programs of the Funds. The Adviser furnishes at its
own expense all necessary administrative services, office space, equipment and
clerical personnel for servicing the investments of the Funds. The Adviser also
provides investment advisory facilities and executive and supervisory personnel
for managing the investments and effecting the portfolio transactions of each
Fund. In addition, the Adviser pays the salaries and fees of all officers and
directors of the Company who are affiliated with the Adviser.

Under the Investment Advisory Agreements, each of the Apollo Fund and the
Gemini Fund pay the Adviser a monthly advisory fee equal on an annual basis to
0.75% of its average daily net assets. The Adviser may, from time to time,
voluntarily waive a portion of its fees.

Code of Ethics

The Company and the Adviser have adopted a Code of Ethics, which restricts
personal investing practices by employees of the Adviser and its affiliates.
Among other provisions, the Code of Ethics requires that employees with access
to information about the purchase or sale of securities in each Fund's portfolio
obtain preclearance before executing personal trades. With respect to Mr.
Welliver and other investment personnel, the Code of Ethics prohibits
acquisition of securities in an initial public offering, as well as profits
derived from the purchase and sale of the same security within 60 calendar days.
These provisions are designed to ensure that the interests of each Fund and its
shareholders come before the interests of the people who manage each Fund.

Portfolio Transactions and Brokerage Commissions

Portfolio transactions for each of the Apollo Fund and the Gemini Fund will
generally be executed with broker-dealers on an agency basis. The Adviser will
be responsible for placing all orders for purchases and sales of each Fund's
securities. In selecting broker-dealers, the Adviser may consider research and
brokerage services furnished to each of the Funds as well as to the Adviser and
its affiliates. Subject to seeking the most favorable price and execution
available, the Adviser may consider sales of shares of each Fund's shares (and
of other future series of the Company) as a factor in the selection of
broker-dealers. In addition, any portfolio transactions for a Fund that are
executed on an agency basis may be effected through the

662389.4
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<PAGE>

Distributor. For more information, see "Portfolio Transactions and Allocation of
Brokerage" in the SAI.

Administrator

The Administrator for each Fund is American Data Services, Inc. ("ADS" or
the "Administrator"), which has its principal office at The Hauppauge Corporate
Center, 150 Motor Parkway, Hauppauge, New York 11788, and is primarily in the
business of providing administrative, fund accounting and stock transfer
services to retail and institutional mutual funds through its offices in New
York, Denver, Tampa and Bermuda. The Administrator also provides turnkey
software system solutions to several institutional mutual fund groups and
approximately $13 billion is processed through the Administrator's systems
annually.

Pursuant to an Administrative Service Agreement with the Fund, the
Administrator provides all administrative services necessary for the Fund,
subject to the supervision of the Fund's Board of Directors.

Administrator's Fees

For the services rendered to each Fund by the Administrator, such Fund pays
the Administrator a monthly fee which is based on the Fund's average net assets.
If the Fund's average net assets are: less than $10 million, the Administrator's
fee is $1,500 per month; between $10 and $20 million, the Administrator's fee is
$1,750 per month; and in excess of $20 million, the Administrator receives
$2,000 per month or 0.20% of each Fund's average daily net assets, whichever is
greater. Each Fund also pays the Administrator for any out-of-pocket expenses.
In addition, the Administrator serves as each Fund's transfer agent and performs
fund accounting services for which it is paid separately. For additional
information, see "Custodian, Transfer Agent and Dividend Agent."

Both the Investment Advisory Agreement and the Administrative Service
Agreement are terminable by the Board of Directors of the Company, the Adviser
or the Administrator, respectively, on sixty days' written notice. The
Investment Advisory Agreement will terminate automatically in the event of an
"assignment" as defined by the Investment Company Act. The Administrative
Service Agreement, however, may be assigned provided the non-assigning party
provides prior written consent. Each Agreement shall remain in effect for two
years from the date of its initial approval, and subject to annual approval of
the Board of

662389.4
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<PAGE>

Directors for one-year periods thereafter. Each Agreement provides that in the
absence of willful misfeasance, bad faith or gross negligence on the part of the
Adviser or the Administrator, respectively, or reckless disregard of its
obligations thereunder, the Adviser or the Administrator shall not be liable for
any action or failure to act in accordance with its duties thereunder.

Distributor

ADS Distributors, Inc. ("the Distributor"), an affiliate of the
Administrator, has entered into a distribution agreement with the Company to
serve as distributor for each Fund's shares. The Distributor will be entitled to
receive a distribution fee equal to 0.25% of each Fund's average daily net
assets under the terms of each Fund's Distribution and Service Plan. The
Distributor will pay the promotional and advertising expenses related to the
distribution of each Fund's shares and for the printing of all Fund prospectuses
used in connection with the distribution and sale of each Fund's shares. It is
expected that the Distributor will use a portion of the distribution fee to
compensate financial intermediaries for providing distribution assistance with
respect to the sale of each Fund's shares. See "Management of Fund" in the SAI.

Each Fund will also pay the Distributor a shareholder servicing fee for
servicing such Fund's shareholder accounts and for providing other related
services to such Fund. The shareholder servicing fee is accrued daily and paid
monthly at an annual rate equal to 0.25% of each Fund's average daily net
assets. The Distributor may use all or a portion of this fee to make payments to
sales representative of the Distributor and broker-dealers which have entered
into sales agreements with the Distributor and which provide certain shareholder
services to their clients who are shareholders in the Funds.

The Adviser and the Distributor may, out of their own assets, pay for
certain expenses incurred in connection with the distribution of shares of the
Funds. In particular, the Distributor may make payments out of its own assets to
sales representatives and other broker dealers in connection with their sales of
shares of the Funds. See "How to Purchase Shares Purchase Price." Further
information regarding the Distribution and Service Plan is contained in the SAI.

Expenses

662389.4
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<PAGE>

Each Fund pays certain operating expenses directly, including, but not
limited to custodian, audit, and legal fees; fees of the independent directors;
costs of printing and mailing prospectuses, statements of additional
information, proxy statements, notices, and reports to shareholders; insurance
expenses; and costs of registering each Fund's shares for sale under federal and
state securities laws. See the SAI for a more detailed discussion of independent
director compensation.

HOW TO PURCHASE SHARES

General Purchase Information

The minimum initial investment in each Fund is $1,000. Each Fund may waive
or reduce the minimum for certain retirement and employee savings plans or
custodial accounts for the benefit of minors. Each Fund's shares may be
purchased at their public offering price, plus any applicable sales load (see
below) from the Distributor, from other broker-dealers who are members of the
NASD and certain financial institutions who have selling agreements with the
Distributor.

When orders are placed for shares of a Fund, the public offering price used
for the purchase will be the net asset value per share next determined, plus any
applicable sales load. If an order is placed with the Distributor, other
broker-dealer, or financial institution, the broker-dealer or other financial
institution is responsible for promptly transmitting the order to the
appropriate Fund.

Shares of the Funds may be purchased by opening an account either by mail
or by phone. Shares are deemed to be purchased as of the time of determination
of each Fund's net asset value on the day the purchase order for the purchase of
its shares is received in good form and accepted by the Fund or the Distributor.

Investors may make systematic investments in fixed amounts automatically on
a monthly basis through each Fund's Automatic Investment Plan. Additional
information is available from the Distributor.

Purchases By Telephone

To open an account by telephone, you must first call (516)951-0500 to
obtain an account number and instructions. Information concerning the account
will be taken over the phone.

662389.4
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<PAGE>

Subject to acceptance by the Distributor, shares of each Fund may be purchased
by wiring immediately available federal funds (subject to the minimum
investment) to The Chase Manhattan Bank from your bank which may charge a fee
for doing so (see instructions below). You should provide your bank with the
following information for purposes of wiring your investment:

The Chase Manhattan Bank
Huntington, New York
ABA# 021000021
Account# _______________
F/B/O (name of Fund)

Fund Acct. No. ____________________

You are required to mail a signed application to the Transfer Agent at the
address listed below in order to complete your initial wire purchase. Wire
orders will be accepted only on a day on which the Fund, the Custodian and the
Transfer Agent are open for business. A wire purchase will not be considered
made until the wired money is received and the purchase accepted by the
Distributor or the Fund. Any delays which may occur in wiring money, including
delays which may occur in processing by the banks, are not the responsibility of
the Fund or the Transfer Agent. There is presently no fee for the receipt of
wired funds, but the Fund reserves the right to charge shareholders for this
service.

Purchases by Mail

Subject to acceptance by the Fund's Distributor, an account may be opened
by completing and signing an account application and mailing it to the Fund at
the address noted below, together with a check (subject to each Fund's minimum
investment) payable to:

(Name of Fund)
c/o American Data Services, Inc.
P.O. Box 5536
Hauppauge, N.Y. 11788-0132

Subject to acceptance by the Fund's Distributor, payment for the purchase
of shares received by mail will be credited to a shareholder's account at the
net asset value per share of the particular Fund next determined, plus any
applicable sales load, after receipt. Such payment need not be converted into
federal funds (monies credited to the Fund's custodian bank by a Federal Reserve
Bank) before acceptance by the Fund's Distributor. In

662389.4
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<PAGE>

the event that there are insufficient funds to cover a check, such prospective
investor or investor will be assessed a $15.00 charge.

Additional Investments

Additional investments may be made at any time (subject to the minimum
subsequent investment of $100) by purchasing shares of the particular Fund at
net asset value, plus any applicable sales load, by mailing a check to the Fund
at the address noted under "Purchases by Mail" (payable to (Name of Fund) or by
wiring monies to the clearing bank as outlined above with which the shareholder
has an account and which is a member of the Federal Reserve system with
instructions to transmit Federal funds by wire to the appropriate Fund.

Other Purchase Information

Investors should be aware that the account application for each Fund
contains provisions in favor of the Company, the Fund, the Transfer Agent, the
Distributor and certain of their affiliates, excluding such entities from
certain liabilities (including, among others, losses resulting from unauthorized
shareholder transactions) relating to the various services (for example,
telephone exchanges) made available to investors.

The purchase price paid for shares of each Fund is the current public
offering price, that is, the next determined net asset value of the shares after
the order is placed plus any applicable sales charge. See "Net Asset Value"
herein. The sales load is a one-time charge paid at the time of purchase of
shares, most of which ordinarily goes to the investor's broker-dealer as
compensation for the services provided the investor. Shares of each Fund are
sold on a continuous basis with a maximum front-end sales charge of 4.50% of the
net asset value per share. Volume discounts are provided for both initial
purchase and for additional purchases. See "Reduction or Elimination of Sales
Loads" herein. Each Fund reserves the right to reject any subscription for
shares.

Each Fund must receive an order and payment by the close of business for
the purchase to be effective. If funds are received after the close of business,
the purchase will become effective on the next business day.

All purchases of each Fund's shares will be made in full and fractional
shares of the Fund calculated to three decimal places.

662389.4
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<PAGE>

The Funds will not issue stock certificates evidencing Fund shares.

Shares of each Fund may also be sold to corporations or other institutions
such as trusts, foundations or broker-dealers purchasing for the accounts of
others ("Shareholder Organizations"). Investors purchasing and redeeming shares
of a Fund through a Shareholder Organization may be charged a transaction-based
fee or other fee for the services of such organization. Each Shareholder
Organization is responsible for transmitting to its customers a schedule of any
such fees and information regarding any additional or different conditions
regarding purchases and redemptions. Customers of Shareholder Organizations
should read this Prospectus in light of the terms governing accounts with their
organization. The Funds do not pay to or receive compensation from Shareholder
Organizations for the sale of the Fund's shares.

REDUCTION OR ELIMINATION OF SALES LOADS

Volume Discounts

Volume discounts are provided if the total amount being invested in shares
of a Fund reach the levels indicated in the sales load schedule provided below.
The applicable volume discount available to investors is determined by
aggregating all share purchases of a Fund. Volume discounts are also available
to investors making sufficient additional purchases of Fund shares. The
applicable sales charge may be determined by adding to the total current value
of shares already owned in a Fund, the value of new purchases computed at the
offering price on the day the additional purchase is made. For example, if an
investor previously purchased, and still holds, shares worth [$70,000] at the
current offering price and purchases an additional [$5,000] worth of shares, the
sales charge applicable to the new purchase would be that applicable to the
[$75,000 to $149,999] bracket in the sales load schedule provided below.

Amount of sales
charge reallowed
to dealers as a
Sales Charge as a % of percent of
Amount of Purchase Sales Charge Net Amount Invested offering price
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
[$25,000-74,999 4.50% --% --
$75,000-149,999 --% --% --
</TABLE>

662389.4
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<PAGE>

Letter of Intent

Any investor may sign a Letter of Intent, available from each Fund, stating
an intention to make purchases of Fund shares totaling a specified amount on an
aggregate basis within a period of thirteen months. Purchases within the
thirteen-month period can be made at the reduced sales load applicable to the
total amount of the intended purchase noted in the Letter of Intent. If a larger
purchase is actually made during the period, then a downward adjustment will be
made to the sales charge based on the actual purchase size. Any shares purchased
within 90 days preceding the actual signing of the Letter of Intent are eligible
for the reduced sales charge and the appropriate price adjustment will be made
on those share purchases. A number of shares equal to 5% of the dollar amount of
intended purchases specified in the Letter of Intent is held in escrow by the
Distributor until the purchases are completed. Dividends and distributions on
the escrowed Fund shares are paid to the investor. If the intended purchases are
not completed during the Letter of Intent period, the investor is required to
pay the Fund an amount equal to the difference between the regular sales load
applicable to a single purchase of the number of Fund shares actually purchased
and the sales load actually paid. If such payment is not made within 20 days
after written request by the Fund, then the Fund has the right to redeem a
sufficient number of escrowed shares to effect payment of the amount due. Any
remaining escrowed shares are released to the investor's account. Agreeing to a
Letter of Intent does not obligate you to buy, or the Fund to sell, the
indicated amount of shares. You should read the Letter of Intent carefully
before signing.

Purchases At Net Value

There is no initial sales charge for "Qualified Persons." "Qualified
Persons" is defined to include persons who are active or retired Trustees,
Directors, officers, partners, employees, clients, independent professional
contractors, shareholders or registered representatives (including their spouses
and children) of the Adviser, Distributor or any affiliates or subsidiaries
thereof (the Directors, officers or employees of which shall also include their
parents and siblings for all purchases of Fund shares) or any Director, officer,
partner, employee or registered representative (including their spouses and
children) of any Broker-Dealer or any registered investment adviser who has

662389.4
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<PAGE>

executed a valid and currently active selling agreement with the Distributor.

HOW TO REDEEM SHARES

General Redemption Information

You may redeem all or a portion of your shares on any day that a Fund
values its shares (please refer to "Valuation of Shares" below for more
information). Your shares will be redeemed at the net asset value next
determined after receipt of your instructions in good form as explained below.
The net asset value of each Fund will fluctuate on a daily basis.

To redeem your shares, you may either contact the Distributor or your
broker-dealer or financial institution with an oral request or send a written
request directly to the Transfer Agent. This request should contain: the dollar
amount or number of shares to be redeemed, your Fund account number and either a
social security or tax identification number (as applicable). You should sign
your request in exactly the same way the account is registered. If there is more
than one owner of the shares, all owners must sign. A signature guarantee is
required for redemptions over $2,500. Please contact the Transfer Agent or refer
to the SAI for more details.

Shares of each Fund may be redeemed by mail, or, if authorized, by
telephone. The value of shares redeemed may be more or less than the purchase
price, depending on the market value of the investment securities held by each
Fund.

By Mail

Each Fund will redeem its shares at the net asset value next determined
after the request is received in "good order." The net asset value per share of
the Fund is determined as of 4:15 p.m., New York time, on each day that the New
York Stock Exchange, Inc. (the "NYSE"), the Fund and the Distributor are open
for business. Requests should be addressed to (Name of Fund), c/o American Data
Services, Inc., P.O. Box 5536, Hauppauge, N.Y. 11788-0132.

Requests in "good order" must include the following documentation:

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<PAGE>

(a) a letter of instruction specifying the number of shares or dollar
amount to be redeemed, signed by all registered owners of the shares
in the exact names in which they are registered;

(b) any required signature guarantees (see "Signature Guarantees" below);
and

(c) other supporting legal documents, if required, in the case of estates,
trusts, guardianships, custodianships, corporations, pension and
profit sharing plans and other organizations.

Signature Guarantees

To protect shareholder accounts, each Fund and its Transfer Agent from
fraud, signature guarantees are required to enable the Fund to verify the
identity of the person who has authorized a redemption from an account.
Signature guarantees are required for (1) redemptions where the proceeds are to
be sent to someone other than the registered shareholder(s) and the registered
address, and (2) share transfer requests. Signature guarantees may be obtained
from certain eligible financial institutions, including but not limited to, the
following: banks, trust companies, credit unions, securities brokers and
dealers, savings and loan associations and participants in the Securities
Transfer Association Medallion Program ("STAMP"), the Stock Exchange Medallion
Program ("SEMP") or the New York Stock Exchange Medallion Signature Program
("MSP"). Shareholders may contact the Funds at (516) 951-0500 for further
details.

By Telephone

Provided the Telephone Redemption Option has been authorized, a redemption
of shares may be requested by calling the Fund and requesting that the
redemption proceeds be mailed to the primary registration address or wired per
the authorized instructions. If the Telephone Redemption Option is authorized,
each Fund and its Transfer Agent may act on telephone instructions from any
person representing himself or herself to be a shareholder and believed by the
Fund or its Transfer Agent to be genuine. The Transfer Agent's records of such
instructions are binding and each shareholder, and not the Fund or its Transfer
Agent, bears the risk of loss in the event of unauthorized instructions
reasonably believed by the Fund or its Transfer Agent to be genuine. Each Fund
will employ reasonable procedures to confirm that instructions communicated are
genuine and, if it does not, it may be liable for any losses due to unauthorized
or fraudulent

662389.4
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<PAGE>

instructions. The procedures employed by the Fund in connection with
transactions initiated by telephone may include tape recording of telephone
instructions and requiring some form of personal identification prior to acting
upon instructions received by telephone.

If the Board of Directors determines that it would be detrimental to the
best interests of the remaining shareholders of a Fund to make a payment wholly
or partly in cash, the Fund may pay the redemption proceeds in whole or in part
by a distribution in-kind of readily marketable securities held by a Fund in
lieu of cash in conformity with applicable rules of the SEC. Investors generally
will incur brokerage charges on the sale of portfolio securities so received in
payment of redemptions.

Payment of Redemption Proceeds

After your shares have been redeemed, proceeds will normally be paid within
three business days. In no event will payment be made more than seven days after
receipt of your order in good form, except that payment may be postponed or the
right of redemption suspended for more than seven days under unusual
circumstances, such as when trading is not taking place on the NYSE. Payment of
redemption proceeds may also be delayed if the shares to be redeemed were
purchased by a check drawn on a bank which is not a member of the Federal
Reserve System, until such check has cleared the banking system (normally up to
15 days from the purchase date).

Involuntary Redemption

Each Fund reserves the right to redeem your account at any time the net
asset value of the account falls below $500 as the result of a redemption or
exchange request. You will be notified in writing prior to any such redemption
and will be allowed 30 days to make additional investments before the redemption
is processed.

SHAREHOLDER SERVICES

We offer several service options to make your account easier to manage.
These are listed on the account application. Please make note of these options
and elect the ones that are appropriate for you.

662389.4
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<PAGE>

Automatic Investment Program

You may arrange to make additional automated purchases of shares of each
Fund. You can automatically transfer $100 or more per month from your bank,
savings and loan or other financial institution to purchase additional shares.
You should contact the Distributor, or your broker-dealer, financial institution
or the Transfer Agent to obtain authorization forms or for additional
information.

Telephone Transaction Privileges

If you hold your shares in an account with your broker-dealer, financial
institution or at the Transfer Agent, you may authorize telephone privileges by
completing the required form. Please contact your broker-dealer, financial
institution or the Transfer Agent for an application or for more details. It may
be difficult to reach a Fund by telephone during periods when market or economic
conditions lead to an unusually large volume of telephone requests. If you
cannot reach a Fund by telephone, you should contact your broker-dealer,
financial institution or issue written instructions to the Transfer Agent at the
address set forth herein. See "Management - Transfer Agent, Dividend Disbursing
Agent and Custodian." Each Fund reserves the right to suspend or terminate their
telephone services at any time without notice.

Exchange Privileges

You can exchange your shares of the Apollo Fund or the Gemini Fund for
shares of the other Fund at net asset value. To exchange your shares, simply
complete an Exchange Authorization Form and send it to the Fund's Transfer
Agent. The form is available from the Fund or the Transfer Agent. For federal
income tax purposes, an exchange is treated as a sale of shares and generally
results in a capital gain or loss. The exchange privilege is not available if
you were issued certificates for shares that remain outstanding.

The exchange privilege is not intended as a vehicle for short-term trading.
Excessive exchange activity may interfere with portfolio management and have an
adverse effect on all shareholders. In order to limit excessive exchange
activity and in other circumstances when the Adviser or the Board of Directors
believe doing so would be in the best interests of a Fund, each Fund reserves
the right to revise or terminate the exchange

662389.4
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<PAGE>

privilege, limit the amount or number of exchanges or reject any exchange.
Consult the Fund before requesting an exchange.

Tax-Qualified Retirement Plans

Each Fund is available for your tax-deferred retirement plan. Call or write
us and request the appropriate forms for:

/ / Individual Retirement Accounts ("IRAs"), Simple IRAs and Roth IRAs;
/ / 403(b) plans for employees of public school systems and non-profit
organizations; or
/ / 401(k) Plans;
/ / Profit-sharing plans and pension plans for corporations and other
employees.

You can also transfer your tax-deferred plan to us from another company or
custodian. Call or write us for a Request to Transfer form.

Confirmation of Transactions and Reporting of Other Information

Each Fund will mail you confirmations of all purchases or redemptions of
shares of such Fund. If there is no activity in your Fund account, you will
receive account statements on a quarterly basis. This information will be
provided to you from either the Distributor, your broker-dealer, financial
institution or the Transfer Agent. In addition, you will receive various IRS
forms after the first of each year detailing important tax information and each
Fund is required to supply annual and semi-annual reports that list securities
held by such Fund and include the then current financial statements of such
Fund.

DIVIDENDS AND DISTRIBUTIONS

Each of the Apollo Fund and the Gemini Fund expects to distribute any net
investment income monthly and any net realized capital gains at least annually.
Distributions from capital gains are made after applying any available capital
loss carryovers.

As a shareholder in a Fund, you can choose from three distribution options:

o Reinvest all distributions in additional shares;

o Receive distributions from net investment income in

662389.4
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<PAGE>

cash while reinvesting capital gains distributions, if any, in
additional shares; or

o Receive all distributions in cash.

You can change your distribution option by notifying the Fund in writing.
If you do not select an option when you open your account, all distributions
will be reinvested. All distributions not paid in cash will be reinvested in
shares of the Fund in which the distributions are paid. You will receive a
statement confirming reinvestment of distributions in additional shares promptly
following the quarter in which the reinvestment occurs.

If a check representing a Fund distribution is not cashed within a
specified period, the Transfer Agent will notify you that you have the option of
requesting another check or reinvesting the distribution in the Fund or in
another Fund. If the Transfer Agent does not receive your election, the
distribution will be reinvested in the Fund. Similarly, if correspondence sent
by a Fund or the Transfer Agent is returned as "undeliverable," all Fund
distributions will automatically be reinvested in the Fund or in another Fund.

VALUATION OF SHARES

Each Fund computes its net asset value (or price per share) on each day the
NYSE is open for business. The calculation is made as of the regular close of
the Exchange (currently 4:15 p.m., New York time).

Portfolio securities for which market quotations are readily available are
valued at market value. Long-term corporate bonds and notes, for which market
quotations are not considered readily available, are stated at fair value on the
basis of valuations furnished by a pricing service approved by the Board of
Directors which determines valuations for normal, institutional-size trading
units of such securities using methods based on market transactions for
comparable securities and various relationships between securities which are
generally recognized by institutional traders.

Short-term investments held by each Fund that mature in 60 days or less are
valued at amortized cost, which approximates market value. All other securities
and assets are valued at their fair value following procedures approved by the
Board of Directors.

