ALLMERICA INVESTMENT TRUST, 497, 1995-07-05

ALLMERICA INVESTMENT TRUST
497, 1995-07-05

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<PAGE>

ALLMERICA INVESTMENT TRUST
PROSPECTUS SUPPLEMENT DATED JUNE 30, 1995
(SUPPLEMENT TO PROSPECTUS DATED APRIL 28, 1995)

SMALL CAP VALUE FUND

Effective June 30, 1995, an affiliate of Massachusetts Mutual Life Insurance
Company acquired all of the stock of David L. Babson and Company Incorporated
("Babson"), the sub-adviser for the Small Cap Value Fund (the "Fund") of
Allmerica Investment Trust. Babson will continue to use its current name and
will continue its operations from its offices located at One Memorial Drive,
Cambridge, Massachusetts 02142.

Completion of this transaction represents a change in ownership of Babson,
and as such, had the effect of terminating the existing Sub-Adviser Agreement
between Allmerica Investment Management Company, Inc. ("AIMCO") and Babson.
On June 27, 1995, Shareholders of the Fund approved a new Sub-Adviser
Agreement between AIMCO and Babson embodying the same terms and fees and
reflecting Babson's new ownership.

GOVERNMENT BOND FUND

The last paragraph of the section entitled "Fund Manager Information" is
amended to read as follows:

Lisa M. Coleman, Vice President, has been employed by AAM as fund manager
for the INVESTMENT GRADE INCOME FUND since January 1994. Prior to joining
AAM, Ms. Coleman was a Deputy Manager/Portfolio Manager in the global fixed
income area for Brown Brothers Harriman & Company in New York.

Richard J. Litchfield, Assistant Vice President, has been employed by AAM
as fund manager for the GOVERNMENT BOND FUND since May 1995. Prior to
joining AAM, Mr. Litchfield was an analyst at Keystone Investments, Inc.,
responsible for the analysis of mortgage-backed holdings.

<PAGE>

ALLMERICA INVESTMENT TRUST

440 Lincoln Street
Worcester, Massachusetts 01653
(508) 855-1000

Allmerica Investment Trust (the "Trust") is a professionally managed, open-end
investment company designed to provide the underlying investment vehicles for
insurance related accounts. The eleven separate portfolios of the Trust
(collectively, the "Funds," and, individually, the "Fund") currently offered by
this Prospectus are as follows:

SELECT INTERNATIONAL EQUITY FUND
SELECT AGGRESSIVE GROWTH FUND
SELECT CAPITAL APPRECIATION FUND
SMALL CAP VALUE FUND
GROWTH FUND
SELECT GROWTH FUND
SELECT GROWTH AND INCOME FUND
EQUITY INDEX FUND
INVESTMENT GRADE INCOME FUND
GOVERNMENT BOND FUND
MONEY MARKET FUND

Currently, shares of each Fund may only be purchased by the separate accounts
("Separate Accounts") established by State Mutual Life Assurance Company of
America ("State Mutual") or SMA Life Assurance Company ("SMA"), a subsidiary of
State Mutual, for the purpose of funding variable annuity contracts and variable
life insurance policies. A particular Fund may not be available under the
variable annuity or variable life insurance policy which you have chosen. The
Prospectus of the specific insurance product you have chosen will indicate which
Funds are available, and should be read in conjunction with this Prospectus.
Inclusion in this Prospectus of a Fund which is not available under your policy
is not to be considered a solicitation.

This Prospectus sets forth concisely the information about the Trust that a
prospective investor ought to know before investing. Certain additional
information is contained in a Statement of Additional Information ("SAI") dated
April 28, 1995, which has been filed with the Securities and Exchange
Commission, is incorporated herein by reference and is available upon request,
without charge, from the Trust, 440 Lincoln Street, Worcester, MA 01653, (508)
855-1000.

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

THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.

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

Dated April 28, 1995

<PAGE>

TABLE OF CONTENTS

FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

HOW ARE THE FUNDS MANAGED? . . . . . . . . . . . . . . . . . . . . . . . . . . 9

WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES? . . . . . . . . . . . . . . .10
Select International Equity Fund. . . . . . . . . . . . . . . . . . . . .10
Select Aggressive Growth Fund . . . . . . . . . . . . . . . . . . . . . .10
Select Capital Appreciation Fund. . . . . . . . . . . . . . . . . . . . .11
Small Cap Value Fund. . . . . . . . . . . . . . . . . . . . . . . . . . .12
Growth Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Select Growth Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Select Growth and Income Fund . . . . . . . . . . . . . . . . . . . . . .15
Equity Index Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Investment Grade Income Fund. . . . . . . . . . . . . . . . . . . . . . .17
Government Bond Fund. . . . . . . . . . . . . . . . . . . . . . . . . . .18
Money Market Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . .18

