ENTERPRISE GROUP OF FUNDS INC
497, 2001-01-19
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<PAGE>   1

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

                                                             FILE NUMBER 2-28097
                                                   FILED PURSUANT TO RULE 497(A)

                 SUBJECT TO COMPLETION, DATED JANUARY 19, 2001

                      THE ENTERPRISE GROUP OF FUNDS, INC.
                                   PROSPECTUS

                            CLASS A, B AND C SHARES

                         Mergers and Acquisitions Fund

     This prospectus contains information you should know before investing,
including information about risks. Please read it before you invest and keep it
for future reference.

     The Securities and Exchange Commission has not determined that the
information in this prospectus is accurate or complete, nor has it approved or
disapproved these securities. It is a criminal offense to state otherwise.
<PAGE>   2

                                  INTRODUCTION

     The Enterprise Group of Funds, Inc. is a mutual fund family that offers
different classes of shares in separate investment portfolios or Funds. This
prospectus relates to Class A, B and C shares of the Funds. The Funds have
individual objectives and strategies to offer investors a broad range of
investment alternatives.

     Enterprise Capital Management, Inc. (the "Advisor") is the investment
advisor to each Fund. The Advisor selects a Fund Manager for each Fund's
portfolio on the basis of a number of criteria, including the Fund Manager's
reputation, resources and performance results.

     Before investing in any mutual fund, you should consider the general risks
involved. The value of your investment in a Fund is based on the market prices
of the securities the Fund holds. These prices change due to economic and other
events that affect securities markets generally, as well as those that affect
particular companies, industry sectors or governments. These price movements,
sometimes called volatility, will vary depending on the types of securities a
Fund owns and the markets in which these securities trade. In addition, the
investments made by a Fund may underperform the market generally or other mutual
funds with a similar investment objective of that Fund. As with other
investments, you could lose money on your investment in a Fund. Your investment
in a Fund is not a bank deposit. It is not insured or guaranteed by the FDIC or
any government agency. A Fund may not achieve its objective. A Fund's objective
may not be changed without shareholder approval.

     This prospectus relates only to the Enterprise Mergers and Acquisitions
Fund. Information about the other Funds of the Enterprise Group of Funds, Inc.
may be found in the prospectus dated October 31, 2000.

                                        1
<PAGE>   3

[Picture Description: Columns of various heights: located to the left of the
section titled: "Enterprise Mergers and Acquisitions Fund."]
                    ENTERPRISE MERGERS AND ACQUISITIONS FUND

                     FUND PROFILE

                     Investment Objective  Capital appreciation

                     Principal Investments  Domestic equity securities

                     Fund Manager  Gabelli Asset Management Company (GAMCO
                     Investors, Inc.)

                     Who May Want To Invest  Investors who want an increase in
                     the value of their investment without regard to income and
                     want to diversify their overall portfolio with an
                     investment in a specialty fund that invests in companies
                     that could be subject to a takeover

                     Investment Strategies  The Fund Manager will purchase
                     shares of companies believed to be likely acquisition
                     targets within 12 to 18 months. In addition, the Fund
                     Manager will engage in classic risk arbitrage by investing
                     in equity securities of companies that are involved in
                     publicly announced mergers, takeovers, tender offers,
leveraged buyouts, spin-offs, liquidations and other corporate reorganizations.
When a company agrees to be acquired by another company, its stock price often
quickly rises to just below the stated acquisition price. If the Fund Manager,
through extensive research, determines that the acquisition is likely to be
consummated on schedule at the stated acquisition price, then the Fund may
purchase the selling company's securities, offering the Fund the possibility of
generous returns relative to cash equivalents with a limited risk of excessive
loss of capital. At times, the stock of the acquiring company may also be
purchased or shorted.

The Fund Manager may invest in small, mid and large capitalization stocks. The
Fund Manager expects a high portfolio turnover rate of 150% or more. The Fund
may also lend portfolio securities on a short-term or long-term basis, up to 30%
of its total assets.

Principal Risks  Because the Fund invests primarily in equity securities, the
Fund is subject to the risk that stock prices will fall over short or extended
periods of time. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices. This price volatility is the principal
risk of investing in the Fund. Moreover, because the Fund can invest in small,
mid and large-capitalization companies, it is riskier than funds that invest in
only large-capitalization companies since small and mid-capitalization companies
typically have greater earnings fluctuations and greater reliance on a few key
customers than larger companies.

The Fund is subject to the risk that the potential private market value of the
Fund's stocks will not be realized or that certain of the transactions to which
some of the Fund's investments are a part may not be completed, or may be
renegotiated or terminated, which may result in losses to the Fund. The
investment policies of the Fund may lead to a higher portfolio turnover rate
that could increase the Fund's expenses, generate more tangible short-term gains
for shareholders and could negatively impact the Fund's performance.

The Fund is non-diversified and may invest more of its assets in the securities
of a single issuer. This increases the Fund's risk because developments
affecting an individual issuer have a greater impact on the Fund's performance.

Because the Fund Manager expects a high portfolio turnover, the Fund is likely
to generate more taxable short-term gains for shareholders. This turnover may
have an effect on the Fund's performance.

                                        2
<PAGE>   4

If the Fund lends securities, there is a risk that the securities will not be
available to the Fund on a timely basis, and the Fund, therefore, may lose the
opportunity to sell the securities at a desirable price. The Fund may engage in
various portfolio strategies, including using derivatives, to enhance potential
gain.

PERFORMANCE INFORMATION

Information about Fund performance is not provided because this is a new Fund.

FEES AND EXPENSES

This table describes the shareholder fees that you may pay if you purchase or
redeem Fund shares. Every mutual fund has operating expenses which may pay for
professional advisory, shareholder, distribution, administration and custody
services. The Fund's expenses in the table are shown as a percentage of the
Fund's net assets. These expenses are deducted from Fund assets. The Advisor has
contractually agreed to limit the Fund's expenses through May 1, 2001, to the
expense ratios set forth in the table.

<TABLE>
<CAPTION>
SHAREHOLDER FEES (PAID DIRECTLY FROM YOUR INVESTMENT IN THE FUND)  CLASS A    CLASS B    CLASS C
------------------------------------------------------------------------------------------------
<S>                                                                <C>        <C>        <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage
  of offering price)(1).......................................      4.75%      None       None
Maximum Deferred Sales Charge (Load) (as a percentage of net
  asset value)................................................      None       5.00%(2)   1.00%(3)

<CAPTION>
ANNUAL FUND OPERATING EXPENSES (PAID INDIRECTLY IF YOU HOLD FUND SHARES)  CLASS A    CLASS B    CLASS C
-------------------------------------------------------------------------------------------------------
<S>                                                                       <C>        <C>        <C>
Investment Advisory Fees..........................................         0.90%      0.90%      0.90%
Distribution and Service (12b-1) Fees(4)..........................         0.45%      1.00%      1.00%
Other Expenses(5).................................................         0.83%      0.83%      0.83%
                                                                          -----------------------------
Total Annual Fund Operating Expenses..............................         2.18%      2.73%      2.73%
Less Expense Reimbursement........................................        (0.23%)    (0.23%)    (0.23%)
                                                                          -----------------------------
Net Annual Fund Operating Expenses(6).............................         1.95%      2.50%      2.50%
                                                                          -----------------------------
</TABLE>

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

(1) This sales charge varies depending upon how much you invest. See
    "Shareholder Account Information."
(2) This sales charge is imposed if you redeem Class B shares within one year of
    your purchase. A graduated reduced sales charge is imposed if you redeem
    your shares within six years of purchase. Class B shares automatically
    convert to Class A shares about eight years after you purchase them and will
    be subject to lower expenses. See "Shareholder Account Information."
(3) This sales charge is imposed if you redeem Class C shares within one year of
    your purchase. See "Shareholder Account Information."
(4) Class B or Class C shareholders who own their shares for an extended period
    of time may pay more in Rule 12b-1 distribution fees than the economic
    equivalent of the maximum front-end sales charge permitted under the Conduct
    Rules of the National Association of Securities Dealers.
(5) Based on estimated annual amounts. Includes 0.05% of interest and dividend
    expense.
(6) Net Annual Fund Operating Expenses include 0.05% of interest and dividend
    expense, which is not reimbursable by the Advisor.

EXAMPLE

This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated. The example also
assumes that each year your investment has a 5% return and Fund expenses remain
the same. Although your actual costs and returns may be different, your
approximate costs of investing $10,000 in the Fund would be:

<TABLE>
<CAPTION>
                                                              1 YEAR   3 YEARS
------------------------------------------------------------------------------
<S>                                                           <C>      <C>
IF YOU REDEEM YOUR SHARES AT THE END OF THE PERIOD:
Class A.....................................................   $664    $1,103
Class B.....................................................   $753    $1,225
Class C.....................................................   $353    $  825
IF YOU DO NOT REDEEM YOUR SHARES:
Class A.....................................................   $664    $1,103
Class B.....................................................   $253    $  825
Class C.....................................................   $253    $  825
</TABLE>

                                        3
<PAGE>   5

                    ADDITIONAL INFORMATION ABOUT THE FUND'S
                             INVESTMENTS AND RISKS

     The table below shows the Fund's principal investments. In other words, the
table describes the type or types of investments that we believe will most
likely help each Fund achieve its investment goal.

X = Types of securities in which a Fund invests.

<TABLE>
<CAPTION>

                                                              EQUITY
<S>                                                           <C>
U.S. Stocks*                                                    X
Foreign Stocks
Bonds
</TABLE>

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

* The Fund may invest in large capitalization companies, medium capitalization
  companies and small capitalization companies. Large capitalization companies
  generally have market capitalizations of over $5 billion. Medium
  capitalization companies generally have market capitalizations ranging from $1
  billion to $5 billion. Small capitalization companies generally have market
  capitalizations of $1 billion or less. However, there may be some overlap
  among capitalization categories.

     Each Fund also may invest in other securities, use other strategies and
engage in other investment practices, which are described in detail in our
Statements of Additional Information. Of course, we cannot guarantee that any
Fund will achieve its investment goal.

     The investments listed above and the investments and strategies described
throughout this prospectus are those that a Fund may use under normal
conditions. During unusual economic or market conditions or for temporary
defensive or liquidity purposes, each Fund may invest up to 100% of its assets
in cash, money market instruments, repurchase agreements and short-term
obligations. When a Fund is investing for temporary defensive purposes, it is
not pursuing its investment goal; however, the Managed Fund may invest in
securities ordinarily used by other funds for defensive purposes as part of its
main investment strategy.

                                        4
<PAGE>   6

                      HIGHER-RISK SECURITIES AND PRACTICES

The following pages discuss the risks associated with certain types of
higher-risk securities in which the Funds may invest and certain higher-risk
practices in which the Funds might engage.

FOREIGN SECURITIES.  Each of the Funds, except the Money Market Fund, might
invest in foreign securities. These are some of the risks in owning foreign
securities:

- Currency Fluctuation Risk.  When a Fund invests in a security issued by a
  foreign company, the principal, income and sales proceeds may be paid to the
  Fund in a foreign currency. If a foreign currency declines in value relative
  to the U.S. dollar, the value of a Fund's investments could decline as a
  result.

- Social, Political and Economic Risk.  The countries where some of the Funds
  may invest might be subject to a higher degree of social, political and
  economic instability than the United States, resulting from, among other
  things, inflation, changes in governments, increases in taxation and
  nationalizations. This instability might affect the financial condition of a
  company in which a Fund might invest and might disrupt the financial markets
  of a country in which a Fund has holdings.

- Regulation Risk.  The countries where some of the Funds may invest generally
  are subject to less stringent regulations, including financial and accounting
  controls, than are U.S. companies. As a result there generally is less
  publicly available information about foreign companies than about U.S.
  companies.

- Trading Risk.  Trading practices in certain foreign countries are also
  significantly different from those in the United States. Although brokerage
  commissions are generally higher than those in the U.S., the Investment
  Adviser will seek to achieve the most favorable net results. In addition,
  securities settlements and clearance procedures may be less developed and less
  reliable than those in the United States. Delays in settlement could result in
  temporary periods in which the assets of the Funds are not fully invested, or
  could result in a Fund being unable to sell a security in a falling market.

- Custodial and Registration Procedures Risk.  Systems for the registration and
  transfer of securities in foreign markets can be less developed than similar
  systems in the United States. There may be no standardized process for
  registration of securities or a central registration system to track share
  ownership. The process for transferring shares may be cumbersome, costly,
  time-consuming and uncertain.

- Liquidity Risk.  The securities markets in foreign countries have less trading
  volume than in the United States and their securities are often less liquid
  than securities in the United States. In countries with emerging securities
  markets, liquidity might be particularly low. This could make it difficult for
  a Fund to sell a security at a time or price desired.

- Emerging Securities Markets Risk.  To the extent that the Funds invest in
  countries with emerging markets, the foreign securities risk are magnified
  since these countries may have unstable coverage and less established market.

HIGH YIELD SECURITIES.  Each of the Funds, except the Balanced Fund, may invest
in debt securities that are rated below investment grade. These securities
typically offer higher yields than investment grade securities, but are also
subject to more risk. This risk includes, but is not limited to, the following:

- Susceptibility to Economic Downturns.  Issuers of securities that are below
  investment grade tend to be more greatly affected by economic downturns than
  issuers of higher grade securities. Consequently, there is a greater risk that
  an issuing company will not be able to make principal and interest payments.

- Liquidity Risk.  The market for securities that are below investment grade is
  often less liquid than the market for investment grade securities. This could
  make it difficult for a Fund to sell a security at a time or price desired.

ILLIQUID AND RESTRICTED SECURITIES.  Each of the Funds, except the Money Market
Fund, may invest in illiquid and restricted securities.

- Illiquid Securities.  These are securities that a Fund cannot sell on an open
  market. This means that a Fund might not be able to sell an illiquid security
  when it desires and that it might be difficult to value such a security.

- Restricted Securities.  These are securities that are subject to contractual
  restrictions on resale. Such a restriction could limit a security's liquidity.

REPURCHASE AGREEMENTS.  Each Fund may enter into repurchase agreements under
which a Fund purchases a security that a seller has agreed to repurchase from
the Fund at a later date at the same price plus interest. If a

                                        5
<PAGE>   7

seller defaults and the security declines in value, the Fund might incur a loss.
If the seller declares bankruptcy, the Funds may not be able to sell the
security at the desired time.

HEDGING.  Each of the Funds, except the Money Market Fund, may use certain
derivative investment techniques to reduce, or hedge against, various market
risks, such as interest rates, currency exchange rates and market movements.
Derivatives are financial instruments whose performance is derived, at least in
part, from the performance of an underlying asset. When derivatives are used as
a hedge against an opposite position that the Fund also holds, any loss
generated by the derivative should be substantially offset by gains on the
hedged investment, and vice versa. Derivatives may include, but are not limited
to, puts, calls, futures and foreign currency contracts.

- Put and Call Options.  Options are rights to buy or sell an underlying asset
  for a specified price during, or at the end of, a specified period of time. A
  call option gives the holder the right to purchase the underlying asset from
  the writer of the option. A put option gives the holder the right to sell the
  underlying asset to the writer of the option. The writer of the option
  receives a payment from holder, which the writer keeps regardless of whether
  the holder exercises the option. Puts and calls could cause a Fund to lose
  money by forcing the sale or purchase of securities at inopportune times or,
  in the case of puts, for prices higher or, in the case of calls, for prices
  lower than current market values.

- Futures Transactions.  These transactions involve the future sale by one party
  and purchase by another of a specified amount of an underlying asset at a
  price, date and time specified in the transaction contract. Futures contracts
  traded over-the-counter are often referred to as forward contracts. A contract
  to buy is often referred to as holding a long position, and a contract to sell
  is often referred to as holding a short position. With futures contracts,
  there is a risk that the prices of the securities subject to the futures
  contract may not correlate perfectly with the prices of the securities in the
  Fund's portfolio. This may cause the futures contract to react differently
  than the portfolio securities to market changes. Also, it is not certain that
  a secondary market for positions in futures contracts will exist.

  - Foreign currency transactions.  These are a type of futures transaction,
    which involve the future sale by one party and purchase by another of a
    given amount of foreign currency at a price, date and time specified in the
    transaction contract. Changes in currency exchange rates will affect these
    transactions and may result in poorer overall performance for a Fund than if
    it had not engaged in such transactions.

SHORT SALES.  The Global Health Care, Mid-Cap Growth, Large-Cap, International
Core Growth, Emerging Countries, Worldwide Growth, Convertible Securities and
Mergers and Acquisitions Funds engage in short sales. A "short sale" is the sale
by the Funds of a security which has been borrowed from a third party on the
expectation that the market price will drop. If the price of the security drops,
the Funds will make a profit by purchasing the security in the open market at a
lower price than at which it sold the security. If the price of the security
rises, the Funds may have to cover short positions at a higher price than the
short sale price, resulting in a loss.

A short sale can be covered or uncovered. In a covered short sale, a Fund either
(1) borrows and sells securities it already owns (also known as a short sale
"against the box"), or (2) deposits in a segregated account cash, U.S.
government securities, or other liquid securities in an amount equal to the
difference between the market value of the securities and the short sale price.
Use of uncovered short sales is a speculative investment technique and has
potentially unlimited risk of loss. Accordingly, a Fund will not make uncovered
short sales in an amount exceeding the lesser of 2% of the Fund's net assets or
2% of the securities of such class of the issuer.

SECURITIES LENDING.  The Global Health Care, Mid-Cap Growth, Large-Cap,
International Core Growth, Emerging Countries, Worldwide Growth, Convertible
Securities and Mergers and Acquisitions Funds may lend portfolio securities.
There is a risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Funds may, therefore, lose
the opportunity to sell the securities at the desirable price.

ACTIVE PORTFOLIO TRADING.  The Global Health Care, Mid-Cap Growth, Large-Cap,
International Core Growth, Emerging Countries, Worldwide Growth, Convertible
Securities and Mergers and Acquisitions Funds may have high turnover rates that
are likely to generate more taxable short-term gains for shareholders and may
have an adverse effect on the Funds' performance.

                                        6
<PAGE>   8

                        SHAREHOLDER ACCOUNT INFORMATION

SELECTING A SHARE CLASS

     Each Fund offers three classes of shares through this Prospectus: Class A,
B and C shares. Each class of shares has its own sales charge and expense
structure, which allows you to choose the class of shares best suited to your
investment needs. When choosing your class of shares, you should consider the
size of your investment and how long you plan to hold your shares. Your
financial advisor can help you determine which class is right for you.

     The table below summarizes the key features of Class A, B and C shares.
They are described in more detail below.

<TABLE>
<CAPTION>
                                       CLASS A                      CLASS B                      CLASS C
------------------------------------------------------------------------------------------------------------------
<S>                          <C>                          <C>                          <C>
Availability?                Generally available through  Available only to investors  Available only to investors
                             most investment dealers.     purchasing less than         purchasing less than
                                                          $250,000 in the aggregate.   $1,000,000 in the
                                                                                       aggregate.
Initial Sales Charge?        Yes (except for Money        No. Entire purchase is       No. Entire purchase is
                             Market Fund Class A shares,  invested in shares of a      invested in shares of a
                             which carry no sales         Fund.                        Fund.
                             charge). Payable at time of
                             purchase. Lower sales
                             charges available for
                             larger investments.
Contingent Deferred Sales    No. (However, we will        Yes. Payable if you redeem   Yes. Payable if you redeem
  Charge ("CDSC")?           charge a CDSC if you sell    your shares within six       your shares within one year
                             within two years of          years of purchase. Amount    of purchase.
                             purchasing shares, on which  of CDSC gradually decreases
                             no initial sales charge was  over time.
                             imposed because the
                             original purchase price
                             exceeded $1 million.)
Distribution and Service     0.45% distribution and       0.75% distribution fee and   0.75% distribution fee and
  Fees?                      service fee (except Money    0.25% service fee (except    0.25% service fee (except
                             Market Fund)                 Money Market Fund)           Money Market Fund)
Conversion to Class A        (Not applicable)             Yes, automatically after     No.
  Shares?                                                 eight years.
</TABLE>

     Enterprise Fund Distributors, Inc. (the "Distributor"), a subsidiary of
Enterprise Capital Management, Inc., the Advisor to the Funds, is the principal
underwriter for shares of the Funds. In addition to distribution and service
fees paid by the Funds under the Class A, Class B and Class C distribution
plans, the Distributor (or one of its affiliates) may make payments out of its
own resources to dealers (including MONY Securities Corp.) and other persons who
sell shares of the Funds. Such payments may be calculated by reference to the
net asset value of shares sold by such persons or otherwise.

     The Distributor will provide additional compensation to dealers in
connection with sales of shares of the Funds and other mutual funds distributed
by the Distributor including promotional gifts (which may include gift
certificates, dinners and other items), financial assistance to dealers in
connection with conferences, sales or training programs for their employees,
seminars for the public and advertising campaigns. In some instances, these
incentives may be made available only to dealers whose representatives have sold
or are expected to sell significant amounts of shares.

                                        7
<PAGE>   9

CLASS A SHARES -- INITIAL SALES CHARGE OPTION

     If you select Class A shares of any Fund other than the Money Market Fund,
you will pay a sales charge at the time of purchase. No initial sales charge
applies to Class A shares that you receive through reinvestment of dividends or
distributions. However, if you have received shares of the Money Market Fund
through reinvestment of dividends, and you subsequently exchange those shares
for Class A shares of another Fund, an initial sales charge will apply to the
Class A purchase. The sales charges applicable to Class A shares are based on
the following schedule:

<TABLE>
<CAPTION>
                                                                                     DEALER DISCOUNT OR
                                  SALES CHARGE AS A       SALES CHARGE AS A            AGENCY FEE AS A
                                PERCENTAGE OF OFFERING   PERCENTAGE OF AMOUNT           PERCENTAGE OF
YOUR INVESTMENT(1)                      PRICE                  INVESTED               OFFERING PRICE(2)
-------------------------------------------------------------------------------------------------------------
<S>                             <C>                      <C>                    <C>
Up to $99,999................           4.75%                   4.99%                       4.00%
$100,000 up to $249,999......           3.75%                   3.90%                       3.00%
$250,000 up to $499,999......           2.50%                   2.56%                       2.00%
$500,000 up to $999,999(3)...           2.00%                   2.04%                       1.50%
$1,000,000 and up(3).........            None                    None           1% of the first $4.99
                                                                                million; 0.75% of amounts
                                                                                from $5-19.99 million; 0.50%
                                                                                of amounts from $20 million
                                                                                to $100 million; 0.25% of
                                                                                amounts in excess of $100
                                                                                million.
</TABLE>

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

(1) In determining the amount of your investment and the applicable sales
    charge, we will include all shares you are currently purchasing in all of
    the Funds, except for shares of the Money Market Fund.
(2) From time to time upon written notice to all of its dealers, the Distributor
    may hold special promotions for specified periods during which the
    Distributor may reallow dealers up to the full sales charges shown above.
    During such periods, dealers may be deemed to have certain additional
    responsibilities under the securities laws. In addition, the Distributor may
    sponsor sales contests and provide to all qualifying dealers, from its own
    profits and resources, additional compensation in the form of trips or
    merchandise. The Distributor will provide additional compensation to dealers
    in connection with sales of shares of the Funds and other mutual funds
    distributed by the Distributor including promotional gifts (which may
    include gift certificates, dinners and other items), financial assistance to
    dealers in connection with conferences, sales or training programs for their
    employees, seminars for the public and advertising campaigns. In some
    instances, these incentives may be made available only to dealers whose
    representatives have sold or are expected to sell significant amounts of
    shares.
(3) If certain employee benefit plans qualified under Section 401 and 403 of the
    Internal Revenue Code invest $500,000 or more or if you invest $1,000,000 or
    more in Class A shares, no initial sales charge applies. However, if the
    plan or you redeem shares within 24 months of the end of the calendar month
    of their purchase, the plans or you will be charged a CDSC of 1%. The
    Distributor will compensate dealers in connection with purchases of Class A
    shares in excess of $500,000.