662389.4
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<PAGE>

DISTRIBUTION AND SERVICE PLAN

Each Fund has adopted a Distribution and Service Plan (the "Plan"),
pursuant to Rule 12b-1 under the Act (the "Rule"). The Rule provides that an
investment company which bears any direct or indirect expense of distributing
its shares must do so only in accordance with a plan permitted by the Rule. The
Plan provides that each Fund will compensate the Distributor for certain
expenses and costs incurred in connection with providing shareholder servicing
and maintaining shareholder accounts and to compensate parties with which it has
written agreements and whose clients own shares of each Fund for providing
servicing to their clients ("shareholder servicing"), which is subject to a
maximum service fee of 0.25% per annum of each Fund's average daily net assets.
The Plan also provides that the Distributor is paid a fee equal to 0.25% of each
Fund's average daily net assets, on an annual basis, to enable it to provide
promotional support to the Fund and to make payments to broker-dealers and other
financial institutions with which it has written agreements and whose clients
are shareholders of the Fund (each a "broker-dealer") for providing distribution
assistance. Fees paid under the Plan may not be waived for individual
shareholders.

Each shareholder servicing agent will, as agent for its customers, among
other things: answer customer inquiries regarding account status and history,
the manner in which purchases and redemptions of shares of the Fund may be
effected and certain other matters pertaining to the Fund; assist shareholders
in designating and changing dividend options, account designations and
addresses; provide necessary personnel and facilities to establish and maintain
shareholder accounts and records; assist in processing purchase and redemption
transactions; arrange for the wiring of funds; transmit and receive funds in
connection with customer orders to purchase or redeem shares; verify and
guarantee shareholder signatures in connection with redemption orders and
transfers and changes in shareholder designated accounts; furnish (either
separately or on an integrated basis with other reports sent to a shareholder by
the Fund) quarterly and year-end statements and confirmations in a timely
fashion after activity is generated in the account; transmit, on behalf of the
Fund, proxy statements, annual reports, updating prospectuses and other
communications from the Fund to shareholders; receive, tabulate and transmit to
the Fund, proxies executed by shareholders with respect to meetings of
shareholders of the Fund; and provide such other related services as the Fund or
a shareholder may request.

662389.4
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<PAGE>

The Plan provides that the Adviser and the Distributor may make payments
from time to time from their own resources which may include the advisory fee
and past profits for the following purposes: (i) to defray the costs of and to
compensate others, including financial intermediaries with whom the Distributor
has entered into written agreements, for performing shareholder servicing and
related administrative functions; (ii) to compensate certain financial
intermediaries for providing assistance in distributing each Fund's shares;
(iii) to pay the costs of printing and distributing the Fund's prospectus to
prospective investors; and (iv) to defray the cost of the preparation and
printing of brochures and other promotional materials, mailings to prospective
shareholders, advertising, and other promotional activities, including the
salaries and/or commissions of sales personnel in connection with the
distribution of the Fund's shares. The Distributor or the Adviser, as the case
may be, in their sole discretion, will determine the amount of such payments
made pursuant to the Plan with the shareholder servicing agents and
broker-dealers they have contracted with, provided that such payments made
pursuant to the Plan will not increase the amount which the Fund is required to
pay to the Distributor or the Adviser for any fiscal year under the shareholder
servicing agreements or otherwise. Any servicing fees paid to the Adviser also
may be used for purposes of (i) above and any asset based sales charges paid to
the Distributor also may be used for purposes of (ii), (iii) or (iv) above.

Shareholder servicing agents and broker-dealers may charge investors a fee
in connection with their use of specialized purchase and redemption procedures
offered to investors by the shareholder servicing agents and broker-dealers. In
addition, shareholder servicing agents and broker-dealers offering purchase and
redemption procedures similar to those offered to shareholders who invest in a
Fund directly may impose charges, limitations, minimums and restrictions in
addition to or different from those applicable to shareholders who invest in the
Fund directly. Accordingly, the net yield to investors who invest through
shareholder servicing agents and broker-dealers may be less than by investing in
a Fund directly. An investor should read the Prospectus in conjunction with the
materials provided by the shareholder servicing agent and broker-dealer
describing the procedures under which Fund shares may be purchased and redeemed
through the shareholder servicing agent and broker-dealer.

The Glass-Steagall Act limits the ability of a depository institution to
become an underwriter or distributor of

662389.4
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<PAGE>

securities. However, it is each Fund's position that banks are not prohibited
from acting in other capacities for investment companies, such as providing
administrative and shareholder account maintenance services and receiving
compensation from the Distributor for providing such services. However, this is
an unsettled area of the law and if a determination contrary to each Fund's
position is made by a bank regulatory agency or court concerning shareholder
servicing and administration payments to banks from the Distributor, any such
payments will be terminated and any shares registered in the banks' names, for
their underlying customers, will be re-registered in the name of the customers
at no cost to the Fund or its shareholders. In addition, state securities laws
on this issue may differ from the interpretation of federal law expressed herein
and banks and financial institutions may be required to register as dealers
pursuant to state law.

In accordance with the Rule, the Plan provides that all written agreements
relating to the Plan entered into by a Fund, the Distributor or the Adviser, and
the shareholder servicing agents, broker-dealers, or other organizations must be
in a form satisfactory to the Company's Board of Directors. In addition, each
Plan requires each Fund and the Distributor to prepare, at least quarterly,
written reports setting forth all amounts expended for distribution purposes by
a Fund and the Distributor pursuant to the Plan and identifying the distribution
activities for which those expenditures were made.

TAX STATUS

Each Fund is treated as a separate corporation for federal income tax
purposes under the Internal Revenue Code of 1986, as amended (the "Code").
Therefore, each Fund is treated separately in determining whether it qualifies
as a regulated investment company under the Code and for purposes of determining
the net ordinary income (or loss), net realized capital gains (or losses) and
distributions necessary to relieve the Fund of any federal income tax liability.
Each Fund intends to qualify and to elect to be treated as a regulated
investment company. If so qualified, each Fund will not be liable for federal
income taxes to the extent it distributes its taxable income to shareholders.

Distributions by a Fund are generally taxable to shareholders as ordinary
income. Interest income from direct investment by noncorporate taxpayers in
United States Government obligations (but not repurchase agreements) generally
is not subject to state taxation. However, some states may tax mutual fund
dividends

662389.4
36

<PAGE>

attributable to such income. Shareholders are encouraged to consult their tax
advisers concerning this matter.

A sale of Fund shares is a taxable event that may result in a capital gain
or loss.

For a more detailed discussion of the federal income tax consequences of
investing in shares of a Fund, see "Taxation" in the Statement of Additional
Information. Before investing in a Fund, you should consult your tax adviser
regarding the consequences of your local and state tax laws.

PERFORMANCE COMPARISONS

Advertisements and other sales literature may refer to a Fund's yield or
effective yield and, with respect to each Fund's total return. Yield is computed
separately for each Fund. All such yield quotations are based upon historical
earnings and are not intended to indicate future performance.

The yield for each Fund is calculated by dividing the annualized net
investment income per share during a recent 30-day period by the maximum public
offering price per share of the Fund on the last day of that period.

For purposes of calculating yield, net investment income is calculated in
accordance with SEC regulations and may differ from net investment income as
determined for financial reporting purposes. SEC regulations require that net
investment income be calculated on a "yield-to-maturity" basis, which has the
effect of amortizing any premiums or discounts in the current market value of
fixed-income securities. The current dividend rate is based on net investment
income as determined for tax purposes, which may not reflect amortization in the
same manner.

The total return for the one, five and ten-year periods (or for the life of
a Fund until a Fund is in existence for such longer periods) through the most
recent calendar quarter represents the average annual compounded rate of return
on an investment of $1,000 in each Fund invested at the public offering price,
plus any applicable sales load. Total return may also be presented for other
periods.

All data are based on past investment results and do not predict future
performance. Investment performance, which will vary, is based on many factors,
including market conditions, portfolio composition and Fund operating expenses.
Investment performance also often reflects the risks associated with each

662389.4
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<PAGE>

Fund's investment objective and policies. These factors should be considered
when comparing a Fund's investment results with those of other mutual funds and
other investment vehicles.

Quotations of investment performance for any period when an expense
limitation is in effect will be greater than if the limitation had not been in
effect. Fund performance may be compared to that of various indexes.

For additional information regarding comparative performance information
and the calculation of yield, effective yield and total return see "Performance
Comparisons" in the SAI.

GENERAL INFORMATION

The Company is a diversified, open-end management investment company which
was incorporated under the laws of the State of Maryland on February ___, 1998.
The Company's business and affairs are managed by its officers under the
direction of its Board of Directors. The Company currently offers its shares in
two series, each of which is being offered for sale in this prospectus. The
Board of Directors is authorized under the Company's Articles of Incorporation
to issue additional series of the Company's common stock (" the shares") without
shareholder approval in order to create additional funds. In addition, the Board
of Directors may, without shareholder approval, create and issue one or more
classes of shares within each series.

All shares of each Fund, when issued, will be fully paid and nonassessable
and will be redeemable. They can be issued as full or fractional shares. A
fractional share has, pro rata, the same rights and privileges as a full share.
The shares possess no preemptive or conversion rights. The shares of each Fund
will share ratably in the dividends of such Fund, if any, as may be declared by
the Board of Directors, and in the distribution of any net assets in liquidation
of a Fund, after the payment of all debts and liabilities of the Fund.

Each share of a Fund has one vote (with proportionate voting for fractional
shares) irrespective of the relative net asset values of the Fund's shares. On
some issues, such as the election of directors, all shares of the Company vote
together as one series. On an issue affecting only a particular Fund, the shares
of the affected Fund vote separately. Cumulative voting is not authorized. This
means that the holders of more than 50% of the shares voting for the election of
the Board of Directors can elect all of the directors if they choose to do so,
and, in

662389.4
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<PAGE>

such event, the holders of the remaining shares will be unable to elect any
directors.

Except as may be required under the Investment Company Act, the Company
will not hold annual meetings of shareholders. As a result, shareholders may not
vote each year on the election of members of the Board of Directors or the
appointment of auditors. However, pursuant to the Company's Bylaws, the holders
of shares representing at least 10% of a Fund's total outstanding shares may
request that the Fund hold a special meeting of shareholders. The Company will
assist in the communication with other shareholders. In addition, the Investment
Company Act requires a shareholder vote for all amendments to a Fund's
fundamental investment objective and policies and investment restrictions and
for any amendments to investment advisory contracts.

The Company reserves the right to amend any of its non-fundamental
policies, practices and procedures described in this Prospectus, including the
SAI, without shareholder approval.

CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT

Star Bank, N.A. serves as custodian for each Fund's cash and securities.
The Custodian does not assist in, and is not responsible for, investment
decisions involving assets of the Fund. American Data Services, Inc., the Fund's
Administrator, also acts as the Fund's transfer and dividend agent. [The Fund
pays the Administrator the greater of $900 per month or $9.00 per year per
account, plus out-of-pocket expenses, for rendering such transfer and dividend
agency services.?]

COUNSEL AND INDEPENDENT AUDITORS

Legal matters in connection with the issuance of shares of common stock of
the Fund are passed upon by Battle Fowler LLP, 75 East 55th Street, New York,
New York 10022. McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York
10017, have been selected as independent accountants for the Fund.

662389.4
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<PAGE>

APPENDIX

SECURITY RATINGS

The following rating services describe rated securities as follows:

Moody's Investors Service, Inc.

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
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

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

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

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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.

Standard & Poor's

Bonds

AAA--Debt rated 'AAA' has the highest rating assigned by Standard & Poor's.
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 somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.

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

BB-B-CCC-CC-C--Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. 'BB'
indicates the lowest degree of speculation and 'C' the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.

662389.4
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BB--Debt rated 'BB' has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'BBB-' rating.

B--Debt rated 'B' has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The 'B' rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied 'BB' or 'BB-'
rating.

CCC--Debt rated 'CCC' has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The 'CCC' rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
'B' or 'B-' rating.

Duff & Phelps Corporation

Long-Term Debt

AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.

AA+, AA, AA-High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.

A+, A, A-Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.

BBB+, BBB, BBB--Below-average protection factors but still considered sufficient
for prudent investment. Considerable variability in risk during economic cycles.

BB+, BB, BB-Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial

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<PAGE>

protection factors fluctuate according to industry conditions or company
fortunes. Overall quality may move up or down frequently within this category.

B+, B, B-Below investment grade and possessing risk that obligations will not be
met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher or
lower rating grade.

CCC--Well below investment-grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.

662389.4
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<PAGE>

QUESTAR FUNDS, INC. PROSPECTUS

INVESTMENT ADVISER
Welliver Rothschild(TM) Investment Advisers, Inc.

ADMINISTRATOR, TRANSFER AGENT AND SHAREHOLDER
SERVICING AGENT
American Data Services, Inc.

CUSTODIAN
Star Bank, N.A.

INDEPENDENT ACCOUNTANTS
McGladrey & Pullen, L.L.P.

LEGAL COUNSEL WELLIVER ROTHSCHILD(TM) APOLLO FUND
Battle Fowler LLP WELLIVER ROTHSCHILD(TM) GEMINI FUND

Table of Contents ge
Introduction....................................... 2
Transaction and Operating
Expense Table..................................... 4
Investment Objective and
Policies.......................................... 5
Welliver Rothschild Apollo Fund.................... 5
Welliver Rothschild Gemini Fund.................... 6
Management.........................................19
How to Purchase Shares.............................23
Reduction or Elimination of
Sale Loads........................................26
How to Redeem Shares...............................28
Shareholder Services...............................30
Dividends and Distributions........................32
Valuation of Shares................................33
Distribution and Service Plan......................34
Tax Status.........................................36
Performance Comparisons............................37
General Information................................38 ________________, 1998
Custodian, Transfer Agent and
Dividend Agent....................................39
Counsel and Independent Auditors...................39
Appendix - Security Rating........................-1-

662389.4

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QUESTAR FUNDS, INC.
WELLIVER ROTHSCHILD(TM) APOLLO FUND
WELLIVER ROTHSCHILD(TM) GEMINI FUND

STATEMENT OF ADDITIONAL INFORMATION

________________, 1998

Table of Contents

Page

Investment Objective, Policies and Restrictions...........................2
Trustees and Executive Officers..........................................31
Investment Advisory and Other Services...................................32
Shareholder Servicing & Distribution Plan................................35
Portfolio Transactions and Allocation of Brokerage.......................38
Taxation.................................................................40
Ownership of Shares......................................................42
Purchase of Shares.......................................................42
Dividends and Distributions..............................................42
Net Asset Value .........................................................42
Performance Comparisons..................................................43
Redemption of Shares.....................................................49
Counsel and Independent Auditors.........................................50
Other Information........................................................50
Financial Statements.....................................................50

This Statement of Additional Information is not a prospectus, but should be
read in conjunction with the Funds' Prospectus dated , 1998. A copy of the
Prospectus may be obtained from the Funds at The Hauppauge Corporate Center, 150
Motor Parkway, Hauppauge, New York 11788 or telephone (516) 951-0500.

662389.4

<PAGE>

INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS

Each Fund's investment objective and a summary of its investment policies
are set forth in the Prospectus. Additional information regarding each Fund's
investment policies and restrictions is set forth below.

Investment Policies

The following paragraphs provide a more detailed description of the
investment policies identified in the Prospectus. Unless otherwise noted, the
policies described in this Statement of Additional Information are not
fundamental and may be changed by the Board of Directors.

When purchasing securities on a when-issued or forward commitment basis, a
Fund assumes the rights and risks of ownership, including the risks of price and
yield fluctuations. While each Fund will make commitments on a when-issued or
forward commitment basis to purchase or sell securities with the intention of
actually receiving or delivering them, it may sell the securities before the
settlement date if doing so is deemed advisable as a matter of investment
strategy.

In purchasing securities on a when-issued or forward commitment basis, each
Fund will establish and maintain until the settlement date a segregated account
consisting of cash, U.S. Government securities, and other high-quality liquid
debt securities in an amount sufficient to meet the purchase price. When the
time comes to pay for such securities, each Fund will meet its obligations with
available cash, through the sale of securities, or, although it would not
normally expect to do so, by selling the when-issued securities themselves
(which may have a market value greater or less than the Fund's payment
obligation). Selling securities to meet when-issued or forward commitment
obligations may generate taxable capital gains or losses.

There is a risk that the party with whom a Fund enters into a forward
commitment agreement will not uphold its commitment, which could cause the Fund
to miss a favorable price or yield opportunity or to suffer a loss. To minimize
this risk, when-issued or forward commitment transactions are limited to 30% of
a

662389.4
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<PAGE>

Fund's net assets of which no more than 10% of a Fund's net assets may be
committed to transactions in which the settlement date occurs more than 30 days
after the trade date. Each Fund will establish a segregated account as described
above to meet all payment obligations arising as a result of these types of
transactions.

Roll Transactions. Each Fund may sell a security and at the same time make
a commitment to purchase the same or a comparable security at a future date and
specified price. Conversely, each Fund may purchase a security and at the same
time make a commitment to sell the same or a comparable security at a future
date and specified price. These types of transactions are executed
simultaneously in what are known as "dollar-rolls", "cash and carry" or
financing transactions. For example, a broker-dealer may seek to purchase a
particular security that a Fund owns. Each Fund will sell that security to the
broker-dealer and simultaneously enter into an agreement to buy it back at a
future date. This type of transaction generates income for a Fund if the dealer
is willing to execute the transaction at a favorable price in order to acquire a
specific security. Each Fund will limit roll transactions to 30% of net assets.

In engaging in roll transactions, a Fund will maintain until the settlement
date a segregated account consisting of cash, cash equivalents, or high-quality
liquid debt securities in an amount sufficient to meet the purchase price, as
described above.

Repurchase Agreements. Each Fund may invest in repurchase agreements. A
repurchase agreement involves the purchase by a Fund of the securities with the
condition that after a stated period of time the original seller will buy back
the same securities at a predetermined price or yield. The Funds' custodian will
hold the securities underlying any repurchase agreement or such securities will
be part of the Federal Reserve Book Entry System. The market value of the
collateral underlying the repurchase agreement will be determined on each
business day. If at any time the market value of a Fund's collateral falls below
the repurchase price of the repurchase agreement (including any accrued
interest), the affected Fund will promptly receive additional collateral (so the
total collateral is an amount at least equal to the repurchase price plus
accrued interest).

662389.4
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<PAGE>

collateralized by the security. At the time a Fund enters into a reverse
repurchase agreement, it will establish and maintain a segregated account with
an approved custodian containing high-grade debt securities having a value not
less than the repurchase price (including accrued interest). Reverse repurchase
agreements will be used as a means of borrowing for investment purposes. This
speculative technique is referred to as leveraging. Leveraging may exaggerate
the effect on net asset value of any increase or decrease in the market value of
a Fund's portfolio. Money borrowed for leveraging will be subject to interest
costs which may or may not be recovered by income from or appreciation of the
securities purchased. The Board of Directors has established procedures, which
will be periodically reviewed by the Board, pursuant to which the Adviser will
monitor the creditworthiness of the dealers and banks with which each Fund
enters into reverse repurchase agreement transactions.

Foreign Securities. Under its current policy, which may be changed without
shareholder approval, each Fund may invest up to the limit of its total assets
specified in its prospectus in securities principally traded in markets outside
the United States. Eurodollar certificates of deposit are excluded for purposes
of this limitation. Since foreign securities are normally denominated and traded
in foreign currencies, the value of a Fund's assets may be affected favorably or
unfavorably by changes in currency exchange rates, exchange control regulations,
foreign withholding taxes and restrictions or prohibitions on the repatriation
of foreign currencies. There may be less information publicly available about a
foreign company than about a U.S. company, and foreign companies are not
generally subject to accounting, auditing and financial reporting standards and
practices comparable to those in the United States. The securities of some
foreign companies are less liquid and at times more volatile than securities of
comparable U.S. companies. Foreign brokerage commissions and other fees are also
generally higher than in the United States. Foreign settlement procedures and
trade regulations may involve certain risks (such as delay in payment or
delivery of securities or in the recovery of the Fund's assets held abroad) and
expenses not present in the settlement of domestic investments.

In addition, there may be a possibility of nationalization or expropriation
of assets, imposition of currency exchange controls, confiscatory taxation,
political or financial instability and diplomatic developments which could
affect the value of a Fund's investments in certain foreign countries. Legal
remedies available to investors in certain foreign countries may be more limited
than those available with respect to investments in the United States or in
other foreign countries. The laws of some foreign countries may limit the Fund's
ability to invest in securities of certain issuers located

662389.4
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<PAGE>

in those foreign countries. Special tax considerations apply to foreign
securities.

The risks described above, including the risks of nationalization or
expropriation of assets, are typically increased to the extent that a Fund
invests in issuers located in less developed and developing nations, whose
securities markets are sometimes referred to as "emerging securities markets."
Investments in securities located in such countries are speculative and subject
to certain special risks. Political and economic structures in many of these
countries may be in their infancy and developing rapidly, and such countries may
lack the social, political and economic stability characteristic of more
developed countries. Certain of these countries have in the past failed to
recognize private property rights and have at times nationalized and
expropriated the assets of private companies. The Funds do not currently intend
to invest in the securities of less developed and developing nations.

In addition, unanticipated political or social developments may affect the
value of a Fund's investments in these countries and the availability to the
Fund of additional investments in these countries. The small size, limited
trading volume and relative inexperience of the securities markets in these
countries may make the Fund's investments in such countries illiquid and more
volatile than investments in more developed countries, and the Fund may be
required to establish special custodial or other arrangements before making
investments in these countries. There may be little financial or accounting
information available with respect to issuers located in these countries, and it
may be difficult as a result to assess the value or prospects of an investment
in such issuers.

Lower-rated Securities. Each Fund may invest in lower-rated fixed-income
securities (commonly known as "junk bonds"), to the extent described in the
prospectus. The lower ratings of certain securities held by each Fund reflect a
greater possibility that adverse changes in the financial condition of the
issuer or in general economic conditions, or both, or an unanticipated rise in
interest rates, may impair the ability of the issuer to make payments of
interest and principal. The inability (or perceived inability) of issuers to
make timely payment of interest and principal would likely make the values of
securities held by a Fund more volatile and could limit each Fund's ability to
sell its securities at prices approximating the values the Fund had placed on
such securities. In the absence of a liquid trading market for securities held
by it, each Fund at times may be unable to establish the fair value of such
securities.

Securities ratings are based largely on the issuer's historical financial
condition and the rating agencies' analysis

662389.4
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<PAGE>

at the time of rating. Consequently, the rating assigned to any particular
security is not necessarily a reflection of the issuer's current financial
condition, which may be better or worse than the rating would indicate. In
addition, the rating assigned to a security by Moody's Investors Service, Inc.,
Standard & Poor's or Duff & Phelps Corporation (or by any other nationally
recognized securities rating organization) does not reflect an assessment of the
volatility of the security's market value or the liquidity of an investment in
the security. See the prospectus for a description of security ratings.

Like those of other fixed-income securities, the values of lower-rated
securities fluctuate in response to changes in interest rates. A decrease in
interest rates will generally result in an increase in the value of a Fund's
assets. Conversely, during periods of rising interest rates, the value of a
Fund's assets will generally decline. The values of lower-rated securities may
often be affected to a greater extent by changes in general economic conditions
and business conditions affecting the issuers of such securities and their
industries. Negative publicity or investor perceptions may also adversely affect
the values of lower-rated securities. Changes by recognized rating services in
their ratings of any fixed-income security and changes in the ability of an
issuer to make payments of interest and principal may also affect the value of
these investments. Changes in the value of portfolio securities generally will
not affect income derived from these securities, but will affect each Fund's net
asset value. A Fund will not necessarily dispose of a security when its rating
is reduced below its rating at the time of purchase. However, the Adviser will
monitor the investment to determine whether its retention will assist in meeting
each Fund's investment objective.

Issuers of lower-rated securities are often highly leveraged, so that their
ability to service their debt obligations during an economic downturn or during
sustained periods of rising interest rates may be impaired. Such issuers may not
have more traditional methods of financing available to them and may be unable
to repay outstanding obligations at maturity by refinancing. The risk of loss
due to default in payment of interest or repayment of principal by such issuers
is significantly greater because such securities frequently are unsecured and
subordinated to the prior payment of senior indebtedness.

At times, a substantial portion of each Fund's assets may be invested in
securities as to which the Fund, by itself or together with other Funds and
accounts managed by the Adviser, holds a substantial portion. Although the
Adviser generally considers such securities to be liquid because of the
availability of an institutional market for such securities, it is possible
that, under adverse market or economic conditions or

662389.4
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<PAGE>

in the event of adverse changes in the financial condition of the issuer, a Fund
could find it more difficult to sell these securities when the Adviser believes
it advisable to do so or may be able to sell the securities only at prices lower
than if they were more widely held. Under these circumstances, it may also be
more difficult to determine the fair value of such securities for purposes of
computing each Fund's net asset value. In order to enforce its rights in the
event of a default under such securities, a Fund may be required to participate
in various legal proceedings or take possession of and manage assets securing
the issuer's obligations on such securities. This could increase a Fund's
operating expenses and adversely affect the Fund's net asset value. In addition,
each Fund's intention to qualify as a "regulated investment company" under the
Internal Revenue Code may limit the extent to which the Fund may exercise its
rights by taking possession of such assets.

The prospectus describes so-called "zero-coupon" bonds and
"payment-in-kind" bonds as possible investments for the Funds. Each Fund may
invest without limit in such bonds unless otherwise specified in the prospectus.
Zero-coupon bonds are issued at a significant discount from their principal
amount in lieu of paying interest periodically. Payment-in-kind bonds allow the
issuer, at its option, to make current interest payments on the bonds either in
cash or in additional bonds. Because zero-coupon and payment-in-kind bonds do
not pay current interest in cash, their value is subject to greater fluctuation
in response to changes in market interest rates than bonds that pay interest
currently. Both zero-coupon and payment-in-kind bonds allow an issuer to avoid
the need to generate cash to meet current interest payments. Accordingly, such
bonds may involve greater credit risks than bonds paying interest currently in
cash. Each Fund is required to accrue interest income on such investments and to
distribute such amounts at least annually to shareholders even though such bonds
do not pay current interest in cash. Thus, it may be necessary at times for a
Fund to liquidate investments in order to satisfy its dividend requirements.

To the extent a Fund invests in securities in the lower rating categories,
the achievement of the Fund's goals is more dependent on the Adviser's
investment analysis than would be the case if the Fund were investing in
securities in the higher rating categories.

662389.4
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<PAGE>

Investments in Miscellaneous Fixed-Income Securities. Unless otherwise
specified in the prospectus or elsewhere in this SAI, if a Fund may invest in
inverse floating obligations, premium securities, or interest-only or
principal-only classes of mortgage-backed securities (IOs and POs), it may do so
without limit. Each Fund, however, currently does not intend to invest more than
15% of its assets in inverse floating obligations or more than 35% of its assets
in IOs and POs under normal market conditions.

Private Placements. Each Fund may invest in securities that are purchased
in private placements (primarily Rule 144A securities) and, accordingly, are
subject to restrictions on resale as a matter of contract or under Federal
securities laws. Because there may be relatively few potential purchasers for
such investments, especially under adverse market or economic conditions or in
the event of adverse changes in the financial condition of the issuer, a Fund
could find it more difficult to sell such securities when the Adviser believes
it advisable to do so or may be able to sell such securities only at prices
lower than if such securities were more widely held. At times, it may also be
more difficult to determine the fair value of such securities for purposes of
computing a Fund's net asset value.

Loan Participations. Each Fund may invest in "loan participations." By
purchasing a loan participation, a Fund acquires some or all of the interest of
a bank or other lending institution in a loan to a particular borrower. Many
such loans are secured, and most impose restrictive covenants which must be met
by the borrower.

The loans in which a Fund may invest are typically made by a syndicate of
banks, represented by an agent bank which has negotiated and structured the loan
and which is responsible generally for collecting interest, principal, and other
amounts from the borrower on its own behalf and on behalf of the other lending
institutions in the syndicate and for enforcing its and their other rights
against the borrower. Each of the lending institutions, including the agent
bank, lends to the borrower a portion of the total amount of the loan, and
retains the corresponding interest in the loan.

A Fund's ability to receive payments of principal and interest and other
amounts in connection with loan participations held by it will depend primarily
on the financial condition of the borrower. The failure by a Fund to receive
scheduled interest or principal payments on a loan participation would adversely
affect the income of the Fund and would likely reduce the value of its assets,
which would be reflected in a reduction in the Fund's net asset value. Banks and
other lending institutions generally perform a credit analysis of the borrower

662389.4
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<PAGE>

before originating a loan or participating in a lending syndicate. In selecting
the loan participations in which a Fund will invest, however, the Adviser will
not rely solely on that credit analysis, but will perform its own investment
analysis of the borrowers. The Adviser's analysis may include consideration of
the borrower's financial strength and experience, and managerial experience,
debt coverage, additional borrowing requirements or debt maturity schedules,
changing financial conditions, and responsiveness to changes in business
conditions and interest rates. Because loan participations in which a Fund may
invest are not generally rated by independent credit rating agencies, a decision
by a Fund to invest in a particular loan participation will depend almost
exclusively on the Adviser's credit analysis, and that of the original lending
institutions, of the borrower.

Loan participations may be structured in different forms, including
notations, assignments, and participating interests. In a novation, a Fund
assumes all of the rights of a lending institution in a loan, including the
right to receive payments of principal and interest and other amounts directly
from the borrower and to enforce its rights as a lender directly against the
borrower. A Fund assumes the position of a co-lender with other syndicate
members. As an alternative, a Fund may purchase an assignment of a portion of a
lender's interest in a loan. In this case, the Fund may be required generally to
rely upon the assigning bank to demand payment and enforce its rights against
the borrower, but would otherwise be entitled to all of such bank's rights in
the loan. A Fund may also purchase a participating interest in a portion of the
rights of a lending institution in a loan. In such case, it will be entitled to
receive payments of principal, interest, and premium, if any, but will not
generally be entitled to enforce its rights directly against the agent bank or
the borrower, but must rely for that purpose on the lending institution. A Fund
may also acquire a loan participation directly by acting as a member of the
original lending syndicate.

A Fund will in many cases be required to rely upon the lending institution
from which it purchases the loan participation to collect and pass on to the
Fund such payments and to enforce the Fund's rights under the loan. As a result,
an insolvency, bankruptcy, or reorganization of the lending institution may
delay or prevent the Fund from receiving principal, interest, and other amounts
with respect to the underlying loan. When the Fund is required to rely upon a
lending institution to pay to the Fund principal, interest, and other amounts
received by it, the Adviser will also evaluate the creditworthiness of the
lending institution.

The borrower of a loan in which a Fund holds a participation interest may,
either at its own election or pursuant to terms of

662389.4
9

<PAGE>

the loan documentation, prepay amounts of the loan from time to time. There is
no assurance that a Fund will be able to reinvest the proceeds of any loan
prepayment at the same interest rate or on the same terms as those of the
original loan participation.

Corporate loans in which a Fund may purchase a loan participation are made
generally to finance internal growth, mergers, acquisitions, stock repurchases,
leveraged buy-outs, and other corporate activities. Under current market
conditions, most of the corporate loan participations purchased by a Fund will
represent interests in loans made to finance highly leveraged corporate
acquisitions, known as "leveraged buy-out" transactions. The highly leveraged
capital structure of the borrowers in such transactions may make such loans
especially vulnerable to adverse changes in economic or market conditions. In
addition, loan participations generally are subject to restrictions on transfer,
and only limited opportunities may exist to sell such participations in
secondary markets. As a result, a Fund may be unable to sell loan participations
at a time when it may otherwise be desirable to do so or may be able to sell
them only at a price that is less than their fair market value.

Certain of the loan participations acquired by a Fund may involve revolving
credit facilities under which a borrower may from time to time borrow and repay
amounts up to the maximum amount of the facility. In such cases, the Fund would
have an obligation to advance its portion of such additional borrowings upon the
terms specified in the loan participation. To the extent that a Fund is
committed to make additional loans under such a participation, it will at all
times hold and maintain in a segregated account liquid assets in an amount
sufficient to meet such commitments. Certain of the loan participations acquired
by a Fund may also involve loans made in foreign currencies. A Fund's investment
in such participations would involve the risks of currency fluctuations
described above with respect to investments in the foreign securities.

Mortgage Related Securities. The Gemini Fund may invest in mortgage-backed
securities, including collateralized mortgage obligations ("CMOs") and certain
stripped mortgage-backed securities. CMOs and other mortgage-backed securities
represent a participation in, or are secured by, mortgage loans.

Mortgage-backed securities have yield and maturity characteristics
corresponding to the underlying assets. Unlike traditional debt securities,
which may pay a fixed rate of interest until maturity, when the entire principal
amount comes due, payments on certain mortgage-backed securities include both
interest and a partial repayment of principal. Besides the scheduled repayment
of principal, repayments of principal may result from the voluntary prepayment,
refinancing, or foreclosure

662389.4
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<PAGE>

of the underlying mortgage loans. If property owners make unscheduled
prepayments of their mortgage loans, these prepayments will result in early
payment of the applicable mortgage-related securities. In that event the Gemini
Fund may be unable to invest the proceeds from the early payment of the
mortgage-related securities in an investment that provides as high a yield as
the mortgage-related securities. Consequently, early payment associated with
mortgage-related securities may cause these securities to experience
significantly greater price and yield volatility than that experienced by
traditional fixed-income securities. The occurrence of mortgage prepayments is
affected by factors including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social and
demographic conditions. During periods of falling interest rates, the rate of
mortgage prepayments tends to increase, thereby tending to decrease the life of
mortgage-related securities. During periods of rising interest rates, the rate
of mortgage prepayments usually decreases, thereby tending to increase the life
of mortgage-related securities. If the life of a mortgage-related security is
inaccurately predicted, the Gemini Fund may not be able to realize the rate of
return it expected.

Mortgage-backed securities are less effective than other types of
securities as a means of "locking in" attractive long-term interest rates. One
reason is the need to reinvest prepayments of principal; another is the
possibility of significant unscheduled prepayments resulting from declines in
interest rates. These prepayments would have to be reinvested at lower rates. As
a result, these securities may have less potential for capital appreciation
during periods of declining interest rates than other securities of comparable
maturities, although they may have a similar risk of decline in market value
during periods of rising interest rates. Prepayments may also significantly
shorten the effective maturities of these securities, especially during periods
of declining interest rates. Conversely, during periods of rising interest
rates, a reduction in prepayments may increase the effective maturities of these
securities, subjecting them to a greater risk of decline in market value in
response to rising interest rates than traditional debt securities, and,
therefore, potentially increasing the volatility of the Gemini Fund.

Prepayments may cause losses on securities purchased at a premium. At
times, some of the mortgage-backed securities in which the Gemini Fund may
invest will have higher than market interest rates and therefore will be
purchased at a premium above their par value. Unscheduled prepayments, which are
made at par, will cause the Gemini Fund to experience a loss equal to any
unamortized premium.

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CMOs may be issued by a U.S. Government agency or instrumentality or by a
private issuer. Although payment of the principal of, and interest on, the
underlying collateral securing privately issued CMOs may be guaranteed by the
U.S. Government or its agencies or instrumentalities, these CMOs represent
obligations solely of the private issuer and are not insured or guaranteed by
the U.S. Government, its agencies or instrumentalities or any other person or
entity.

Prepayments could cause early retirement of CMOs. CMOs are designed to
reduce the risk of prepayment for investors by issuing multiple classes of
securities, each having different maturities, interest rates and payment
schedules, and with the principal and interest on the underlying mortgages
allocated among the several classes in various ways. Payment of interest or
principal on some classes or series of CMOs may be subject to contingencies or
some classes or series may bear some or all of the risk of default on the
underlying mortgages. CMOS of different classes or series are generally retired
in sequence as the underlying mortgage loans in the mortgage pool are repaid. If
enough mortgages are repaid ahead of schedule, the classes or series of a CMO
with the earliest maturities generally will be retired prior to their
maturities. Thus, the early retirement of particular classes or series of a CMO
held by the Gemini Fund would have the same effect as the prepayment of
mortgages underlying other mortgage-backed securities. Conversely, slower than
anticipated prepayments can extend the effective maturities of CMOs, subjecting
them to a greater risk of decline in market value in response to rising interest
rates than traditional debt securities, and, therefore, potentially increasing
the volatility of the Gemini Fund.

Prepayments could result in losses on stripped mortgage-backed securities.
Stripped mortgage-backed securities are usually structured with two classes that
receive different portions of the interest and principal distributions on a pool
of mortgage loans. The Gemini Fund may invest in both the interest-only or "IO"
class and the principal-only or "PO" class. The yield to maturity on an IO class
of stripped mortgage-backed securities is extremely sensitive not only to
changes in prevailing interest rates but also to the rate of principal payments
(including prepayments) on the underlying assets. A rapid rate of principal
prepayments may have a measurable adverse effect on the Gemini Fund's yield to
maturity to the extent it invests in IOs. If the assets underlying the IO
experience greater than anticipated prepayments of principal, the Gemini Fund
may fail to recoup fully its initial investment in these securities. Conversely,
POs tend to increase in value if prepayments are greater than anticipated and
decline if prepayments are slower than anticipated.

662389.4
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<PAGE>

The secondary market for stripped mortgage-backed securities may be more
volatile and less liquid than that for other mortgage-backed securities,
potentially limiting the Gemini Fund's ability to buy or sell those securities
at any particular time.

Securities Loans. Each Fund may make secured loans of its portfolio
securities, on either a short-term or long-term basis, amounting to not more
than 25% of its total assets, thereby realizing additional income. The risks in
lending portfolio securities, as with other extensions of credit, consist of
possible delay in recovery of the securities or possible loss rights in the
collateral should the borrower fail financially. As a matter of policy,
securities loans are made to broker-dealers pursuant to agreements requiring
that the loans be continuously secured by collateral consisting of cash or
short-term debt obligations at least equal at all times to the value of the
securities on loan, "marked-to-market" daily. The borrower pays to the Fund an
amount equal to any dividends or interest received on securities lent. The Fund
retains all or a portion of the interest received on investment of the cash
collateral or receives a fee from the borrower. Although voting rights, or
rights to consent, with respect to the loaned securities may pass to the
borrower, each Fund retains the right to call the loans at any time on
reasonable notice, and it will do so to enable the Fund to exercise voting
rights on any matters materially affecting the investment. Each Fund may also
call such loans in order to sell the securities.

Puts. To help assure appropriate liquidity, each Fund may acquire
securities which provide for the right to resell them to the issuer, a bank or a
broker-dealer at a specified price within a specified period of time prior to
the maturity date of such obligation. Such a right to resell, which is commonly
known a "put," may be sold, transferred or assigned only with the underlying
security or securities.

If an issuer, bank or broker-dealer should default on its obligation to
repurchase a security, a Fund might be unable to recover all or a portion of any
loss sustained from having to sell the security elsewhere. It will be each
Fund's policy to enter into puts only with issuers, banks or broker-dealers that
are determined by the Adviser to present minimal credit risks.

Writing Covered Options on Securities. Each Fund may write covered call
options and covered put options on optionable securities held in its portfolio,
when in the opinion of the Adviser such transactions are consistent with the
Fund's investment objective and policies. Call options written by a Fund give
the purchaser the right to buy the underlying securities from the Fund at a
stated exercise price; put options

662389.4
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<PAGE>

give the purchaser the right to sell the underlying securities to the Fund at a
stated price.

Each Fund may write only covered options, which means that, so long as the
Fund is obligated as the writer of a call option, it will own the underlying
securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, each Fund
will hold cash and/or high-grade short-term debt obligations equal to the price
to be paid if the option is exercised. In addition, each Fund will be considered
to have covered a put or call option if and to the extent that it holds an
option that offsets some or all of the risk of the option it has written. A Fund
may write combinations of covered puts and calls on the same underlying
security.

Each Fund will receive a premium from writing a put or call option, which
increases the Fund's return on the underlying security in the event the option
expires unexercised or is closed out at a profit. The amount of the premium
reflects, among other things, the relationship between the exercise price and
the current market value of the underlying security, the volatility of the
underlying security, the amount of time remaining until expiration, current
interest rates, and the effect of supply and demand in the options market and in
the market for the underlying security. By writing a call option, the Fund
limits its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option but continues to bear
the risk of a decline in the value of the underlying security. By writing a put
option, the Fund assumes the risk that it may be required to purchase the
underlying security for an exercise price higher than its then-current market
value, resulting in a potential capital loss unless the security subsequently
appreciates in value.

Each Fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction, in which it
purchases an offsetting option. A Fund realizes a profit or loss from a closing
transaction if the cost of the transaction (option premium plus transaction
costs) is less or more than the premium received from writing the option. If a
Fund writes a call option but does not own the underlying security, and when it
writes a put option, the Fund may be required to deposit cash or securities with
its broker as "margin," or collateral, for its obligation to buy or sell the
underlying security. As the value of the underlying security varies, a Fund may
have to deposit additional margin with the broker. Margin requirements are
complex and are fixed by individual brokers, subject to minimum requirements
currently imposed by the Federal Reserve Board and by stock exchanges and other
self-regulatory organizations.

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<PAGE>

Purchasing Call Options. Each Fund may purchase call options to hedge
against an increase in the price of securities that the Fund wants ultimately to
buy. Such hedge protection is provided during the life of the call option since
the Fund, as holder of the call option, is able to buy the underlying security
at the exercise price regardless of any increase in the underlying security's
market price. In order for a call option to be profitable, the market price of
the underlying security must rise sufficiently above the exercise price to cover
the premium and transaction costs.

Risk Factors in Options Transactions. The successful use of a Fund's
options strategies depends on the ability of the Adviser to forecast correctly
interest rate and market movements. For example, if a Fund were to write a call
option based on the Adviser's expectation that the price of the underlying
security would fall, but the price were to rise instead, the Fund could be
required to sell the security upon exercise at a price below the current market
price. Similarly, if a Fund were to write a put option based on the Adviser's
expectation that the price of the underlying security would rise, but the price
were to fall instead, the Fund could be required to purchase the security upon
exercise at a price higher than the current market price.

When a Fund purchases an option, it runs the risk that it will lose its
entire investment in the option in a relatively short period of time, unless the
Fund exercises the option or enters into a closing sale transaction before the
option's expiration. If the price of the underlying security does not rise (in
the case of a call) or fall (in the case of a put) to an extent sufficient to
cover the option premium and transaction costs, the Fund will lose part or all
of its investment in the option. This contrasts with an investment by the Fund
in the underlying security, since the Fund will not realize a loss if the
security's price does not change.

The effective use of options also depends on a Fund's ability to terminate
option positions at times when the Adviser deems it desirable to do so. There is
no assurance that a Fund will be able to effect closing transactions at any
particular time or at an acceptable price.

If a secondary market in options were to become unavailable, a Fund could
no longer engage in closing transactions. Lack of investor interest might
adversely affect the liquidity of the market for particular options or series of
options. A market may discontinue trading of a particular option or options
generally. In addition, a market could become temporarily unavailable if unusual
events -- such as volume in excess of trading or clearing capability -- were to
interrupt its normal operations.

662389.4
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<PAGE>

A market may at times find it necessary to impose restrictions on
particular types of options transactions, such as opening transactions. For
example, if an underlying security ceases to meet qualifications imposed by the
market or the Options Clearing Corporation, new series of options on that
security will no longer be opened to replace expiring series, and opening
transactions in existing series may be prohibited. If an options market were to
become unavailable, a Fund as a holder of an option would be able to realize
profits or limit losses only by exercising the option, and the Fund, as option
writer, would remain obligated under the option until expiration or exercise.

Disruptions in the markets for the securities underlying options purchased
or sold by a Fund could result in losses on the options. If trading is
interrupted in an underlying security, the trading of options on that security
is normally halted as well. As a result, a Fund as purchaser or writer of an
option will be unable to close out its positions until options trading resumes,
and it may be faced with considerable losses if trading in the security reopens
at a substantially different price. In addition, the Options Clearing
Corporation or other options markets may impose exercise restrictions. If a
prohibition on exercise is imposed at the time when trading in the option has
also been halted, the Fund as purchaser or writer of an option will be locked
into its position until one of the two restrictions has been lifted. If the
Options Clearing Corporation were to determine that the available supply of an
underlying security appears insufficient to permit delivery by the writers of
all outstanding calls in the event of exercise, it may prohibit indefinitely the
exercise of put options. A Fund, as holder of such a put option, could lose its
entire investment if the prohibition remained in effect until the put option's
expiration.

Foreign-traded options are subject to many of the same risks presented by
internationally-traded securities. In addition, because of time differences
between the United States and various foreign countries, and because different
holidays are observed in different countries, foreign options markets may be
open for trading during hours or on days when U.S. markets are closed. As a
result, option premiums may not reflect the current prices of the underlying
interest in the United States.

Over-the-counter ("OTC") options purchased by a Fund and assets held to
cover OTC options written by the Fund may, under certain circumstances, be
considered illiquid securities for purposes of any limitation on the Fund's
ability to invest in illiquid securities.

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<PAGE>

Futures Contracts and Related Options. Subject to applicable law, and
unless otherwise specified in the prospectus, each Fund may invest without limit
in the types of futures contracts and related options identified in the
prospectus for hedging and non-hedging purposes, such as to manage the effective
duration of the Fund's portfolio or as a substitute for direct investment. A
financial futures contract sale creates an obligation by the seller to deliver
the type of financial instrument called for in the contract in a specified
delivery month for a stated price. A financial futures contract purchase creates
an obligation by the purchaser to take delivery of the type of financial
instrument called for in the contract in a specified delivery month at a stated
price. The specific instruments delivered or taken, respectively, at settlement
date are not determined until on or near that date. The determination is made in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made. Futures contracts are traded in the United States only on
commodity exchanges or boards of trade -- known as "contract markets" --
approved for such trading by the Commodity Futures Trading Commission (the
"CFTC"), and must be executed through a futures commission merchant or brokerage
firm which is a member of the relevant contract market.

Although futures contracts (other than index futures) by their terms call
for actual delivery or acceptance of commodities or securities, in most cases
the contracts are closed out before the settlement date without the making or
taking of delivery.

Closing out a futures contract sale is effected by purchasing a futures
contract for the same aggregate amount of the specific type of financial
instrument or commodity with the same delivery date. If the price of the initial
sale of the futures contract exceeds the price of the offsetting purchase, the
seller is paid the difference and realizes a gain. Conversely, if the price of
the offsetting purchase exceeds the price of the initial sale, the seller
realizes a loss. If a Fund is unable to enter into a closing transaction, the
amount of the Fund's potential loss is unlimited. The closing out of a futures
contract purchase is effected by the purchaser's entering into a futures
contract sale. If the offsetting sale price exceeds the purchase price, the
purchaser realizes a gain, and if the purchase price exceeds the offsetting sale
price, he realizes a loss. In general, 40% of the gain or loss arising from the
closing out of a futures contract traded on an exchange approved by the CFTC is
treated as short-term gain or loss, and 60% is treated as long-term gain or
loss.

Unlike when a Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract. Upon
entering into a contract, the Fund is required to deposit with its custodian in
a segregated account in the name of the futures broker an amount of liquid
assets. This

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<PAGE>

amount is known as "initial margin." The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve the borrowing of Funds to finance the
transactions. Rather, initial margin is similar to a performance bond or good
faith deposit which is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied. Futures
contracts also involve brokerage costs.

Subsequent payments, called "variation margin" or "maintenance margin," to
and from the broker (or the custodian) are made on a daily basis as the price of
the underlying security or commodity fluctuates, making the long and short
positions in the futures contract more or less valuable, a process known as
"marking to the market." For example, when a Fund has purchased a futures
contract on a security and the price of the underlying security has risen, that
position will have increased in value and the Fund will receive from the broker
a variation margin payment based on that increase in value. Conversely, when a
Fund has purchased a security futures contract and the price of the underlying
security has declined, the position would be less valuable and the Fund would be
required to make a variation margin payment to the broker.