     If you purchase Class A shares, you will also pay a distribution and
service fee at an annual rate of 0.45% of the average daily net assets
attributable to Class A shares of each Fund.

CLASS B AND C SHARES -- CDSC OPTIONS

     If you select Class B or Class C shares, you will not pay an initial sales
charge at the time of purchase. However, if you redeem your Class B shares
within six years of purchase or Class C shares within one year, you will be
required to pay a CDSC, which will be deducted from your redemption proceeds. If
you own Class B or C shares of a Fund other than the Money Market Fund, you will
also pay distribution fees of 0.75% and service fees of 0.25% of the average
daily net assets each year pursuant to Rule 12b-1 under the Investment Company
Act of 1940. Because these fees are paid from the Funds' assets on an ongoing
basis, over time these fees increase the cost of your investment and may cost
you more than paying an initial sales charge. The Distributor uses the money
that it receives from the CDSC and the distribution fees to reimburse its
expenses of providing distribution-related services to the Funds.

     The Fund will not accept purchase orders for Class B shares in amounts of
$250,000 or more, and will not accept purchase orders for Class C shares in
amounts of $1,000,000 or more.

                                        8
<PAGE>   10

     The Class B CDSC gradually decreases as you hold your shares over time,
according to the following schedule:

<TABLE>
<CAPTION>
                                                              APPLICABLE CLASS B
YEARS SINCE PURCHASE                                          CONTINGENT DEFERRED
ORDER WAS ACCEPTED                                               SALES CHARGE
---------------------------------------------------------------------------------
<S>                                                           <C>
One year....................................................        5.00%
Over one year up to two years...............................        4.00%
Over two years up to three years............................        4.00%
Over three years up to four years...........................        3.00%
Over four years up to five years............................        2.00%
Over five years up to six years.............................        1.00%
More than six years.........................................         None
</TABLE>

     If you redeem Class C shares within 12 months after purchase, you will be
charged a CDSC of 1.00%.

DETERMINATION OF THE CDSC

     Each applicable CDSC will be determined using the original purchase cost or
current market value of the shares being redeemed, whichever is less. There is
no CDSC imposed upon the redemption of reinvested dividends or distributions.
Moreover, no CDSC will be charged upon the exchange of shares from one Fund into
another. In determining whether a CDSC is payable, we assume that shares that
are not subject to a CDSC are redeemed first and that other shares are then
redeemed in the order purchased. If shares of the Money Market Fund are acquired
upon an exchange from shares of another Fund, your Money Market Fund shares will
continue to be subject to any CDSC that is carried forward from the initial
purchase.

     The following example illustrates the calculation of a CDSC. Assume that
you make a single purchase of $10,000 of the Fund's Class B shares at a price of
$10 per share. Sixteen months later the value of the shares has grown by $1,000
through reinvested dividends and by an additional $1,000 in appreciation to a
total of $12,000; the current price per share is $11. If you then redeem $5,500
in share values, (500 shares) the CDSC would apply only to $4,000. That figure
is arrived at by taking the entire redemption amount ($5,500) minus the
reinvested dividends ($1,000), minus the appreciation per share redeemed ($1 per
share X the number of shares redeemed--$500). The charge would be at a rate of
4% ($160) because it was in the second year after the purchase was made.

CLASS A WAIVERS AND REDUCTIONS

     The following individuals and institutions may purchase Class A shares
without an initial sales charge:

        - Selling brokers, their employees and their registered representatives.

        - Employees, clients or direct referrals of any Fund Manager or of
          Evaluation Associates, Inc.

        - Directors, former directors, employees or retirees of the Advisor or
          of The MONY Group Inc. ("MONY") and its subsidiaries.

        - Family including spouses, parents, siblings, children and
          grandchildren and employee benefit plans of any of the first three
          categories.

        - Certain employee benefit plans qualified under Sections 401 and 403 of
          the Internal Revenue Code ("IRC"), including salary reduction plans
          qualified under Section 401(k) and certain payroll deduction plans,
          subject to minimum requirements with respect to number of participants
          or plan assets which may be established by the Distributor.

        - MONY and its subsidiaries.

        - Clients of fee-based financial planners.

        - Financial institutions and financial institutions' trust departments
          for funds over which they exercise exclusive discretionary investment
          authority and which are held in fiduciary, agency, advisory, custodial
          or similar capacity.

        - Investors who purchase Fund shares with the proceeds from the
          redemption of shares of a mutual fund previously managed by
          Nicholas-Applegate Capital Management for which they paid an initial
          sales charge, provided that the investment in the Fund is made within
          45 days of the redemption.

                                        9
<PAGE>   11

     The Class A initial sales charge may be reduced in connection with
purchases by members of certain associations, fraternal groups, franchise
organizations and unions. There are also several special purchase plans that
allow you to combine multiple purchases of Class A shares to take advantage of
the breakpoints in the sales charge schedule. For information about initial
sales charge reductions, the "Right of Accumulation Discount" and "Letter of
Intent Investments," contact your financial advisor or broker, or consult the
Statement of Additional Information.

     The CDSC will not apply to Class A shares for which the selling dealer is
not permitted to receive a sales load or redemption fee imposed on a shareholder
with whom such dealer has a fiduciary relationship in accordance with provisions
of the Employee Retirement Income Security Act and regulations thereunder,
provided that the dealer agrees to certain reimbursement arrangements with the
Distributor that are described in the Statement of Additional Information. If
the dealer agrees to these reimbursement arrangements, no CDSC will be imposed
with respect to shares purchased for $1,000,000 or more.

CDSC WAIVERS

     Enterprise will waive your CDSC in connection with:

        - Distributions to participants or beneficiaries of and redemptions
          (other than redemption of the entire plan account) by plans qualified
          under IRC Section 401(a) or from custodial accounts under IRC Section
          403(b)(7), deferred compensation plans under the IRC Section 457 and
          other employee benefit plans ("plans"), and returns of excess
          contributions made to these plans.

        - The liquidation of a shareholder's account if the aggregate net asset
          value of shares held in the account is less than the required minimum.

        - Redemption of shares of a shareholder (including a registered joint
          owner) who has died.

        - Redemption of shares of a shareholder (including a registered joint
          owner) who after purchase of the shares being sold becomes totally
          disabled (as evidenced by a determination by the federal Social
          Security Administration).

        - Redemptions under a Fund's systematic withdrawal plan at a maximum of
          10% per year of the net asset value of the account.

        - Redemptions made pursuant to any Individual Retirement Account (IRA)
          systematic withdrawal based on the shareholder's life expectancy in
          accordance with the requirements of the IRC.

CONVERSION OF CLASS B SHARES

     Your Class B shares will automatically convert to Class A shares of the
same Fund eight years after the end of the calendar month in which your purchase
order for Class B shares was accepted. A pro rata portion of any Class B shares
acquired through reinvestment of dividends or distributions will convert along
with Class B shares that were purchased. Class A shares are subject to lower
expenses than Class B shares. The conversion of Class B to Class A is not a
taxable event for federal income tax purposes.

REINSTATEMENT PRIVILEGE

     If you redeem shares of a Fund on which you paid an initial sales charge or
are charged a CDSC upon redemption, you will be eligible for a reinstatement
privilege if you reinvest the proceeds in shares of the same Class of the same
within 180 days of redemption. Specifically, when you reinvest, the Fund will
waive any initial sales charge or credit your account with the amount of the
CDSC that you previously paid. The reinvested shares will keep their original
cost and purchase date for purposes of calculating any future CDSCs. The return
of a CDSC may affect determination of gain or loss relating to the original sale
transaction for federal income tax purposes. The Fund may modify or terminate
the reinstatement privilege at any time.

                                       10
<PAGE>   12

PURCHASING, REDEEMING AND EXCHANGING SHARES

     The charts below summarize how to purchase, redeem and exchange shares of
the Funds.

<TABLE>
<CAPTION>
  HOW TO PURCHASE SHARES                          IMPORTANT INFORMATION ABOUT PURCHASING SHARES
  <S>                                             <C>
  Select the Fund and the share Class             Be sure to read this prospectus carefully.
    appropriate for you
  Determine how much you would like to invest     The minimum initial investment for the Funds is $1,000 for
                                                  each Fund, except:
                                                  - $250 for retirement plans
                                                  - $100 for the Automatic Bank Draft Plan
                                                  The minimum investment for additional purchases is $50 for
                                                  all accounts except:
                                                  - $25 for retirement plans
                                                  - $25 for the Automatic Bank Draft Plan
  Have your securities dealer submit your         The price of your shares is based on the next calculation of
    purchase order                                net asset value after your order is received by the
                                                  Enterprise Shareholder Services Division of the Transfer
                                                  Agent. All purchases made by check should be in U.S. dollars
                                                  and made payable to The Enterprise Group of Funds, Inc., or
                                                  your broker/dealer, or in the case of a retirement account,
                                                  the custodian or trustee. Third-party checks and money
                                                  orders will not be accepted.
  Receive Letter of Intent Discount               You are entitled to a reduced sales charge on $100,000 or
                                                  more of Class A shares purchased within 13 months. The
                                                  minimum investment is 5% of the amount indicated which will
                                                  be held in escrow in your name. This secures payment of the
                                                  higher sales charge of shares actually purchased if the full
                                                  amount indicated is not purchased within 13 months. Escrowed
                                                  shares will be redeemed to pay additional sales charges if
                                                  necessary. Escrowed shares will be released when you
                                                  purchase the full amount.
  Receive Right of Accumulation Discount          You are entitled to a reduced sales charge on additional
                                                  purchases of Class A shares if the value of their existing
                                                  aggregate holdings equals $100,000 or more. [See
                                                  "Shareholder Account Information -- Class A
                                                  Shares -- Initial Sales Charge Option" in the Prospectus for
                                                  more information.] To determine the discount, fund share
                                                  holdings of your immediate family, accounts you control as a
                                                  single investor, trustee of or participant in pooled and
                                                  similar accounts, will be totaled when you notify Enterprise
                                                  of the applicable accounts.
  Acquire additional shares through the           Dividends and capital gains distributions may be
    Automatic Reinvestment Plan                   automatically reinvested in the same Class of shares without
                                                  a sales charge. This does not apply to Money Market Fund
                                                  dividends invested in another Fund.
  Participate in the Automatic Bank Draft Plan    Your bank account may be debited monthly for automatic
                                                  investment into one or more of the Funds for each Class.
  Acquire Additional Shares through the           If you have your bank account linked to your Enterprise
    Automatic Purchase Plan                       account, you can call Shareholder Services at 1-800-368-3527
                                                  prior to 4:00 Eastern Standard Time and purchase shares at
                                                  that day's closing price. The money will be taken from your
                                                  bank account within one to five days.
  Participate in the Automatic Dollar Cost        You may have your shares automatically invested on a monthly
    Averaging Plan                                basis into the same Class of one or more of the Funds. As
                                                  long as you maintain a balance of $1,000 in the account from
                                                  which you are transferring your shares, you may transfer $50
                                                  or more to an established account in another Enterprise Fund
                                                  or you may open a new account with $100 or more.
  Participate in a Retirement Plan                You may use shares of the Funds to establish a Profit
                                                  Sharing Plan, Money Purchase Plan, Conventional IRA, Roth
                                                  IRA, Educational IRA, other retirement plans funded by
                                                  shares of a Fund and other investment plans which have been
                                                  approved by the Internal Revenue Service.
                                                  The Distributor pays the cost of these plans, except for the
                                                  retirement plans, which charge an annual custodial fee of
                                                  $10. If you would like to find out more about these plans,
                                                  please contact the Retirement Plan Department.
</TABLE>

                                       11
<PAGE>   13

<TABLE>
<CAPTION>
  HOW TO REDEEM YOUR SHARES                       IMPORTANT INFORMATION ABOUT REDEEMING YOUR SHARES
  <S>                                             <C>
  Have your investment dealer submit your         The redemption price of your shares is based on the next
    redemption order                              calculation of net asset value after your order is received.
  Call the Transfer Agent at 1-800-368-3527       You may redeem your shares by telephone if you have
                                                  authorized this service. If you make a telephone redemption
                                                  request, you must furnish:
                                                  - the name and address of record of the registered owner,
                                                  - the account number and tax i.d. number,
                                                  - the amount to be redeemed, and
                                                  - the name of the person making the request.
                                                  Checks for telephone redemptions will be issued only to the
                                                  registered shareowner(s) and mailed to the last address of
                                                  record or exchanged into another Fund. All telephone
                                                  redemption instructions are recorded and are limited to
                                                  requests of $50,000 or less. If you have previously linked
                                                  your bank account to your Enterprise account, you can have
                                                  the proceeds sent via the ACH system to your bank. Provided
                                                  you call by 4:00 Eastern Standard Time, you will receive the
                                                  closing price of the day that you call, and the money will
                                                  be sent to your bank account within one to five days.
  Write the Transfer Agent at:                    You may redeem your shares by sending in a written request.
    Enterprise Shareholder Services               If you own share certificates, they must accompany the
    P.O. Box 219731                               written request. You must obtain a signature guarantee if:
    Kansas City, MO 64121-9731                    - the total redemption proceeds exceed $50,000,
                                                  - the proceeds are to be sent to an address other than the
                                                    address of record, or
                                                  - the proceeds are to be sent to a person other than the
                                                    registered holder.
                                                  You can generally obtain a signature guarantee from the
                                                  following sources:
                                                  - a member firm of a domestic securities exchange;
                                                  - a commercial bank;
                                                  - a savings and loan association;
                                                  - a credit union; or
                                                  - a trust company.
                                                  Corporations, executors, administrators, trustees or
                                                  guardians may need to include additional documentation with
                                                  a request to redeem shares and a signature guarantee.
  Payment of Proceeds In General                  The Funds normally will make payment of redemption proceeds
                                                  within seven days after your request has been properly made
                                                  and received. When purchases are made by check or periodic
                                                  account investment, redemption proceeds may not be available
                                                  until the investment being redeemed has been in the account
                                                  for seven calendar days. The Funds may suspend the
                                                  redemption privilege or delay sending redemption proceeds
                                                  for more than seven days during any period when the New York
                                                  Stock Exchange is closed or an emergency warranting such
                                                  action exists as determined by the Securities and Exchange
                                                  Commission.
  Receipt of Proceeds By Wire                     For a separate $10 charge, you may request that your
                                                  redemption proceeds of $250,000 or less be wired. If you
                                                  submit a written request, your proceeds may be wired to the
                                                  bank currently on file. If written instructions are to send
                                                  wire to any other bank, a signature guarantee is required.
                                                  If you authorize the Transfer Agent to accept telephone wire
                                                  requests, any authorized person may make such requests at
                                                  1-800-368-3527. However, on a telephone request, your
                                                  proceeds may be wired only to a bank previously designated
                                                  by you in writing. If you have authorized expedited wire
                                                  redemption, shares can be sold and the proceeds sent by
                                                  federal wire transfer to previously designated bank
                                                  accounts. Otherwise, proceeds normally will be sent to the
                                                  designated bank account the following business day. To
                                                  change the name of the single designated bank account to
                                                  receive wire redemption proceeds, you must send a written
                                                  request with signature(s) guaranteed to the Transfer Agent.
</TABLE>

                                       12
<PAGE>   14

<TABLE>
<CAPTION>
  HOW TO REDEEM YOUR SHARES                       IMPORTANT INFORMATION ABOUT REDEEMING YOUR SHARES
  <S>                                             <C>
  Use of Check Writing                            If you hold an account with a balance of more than $5,000 in
                                                  Class A shares of the Money Market Fund you may redeem your
                                                  shares of that Fund by redemption check. You may make
                                                  redemption checks payable in any amount from $500 to
                                                  $100,000. You may write up to five redemption checks per
                                                  month without charge. Each additional redemption check in
                                                  any given month will be subject to a $5 fee. You may obtain
                                                  redemption checks, without charge, by completing Optional
                                                  Features section of account application.
                                                  The Funds may charge a $25 fee for stopping payment of a
                                                  redemption check upon your request. It is not possible to
                                                  use a redemption check to close out an account since
                                                  additional shares accrue daily. Redemptions by check writing
                                                  may be subject to a CDSC if the Money Market Fund shares
                                                  being redeemed were purchased by exchanged shares of another
                                                  Fund on which a CDSC was applicable. The Funds will honor
                                                  the check only if there are sufficient funds available in
                                                  your Money Market Fund account to cover the fee amount of
                                                  the check plus applicable CDSC, if any.
  Participate in the Bank Purchase and            You may initiate an Automatic Clearing House (ACH) Purchase
    Redemption Plan                               or Redemption directly to a bank account when you have
                                                  established proper instructions, including all applicable
                                                  bank information, on the account.
  Participate in a Systematic Withdrawal Plan     If you have at least $5,000 in your account you may
                                                  participate in a systematic withdrawal plan. Under a plan,
                                                  you may arrange monthly, quarterly, semi-annual or annual
                                                  automatic withdrawals of at least $100 from any Fund. The
                                                  proceeds of each withdrawal will be mailed to you or as you
                                                  otherwise direct in writing, including to a life insurance
                                                  company, such as an affiliate of MONY. The $5,000 minimum
                                                  account size is not applicable to Individual Retirement
                                                  Accounts. The maximum annual rate at which Class B shares
                                                  may be sold under a systematic withdrawal plan is 10% of the
                                                  net asset value of the account. The Funds process sales
                                                  through a systematic withdrawal plan on the 15th day of the
                                                  month or the following business day if the 15th is not a
                                                  business day. Any income or capital gain dividends will be
                                                  automatically reinvested at net asset value. A sufficient
                                                  number of full and fractional shares will be redeemed to
                                                  make the designated payment. Depending upon the size of the
                                                  payments requested and fluctuations in the net asset value
                                                  of the shares redeemed, sales for the purpose of making such
                                                  payments may reduce or even exhaust the account.
                                                  You should not purchase Class A shares while participating
                                                  in a systematic withdrawal plan because you may be redeeming
                                                  shares upon which a sales charge was already paid unless you
                                                  purchased shares at net asset value. The Funds will not
                                                  knowingly permit additional investments of less than $2,000
                                                  if you are making systematic withdrawals at the same time.
                                                  The Advisor will waive the CDSC on redemptions of shares
                                                  made pursuant to a systematic withdrawal plan.
                                                  The Funds may amend the terms of a systematic withdrawal
                                                  plan on 30 days' notice. You or the Funds may terminate the
                                                  plan at any time.
</TABLE>

                                       13
<PAGE>   15

<TABLE>
<CAPTION>
  HOW TO EXCHANGE YOUR SHARES                     IMPORTANT INFORMATION ABOUT EXCHANGING YOUR SHARES
  <S>                                             <C>
  Select the Fund into which you want to          You can exchange your shares of a Fund for the same Class of
    exchange. Be sure to read the prospectus      shares of any other Fund.
    describing the Fund into which you want to
    exchange.
                                                  No CDSC will be charged upon the exchange of shares.
                                                  However, if shares of the Money Market Fund are acquired
                                                  upon an exchange from shares of another Fund, your Money
                                                  Market Fund shares will continue to be subject to any CDSC
                                                  that is carried forward from the initial purchase. Shares of
                                                  a Fund subject to an exchange will be processed at net asset
                                                  value next determined after the Transfer Agent receives your
                                                  exchange request. In determining the CDSC applicable to
                                                  shares being redeemed subsequent to an exchange, we will
                                                  take into account the length of time you held shares prior
                                                  to the exchange.
                                                  If your exchange results in the opening of a new account in
                                                  a Fund, you are subject to the applicable minimum investment
                                                  requirements. Original investments in the Money Market Fund
                                                  which are transferred to other Funds are considered
                                                  purchases rather than exchanges.
  Call the Transfer Agent at 1-800-368-3527       If you authorize the Transfer Agent to act upon telephone
                                                  exchange requests, you or anyone who can provide the
                                                  Transfer Agent with account registration information may
                                                  exchange by telephone.
                                                  If you exchange your shares by telephone, you must furnish:
                                                  - the name of the Fund you are exchanging from,
                                                  - the name and address of the registered owner,
                                                  - the account number and tax i.d. number,
                                                  - the dollar amount or number of shares to be exchanged,
                                                  - the Fund into which you are exchanging, and
                                                  - the name of the person making the request.
  Write the Transfer Agent at:                    To exchange by letter, you must state:
    Enterprise Shareholder Services               - the name of the Fund you are exchanging from,
    P.O. Box 219731                               - the account name(s) and address,
    Kansas City, MO 64121-9731                    - the account number,
                                                  - the dollar amount or number of shares to be exchanged, and
                                                  - the Fund into which you are exchanging.
                                                  You must also sign your name(s) exactly as it appears on
                                                  your account statement.
</TABLE>

                                       14
<PAGE>   16

                        TRANSACTION AND ACCOUNT POLICIES

VALUATION OF SHARES

     When you purchase shares, you pay the offering price, which is net asset
value, plus any applicable sales charges. When you redeem your shares, you
receive the net asset value, minus any applicable CDSC. The Funds calculate a
share's net asset value by dividing net assets of each class by the total number
of outstanding shares of such class.

     The Funds calculate net asset value at the close of regular trading on each
day the New York Stock Exchange is open.

     Except with respect to the Money Market Fund, investment securities, other
than debt securities, listed on either a national or foreign securities exchange
or traded in the over-the-counter National Market System are valued each
business day at the last reported sale price on the exchange on which the
security is primarily traded. If there are no current day sales, the securities
are valued at their last quoted bid price. Other securities traded
over-the-counter and not part of the National Market System are valued at the
last quoted bid price. Debt securities (other than certain short-term
obligations) are valued each business day by an independent pricing service
approved by the Board of Directors. Any securities for which market quotations
are not readily available are valued at their fair value as determined in good
faith by the Board of Directors.

     Short-term debt securities with 61 days or more to maturity at time of
purchase are valued at market value through the 61st day prior to maturity,
based on quotations received from market makers or other appropriate sources;
thereafter, any unrealized appreciation or depreciation existing on the 61st day
is amortized on a straight-line basis over the remaining number of days to
maturity. Short-term debt securities having a remaining maturity of sixty days
or less are valued at amortized cost, which approximates market value. Under the
amortized cost method, a security is valued at its cost and any discount or
premium is amortized over the period until maturity without taking into account
the impact of fluctuating interest rates on the market value of the security
unless the aggregate deviation from net asset value as calculated by using
available market quotations exceeds 1/2 of 1 percent.

     The Money Market Fund seeks to maintain a constant net asset value per
share of $1.00, but there can be no assurance that the Money Market Fund will be
able to do so.

     The different expenses borne by each class of shares of a Fund will result
in different net asset values and dividends for each class. The net asset values
of the three classes of each Fund may, however, converge immediately after the
recording of dividends.

EXECUTION OF REQUESTS

     The net asset value used in determining your purchase, redemption or
exchange price is the one next calculated after your order is received by the
Fund. Price calculations will be based on trades placed in good order by the
close of regular trading on each day the New York Stock Exchange is open. The
Distributor or the Fund may reject any order. From time to time, the Funds may
suspend the sale of shares. In such event, existing shareholders normally will
be permitted to continue to purchase additional shares of the same class and to
have dividends reinvested.