A Fund may elect to close some or all of its futures positions at any time
prior to their expiration in order to reduce or eliminate a hedge position then
currently held by the Fund. The Fund may close its positions by taking opposite
positions which will operate to terminate the Fund's position in the futures
contracts. Final determinations of variation margin are then made, additional
cash is required to be paid by or released to a Fund, and the Fund realizes a
loss or a gain. Such closing transactions involve additional commission costs.

Each Fund does not intend to purchase or sell futures or related options
for other than hedging purposes, if, as a result, the sum of the initial margin
deposits on the Fund's existing futures and related options positions and
premiums paid for outstanding options on futures contracts would exceed 5% of
the Fund's net assets.

Options on Futures Contracts. Each Fund may purchase and write call and put
options on futures contracts it may buy or sell and enter into closing
transactions with respect to such options to terminate existing positions.
Options on futures contracts give the purchaser the right in return for the
premium paid to assume a position in a futures contract at the specified option
exercise price at any time during the period of the option. A Fund may use
options on futures contracts in lieu of writing or buying options directly on
the underlying securities or purchasing and selling the underlying futures
contracts. For example, to hedge against a possible decrease in the value of its
portfolio securities, a Fund may purchase put options or write

662389.4
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<PAGE>

call options on futures contracts rather than selling futures contracts.
Similarly, a Fund may purchase call options or write put options on futures
contracts as a substitute for the purchase of futures contracts to hedge against
a possible increase in the price of securities which the Fund expects to
purchase. Such options generally operate in the same manner as options purchased
or written directly on the underlying investments.

As with options on securities, the holder or writer of an option may
terminate his position by selling or purchasing an offsetting option. There is
no guarantee that such closing transactions can be effected.

Each Fund will be required to deposit initial margin and maintenance margin
with respect to put and call options on futures contracts written by it pursuant
to brokers' requirements similar to those described above in connection with the
discussion of futures contracts.

Risks of Transactions in Futures Contracts and Related Options. Successful
use of futures contracts by a Fund is subject to the Adviser's ability to
predict movements in various factors affecting securities markets, including
interest rates. Compared to the purchase or sale of futures contracts, the
purchase of call or put options on futures contracts involves less potential
risk to a Fund because the maximum amount at risk is the premium paid for the
options (plus transaction costs). However, there may be circumstances when the
purchase of a call or put option on a futures contract would result in a loss to
a Fund when the purchase or sale of a futures contract would not, such as when
there is no movement in the prices of the hedged investments. The writing of an
option on a futures contract involves risks similar to those risks relating to
the sale of futures contracts.

There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain market clearing
facilities inadequate, and thereby result in the institution by exchanges of
special procedures which may interfere with the timely execution of customer
orders.

To reduce or eliminate a position held by a Fund, the Fund may seek to
close out such position. The ability to establish

662389.4
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<PAGE>

and close out positions will be subject to the development and maintenance of a
liquid secondary market. It is not certain that this market will develop or
continue to exist for a particular futures contract or option. Reasons for the
absence of a liquid secondary market on an exchange include the following: (i)
there may be insufficient trading interest in certain contracts or options; (ii)
restrictions may be imposed by an exchange on opening transactions or closing
transactions or both; (iii) trading halts, suspensions or other restrictions may
be imposed with respect to particular classes or series of contracts or options,
or underlying securities; (iv) unusual or unforeseen circumstances may interrupt
normal operations on an exchange; (v) the facilities of an exchange or a
clearing corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of
contracts or options (or a particular class or series of contracts or options),
in which event the secondary market on that exchange for such contracts or
options (or in the class or series of contracts or options) would cease to
exist, although outstanding contracts or options on the exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.

U.S. Treasury Security Futures Contracts and Options. U.S. Treasury
security futures contracts require the seller to deliver, or the purchaser to
take delivery of, the type of U.S. Treasury security called for in the contract
at a specified date and price. Options on U.S. Treasury security futures
contracts give the purchaser the right in return for the premium paid to assume
a position in a U.S. Treasury security futures contract at the specified option
exercise price at any time during the period of the option.

Successful use of U.S. Treasury security futures contracts by a Fund is
subject to the Adviser's ability to predict movements in the direction of
interest rates and other factors affecting markets for debt securities. For
example, if a Fund has sold U.S. Treasury security futures contracts in order to
hedge against the possibility of an increase in interest rates which would
adversely affect securities held in its portfolio, and the prices of the Fund's
securities increase instead as a result of a decline in interest rates, the Fund
will lose part or all of the benefit of the increased value of its securities
which it has hedged because it will have offsetting losses in its futures
positions. In addition, in such situations, if a Fund has insufficient cash, it
may have to sell securities to meet daily maintenance margin requirements at a
time when it may be disadvantageous to do so.

There is also a risk that price movements in U.S. Treasury security futures
contracts and related options will not correlate

662389.4
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<PAGE>

closely with price movements in markets for particular securities.

Index Futures Contracts. An index futures contract is a contract to buy or
sell units of an index at a specified future date at a price agreed upon when
the contract is made. Entering into a contract to buy units of an index is
commonly referred to as buying or purchasing a contract or holding a long
position in the index. Entering into a contract to sell units of an index is
commonly referred to as selling a contract or holding a short position. A unit
is the current value of the index. Each Fund may enter into stock index futures
contracts, debt index futures contracts, or other index futures contracts
appropriate to its objective. Each Fund may also purchase and sell options on
index futures contracts.

For example, the Standard & Poor's 500 Composite Stock Price Index ("S&P
500") is composed of 500 selected common stocks, most of which are listed on the
New York Stock Exchange. The S&P 500 assigns relative weightings to the common
stocks included in the Index, and the value fluctuates with changes in the
market values of those common stocks. In the case of the S&P 500, contracts are
to buy or sell 500 units. Thus, if the value of the S&P 500 were $150, one
contract could be worth $75,000 (500 units x $150). The stock index futures
contract specifies that no delivery of the actual stocks making up the index
will take place. Instead, settlement in cash must occur upon the termination of
the contract, with the settlement being the difference between the contract
price and the actual level of the stock index at the expiration of the contract.
For example, if a Fund enters into a futures contract to buy 500 units of the
S&P 500 at a specified future date at a contract price of $150 and the S&P 500
is at $154 on that future date, the Fund will gain $2,000 (500 units x gain of
$4). If a Fund enters into a futures contract to sell 500 units of the stock
index at a specified future date at a contract price of $150 and the S&P 500 is
at $152 on that future date, the Fund will lose $1,000 (500 units x loss of $2).

There are several risks in connection with the use by a Fund of index
futures. One risk arises because of the imperfect correlation between movements
in the prices of the index futures and movements in the prices of securities
which are the subject of the hedge. The Adviser will, however, attempt to reduce
this risk by buying or selling, to the extent possible, futures on indices the
movements of which will, in its judgment, have a significant correlation with
movements in the prices of the securities sought to be hedged.

Successful use of index futures by a Fund is also subject to the Adviser's
ability to predict movements in the direction of the market. For example, it is
possible that, where a Fund has sold futures to hedge its portfolio against a
decline in the

662389.4
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<PAGE>

market, the index on which the futures are written may advance and the value of
securities held in the Fund's portfolio may decline. If this occurred, a Fund
would lose money on the futures and also experience a decline in value in its
portfolio securities. It is also possible that, if a Fund has hedged against the
possibility of a decline in the market adversely affecting securities held in
its portfolio and securities prices increase instead, the Fund will lose part or
all of the benefit of the increased value of those securities it has hedged
because it will have offsetting losses in its futures positions. In addition, in
such situations, if a Fund has insufficient cash, it may have to sell securities
to meet daily variation margin requirements at a time when it is disadvantageous
to do so.

In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the index futures and the portion
of a Fund's portfolio being hedged, the prices of index futures may not
correlate perfectly with movements in the underlying index due to certain market
distortions. First, all participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the index and
futures markets. Second, margin requirements in the futures market are less
onerous than margin requirements in the securities market, and as a result the
futures market may attract more speculators than the securities market does.
Increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and also because of the imperfect correlation between movements
in the index and movements in the prices of index futures, even a correct
forecast of general market trends by the Adviser may still not result in a
profitable position over a short time period.

Options on Stock Index Futures. Options on index futures are similar to
options on securities except that options on index futures give the purchaser
the right, in return for the premium paid, to assume a position in an index
futures contract (a long position if the option is a call and a short position
if the option is a put) at a specified exercise price at any time during the
period of the option. Upon exercise of the option, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's futures
margin account which represents the amount by which the market price of the
index futures contract, at exercise, exceeds (in the case of a call) or is less
than (in the case of a put) the exercise price of the option on the index
future. If an option is exercised on the last trading day prior to its
expiration date, the settlement will be made entirely in cash equal to the
difference between the exercise price of the option and the closing level of the
index

662389.4
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<PAGE>

on which the future is based on the expiration date. Purchasers of options who
fail to exercise their options prior to the exercise date suffer a loss of the
premium paid.

Options on Indices. As an alternative to purchasing call and put options on
index futures, each Fund may purchase and sell call and put options on the
underlying indices themselves. Such options would be used in a manner identical
to the use of options on index futures.

Index Warrants. Each Fund may purchase put warrants and call warrants whose
values vary depending on the change in the value of one or more specified
securities indices ("index warrants"). Index warrants are generally issued by
banks or other financial institutions and give the holder the right, at any time
during the term of the warrant, to receive upon exercise of the warrant a cash
payment from the issuer based on the value of the underlying index at the time
of exercise. In general, if the value of the underlying index rises above the
exercise price of the index warrant, the holder of a call warrant will be
entitled to receive a cash payment from the issuer upon exercise based on the
difference between the value of the index and the exercise price of the warrant;
if the value of the underlying index falls, the holder of a put warrant will be
entitled to receive a cash payment from the issuer upon exercise based on the
difference between the exercise price of the warrant and the value of the index.
The holder of a warrant would not be entitled to any payments from the issuer at
any time when, in the case of a call warrant, the exercise price is greater than
the value of the underlying index, or, in the case of a put warrant, the
exercise price is less than the value of the underlying index. If a Fund were
not to exercise an index warrant prior to its expiration, then the Fund would
lose the amount of the purchase price paid by it for the warrant.

Each Fund will normally use index warrants in a manner similar to its use
of options on securities indices. The risks of a Fund's use of index warrants
are generally similar to those relating to its use of index options. Unlike most
index options, however, index warrants are issued in limited amounts and are not
obligations of a regulated clearing agency, but are backed only by the credit of
the bank or other institution which issues the warrant. Also, index warrants
generally have longer terms than index options. Although a Fund will normally
invest only in exchange-listed warrants, index warrants are not likely to be as
liquid as certain index options backed by a recognized clearing agency. In
addition, the terms of index warrants may limit a Fund's ability to exercise the
warrants at such time, or in such quantities, as the Fund would otherwise wish
to do.

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<PAGE>

Foreign Currency Transactions. Unless otherwise specified in the prospectus
or this SAI, a Fund may engage without limit in currency exchange transactions,
including purchasing and selling foreign currency, foreign currency options,
foreign currency forward contracts and foreign currency futures contracts and
related options, to protect against uncertainty in the level of future currency
exchange rates. In addition, each Fund may write covered call and put options on
foreign currencies for the purpose of increasing its current return.

Generally, a Fund may engage in both "transaction hedging" and "position
hedging." When it engages in transaction hedging, a Fund enters into foreign
currency transactions with respect to specific receivables or payables,
generally arising in connection with the purchase or sale of portfolio
securities. A Fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging a Fund will attempt to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the security is purchased or sold, or on which the dividend or
interest payment is earned, and the date on which such payments are made or
received.

A Fund may purchase or sell a foreign currency on a spot (or cash) basis at
the prevailing spot rate in connection with the settlement of transactions in
portfolio securities denominated in that foreign currency. If conditions
warrant, for transaction hedging purposes a Fund may also enter into contracts
to purchase or sell foreign currencies at a future date ("forward contracts")
and purchase and sell foreign currency futures contracts. A foreign currency
forward contract is a negotiated agreement to exchange currency at a future time
at a rate or rates that may be higher or lower than the spot rate. Foreign
currency futures contracts are standardized exchange-traded contracts and have
margin requirements. In addition, for transaction hedging purposes a Fund may
also purchase or sell exchange-listed and over-the-counter call and put options
on foreign currency futures contracts and on foreign currencies. A Fund may also
enter into contracts to purchase or sell foreign currencies at a future date
("forward contracts") and purchase and sell foreign currency futures contracts.

For transaction hedging purposes a Fund may also purchase exchange-listed
and over-the-counter call and put options on foreign currency futures contracts
and on foreign currencies. A put option on a futures contract gives the Fund the
right to assume a short position in the futures contract until the expiration of
the option. A put option on a currency gives the Fund the right to sell the
currency at an exercise price until the expiration of the option. A call option
on a futures

662389.4
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<PAGE>

contract gives the Fund the right to assume a long position in the futures
contract until the expiration of the option. A call option on a currency gives
the Fund the right to purchase the currency at the exercise price until the
expiration of the option.

Each Fund may engage in position hedging to protect against a decline in
the value relative to the U.S. dollar of the currencies in which its portfolio
securities are denominated or quoted (or an increase in the value of the
currency in which the securities the Fund intends to buy are denominated, when
the Fund holds cash or short-term investments). For position hedging purposes,
the Fund may purchase or sell foreign currency futures contracts, foreign
currency forward contracts and options on foreign currency futures contracts and
on foreign currencies on exchanges or in over-the-counter markets. In connection
with position hedging, the Fund may also purchase or sell foreign currency on a
spot basis.

It is impossible to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, it may be necessary for a Fund to purchase additional foreign
currency on the spot market (and bear the expense of such purchase) if the
market value of the security or securities being hedged is less than the amount
of foreign currency the Fund is obligated to deliver and a decision is made to
sell the security or securities and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the portfolio security or securities if the
market value of such security or securities exceeds the amount of foreign
currency the Fund is obligated to deliver.

Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which a Fund owns or intends to purchase or
sell. They simply establish a rate of exchange which one can achieve at some
future point in time. Additionally, although these techniques tend to minimize
the risk of loss due to a decline in the value of the hedged currency, they tend
to limit any potential gain which might result from the increase in value of
such currency. See "Risk Factors in Options Transactions" above.

Each Fund may seek to increase its current return or to offset some of the
costs of hedging against fluctuations in current exchange rates by writing
covered call options and covered put options on foreign currencies. The Fund
receives a premium from writing a call or put option, which increases the Fund's
current return if the option expires unexercised or is closed out at a net
profit. The Fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in which it purchases
an option having the same terms as the option written.

662389.4
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<PAGE>

A Fund's currency hedging transactions may call for the delivery of one
foreign currency in exchange for another foreign currency and may at times not
involve currencies in which its portfolio securities are then denominated. The
Adviser will engage in such "cross hedging" activities when it believes that
such transactions provide significant hedging opportunities for a Fund. Cross
hedging transactions by a Fund involve the risk of imperfect correlation between
changes in the values of the currencies to which such transactions relate and
changes in the value of the currency or other asset or liability which is the
subject of the hedge.

The value of any currency, including U.S. dollars and foreign currencies,
may be affected by complex political and economic factors applicable to the
issuing country. In addition, the exchange rates of foreign currencies (and
therefore the values of foreign currency options, forward contracts and futures
contracts) may be affected significantly, fixed, or supported directly or
indirectly by U.S. and foreign government actions. Government intervention may
increase risks involved in purchasing or selling foreign currency options,
forward contracts and futures contracts, since exchange rates may not be free to
fluctuate in response to other market forces.

The value of a foreign currency option, forward contract or futures
contract reflects the value of an exchange rate, which in turn reflects relative
values of two currencies, the U.S. dollar and the foreign currency in question.
Because foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the exercise of
foreign currency options, forward contracts and futures contracts, investors may
be disadvantaged by having to deal in an odd-lot market for the underlying
foreign currencies in connection with options at prices that are less favorable
than for round lots. Foreign governmental restrictions or taxes could result in
adverse changes in the cost of acquiring or disposing of foreign currencies.

There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that notations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
round-lot transactions in the interbank market and thus may not reflect exchange
rates for smaller odd-lot transactions (less than $1 million) where rates may be
less favorable. The interbank market in foreign currencies is a global,
around-the-clock market. To the extent that options markets are closed while the
markets for the underlying currencies remain open, significant price and rate
movements may take place in the underlying markets that cannot be reflected in
the options markets.

662389.4
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<PAGE>

The decision as to whether and to what extent a Fund will engage in foreign
currency exchange transactions will depend on a number of factors, including
prevailing market conditions, the composition of the Fund's portfolio and the
availability of suitable transactions. Accordingly, there can be no assurance
that a Fund will engage in foreign currency exchange transactions at any given
time or from time to time.

Currency Forward and Futures Contracts. A forward foreign currency contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract as agreed by
the parties, at a price set at the time of the contract. In the case of a
cancelable forward contract, the holder has the unilateral right to cancel the
contract at maturity by paying a specified fee. The contracts are traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades. A
foreign currency futures contract is a standardized contract for the future
delivery of a specified amount of a foreign currency at a price set at the time
of the contract. Foreign currency futures contracts traded in the United States
are designed by and traded on exchanges regulated by the CFTC, such as the New
York Mercantile Exchange.

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

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

Positions in the foreign currency futures contracts may be closed out only
on an exchange or board of trade which provides a secondary market in such
contracts. Although each Fund intends to purchase or sell foreign currency
futures contracts only on exchanges or boards of trade where there appears to be
an active

662389.4
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<PAGE>

secondary market, there is no assurance that a secondary market on an exchange
or board of trade will exist for any particular contract or at any particular
time. In such event, it may not be possible to close a futures position and, in
the event of adverse price movements, a Fund would continue to be required to
make daily cash payments of variation margin.

Foreign Currency Options. In general, options on foreign currencies operate
similarly to options on securities and are subject to many of the risks
described above. Foreign currency options are traded primarily in the
over-the-counter market, although options on foreign currencies are also listed
on several exchanges. Options are traded not only on the currencies of
individual nations, but also on the European Currency Unit ("ECU"). The ECU is
composed of amounts of a number of currencies, and is the official medium of
exchange of the European Community's European Monetary System.

Each Fund will only purchase or write foreign currency options when the
Adviser believes that a liquid secondary market exists for such options. There
can be no assurance that a liquid secondary market will exist for a particular
option at any specific time. Options on foreign currencies are affected by all
of those factors which influence foreign exchange rates and investments
generally.

Settlement Procedures. Settlement procedures relating to a Fund's
investments in foreign securities and to the Fund's foreign currency exchange
transactions may be more complex than settlements with respect to investments in
debt or equity securities of U.S. issuers, and may involve certain risks not
present in a Fund's domestic investments. For example, settlement of
transactions involving foreign securities or foreign currencies may occur within
a foreign country, and a Fund may be required to accept or make delivery of the
underlying securities or currency in conformity with any applicable U.S. or
foreign restrictions or regulations, and may be required to pay any fees, taxes
or charges associated with such delivery. Such investments may also involve the
risk that an entity involved in the settlement may not meet its obligations.

Foreign Currency Conversion. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to a
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.

Restricted Securities. The SEC Staff currently takes the view that any
delegation by the Trustees of the authority to determine that a restricted
security is readily marketable (as

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described in the investment restrictions of the Funds) must be pursuant to
written procedures established by the Trustees. It is the present intention of
the Trustees that, if the Trustees decide to delegate such determinations to the
Adviser or another person, they would do so pursuant to written procedures,
consistent with the Staff's position. Should the Staff modify its position in
the future, the Trustees would consider what action would be appropriate in
light of the Staff's position at that time.

Illiquid Securities. As set forth in the Prospectus, each Fund may invest
in Rule 144A securities and commercial paper issued pursuant to Rule 4(2) under
the Securities Act of 1933, and treat such securities as liquid when they have
been determined to be liquid by the Board of Directors of the Company or by the
Adviser subject to the oversight of and pursuant to procedures adopted by the
Board of Directors. Under these procedures, factors taken into account in
determining the liquidity of a security include (a) the frequency of trades and
quotes for the security; (b) the number of dealers willing to purchase or sell
the security and the number of other potential purchasers; (c) dealer
undertakings to make a market in the security; and (d) the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
transfer). With respect to Rule 144A securities, investing in such securities
could have the effect of increasing the level of a Fund's illiquidity to the
extent that qualified institutional buyers become, for a time, uninterested in
purchasing these securities.

Investment Restrictions

In addition to the investment objective and policies set forth in the
Prospectus and in this Statement of Additional Information, each Fund is subject
to certain fundamental and non-fundamental investment restrictions, as set forth
below. Fundamental investment restrictions may not be changed with respect to
each Fund individually, without the vote of a majority of such Fund's
outstanding shares. Non-fundamental investment restrictions of each Fund may be
changed by the Board of Directors.

As fundamental investment restrictions, each Fund will not:

1. Invest 25% or more of the value of its total assets in the securities of
issuers conducting their principal business activities in any one industry. This
restriction does not apply to securities of the U.S. Government or its agencies
and instrumentalities and repurchase agreements relating thereto.

662389.4
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<PAGE>

2. Purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities), if, as a
result, as to 75% of each Fund's total assets, more than 5% of its net assets
would be invested in the securities of one issuer or such Fund would hold more
than 10% of the outstanding voting securities of any one issuer.

3. Issue any senior securities, as defined in the Investment Company Act of
1940, as amended (the "1940 Act"), other than as set forth in restriction number
4 below and except to the extent that purchasing or selling securities on a
when-issued or delayed delivery basis may be deemed to constitute issuing a
senior security.

4. Borrow amounts in excess of 10% of the cost or 5% of the market value of
its total assets, whichever is less, and then only from a bank and as a
temporary measure for extraordinary or emergency purposes. Reverse repurchase
agreements are treated as a borrowing for purposes of this restriction number 4.
To secure any such borrowing, a Fund may pledge or hypothecate not in excess of
15% of the value of its total assets.

5. Purchase or sell commodities or commodity futures contracts.

6. Act as an underwriter of securities of other issuers, except insofar as
a Fund may be technically deemed an underwriter under the federal securities
laws in connection with the disposition of portfolio securities.

7. Engage in any short-selling operations.

8. Lend money other than through the purchase of debt securities in
accordance with its investment policies.

9. Engage in margin transactions or in transactions involving puts, calls,
straddles, or spreads, except as permitted by the Fund under its investment
policies.

10. Acquire or retain more than 5% of the securities of any other
investment company.

Each Fund is also subject to the following restrictions that are not
fundamental and may therefore be changed by the Board of Directors without
shareholder approval.

The Fund will not:

1. Acquire securities for the purpose of exercising control over
management.

662389.4
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<PAGE>

2. Invest more than 15% of its net assets in illiquid securities.

Unless otherwise indicated, percentage limitations included in the
restrictions apply at the time a Fund enters into a transaction. Accordingly,
any later increase or decrease beyond the specified limitation resulting from a
change in a Fund's net assets will not be considered in determining whether its
has complied with its investment restrictions.

DIRECTORS AND EXECUTIVE OFFICERS

The following table contains information concerning the directors and
officers of the Company and their principal occupations during the past five
years. Trustees who are interested persons, as defined by the 1940 Act, are
indicated by asterisk.

POSITIONS HELD WITH
NAME AND ADDRESS AGE THE COMPANY

David B. Welliver Chairman of the Board
First National Bank Building of Directors, Chief
332 Minnesota Street - W-1072 Executive Officer and
St. Paul, MN 55101 Director
Michael Miola President, Chief
The Hauppauge Corporate Center Financial Officer,
150 Motor Parkway Secretary and Director
Hauppauge, New York 11788

Mr. Welliver has been President, Chief Executive Officer and chief
portfolio manager of Welliver Rothschild Investment Advisers, Inc., a registered
investment advisor, since he founded that company in 1992. From ______________
until 1992, he was an analyst at Standard Valuations, Inc., a performance
management firm in St. Paul, Minnesota. From _______ until __________, he was a
stockbroker at Dean Witter Reynolds Inc. in Minneapolis, Minnesota.

(Insert M. Miola's Biography)

The members of the Audit Committee of the Board of Directors are
________________ and ________________. _____________________ acts as the
chairperson of such committee. The Audit Committee oversees the Company's
financial reporting process, reviews audit results and recommends annually to
the Company a firm of independent certified public accountants.