     The Funds normally pay redemption proceeds in cash. However, if a Fund
determines that it would be detrimental to the best interests of the remaining
shareholders of the Fund to make payment of redemption proceeds wholly or partly
in cash, the Fund may pay the redemption price in securities (redemption in
kind), in which case, you would probably have to pay brokerage costs to sell the
securities distributed to you, as well as taxes on any capital gains from the
sale as with any redemption. The Funds have made an election that requires them
to pay $250,000 of redemption proceeds in cash, subject to other restrictions as
described in the Statement of Additional Information.

                                       15
<PAGE>   17

TELEPHONE TRANSACTIONS

     If you elect to exchange or redeem your shares by telephone, you are
subject to the risk that neither the Funds nor the Transfer Agent will be liable
for properly acting upon unauthorized telephone instructions believed to be
genuine. The Funds use reasonable procedures to confirm that telephone
instructions are genuine. However, if appropriate measures are not taken, the
Funds may be liable for any losses that may occur to an account due to an
unauthorized telephone call.

EXCHANGES AND REDEMPTIONS

     The Funds may refuse to allow the exercise of the exchange privilege in
less than two-week intervals or may restrict an exchange from any Fund until
shares have been held in that Fund for at least seven days. The Funds may also
discontinue or modify the exchange privilege on a prospective basis at any time,
including a modification of the amount or terms of a service fee, upon notice to
shareholders in accordance with applicable rules adopted by the Securities and
Exchange Commission ("SEC"). Your exchange may be processed only if the shares
of the Fund to be acquired are eligible for sale in your state and if the
exchange privilege may be legally offered in your state.

     In addition, if a Fund determines that an investor is using market timing
strategies or making excessive exchanges or redemptions and immediate loss of
redemption proceeds would harm the Fund, the Fund may delay investment of the
proceeds of such investor's exchange request for up to seven days. The Funds may
also may refuse any exchange order.

SHARE CERTIFICATES

     The Funds do not ordinarily issue certificates representing shares of the
Funds. Instead, shares are held on deposit for shareholders by the Funds'
Transfer Agent, which will send you a statement of shares owned in each Fund
following each transaction in your account. If you wish to have certificates for
your shares, you may request them from the Transfer Agent by writing to
Enterprise Shareholder Services, P.O. Box 219731, Kansas City, MO 64121-9731.
The Funds do not issue certificates for fractional shares. You may redeem or
exchange certificated shares only by returning the certificates to the Fund,
along with a letter of instruction and a signature guarantee. Special
shareholder services such as telephone redemptions, exchanges, electronic funds
transfers and wire orders are not available if you hold certificates.

SMALL ACCOUNTS

     For accounts with balances under $1,000, an annual service charge of $25
per account registration per Fund will apply, excluding Automatic Bank Draft
Plan Accounts, Automatic Investment Plan Accounts, Retirement Accounts and
Savings Plan Accounts.

     If your account balance drops to $500 or less, a Fund may close out your
account and mail you the proceeds. You will always be given at least 45 days
written notice to give you time to add to your account and avoid redeeming your
shares.

REPORTS TO SHAREHOLDERS

     Every year the Funds will send you an annual report (along with an updated
prospectus) and a semi-annual report, which contain important financial
information. To reduce expenses, the Funds will send one annual shareholder
report, one semi-annual shareholder report and one annual prospectus per
household, unless you instruct the Funds or your financial adviser otherwise.

DIVIDENDS, DISTRIBUTIONS AND TAXES

     Each Fund will distribute substantially all of its net investment income
and realized net capital gains, if any.

     Each Fund makes distributions of capital gains and declares and pays
dividends of investment income, if any, at least annually. The following Funds
declare daily and pay monthly dividends of

                                       16
<PAGE>   18

investment income: Government Securities Fund, High-Yield Bond Fund, Tax-Exempt
Income Fund and Money Market Fund.

     Your dividends and capital gains distributions, if any, will be
automatically reinvested in shares of the same Fund and Class on which they were
paid at the net asset value. Such reinvestments automatically occur on the
payment date of such dividends and capital gains distributions. Alternatively,
if you contact the Transfer Agent, you may elect to receive dividends or capital
gains distributions, or both, in cash.

     You will pay tax on dividends and distributions from the Funds whether you
receive them in cash or additional shares. The Funds intend to make
distributions that will either be taxed as ordinary income or capital gains. It
is expected that distributions from the Income Funds (other than exempt interest
dividends paid by the Tax-Exempt Income Fund) and the Money Market Fund
generally will be taxed as ordinary income. If, for any taxable year, a Fund
distributes income from dividends from domestic corporations, and complies with
certain requirements, corporate shareholders may be entitled to take a
dividends-received deduction for some or all of the dividends they receive.

     If you redeem shares of a Fund or exchange them for shares of another Fund,
unless you are a dealer, you generally will recognize capital gain or loss on
the transaction. Any such gain or loss will be a long-term capital gain or loss,
if you held such shares for more than 12 months. The maximum long-term capital
gain tax rate for individuals is 20%.

     Income received by the Funds from investments in securities issued by
foreign issuers may give rise to withholding and other taxes imposed by foreign
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes.

     If you are neither a lawful permanent resident nor a citizen of the U.S. or
if you are a foreign entity, the Funds' ordinary income dividends (which include
distributions of net short term capital gains) will generally be subject to a
30% U.S. withholding tax, unless a lower treaty rate applies.

     The Funds are required to withhold 31% ("Back-Up Withholding") of the
distributions and the proceeds of redemptions payable to shareholders who fail
to provide a correct social security or taxpayer identification number or to
make required certifications, or who have been notified by the Internal Revenue
Service that they are subject to Back-Up Withholding. Corporate shareholders and
certain other shareholders specified in the IRC are exempt from Back-Up
Withholding.

     Dividends derived from interest on municipal securities and designated by
the Tax-Exempt Income Fund as exempt interest dividends by written notice to the
shareholders, under existing law, are not subject to federal income tax.
Dividends derived from net capital gains realized by the Fund are taxable to
shareholders as a capital gain upon distribution. Any short-term capital gains
or any taxable interest income or accrued market discount realized by the Fund
will be distributed as a taxable ordinary income dividend distribution. These
rules apply whether such distribution is made in cash or in additional shares.
Any capital loss realized from shares held for six months or less is disallowed
to the extent of tax-exempt dividend income received.

     Income from certain "private activity" bonds issued after August 7, 1986,
are items of tax preference for the corporate and individual alternative minimum
tax. If the Tax-Exempt Income Fund invests in private activity bonds, you may be
subject to the alternative minimum tax on that part of such Fund distributions
derived from interest income on those bonds. The receipt of exempt-interest
dividends also may have additional tax consequences. Certain of these are
described in the Statement of Additional Information.

     The treatment for state and local tax purposes of distributions from the
Tax-Exempt Income Fund representing municipal securities interest will vary
according to the laws of state and local taxing authorities.

     The foregoing summarizes some of the federal income tax considerations with
respect to the Funds and their shareholders. It is not a substitute for personal
tax advice. You should consult your tax advisor for more information regarding
the potential tax consequences of an investment in the Funds under all
applicable tax laws.

     The Funds will mail statements indicating the tax status of your
distributions to you annually.

                                       17
<PAGE>   19

                                FUND MANAGEMENT

THE INVESTMENT ADVISOR

     Enterprise Capital Management, Inc. serves as the investment advisor to
each of the Funds. The Advisor selects Fund Managers for the Funds, subject to
the approval of the Board of Directors of the Funds, and reviews each Fund
Manager's continued performance. Evaluation Associates, Inc., which has had 31
years of experience in evaluating investment advisors for individuals and
institutional investors, assists the Advisor in selecting Fund Managers. The
Advisor also provides various administrative services and acts as Fund Manager
for the Money Market Fund.

     The Securities and Exchange Commission has issued an exemptive order that
permits the Advisor to enter into or amend Agreements with Fund Managers without
obtaining shareholder approval each time. The exemptive order permits the
Advisor, with Board approval, to employ new Fund Managers for the Funds, change
the terms of the Agreements with Fund Managers or enter into a new Agreement
with a Fund Manager. Shareholders of a Fund have the right to terminate an
Agreement with a Fund Manager at any time by a vote of the majority of the
outstanding voting securities of such Fund. The Funds will notify shareholders
of any Fund Manager changes or other material amendments to the Agreements with
Fund Managers that occur under these arrangements.

     The Advisor, which was incorporated in 1986, served as principal investment
advisor to Alpha Fund, Inc., the predecessor of the Enterprise Growth Fund. The
Advisor also serves as investment advisor to Enterprise Accumulation Trust and
Enterprise International Group of Funds. The Advisor's address is Atlanta
Financial Center, 3343 Peachtree Road, N.E., Suite 450, Atlanta, GA 30326-1022.

     The following table sets forth the fee to be paid to the Advisor for the
fiscal year ended December 31, 2001 by each Fund. The Advisor in turn will
compensate the Fund Manager at no additional cost to the Fund.

<TABLE>
<CAPTION>
                                                                  FEE (AS A PERCENTAGE OF
    NAME OF FUND                                                    AVERAGE NET ASSETS)
-----------------------------------------------------------------------------------------
<S> <C>                                                           <C>
    Mergers and Acquisitions Fund...............................           0.90%
</TABLE>

THE FUND MANAGERS

     The following chart sets forth certain information about each of the Fund
Managers other than the Advisor, which acts as the Fund Manager to the Money
Market Fund. The Fund Managers are responsible for the day-to-day management of
the Funds. The Fund Managers typically manage assets for institutional investors
and high net worth individuals. Collectively, the Fund Managers manage assets in
excess of $250 billion for all clients, including The Enterprise Group of Funds.

                                       18
<PAGE>   20

<TABLE>
<CAPTION>

  NAME OF FUND AND NAME AND                       THE FUND MANAGER'S
  ADDRESS OF FUND MANAGER                             EXPERIENCE                            FUND MANAGERS
  <S>                                    <C>                                    <C>
  Mergers and Acquisitions Fund          GAMCO's predecessor, Gabelli &         Mario J. Gabelli has served as Chief
                                         Company, Inc., was founded in 1977.    Investment Officer of GAMCO since its
  GAMCO                                  As of December 31, 2000, total assets  inception in 1977 and is responsible
  One Corporate Center                   under management for all clients were  for the day-to-day management of the
  Rye, New York 10580                    $22.6 billion. Usual investment        Fund. He has more than 28 years'
                                         minimum is $1 million.                 experience in the investment
                                                                                industry.
</TABLE>

                                       19
<PAGE>   21

                 Subject to Completion, dated January 19, 2001



                            Atlanta Financial Center
                         3343 Peachtree Road, Suite 450
                           Atlanta, Georgia 30326-1022

                       STATEMENT OF ADDITIONAL INFORMATION


         Enterprise Mergers and Acquisitions

         This Statement of Additional Information is not a prospectus and should
be read in conjunction with The Enterprise Group of Funds, Inc. (the
"Corporation") Prospectus dated           , 2001 which has been filed with the
Securities and Exchange Commission and can be obtained, without charge, by
writing to the Corporation at 3343 Peachtree Road, N.E., Suite 450, Atlanta,
Georgia 30326, or by calling the Corporation at the following numbers:

                       1-800-432-4320
                       1-800-368-3527 (SHAREHOLDER SERVICES)

         The Prospectus is incorporated by reference into this Statement of
Additional Information, and this Statement of Additional Information is
incorporated by reference into the Prospectus.

         The date of this Statement of Additional Information is January 19,
2001.


         The information in this Statement of Additional Information is not
complete and may be changed. We may not sell the securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This Statement of Additional Information is not an offer to sell
these securities and it is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.

<PAGE>   22


                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                           Page No.
<S>                                                                                                        <C>
General Information and History...................................................................................1

Investment Objectives and Policies................................................................................1

Certain Investment Securities, Techniques and Associated Risks....................................................3

Investment Restrictions..........................................................................................20

Portfolio Turnover...............................................................................................23

Management of the Corporation....................................................................................23

Fund Manager Arrangements........................................................................................29

Investment Advisory and Other Services ..........................................................................28
         Investment Advisory Agreement...........................................................................28
         Distributor's Agreements And Plans Of Distribution......................................................30
         Miscellaneous...........................................................................................31

Purchase, Redemption and Pricing of Securities Being Offered.....................................................31
         Initial Sales Charge Waivers and Reductions.............................................................32
         Exemptions from Class A, B and C CDSC...................................................................33
         CDSC Waivers and Reductions.............................................................................33
         Services For Investors..................................................................................34
         Conversion of Class B shares............................................................................36
         Exchange Privilege......................................................................................37
         Redemptions In Kind.....................................................................................37
         Determination Of Net Asset Value........................................................................38

Fund Transactions and Brokerage..................................................................................41

Performance Comparisons..........................................................................................42

Taxes............................................................................................................45

Dividends and Distributions......................................................................................48

Additional Information...........................................................................................49

Custodian, Transfer and Dividend Disbursing Agent................................................................50

Independent Accountants..........................................................................................50

Financial Statements.............................................................................................51

Appendix A.......................................................................................................52

Appendix B.......................................................................................................54
</TABLE>

                                        i
<PAGE>   23



                         GENERAL INFORMATION AND HISTORY

         The Enterprise Group of Funds, Inc. (the "Corporation"), an open-end
management investment company, was incorporated in Maryland on January 2, 1968,
as Alpha Fund, Inc. On September 14, 1987, the Corporation's name was changed to
The Enterprise Group of Funds, Inc. and the Corporation's common stock was
divided into series, each representing shares of a separate fund of the
Corporation (each a "Fund," and collectively the "Funds"). Effective May 1,
1990, the Corporation added its Money Market Fund. Effective October 1, 1993,
the Corporation added its Small Company Value Fund and effective October 3,
1994, the Corporation added its Managed Fund. Effective May 1, 1995, the
Corporation added Class B and Class Y Shares. Effective May 1, 1997, the
Corporation added Class C Shares and the Equity, Growth and Income and Small
Company Growth Funds. Effective October 1, 1998, the Corporation added its
Global Financial Services Fund. Effective July 1, 1999, the Corporation added
the Multi-Cap Growth Fund, the Internet Fund and the Balanced Fund. Effective
June 30, 2000 the Corporation added the International Internet Fund. Effective
September 29, 2000, the Corporation added the Global Socially Responsive Fund.
Effective February 28, 2001, the Corporation added the Mergers and Acquisitions
Fund. This Statement of Additional Information relates to the above-listed
Funds. Effective October 31, 2000, the Corporation added the Global Health Care
Fund, Mid-Cap Growth Fund, Large-Cap Fund, International Core Growth Fund,
Emerging Countries Fund, Worldwide Growth Fund and Convertible Securities Fund.
A separate Statement of Additional Information is available for these Funds.
Each Fund is diversified (except for the Global Health Care Fund and the Mergers
and Acquisitions Fund), as that term is defined in the Investment Company Act of
1940.

         This Statement of Additional Information relates only to the
Enterprise Mergers and Acquisitions Fund. Information about the other Funds of
the Enterprise Group of Funds, Inc. may be found in the Statements of
Additional Information dated October 31, 2000.


                       INVESTMENT OBJECTIVES AND POLICIES

         The following information is provided for those investors wishing to
have more comprehensive information than that contained in the Prospectus. The
investment objectives of each Fund may not be changed without approval of a
majority of the outstanding voting securities of that Fund.

<PAGE>   24

         Mergers and Acquisitions Fund. The objective of the Mergers and
Acquisitions Fund is capital appreciation. The Fund invests primarily in
securities of companies that are or could be the subject of a takeover.

         The Fund Manager seeks to limit excessive risk of capital loss by
utilizing various investment strategies including investing in value oriented
equity securities that should trade at a significant discount to the Fund
Manager's assessment of their "private market value." Private market value is
the value that informed investors would be willing to pay to acquire the entire
company. The Fund Manger also will engage in arbitrage by investing in equity
securities of companies that are involved in publicly announced mergers,
takeovers, tender offers, leveraged buyouts, spin-offs, liquidations and other
corporate reorganizations. When a company agrees to be acquired by another
company, its stock price often quickly rises to just below the stated
acquisition price. If the Fund Manager, through extensive research, determines
that the acquisition is likely to be consummated on schedule at the stated
acquisition price, then the Fund may purchase the selling company's securities,
offering the Fund the possibility of generous returns relative to cash
equivalents with a limited risk of excessive loss of capital.

         In general, securities of issuers which are the subject of a tender or
exchange offer or merger, consolidation, liquidation or reorganization proposal
sell at a premium to their historic market price immediately prior to the
announcement of the offer or may also discount what the stated or appraised
value of the security would be if the contemplated transaction were approved or
consummated. Such investments may be advantageous when the discount
significantly overstates the risk of the contingencies involved; significantly
undervalues the securities, assets or cash to be received by shareholders of
the prospective portfolio company as a result of the contemplated transaction;
or fails adequately to recognize the possibility that the offer or proposal may
be replaced or superseded by an offer or proposal of greater value. The
evaluation of such contingencies requires unusually broad knowledge and
experience on the part of the Fund Manager which must appraise not only the
value of the issuer and its component businesses as well as the assets or
securities to be received as a result of the contemplated transaction but also
the financial resources and business motivation of the offeror and the dynamics
and business climate when the offer of the proposal is in progress. Since such
investments are ordinarily short-term in nature, they will tend to increase the
turnover ratio of the Mergers and Acquisitions Fund, thereby increasing its
brokerage and other transaction expenses. The Fund Manager intends to select
investments of the type described which, in its view, have a reasonable
prospect of capital appreciation which is significant in relation to both risk
involved and the potential of available alternate investments.


                                        2
<PAGE>   25

                    CERTAIN INVESTMENT SECURITIES, TECHNIQUES
                              AND ASSOCIATED RISKS

         Following is a description of certain investment techniques employed by
the Funds, and certain types of securities invested in by the Funds and
associated risks. Unless otherwise indicated, all of the Funds may use the
indicated techniques and invest in the indicated securities.

Mortgage-Related Securities and Asset-Backed Securities


         Up to 20% of the net assets of the Government Securities Fund may be
invested in assets other than U.S. Government Securities, including
collateralized mortgage-related securities ("CMOs") and asset-backed securities.
The Balanced Fund may also invest in such securities as well as Real Estate
Mortgage Investment Conduits ("REMICs") and Multi-Pass-Throughs. These
securities are considered to be volatile and may be thinly traded. CMOs are
obligations fully collateralized by a portfolio of mortgages or mortgage-related
securities. Payments of principal and interest on the mortgages are passed
through to the holders of the CMOs on the same schedule as they are received,
although certain classes of CMOs have priority over others with respect to the
receipt of prepayments on the mortgages. Therefore, depending on the type of
CMOs in which the Government Securities Fund and Balanced Fund invests, the
investment may be subject to a greater or lesser risk of prepayment than other
types of mortgage-related securities. REMIC's are private entities formed for
the purpose of holding a fixed pool of mortgages secured by an interest in real
property. REMICs are similar to CMOs in that they issue multiple classes of
securities. As with CMOs, the mortgages which collateralize the REMICs in which
the Funds may invest include mortgages backed by GNMA certificates or other
mortgage pass-throughs issued or guaranteed by the U.S. Government, its agencies
or instrumentalities or issued by private entities, which are not guaranteed by
any government agency.


         While there are many versions of CMOs and asset-backed securities, some
include "Interest Only" or "IO" -- where all interest payments go to one class
of holders, "Principal Only" or "PO" -- where all of the principal goes to a
second class of holders, "Floaters" -- where the coupon rate floats in the same
direction as interest rates and "Inverse Floaters" --where the coupon rate
floats in the opposite direction as interest rates. All of these securities are
volatile; they also have particular risks in differing interest rate
environments as described below.

                                       3

<PAGE>   26


         The yield to maturity on an IO class is extremely sensitive to the rate
of principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on yield to maturity and, therefore, the market value of the IO. As
interest rates rise and fall, the value of IOs tends to move in the same
direction as interest rates. Accordingly, investment in IOs can theoretically be
expected to contribute to stabilizing the Fund's net asset value. However, if
the underlying mortgage assets experience greater than anticipated prepayments
of principal, the Fund may fail to fully recoup its initial investment in these
securities even if the securities are rated AAA or the equivalent. Conversely,
while the yield to maturity on a PO class is also extremely sensitive to rate of
principal payments (including prepayments) on the related underlying mortgage
assets, a slow rate of principal payments may have a material adverse effect on
yield to maturity and therefore the market value of the PO. As interest rates
rise and fall, the value of POs tends to move in the opposite direction from
interest rates. This is typical of most debt instruments.

         Floaters and Inverse Floaters ("Floaters") are extremely sensitive to
the rise and fall in interest rates. The coupon rate on these securities is
based on various benchmarks, such as LIBOR ("London Inter-Bank Offered Rate")
and the 11th District cost of funds (the base rate). The coupon rate on Floaters
can be affected by a variety of terms. Floaters can be reset at fixed intervals
over the life of the Floater, float with a spread to the base rate or be a
certain percentage rate minus a certain base rate. Some Floaters have floors
below which the interest rate cannot be reset and/or ceilings above which the
interest rate cannot be reset. The coupon rate and/or market value of Floaters
tend to move in the same direction as the base rate while the coupon rate and/or
market value of Inverse Floaters tend to move in the opposite direction from the
base rate.

         The market value of all CMOs and other asset-backed securities are
determined by supply and demand in the bid/ask market, interest rate movements,
the yield curve, forward rates, prepayment assumptions and credit of the
underlying issuer. Further, the price actually received on a sale may be
different from bids when the security is being priced. CMOs and asset-backed
securities trade over a bid and ask market through several large market makers.
Due to the complexity and concentration of derivative securities, the liquidity
and, consequently, the volatility of these securities can be sharply influenced
by market demand.

         Asset-backed and mortgage-related securities may not be readily
marketable. To the extent any of these securities are not readily marketable in
the judgment of the Fund Managers (subject to the oversight of the Board of
Directors), the investment restriction limiting the Fund's investment in
illiquid instruments will apply. However, IOs and POs issued by the U.S.
Government, its agencies and instrumentalities, and backed by fixed-rate
mortgages may be excluded from this limit, if, in the judgment of the respective
Fund Managers (subject to the oversight of the Board of Directors) such IOs and
POs are readily marketable. The Government Securities Fund does not intend to
invest in residual interests, privately issued securities or subordinated
classes of underlying mortgages.

         Other Mortgage-Backed Securities. The Balanced Fund may invest in other
mortgage-backed securities. The Fund Manager expects that governmental,
government-related or private entities may create mortgage loan pools and other
mortgage-related securities offering mortgage pass-through and
mortgage-collateralized investments in addition to those described above. The
mortgages underlying these securities may include alternative mortgage
instruments, that is, mortgage instruments whose principal or interest payments
may vary or whose terms to maturity may differ from customary long-term
fixed-rate mortgages. As new types of mortgage-related securities are developed
and offered to investors, the Fund Manager will, consistent with the Fund's
investment objective, policies and quality standards, consider making
investments in such new types of mortgage-related securities.

Short Term Investments

         Each Fund typically invests a part of its assets in various types of
U.S. Government Securities and high-quality short-term debt securities with
remaining maturities of one year or less ("money market investments"). This type
of short-term investment is made to provide liquidity for the purchase of new
investments and to effect redemptions of shares. The money market instruments in
which each Fund may invest include but are not limited to: government
obligations, certificates of deposit, bankers' acceptances, commercial paper,
short-term corporate securities and repurchase agreements. The International
Growth Fund, Global Socially Responsive Fund, Global Financial Services Fund and
International Internet Fund may invest in all of the above, both foreign and
domestic, including foreign currency, foreign time deposits and foreign bank
acceptances.

Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities

         Some obligations issued or guaranteed by U.S. government agencies or
instrumentalities, such as securities issued by the Federal Home Loan Bank, are
backed by the right of the agency or instrumentality to borrow from the
Treasury. Others, such as securities issued by the Federal National Mortgage
Association ("Fannie Mae"), are supported only by the credit of the
instrumentality and not by the Treasury. If the securities are not backed by the
full faith and credit of the United States, the owner of the securities must
look principally to the agency issuing the obligation for repayment and may not
be able to assert a claim against the United States in the event that the agency
or instrumentality does not meet its commitment.

Information on Time Deposits and Variable Rate Notes

         The Funds may invest in fixed time deposits, whether or not subject to
withdrawal penalties; however, investment in such deposits which are subject to
withdrawal penalties, other than overnight deposits, are subject to 10% limit on
illiquid investments set forth in the Certain Other Securities Section,
hereafter.

         The commercial paper obligations which the Funds may buy are
unsecured and may include variable rate notes. The nature and terms of a
variable rate note (i.e., the "Master Note") permit a Fund to invest
fluctuating amounts at varying rates of interest pursuant to a direct
arrangement between a Fund as lender and the issuer as borrower. It permits
daily changes in the amounts borrowed. The Funds have the right at any time
to increase, up to the full amount stated in the note agreement, or to decrease
the amount outstanding under the note. The issuer may prepay at any time and
without penalty any part of or the full amount of the note. The note may or may
not be backed by one or more bank letters of credit. Because these notes are
direct lending arrangements between the Funds and the issuer, it is not
generally contemplated that they will be traded; moreover, there is currently no
secondary market for them. The Funds have no limitations on the type of
issuer from whom these notes will be purchased; however, in connection with such
purchase and on an ongoing basis, the Fund Managers will consider the
earning power, cash flow and other liquidity ratios of the issuer, and its
ability to pay principal and interest on demand, including a situation in which
all holders of such notes made demand simultaneously. The Funds will not
invest more than 5% of their total assets in variable rate notes.

Insured Bank Obligations

         The Federal Deposit Insurance Corporation ("FDIC") insures the deposits
of federally insured banks and savings and loan associations (collectively
referred to as "banks") up to $100,000. The Funds may, within the limits set
forth in this Statement of Additional Information, purchase bank obligations
which are fully insured as to principal by the FDIC. Currently, to remain fully
insured as to principal, these investments must be limited to $100,000 per bank;
if the principal amount and accrued interest together exceed $100,000, the
excess accrued interest will not be insured. Insured bank obligations may have
limited marketability. Unless the Board of Directors determines that a readily
available market exists for such obligations, a Fund will treat such obligations
as subject to the 10% limit for illiquid investments for each Fund unless such
obligations are payable at principal amount plus accrued interest on demand or
within seven days after demand.

                                       4



<PAGE>   27



High-Yield Securities

         The Funds, other than the Balanced Fund, may invest in high-yield
securities. Notwithstanding the investment policies and restrictions applicable
to the Funds which were designed to reduce risks associated with such
investments, high-yield securities may carry higher levels of risk than many
other types of income producing securities. These risks are of three basic
types: the risk that the issuer of the high-yield bond will default in the
payment of principal and interest; the risk that the value of the bond will
decline due to rising interest rates, economic conditions, or public perception;
and the risk that the investor in such bonds may not be able to readily sell
such bonds. Each of the major categories of risk are affected by various
factors, as discussed below:

         High-Yield Bond Market. The high-yield bond market has grown in the
context of a long economic expansion. Any downturn in the economy may have a
negative impact on the perceived ability of the issuer to make principal and
interest payments which may adversely affect the value of outstanding high-yield
securities and reduce market liquidity.

         Sensitivity To Interest Rate and Economic Changes. In general, the
market prices of bonds bear an inverse relationship to interest rates; as
interest rates increase, the prices of bonds decrease. The same relationship may
hold for high-yield bonds, but in the past high-yield bonds have been somewhat
less sensitive to interest rate changes than treasury and investment grade
bonds. While the price of high-yield bonds may not decline as much, relatively,
as the prices of treasury or investment grade bonds decline in an environment of
rising interest rates, the market price, or value, of a high-yield bond will be
expected to decrease in periods of increasing interest rates, the net asset
value of the Funds. High-yield bond prices may not increase as much, relatively,
as the prices of treasury or investment grade bonds in periods of decreasing
interest rates. Payments of principal and interest on bonds are dependent upon
the issuer's ability to pay. Because of the generally lower creditworthiness of
issuers of high-yield bonds, changes in the economic environment generally, or
in an issuer's particular industry or business, may severely impair the ability
of the issuer to make principal and interest payments and may depress the price
of high-yield securities more significantly than such changes would affect
higher-rated, investment-grade securities.

         Payment Expectations. Many high-yield bonds contain redemption or
call provisions which might be expected to be exercised in periods of
decreasing interest rates. Should bonds in which the Funds have invested be
redeemed or called during such an interest rate environment, the Funds would
have to sell such securities without reference to their investment merit and
reinvest the proceeds received in lower yielding securities, resulting in a
decreased return for investors in the Funds. In addition, such redemptions or
calls may reduce the Funds' asset base over which the Funds' investment
expenses may be spread.

         Liquidity and Valuation. Because of periods of relative illiquidity,
many high-yield bonds may be thinly traded. As a result, the ability to
accurately value high-yield bonds and


                                       5


<PAGE>   28


determine the net asset value of the High-Yield Bond Fund, as well as the Fund's
ability to sell such securities, may be limited. Public perception of and
adverse publicity concerning high-yield securities may have a significant
negative impact on the value and liquidity of high-yield securities, even though
not based on fundamental investment analysis.

         Tax Considerations. To the extent that a Fund invests in securities
structured as zero coupon bonds, or other securities issued with original issue
discount, the Fund will be required to report interest income even though no
cash interest payment is received. Because such income is not represented by
cash, the Fund may be required to sell other securities in order to satisfy the
distribution requirements applicable to regulated investment companies under the
Internal Revenue Code of 1986 ("IRC").

         Fund Composition. As of December 31, 1999, the High-Yield Bond Fund
consisted of securities classified as follows:


<TABLE>
<CAPTION>
                                   PERCENTAGE OF
         CATEGORY                TOTAL INVESTMENTS
        ----------              -------------------
        <S>                      <C>
           AAA                           0.4%
           BBB                           2.1%
            BB                          28.1%
             B                          65.5%
            CCC                          2.6%
        Non-rated*                       1.3%
</TABLE>

----------
* Equivalent ratings for these securities would have been B.

REITS

         Each Fund other than the Money Market (or as noted below) may invest up
to 10% of its total assets in the securities of real estate investment trusts
("REITs"). The Multi-Cap Growth, Internet, International Internet and Balanced
Funds are subject to a 15% limitation. REITs are pooled investment vehicles
which invest in real estate and real estate-related loans. The value of a REIT's
shares generally is affected by changes in the value of the underlying
investments of the trust.

Hedging Transactions

         Except as otherwise indicated, the Fund Managers, other than for the
Money Market Fund, may invest in derivatives, which are discussed in detail
below, to seek to hedge all or a portion of a Fund's assets against market value
changes resulting from changes in equity or bond values, interest rates and
currency fluctuations. Hedging is a means of offsetting, or neutralizing, the
price movement of an investment by making another investment, the price of which
should tend to move in the opposite direction from the original investment.

         Other than the Multi-Cap Growth Fund, the Funds will not engage in
hedging transactions for speculative purposes but only as a hedge against
changes resulting from market conditions in the values of securities owned or
expected to be owned by the Funds. Unless otherwise indicated, a Fund, other
than the Multi-Cap Growth Fund, will not enter into a futures transaction
(except for closing transactions) if, immediately thereafter, the sum of the


                                       6


<PAGE>   29


amount of the initial deposits and premiums on open futures contracts and
options on futures would exceed 5% of the Fund's total assets.

Certain Securities

         The Funds may invest in the following described securities, except as
otherwise indicated. These securities are commonly referred to as derivatives. A
Fund's investment in such securities, in the aggregate, may not exceed 5% of net
assets at the time of investment; provided, however, that the International
Growth Fund, the High-Yield Bond Fund, and the Government Securities Fund may
invest up to 20% of their net assets in such securities. The Multi-Cap Growth
Fund will not purchase options if, as a result, the aggregate cost of all
outstanding options exceeds 10% of the Fund's total assets, although no more
than 5% will be committed to transactions entered into for non-hedging
(speculative) purposes.

         Call Options. The Multi-Cap Growth Fund, the Internet Fund, the
International Internet Fund, the Balanced Fund and the Mergers and Acquisitions
Fund may purchase call options, but the Balanced Fund may only do so to the
extent premiums paid on all outstanding call options do not exceed 20% of the
Fund's total assets. The Internet, International Internet and Balanced Funds may
purchase options that may or may not be listed on a national securities exchange
and issued by the Options Clearing Corporation. The Funds, other than the Money
Market Fund, may write (sell) call options ("calls") that are listed on national
securities exchanges or are available in the over-the-counter market through
primary broker-dealers. Call options are short-term contracts with a duration of
nine months or less. Such Funds may only write call options which are "covered,"
meaning that the Fund either owns the underlying security or has an absolute and
immediate right to acquire that security, without additional cash consideration,
upon conversion or exchange of other securities currently held in the Fund. In
addition, no Fund will, prior to the expiration of a call option, permit the
call to become uncovered. If a Fund writes a call option, the purchaser of the
option has the right to buy (and the Fund has the obligation to sell) the
underlying security at the exercise price throughout the term of the option. The
amount paid to the Fund by the purchaser of the option is the "premium." The
Fund's obligation to deliver the underlying security against payment of the
exercise price would terminate either upon expiration of the option or earlier
if the Fund were to effect a "closing purchase transaction" through the purchase
of an equivalent option on an exchange. The Fund would not be able to effect a
closing purchase transaction after it had received notice of exercise. The
International Growth Fund, the Global Socially Responsive Fund, the
International Internet Fund and Global Financial Services Fund may purchase and
write covered call options on foreign and U.S. securities and indices and enter
into related closing transactions.

         The Internet Fund, and the International Internet Fund may write
options in connection with buy-and-write transactions; that is, the Funds may
purchase a security and then write a call option against that security. The
exercise price of the call the Funds determine to write will depend upon the
expected price movement of the underlying security. The exercise price of a call
option may be below ("in-the-money"), equal to ("at-the-money") or above
("out-of-the-money") the current value of the underlying security at the time
the option is written. Buy-and-write transactions using in-the-money call
options may be used when it is expected that the price of the underlying
security will remain flat or decline moderately during the option period.
Buy-and-write transactions using out-of-the-money call options may be used when
it is expected that the premiums received from writing the call option plus the
appreciation in the market price of the underlying security up to the exercise
price will be greater than the appreciation in the price of the underlying
security alone. If the call options are exercised in such transactions, the
maximum gain to a Fund will be the premium received by it for writing the
option, adjusted upwards or downwards by the difference between the Fund's
purchase price of the security and the exercise price. If the options are not
exercised and the price of the underlying security declines, the amount of such
decline will be offset in part, or entirely, by the premium received.

         Generally, a Fund intends to write listed covered calls when it
anticipates that the rate of return from so doing is attractive, taking into
consideration the premium income to be received, the risks of a decline in
securities prices during the term of the option, the probability that closing
purchase transactions will be available if a sale of the securities is desired
prior to the exercise or expiration of the options, and the cost of entering
into such transactions. A principal reason for writing calls on a securities
portfolio is to attempt to realize, through the receipt of premium income, a
greater return than would be earned on the securities alone. A covered call
writer such as a Fund, which owns the underlying security, has, in return for
the premium, given up the opportunity for profit from a price increase in the
underlying security above the exercise price, but it has retained the risk of
loss should the price of the security decline.

         The writing of covered call options involves certain risks. A principal
risk arises because exchange and over-the-counter markets for options may be
limited; it is impossible to predict the amount of trading interest which may
exist in such options, and there can be no assurance that

                                       7


<PAGE>   30



viable exchange and over-the-counter markets will develop or continue. The Funds
will write covered call options only if there appears to be a liquid secondary
market for such options. If, however, an option is written and a liquid
secondary market does not exist, it may be impossible to effect a closing
purchase transaction in the option. In that event, the Fund may not be able to
sell the underlying security until the option expires or the option is
exercised, even though it may be advantageous to the Fund to sell the underlying
security before that time.

         Moreover, there is no assurance that the Internet Fund, International
Internet Fund or the Balanced Fund will be able to close an unlisted option
position. Furthermore, unlisted options are not subject to the protection
afforded purchasers of listed options by the Options Clearing Corporation, which
performs the obligations of its members which fail to do so in connection with
the purchase or sale of options.

         The Funds may use options traded on U.S. exchanges, and to the extent
permitted by law, options traded over-the-counter. It is the position of the SEC
that over-the-counter options are illiquid. Accordingly, the Funds will invest
in such options only to the extent consistent with their limit on investments in
illiquid securities.

         Put Options. The Funds, except the Government Securities Fund and the
Money Market Fund, may purchase put options ("Puts") which relate to (i)
securities (whether or not they hold such securities); (ii) Index Options
(described below whether or not they hold such Options); or (iii) broadly-based
stock indices. The Internet Fund, the International Internet Fund and the
Balanced Fund may purchase or write put options that may or may not be listed on
a national securities exchange and issued by the Options Clearing Corporation.
The Balanced Fund will only purchase put options to the extent that the premiums
on all outstanding put options do not exceed 20% of the Fund's total assets. The
Balanced Fund will, at all times during which it holds a put option, own the
security covered by such option. With regard to the writing of put options, the
Balanced Fund will limit the aggregate value of the obligations underlying such
put options to 50% of its total assets. The Funds, except the Government
Securities Fund and Money Market Fund, may write covered Puts. The Funds will
receive premium income from writing covered Puts, although a Fund may be
required, when the put is exercised, to purchase securities at higher prices
than the current market price. The High-Yield Bond Fund may invest up to 10% of
its total assets in Puts.

         Futures Contracts. All Funds, other than the Money Market Fund, may
enter into contracts for the future acquisition or delivery of securities
("Futures Contracts") including index contracts and foreign currencies, and may
also purchase and sell call options on Futures Contracts. These Funds may use
this investment technique to hedge against anticipated future adverse price
changes which otherwise might either adversely affect the value of the
securities or currencies held in the Fund, or to hedge anticipated future price
changes which adversely affect the prices of stocks, long-term bonds or
currencies which the Fund intends to purchase at a later date.

         These Funds may use this investment technique to hedge against
anticipated future adverse price changes which otherwise might either adversely
affect the value of the securities or currencies held in a Fund, or to hedge
anticipated future price changes which adversely affect the prices of stocks,
long-term bonds or currencies which the Fund intends to purchase at a later
date. Alternatively, a Fund may enter into Futures Contracts in order to hedge
against a change in interest rates which will result in the premature call at
par value of certain securities which the Fund has purchased at a premium. If
stock, bond or currency prices or interest rates move in an unexpected manner,
the Fund would not achieve the anticipated benefits of Futures Contracts. The
Balanced Fund may not purchase or sell a Futures Contract unless immediately
after any such transaction the sum of the aggregate amount of margin deposits on
its existing futures positions and the amount of premiums paid for related
options is 5% or less of its total assets, after taking into account unrealized
profits and unrealized losses on any such contracts. The Balanced Fund may
purchase and sell call and put options on Futures Contracts traded on an
exchange or board of trade.

         In connection with transactions on options on stock index futures, the
Multi-Cap Growth Fund, the Internet Fund and the International Internet Fund
will be required to deposit as "initial margin" an amount of cash or other
specified assets equal to, with respect to the Multi-Cap Growth Fund 1% to 10%
of the face amount of the contract, and between 5% to 8% of the contract amount
with respect to the Internet Fund and the International Internet Fund.
Thereafter, subsequent payments (referred to as "variation margin") are made to
and from the broker to reflect changes in the value of the option or Futures
Contract. The Multi-Cap Growth Fund, the Internet Fund and the International
Internet Fund may not at any time commit more than 5% of their total assets to
initial margin deposits on Futures Contracts, index options and options on
Futures Contracts. However, with respect to the Multi-Cap Growth Fund, in the
case of an option that is in-the-money at the time of purchase, the in-the-money
amount may be excluded in calculating the 5% limitation.

         In an effort to compensate for the imperfect correlation of movements
in the price of the securities being hedged and movements in the price of the
stock index futures, the Multi-Cap Growth Fund may, if it uses a hedging
strategy, buy or sell stock index futures contracts in a greater or lesser
dollar amount than the dollar amount of the securities being hedged if the
historical volatility of the stock index futures has been less or greater than
that of the securities. Such "over hedging" or "under hedging" may adversely
affect the Fund's net investment results if market movements are not as
anticipated when the hedge is established.

         Alternatively, the Funds may enter into Futures Contracts in order to
hedge against a change in interest rates which will result in the premature call
at par value of certain securities which the Fund has purchased at a premium. If
stock, bond or currency prices or interest rates move in an unexpected manner,
the Fund would not achieve the anticipated benefits of Futures Contracts.

         The use of Futures Contracts involves special considerations or risks
not associated with the primary activities engaged in by any Funds. Risks of
entering into Futures Contracts include: (1) the risk that the price of the
Futures Contracts may not move in the same direction as the price of the
securities in the various markets; (2) the risk that there will be no liquid
secondary market if the Fund attempts to enter into a closing position; (3)
the risk that the Fund will lose an amount in excess of the initial margin
deposit; and (4) risk that the Fund Manager may be incorrect in its prediction
of movements in stock, bond, currency prices and interest rates.

         Index Options. All of the Equity, Domestic Hybrid and Sector Funds may
invest in options on stock indices. These options are based on indices of stock
prices that change in value according to the market value of the stocks they
include. Some stock index options are based on a broad market index, such as the
New York Stock Exchange Composite Index or the S&P 500. Other index options are
based on a market segment or on stocks in a single industry. Stock index options
are traded primarily on securities exchanges.

                                       8


<PAGE>   31


         For a call option on an index, the option is covered if a Fund
maintains with its sub-custodian cash or liquid securities equal to the contract
value. With respect to the Balanced Fund, the option is also covered if the fund
maintains with its custodian a diversified stock portfolio equal to the contract
value.

         The use of options on securities indexes entails the risk that trading
in the options may be interrupted if trading in certain securities included in
the index is interrupted. Because the value of an index option depends primarily
on movements in the value of the index rather than in the price of a single
security, whether a Fund will realize a gain or loss from purchasing or writing
an option on a stock index depends on movements in the level of stock prices in
the stock market generally or, in the case of certain indexes, in an industry or
market segment rather than changes in the price of a particular security.
Consequently, successful use of stock index options by a Fund will depend on
that Fund Manager's ability to predict movements in the direction of the stock
market generally or in a particular industry. This requires different skills and
techniques than predicting changes in the value of individual securities.

         Interest Rate Swaps. In order to attempt to protect the Fund's
investments from interest rate fluctuations, the Funds may engage in interest
rate swaps. Generally, the Funds intend to use interest rate swaps as a hedge
and not as a speculative investment. Interest rate swaps involve the exchange
between the Fund and another party of their respective rights to receive
interest (e.g., an exchange of fixed rate payments for floating rate payments).
For example, if the Fund holds an interest-paying security whose interest rate
is reset once a year, it may swap the right to receive interest at a rate that
is reset daily. Such a swap position would offset changes in the value of the
underlying security because of subsequent changes in interest rates. This would
protect the Fund from a decline in the value of the underlying security due to
rising rates, but would also limit its ability to benefit from falling interest
rates.


         The Fund will enter into interest rate swaps only on a net basis (i.e.,
the two payments streams will be netted out, with the Fund receiving or paying
as the case may be, only the net amount of the two payments). The net amount of
the excess, if any, of the Fund's obligations over its entitlements with respect
to each interest rate swap will be accrued on a daily basis, and an amount of
cash or liquid debt securities having an aggregate net asset value at least
equal to the accrued excess, will be segregated by the Fund.

         The use of interest rate swaps involves investment techniques and risks
different from those associated with ordinary portfolio security transactions.
If a Fund Manager is incorrect in its forecasts of market values, interest rates
and other applicable factors, the investment performance of the Fund will be
less favorable than it would have been if this investment technique were never
used. Interest rate swaps do not involve the delivery of securities or other
underlying assets or principal. Thus, if the other party to an interest rate
swap defaults, the Fund's risk of loss consists of the net amount of interest
payments that the Fund is contractually entitled to receive.

Foreign Currency Values and Transactions

         Investments in foreign securities will usually involve currencies of
foreign countries, and the value of the assets of the International Growth Fund,
the Global Socially Responsive Fund, the Global Financial Services Fund and the
International Internet Fund (and of the other Funds that may invest in foreign
securities to a much lesser extent) as measured in United States dollars may be
affected favorably or unfavorably by changes in foreign currency

                                       9


<PAGE>   32


exchange rates and exchange control regulations, and the International Growth
Fund, the Global Socially Responsive Fund, the Global Financial Services Fund
and the International Internet Fund may incur costs in connection with
conversions between various currencies.

         To manage exposure to currency fluctuations, the Funds may alter equity
or money market exposures (in its normal asset allocation mix as previously
identified where applicable), enter into forward currency exchange contracts,
buy or sell options, futures or options on futures relating to foreign
currencies and may purchase securities indexed to currency baskets. The Funds
may purchase securities indexed to currency baskets. The Funds will also use
these currency exchange techniques in the normal course of business to hedge
against adverse changes in exchange rates in connection with purchases and sales
of securities. Some of these strategies may require the Funds to set aside
liquid assets in a segregated account to cover its obligations. These techniques
are further described below.

         The Funds may conduct their foreign currency exchange transactions on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market or through entering into contracts to purchase or sell foreign
currencies at a future date (i.e., "forward foreign currency" contract or
"forward" contract). A forward contract involves an obligation to purchase or
sell a specific currency amount at a future date, which may be any fixed number
of days from the date of the contract, agreed upon by the parties, at a price
set at the time of the contract. The Fund will convert currency on a spot basis
from time to time and investors should be aware of the potential costs of
currency conversion.

         When a Fund Manager believes that the currency of a particular country
may suffer a significant decline against the U.S. dollar or against another
currency, the Fund may enter into a currency contract to sell, for a fixed
amount of U.S. dollars or other appropriate currency, the amount of foreign
currency approximating the value of some or all of the Funds, securities
denominated in such foreign currency.

         At the maturity of a forward contract, the Funds may either sell a
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate its contractual obligation to deliver the foreign
currency by repurchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. The Funds may realize a gain or loss from currency
transactions.

         The Funds also may purchase and write put and call options on foreign
currencies (traded on U.S. and foreign exchanges or over-the-counter markets) to
manage the Funds' exposure to

                                       10


<PAGE>   33
changes in currency exchange rates. Call options on foreign currency written by
the Funds will be "covered", which means that the Funds will own an equal amount
of the underlying foreign currency. With respect to put options on foreign
currency written by the Funds, the Funds will establish a segregated account
consisting of cash or liquid securities in an amount equal to the amount the
Funds would be required to pay upon exercise of the put.

         The Internet Fund and the International Internet Fund may also engage
in currency swaps, which are agreements to exchange cash flows based on the
national difference among two or more currencies.

Certain Other Securities

         Except as otherwise indicated, the Funds may purchase the following
securities, the purchase of which involves certain risks described below. Unless
otherwise indicated, a Fund will not purchase a category of such securities if
the value of such category, taken at current value, would exceed 5% of the
Fund's total assets.