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<PAGE>

The Directors of the Company who are officers or employees of the Adviser,
the Administrator or their affiliates receive no remuneration from the Company.
Each disinterested Director receives a fee from the Company shared pro rata by
each Fund for each regular quarterly and in-person special meeting of the Board
of Directors attended. Members of the Board who are not affiliated with the
Adviser or the Administrator receive $500 for each Board meeting attended. In
addition, each Director who is not affiliated with the Adviser or the
Administrator is reimbursed for expenses incurred in connection with attending
meetings.

The following table sets forth the estimated compensation expected to be
received by each trustee from the Company during the fiscal year ended
[__________________,] 1998.

Aggregate Estimated
Director Compensation from the Company

David B. Welliver $0
Michael Miola $0

INVESTMENT ADVISORY AND OTHER SERVICES

The investment adviser for each Fund is Welliver Rothschild Investment
Advisers, Inc. (the "Adviser") and will act as such pursuant to a written
agreement which will be annually re-approved by the trustees of the Company. The
address of the Adviser is First National Bank Building, 332 Minnesota Street, W-
1072, St. Paul, Minnesota 55101.

Control of the Adviser

The Adviser is indirectly wholly-owned by David B. Welliver, who is engaged
through his other companies in various aspects of the financial services
industry. Mr. Welliver is also the Chairman of its Board of Directors and its
Chief Executive Officer.

Investment Advisory Agreement

The Adviser acts as the investment adviser of each Fund under an Investment
Advisory Agreement which has been approved by the Board of Directors (including
a majority of the trustees who are not parties to the agreement, or interested
persons of any such party).

662389.4
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<PAGE>

The Investment Advisory Agreement will terminate automatically in the event
of its assignment. In addition, the agreement is terminable at any time, without
penalty, by the Board of Directors of the Company or by vote of a majority of
the Company's outstanding voting securities on not more than 60 days' written
notice to the Adviser, and by the Adviser on 60 days' written notice to the
Company. Unless sooner terminated, the agreement shall continue in effect for
more than two years after its execution only so long as such continuance is
specifically approved at least annually by either the Board of Directors or by a
vote of a majority of the outstanding shares of the Company, provided that in
either event such continuance is also approved by a vote of a majority of the
Directors who are not parties to such agreement, or interested persons of such
parties, cast in person at a meeting called for the purpose of voting on such
approval.

Pursuant to its Investment Advisory Agreement, each Fund will pay the
Adviser monthly an advisory fee equal on an annual basis to 0.75% of such Fund's
average daily net assets. The Adviser may waive a portion of its fees from time
to time.

Under the Investment Advisory Agreement, the Adviser provides each Fund
with advice and assistance in the selection and disposition of that Fund's
investments. All investment decisions are subject to review by the Board of
Directors of the Company. The Adviser is obligated to pay the salaries and fees
of any affiliates of the Adviser serving as officers or trustees of the Company
or a Fund.

The same security may be suitable for one or more of the Funds or other
private accounts managed by the Adviser. If and when one or more of the Funds or
two or more accounts simultaneously purchase or sell the same security, the
transactions will be allocated as to price and amount in accordance with
arrangements equitable to each Fund or account. The simultaneous purchase or
sale of the same securities by one or more of the Funds and other accounts may
have a detrimental effect on the Funds, as this may affect the price paid or
received by a Fund or the size of the position obtainable or able to be sold by
a Fund.

Administrator

The Administrator for the Fund is American Data Services, Inc. (the
"Administrator"), which has its principal office at The Hauppauge Corporate
Center, 150 Motor Parkway, Hauppauge, New York 11788, and is primarily in the
business of providing administrative, fund accounting and stock transfer
services to retail and institutional mutual funds through its offices in New
York, Denver and Bermuda. The Administrator also provides turnkey software
system solutions to several institutional mutual

662389.4
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<PAGE>

fund groups and approximately $13 billion is processed through the
Administrator's systems annually.

Pursuant to an Administrative Service Agreement with the Funds, the
Administrator provides all administrative services necessary for each Fund,
subject to the supervision of the Board of Directors. The Administrator will
provide persons to serve as officers of the Funds. Such officers may be
directors, officers or employees of the Administrator or its affiliates.

The Administrative Service Agreement is terminable by the Board of Directors of
the Fund or the Administrator on sixty days' written notice and may be assigned
provided the non-assigning party provides prior written consent. The Agreement
shall remain in effect for two years from the date of its initial approval, and
subject to annual approval of the Board of Directors for one-year periods
thereafter. The Agreement provides that in the absence of willful misfeasance,
bad faith or gross negligence on the part of the Administrator or reckless
disregard of its obligations thereunder, the Administrator shall not be liable
for any action or failure to act in accordance with its duties thereunder.

Under the Administrative Service Agreement, the Administrator provides all
administrative services, including, without limitation: (i) provides services of
persons competent to perform such administrative and clerical functions as are
necessary to provide effective administration of each Fund; (ii) overseeing the
performance of administrative and professional services to the Funds by others,
including the Funds' Custodian; (iii) preparing, but not paying for, the
periodic updating of the Funds' Registration Statement, Prospectus and Statement
of Additional Information in conjunction with Fund counsel, including the
printing of such documents for the purpose of filings with the Securities and
Exchange Commission and state securities administrators, preparing the Funds'
tax returns, and preparing reports to the Funds' shareholders and the Securities
and Exchange Commission; (iv) preparing in conjunction with Fund counsel, but
not paying for, all filings under the securities or "Blue Sky" laws of such
states or countries as are designated by the Distributor, which may be required
to register or qualify, or continue the registration or qualification, of each
Fund and/or its shares under such laws; (v) preparing notices and agendas for
meetings of the Board of Directors and minutes of such meetings in all matters
required by the 1940 Act to be acted upon by the Board; and (vi) monitoring
daily and periodic compliance with respect to all requirements and restrictions
of the Investment Company Act, the Internal Revenue Code and the Prospectus.

The Administrator, pursuant to the Fund Accounting Service Agreement, provides
each Fund with all accounting services, including, without limitation: (i) daily
computation of net asset value; (ii) maintenance of security ledgers and books
and

662389.4
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<PAGE>

records as required by the Investment Company Act; (iii) production of each
Fund's listing of portfolio securities and general ledger reports; (iv)
reconciliation of accounting records; (v) calculation of yield and total return
for each Fund; (vi) maintaining certain books and records described in Rule
31a-1 under the 1940 Act, and reconciling account information and balances among
the Funds' Custodian and Adviser; and (vii) monitoring and evaluating daily
income and expense accruals, and sales and redemptions of shares of the Fund.

Administrator's Fees

For the services rendered to each Fund by the Administrator, each Fund pays
the Administrator a monthly fee based on the Fund's average net assets. The Fund
also pays the Administrator for any out-of-pocket expenses.

In return for providing each Fund with all accounting related services,
each Fund pays the Administrator a monthly fee based on the Fund's average net
assets, plus any out-of-pocket expenses for such services.

Custodian, Transfer Agent and Dividend Agent

Star Bank, N.A. serves as custodian for each Fund's cash and securities.
Pursuant to a Custodian Agreement, it is responsible for maintaining the books
and records of each Fund's portfolio securities and cash. The Custodian does not
assist in, and is not responsible for, investment decisions involving assets of
the Fund. American Data Services, Inc., the Administrator, also acts as each
Fund's transfer and dividend agent.

Distribution Agreement

Pursuant to a Distribution Agreement, ADS Distributors, Inc. (the
"Distributor") has agreed to act as the principal underwriter for each Fund in
the sale and distribution to the public of shares of the Fund, either through
dealers or otherwise. The Distributor has agreed to offer such shares for sale
at all times when such shares are available for sale and may lawfully be offered
for sale and sold.

SHAREHOLDER SERVICING AND DISTRIBUTION PLAN

662389.4
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<PAGE>

compensate parties with which it has written agreements and whose clients own
shares of a Fund for providing servicing to their clients ("shareholder
servicing"), which is subject to a maximum of 0.25% per annum of each Fund's
average daily net assets. The Plan also provides that the Distributor is paid a
fee equal to 0.25% of each Fund's average daily net assets on an annual basis to
permit it to make payments to broker-dealers and other financial institutions
with which it has written agreements and whose clients are Fund shareholders
(each a "broker-dealer") for providing distribution assistance and promotional
support to each Fund. Fees paid under the Plan may not be waived for individual
shareholders.

Each shareholder servicing agent and broker-dealer will, as agent for its
customers, among other things: answer customer inquiries regarding account
status and history, the manner in which purchases and redemptions of shares of
each Fund may be effected and certain other matters pertaining to the Fund;
assist shareholders in designating and changing dividend options, account
designations and addresses; provide necessary personnel and facilities to
establish and maintain shareholder accounts and records; assist in processing
purchase and redemption transactions; arrange for the wiring of funds; transmit
and receive funds in connection with customer orders to purchase or redeem
shares; verify and guarantee shareholder signatures in connection with
redemption orders and transfers and changes in shareholder designated accounts;
furnish quarterly and year-end statements and confirmations within five business
days after activity in the account; transmit to shareholders of each Fund proxy
statements, annual reports, updated prospectuses and other communications;
receive, tabulate and transmit proxies executed by shareholders with respect to
meetings of shareholders of each Fund; and provide such other related services
as a Fund or a shareholder may request.

The Plan, the shareholder servicing agreements and the form of distribution
agreement each provide that the Adviser or the Distributor may make payments
from time to time from their own resources which may include the advisory fee
and the asset based sales charges and past profits for the following purposes:
(i) to defray the costs of and to compensate others, including financial
intermediaries with whom the Distributor has entered into written agreements,
for performing shareholder servicing and related administrative functions of
each Fund; to compensate certain financial intermediaries for providing
assistance in distributing Fund shares; (ii) to pay the costs of printing and
distributing a Fund's prospectus to prospective investors; and (iii) to defray
the cost of the preparation and printing of brochures and other promotional
materials, mailings to prospective shareholders, advertising, and other
promotional activities, including the salaries and/or commissions of sales
personnel in connection with the distribution of each Fund's shares. The
Distributor will determine the amount of such payments made pursuant to the Plan

662389.4
36

<PAGE>

with the shareholder servicing agents and broker-dealers with whom it has
contracted, provided that such payments made pursuant to the Plan will not
increase the amount which a Fund is required to pay the Distributor for any
fiscal year under the shareholder servicing agreements or otherwise.

Shareholder servicing agents and broker-dealers may charge investors a fee
in connection with their use of specialized purchase and redemption procedures
offered to investors by the shareholder servicing agents and broker-dealers. In
addition, shareholder servicing agents and broker-dealers offering purchase and
redemption procedures similar to those offered to shareholders who invest in the
fund directly may impose charges, limitations, minimums and restrictions in
addition to or different from those applicable to shareholders who invest in a
Fund directly. Accordingly, the net yield to investors who invest through
shareholder servicing agents and broker-dealers may be less than realized by
investing in a Fund directly. An investor should read the Prospectus in
conjunction with the materials provided by the shareholder servicing agent and
broker-dealer describing the procedures under which Fund shares may be purchased
and redeemed through the shareholder servicing agent and broker-dealer.

The Glass-Steagall Act limits the ability of a depository institution to
become an underwriter or distributor of securities. It is each Fund's position,
however, that banks are not prohibited from acting in other capacities for
investment companies, such as providing administrative and shareholder account
maintenance services and receiving compensation from the distributor for
providing such services. This is an unsettled area of the law, however, and if a
determination contrary to a Fund's position concerning shareholder servicing and
administration payments to banks from the distributor is made by a bank
regulatory agency or court, any such payments will be terminated and any shares
registered in the banks' names, for their underlying customers, will be
re-registered in the names of the customers at no cost to each Class or its
shareholders. In addition, state securities laws on this issue may differ from
the interpretation of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.

In accordance with the Rule, the Plan provides that all written agreements
relating to the Plan entered into by a Fund, the Distributor or the Adviser, and
the shareholder servicing agents, broker-dealers, or other organizations, must
be in a form satisfactory to the Board of Directors. In addition, the Plan
requires each Fund and the Distributor to prepare, at least quarterly, written
reports setting forth all amounts expended for distribution purposes by a Fund
and the Distributor pursuant to the Plan and identifying the distribution
activities for which those expenditures were made.

662389.4
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<PAGE>

Other Expenses

Each Fund pays certain operating expenses that are not assumed by the
Adviser, the Administrator or any of their respective affiliates. These
expenses, together with fees paid to the Adviser, the Administrator, the
Distributor and the Transfer Agent, are deducted from income of each Fund before
dividends are paid. These expenses include, but are not limited to,
organizational costs, fees and expenses of officers and Directors who are not
affiliated with the Adviser, the Administrator or any of their respective
affiliates, taxes, interest, legal fees, custodian fees, audit fees, brokerage
fees and commissions, fees and expenses of registering and qualifying a Fund and
its shares for distribution under federal and state securities laws, the
expenses of reports to shareholders, shareholders' meetings and proxy
solicitations.

PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE

Each Fund's assets are invested by the Adviser in a manner consistent with
such Fund's investment objective, policies, and restrictions and with any
instructions the Board of Directors may issue from time to time. Within this
framework, the Adviser is responsible for making all determinations as to the
purchase and sale of portfolio securities and for taking all steps necessary to
implement securities transactions on behalf of each Fund.

U.S. Government securities generally are traded in the over-the-counter
market through broker-dealers. A broker-dealer is a securities firm or bank that
makes a market for securities by offering to buy at one price and sell at a
slightly higher price. The difference between the prices is known as a spread.

In placing orders for the purchase and sale of portfolio securities for
each of the Funds, the Adviser will use its best efforts to obtain the best
possible price and execution and will otherwise place orders with broker-dealers
subject to and in accordance with any instructions the Board of Directors may
issue from time to time. The Adviser will select broker-dealers including, the
Distributor, to execute portfolio transactions on behalf of the Funds primarily
on the basis of best price and execution.

When consistent with the objectives of prompt execution and favorable net
price, business may be placed with broker-dealers who furnish investment
research or services to the Adviser. Such research or services include advice,
both directly and in writing, as to the value of securities; the advisability of
investing in, purchasing or selling securities; and the

662389.4
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<PAGE>

availability of securities, or purchasers or sellers of securities; as well as
analyses and reports concerning issues, industries, securities, economic factors
and trends, portfolio strategy and the performance of accounts. To the extent
portfolio transactions are effected with broker-dealers who furnish research
services to the Adviser, the Adviser receives a benefit, not capable of
evaluation in dollar amounts, without providing any direct monetary benefit to
each Fund from these transactions. The Adviser believes that most research
services obtained by it generally benefit several or all of the investment
companies and private accounts which it manages, as opposed to solely
benefitting one specific managed fund or account.

Transactions on U.S. stock exchanges, commodities markets and futures
markets and other agency transactions involve the payment by a Fund of
negotiated brokerage commissions. Such commissions vary among different brokers.
A particular broker may charge different commissions according to such factors
as the difficulty and size of the transaction. Transactions in foreign
investments often involve the payment of fixed brokerage commissions, which may
be 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 a Fund usually includes an undisclosed dealer commission or
mark-up. In underwritten offerings, the price paid by a Fund includes a
disclosed, fixed commission or discount retained by the underwriter or dealer.

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 brokerage and research services (as defined in the Securities
Exchange Act of 1934, as amended (the "1934 Act")) from broker-dealers that
execute portfolio transactions for the clients of such advisers and from third
parties with which such broker-dealers have arrangements. Consistent with this
practice, the Adviser may receive brokerage and research services and other
similar services from many broker-dealers with which the Adviser may place a
Fund's portfolio transactions and from third parties with which these
broker-dealers have arrangements. These services include such matters as general
economic and market reviews, industry and company reviews, evaluations of
investments, recommendations as to the purchase and sale of investments,
newspapers, magazines, pricing services, quotation services, news services and
personal computers utilized by the Adviser. Where the services referred to above
are not used exclusively by the Adviser for research purposes, the Adviser,
based upon its own allocations of expected use, bears that portion of the cost
of these services which directly relates to their non-research use. Some of
these services are of value to the Adviser and its affiliates in advising
various of their clients (including the Funds), although not all of these
services are necessarily useful and of value in managing the Funds. The
management fee paid by a

662389.4
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<PAGE>

Fund is not reduced because the Adviser and its affiliates receive these
services even though the Adviser might otherwise be required to purchase some of
these services for cash.

As permitted by Section 28(e) of the 1934 Act, the Adviser may cause a Fund
to pay a broker-dealer which provides "brokerage and research services" (as
defined in the 1934 Act) to the Adviser an amount of disclosed commission for
effecting securities transactions on stock exchanges and other transactions for
the Fund on an agency basis in excess of the commission which another
broker-dealer would have charged for effecting that transaction. The Adviser's
authority to cause a Fund to pay any such greater commissions is also subject to
such policies as the Trustees may adopt from time to time. The Adviser does not
currently intend to cause any Fund to make such payments. It is the position of
the staff of the Securities and Exchange Commission that Section 28(e) does not
apply to the payment of such greater commissions in "principal" transactions.
Accordingly, the Adviser will use its best effort to obtain the most favorable
price and execution available with respect to such transactions, as described
above.

Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc. and subject to seeking the most favorable price and execution
available and such other policies as the Directors may determine, the Adviser
may consider sales of shares of a Fund as a factor in the selection of
broker-dealers to execute portfolio transactions for each Fund.

TAXATION

Each Fund intends to qualify each year as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). By so qualifying, the Fund will not incur federal income or state taxes
on its net investment income and on net realized capital gains to the extent
distributed as dividends to shareholders.

Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, each Fund must distribute during each calendar
year an amount equal to the sum of (a) at least 98% of its ordinary income (not
taking into account any capital gains or losses) for the calendar year, (b) at
least 98% of its capital gains in excess of capital losses (adjusted for certain
ordinary losses) for a one-year period generally ending on October 31st of the
calendar year, and (c) all ordinary income and capital gains for previous years
that were not distributed during such years.

Under the Code, dividends derived from interest, and any short-term capital
gains, are taxable to shareholders as ordinary

662389.4
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<PAGE>

income for federal and state tax purposes, regardless of whether such dividends
are taken in cash or reinvested in additional shares. Distributions made from a
Fund's net realized long-term capital gains (if any) and designated as capital
gain dividends are taxable to shareholders as long-term capital gains,
regardless of the length of time Fund shares are held. Corporate investors are
not eligible for the dividends-received deduction with respect to distributions
derived from interest on short-or long-term capital gains from a Fund but may be
entitled to such a deduction in respect to distributions attributable to
dividends received by a Fund. A distribution will be treated as paid on December
31st of a calendar year if it is declared by each Fund in October, November or
December of the year with a record date in such a month and paid by each Fund
during January of the following year. Such distributions will be taxable to
shareholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.

Distributions paid by a Fund from net long-term capital gains (excess of
long-term capital gains over long-term capital losses), if any, whether received
in cash or reinvested in additional shares, are taxable as long-term capital
gains, regardless of the length of time you have owned shares in the Fund.
Distributions paid by a Fund from net short-term capital gains (excess of
short-term capital gains over short-term capital losses), if any, whether
received in cash or reinvested in additional shares are taxable as ordinary
income. Capital gains distributions are made when a Fund realizes net capital
gains on sales of portfolio securities during the year. For each Fund, realized
capital gains are not expected to be a significant or predictable part of
investment return.

A sale of a Fund's shares is a taxable event and may result in a capital
gain or loss. A capital gain or loss may be realized from an ordinary redemption
of shares, a checkwriting redemption, or an exchange of shares between two
mutual funds (or two portfolios of a mutual fund).

Dividend distributions, capital gains distributions, and capital gains or
losses from redemptions and exchanges may be subject to state and local taxes.

Ordinarily, distributions and redemption proceeds earned by a Fund
shareholder are not subject to withholding of federal income tax. However, 31%
of a Fund's distributions and redemption proceeds must be withheld if a Fund
shareholder fails to supply the Fund or its agent with such shareholder's
taxpayer identification number or if a Fund shareholder who is otherwise exempt
from withholding fails to properly document such shareholder's status as an
exempt recipient.

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<PAGE>

The information above is only a summary of some of the tax considerations
generally affecting each Fund and its shareholders. No attempt has been made to
discuss individual tax consequences. To determine whether a Fund is a suitable
investment based on his or her tax situation, a prospective investor may wish to
consult a tax advisor.

OWNERSHIP OF SHARES

Each share has one vote in the election of Directors. Cumulative voting is
not authorized. This means that the holders of more than 50% of the shares
voting for the election of Directors can elect 100% of the Directors if they
choose to do so, and, in that event, the holders of the remaining shares will be
unable to elect any Directors.

On ____________, 1998, the Adviser invested $50,000 in shares of each Fund
at $10.00 per share, as seed capital. The Adviser will control each Fund until
public shareholders come into the Fund.

PURCHASE OF SHARES

Shares of each Fund may be purchased at the net asset value per share next
determined, plus any applicable sales load, after receipt of an order by each
Fund's Distributor in proper form with accompanying check or other bank wire
payment arrangements satisfactory to the Fund. Class A shares are sold subject
to an initial sales load of up to 4.50%. The Fund's minimum initial investment
for each Fund is $1,000 and the minimum subsequent is $100.

DIVIDENDS AND DISTRIBUTIONS

Net investment income is declared as dividends and paid monthly.
Substantially all the realized net capital gains for a Fund, if any, are
declared and paid on an annual basis. Dividends are payable to shareholders of
record at the time of declaration.

Dividends of each Fund are automatically reinvested in additional Fund
shares unless the shareholder has elected to have them paid in cash.

The net investment income of a Fund for each business day is determined
immediately prior to the determination of net asset value. Net investment income
for other days is determined at the time net asset value is determined on the
prior business day. See "Purchase of Shares" and "Redemption of Shares" in the
Prospectus.

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<PAGE>

NET ASSET VALUE

The method for determining the net asset value of each Fund is summarized
in the Prospectus in the text following the heading "Valuation of Shares." The
net asset value of each Fund's shares is determined on each day on which the New
York Stock Exchange is open, provided that the net asset value need not be
determined on days when no Fund shares are tendered for redemption and no order
for Fund shares is received. The New York Stock Exchange is not open for
business on the following holidays (or on the nearest Monday or Friday if the
holiday falls on a weekend): New Year's Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.

PERFORMANCE COMPARISONS

Each Fund's yield may be quoted in advertising and sales literature. Yield
will vary, and past performance should not be considered an indication of future
results.

Each Fund's yield is computed by dividing the net investment income per
share earned during the period by the maximum offering price per share on the
last day of the period, according to the following formula:

YIELD = 2[(a-b + 1)6 - 1]
cd

Where: a = dividends and interest earned during the
period.

b = expenses accrued for the period (net of
reimbursements).

c = the average daily number of shares
outstanding during the period that
were entitled to dividends.

d = the maximum offering price per share on
the last day of the period.

Actual future yields will depend on the type, quality, and maturities of the
investments held by the Fund, changes in interest rates on investments, and the
Fund's expenses during the period.

Yield quotations are based on the change in the value of a hypothetical
investment (excluding realized gains and losses from the sale of securities and
unrealized appreciation and depreciation of securities) over a thirty-day period
for each

662389.4
43

<PAGE>

Fund (the base period) and stated as a percentage of the investment at the start
of the base period (base-period return). The base-period return is then
annualized by multiplying it by 365/30, with the resulting yield figure carried
to at least the nearest hundredth of 1%.

Calculations of effective yield begin with the same base-period return used
to calculate yield, but the return is then annualized to reflect weekly
compounding according to the following formula:

Effective Yield = [(Base-Period Return + 1)365/7[30]]-1

Total return quoted in advertising and sales literature reflects all
aspects of each Fund's return, including the effect of reinvesting dividends and
capital gain distributions and any change in such Fund's net asset value during
the period.

Each Fund's total return must be displayed in any advertisement containing
the Fund's yield. Total return is the average annual total return for the 1-, 5-
and 10-year period ended on the date of the most recent balance sheet included
in the Statement of Additional Information, computed by finding the average
annual compounded rates of return over 1-, 5- and 10-year periods that would
equate the initial amount invested to the ending redeemable value according to
the following formula:

P(1 + T)n = ERV

Where:

P = a hypothetical initial investment of $1000

T = average annual total return

n = number of years

ERV = ending redeemable value of a hypothetical
$1000 payment made at the beginning of the
1-, 5- or 10-year periods at the end of the
1-, 5-or 10-year periods (or fractions
thereof).