         Money Market Instruments. Sector, Aggressive Growth, Equity,
International/Global and the Domestic Hybrid Funds may invest from time to time
in "money market instruments," a term that includes, among other things, bank
obligations, commercial paper, time deposits, loan participations ("LPs"), and,
except with respect to the Multi-Cap Growth Fund, variable amount master demand
notes. The Multi-Cap Growth Fund may invest in corporate bonds with remaining
maturities of up to one year and the Internet Fund may invest in corporate bonds
with remaining maturities of 397 days or less. The Balanced Fund may also invest
in short-term corporate obligations, foreign commercial paper, and variable and
floating-rate instruments.

         Bank obligations include bankers' acceptances, including Yankee
Bankers' Acceptances and foreign bankers' acceptances, Eurodollar Time Deposits
("ETDs") and Canadian Time Deposits ("CTDs"), and with respect to the Internet
Fund, Schedule B's. In addition, bank obligations include U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions and U.S. dollar-denominated obligations of
foreign branches of U.S. banks or of U.S. branches of foreign banks, all of the
same type as domestic bank obligations. The Internet Fund will invest in
obligations of foreign banks or foreign branches of U.S. banks only where the
Fund Manager deems the instrument to present minimal credit risks. Such
investments may nevertheless entail risks that are different from those of
investments in domestic obligations of U.S. banks due to differences in
political, regulatory and economic systems and conditions.

         A Euro CD is a receipt from a bank for funds deposited at that bank for
a specific period of time at some specific rate of return and denominated in
U.S. dollars. It is the liability of a U.S. bank branch or foreign bank located
outside the U.S. Almost all Euro CDs are issued in London. Yankee CDs are
certificates of deposit that are issued domestically by foreign banks. It is a
means by which foreign banks may gain access to U.S. markets through their
branches which are located in the United States, typically in New York. These
CDs are treated as domestic securities. ETDs are U.S. dollar-denominated
deposits on a foreign branch of a U.S. bank or a foreign bank and CTDs are
essentially the same as ETDs except they are issued by Canadian offices of major
Canadian banks. Schedule Bs are obligations issued by Canadian branches of
foreign or domestic banks and Yankee BAs are U.S. dollar denominated bankers'
acceptances issued by a U.S. branch of a foreign bank and held in United States.

         Domestic and foreign banks are subject to extensive but different
government regulations which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of funds to
finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of U.S.
branches of foreign banks may subject a Fund to additional investment risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure


                                       11
<PAGE>   34

or nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which
might adversely affect the payment of principal and interest on such
obligations. In addition, foreign branches of U.S. banks and U.S. branches of
foreign banks may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting, and record keeping standards than
those applicable to domestic branches of U.S. banks.

         Euro CDs, Yankee CDs and foreign bankers' acceptances involve risks
that are different from investments in securities of U.S. banks. The major risk,
which is sometimes referred to as "sovereign risk," pertains to possible
future unfavorable political and economic developments, possible withholding
taxes, seizures of foreign deposits, currency controls, interest limitations, or
other governmental restrictions which might affect payment of principal or
interest. Investment in foreign commercial paper also involves risks that are
different from investments in securities of commercial paper issued by U.S.
companies. Non-U.S. securities markets generally are not as developed or
efficient as those in the United States. Such securities may be less liquid and
more volatile than securities of comparable U.S. corporations. Non-U.S. issuers
are not generally subject to uniform accounting and financial reporting
standards, practices and requirements comparable to those applicable to U.S.
issuers. In addition, there may be less public information available about
foreign banks, their branches and other issuers.

         Time deposits usually trade at a premium over Treasuries of the same
maturity. Investors regard such deposits as carrying some credit risk, which
Treasuries do not; also, investors regard time deposits as being sufficiently
less liquid than Treasuries; hence, investors demand some extra yield for buying
time deposits rather than Treasuries. The investor in a loan participation has a
dual credit risk to both the borrower and also the selling bank. The second risk
arises because it is the selling bank that collects interest and principal and
sends it to the investor.

         Commercial paper may include variable and floating-rate instruments,
which are unsecured instruments that permit the interest on indebtedness
thereunder to vary. Variable-rate instruments provide for periodic adjustments
in the interest rate. Floating-rate instruments provide for automatic adjustment
of the interest rate whenever some other specified interest rate changes. Some
variable and floating-rate obligations are direct lending arrangements between
the purchaser and the issuer and there may be no active secondary market.
However, in the case of variable and floating-rate obligations with the demand
feature, a Fund may demand payment of principal and accrued interest at a time
specified in the instrument or may resell the instrument to a third party. In
the event an issuer of a variable or floating-rate obligation defaulted on its
payment obligation, a Fund might be unable to dispose of the note because of the
absence of a secondary market and could, for this or other reasons, suffer a
loss to the extent of the default. Substantial holdings of variable and
floating-rate instruments could reduce portfolio liquidity.

         Variable- and Floating-Rate Instruments and Related Risks. The Balanced
Fund may acquire variable- and floating-rate instruments. The Fund Manager will
consider the earning power, cash flows and other liquidity ratios of the
issuers and guarantors of such instruments and, if the instruments are subject
to demand features, will monitor their financial status with respect to the
ability of the issuer to meet its obligation to make payment on demand. Where


                                       12

<PAGE>   35
necessary to ensure that a variable- or floating-rate instrument meets the
Fund's quality requirements, the issuer's obligation to pay the principal of the
instrument will be backed by an unconditional bank letter or line of credit,
guarantee, or commitment to lend.

     Because variable and floating-rate instruments are direct lending
arrangements between the lender and the borrower, it is not contemplated that
such instruments will generally be traded, and there is generally no established
secondary market for these obligations, although they are redeemable at face
value. Accordingly, where these obligations are not secured by letters of credit
or other credit support arrangements, the Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand.

     The same credit research must be done for master demand notes as in
accepted names for potential commercial paper issuers to reduce the chances of
a borrower getting into serious financial difficulties.

     Loan Participations. The Balanced Fund may also engage in Loan
Participations ("LPs"). LPs are loans sold by the lending bank to an investor.
The loan participant borrower may be a company with highly-rated commercial
paper that finds it can obtain cheaper funding through an LP than with
commercial paper and can also increase the company's name recognition in the
capital markets. LPs often generate greater yield than commercial paper.

     The borrower of the underlying loan will be deemed to be the issuer except
to the extent the Fund derives its rights from the intermediary bank which sold
the LPs. Because LPs are undivided interests in a loan made by the issuing
bank, the Fund may not have the right to proceed against the LP borrower
without the consent of other holders of the LPs. In addition, LPs will be rated
as illiquid if, in the judgment of the Fund Manager, they cannot be sold within
seven days.

     Foreign Bankers' Acceptances. The Balanced Fund may purchase foreign
bankers' acceptances. Foreign bankers' acceptances are short-term (270 days or
less), non-interest-bearing notes sold at a discount and redeemed by the
accepting foreign bank at maturity for full face value and denominated in U.S.
dollars. Foreign bankers' acceptances are the obligations of the foreign bank
involved, to pay a draft drawn on it by a customer. These instruments reflect
the obligation both of the bank and the drawer to pay the face amount of the
instrument upon maturity.

     Foreign Commercial Paper. The Balanced Fund may purchase foreign
commercial paper. Foreign commercial paper consists of short-term unsecured
promissory notes denominated in U.S. dollars, either issued directly by a
foreign firm in the U.S., or issued by a "domestic shell" subsidiary of a
foreign firm established to raise dollars for the firm's operations abroad or
for its U.S. subsidiary. Like commercial paper issued by U.S. companies,
foreign commercial paper is rated by the rating agencies (Moody's, S&P) as to
the issuer's creditworthiness. Foreign commercial paper can potentially provide
the investor with a greater yield than domestic commercial paper.

     Supranational Bank Obligations. The Internet Fund and the International
Internet Fund may invest in supranational bank obligations. Supranational banks
are international banking institutions designed or supported by national
governments to promote economic reconstruction, development or trade between
nations (e.g., The World Bank). Obligations of supranational banks may be
supported by appropriated but unpaid commitments of their member countries and
there is no assurance these commitments will be undertaken or met in the future.


                                       13


<PAGE>   36
     Master Demand Notes. All Funds except the Multi-Cap Growth, may purchase
variable amount master demand notes. However, the Funds, except the Multi-Cap
Growth Fund, the Internet Fund, the International Internet Fund and the Balanced
Fund, will not purchase such securities if the value of, such securities, taken
at the current value, would exceed 5% of the Fund's total assets. Variable
amount master demand notes are demand obligations that permit the investment of
fluctuating amounts at varying market rates of interest pursuant to arrangements
between the issuer and a commercial bank acting as agent for the payees of such
notes whereby both parties have the right to vary the amount of the outstanding
indebtedness on the notes. Since there is no secondary market for these notes,
the appropriate Fund Managers, subject to the overall review of the Fund's
Directors and the Advisor, monitor the financial condition of the issuers to
evaluate their ability to repay the notes.

         U.S. Government Obligations. This category of securities is not
subject to the 5% of total assets limitation referred to above. The Funds may
purchase obligations issued or guaranteed by the U.S. Government and U.S.
Government agencies and instrumentalities. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as those of the Government
National Mortgage Association ("GNMA"), are supported by the full faith and
credit of the U.S. Treasury. Others, such as those of the Export-Import Bank of
the United States, are supported by the right of the issuer to borrow from the
U.S. Treasury; and still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the agency or instrumentality
issuing the obligation. No assurance can be given that the U.S. Government would
provide financial support to U.S. government-sponsored instrumentalities if it
is not obligated to do so by law. Examples of the types of U.S. Government
obligations that may be acquired by the Funds include U.S. Treasury Bills, U.S.
Treasury Notes and U.S. Treasury Bonds and the obligations of Federal Home Loan
Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Federal National Mortgage Association
("FNMA"), GNMA, General Services Administration, Student Loan Marketing
Association, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation ("FHLMC"), Federal Intermediate Credit Banks Maritime
Administration, some of which are discussed below.

          There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related
securities and among the securities that they issue. Mortgage-related
securities guaranteed by the GNMA include GNMA Mortgage Pass-Through
Certificates (also known as "Ginnie Maes") which are guaranteed as to the
timely payment of principal and interest by GNMA and such guarantee is backed
by the full faith and credit of the United States. GNMA is a wholly-owned U.S.
Government corporation within the


                                       14

<PAGE>   37
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
FNMA include FNMA Guaranteed Mortgage Pass-Through Certificates (also known as
"Fannie Maes"), which are solely the obligations of the FNMA and are not backed
by or entitled to the full faith and credit of the United States, but are
supported by the right of the issuer to borrow from the U.S. Treasury. FNMA is a
government-sponsored organization owned entirely by private stockholders. Fannie
Maes are guaranteed as to timely payment of the principal and interest by FNMA.
Mortgage-related securities issued by the FHLMC include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "PCs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable. Under normal market conditions, the Internet Fund will not
invest to a significant extent, or on a routine basis, in U.S. Government
securities.

     Mortgage-backed securities have greater market volatility than other types
of securities. In addition, because prepayments often occur at times when
interest rates are low or are declining, the Funds may be unable to reinvest
such funds in securities which offer comparable yields. The yields provided by
these mortgage securities have historically exceeded the yields on other types
of U.S. Government securities with comparable maturities in large measure due
to the risks associated with prepayment features.


                                       15

<PAGE>   38
     Repurchase Agreements. This category of Securities is not subject to the 5%
of total assets limitation referred to above. All Funds may enter into
repurchase agreements usually having maturities of one business day and not more
than one week. When a Fund acquires securities from a bank or broker-dealer, it
may simultaneously enter into a repurchase agreement with the same seller
pursuant to which the seller agrees at the time of sale to repurchase the
security at a mutually agreed upon time and price. In such instances, the
Corporation's Custodian has possession of the security or collateral for the
seller's obligation. The repurchase price generally equals the price paid by a
Fund plus interest negotiated on the basis of current short-term rates (which
may be more or less than the rate on the securities underlying the repurchase
agreement). Repurchase agreements may be considered loans by a Fund
collateralized by the underlying instrument. If the seller should default on its
obligation to repurchase the securities, the Fund may experience delays,
difficulties or other costs when selling the securities held as collateral and
may incur a loss if the value of the collateral declines. The appropriate Fund
Managers, subject to the overall review by the Corporation's Directors and the
Advisor, monitor the value of the collateral as to repurchase agreements, and
they monitor the creditworthiness of the seller and must find it satisfactory
before engaging in repurchase agreements. The Funds enter into repurchase
agreements only with Federal Reserve member banks that have net worth of at
least $100,000,000 and outstanding commercial paper of the two highest rating
categories assigned by Moody's or S&P or with broker-dealers that are registered
with the Securities and Exchange Commission, are members of the National
Association of Securities Dealers, Inc. ("NASD") and have similarly rated
commercial paper outstanding. Any repurchase agreements entered into by the
Funds will be fully collateralized and marked to market daily, other than those
entered into by the Money Market Fund, which are valued on a market to market
basis.


                                       16
<PAGE>   39
     Reverse Repurchase Agreements. Reverse repurchase agreements involve the
sale of securities held by a Fund pursuant to a Fund's agreement to repurchase
the securities at an agreed upon price, date and rate of interest. During the
reverse repurchase agreement period, a Fund continues to receive principal and
interest payments on these securities. Because reverse repurchase agreements are
considered borrowings, the Internet Fund, the International Internet Fund and
the Balanced Fund may only enter into such agreements for temporary or emergency
purposes. The Internet Fund and the International Internet Fund may only sell
portfolio securities to financial institutions such as banks and broker/dealers
and requiring to repurchase them at a mutually specified date and price
("reverse purchase agreements"). Reverse repurchase agreements involve the risk
that the market value of the securities sold by a Fund may decline below the
repurchase price. A Fund will pay interest on amounts obtained pursuant to a
reverse repurchase agreement. While reverse repurchase agreements are
outstanding, a Fund will maintain cash, U.S. Government securities or other
liquid securities in a segregated account in an amount at least equal to the
market value of the securities, plus accrued interest, subject to the agreement.
With respect to the Balance Fund, liquid securities include equity securities
and debt securities that are unencumbered and marked to market daily.

     Other Mortgage-Backed Securities and Pass-Through Certificates. The
Balanced Fund may also invest in other mortgage-backed securities issued by
private issuers, generally originators of and investors in mortgage loans,
including savings associations, mortgage bankers, commercial banks, investment
bankers, and special purpose entities. These private mortgage-backed securities
may be supported by U.S. Government mortgage-backed securities or some form of
non-government credit enhancement. Mortgage-backed securities have either fixed
or adjustable interest rates. The rate of return on mortgage-backed securities
may be affected by prepayments of principal on the underlying loans, which
generally increase as interest rates decline; as a result, when interest rates
decline, holders of these securities normally do not benefit from appreciation
in market value to the same extent as holders of other non-callable debt
securities. In addition, like other debt securities, the values of
mortgage-related securities, including government and government-related
mortgage pools, generally will fluctuate in response to market interest rates.

     The Balanced Fund may also invest in pass-through certificates issued by
non-governmental issuers. Pools of conventional residential mortgage loans
created by such issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government guarantees of payment. Timely payment of interest and principal of
these pools is, however, generally supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance. The
insurance and guarantees are issued by government entities, private insurance
and the mortgage poolers. Such insurance and guarantees and the creditworthiness
of the issuers thereof will be considered in determining whether a
mortgage-related security meets the Fund's quality standards. The Fund may buy
mortgage-related securities without insurance or guarantees if through an
examination of the loan experience and practices of the poolers, the investment
manager determines that the securities meet the Fund's quality standards.

     Restricted or Illiquid Securities. Each Fund, except the Multi-Cap Growth
Fund, the Internet Fund, the International Internet Fund, the Balanced Fund and
the Mergers and Acquisitions Fund may invest up to 10% of its net assets in
restricted securities (privately placed equity or debt securities) or other
securities which are not readily marketable. The Multi-Cap Growth Fund, the
Internet Fund, the International Internet Fund and the Mergers and Acquisitions
Fund may invest up to 15% of their respective net assets and the Balanced Fund
may invest up to 5% of its total assets in illiquid or restricted securities.
With respect to the Multi-Cap Growth Fund, restricted securities that are
determined by the Board or Directors to be liquid are not subject to this
limitation.

     Each Fund may invest in commercial obligations issued in reliance on the
"private placement" exemption from registration afforded by Section 4(2) of the
Act ("Section 4(2) paper"). Section 4(2) paper is restricted as to disposition
under the Federal Securities laws, and generally is sold to institutional
investors who agree that they are purchasing the paper for investment and not
with a view to public distribution. Any resale by the purchaser must be in an
exempt transaction. Section 4(2) paper normally is resold to other institutional
investors through or with the assistance of the issuer or investment dealers
which make a market on the Section 4(2) paper, thus providing liquidity.

     The Funds may invest in restricted securities governed by Rule 144A under
the Securities Act of 1933. In adopting Rule 144A, the Securities Exchange
Commission specifically stated that restricted securities traded under Rule 144A
may be treated as liquid for purposes of investment limitations if the board of
directors (or the Fund Manager acting subject to the board's supervision)
determines that the securities are in fact liquid. Examples of factors that will
be taken into account in evaluating the liquidity of a Rule 144A security by a
Fund, both with respect to the initial purchase and on an ongoing basis, will
include, among others: (1) the frequency of trades and quotes for the security;
(2) the number of dealers willing to purchase or sell the security and the
number of other potential purchasers; (3) dealer undertakings to make a market
in the security; and (4) 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). If institutional trading
in restricted securities were to decline to limited levels, the liquidity of a
Fund's portfolio could be adversely affected. This investment practice could
have the effect of increasing the level of illiquidity in a Fund during any
period that qualified institutional buyers become uninterested in purchasing
these restricted securities.


                                       17

<PAGE>   40
         Foreign Securities. As noted above, the International Growth Fund will
invest principally in foreign securities and, the Global Financial Services Fund
and the Global Socially Responsive Fund may invest 50% or more of their total
assets in such securities. The International Internet Fund will invest at least
65% of its assets in foreign securities. All other Funds, except the Internet
Fund, Government Securities Fund, the Tax-Exempt Income Fund, the Money Market
Fund, and the Multi-Cap Growth Fund may, subject to the 20% limitation, invest
in foreign securities as well as both sponsored and unsponsored ADRs, and EDRs
which are securities of U.S. issuers backed by securities of foreign issuers.
The Multi-Cap Growth Fund may invest in ADRs, American Depositary Shares or U.S.
dollar denominated securities of foreign issuers without limitation. The
Internet Fund typically will only purchase foreign securities which are
represented by sponsored or unsponsored ADRs listed on a domestic securities
exchange or included in the Nasdaq National Market System, or foreign securities
listed directly on a domestic securities exchange or included on the Nasdaq
National Market System. The Balanced Fund may invest up to 20% of total assets
in foreign securities as well as sponsored and unsponsored ADRs and EDRs.  There
may be less information available about unsponsored ADRs and EDRs, and
therefore, they may carry higher credit risks. The Funds may also invest in
securities of foreign branches of domestic banks and domestic branches of
foreign banks.

         Investments in foreign equity and debt securities involve risks
different from those encountered when investing in securities of domestic
issuers. The appropriate Fund Managers and the Advisor, subject to the overall
review of the Funds' Directors, evaluate the risks and opportunities when
investing in foreign securities. Such risks include trade balances and
imbalances and related economic policies; currency exchange rate fluctuations;
foreign exchange control policies; expropriation or confiscatory taxation;
limitations on the removal of funds or other assets; political or social
instability; the diverse structure and liquidity of securities markets in
various countries and regions; policies of governments with respect to possible
nationalization of their own industries; and other specific local, political and
economic considerations.


                                       18

<PAGE>   41

Forward Commitments

         Securities may be purchased on a "when issued" or on a "forward
delivery" basis, which means it may take as long as 120 days before such
obligations are delivered to a Fund. The purpose of such investments is to
attempt to obtain higher rates of return or lower purchase costs than would be
available for securities purchased for immediate delivery. Securities purchased
on a when issued or forward delivery basis involve a risk that the value of the
security to be purchased may decline prior to the settlement date. In addition,
if the dealer through which the trade is made fails to consummate the
transaction, a Fund may lose an advantageous yield or price. A Fund does not
accrue income prior to delivery of the securities in the case of forward
commitment purchases. The 5% limitation does not apply to the International
Growth, Global Socially Responsive, Global Financial Services, Government
Securities and Tax-Exempt Income Funds which have a 20% limitation. Because the
International Internet and the Internet Fund's liquidity and ability to manage
the respective portfolio might be affected when the Fund earmarks cash or
portfolio securities to cover such purchase commitments, the Fund Manager
expects that its commitments to purchase when-issued securities and forward
commitments will not exceed 25% of the value of a Fund's total assets absent
unusual market conditions.

         Portfolio Depositary Receipts. To the extent otherwise consistent with
its investment policies and applicable law, the Multi-Cap Growth Fund may invest
up to 5% of its total assets in Portfolio Depositary Receipts, exchange-traded
shares issued by investment companies, typically unit investment trusts, holding
portfolios of common stocks designed to replicate and, therefore, track the
performance of various broad securities indices or sectors of such indices. For
example, the Fund may invest in Standard & Poor's Depositary Receipts (SPDRs),
issued by a unit investment trust whose portfolio tracks the S&P 500 Composite
Stock Price Index, or Standard & Poor's MidCap 400 Depositary Receipts (MidCap
SPDRs), similarly linked to the S&P MidCap 400 Index.

         Short Sales. The Multi-Cap Growth Fund and the Mergers and Acquisitions
Fund may sell securities "short against the box." While a short sale is the sale
of a security the Fund does not own, it is "against the box" if at all times
when the short position is open the Fund owns an equal amount of the securities
or securities convertible into, or exchangeable without further consideration
for, securities of the same issue as the securities sold short.

         Convertible Securities. Common stock occupies the most junior position
in a company's capital structure. Convertible securities entitle the holder to
exchange the securities for a specified number of shares of common stock,
usually of the same company, at specified prices within a certain period of time
and to receive interest or dividends until the holder elects to convert. The
provisions of any convertible security determine its ranking in a company's
capital structure. In the case of subordinated convertible debentures, the
holder's claims on assets and earnings are subordinated to the claims of other
creditors, and are senior to the claims of preferred and common shareowners. In
the case of preferred stock and convertible preferred stock, the holder's claims
on assets and earnings are subordinated to the claims of all creditors but are
senior to the claims of common shareowners.

Temporary Defensive Techniques

         Any or all of the Funds may at times for defensive purposes, at the
determination of the Fund Manager, temporarily place all or a portion of their
assets in cash, short-term commercial paper (i.e., short-term unsecured
promissory notes issued by corporations to finance short-term credit needs),
United States Government securities, high-quality debt securities (including
"Eurodollar" and "Yankee Dollar" obligations, i.e., U.S. issuer borrowings
payable overseas in

                                       19


<PAGE>   42


U.S. funds and obligations of foreign issuers payable in U.S. funds), and
obligations of banks when in the judgment of the Fund Manager such investments
are appropriate in light of economic or market conditions. The Money Market Fund
may at times for defensive purposes temporarily place all or a portion of its
assets in cash, when in the judgment of the Fund Manager such an investment is
appropriate in light of economic or market conditions. For temporary defensive
purposes, the International Growth Fund, the Global Socially Responsive Fund,
the International Internet Fund and the Global Financial Services Fund may
invest in all of the above, both foreign and domestic, including foreign
currency, foreign time deposits, and foreign bank acceptances. When a Fund
takes a defensive position, it may not be following the fundamental investment
policy of the Fund.