Because the Fund has not had a registration in effect for 1, 5 or 10 years, the
period during which the registration has been effective shall be substituted.

Average annual total return is calculated by determining the growth or
decline in value of a hypothetical historical investment in a Fund over a stated
period and then calculating the annual compounded percentage rate that would
have produced the same result if the rate of growth or decline in value had been
constant throughout the period. For example, a cumulative

662389.4
44

<PAGE>

total return of 100% over 10 years would produce an average annual total return
of 7.18%, which is the steady annual rate that would result in 100% growth on a
compounded basis in 10 years. While average annual total returns are a
convenient means of comparing investment alternatives, investors should realize
that each Fund's performance is not constant over time, but changes from year to
year, and that average annual total returns represent averaged figures as
opposed to actual year-to-year performance.

In addition to average annual total returns, each Fund may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total returns may
be quoted as a percentage or as a dollar amount and may be calculated for a
single investment, a series of investments, or a series of redemptions over any
time period. Performance information may be quoted numerically or in a table,
graph, or similar illustration.

Each Fund's performance may be compared with the performance of other funds
with comparable investment objectives, tracked by fund rating services or with
other indexes of market performance. Sources of economic data that may be
considered in making such comparisons may include, but are not limited to, U.S.
Treasury bill, note, and bond yields, money market fund yields, corporate bond
yields, rankings of any mutual fund or mutual fund category tracked by Lipper
Analytical Services, Inc. or Morningstar, Inc.; data provided by the Investment
Company Institute; major indexes of stock market performance; and indexes and
historical data supplied by major securities brokerage or investment advisory
firms. Each Fund may also utilize reprints from newspapers and magazines
furnished by third parties to illustrate historical performance.

The agencies listed below measure performance based on their own criteria
rather than on the standardized performance measures described in the preceding
section.

Lipper Analytical Services, Inc. distributes mutual Fund rankings monthly.
The rankings are based on total return performance calculated by Lipper,
generally reflecting changes in net asset value adjusted for reinvestment
of capital gains and income dividends. They do not reflect deduction of any
sales charges. Lipper rankings cover a variety of performance periods,
including year-to-date, 1-year, 5-year, and 10-year performance. Lipper
classifies mutual Funds by investment objective and asset category.

Morningstar, Inc. distributes mutual Fund ratings twice a month. The
ratings are divided into five groups: highest, above average, neutral,
below average and lowest. They represent a Fund's historical risk/reward
ratio relative to other Funds in its broad investment class as

662389.4
45

<PAGE>

determined by Morningstar, Inc. Morningstar ratings cover a variety of
performance periods, including 1-year, 3-year, 5-year, 10-year and overall
performance. The performance factor for the overall rating is a
weighted-average assessment of the Fund's 1-year, 3-year, 5-year, and
10-year total return performance (if available) reflecting deduction of
expenses and sales charges. Performance is adjusted using quantitative
techniques to reflect the risk profile of the Fund. The ratings are derived
from a purely quantitative system that does not utilize the subjective
criteria customarily employed by rating agencies such as Standard & Poor's
and Moody's Investor Service, Inc.

CDA/Weisenberger's Management Results publishes mutual Fund rankings and is
distributed monthly. The rankings are based entirely on total return
calculated by Weisenberger for periods such as year-to-date, 1-year,
3-year, 5-year and 10-year. Mutual Funds are ranked in general categories
(e.g., international bond, international equity, municipal bond, and
maximum capital gain). Weisenberger rankings do not reflect deduction of
sales charges or fees.

Independent publications may also evaluate a Fund's performance. Each Fund
may from time to time refer to results published in various periodicals,
including Barrons, Financial World, Forbes, Fortune, Investor's Business Daily,
Kiplinger's Personal Finance Magazine, Money, U.S. News and World Report and The
Wall Street Journal.

Independent, unmanaged indexes, such as those listed below, may be used to
present a comparative benchmark of a Fund's performance. The performance figures
of an index reflect changes in market prices, reinvestment of all dividend and
interest payments and, where applicable, deduction of foreign withholding taxes,
and do not take into account brokerage commissions or other costs. Because each
Fund is a managed portfolio, the securities it owns will not match those in an
index. Securities in an index may change from time to time.

The Consumer Price Index, prepared by the U.S. Bureau of Labor Statistics,
is a commonly used measure of the rate of inflation. The index shows the
average change in the cost of selected consumer goods and services and does
not represent a return on an investment vehicle.

The Dow Jones Industrial Average is an index of 30 common stocks frequently
used as a general measure of stock market performance.

The Dow Jones Utilities Average is an index of 15 utility stocks frequently
used as a general measure of stock market performance.

662389.4
46

<PAGE>

CS First Boston High Yield Index is a market-weighted index including
publicly traded bonds having a rating below BBB by Standard & Poor's and
Baa by Moody's.

The Lehman Brothers Aggregate Bond Index is an index composed of securities
from The Lehman Brothers Government/Corporate Bond Index, The Lehman
Brothers Mortgage-Backed Securities Index and The Lehman Brothers
Asset-Backed Securities Index and is frequently used as a broad market
measure for fixed-income securities. The Lehman Brothers Asset-Backed
Securities Index is an index composed of credit card, auto, and home equity
loans. Included in the index are pass-through, bullet (noncallable), and
controlled amortization structured debt securities; no subordinated debt is
included. All securities have an average life of at least one year.

The Lehman Brothers Corporate Bond Index is an index of publicly issued,
fixed-rate, non-convertible investment-grade domestic corporate debt
securities frequently used as a general measure of the performance of
fixed-income securities.

The Lehman Brothers Government/Corporate Bond Index is an index of publicly
issued U.S. Treasury obligations, debt obligations of U.S. government
agencies (excluding mortgage-backed securities), fixed-rate,
non-convertible, investment-grade corporate debt securities and U.S.
dollar-denominated, SEC-registered non-convertible debt issued by foreign
governmental entities or international agencies used as a general measure
of the performance of fixed-income securities.

The Lehman Brothers Intermediate Treasury Bond Index is an index of
publicly issued U.S. Treasury obligations with maturities of up to ten
years and is used as a general gauge of the market for intermediate-term
fixed-income securities.

The Lehman Brothers Long Term Treasury Bond Index is an index of publicly
issued U.S. Treasury obligations (excluding flower bonds and
foreign-targeted issues) that are U.S. dollar-denominated and have
maturities of 10 years or greater.

The Lehman Brothers Mortgage-Backed Securities Index includes 15- and
30-year fixed rate securities backed by mortgage pools of the Government
National Mortgage Association, Federal Home Loan Mortgage Corporation, and
Federal National Mortgage Association.

The Lehman Brothers Municipal Bond Index is an index of approximately
20,000 investment-grade, fixed-rate tax-exempt bonds.

662389.4
47

<PAGE>

The Lehman Brothers Treasury Bond Index is an index of publicly issued U.S.
Treasury obligations (excluding flower bonds and foreign-targeted issues)
that are U.S. dollar denominated, have a minimum of one year to maturity,
and are issued in amounts over $100 million.

The Morgan Stanley Capital International World Index is an index of
approximately 1,482 equity securities listed on the stock exchanges of the
United States, Europe, Canada, Australia, New Zealand and the Far East,
with all values expressed in U.S. dollars.

The Morgan Stanley Capital International EAFE Index is an index of
approximately 1,045 equity securities issued by companies located in 18
countries and listed on the stock exchanges of Europe, Australia, and the
Far East. All values are expressed in U.S. dollars.

The Morgan Stanley Capital International Europe Index is an index of
approximately 627 equity securities issued by companies located in one of
13 European countries, with all values expressed in U.S. dollars.

The Morgan Stanley Capital International Pacific Index is an index of
approximately 418 equity securities issued by companies located in 5
countries and listed on the exchanges of Australia, New Zealand, Japan,
Hong Kong, Singapore/Malaysia. All values are expressed in U.S. dollars.

The NASDAQ Industrial Average is an index of stocks traded in The Nasdaq
Stock Market, Inc. National Market System.

The Russell 2000 Index is composed of the 2,000 smallest securities in the
Russell 3000 Index, representing approximately 7% of the Russell 3000 total
market capitalization. The Russell 3000 Index is composed of 3,000 large
U.S. companies ranked by market capitalization, representing approximately
98% of the U.S. equity market.

The Salomon Brothers Long Term High-Grade Corporate Bond Index is an index
of publicly traded corporate bonds having a rating of at least AA by
Standard & Poor's or Aa by Moody's and is frequently used as a general
measure of the performance of fixed-income securities.

The Salomon Brothers Long-Term Treasury Index is an index of U.S.
government securities with maturities greater than 10 years.

The Salomon Brothers World Government Bond Index is an index that tracks
the performance of the 14 government bond markets of Australia, Austria,
Belgium, Canada, Denmark,

662389.4
48

<PAGE>

France, Germany, Italy, Japan, Netherlands, Spain, Sweden, United Kingdom
and the United States. Country eligibility is determined by market
capitalization and investability criteria.

The Salomon Brothers World Government Bond Index (non $U.S.) is an index of
foreign government bonds calculated to provide a measure of performance in
the government bond markets outside of the United States.

Standard & Poor's 500 Composite Stock Price Index is an index of common
stocks frequently used as a general measure of stock market performance.

Standard & Poor's 40 Utilities Index is an index of 40 utility stocks.

Standard & Poor's/Barra Value Index is an index constructed by ranking the
securities in the Standard & Poor's 500 Composite Stock Price Index by
price-to-book ratio and including the securities with the lowest
price-to-book ratios that represent approximately half of the market
capitalization of the Standard & Poor's 500 Composite Stock Price Index.

REDEMPTION OF SHARES

Redemption of shares, or payment, may be suspended at times (a) when the
New York Stock Exchange is closed for other than customary weekend or holiday
closings, (b) when trading on said Exchange is restricted, (c) when an emergency
exists, as a result of which disposal by each Fund of securities owned by it is
not reasonably practicable, or it is not reasonably practicable for a Fund
fairly to determine the value of its net assets, or (d) during any other period
when the Securities and Exchange Commission, by order, so permits, provided that
applicable rules and regulations of the Securities and Exchange Commission shall
govern as to whether the conditions prescribed in (b) or (c) exist.

Shareholders who purchased shares through a broker-dealer other than the
Distributor may also redeem such shares by written request to the Transfer Agent
at the address set forth in the Prospectus. To be considered in proper form,
written requests for redemption should indicate the dollar amount or number of
shares to be redeemed, refer to the shareholder's Fund account number, and give
either social security or tax identification number. The request should be
signed in exactly the same way the account is registered. If there is more than
one owner of the shares, all owners must sign. If shares to be redeemed have a
value of $2,500 or more or redemption proceeds are to be paid by someone other
than the shareholder at the shareholder's address

662389.4
49

<PAGE>

of record, the signature(s) must be guaranteed by an "eligible guarantor
institution," which includes a commercial bank that is a member of the Federal
Deposit Insurance Corporation, a trust company, a member firm of a domestic
stock exchange, a savings association or a credit union that is authorized by
its charter to provide a signature guarantee. The Transfer Agent may reject
redemption instructions if the guarantor is neither a member of nor a
participant in a signature guarantee program. Signature guarantees by notaries
public are not acceptable. The purpose of a signature guarantee is to protect
shareholders against the possibility of fraud. Further documentation will be
requested from corporations, administrators, executors, personal
representatives, trustees and custodians. Redemption requests given by facsimile
will not be accepted. Unless other instructions are given in proper form, a
check for the proceeds of the redemption will be sent to the shareholder's
address of record.

Share purchases and redemptions are governed by Maryland law.

COUNSEL AND INDEPENDENT ACCOUNTANTS

Legal matters in connection with the issuance of shares of common stock of
the Fund are passed upon by Battle Fowler LLP, 75 East 55th Street, New York,
New York 10022. McGladrey & Pullen LLP, 555 Fifth Avenue, New York, New York
10017 have been selected as independent accountants for each Fund.

OTHER INFORMATION

The Adviser has been continuously registered with the Securities Exchange
Commission (SEC) under the Investment Advisers Act of 1940 since March 25, 1992.
The Company has filed a registration statement under the Securities Act of 1933
and the 1940 Act with respect to the shares offered. Such registrations do not
imply approval or supervision of the Funds or the Adviser by the SEC.

For further information, please refer to the registration statement and
exhibits on file with the SEC in Washington, D.C. These documents are available
upon payment of a reproduction fee. Statements in the Prospectus and in this
Statement of Additional Information concerning the contents of contracts or
other documents, copies of which are filed as exhibits to the registration
statement, are qualified by reference to such contracts or documents.

662389.4
50

<PAGE>

FINANCIAL STATEMENTS

[Audited balance sheet]

662389.4
51

<PAGE>

PART C

Item 24. Financial Statements and Exhibits.

(a) The financial statements called for by this Item are incorporated by
reference to Item 23 of Part B.

(b) Exhibits:

* (1) Articles of Incorporation;

* (2) Bylaws of the Company;

(3) Not Applicable.

(4) Not Applicable.

**(5) Investment Advisory Agreement.

**(6) Distribution Agreement.

(7) Not Applicable.

**(8) Custody Agreement.

**(9.1) Administrative Service Agreement.

**(9.2) Transfer Agency Agreement.

(10) Opinion of Battle Fowler LLP as to the
legality of the securities being registered,
including their consent to the filing thereof
and as to the use of their names in the
Prospectus.

(11) Consent of McGladrey & Pullen, L.L.P.,
independent accountants.

(12) Not Applicable.

**(13) Subscription Letter.

(14) Not Applicable.

**(15) Distribution and Service Plan.

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

* Filed herewith.

** To be filed by amendment.

662389.4
C-1

<PAGE>

**(16) Schedule of competition of performance
quotations for each Fund.

**(17) Financial Data Schedule.

(18) Not Applicable.

Item 25. Persons Controlled by or Under Common Control With Registrant.

Not applicable

Item 26. Number of Holders of Securities.

As of the date of this Registration Statement, no shares have been issued
by the Company.

Item 27. Indemnification.

(a) In accordance with Section 2-418 of the General Corporation Law of
the State of Maryland, Article NINTH of the Registrant's Articles of
Incorporation provides as follows:

"NINTH:(1) The Corporation shall indemnify (i) its currently
acting and former directors and officers, whether serving the
Corporation or at its request any other entity, to the fullest extent
required or permitted by the General Laws of the State of Maryland now
or hereafter in force, including the advance of expenses under the
procedures and to the fullest extent permitted by law, and (ii) other
employees and agents to such extent as shall be authorized by the
Board of Directors or the By-Laws and as permitted by law. Nothing
contained herein shall be construed to protect any director or officer
of the Corporation against any liability to the Corporation or its
security holders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office. The
foregoing rights of indemnification shall not be exclusive of any
other rights to which those seeking indemnification may be entitled.
The Board of Directors may take such action as is necessary to carry
out these indemnification provisions and is expressly empowered to
adopt, approve and amend from time to time such by-laws, resolutions
or contracts

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

** To be filed by amendment.

662389.4
C-2

<PAGE>

implementing such provisions or such indemnification arrangements as
may be permitted by law. No amendment of the charter of the
Corporation or repeal of any of its provisions shall limit or
eliminate the right of indemnification provided hereunder with respect
to acts or omissions occurring prior to such amendment or repeal.

(2) To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted, and the Investment Company
Act of 1940, no director or officer of the Corporation shall be
personally liable to the Corporation or its stockholders for money
damages; provided, however, that nothing herein shall be construed to
protect any director or officer of the Corporation against any
liability to the Corporation or its security holders to which he would
otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the
conduct of his office. No amendment of the charter of the Corporation
or repeal of any of its provisions shall limit or eliminate the
limitation of liability provided to directors and officers hereunder
with respect to any act or omission occurring prior to such amendment
or repeal."

[(b) In Section [ ] of the Distribution Agreement relating to the
securities being offered hereby, the Registrant agrees to indemnify
and hold harmless any person who controls ADS Distributors, Inc.
within the meaning of the Securities Act of 1933, against certain
types of civil liabilities arising in connection with the Registration
Statement or Prospectus.]

Item 28. Business and Other Connections of Investment Adviser.

Rothschild Investment Advisers, Inc. serves as investment adviser to the
Company. Set forth below are the names of the directors and officers of the
Adviser:

David B. Welliver President and CEO, CFO and
Director

662389.4
C-3

<PAGE>

Item 29. Principal Underwriter.

(a) The principal underwriter of the Company's shares does not currently
act as a principal underwriter, depositor or investment adviser for
any other investment company.

(b) The following table contains information with respect to each
director, officer or partner of each principal underwriter named in
the answer to Item 21:

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address* With Underwriter With Registrant
- ------------------ --------------------- ---------------------

Michael Miola Treasurer, Director President, CFO and
Chairman Director

Michael Rogan President, Director None

Alan Rosenberg Vice-President, None
Secretary, Director

*670 2nd Street North
Safety Harbor, FL 34695

Item 30. Location of Accounts and Records.

The accounts and records of the Company are located, in whole or in part,
at the office of the Company and the Administrator: American Data Services,
Inc., The Hauppauge Corporate Center, 150 Motor Parkway, Hauppauge, New York
11788

Item 31. Management Services.

Not Applicable

Item 32. Undertakings.

The Company hereby undertakes:

(a) to file an amendment to the registration statement with certified
financial statements showing the initial capital received before
accepting subscriptions from any persons in excess of 25 if the
Company proposes to raise its initial capital pursuant to Section
14(a)(3) of the 1940 Act;

662389.4
C-4

<PAGE>

(b) to file a post-effective amendment, using financial statements which
need not be certified, within four to six months from the effective
date of the Company's 1933 Act registration statement.

(c) pursuant to Section 16(c) of the Investment Company Act of 1940, as
amended, to call a shareholder meeting for the purpose of voting upon
the question of removal of one or more directors (and to assist
shareholders in communications with each other) if and when requested
in writing to do so by the recordholders of not less than 10% of the
Company's outstanding shares.

662389.4
C-5

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the registrant has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of St. Paul and State of New York, on the 12th day of
February, 1998.

QUESTAR FUNDS, INC.

By: ________________________________
Michael Miola, President

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the date indicated.

- --------------------- -----------
David B. Welliver Director, Chairman of the (Date)
Board and Chief Executive
Officer

- --------------------- -----------
Michael Miola Director, President, Chief (Date)
Financial Officer and
Secretary

The above persons signing as Director are all of the members of the
Company's Board of Directors.

662389.4

<PAGE>

SIGNATURES

QUESTAR FUNDS, INC.

By: /s/ Michael Miola
-------------------------------
Michael Miola, President

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the date indicated.

s/ David B. Welliver 2/12/98
- --------------------- -----------
David B. Welliver Director, Chairman of the (Date)
Board and Chief Executive
Officer

/s/ Michael Miola 2/12/98
- --------------------- -----------
Michael Miola Director, President, Chief (Date)
Financial Officer and
Secretary

The above persons signing as Director are all of the members of the
Company's Board of Directors.

662389.4

ARTICLES OF INCORPORATION

QUESTAR FUNDS, INC.

FIRST: (1) The name of the incorporator is Thomas
R. Westle.

(2) The incorporator's post office address
is 75 East 55th Street, New York, New York 10022.

(3) The incorporator is over eighteen years
of age.

(4) The incorporator is forming the
corporation named in these Articles of Incorporation under the General
Corporation Law of the State of Maryland.

SECOND: The name of the corporation (hereinafter
called the "Corporation") is Questar Funds, Inc.

THIRD: The purposes for which the Corporation is
formed are:

(1) to conduct, operate and carry on the
business of an investment company;

(2) to subscribe for, invest in, reinvest
in, purchase or otherwise acquire, hold, pledge, sell, assign,
transfer, exchange, distribute or otherwise dispose of notes,
bills, bonds, debentures and other negotiable or
non-negotiable instruments, obligations and evidences of
indebtedness issued or guaranteed as to principal and interest
by the United States Government, or any agency or
instrumentality thereof, any State or local government, or any
agency or instrumentality thereof, or any other securities of
any kind issued by any corporation or other issuer organized
under the laws of the United States or any State, territory or
possession thereof or any foreign country or any subdivision
thereof or otherwise, to pay for the same in cash or by the
issue of stock, including treasury stock, bonds and notes of
the Corporation or otherwise; and to exercise any and all
rights, powers and privileges of ownership or interest in
respect of any and all such investments of every kind and
description, including and without limitation, the right to
consent and otherwise act with respect thereto, with power to
designate one or more persons, firms, associations or
corporations to exercise any of

-1-
684015.1

<PAGE>

said rights, powers and privileges in respect of any
said investments;

(3) to conduct research and investigations
in respect of securities, organizations, business and general
business and financial conditions in the United States of
America and elsewhere for the purpose of obtaining information
pertinent to the investment and employment of the assets of
the Corporation and to procure any and all of the foregoing to
be done by others as independent contractors and to pay
compensation therefor;

(4) to borrow money or otherwise obtain
credit and to secure the same by mortgaging, pledging or
otherwise subjecting as security the assets of the
Corporation, and to endorse, guarantee or undertake the
performance of any obligation, contract or engagement of any
other person, firm, association or corporation;

(5) to issue, sell, distribute, repurchase,
redeem, retire, cancel, acquire, hold, resell, reissue,
dispose of, transfer, and otherwise deal in, shares of stock
of the Corporation, including shares of stock of the
Corporation in fractional denominations, and to apply to any
such repurchase, redemption, retirement, cancellation or
acquisition of shares of stock of the Corporation, any funds
or property of the Corporation, whether capital or surplus or
otherwise, to the full extent now or hereafter permitted by
the laws of the State of Maryland and by these Articles of
Incorporation;

(6) to conduct its business, promote its
purposes, and carry on its operations in any and all of its
branches and maintain offices both within and without the
State of Maryland, in any and all States of the United States
of America, in the District of Columbia, and in any or all
commonwealths, territories, dependencies, colonies,
possessions, agencies, or instrumentalities of the United
States of America and of foreign governments;

(7) to carry out all or any part of the
foregoing purposes or objects as principal or agent, or in
conjunction with any other person, firm, association,
corporation or other entity, or as a partner or member of a
partnership, syndicate or joint venture or otherwise, and in
any part of the world to the same extent and as fully as
natural persons might or could do;

-2-
684015.1

<PAGE>

(8) to have and exercise all of the powers
and privileges conferred by the laws of the State of Maryland
upon corporations formed under the laws of such State; and

(9) to do any and all such further acts and
things and to exercise any and all such further powers and
privileges as may be necessary, incidental, relative,
conducive, appropriate or desirable for the foregoing
purposes.

The enumeration herein of the objects and purposes of the
Corporation shall be construed as powers as well as objects and purposes and
shall not be deemed to exclude by inference any powers, objects or purposes
which the Corporation is empowered to exercise, whether expressly by force of
the laws of the State of Maryland now or hereafter in effect, or impliedly by
the reasonable construction of the said law.

FOURTH: The post office address of the principal
office of the Corporation within the State of Maryland is 11 East
Chase Street, Baltimore City, Maryland 21202.

FIFTH: The resident agent of the Corporation in the
State of Maryland is National Registered Agents, Inc., MD, at 11
East Chase Street, Baltimore, Maryland 21202.

SIXTH: (1) The total number of shares of stock of all classes
and series which the Corporation initially has authority to issue is one billion
(1,000,000,000) shares of capital stock (par value of One Tenth of One Cent
$.001 per share), amounting in aggregate par value to $100,000. All of such
shares are classified as "Common Stock".

(2) The Board of Directors may classify or reclassify any
unissued shares of capital stock (whether or not such shares have been
previously classified or reclassified) from time to time by setting or changing
in any one or more respects the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption of such shares of stock.

(3) Unless otherwise prohibited by law, so long as the
Corporation is registered as a open-end management company under the Investment
Company Act of 1940, the Board of Directors shall have the power and authority,
without the approval of the holders of any outstanding shares, to increase or
decrease the number of shares of capital stock or the number of shares of
capital stock of any class or series that the Corporation has authority to
issue.

-3-
684015.1

<PAGE>

(4) Until such time as the Board of Directors shall provide
otherwise in accordance with Section (2) of this Article SIXTH one hundred
million (100,000,000) shares of the authorized shares of stock of the
Corporation shall be allocated to each of the following series of Common Stock:
(i) Welliver Rothschild Apollo Fund and (ii) Welliver Rothschild Gemini Fund.
The balance of eight hundred million (800,000,000) shares of such stock may be
issued in this series, or in any new series each comprising such number of
shares and having such designations, limitations and restrictions thereof as
shall be fixed and determined from time-to-time by resolution or resolutions
providing for the issuance of such stock adopted by the Board of Directors.

(5) Any series of Common Stock shall be referred to herein
individually as a "Series" and collectively, together with any further series
from time to time established, as the "Series".

(6) The following is a description of the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption of the shares
of Common Stock of the Corporation (unless provided otherwise by the Board of
Directors with respect to any such additional Series at the time it is
established and designated):

(a) Asset Belonging to Series. All consideration
-------------------------
received by the Corporation from the issue or sale of shares
of a particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings,
profits and proceeds thereof, including any proceeds derived
from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any investment or reinvestment
of such proceeds in whatever form the same may be, shall
irrevocably belong to that Series for all purposes, subject
only to the rights of creditors, and shall be so recorded upon
the books of account of the Corporation. Such consideration,
assets, income, earnings, profits and proceeds, together with
any General Items allocated to that Series as provided in the
following sentence, are herein referred to collectively as
"assets belonging to" that Series. In the event that there are
any assets, income, earnings, profits or proceeds which are
not readily identifiable as belonging to any particular Series
(collectively, "General Items"), such General Items shall be
allocated by or under the supervision of the Board of
Directors to and among any one or more of the Series
established and designated from time to time in such manner
and on such basis as the Board of Directors, in its sole

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<PAGE>

discretion, deems fair and equitable; and any General Items so
allocated to a particular Series shall belong to that Series.
Each such allocation by the Board of Directors shall be
conclusive and binding for all purposes.

(b) Liabilities of Series. The assets belonging to
---------------------
each particular Series shall be charged with the liabilities
of the Corporation in respect of that Series and all expenses,
costs, charges and reserves attributable to that Series, and
any general liabilities, expenses, costs, charges or reserves
of the Corporation which are not readily identifiable as
pertaining to any particular Series, shall be allocated and
charged by or under the supervision of the Board of Directors
to and among any one or more of the Series established and
designated from time to time in such manner and on such basis
as the Board of Directors, in its sole discretion, deems fair
and equitable. The liabilities, expenses, costs, charges and
reserves allocated and so charged to a Series are herein
referred to collectively as "liabilities of" that Series. Each
allocation of liabilities, expenses, costs, charges and
reserves by or under the supervision of the Board of Directors
shall be conclusive and binding for all purposes.

(c) Dividends and Distributions. Dividends and
---------------------------
capital gains distributions on shares of a particular Series
may be paid with such frequency, in such form and in such
amount as the Board of Directors may determine by resolution
adopted from time to time, or pursuant to a standing
resolution or resolutions adopted only once or with such
frequency as the Board of Directors may determine, after
providing for actual and accrued liabilities of that Series.
All dividends on shares of a particular Series shall be paid
only out of the income belonging to that Series and all
capital gains distributions on shares of a particular series
shall be paid only out of the capital gains belonging to that
Series. All dividends and distributions on shares of a
particular Series shall be distributed pro rata to the holders
of that Series in proportion to the number of shares of that
Series held by such holders at the date and time of record
established for the payment of such dividends or
distributions, except that in connection with any dividend or
distribution program or procedure, the Board of Directors may
determine that no dividend or distribution shall be payable on
shares as to which the stockholder's purchase order and/or
payment have not been received by the time or times

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<PAGE>

established by the Board of Directors under such
program or procedure.

Dividends and distributions may be paid in cash,
property or additional shares of the same or another Series,
or a combination thereof, as determined by the Board of
Directors or pursuant to any program that the Board of
Directors may have in effect at the time for the election by
stockholders of the form in which dividends or distributions
are to be paid. Any such dividend or distribution paid in
shares shall be paid at the current net asset value thereof.

(d) Voting. On each matter submitted to a vote of the
------
stockholders, each holder of shares shall be entitled to one
vote for each share standing in his name on the books of the
Corporation, irrespective of the Series thereof, and all
shares of all Series shall vote as a single class ("Single
Class Voting"); provided, however, that (i) as to any matter
with respect to which a separate vote of any Series is
required by the Investment Company Act of 1940 or by the
Maryland General Corporation Law, such requirement as to a
separate vote by that Series shall apply in lieu of Single
Class Voting; (ii) in the event that the separate vote
requirement referred to in clause (i) above applies with
respect to one or more Series, then, subject to clause (iii)
below, the shares of all other Series shall vote as a single
class; and (iii) as to any matter which does not affect the
interest of a particular Series, including liquidation of
another Series as described in subsection (7) below, only the
holders of shares of the one or more affected Series shall be
entitled to vote.

(e) Redemption by Stockholders. Each holder of shares
--------------------------
of a particular Series shall have the right at such times as
may be permitted by the Corporation to require the Corporation
to redeem all or any part of his shares of that Series, at a
redemption price per share equal to the net asset value per
share or that Series next determined after the shares are
properly tendered for redemption, less such redemption fee or
sales charge, if any, as may be established from time to time
by the Board of Directors in its sole discretion. Payment of
the redemption price shall be in cash; provided, however, that
if the Board of Directors determines, which determination
shall be conclusive, that conditions exist which make payment
wholly in cash unwise or undesirable, the Corporation may, to
the extent and in the manner permitted by the Investment
Company Act of 1940, make payment wholly or

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<PAGE>

partly in securities or other assets belonging to the Series
of which the shares being redeemed are a part, at the value of
such securities or assets used in such determination of net
asset value.

Payment by the Corporation for shares of stock of the
Corporation surrendered to it for redemption shall be made by
the Corporation within such period from surrender as may be
required under the Investment Company Act and the rules and
regulations thereunder. Notwithstanding the foregoing, the
Corporation may postpone payment of the redemption price and
may suspend the right of the holders of shares of any Series
to require the Corporation to redeem shares of that Series
during any period or at any time when and to the extent
permissible under the Investment Company Act of 1940.

(f) Redemption by Corporation. The Board of Directors
-------------------------
may cause the Corporation to redeem at their net asset value
the shares of any Series held in an account having, because of
redemptions or exchanges, a net asset value on the date of the
notice of redemption less than the Minimum Amount, as defined
below, in that Series specified by the Board of Directors from
time to time in its sole discretion, provided that at least 30
days prior written notice of the proposed redemption has been
given to the holder of any such account by first class mail,
postage prepaid, at the address contained in the books and
records of the Corporation and such holder has been given an
opportunity to purchase the required value of additional
shares.

(i) The term "Minimum Amount" when used
herein shall mean Five Hundred Dollars ($500) unless
otherwise fixed by the Board of Directors from time
to time, provided that the Minimum Amount may not in
any event exceed Twenty-Five Thousand Dollars
($25,000). The Board of Directors may establish
differing Minimum Amounts for each class and series
of the Corporation's stock and for holders of shares
of each such class and series of stock based on such
criteria as the Board of Directors may deem
appropriate.

(ii) The Corporation shall be entitled but
not required to redeem shares of stock from any
stockholder or stockholders, as provided in this
subsection (6), to the extent and at such times as
the Board of Directors shall, in its absolute
discretion, determine to be necessary or advisable to
prevent the Corporation from qualifying as a

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<PAGE>

"personal holding company", within the meaning of the
Internal Revenue Code of 1986, as amended from time
to time.

(g) Liquidation. In the event of the liquidation of a
-----------
particular Series, the stockholders of the Series that is
being liquidated shall be entitled to receive, as a class,
when and as declared by the Board of Directors, the excess of
the assets belonging to that Series over the liabilities of
that Series. The holders of shares of any particular Series
shall not be entitled thereby to any distribution upon
liquidation of any other Series. The assets so distributable
to the stockholders of any particular Series shall be
distributed among such stockholders in proportion to the
number of shares of that Series held by them and recorded on
the books of the Corporation. The liquidation of any
particular Series in which there are shares then outstanding
may be authorized by vote of a majority of the Board of
Directors then in office, subject to the approval of a
majority of the outstanding voting securities of that Series,
as defined in the Investment Company Act of 1940, and without
the vote of the holders of shares of any other Series. The
liquidation of a particular Series may be accomplished, in
whole or in part, by the transfer of assets of such Series to
another Series or by the exchange of shares of Series for the
shares of another Series.

(h) Net Asset Value Per Share. The net asset value
-------------------------
per share of any Series shall be the quotient obtained by
dividing the value of the net assets of that Series (being the
value of the assets belonging to that Series less the
liabilities of that Series) by the total number of shares of
that Series outstanding, all as determined by or under the
direction of the Board of Directors in accordance with
generally accepted accounting principles and the Investment
Company Act of 1940. Subject to the applicable provisions of
the Investment Company Act of 1940, the Board of Directors, in
its sole discretion, may prescribe and shall set forth in the
By-Laws of the Corporation or in a duly adopted resolution of
the Board of Directors such bases and times for determining
the value of the assets belonging to, and the net asset value
per share of outstanding shares of, each Series, or the net
income attributable to such shares, as the Board of Directors
deems necessary or desirable. The Board of Directors shall
have full discretion, to the extent not inconsistent with the
Maryland General Corporation Law and the Investment Company
Act of 1940, to determine

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<PAGE>

which item shall be treated as income and which items as
capital and whether any item of expense shall be charged to
income or capital. Each such determination and allocation
shall be conclusive and binding for all purposes.

The Board of Directors may determine to maintain the
net asset value per share of any Series at a designated
constant dollar amount and in connection therewith may adopt
procedures not inconsistent with the Investment Company Act of
1940 for the continuing declaration of income attributable to
that Series as dividends and for the handling of any losses
attributable to that Series. Such procedures may provide that
in the event of any loss, each stockholder shall be deemed to
have contributed to the capital of the Corporation
attributable to that Series his pro rata portion of the total
number of shares required to be canceled in order to permit
the net asset value per share of that Series to be maintained,
after reflecting such loss, at the designated constant dollar
amount. Each stockholder of the Corporation shall be deemed to
have agreed, by his investment in any Series with respect to
which the Board of Directors shall have adopted any such
procedure, to make the contribution referred to in the
preceding sentence in the event of any such loss.

(i) Equality. All shares of each particular Series
--------
shall represent an equal proportionate interest in the assets
belonging to that Series (subject to the liabilities of that
Series), and each share of any particular Series shall be
equal to each other share of that Series. The Board of
Directors may from time to time divide or combine the shares
of any particular Series into a greater or lesser number of
shares of that series without thereby changing the
proportionate interest in the assets belonging to that Series
or in any way affecting the rights of holders of shares of any
other Series.

(j) Conversion or Exchange Rights. Subject to
-----------------------------
compliance with the requirements of the Investment Company Act
of 1940, the Board of Directors shall have the authority to
provide that holders of shares of any Series shall have the
right to convert or exchange said shares into shares of one or
more other Series of shares in accordance with such
requirements and procedures as may be established by the Board
of Directors.

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<PAGE>

(7) The Board of Directors may, from time to time and without
stockholder action, classify shares of a particular Series into one or more
additional classes of that Series, the voting, dividend, liquidation and other
rights of which shall differ from the classes of common stock of that Series to
the extent provided in Articles Supplementary for such additional class, such
Articles to be filed for record with the appropriate authorities of the State of
Maryland. Each class so created shall consist, until further changed, of the
lesser of (x) the number of shares classified in Section (5) of this Article
SIXTH or (y) the number of shares that could be issued by issuing all of the
shares of that Series currently or hereafter classified less the total number of
shares of all classes of such Series then issued and outstanding. Any class of a
Series of Common Stock shall be referred to herein individually as a "Class" and
collectively, together with any further class or classes of such Series from
time to time established, as the "Classes".

(8) All Classes of a particular Series of Common Stock of the
Corporation shall represent the same interest in the Corporation and have
identical voting, dividend, liquidation and other rights with any other shares
of Common Stock of that Series; provided, however, that notwithstanding anything
in the charter of the Corporation to the contrary:

(a) Any class of shares may be subject to such sales
loads, contingent deferred sales charges, Rule 12b-1 fees,
administrative fees, service fees, or other fees, however
designated, in such amounts as may be established by the Board
of Directors from time to time in accordance with the
Investment Company Act of 1940.

(b) Expenses related solely to a particular Class of
a Series (including, without limitation, distribution expenses
under a Rule 12b-1 plan and administrative expenses under an
administration or service agreement, plan or other
arrangement, however designated) shall be borne by that Class
and shall be appropriately reflected (in the manner determined
by the Board of Directors) in the net asset value, dividends,
distributions and liquidation rights of the shares of that
Class.

(c) As to any matter with respect to which a separate
vote of any Class of a Series is required by the Investment
Company Act of 1940 or by the Maryland General Corporation Law
(including, without limitation, approval of any plan,
agreement or other arrangement referred to in subsection (b)
above), such requirement as to a separate vote by that Class
shall apply in lieu of Single Class Voting, and if permitted
by the

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<PAGE>

Investment Company Act of 1940 or the Maryland General
Corporation Law, the Classes of more than one Series shall
vote together as a single class on any such matter which shall
have the same effect on each such Class. As to any matter
which does not affect the interest of a particular Class of a
Series, only the holders of shares of the affected Classes of
that Series shall be entitled to vote.

(9) The Corporation may issue and sell fractions of shares of
capital stock having pro rata all the rights of full shares, including, without
limitation, the right to vote and to receive dividends, and wherever the words
"share" or "shares" are used in the charter or By-Laws of the Corporation, they
shall be deemed to include fractions of shares where the context does not
clearly indicate that only full shares are intended.

(10) The Corporation shall not be obligated to issue
certificates representing shares of any Class or Series of capital stock. At the
time of issue or transfer of shares without certificates, the Corporation shall
provide the stockholder with such information as may be required under the
Maryland General Corporation Law.

(11) No holder of any shares of stock of the Corporation shall
be entitled as of right to subscribe for, purchase, or otherwise acquire any
such shares which the Corporation shall issue or propose to issue; and any and
all of the shares of stock of the Corporation, whether now or hereafter
authorized, may be issued, or may be reissued or transferred if the same have
been reacquired and have treasury status, by the Board of Directors to such
persons, firms, corporations and associations, and for such lawful
consideration, and on such terms, as the Board of Directors in its discretion
may determine, without first offering same, or any thereof, to any said holder.

(12) All persons who shall acquire stock or other securities
of the Corporation shall acquire the same subject to the provisions of these
Articles of Incorporation, as from time to time amended.

SEVENTH: The number of directors of the Corporation, until
such number shall be increased pursuant to the By-Laws of the Corporation, shall
be two. The number of directors shall never be less than the number prescribed
by the General Corporation Law of the State of Maryland and shall never be more
than twenty. The names of the persons who shall act as directors of the
Corporation until their successors are duly chosen and qualify are David B.
Welliver and Michael Miola.

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<PAGE>

EIGHTH: The following provisions are inserted for the
purpose of defining, limiting and regulating the powers of the
Corporation and of the Board of Directors and stockholders.

(1) The business and affairs of the Corporation shall be
managed under the direction of the Board of Directors which shall have and may
exercise all powers of the Corporation except those powers which are by law, by
these Articles of Incorporation or by the By-Laws conferred upon or reserved to
the stockholders. In furtherance and not in limitation of the powers conferred
by law, the Board of Directors shall have power:

(a) to make, alter and repeal the By-Laws of the
Corporation;

(b) to issue and sell, from time to time, shares of
any class or series of the Corporation's stock in such amounts
and on such terms and conditions, and for such amount and kind
of consideration, as the Board of Directors shall determine,
provided that the consideration per share to be received by
the Corporation shall be not less than the greater of the net
asset value per share of that class of stock at such time
computed in accordance with Article SIXTH hereof or the par
value thereof;

(c) from time to time to set apart out of any
assets of the Corporation otherwise available for dividends a
reserve or reserves for working capital or for any other
proper purpose or purposes, and to reduce, abolish or add to
any such reserve or reserves from time to time as said Board
of Directors may deem to be in the best interests of the
Corporation; and to determine in its discretion what part of
the assets of the Corporation available for dividends in
excess of such reserve or reserves shall be declared in
dividends and paid to the stockholders of the Corporation; and

(d) from time to time to determine to what extent
and at what times and places and under what conditions and
regulations the accounts, books and records of the
Corporation, or any of them, shall be open to the inspection
of the stockholders; and no stockholder shall have any right
to inspect any account or book or document of the Corporation,
except as conferred by the laws of the State of Maryland,
unless and until authorized to do so by resolution of the
Board of Directors or of the stockholders of the Corporation.

(2) Notwithstanding any provision of the General Corporation
Law of the State of Maryland requiring a greater proportion than a majority of
the votes of all classes or of any

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<PAGE>

class of the Corporation's stock entitled to be cast in order to take or
authorize any action, any such action may be taken or authorized upon the
concurrence of a majority of the aggregate number of votes entitled to be cast
thereon subject to any applicable requirements of the Investment Company Act of
1940, as from time to time in effect, or rules or orders of the Securities and
Exchange Commission or any successor thereto.

(3) Except as may otherwise be expressly provided by
applicable statutes or regulatory requirements, the presence in person or by
proxy of the holders of one-third of the shares of stock of the Corporation
entitled to vote shall constitute a quorum at any meeting of the stockholders.

(4) Any determination made in good faith and, so far as
accounting matters are involved, in accordance with generally accepted
accounting principles by or pursuant to the discretion of the Board of
Directors, as to the amount of the assets, debts, obligations, or liabilities of
the Corporation, as to the amount of any reserves or charges set up and the
propriety thereof, as to the time of or purposes for creating such reserves or
charges, as to the use, alteration or cancellation of any reserves or charges
(whether or not any debt, obligation or liability for which such reserves or
charges shall have been created shall have been paid or discharged or shall by
then or thereafter required to be paid or discharged), as to the value of or the
method of valuing any investment owned or held by the Corporation, as to the
market value or fair value of any investment or fair value of any other asset of
the Corporation, as to the allocation of any asset of the Corporation to a
particular class or classes of the Corporation's stock, as to the charging of
any liability of the Corporation to a particular class or classes of the
Corporation's stock, as to the number of shares of the Corporation outstanding,
as to the estimated expense to the Corporation in connection with purchases of
its shares, as to the ability to liquidate investments in orderly fashion, or as
to any other matters relating to the issue, sale, purchase and/or other
acquisition or disposition of investments or shares of the Corporation, shall be
final and conclusive and shall be binding upon the Corporation and all holders
of its shares, past, present and future, and shares of the Corporation are
issued and sold on the condition and understanding that any and all such
determinations shall be binding as aforesaid.

(5) Except to the extent prohibited by the Investment Company
Act of 1940, as amended, or rules, regulations or orders thereunder promulgated
by the Securities and Exchange Commission or any successor thereto or by the
By-Laws of the Corporation, a director, officer or employee of the Corporation
shall not be disqualified by his position from dealing or contracting with the
Corporation, nor shall any transaction or contract of the Corporation be void or
voidable by reason of the fact that any

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<PAGE>

director, officer or employee or any firm of which any director, officer or
employee is a member or any corporation of which any director, officer or
employee is a stockholder, officer or director, is in any way interested in such
transaction or contract; provided that in case a director, or a firm or
corporation of which a director is a member, stockholder, officer or director,
is so interested, such fact shall be disclosed to or shall have been known by
the Board of Directors or a majority thereof; and any director of the
Corporation who is so interested, or who is a member, stockholder, officer or
director of such firm or corporation, may be counted in determining the
existence of a quorum at any meeting of the Board of Directors of the
Corporation which shall authorize any such transaction or contract, with like
force and effect as if he were not such director, or member, stockholder,
officer or director of such firm or corporation.

(6) Specifically and without limitation of the foregoing
subsection (e) but subject to the exception therein prescribed, the Corporation
may enter into management or advisory, underwriting, distribution and
administration contracts and other contracts, and may otherwise do business,
with Furman Selz Incorporated, and any parent, subsidiary, partner, or affiliate
of such firm or any affiliates of any such affiliate, or the stockholders,
members, directors, officers, partners and employees thereof, and may deal
freely with one another notwithstanding that the Board of Directors of the
Corporation may be composed in part of directors, officers, partners or
employees of such firm and/or its parents, subsidiaries or affiliates and that
officers of the Corporation may have been, be or become directors, officers, or
employees of such firm, and/or its parents, subsidiaries or affiliates, and
neither such management or advisory, underwriting, distribution or
administration contracts nor any other contract or transaction between the
Corporation and such firm and/or its parents, subsidiaries or affiliates shall
be invalidated or in any way affected thereby, nor shall any director or officer
of the Corporation be liable to the Corporation or to any stockholder or
creditor thereof or to any person for any loss incurred by it or him under or by
reason of such contract or transaction; provided that nothing herein shall
protect any director or officer of the Corporation against any liability to the
Corporation or to its security holders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office; and provided always that
such contract or transaction shall have been on terms that were not unfair to
the Corporation at the time at which it was entered into.

NINTH: (1) The Corporation shall indemnify (i) its
currently acting and former directors and officers, whether
serving the Corporation or at its request any other entity, to

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<PAGE>

the fullest extent required or permitted by the General Laws of the State of
Maryland now or hereafter in force, including the advance of expenses under the
procedures and to the fullest extent permitted by law, and (ii) other employees
and agents to such extent as shall be authorized by the Board of Directors or
the By-Laws and as permitted by law. Nothing contained herein shall be construed
to protect any director or officer of the Corporation against any liability to
the Corporation or its security holders to which he would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office. The foregoing
rights of indemnification shall not be exclusive of any other rights to which
those seeking indemnification may be entitled. The Board of Directors may take
such action as is necessary to carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend from time to time such by-laws,
resolutions or contracts implementing such provisions or such indemnification
arrangements as may be permitted by law. No amendment of the charter of the
Corporation or repeal of any of its provisions shall limit or eliminate the
right of indemnification provided hereunder with respect to acts or omissions
occurring prior to such amendment or repeal.

(2) To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted, and the Investment Company Act of
1940, no director or officer of the Corporation shall be personally liable to
the Corporation or its stockholders for money damages; provided, however, that
nothing herein shall be construed to protect any director or officer of the
Corporation against any liability to the Corporation or its security holders to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his office. No amendment of the charter of the Corporation or repeal of any of
its provisions shall limit or eliminate the limitation of liability provided to
directors and officers hereunder with respect to any act or omission occurring
prior to such amendment or repeal.

TENTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in these Articles of Incorporation or
in any amendment hereto in the manner now or hereafter prescribed by the laws of
the State of Maryland and all rights conferred upon stockholders herein are
granted subject to this reservation.

IN WITNESS WHEREOF, the undersigned, being the incorporator of
the Corporation, has adopted and signed these Articles of Incorporation for the
purpose of forming the corporation described herein pursuant to the General
Corporation

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<PAGE>

law of the State of Maryland and does hereby acknowledge that said adoption and
signing are her act.

/s/ Thomas R. Westle
-----------------------------
Thomas R. Westle
Dated: February 11, 1998

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<PAGE>

BY-LAWS

QUESTAR FUNDS, INC.

a Maryland corporation

ARTICLE I

Offices
-------

Section 1. Principal Office in Maryland. The Corporation shall have a
----------------------------
principal office in the City of Baltimore, State of Maryland.

Section 2. Other Offices. The Corporation may have offices also at
-------------
such other places within and without the State of Maryland as the Board of
Directors may from time to time determine or as the business of the Corporation
may require.

ARTICLE II

Meetings of Stockholders
------------------------

Section 1. Place of Meeting. Meetings of stockholders shall be held at
----------------
such place, either within the State of Maryland or at such other place within
the United States, as shall be fixed from time to time by the Board of
Directors.