         Other Investments. Each Fund may, in the future, be authorized to
invest in securities other than those listed here and in the Prospectus,
provided that such investment would be consistent with that Fund's investment
objective and that it would not violate any fundamental investment policies or
restrictions applicable to the Fund.


                             INVESTMENT RESTRICTIONS

         Each of the Funds has adopted the following investment restrictions and
limitations which cannot be changed as to any individual Fund without approval
by the holders of a majority of the outstanding shares of the relevant Fund. (As
used in this Statement of Additional Information, "a majority of the outstanding
shares of the relevant Fund" means the lesser of (i) 67% of the shares of the
relevant Fund represented at a meeting at which more than 50% of the outstanding
shares of that Fund are represented in person or by proxy or (ii) more than 50%
of the outstanding shares of the relevant Fund.) Except as otherwise set forth,
no Fund may:

         1. As to 75% of its total assets (50% for the Mergers and Acquisitions
Fund) purchase the securities of any issuer if such purchase would cause more
than 5% of its total assets to be invested in the securities of such issuer
(except U.S. Government securities or those of its agencies or instrumentalities
as defined in the Investment Company Act of 1940), or purchase more than 10% of
the outstanding securities, or more than 10% of the outstanding voting
securities, of any issuer. For purposes of this restriction, each Fund will
regard the entity which has ultimate responsibility for the payment of interest
and principal as the issuer.

         2. Purchase securities of any company that has a continuous operating
history of less than three years (including that of predecessors) if such
securities would cause the Fund's investment in such companies taken at cost to
exceed 5% of the value of the Fund's total assets. (The Multi-Cap Growth Fund,
Global Financial Services Fund, the Internet Fund, the International Internet
Fund High-Yield Bond Tax-Exempt Income and Mergers and Acquisitions Funds are
not subject to this restriction.)

         3. Purchase securities on margin, but it may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities and may make initial and maintenance margin deposits in connection
with options and futures contracts options on futures as permitted by its
investment program.

         4. With respect to all Funds, other than the Multi-Cap Growth Fund and
the Mergers and Acquisitions Fund, make short sales of securities, unless at the
time of such sale, it owns, or has the right to acquire at no additional cost to
the Fund as the result of the ownership of convertible or exchange securities,
an equal amount of such securities, and it will retain such securities so long
as it is in a short position as to them. In no event will a Fund make short
sales of securities in


                                       20


<PAGE>   43


such a manner that the value used to cover such sales would exceed 15% of its
net assets at any time. The short sales of the type described above, which
are called "short sales against the box," may be used by a Fund when management
believes that they will protect profits or limit losses in investments.

         5. Borrow money, except that a Fund may borrow from banks as a
temporary measure for emergency purposes and not for investment, in which case
such borrowings may not be in excess of the lesser of: (a) 10% of its total
assets taken at cost; or (b) 5% of the value of its assets at the time that the
loan is made. A Fund will not purchase securities while borrowings are
outstanding. A Fund will not pledge, mortgage or hypothecate its assets taken at
market value to an extent greater than the lesser of 10% of the value of its
net assets or 5% of the value of its total assets taken at cost.

         6. Purchase or retain the securities of any issuer if those officers
and directors of a Fund or of its investment adviser holding individually more
than 1/2 of 1% of the securities of such issuer together own more than 5% of the
securities of such issuer. (The Global Financial Services Fund, the Multi-Cap
Growth, the Internet Fund, the International Internet Fund and the Balanced Fund
are not subject to this restriction).

         7. Purchase the securities of any other investment company except in
the open market in a transaction involving no commission or profit to a sponsor
or dealer (other than the customary sales load or broker's commission) or as a
part of a merger, consolidation, acquisition or reorganization. (The Internet
Fund, the International Internet Fund, the Multi-Cap Growth, the Balanced Fund
and the Mergers and Acquisitions Fund are not subject to this restriction.)

         8. Invest in real estate; this restriction does not prohibit a Fund
from investing in the securities of real estate investment trusts.

         9. Invest for the purpose of exercising control of management of any
company.

         10. Underwrite securities issued by others except to the extent that
the disposal of an investment position may qualify any Fund or the Corporation
as an underwriter as that term is defined under the Securities Act of 1933, as
amended,

         11. Except for the Money Market Fund, the Government Securities Fund,
the Internet Fund, the International Internet Fund, the Global Financial
Services Fund and the Mergers and Acquisitions Fund, make any investment which
would cause more than 25% of the total assets of the Fund to be invested in
securities issued by companies principally engaged in any one industry;
provided, however, that: (i) this limitation does not apply to investments in
U.S. Government Securities as well as its agencies and instrumentalities,
general obligation bonds, municipal securities other than industrial development
bonds issued by non-governmental users, and (ii) utility companies will be
divided according to their services (for example, gas, gas transmission,
electric, electric and gas, and telephone will each be considered a separate
industry). The Money Market Fund may invest more than 25% of its total assets in
U.S. Government Securities as well as its agencies and instrumentalities and
certain bank instruments issued by domestic banks. The instruments in which the
Money Market Fund

                                       21


<PAGE>   44



may invest in excess of 25%, in the aggregate, of its total assets are letters
of credit and guarantees, negotiable certificates of deposit, time deposits,
commercial paper and bankers acceptances meeting the investment criteria for the
Money Market Fund. The Global Financial Services Fund will invest 25% or more of
its total assets in companies in the financial services industry. The Internet
Fund and the International Fund will invest more than 25% of the Fund's assets
in securities of companies engaged in the research, design, development,
manufacturing or distribution of products, processes or services for use with
the Internet or intranet related businesses.

         12. Participate with others in any trading account. This restriction
does not prohibit the Corporation or any Fund from combining portfolio orders
with those of other Funds or other clients of the investment adviser or Fund
Managers when to do so would permit the Corporation and one or more Funds to
obtain a large-volume discount from ordinary brokerage commissions when
negotiated rates are available. (The Global Financial Services Fund, the
Multi-Cap Growth Fund, the Internet Fund, the International Internet Fund, the
Balanced Fund and the Mergers and Acquisitions Fund are not subject to this
restriction).

         13. Invest more than 10% of its total assets in securities which are
subject to legal or contractual restrictions on resale or are otherwise not
readily salable.

         14. Issue senior securities, except as permitted by the Investment
Company Act of 1940 and rules thereunder.

         15. Invest in commodities or commodities contracts, except the Funds
may purchase and sell options, futures contracts and options on futures
contracts in accordance with their investment policies as set forth in this
registration statement.

         16. Make loans, except by purchasing debt securities or entering into
repurchase agreements (or in the case of the Mergers and Acquisitions Fund, by
entering into repurchase agreements and by lending portfolio securities), in
each case in accordance with its investment policies as set forth in this
Statement of Additional Information.

         In addition, management of the Corporation has adopted the following
restrictions which apply to all of the Funds and may be changed only by the
Board of Directors of the Corporation. No Fund will: (i) lend its assets to any
person or individual, except by the purchase of bonds or other debt obligations
customarily sold to institutional investors, (ii) invest more than 5% of the
value of its net assets, in warrants (iii) invest in oil, gas, or other mineral
leases or engage in arbitrage transactions, or (iv) invest more than 15% of its
total assets in the securities of real estate investment trusts ("REITs").


                                       22


<PAGE>   45
         If a percentage restriction is adhered to at the time of an investment,
a later increase or decrease in the investment's percentage of the value of a
Fund's total assets resulting from a change in portfolio value or assets will
not constitute a violation of the percentage restrictions.

                               PORTFOLIO TURNOVER

         A portfolio turnover rate is, in summary, the percentage computed by
dividing the lesser of a Fund's purchases or sales of securities (excluding
short-term securities) by the average market value of that Fund. The Fund
Managers intend to manage each Fund's assets by buying and selling securities to
help attain its investment objective. This may result in increases or decreases
in a Fund's current income available for distribution to its shareholders. While
none of the Funds is managed with the intent of generating short-term capital
gains, each of the Funds may dispose of investments (including money market
instruments) regardless of the holding period if, in the opinion of the Fund
Manager, an issuer's creditworthiness or perceived changes in a company's growth
prospects or asset value make selling them advisable. Such an investment
decision may result in capital gains or losses and could result in a high
portfolio turnover rate during a given period, resulting in increased
transaction costs related to equity securities. Disposing of debt securities in
these circumstances should not increase direct transaction costs since debt
securities are normally traded on a principal basis without brokerage
commissions. However, such transactions do involve a mark-up or mark-down of the
price.

         The Fund Manager expects a portfolio turnover rate of 150% or more for
the Mergers and Acquisitions Fund.

                          MANAGEMENT OF THE CORPORATION

         The Board of Directors of the Corporation is responsible for the
management of the business of the Corporation under the laws of Maryland, and it
is primarily responsible for reviewing the activities of Enterprise Capital
Management, Inc. (the "Advisor"), the various Fund Managers and Enterprise Fund
Distributors, Inc. (the "Distributor" or "EFD") under the Investment Advisor's
Agreement, the Fund Manager's Agreements, the Distributor's Agreement and the
Plans which relate to the operations of the Corporation and its Funds.

         The Directors and officers of the Corporation, and their principal
occupations during the past five years, are set forth below. Directors who are
"interested persons", as defined in the Investment Company

                                       23

<PAGE>   46


are denoted by an asterisk. As to their duties relative to the Corporation, the
address of each is Atlanta Financial Center, 3343 Peachtree Road, N.E., Suite
450, Atlanta, GA 30326.



<TABLE>
<CAPTION>
NAME, AGE AND POSITION WITH                PRINCIPAL OCCUPATION
THE CORPORATION                            PAST FIVE YEARS
----------------------------               --------------------
<S>                                        <C>
Arthur T. Dietz (76)                       President, ATD Advisory Corp. since 1996; President and
Director                                   Chief Executive Officer, Strategic Fund Management, Inc.,
Member of the Audit Committee              1987-1995; Mills B. Lane Professor of Finance and
                                           Banking, Emory University, 1954-1988; Chairman, First
                                           Atlanta Investments, 1998-present; Trustee, Enterprise
                                           Accumulation Trust.

*Samuel J. Foti (48)                       President and Chief Operating Officer, MONY Life
Director                                   Insurance Company of New York ("MONY"), since 1994;
                                           Executive Vice President, MONY, (1991-1994); Trustee,
                                           MONY, since 1993; Senior Vice President, MONY 1989 -
                                           1991; Director, MONY Life Insurance Co. of America,
                                           since 1989; Director, MONY Brokerage, Inc., since 1990;
                                           Director, MONY International Holdings, Inc., since 1994;
                                           Director, MONY Life Insurance Company of the Americas,
                                           Ltd. since 1994; Director, MONY Bank & Trust Co. of the
                                           Americas, Ltd., Director, since 1994; Director, Life Insurance
                                           Marketing and Research Associates, 1996-1997; Trustee, Enterprise
                                           Accumulation Trust; Director, The American College.

Arthur Howell (82)                         Of Counsel, law firm of Alston & Bird, Atlanta, Georgia
Director                                   since 1987; President, Summit Industries, Inc.
Chairman of Audit Committee                (manufacturer) since 1954; Chairman, Crescent Banking Co.,
                                           Inc. 1985-2000; Chairman Emeritus, Crescent Banking Co.,
                                           Inc., 2000; President, Jonesheirs, Inc. (licensing
                                           entity) since 1975; Trustee, Enterprise Accumulation
                                           Trust.


William A. Mitchell, Jr. (60)              President/CEO, Carter & Associates (real estate
Director                                   development), Atlanta, Georgia since 1994; Director, John
                                           Wieland Homes (commercial residential builders) since 1992;
                                           Trustee, Enterprise Accumulation Trust.

Lonnie H. Pope (66)                        Chief Executive Officer, Longleaf Industries, Inc.
Director                                   (chemical manufacturing) (1996-present); formerly President and
Member of the Audit Committee              Chief Executive Officer of AFF, Inc. (aromatics manufacturing)
                                           from 1987 to 1998; Trustee, Enterprise Accumulation Trust.
</TABLE>


                                       24



<PAGE>   47



<TABLE>
<S>                                        <C>
*Michael I. Roth (54)                      Chairman and Chief Executive Officer, MONY, since 1993;
Director                                   President and Chief Executive Officer, MONY, 1991-
                                           1993; President and Chief Operating Officer, MONY Life,
                                           1991 to 1993; Director, MONY Life Insurance Company of
                                           America since 1991; Director, ARES Holdings Inc. 1995-1998;
                                           1740 Advisers, Inc., since 1992; MONY CS, Inc., since
                                           1989; Executive Vice President and Chief Financial Officer,
                                           MONY 1989-1991; Executive Vice President and Chief Financial
                                           Officer, Primerica Corporation, 1987; Executive Vice
                                           President, Primerica Corporation, 1982-1987; Director,
                                           American Council of Life Insurance (ACLI); Director; The
                                           Life Insurance Counsel of New York; Director, Pitney Bowes,
                                           Inc.; Director, Promus Hotel Corporation; Director, Insurance
                                           Marketplace Standards Association; Director, Enterprise
                                           Foundation (a charitable foundation which develops housing and
                                           which is not affiliated with The Enterprise Group of Funds, Inc.);
                                           Director, Metropolitan Development Association of Syracuse and
                                           Central New York; Director, Lincoln Center for the Performing Arts
                                           Leadership Committee; Trustee, Enterprise Accumulation Trust.


*Victor Ugolyn (52)                        Chairman, President and Chief Executive Officer, The
Director                                   Enterprise Group of Funds, Inc. since 1991; Chairman,
                                           President and Chief Executive Officer, Enterprise Capital
                                           Management, Inc. and Enterprise Fund Distributors, Inc. since
                                           1991; Chairman, President and Chief Executive Officer,
                                           Enterprise Accumulation Trust; Vice Chairman and Chief
                                           Marketing Officer, Value Line Securities, Inc. (1986-1991).

Catherine R. McClellan (44)
Secretary                                  Secretary, Enterprise Accumulation Trust since 1994;
                                           Senior Vice President, Secretary and Chief Counsel,
                                           Enterprise Capital Management, Inc. since 1989;
                                           Senior Vice President, Secretary and Chief Counsel,
                                           Enterprise Fund Distributors, Inc. since 1989.

Herbert M. Williamson (48)                 Assistant Secretary and Treasurer, Enterprise Accumulation
Treasurer                                  Trust, Enterprise Capital Management, Inc. and Enterprise
                                           Fund Distributors, Inc. since 1989.

Phillip G. Goff (37)                       Vice President and Chief Financial Officer, Enterprise
Vice President                             Accumulation Trust, Enterprise Capital Management, Inc.
                                           and Enterprise Fund Distributors, Inc. 1995 - present; Audit
                                           Manager, Coopers & Lybrand LLP, 1991 - 1995.
</TABLE>

*        Messrs. Foti, Roth and Ugolyn are "interested persons" of the
         Corporation, of the Advisor, and of the Distributor, as that term is
         defined in the Investment Company Act of 1940.

         Arthur T. Dietz, Arthur Howell and Lonnie H. Pope also serve on the
Audit Committee of the Board of Directors. The Audit Committee is charged with
recommending to the full

                                       25




<PAGE>   48


Board the engagement or discharge of the Corporation's independent accountants;
directing investigations into matters within the scope of the independent
accountants' duties; reviewing with the independent accountants the audit plan
and results of the audit; approving professional services provided by the
independent accountants and other accounting firms prior to the performance of
such services; reviewing the independence of the independent accountants;
considering the range of audit and non-audit fees; and preparing and submitting
Committee minutes to the full Board. Arthur T. Dietz and Victor Ugolyn also
serve on the Valuation Committee of the Board of Directors.

         The Corporation pays fees to those directors who are not "interested
persons" of the Corporation at the rate of $12,500 per director per year plus
$625 for each regular, special or committee meeting attended. The Corporation
pays no salaries, fees or compensation to any of its officers, since these
expenses are borne by the Advisor. No fees were paid to the "interested"
Directors of the Corporation.

         The following sets forth compensation paid to each of the Directors
during fiscal year 1999:


<TABLE>
<CAPTION>
(1)                 (2)                (3)              (4)              (5)
Name                Aggregate          Pension or       Estimated        Total
                    Compensa-          Retirement       Annual           Compensation
                    tion from          Benefits         Benefits         from the
                    the Corporation    Accrued as       upon             Corporation
                                       part of          Retirement       and Fund
                                       Fund                              Complex
                                       Expenses                          paid to
                                                                         Directors*
<S>                 <C>                <C>              <C>              <C>
Arthur T. Dietz     $18,125            None             None             $36,250
Arthur Howell       $18,125            None             None             $36,250
William A.
 Mitchell, Jr.      $16,250            None             None             $32,500
Lonnie H. Pope      $18,125            None             None             $36,250
</TABLE>

*        Each Director received fees for services as a Trustee of Enterprise
         Accumulation Trust.

         Directors, former directors, employees or retirees of the Corporation,
or of MONY and its subsidiaries and members of their families, or MONY and its
subsidiaries and any employee benefit plans of the foregoing may purchase Class
A and Class Y shares at net asset value.

         At February 28, 2001, the officers and Directors of the Fund as a group
owned less than one percent of the shares of each Fund.

         The Funds, the Advisor and the Distributor have adopted a Code of
Ethics which permits officers and employees to invest in securities for their
own accounts, subject to certain restrictions. The Code of Ethics is on file
with the SEC and available through the SEC's EDGAR system.


                                       26

<PAGE>   49

         A shareholder who owns beneficially, directly or indirectly, 25% or
more of a Fund's outstanding voting securities may be deemed to "control" (as
defined in the 1940 Act) that Fund.



                                       27


<PAGE>   50

                     INVESTMENT ADVISORY AND OTHER SERVICES

Investment Advisory Agreement

         The Corporation, on behalf of each Fund, has entered into an Investment
Advisory Agreement (the "Advisor's Agreement") with the Advisor which, in turn,
has entered into Fund Manager's Agreements with each of the Fund Managers.  The
Advisor is a subsidiary of MONY Life Insurance Company ("MONY"), one of the
nation's largest insurance companies, and is a second-tier subsidiary of The
MONY Group Inc. The Advisor was incorporated in 1986. The Advisor's address is
3343 Peachtree Road, Suite 450, Atlanta, Georgia 30326. Victor Ugolyn, who is
President of the Fund, is also Chairman of the Board and President of the
Advisor.

         The Advisor's Agreement obligates the Advisor to provide investment
advisory services to the Funds, to furnish the Corporation with certain
administrative, clerical, bookkeeping and statistical services, office space and
facilities, and to pay the compensation of the officers of the Corporation. Each
Fund pays all other expenses incurred in its operation, including redemption
expenses, expenses of portfolio transactions, shareholder servicing costs,
mailing costs, expenses of registering the shares under federal and state
securities laws, accounting and pricing costs (including the daily calculation
of net asset value and daily dividends), interest, certain taxes, legal
services, auditing services, charges of the custodian and transfer agent, and
other expenses attributable to an individual account. Each Fund also pays a
portion of the Corporation's general administrative expenses. These expenses are
allocated to the Funds either on the basis of their asset size, on the basis of
special needs of any Fund, or equally as is deemed appropriate. These expenses
include expenses such as: directors' fees; custodial, transfer agent, brokerage,
auditing and legal services; the printing of prospectuses, proxies, registration
statements and shareholder reports sent to existing shareholders; printing and
issuance of stock certificates; expenses relating to bookkeeping, recording and
determining the net asset value of shares; the expenses of qualification of a
Fund's shares under the federal and state securities laws; and any other
expenses properly payable by the Corporation that are allocable to the
respective Funds. Litigation costs, if any, may be directly allocable to the
Funds or allocated on the basis of the size of the respective Funds. The Board
of Directors annually reviews allocation of expenses among the Funds and has
been determined that this is an appropriate method of allocation of expenses.

         The Advisor has contractually agreed with the Corporation that it will
reimburse such portion of the fees due to it under the Advisor's Agreement as is
necessary to assure, for the period commencing January 1, 2000, and ending no
earlier than May 1, 2001, that expenses incurred by the Funds will not exceed
the following percentages of average daily net assets: Mergers and Acquisitions
(4) 1.90%; (B) 2.45%; (C) 2.45%; (Y) 1.45%. The Fund Manager has advised the
Corporation that they may assist in a portion of the above-referenced
reimbursement from time to time.

         The Advisory Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard for its
obligations thereunder,the Advisor, as the case may be, is not liable for any
act or omission in the course of, or in connection with, the rendering of
services thereunder. The Agreement permits the Advisor to act as investment
advisor for any other person or firm.

         The Advisor and the Corporation entered into an agreement pursuant
to which the Advisor advanced on behalf of the Corporation $40,378 for
expanding the series to include an Equity Fund and completing the appropriate
registration under the Investment Company Act of 1940, the Securities Act of
1933, and certain state securities laws. The agreement provides that this
amount will be repaid by the Fund, in five equal annual increments without
interest, commencing at the end of the first fiscal year at which the Fund
has total net assets of $5 million or more. The Fund has commenced such
payments.

         The Advisor's Agreement authorizes the Advisor to enter into
subadvisory agreements with various investment advisers as Fund Managers for the
Funds. The Fund Manager's Agreements are substantially the same in all material
respects except for the names of the Fund Managers and the rates of
compensation, which consist of a portion of the management fee that is paid by
the Corporation to the Advisor and which the Advisor pays to the Fund Managers.

         The Advisor and the Corporation have received an exemptive order from
the Securities and Exchange Commission which permits the Corporation, subject
to, among other things, initial shareholder authority, to thereafter enter into
or amend Fund Manager Agreements without obtaining shareholder approval each
time. Shareholders voted affirmatively to give the Corporation this ongoing
authority. With Board approval, the Advisor is permitted to employ new Fund
Managers for the Funds, change the terms of the Fund Manager Agreements or enter
into a new Agreement with that Fund Manager. Shareholders of a Fund continue to
have the right to terminate the Fund Manager's Agreement for the Fund at any
time by a vote of the majority of the outstanding voting securities of the Fund.
Shareholders will be notified of any Fund Manager changes or other material
amendments to Fund Manager Agreements that occur under these arrangements.

                                       28

<PAGE>   51



                           FUND MANAGER ARRANGEMENTS

         The following table sets forth certain information about the Fund
Managers for each Fund.

<TABLE>
<CAPTION>
Fund                                        Name and Control Persons           Fee Paid by the Advisor to the
                                               of the Fund Manager             Fund Manager as a Percentage of
                                                                                  Average Daily Net Assets
--------------------------------------------------------------------------------------------------------------------

<S>                                     <C>                              <C>
Mergers and Acquisitions Fund           GAMCO Investors Inc. is a        0.45% for assets under management up
                                        wholly-owned subsidiary of       to $100,000,000 and 0.40% for assets
                                        Gabelli Asset Management Inc.    greater than $100 million.
</TABLE>




                                       29



<PAGE>   52

Distributor's Agreements and Plans of Distribution

         The Distributor is a subsidiary of Enterprise Capital Management, Inc.
The Distributor's principal business address is Atlanta Financial Center, 3343
Peachtree Road, N.E., Suite 450, Atlanta, Georgia 30326.

         Class A, Class B and Class C shares of each Fund have adopted a
separate Distribution Plan (the "Plans") pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Under the Plans, Class A, Class B and Class C
shares of each of the Funds are authorized to pay the Distributor a distribution
fee for expenses incurred in connection with the continuous distribution of
shares of the Fund and an account maintenance fee for shareholder servicing.
There is no Distribution Plan in effect for Class Y shares.