Section 2. Annual Meetings. The Corporation shall not be required to
---------------
hold an annual meeting of its stockholders in any year in which none of the
following is required to be acted on by the holders of any class or series of
stock under the Investment Company Act of 1940: (a) election of the directors,
(b) approval of the Corporation's investment advisory agreement with respect to
a particular class or series; (c) ratification of the selection of independent
public accountants; and (d) approval of the Corporation's distribution agreement
with respect to a particular class or series. In the event that the Corporation
shall be required to hold an annual meeting of stockholders by the Investment
Company Act of 1940, such meeting of stockholders shall be held on a date fixed
from time to time by the Board of Directors not less than ninety nor more than
one hundred twenty days following the end of such fiscal year of the
Corporation.

Section 3. Notice of Annual Meeting. Written or printed notice of an
------------------------
annual meeting, stating the place, date and hour thereof, shall be given to each
stockholder entitled to vote

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<PAGE>

thereat not less than ten nor more than ninety days before the date of the
meeting.

Section 4. Special Meetings. Special meetings of stockholders may be
----------------
called by the chairman, the president or by the Board of Directors and shall be
called by the secretary upon the written request of holders of shares entitled
to cast not less than twenty-five percent of all the votes entitled to be cast
at such meeting. Such request shall state the purpose or purposes of such
meeting and the matters proposed to be acted on thereat. In the case of such
request for a special meeting, upon payment by such stockholders to the
Corporation of the estimated reasonable cost of preparing and mailing a notice
of such meeting, the secretary shall give the notice of such meeting. The
secretary shall not be required to call a special meeting to consider any matter
which is substantially the same as a matter acted upon at any special meeting of
stockholders held within the preceding twelve months unless requested to do so
by the holders of shares entitled to cast not less than a majority of all votes
entitled to be cast at such meeting.

Section 5. Notice of Special Meeting. Written or printed notice of a
-------------------------
special meeting of stockholders, stating the place, date, hour and purpose
thereof, shall be given by the secretary to each stockholder entitled to vote
thereat not less than ten nor more than ninety days before the date fixed for
the meeting.

Section 6. Business of Special Meetings. Business transacted at any
----------------------------
special meeting of stockholders shall be limited to the purposes stated in the
notice thereof.

Section 7. Quorum. Except as may otherwise be expressly provided by
------
applicable statutes or regulations, the holders of one-third of the stock issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business.

Section 8. Voting. When a quorum is present at any meeting, the
------
affirmative vote of a majority of the votes cast shall decide any question
brought before such meeting, unless the question is one upon which by express
provision of the Investment Company Act of 1940, as from time to time in effect,
or other statutes or rules or orders of the Securities and Exchange Commission
or any successor thereto or of the Articles of Incorporation, a different vote
is required, in which case such express provision shall govern and control the
decision of such question.

Section 9. Proxies. Each stockholder shall at every meeting of
-------
stockholders be entitled to one vote in person or by

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proxy for each share of the stock having voting power held by such stockholder,
but no proxy shall be voted after eleven months from its date, unless otherwise
provided in the proxy.

Section 10. Record Date. In order that the Corporation may determine
------------
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, to express consent to corporate action in writing
without a meeting, or to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date which shall be
not more than ninety days and, in the case of a meeting of stockholders, not
less than ten days prior to the date on which the particular action requiring
such determination of stockholders is to be taken. In lieu of fixing a record
date, the Board of Directors may provide that the stock transfer books shall be
closed for a stated period, but not to exceed, in any case, twenty days. If the
stock transfer books are closed for the purpose of determining stockholders
entitled to notice of or to vote at a meeting of stockholders, such books shall
be closed for at least ten days immediately preceding such meeting. If no record
date is fixed and the stock transfer books are not closed for the determination
of stockholders: (1) the record date for the determination of stockholders
entitled to notice of, or to vote at, a meeting of stockholders shall be at the
close of business on the day on which notice of the meeting of stockholders is
mailed or the day thirty days before the meeting, whichever is the closer date
to the meeting; and (2) the record date for the determination of stockholders
entitled to receive payment of a dividend or an allotment of any rights shall be
at the close of business on the day on which the resolution of the Board of
Directors, declaring the dividend or allotment of rights, is adopted, provided
that the payment or allotment date shall not be more than ninety days after the
date of the adoption of such resolution.

Section 11. Inspectors of Election. The directors, in advance of any
-----------------------
meeting, may, but need not, appoint one or more inspectors to act at the meeting
or any adjournment thereof. If an inspector or inspectors are not appointed, the
person presiding at the meeting may, but need not, appoint one or more
inspectors. In case any person who may be appointed as an inspector fails to
appear or act, the vacancy may be filled by appointment made by the directors in
advance of the meeting or at the meeting by the person presiding thereat. Each
inspector, if any, before entering upon the discharge of his or her duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his or her
ability. The inspectors, if any, shall determine the number of shares
outstanding and the voting power

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of each, the shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the person presiding at the meeting
or any stockholder, the inspector or inspectors, if any, shall make a report in
writing of any challenge, question or matter determined by him or her or them
and execute a certificate of any fact found by him or her or them.

Section 12. Informal Action by Stockholders. Except to the extent
--------------------------------
prohibited by the Investment Company Act of 1940, as from time to time in
effect, or rules or orders of the Securities and Exchange Commission or any
successor thereto, any action required or permitted to be taken at any meeting
of stockholders may be taken without a meeting if a consent in writing, setting
forth such action, is signed by all the stockholders entitled to vote on the
subject matter thereof and any other stockholders entitled to notice of a
meeting of stockholders (but not to vote thereat) have waived in writing any
rights which they may have to dissent from such action, and such consent and
waiver are filed with the records of the Corporation.

ARTICLE III

Board of Directors
------------------

Section 1. Number of Directors. The number of directors shall be fixed
-------------------
at no less than two nor more than twenty. Within the limits specified above, the
number of directors shall be fixed from time to time by the Board of Directors,
but the tenure of office of a director in office at the time of any decrease in
the number of directors shall not be affected as a result thereof. The directors
shall be elected to hold office at the annual meeting of stockholders, except as
provided in Section 2 of this Article, and each director shall hold office until
the next annual meeting of stockholders or until his successor is elected and
qualified. Any director may resign at any time upon written notice to the
Corporation. Any director may be removed, either with or without cause, at any
meeting of stockholders duly called and at which a quorum is present by the
affirmative vote of the majority of the votes entitled to be cast thereon, and
the vacancy in the Board of Directors caused by such removal may be filled by
the stockholders at the time of such removal. Directors need not be
stockholders.

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Section 2. Vacancies and Newly Created Directorships. Any vacancy
-----------------------------------------
occurring in the Board of Directors for any cause, including an increase in the
number of directors, may be filled by the stockholders or by a majority of the
remaining members of the Board of Directors even if such majority is less than a
quorum. So long as the Corporation is a registered investment company under the
Investment Company Act of 1940, vacancies in the Board of Directors may be
filled by a majority of the remaining members of the Board of Directors only if,
immediately after filing any such vacancy, at least two-thirds of the directors
then holding office shall have been elected to such office at a meeting of
stockholders. A director elected by the Board of Directors to fill a vacancy
shall be elected to hold office until the next annual meeting of stockholders or
until his successor is elected and qualifies.

Section 3. Powers. The business and affairs of the Corporation shall
------
be managed under the direction of the Board of Directors which shall exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Articles of Incorporation or by these By-Laws conferred
upon or reserved to the stockholders.

Section 4. Annual Meeting. The first meeting of each newly elected
--------------
Board of Directors shall be held immediately following the adjournment of the
annual meeting of stockholders and at the place thereof. No notice of such
meeting to the directors shall be necessary in order legally to constitute the
meeting, provided a quorum shall be present. In the event such meeting is not so
held, the meeting may be held at such time and place as shall be specified in a
notice given as hereinafter provided for special meetings of the Board of
Directors.

Section 5. Other Meetings. The Board of Directors of the Corporation
--------------
or any committee thereof may hold meetings, both regular and special, either
within or without the State of Maryland. Regular meetings of the Board of
Directors may be held without notice at such time and at such place as shall
from time to time be determined by the Board of Directors. Special meetings of
the Board of Directors may be called by the chairman, the president or by two or
more directors. Notice of special meetings of the Board of Directors shall be
given by the secretary to each director at least three days before the meeting
if by mail or at least 24 hours before the meeting if given in person or by
telephone or by telegraph. The notice need not specify the business to be
transacted.

Section 6. Quorum and Voting. At meetings of the Board of Directors,
-----------------
two of the directors in office at the time, but in no event less than one-third
of the entire Board of Directors, shall constitute a quorum for the transaction
of business. When required pursuant to Section 15(c) under the

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Investment Company Act of 1940 or Rule 12b-1 thereunder a quorum shall also
require the presence in person of a majority of directors who are not parties to
a contract or agreement to be voted upon or interested persons of any such
party. The action of a majority of the directors present at a meeting at which a
quorum is present shall be the action of the Board of Directors. If a quorum
shall not be present at any meeting of the Board of Directors, the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present.

Section 7. Committees. The Board of Directors may, by resolution
----------
passed by a majority of the entire Board of Directors, appoint from among its
members an executive committee and other committees of the Board of Directors,
each committee to be composed of two or more of the directors of the
Corporation. The Board of Directors may, to the extent provided in the
resolution, delegate to such committees, in the intervals between meetings of
the Board of Directors, any or all of the powers of the Board of Directors in
the management of the business and affairs of the Corporation, except the power
to declare dividends, to issue stock, to recommend to stockholders any action
requiring stockholders' approval, to amend the By-Laws or to approve any merger
or share exchange which does not require stockholders' approval. Such committee
or committees shall have the name or names as may be determined from time to
time by resolution adopted by the Board of Directors. Unless the Board of
Directors designates one or more directors as alternate members of any
committee, who may replace an absent or disqualified member at any meeting of
the committee, the members of any such committee present at any meeting and not
disqualified from voting may, whether or not they constitute a quorum,
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any absent or disqualified member of such committee. At
meetings of any such committee, a majority of the members or alternate members
of such committee shall constitute a quorum for the transaction of business and
the act of a majority of the members or alternate members present at any meeting
at which a quorum is present shall be the act of the committee.

Section 8. Minutes of Committee Meetings. The committees shall keep
-----------------------------
regular minutes of their proceedings.

Section 9. Informal Action by Board of Directors and Committees. Any
----------------------------------------------------
action, except approving the Rule 12b-1 Plan and the Advisory Agreement,
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if a written consent
thereto is signed by all members of the Board of Directors or of such committee,
as the case may be, and such written consent is filed with the minutes of
proceedings of the Board of Directors or committee.

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Section 10. Meetings by Conference Telephone. Except to the extent
---------------------------------
prohibited by the Investment Company Act of 1940, as from time to time in
effect, or rules or orders of the Securities and Exchange Commission or any
successor thereto, the members of the Board of Directors or any committee
thereof may participate in a meeting of the Board of Directors or committee by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other at the same
time and such participation shall constitute presence in person at such meeting.

Section 11. Fees and Expenses. The directors may be paid their
------------------
expenses of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like reimbursement and
compensation for attending committee meetings.

ARTICLE IV

Notices

Section 1. General. Notices to directors and stockholders mailed to
-------
them at their post office addresses appearing on the books of the Corporation
shall be deemed to be given at the time when deposited in the United States
mail.

Section 2. Waiver of Notice. Whenever any notice is required to be
----------------
given under the provisions of the statutes, of the Articles of Incorporation or
of these By-Laws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed the equivalent of notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened.

ARTICLE V

Officers
--------

Section 1. General. The officers of the Corporation shall be chosen by
-------
the Board of Directors at its first meeting after each annual meeting of
stockholders and shall be a chairman

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<PAGE>

of the Board of Directors, a president, a secretary and a treasurer. The Board
of Directors may also choose such vice presidents and additional officers or
assistant officers as it may deem advisable. Any number of offices, except the
offices of president and vice president, may be held by the same person. No
officer shall execute, acknowledge or verify any instrument in more than one
capacity if such instrument is required by law to be executed, acknowledged or
verified by two or more officers.

Section 2. Other Officers and Agents. The Board of Directors may
-------------------------
appoint such other officers and agents as it desires who shall hold their
offices for such terms and shall exercise such power and perform such duties as
shall be determined from time to time by the Board of Directors.

Section 3. Tenure of Officers. The officers of the Corporation shall
------------------
hold office at the pleasure of the Board of Directors. Each officer shall hold
his or her office until his or her successor is elected and qualifies or until
his or her earlier resignation or removal. Any officer may resign at any time
upon written notice to the Corporation. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors when, in
its judgment, the best interests of the Corporation will be served thereby. Any
vacancy occurring in any office of the Corporation by death, resignation,
removal or otherwise shall be filled by the Board of Directors.

Section 4. Chairman of the Board of Directors. The Chairman of the
----------------------------------
Board of Directors shall be the chief executive officer of the Corporation,
shall preside at all meetings of the stockholders and of the Board of Directors,
shall have general and active management of the business of the Corporation and
shall see that all orders and resolutions of the Board of Directors are carried
into effect. The chairman shall execute on behalf of the Corporation, and may
affix the seal or cause the seal to be affixed to, all instruments requiring
such execution except to the extent that signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the Corporation.

Section 5. President. The president shall, in the absence of the
---------
chairman of the Board of Directors, preside at all meetings of the stockholders
or of the Board of Directors. The president shall have general and active
management of the business of the Corporation and shall see that all orders and
resolutions of the Board of Directors are carried into effect. The president
shall execute bonds, mortgages and other contracts requiring a seal, under the
seal of the Corporation, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution thereof
shall be expressly delegated by the Board of Directors to some other officer or
agent of the Corporation.

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<PAGE>

Section 6. Vice Presidents. The vice presidents shall act under the
---------------
direction of the president and in the absence or disability of the president
shall perform the duties and exercise the power of the president. They shall
perform such other duties and have such other powers as the president or the
Board of Directors may from time to time prescribe. The Board of Directors may
designate one or more executive vice presidents or may otherwise specify the
order of seniority of the vice presidents and, in that event, the duties and
powers of the president shall descend to the vice presidents in the specified
order of seniority.

Section 7. Secretary. The secretary shall act under the direction of
---------
the president. Subject to the direction of the president, the secretary shall
attend all meetings of the Board of Directors and all meetings of stockholders
and record the proceedings in a book to be kept for that purpose and shall
perform like duties for the committees designated by the Board of Directors when
required. The secretary shall give, or cause to be given, notice of all meetings
of stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the president or the Board of
Directors. The secretary shall keep in safe custody the seal of the Corporation
and shall affix the seal or cause it to be affixed to any instrument requiring
it.

Section 8. Assistant Secretaries. The assistant secretaries in the
---------------------
order of their seniority, unless otherwise determined by the president or the
Board of Directors, shall, in the absence or disability of the secretary,
perform the duties and exercise the powers of the secretary. They shall perform
such other duties and have such other powers as the president or the Board of
Directors may from time to time prescribe.

Section 9. Treasurer. The treasurer shall act under the direction of
---------
the president. Subject to the direction of the president he shall have the
custody of the corporate funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all monies and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors. The treasurer shall disburse the funds of the Corporation as may
be ordered by the president or the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the president and the Board of
Directors, at its regular meetings, or when the Board of Directors so requires,
an account of all his or her transactions as treasurer and of the financial
condition of the Corporation.

Section 10. Assistant Treasurers. The assistant treasurers in the
---------------------
order of their seniority, unless otherwise determined by the president or the
Board of Directors, shall, in

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<PAGE>

the absence or disability of the treasurer, perform the duties and exercise the
powers of the treasurer. They shall perform such other duties and have such
other powers as the president or the Board of Directors may from time to time
prescribe.

ARTICLE VI

Certificates of Stock
---------------------

Section 1. General. Every holder of stock of the Corporation who has
-------
made full payment of the consideration for such stock shall be entitled upon
request to have a certificate, signed by, or in the name of the Corporation by,
the president or a vice president and countersigned by the treasurer or an
assistant treasurer or the secretary or an assistant secretary of the
Corporation, certifying the number and class of whole shares of stock owned by
such holder in the Corporation.

Section 2. Fractional Share Interests or Scrip. The Corporation may,
-----------------------------------
but shall not be obliged to, issue fractions of a share of stock, arrange for
the disposition of fractional interests by those entitled thereto, pay in cash
the fair value of fractions of a share of stock as of the time when those
entitled to receive such fractions are determined, or issue scrip or other
evidence of ownership which shall entitle the holder to receive a certificate
for a full share of stock upon the surrender of such scrip or other evidence of
ownership aggregating a full share. Fractional shares of stock shall have
proportionately to the respective fractions represented thereby all the rights
of whole shares, including the right to vote, the right to receive dividends and
distributions and the right to participate upon liquidation of the Corporation,
excluding, however, the right to receive a stock certificate representing such
fractional shares. The Board of Directors may cause such scrip or evidence of
ownership to be issued subject to the condition that it shall become void if not
exchanged for certificates representing full shares of stock before a specified
date or subject to the condition that the shares of stock for which such scrip
or evidence of ownership is exchangeable may be sold by the Corporation and the
proceeds thereof distributed to the holders of such scrip or evidence of
ownership, or subject to any other reasonable conditions which the Board of
Director shall deem advisable, including provision for forfeiture of such
proceeds to the Corporation if not claimed within a period of not less than
three years after the date of the original issuance of scrip certificates.

Section 3. Signatures on Certificates. Any of or all the signatures on
--------------------------
a certificate may be a facsimile. In case any officer who has signed or whose
facsimile signature has been placed upon a certificate shall cease to be such
officer before

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<PAGE>

such certificate is issued, it may be issued with the same effect as if he or
she were such officer at the date of issue. The seal of the Corporation or a
facsimile thereof may, but need not, be affixed to certificates of stock.

Section 4. Lost, Stolen or Destroyed Certificates. The Board of
--------------------------------------
Directors may direct a new certificate or certificates to be issued in place of
any certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed, upon the making of any affidavit of that
fact by the person claiming the certificate or certificates to be lost, stolen
or destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his or her legal representative, to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate or
certificates alleged to have been lost, stolen or destroyed.

Section 5. Transfer of Shares. Upon request by the registered owner of
------------------
shares, and if a certificate has been issued to represent such shares upon
surrender to the Corporation or a transfer agent of the Corporation of a
certificate for shares of stock duly endorsed or accompanied by proper evidence
of succession, assignment or authority to transfer, subject to the Corporation's
rights to redeem or purchase such shares, it shall be the duty of the
Corporation, if it is satisfied that all provisions of the Articles of
Incorporation, of the By-Laws and of the law regarding the transfer of shares
have been duly complied with, to record the transactions upon its books, issue a
new certificate to the person entitled thereto upon request for such
certificate, and cancel the old certificate, if any.

Section 6. Registered Owners. The Corporation shall be entitled to
-----------------
recognize the person registered on its books as the owner of shares to be the
exclusive owner for all purposes including, redemption, voting and dividends,
and the Corporation shall not be bound to recognize any equitable or other claim
to or interest in such share or shares on the part of any other person, whether
or not it shall have express or other notice thereof, except as otherwise
provided by the laws of Maryland.

ARTICLE VII

Miscellaneous
-------------

Section 1. Reserves. There may be set aside out of any funds of the
--------
Corporation available for dividends such sum or sums as the Board of Directors
from time to time, in their

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<PAGE>

absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for repairing or maintaining any property of the Corporation,
or for the purchase of additional property, or for such other purpose as the
Board of Directors shall think conducive to the interest of the Corporation, and
the Board of Directors may modify or abolish any such reserve.

Section 2. Dividends. Dividends upon the stock of the Corporation may,
---------
subject to the provisions of the Articles of Incorporation and of the provisions
of applicable law, be declared by the Board of Directors at any time. Dividends
may be paid in cash, in property or in shares of the Corporation's stock,
subject to the provisions of the Articles of Incorporation and of applicable
law.

Section 3. Capital Gains Distributions. The amount and number of
---------------------------
capital gains distributions paid to the stockholders during each fiscal year
shall be determined by the Board of Directors. Each such payment shall be
accompanied by a statement as to the source of such payment, to the extent
required by law.

Section 4. Checks. All checks or demands for money and notes of the
------
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.

Section 5. Fiscal Year. The fiscal year of the Corporation shall be
-----------
fixed by resolution of the Board of Directors.

Section 6. Seal. The corporate seal shall have inscribed thereon the
----
name of the Corporation, the year of its organization and the words, "Corporate
Seal, Maryland". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in another manner reproduced.

Section 7. Filing of By-Laws. A certified copy of the By-Laws,
-----------------
including all amendments, shall be kept at the principal office of the
Corporation in the State of Maryland.

Section 8. Annual Report. The books of account of the Corporation
-------------
shall be examined by an independent firm of public accountants at the close of
each annual fiscal period of the Corporation and at such other times, if any, as
may be directed by the Board of Directors of the Corporation. Within one hundred
and twenty days of the close of each annual fiscal period a report based upon
such examination at the close of that fiscal period shall be mailed to each
stockholder of the Corporation of record at the close of such annual fiscal
period, unless the Board of Directors shall set another record date, at his
address as the same appears on the books of the Corporation. Each such

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<PAGE>

report shall contain such information as is required to be set forth therein by
the Investment Company Act of 1940 and the rules and regulations promulgated by
the Securities and Exchange Commission thereunder. Such report shall also be
submitted at the annual meeting of the stockholders and filed within twenty days
thereafter at the principal office of the Corporation in the State of Maryland.

Section 9. Stock Ledger. The Corporation shall maintain at its
------------
principal office outside of the State of Maryland an original or duplicate stock
ledger containing the names and addresses of all stockholders and the number of
shares of stock held by each stockholder. Such stock ledger may be in written
form or in any other form capable of being converted into written form within a
reasonable time for visual inspection.

Section 10. Ratification of Accountants by Stockholders. At every
--------------------------------------------
annual meeting of the stockholders of the Corporation otherwise called there
shall be submitted for ratification or rejection the name of the firm of
independent public accountants which has been selected for the current fiscal
year in which such annual meeting is held by a majority of those members of the
Board of Directors who are not investment advisers of, or interested person (as
defined in the Investment Company Act of 1940) of an investment adviser of, or
officers or employees of, the Corporation.

Section 11. Custodian. All securities and similar investments owned by
----------
the Corporation shall be held by a custodian which shall be either a trust
company or a national bank of good standing, having a capital surplus and
undivided profits aggregating not less than two million dollars ($2,000,000), or
a member firm of the New York Stock Exchange, Inc. The terms of custody of such
securities and cash shall include such provisions required to be contained
therein by the Investment Company Act of 1940 and the rules and regulations
promulgated thereunder by the Securities and Exchange Commission.

Upon the resignation or inability to serve of any such custodian the
Corporation shall: (a) use its best efforts to obtain a successor custodian, (b)
require the cash and securities of the Corporation held by the custodian to be
delivered directly to the successor custodian, and (c) in the event that no
successor custodian can be found, submit to the stockholders of the Corporation,
before permitting delivery of such cash and securities to anyone other than a
successor custodian, the question whether the Corporation shall be dissolved or
shall function without a custodian; provided, however, that nothing herein
contained shall prevent the termination of any agreement between the Corporation
and any such custodian by the affirmative vote of the holders of a majority of
all the stock of the Corporation at the time outstanding and entitled to vote.
Upon

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its resignation or inability to serve and pending action by the Corporation as
set forth in this section, the custodian may deliver any assets of the
Corporation held by it to a qualified bank or trust company in the City of New
York, or to a member firm of the New York Stock Exchange, Inc. selected by it,
such assets to be held subject to the terms of custody which governed such
retiring custodian.

Section 12. Investment Advisers. The Corporation may enter into one or
--------------------
more management or advisory, underwriting, distribution or administration
contract with any person, firm, partnership, association or corporation but such
contract or contracts shall continue in effect only so long as such continuance
is specifically approved annually by a majority of the Board of Directors or by
vote of the holders of a majority of the voting securities of the Corporation,
and in either case by vote of a majority of the directors who are not parties to
such contracts or interested persons (as defined in the Investment Company Act
of 1940) of any such party cast in person at a meeting called for the purpose of
voting on such approval.

ARTICLE VIII

Amendments
----------

The Board of Directors shall have the power, by a majority vote of the
entire Board of Directors at any meeting thereof, to make, alter and repeal
By-Laws of the Corporation.

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