         Class A Shares. Class A shares of each Fund (except Money Market Fund)
pay the Distributor an account maintenance and distribution fee at the annual
rate of 0.45% of each Fund's average daily net assets attributable to Class A
shares.

         Class B Shares. Class B shares of each Fund (except Money Market Fund)
pay the Distributor a distribution fee at the annual rate of 0.75% of each
Fund's average daily net assets attributable to Class B shares. Class B shares
of each Fund (except Money Market Fund) also pay an account maintenance fee at
the annual rate of 0.25% of each Fund's average daily net assets.

         Class C Shares. Class C shares of each Fund (except Money Market Fund)
pay the Distributor a distribution fee at the annual rate of 0.75% of each
Fund's average daily net assets attributable to Class C shares. Class C shares
of each Fund (except Money Market Fund) also pay an account maintenance fee at
the annual rate of 0.25% of each Fund's average daily net assets attributable to
Class C shares.

         Use of Distribution and Account Maintenance Fees. All or a portion of
the distribution fees paid by Class A, B or C shares may be used by the
Distributor to pay costs of printing reports and prospectuses for potential
investors and the costs of other distribution expenses. All or a portion of the
account maintenance fees paid by the Class A, Class B or Class C shares may be
paid to broker-dealers or others for the provision of personal continuing
services to shareholders, including such matters as responding to shareholder
inquiries concerning the status of their accounts and assistance in account
maintenance matters such as changes in address. Payments under the Plans are not
limited to amounts actually paid or expenses actually incurred by the
Distributor but cannot exceed the maximum rate set by the Plans or by the Board.
It is, therefore, possible that the Distributor may realize a profit in a
particular year as a result of these payments. The Plans have the effect of
increasing the Corporation's expenses from what they would otherwise be. The
Board reviews the Corporation's distribution and account maintenance fee
payments and may reduce or eliminate the fee at any time without further
obligation of the Corporation.

         In addition to distribution and account maintenance fees paid by the
Corporation under Class A, Class B and Class C Plans, the Advisor (or one of its
affiliates) may make payments to dealers (including MONY Securities Corp.) and
other persons which distribute shares of the Funds (including Class Y shares).
Such payments may be calculated by reference to the net asset value of shares
sold by such persons or otherwise.


                                       30
<PAGE>   53

Miscellaneous

         The terms of each of the Advisor's Agreement, the Distributor's
Agreements and 12b-1 Plans, the Transfer Agent Agreement, the Accounting
Agreement and the Fund Manager's Agreements (each an "Agreement," and
collectively, the "Agreements") provide that each such Agreement: (i) will
automatically terminate upon "assignment," as such term is defined in the
Investment Company Act of 1940; (ii) must be approved annually by the
Corporation's Board of Directors or by vote of a majority of the outstanding
voting securities; and (iii) must be approved annually in person by vote of a
majority of the Directors of the Corporation who are not parties to such
contract or "interested persons" (as such term is defined in the Investment
Company Act of 1940) of such party. Each Agreement further provides that it can
be terminated without penalty by either party thereto upon 60 days written
notice to the other party.

          PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED

         Information concerning purchase and redemption of shares of the Funds,
as well as information concerning computation of net asset value per share is
set forth in the Prospectus.

         Each Fund offers four separate classes of shares: Class A, B, C and Y
shares. Each Class of shares of a Fund represents an identical interest in the
investment portfolio of that Fund and has the same rights, except that (i) each
class may bear differing amounts of certain class-specific expenses, (ii) Class
A shares are subject to an initial sales charge, a distribution fee and service
fee, (iii) Class B and Class C shares are subject to a contingent deferred sales
charge ("CDSC"), a distribution fee and an

                                       31

<PAGE>   54

ongoing service fee, (iv) only Class B shares have a conversion feature; (v) the
Class A, B and C shares have exclusive voting rights with respect to matters
related to distribution and servicing expenditures; (vi) Class Y shares are not
subject to any sales charge or any distribution, account maintenance or service
fee, and (vii) the Classes have separate exchange privileges. In addition, the
income attributable to each Class and the dividends payable on the shares of
each Class will be reduced by the amount of the distribution fee or service fee,
if any, payable by that Class. The distribution-related fees paid with respect
to any Class will not be used to finance the distribution expenditures of
another Class. Sales personnel may receive different compensation for selling
different Classes of shares.

         Fund shares are purchased at the net asset value (plus, with the
exception of the Money Market Fund Class A shares and Class Y shares of each
fund, the applicable sales charge) next determined after the application for
purchase of shares is received by the Enterprise Shareholder Services Division
of the Fund's Transfer Agent, National Financial Data Services, Inc. (the
"Transfer Agent"). The sales charge may be imposed, at the election of the
investor, at the time of purchase (Class A shares) or may be deferred (Class B
and C shares and Class A shares in excess of $1,000,000). Purchases can be made
through most investment dealers who, as part of the service they provide, must
transmit orders promptly.

Initial Sales Charge Waivers and Reductions

         No sales charge applies to purchases of Class A shares by any of the
following: (a) selling brokers, their employees and their registered
representatives; (b) employees, clients or direct referrals of any Fund Manager
or of Evaluation Associates, Inc. ("EAI"); (c) directors, former directors,
employees or retirees of the Fund or of The MONY Group Inc. and its
subsidiaries; (d) family including spouses, parents, siblings, children,
grandchildren and employee benefit plans of any of (a), (b) and (c) above; (e)
certain employee benefit plans qualified under Sections 401 and 403 of the IRC,
including salary reduction plans qualified under Section 401(k) of IRC and
certain payroll deduction plans, subject to minimum requirements with respect to
number of participants or plan assets which may be established by the
Distributor; (f) MONY and its subsidiaries; (g) clients of fee-based financial
planners; (h) financial institutions and financial institutions' trust
departments for funds over which they exercise exclusive discretionary
investment authority and which are held in fiduciary, agency, advisory,
custodial or similar capacity; and (i) investors who purchase Fund shares with
the proceeds from the redemption of shares of a mutual fund managed by
Nicholas-Applegate Capital Management for which they paid an initial sales
charge, provided that the investment in the Fund is made within 45 days of
redemption.

         In addition, members of certain associations, fraternal groups,
franchise organizations and unions may enter into an agreement with the
Distributor which allows members to purchase Class A shares at a sales load
equal to 75% of the applicable sales charge, subject to minimum requirements,
with respect to number of participants or plan assets which may be established
by the Distributor. The Dealer Discount will also be adjusted in like manner.

         An investor seeking a reduction in sales charge with respect to a
waiver of sales charge by reason of being a member of the above-described
groups, must describe the basis for the requested reduction or waiver in
documents accompanying any new investment. The


                                       32
<PAGE>   55

Corporation may terminate, or amend the terms of, offering shares of a Fund at
net asset value or at a reduced sales charge at any time.

Exemptions from Class A, B and C CDSC

         No CDSC will be imposed when a shareholder redeems Class A, B or C
shares in the following instances: (a) shares or amounts representing increases
in the value of an account above the net cost of the investment due to increases
in the net asset value per share; (b) shares acquired through reinvestment of
income dividends or capital gains distributions; (c) shares acquired by exchange
from any Fund, other than the Class A Money Market fund where the exchanged
shares would not have been subject to a CDSC upon redemption; and (d) Class A
shares purchased in the amount of $1 million or more if held for more than
twenty-four (24) months, Class B shares held for more than six years and Class C
shares held for more than one year.

         In determining whether the Class A, B or C CDSC is payable, it will be
assumed that shares that are not subject to a CDSC are redeemed first and that
other shares are then redeemed in the order purchased. No CDSC will be imposed
on exchanges to purchase shares of another Fund although a CDSC will be imposed
on shares (when redeemed) of the acquired Fund purchased by exchange of shares
subject to a CDSC. The holding period of shares subject to a CDSC that are
exchanged will be deemed to commence as of the date of the initial investment.

         Special Fiduciary Relationships. The CDSC will not apply with respect
to purchase of Class A shares for which the seller dealer is not permitted to
receive a sales load or redemption fee imposed on a shareholder with whom such
dealer has a fiduciary relationship in accordance with the provisions of the
such dealer agrees to the reimbursement provision described below, no sales
charge will be imposed on sales of $1,000,000 or more and the Distributor will
pay to the selling dealer a commission described in the Prospectus.

         For the period of 13 months from the date of the sales referred to in
the above paragraph, the distribution fee payable by a Fund to the Distributor
pursuant to the Fund's Distribution Plan in connection with such shares will be
retained by the Distributor. In the event of a redemption of any such shares
within 24 months of purchase, the selling dealer will reimburse the Distributor
for the amount of commission paid less the amount of the distribution fee with
respect to such shares.

CDSC Waivers and Reductions

         The CDSC will be waived in the event of: (a) distributions to
participants or beneficiaries and redemptions (other than redemption of the
entire plan) by certain plans, including participant-directed qualified
retirement qualified under Section 401(a) of the IRC or from custodial accounts
under the IRC Section 403(b)(7), individual retirement accounts under the IRC
Section 408(a), participant-directed non-qualified deferred compensation plans
under the IRC section 457 and other employee benefit plans ("plans"), and
returns of excess contributions made to these


                                       33
<PAGE>   56
plans; (b) redemption of shares of a shareholder (including a registered joint
owner) who has died; (c) redemption of shares of a shareholder (including a
registered joint owner) who after purchase of the shares being redeemed becomes
totally disabled (as evidenced by a determination by the federal Social Security
Administration); (d) withdrawals under a systematic withdrawal plan where the
annual withdrawal does not exceed 10% of the net asset value of the account
(only for Class B shares); and (e) liquidation of a shareholder's account if the
aggregate net asset value of shares held in the account is less than the
required minimum. The CDSC will also be waived for redemptions made pursuant to
any IRA systematic withdrawal based on the shareholder's life expectancy
including, but not limited to, substantially equal periodic payments described
in IRC Section 72(t)(2)(A)(iv) prior to age 59 1/2 and required minimum
distributions after age 70 1/2. A shareholder will be credited with any CDSC
paid in connection with the redemption of any Class A, B, or C shares if within
180 days after such redemption, the proceeds are invested in the same class of
shares in the same and/or another Fund.

Services for Investors

         For the convenience of investors, the following plans are available.
Investors should realize that none of these plans can guarantee profit or insure
against loss. The costs of these shareholder plans (exclusive of the employee
benefit plans) are paid by the Distributor, except for the normal cost of
issuing shares, which is paid by the Corporation.

         AUTOMATIC REINVESTMENT PLAN. All shareholders, unless they request
otherwise, are enrolled in the Automatic Reinvestment Plan under which dividends
and capital gains distributions on their shares are automatically reinvested in
shares of the same Class of Fund(s) at the net asset value per share computed on
the record date of such dividends and capital gains distributions. The Automatic
Reinvestment Plan may be terminated by participants or by the Corporation at any
time. No sales charge is applied upon reinvestment of dividends or capital
gains.

         AUTOMATIC BANK DRAFT PLAN. An Automatic Bank Draft Plan is available
for investors who wish to purchase shares of one or more of the Funds in amounts
of $25 or more on a regular basis by having the amount of the investment
automatically deducted from the investor's checking account. The minimum initial
investment for this Plan is $100. Forms authorizing this service are available
from the Corporation.

         AUTOMATIC INVESTMENT PLAN. An investor may debit any Class of a Fund
Account on a monthly basis for automatic investments into one or more of the
other Funds of the same Class. The Fund from which the investment will be made
is subject to the $1,000 minimum. The

                                       34

<PAGE>   57

investor may then choose to have $50 or more transferred to either an
established Fund, or they may open a new account subject to an initial minimum
investment of $100.

         Letter of Intent Investments. Any investor may execute a Letter of
Intent covering purchases of Class A shares of $100,000 or more, at the public
offering price, of Fund shares to be made within a period of 13 months. A
reduced sales charge will be applicable to the total dollar amount of Class A
shares purchased in the 13-month period provided at least $100,000 is purchased.
The minimum initial investment under a Letter of Intent is 5% of the amount
indicated in the Letter of Intent. Class A shares purchased with the first 5% of
such amount will be held in escrow (while remaining registered in the name of
the investor) to secure payment of the higher sales charge applicable to the
shares actually purchased if the full amount indicated is not purchased, and
such escrowed shares will be involuntarily redeemed to pay the additional sales
charge, if necessary. When the full amount indicated has been purchased, the
escrow will be released.

         Investors wishing to enter into a Letter of Intent in conjunction with
their investment in Class A shares of the Funds should complete the appropriate
portion of the new account application.

         Right of Accumulation Discount. Investors who make an additional
purchase of Class A shares of a Fund which, when combined with the value of
their existing aggregate holdings of shares of a Fund, each calculated at the
then applicable net asset value per share, at the time of the additional
purchase, equals $100,000 or more, will be entitled to the reduced sales charge
shown under "Shareholder Account Information-Class A Shares-Initial Sales Charge
Option" in the Prospectus on the full amount of each additional purchase. For
purposes of determining the discount, holdings of Fund shares of the investor's
spouse, immediate family or accounts controlled by the investor, whether as a
single investor or trustee of, or participant in, pooled and similar accounts,
will be aggregated upon notification of applicable accounts from the investor.

         Checkwriting. A check redemption feature is available on the Money
Market Fund Class A shares with opening balances of $5,000 or more. Redemption
checks may be made payable to the order of any person in any amount from $500 to
$100,000. Up to five redemption checks per month may be written without charge.
Each additional redemption check over five in a given month will be subject to a
$5 fee. Redemption checks are free and may be obtained from the Transfer Agent
or by contacting the Advisor. A $25 fee will be imposed on any account for
stopping payment of a redemption check upon request of the shareholder. It is
not possible to use a redemption check to close out an account since additional
shares accrue daily.

         Systematic Withdrawal Plan. Investors may elect a Systematic Withdrawal
Plan under which a fixed sum will be paid monthly, quarterly, or annually. There
is no minimum withdrawal payment required. Shares in the Plan are held on
deposit in noncertificate form and any capital gain distributions and dividends
from investment income are invested in additional shares of the Fund(s)at net
asset value. Shares in the Plan account are then redeemed at net asset

                                       35

<PAGE>   58


value to make each withdrawal payment. Redemptions for the purpose of
withdrawals are made on or about the 15th day of the month of payment at that
day's closing net asset value, and checks are mailed within five days of the
redemption date. Such distributions are subject to applicable taxation.

         Because withdrawal payments may include a return of principal,
redemptions for the purpose of making such payments may reduce or even use up
the investment, depending upon the size of the payments and the fluctuations of
the market price of the underlying Fund securities. For this reason, the
payments cannot be considered as a yield of income on the investment.

         Retirement Plans. The Corporation offers various Retirement Plans: IRA
(generally for all individuals with employment income); 403(b)(7) (for employees
of certain tax-exempt organizations and schools); and corporate pension and
profit sharing (including a 401(k) option) plans. For full details as to these
plans, you should request a copy of the plan document from the Transfer Agent.
After reading the plan, you may wish to consult a competent financial or tax
adviser if you are uncertain that the plan is appropriate for your needs.

Conversion of Class B Shares

         Class B shares will automatically convert to Class A shares of the same
Fund eight years after the end of the calendar month in which the first purchase
order for Class B shares was accepted, on the basis of the relative net asset
values of the two classes and subject to the following terms: Class B shares
acquired through the reinvestment of dividends and distributions ("reinvested
Class B shares") will be converted to Class A shares on a pro rata basis only
when Class B shares not acquired through reinvestment of dividends or
distributions ("purchased Class B shares") are converted. The portion of
reinvested Class B shares to be converted will be determined by the ratio that
the purchased Class B shares eligible for conversion bear to the total amount of
purchased Class B shares eligible in the shareholder's account. For the purposes
of calculating the holding period, Class B shares will be deemed to have been
issued on the sooner of: (a) the date on which the issuance of Class B shares
occurred, or (b) for Class B shares obtained by an exchange or series of
exchanges, the date on which the issuance of the original Class B shares
occurred. This conversion to Class A shares will relieve Class B shares that
have been outstanding for at least eight years (a period of time sufficient for
the Distributor to have been compensated for distribution expenses related to
such Class B shares) from the higher ongoing distribution fee paid by Class B
shares. Only Class B shares have this conversion feature. Conversion of Class B
shares to Class A shares is contingent on the continuing availability of a
private letter revenue ruling from the Internal Revenue Service affirming that
such conversion does not constitute a taxable event for the shareholder under
the IRC. If such revenue ruling or an opinion of counsel is no longer available,
conversion of Class B shares to Class A shares would have to be suspended, and
Class B shares would continue to be subject to the Class B distribution fee
until redeemed.

                                       36

<PAGE>   59


Exchange Privilege

         An exchange represents the sale of shares of one Fund and the purchase
of shares of another, which may produce a gain or loss for tax purposes.

         Shares of a Fund which are not subject to a CDSC exchange will be
processed at the net asset value next determined after the Transfer Agent
receives your exchange request. Shares of a Fund which are subject to a CDSC
will be exchangeable on the basis of the relative net asset value per share
without payment of any CDSC which might otherwise be due upon redemption of the
shares of the Fund. For purposes of computing the CDSC that may be payable upon
a disposition of the shares acquired in the exchange, the holding period for the
previously owned shares of the Fund is "tacked" onto the holding period for the
newly acquired shares of the other Enterprise Fund. The exchange feature may be
modified or discontinued at any time, upon notice to shareholders in accordance
with applicable rules adopted by the Securities and Exchange Commission ("SEC").
Your exchange may be processed only if the shares of the Fund to be acquired are
eligible for sale in your state and if the exchange privilege may be legally
offered in your state.

         Exchange of Class A Shares. You may exchange your Class A shares for
Class A shares of any other Fund. Class A shares of any Fund cannot be exchanged
for Class B, C or Y shares of any other Fund.

         Exchange of Class B Shares. Class B shares of all Fund are exchangeable
for Class B shares of any other Enterprise Fund. Class B shares of any Fund
cannot be exchanged for Class A, C or Y shares of any other Fund.

         Exchange of Class C Shares. Class C shares of all Funds are
exchangeable for Class C shares of any other Fund. Class C shares of any Fund
cannot be exchanged for Class A, B or Y shares of any other Fund.

         Exchange of Class Y Shares. Class Y shares of all Funds are
exchangeable for Class Y shares of any other Fund. Class Y shares of any Fund
cannot be exchanged for Class A, B or C shares of any other Fund.

         The minimum initial investment rules applicable to a Fund apply to any
exchange where the exchange results in a new account being opened in such Fund.
Exchanged into existing accounts are not subject to minimum amount. Original
investment in the Money Market Fund which are transferred to other Funds are not
considered Fund exchanges but purchases.

Redemptions -- General

         Payment for redeemed shares is ordinarily made within seven days after
receipt by the corporation's transfer agent of redemption instructions in
proper form.  The redemption privilege may be suspended or payment may be
postponed for more than seven days during any period when: (1) the NYSE is
closed other than for customary weekend or holiday closings or trading thereon
is restricted as determined by the securities and exchange commission; (2) an
emergency, as defined by the Securities and Exchange Commission, exists making
trading of fund securities or valuation of net assets not reasonably
practicable; (3) the Securities and Exchange Commission has by order permitted
such suspension or delay.

         The Corporation reserves the right to redeem an account at its option
upon not less than 45 days' written notice if an account's net asset value is
$500 or less and remains so during the notice period.

Redemptions in Kind

         The Corporation's Articles of Incorporation provide that it may redeem
its shares in cash or with a pro rata portion of the assets of the Corporation.
To date, all redemptions have been made in cash, and the Corporation anticipates
that all redemptions will be made in cash in the future. In order to meet the
requirements of certain state laws, the Corporation has elected, pursuant to
Rule 18f-1 under the Investment Company Act of 1940, to commit itself to pay in
cash all requests for redemption by any shareholder of record, limited in amount
with respect to each shareholder during any 90-day period to the lesser of: (i)
$250,000; or (ii) 1% of the net asset value of the Corporation at the beginning
of such period. If shares are redeemed through a distribution of

                                       37


<PAGE>   60
the recipient would incur brokerage commissions upon the sale of such
securities.

Determination of Net Asset Value

         The net asset value of each Fund's shares is determined once daily as
of the close of regular trading on the NYSE on each day on which the NYSE is
open for trading. The Funds may own securities that are primarily listed on
foreign exchanges which trade on Saturday or other customary United States
national business holidays. If the Funds do not price their securities on these
days, their net asset values may be significantly affected on days when
investors have no access to the Funds. The net asset value per share is
effective as of the time of computation.


                                       38

<PAGE>   61

         The Funds, other than the Money Market Fund, calculate a share's net
asset value by dividing the net assets of the Fund by the number of shares then
outstanding of such Fund.

         Computation of Offering Price Per Share. The following are examples of
the offering price calculation for each class of shares of the Growth Fund and
the Money Market Fund based on the value of their net assets and number of
shares outstanding on December 31, 1999. The methodology employed in
calculating the offering price per share in the Growth Fund example would apply
to all other Funds, except the Money Market Fund.


                                       39

<PAGE>   62

<TABLE>
<CAPTION>
                                       Growth Fund
                     -----------------------------------------------------
                     Class A        Class B      Class C       Class Y
                     ---------      -------      -------       -------
<S>                  <C>            <C>          <C>           <C>
Net Assets.........  $1,268,022,312 $811,705,605 $294,682,987  $86,826,383
                     -------------- ------------ ------------  -----------
Number of
Shares
Outstanding........      51,648,867   34,049,236   12,206,487    3,464,995
                     -------------- ------------ ------------  -----------
Net Asset
Value Per
Share (net
assets divided
by number of
shares) ...........  $        24.55 $      23.84 $      24.14  $     25.06
                     -------------- ------------ ------------  -----------
Sales charge
for Class A
Shares: 4.75%
of offering
price (4.99% of
net asset value
per share)*........  $         1.22           **           **           **
                     -------------- ------------ ------------  -----------

Offering Price.....  $        25.77 $      23.84 $      24.14  $     25.06
                     -------------- ------------ ------------  -----------
</TABLE>


-----------------------
*        Rounded to nearest one-hundredth percent; assumes maximum sales charge
         is applicable.
**       Class B, Class C, and Class Y shares are not subject to an initial
         charge. However, Class B and Class C shares may be subject to a CDSC on
         redemption of shares.


                                       40

<PAGE>   63

                         Fund Transactions and Brokerage

         Each Fund Manager selects the brokerage firms which complete portfolio
transactions for that Fund, subject to the overall direction and review of the
Advisor and the Board of Directors of the Corporation.

         The initial criterion which must be met by any Fund Manager in
selecting brokers and dealers to effect securities transactions for a Fund is
whether such brokers and dealers can obtain the most favorable combination of
price and execution for the transaction. This does not mean that the execution
decision must be based solely on whether the lowest possible commission costs
may be obtained. In seeking to achieve the best combination of price and
execution, the Fund Managers evaluate the overall quality and reliability of
broker-dealers and the service they provide, including their general execution
capability, reliability and integrity, willingness to take positions in
securities, general operational capabilities and financial condition.

         Subject to this primary objective, the Fund Managers may select for
brokerage transactions those firms which furnish brokerage and research
services, including analyses and reports concerning issuers, industries,
securities, economic factors and trends, to the Corporation, the Advisor, and
the respective Fund Managers, or those firms who agree to pay certain of the
Corporation's expenses, including certain custodial and transfer agent services,
and, consistent with the National Association of Securities Dealers, Inc.
Conduct Rules, those firms which have been active in selling shares of the
Corporation. If in the judgment of the Fund Manager the Fund will be benefitted
by supplemental research services, a broker furnishing such services may be paid
brokerage commissions which are in excess of commissions which another broker
may have charged for effecting the same transaction. Fund Managers may execute
brokerage transactions through affiliated broker/dealers, subject to compliance
with applicable requirements of the federal securities laws.

         Information with respect to the Mergers and Acquisitions Fund is not
provided because it is new.


                                       41
<PAGE>   64
                             PERFORMANCE COMPARISONS

         From time to time the Corporation may advertise a Fund's average annual
total return, other total return data, or yield. Total return and yield are
calculated separately for Class A, Class B, Class C and Class Y shares. Total
return figures are based on the Fund's historical performance and are not
intended to indicate future performance.

         Average annual total return is calculated by finding the average annual
compounded rates of return over the specified periods that would equate the
initial amount invested to the ending redemption value according to the
following formula: Average annual total return is computed assuming all
dividends and distributions are reinvested when received and taking into account
all applicable recurring and nonrecurring expenses.


                                       42

<PAGE>   65
                                  P(1+T)N=ERV

Where:    P   = a hypothetical initial payment of $1,000
          T   = average annual total return
          N   = number of years
          ERV = ending redeemable value of hypothetical $1,000 payment made at
                the beginning of the specified periods at the end of the
                specified periods.

         Each Fund also may quote annual, average annual and annualized total
return and aggregate total return performance data, both as a percentage and as
a dollar amount based on a hypothetical $10,000 investment. Such data will be
computed as described above, except that as required by the periods of the
quotations, actual annual, annualized or aggregate data, rather than average
annual data may be quoted. Actual annual or annualized total return data
generally will be lower than average total return data since the average rates
of return reflect compounding of return; aggregate total return data generally
will be higher than average annual total return data since the aggregate rates
of return reflect compounding over a longer period of time.

         Yield quotations for the Funds, other than the Money Market Fund, is
calculated by dividing net investment income of a Fund per share earned during a
30 day period by the maximum offering price per share on the last day of the
period according to the following formula:

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

Where:    a = dividends and interest earned during the period.
          b = expenses accrued for the period (net of reimbursements).
          c = the average daily number of shares outstanding during the period,
              that were entitled to receive dividends.
          d = the maximum offer price per share on the last day of the period.

         A Fund may also advertise in items of sales literature an "actual
distribution rate" which is computed in the same manner as yield except that
actual income dividends declared per share during the period in question are
substituted for net investment income per share.

         Any distribution rate, yield or total rate of return figure should not
be considered as representative of the performance of a Fund in the future. In
addition, the Income Funds' performance figures are not directly comparable to
those of bank deposits and other similar investments, which maintain a fixed
principal value and pay a fixed yield on the principal amount. These Funds' net
asset values are not fixed. They vary based not only upon the type, quality and
maturities of the securities held in the Funds, but also on the changes in the
current value of such securities and on changes in the Funds' expenses. For
narrative discussions of the Fund's performance including graphs comparing Funds
to various securities indices, please request a copy of an Annual Report to
Shareholders from the Corporation.


                                       43

<PAGE>   66


         From time to time, a Fund's performance and performance of comparable
investments may be compared to that of the Consumer Price Index or various
unmanaged indices such as the Dow Jones Industrial Average, the S&P 500, the
Lehman Brothers Government/Corporate Bond Index, the Lehman Brothers Government
Bond Index, Lehman Brothers Mortgage Backed Index, Lehman Brothers Municipal
Bond Index, Morgan Stanley Goldmine Index, the Salomon Smith Barney Low Grade
Index, the Salomon Smith Barney Analytical Record of Yield and Yield Spreads,
the Salomon Smith Barney Corporate Bond Rate-of-Return Index, and the Salomon
Smith Barney World Money Market Index, Bond-20 Bond Index; and it may also be
compared to the performance of other appropriate fixed income or equity mutual
funds or mutual fund indices as reported by Lipper Inc. ("Lipper") or CDA
Investment Technologies, Inc. ("CDA"). Lipper and CDA are widely recognized
independent mutual fund reporting services. Lipper and CDA performance
calculations are based upon changes in net asset value with all dividends
reinvested and do not include the effect of any sales charges. Investors may
also look to mutual fund reporting services such as Computer Directions Advisor
Services, Inc., Moody's Bond Survey Index, Nelson's Investment Manager Data
Base, Morningstar, Inc. and mortgage trade and other publications to compare the
performance of each Fund with other mutual funds in that Fund's category. Also,
a Fund's performance may be compared to the historical returns of various
investments, performance indices of those investments or economic indicators,
included but not limited to stocks, bonds, certificates of deposit, money market
deposit accounts, money market funds and US Treasury Bills. Certain of these
alternative investments may offer fixed rates of return and guaranteed principal
and may be insured. Betas utilized will be calculated by CDA Investment
Technologies, Inc.

         The Corporation's performance may be compared in advertising to the
performance of other mutual funds in general or the performance of particular
types of mutual funds, especially those with similar objectives. Lipper, an
independent mutual fund performance rating service headquartered in Summit, New
Jersey, provides rankings which may be used from time to time.

         From time to time, articles about the Corporation regarding its
performance or ranking may appear in national publications such as Kiplinger's
Personal Finance Magazine, Money Magazine, Financial World, Morningstar, Dalbar,
Value Line Mutual Fund Survey, Forbes, Fortune, Business Week, Wall Street
Journal, Donaghue Mutual Funds and Barron's. Some of these publications may
publish their own rankings or performance reviews of mutual funds, including the
Corporation. Reference to or reprints of such articles may be used in the
Corporation's promotional literature.


                                       44
<PAGE>   67


         The Corporation may advertise examples of the effects of periodic
investment plans, including the principal of dollar cost averaging. Dollar cost
averaging programs provide an opportunity to invest a fixed dollar amount in a
fund at periodic intervals, thereby purchasing fewer shares when the price is
high and more shares when the price is low. While such a strategy does not
assure a profit guard against loss in a declining market, the investor's cost
per share can be lower if fixed numbers of shares had been purchased at periodic
intervals. In evaluating such a plan, consideration should be given to the
shareholder's ability to continue purchasing shares through periods of low price
levels.

                                      TAXES

         In order to qualify for federal income tax treatment as a regulated
investment company under Subchapter M of the IRC for a taxable year, each Fund
must, among other things, (a) derive at least 90% of its gross income during
such taxable year from qualifying income (i.e., dividends, interest, payments
with respect to loans of stock and securities, gains from the sale or other
disposition of stock or securities or options thereon, and certain other related
income); (b) diversify its holdings so that, at the end of each fiscal quarter
of such taxable year, (i) at least 50% of the market value of its total assets
is represented by cash, cash items, U.S. Government Securities, securities of
other regulated investment companies, and other securities limited, in the case
of other securities for purposes of this calculation, in respect of any one
issuer, to an amount not greater than 5% of the value of its total assets or 10%
of the voting securities of the issuer, and (ii) not more than 25% of the value
of its assets is invested in the securities of any one issuer (other than U.S.
Government Securities).

         Each Fund has qualified and intends to continue to qualify as a
"regulated investment company" under the provisions of the IRC as amended. For
purposes of the IRC, each Fund is regarded as a separate regulated investment
company. If any Fund qualifies as a "regulated investment company" and complies
with distribution requirements applicable to regulated investment companies, the
Fund will be relieved of federal income tax on the income and capital gains
distributed to shareholders.

         Dividends declared from a Fund's net investment income, including its
net realized short-term capital gains in excess of its net realized long-term
capital losses, are taxable to its shareholders as ordinary income, whether
such dividends are received in cash or additional shares. If, for any taxable
year, a Fund complies with certain requirements, some or all of the dividends
paid out of the Fund's income from dividends paid by domestic corporations
received by the Fund's corporate shareholders may qualify for the 70% dividends
received deduction available to corporations. Dividends paid by the Income
Funds and the International Growth Fund are not expected to be eligible for
dividends received deductions.

         Distributions declared from a Fund's realized net capital gain
(realized net capital gains from the sale of assets held for more than 12 months
in excess of realized net short-term capital losses) and designated by the Fund
as a capital gain dividend in a written notice to the shareholders are taxable
to such shareholders as capital gain without regard to the length of time


                                       45

<PAGE>   68

a shareholder has held stock of the Fund and regardless of whether paid in cash
or additional shares. Capital gain dividends received by individuals are taxed
at the minimum rate of 20%.

         The Funds may be required to withhold for federal income taxes 31%
("Back-Up Withholding") of the distributions and the proceeds of redemptions
payable to shareholders who fail to comply with regulations requiring that they
provide a correct social security or taxpayer identification number or to make
required certifications, or who have been notified by the Internal Revenue
Service that they are subject to Back-up Withholding. Corporate shareholders and
certain other shareholders specified in the IRC are exempt from Back-Up
Withholding.

         Upon a sale or exchange of its shares, a shareholder will realize a
taxable gain or loss depending on its basis in the shares. Such gain or loss
will be treated as capital gain or loss if the shares are capital assets in the
shareholder's hands. In the case of an individual, any such capital gain will be
treated as short-term capital gain if the shares were held for not more than 12
months and long-term gain taxable at the maximum rate of 20% if such shares were
held for more than 12 months. In the case of a corporation, any such capital
gain will be treated as long-term capital gain, taxable at the same rates as
ordinary income, if such shares were held for more than 12 months. Any such
capital loss will be long-term capital loss if the shares were held for more
than 12 months. A sale or exchange of shares held for six months or less,
however, will be treated as long-term capital loss to the extent of any
long-term capital gains distributions with respect to such shares.

         Generally, any loss realized on a sale or exchange of shares of a Fund
will be disallowed if other Fund shares are acquired (whether through the
automatic reinvestment of dividends or otherwise) within a 61-day period
beginning 30 days before and ending 30 days after the date on which the shares
are disposed. In such a case, the basis of the shares acquired will be adjusted
to reflect the disallowed loss.

         In certain circumstances (e.g., an exchange), a shareholder who has
held shares in a Fund for not more than 90 days may not be allowed to include
certain sales charges incurred in acquiring such shares for purposes of
calculating gain or loss realized upon the sale or exchange of shares of the
Fund.

         No gain or loss will be recognized by Class B shareholders upon the
conversion of Class B shares into Class A shares.


                                       46

<PAGE>   69


Foreign Income Taxes

         Investment income received by a Fund from sources within foreign
countries may be subject to foreign income taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle the Corporation to a reduced rate of tax or exemption from tax on such
income. It is impossible to determine the effective rate of foreign tax in
advance since the amount of the Funds' assets to be invested within various
countries is not known. The Corporation intends to operate so as to obtain
treaty-reduced rates of tax where applicable.


                                       47
<PAGE>   70

         To the extent that a Fund is liable for foreign income taxes withheld
at the source, the Fund may elect to "pass through" to the Fund's shareholders
credits for foreign income taxes paid, however, except for the International
Internet Fund and International Growth Fund, it is not expected that any Fund
may qualify to do so.


Excise Tax

         The federal tax laws impose a 4% nondeductible excise tax on each
regulated investment company with respect to the amount, if any, by which such
company does not meet certain specified distribution requirements. Each Fund
intends to comply with such distribution requirements and thus does not expect
to incur the 4% nondeductible excise tax.

General

         The foregoing is a general and abbreviated summary of the applicable
provisions of the IRC and Treasury Regulations in effect, as currently
interpreted by the Courts and by the Internal Revenue Service in published
revenue rulings and in private letter rulings and is only applicable to U.S.
persons. These interpretations can be changed at any time. For the complete
provisions, reference should be made to the pertinent IRC sections and the
Treasury Regulations promulgated thereunder. The above discussion covers only
federal income tax considerations with respect to the Funds and their
shareholders. State and local tax laws vary greatly, especially with regard to
the treatment of exempt-interest dividends. Shareholders should consult their
own tax advisers for more information regarding the federal, state, and local
tax treatment of each account.

         Statements indicating the tax status of distributions to each
shareholder will be mailed to each shareholder annually.

                           DIVIDENDS AND DISTRIBUTIONS

         It is the Corporation's intention to distribute substantially all of
the net investment income and realized net capital gains, if any, of each Fund.
The per share dividends and distribution on each class of shares of a Fund will
be reduced as a result of any service fees applicable to that class. For
dividend purposes, net investment income of each Fund will consist of
substantially all dividends received, interest accrued, net short-term capital
gains realized by such Fund less the applicable expenses of such Fund.

         Unless shareholders request otherwise, by notifying the Fund's Transfer
Agent, dividends and capital gains distributions will be automatically
reinvested in shares of the respective Fund at net asset value; such
reinvestments automatically occur on the payment date of such dividends
and capital gains distributions. At the election of any shareholder, dividends
or capital gains distributions, or both, will be distributed in cash to such
shareholders. However, if it is determined that the U.S. Postal Service cannot
properly deliver Fund mailings to the shareholder, the respective Funds will
terminate the shareholder's election to receive dividends and other


                                       48

<PAGE>   71


distributions in cash. Thereafter, the shareholder's subsequent dividends and
other distributions will be automatically reinvested in additional shares of the
respective Funds until the shareholder notifies the Transfer Agent or the
Corporation in writing of his or her correct address and requests in writing
that the election to receive dividends and other distributions in each be
reinstated.

         Distributions of capital gains from each of the Funds, other than the
Money Market Fund, are made at least annually. Dividends from investment income
of the Sector Funds, Aggressive Growth Funds, Growth Funds (except the Equity
Income Fund), International/Global Funds and the Managed Fund are declared and
paid at least annually. Dividends from investment income on the Equity Income
Fund are paid semiannually. Dividends from investment income for the Income
Funds are declared daily and paid monthly. Dividends from investment income and
any net realized capital gains for the Money Market Fund are declared daily and
reinvested monthly in additional shares of the Money Market Fund at net asset
value.

         Although the legal rights of each Class of shares are substantially
identical, the different expenses borne by each Class will result in different
net asset values and dividends for each Class.

                             ADDITIONAL INFORMATION

Capital Stock

         The authorized capital stock of the Corporation consists of Common
Stock, par value $0.10 per share. The shares of Common Stock are divided into 27
series with each series representing a separate Fund. The Board of Directors may
determine the number of authorized shares for each series and to create new
series of Common Stock. It is anticipated that new Classes will be authorized by
the Board from time to time as new Funds with separate investment objectives and
policies are established.

         Each Class of shares is entitled to participate in dividends and
distributions declared by the respective Funds and in net assets of such Funds
upon liquidation or dissolution remaining after satisfaction of outstanding
liabilities, except that each Class will bear its own distribution and
shareholder servicing charges. The shares of each Fund, when issued, will be
fully paid and nonassessable, have no preference, preemptive, conversion
(except as described above), exchange or similar rights, and will be freely
transferable. Holders of shares of any Fund are entitled to redeem their shares
as set forth in the Prospectus. The rights of redemption and conversion rights
are described elsewhere herein and in the Prospectus.

Voting Rights

         Shares of each Fund are entitled to one vote per share and fractional
votes for fractional shares. The Corporation's shareholders have the right to
vote on the election of Directors of the

                                       49

<PAGE>   72

Corporation and on any and all other matters on which, by law or the provisions
of the Corporation's bylaws, they may be entitled to vote. Voting rights are not
cumulative, so that holders of more than 50% of the shares voting in the
election of Directors can, if they choose to do so, elect all of the Directors
of the Corporation, in which event the holders of the remaining shares are
unable to elect any person as a Director.

         On matters relating to all Funds or Classes of shares and affecting all
Funds or Class of shares in the same manner, shareholders of all Funds or
Classes of shares are entitled to vote. On any matters affecting only one Fund,
only the shareholders of that Fund are entitled to vote. On matters relating to
all the Funds but affecting the Funds differently, separate votes by Fund are
required. Each Class has exclusive voting rights with respect to matters related
to distribution and servicing expenditures, as applicable.

         The Corporation and its Funds are not required by Maryland law to hold
annual meetings of shareholders under normal circumstances. The Board of
Directors or the shareholders may call special meetings of the shareholders for
action by shareholder vote, including the removal of any or all of the
Directors, as may be required by either the Articles of Incorporation or bylaws
of the Corporation, or the Investment Company Act of 1940. Shareholders possess
certain rights related to shareholder communications which, if exercised, could
facilitate the calling by shareholders of a special meeting.

                            REPORTS TO SHAREHOLDERS

         The Corporation sends to all its shareholders annual and semiannual
reports.

                CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT

         State Street Bank and Trust Company whose address is One Heritage
Drive, The Joseph Palmer Building, North Quincy, Massachusetts, 02171, has been
retained to act as custodian of the assets of the Corporation. The custodian is
responsible for safeguarding and controlling the cash and securities of the
Funds, handling the receipt and delivery of securities and collecting interest
and dividends on the Funds' investments.

         National Financial Data Services, Inc. acts as the Corporation's
Transfer Agent and Dividend Disbursing Agent. National Financial Data Services,
Inc. is a joint venture of State Street Bank & Trust Company of Boston,
Massachusetts, and DST Systems, Inc. of Kansas City, Missouri.




                             INDEPENDENT ACCOUNTANTS

         PricewaterhouseCoopers LLP, whose address is Two Commerce Square, Suite
1700, 2001 Market Street, Philadelphia, Pennsylvania 19103-7042, has been
retained to serve as the Corporation's independent accountants. The

                                       50

<PAGE>   73

independent accountants are responsible for auditing the annual financial
statements of the Funds.

                              FINANCIAL STATEMENTS

The Corporation's Semi-Annual Report dated June 30, 2000, which was filed with
the Securities & Exchange Commission on August 24, 2000 (accession number
0000950168-00-001979), and the Corporation's Annual Report dated December 31,
1999, which was filed with the Securities & Exchange Commission on February 28,
2000 (accession number 0000950168-00-000450), are hereby incorporated by
reference into this Statement of Additional Information.


                                       51

<PAGE>   74



                                   APPENDIX A

                      RATINGS OF CORPORATE DEBT SECURITIES


MOODY'S INVESTORS SERVICE, INC.  (1)

Aaa      Bonds rated Aaa are judged to be of the best quality. They carry the
         smallest degree of investment risk and are generally referred to as
         "gilt edge."

Aa       Bonds 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.

A        Bonds rated A possess many favorable investment attributes and are to
         be considered as upper medium grade obligations.

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

Ba       Bonds 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 characterize bonds in this case.

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

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

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

    ---------------------
    (1)        Moody's applies numerical modifiers, 1, 2 and 3 in generic rating
               classification from Aa through B in its corporate bond rating
               system. The modifier 1 indicates that the security ranks in the
               higher end of its generic rating category; the modifier 2
               indicates a mid-range ranking; and the modifier 3 indicates that
               the issue ranks in the lower end of its generic rating category.

                                       52

<PAGE>   75



    STANDARD & POOR'S CORPORATION (2)

AAA      Bonds rated AAA have the highest rating assigned by Standard & Poor's
         to a debt obligation. Capacity to pay interest and repay principal is
         extremely strong.

AA       Bonds rated AA have a very strong capacity to pay interest and repay
         principal and differ from the highest-rated issues only in a small
         degree.

A        Bonds rated A have a strong capacity to pay interest and repay
         principal, although they are somewhat more susceptible to the adverse
         effects of changes in circumstances and economic conditions than bonds
         in higher-rated categories.

BBB      Bonds rated BBB are regarded as having an adequate capacity to pay
         principal and interest. 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,      Bonds rated BB, B, CCC, and CC are regarded, on balance, as
         predominately B, speculative with respect to the issuer's capacity to
         pay interest and repay principal in
CCC,     accordance with the terms of the obligation. BB indicates the lowest
         degree of
CC       speculation and CC the highest degree of speculation. While such bonds
         will likely have some quality and protective characteristics, these are
         outweighed by large uncertainties or major risk exposures to adverse
         conditions.

    ----------------------
    (2)  Plus (+) or Minus (-): The ratings from AA to BB may be modified by the
         addition of a plus or minus sign to show relative standing within the
         major rating categories.



                                       53
<PAGE>   76



                                   APPENDIX B

    DESCRIPTION OF MUNICIPAL SECURITIES

         Municipal Securities are notes and bonds issued by or on behalf of
    states, territories and possessions of the United States and the District of
    Columbia and their political subdivisions, agencies and instrumentalities,
    the interest on which is exempt from federal income taxes and, in certain
    instances, applicable state or local income taxes. These securities are
    traded primarily in the over-the-counter market.

         Municipal Securities are issued to obtain funds for various public
    purposes, including the construction of a wide range of public facilities
    such as airports, bridges, highways, housing, hospitals, mass
    transportation, schools, streets, water and sewer works and gas and electric
    utilities. Municipal Securities may also be issued in connection with the
    refunding of outstanding Municipal Securities obligations, obtaining funds
    to lend to other public institutions and for general operating expenses.
    Industrial Development Bonds ("IDBs") are issued by or on behalf of public
    authorities to obtain funds to provide privately operated facilities for
    business and manufacturing, housing, sports, pollution control, and for
    airport, mass transit, port and parking facilities and are considered
    tax-exempt bonds if the interest thereon is exempt from federal income
    taxes.

         The two principal classifications of tax-exempt bonds are "general
    obligation" and "revenue." General obligation bonds are secured by the
    issuer's pledge of its full faith and credit and taxing power for the
    payment of principal and interest. Revenue bonds are payable only from the
    revenues derived from a particular facility or class of facilities or, in
    some cases, from the proceeds of a special excise tax or other specific
    revenue source. Although IDBs are issued by municipal authorities, they are
    generally secured only by the revenues derived from payment of the
    industrial user. The payment of principal and interest on IDBs is dependent
    solely upon the ability of the user of the facilities financed by the bonds
    to meet its financial obligations and the pledge, if any, of real and
    personal property so financed as security for such payment.

         Tax-exempt notes are of short maturity, generally less than three
    years. They include such securities as Project Notes, Tax Anticipation
    Notes, Revenue Anticipation Notes, Bond Anticipation Notes and Construction
    Loan Notes. Tax-exempt commercial paper consists of short-term obligations
    generally having a maturity of less than nine months.

         New issues of Municipal Securities are normally offered on a
    when-issued basis, which means that delivery and payment for these
    securities normally takes place 15 to 45 days after the date of commitment
    to purchase.

         Yields of Municipal Securities depend upon a number of factors,
    including economic, money and capital market conditions, the volume of
    Municipal Securities available, conditions within the Municipal Securities
    market, and the maturity, rating and size of individual offerings.

                                       54

<PAGE>   77
    Changes in market values of Municipal Securities may vary inversely in
    relation to changes in interest rates. The magnitude of changes in market
    values in response to changes in market rates of interest typically varies
    in proportion to the quality and maturity of obligations. In general, among
    Municipal Securities of comparable quality, the longer the maturity, the
    higher the yield, and the greater potential for price fluctuations.

FLOATING RATE AND VARIABLE RATE SECURITIES

         The Tax-Exempt Income Fund may invest in floating rate and variable
    rate tax-exempt securities. These securities are normally IDBs or revenue
    bonds that provide that the rate of interest is set as a specific percentage
    of a designated base rate, such as rates of treasury bills or bonds or the
    prime rate at a major commercial bank and provide that the holders of the
    securities can demand payment of the obligation on short notice at par plus
    accrued interest, which amount may be more or less than the amount initially
    paid for the bonds. Floating rate securities have an interest rate which
    changes whenever there is a change in the designated base interest rate,
    while variable rate securities provide for a specific periodic adjustment in
    the interest rate. Frequently such securities are secured by letters of
    credit or other credit support arrangements provided by banks. The quality
    of the underlying credit or of the bank, as the case may be, must be
    equivalent to the long-term bond or commercial paper rating stated above.


                                       55


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