MANAGEMENT FEES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . .19

FUND MANAGER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . .22

HOW ARE SHARES VALUED? . . . . . . . . . . . . . . . . . . . . . . . . . . . .24

TAXES AND DISTRIBUTIONS TO SHAREHOLDERS. . . . . . . . . . . . . . . . . . . .24

SALE AND REDEMPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . .24

HOW IS PERFORMANCE DETERMINED? . . . . . . . . . . . . . . . . . . . . . . . .25

ORGANIZATION AND CAPITALIZATION OF THE TRUST . . . . . . . . . . . . . . . . .25

INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .26

CERTAIN INVESTMENT STRATEGIES AND POLICIES . . . . . . . . . . . . . . . . . .26

APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32

APPENDIX B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34

<PAGE>

FINANCIAL HIGHLIGHTS

The following financial highlights have been audited by Price Waterhouse LLP,
independent accountants of the Trust. This information should be read in
conjunction with the financial statements and notes thereto which appear in the
Policyowners Annual Report ("Annual Report") for the year ended December 31,
1994, and which are contained in the Funds' Statement of Additional Information
("SAI"). Further information about the performance of the Trust is contained in
the Annual Report which may be obtained without charge from the Trust, 440
Lincoln Street, Worcester, MA 01653, (508) 855-1000. As of December 31, 1994,
the Select Capital Appreciation Fund had not commenced operations.

<PAGE>
ALLMERICA INVESTMENT TRUST
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Year

<TABLE>
<CAPTION>
Select International Select Aggressive
Equity Fund Growth Fund
---------------------------------------------------------------------------------
Period Ended Year Ended December 31,
December 31, 1994 (1) 1994 1993 1992 (2)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of year .................... $ 1.000 $ 1.431 $ 1.197 $ 1.000
--------- --------- --------- ---------
Income from Investment Operations:
Net investment income (loss) ....................... 0.003(A)(D) (0.002)(D) 0.001(B)(D) 0.001(B)(D)
Net realized and unrealized gain (loss)
on investments ................................... (0.038)(D) (0.032)(D) 0.234 (D) 0.197 (D)
--------- --------- --------- ---------
Total from Investment Operations: .............. (0.035) (0.034) 0.235 0.198
--------- --------- --------- ---------
Less Distributions:
Dividends from net investment income ............... (0.001) -- (0.001) (0.001)
Distributions from net realized capital gains ...... (0.001) -- -- --
--------- --------- --------- ---------
Total Distributions: ............................. (0.002) -- (0.001) (0.001)
--------- --------- --------- ---------
Net increase (decrease) in net asset value ............. (0.037) (0.034) 0.234 0.197
--------- --------- --------- ---------
Net Asset Value, End of year ........................... $ 0.963 $ 1.397 $ 1.431 $ 1.197
--------- --------- --------- ---------
--------- --------- --------- ---------
Total Return (E)........................................ (3.49)%* (2.31)% 19.51% 19.85%*
Ratios/Supplemental Data:
Net Assets, End of year (000's)......................... $ 40,498 $ 136,573 $ 66,251 $ 9,270
Ratios to average net assets:
Net investment income (loss)........................ 0.87%+ (0.21)% 0.10% 0.34%+
Operating expenses.................................. 1.50%+(A) 1.16% 1.19%(B) 1.35%+(B)
Gross management fee ............................... 1.00%+ 1.00% 1.00% N/A
Net management fee.................................. 0.72%+ 1.00% 0.96% N/A
Portfolio Turnover Rate................................. 19% 100% 76% 33%

<CAPTION>
Small Cap Value Fund
------------------------------------------
Year Ended December 31,
1994 1993(3)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of year .................... $ 1.170 $ 1.000
--------- ---------
Income from Investment Operations:
Net investment income (loss) ....................... (0.005)(C) (0.002)(C)
Net realized and unrealized gain (loss)
on investments ................................... (0.081) 0.176
--------- ---------
Total from Investment Operations: .............. (0.076) 0.178
--------- ---------
Less Distributions:
Dividends from net investment income ............... (0.005) (0.002)
Distributions from net realized capital gains ...... -- (0.006)
--------- ---------
Total Distributions: ............................. (0.005) (0.008)
--------- ---------
Net increase (decrease) in net asset value.............. (0.081) 0.170
--------- ---------
Net Asset Value, End of year............................ $ 1.089 $ 1.170
--------- ---------
--------- ---------
Total Return (E) ....................................... (6.51)% 17.74%*
Ratios/Supplemental Data:
Net Assets, End of year (000's) ........................ $ 41,342 $ 12,731
Ratios to average net assets:
Net investment income (loss)........................ 0.64% 0.52%+
Operating expenses.................................. 1.08%(C) 1.22%+(C)
Gross management fee................................ 0.85% 0.85%+
Net management fee.................................. 0.84% 0.04%+
Portfolio Turnover Rate................................. 4% 8%

See Notes to Financial Statements
- -------------------------------------------------------------------------------
<FN>
+ Annualized
* Not Annualized
(1) The Fund commenced operations on May 2, 1994.
(2) The Fund commenced operations on August 21, 1992.
(3) The Fund commenced operations on April 30, 1993.
(A) Net investment income per share and the annualized operating expense ratio
before reimbursement of fees by the investment adviser for the period ended
December 31, 1994 were $0.002 and 1.78%, respectively.
(B) Net investment income per share and the operating expense ratios before
reimbursement of fees by the investment adviser for the years ended
December 31, 1993 and 1992 were $0.000 and 1.23% and $(0.001) and 1.88%
(annualized), respectively.
(C) Net investment income per share and the operating expense ratios before
reimbursement of fees by the investment adviser for the years ended
December 31, 1994, and 1993 were $0.005 and 1.09% and $(0.001) and 2.03%
(annualized), respectively.
(D) Amounts are based on the undistributed net investment income balance prior
to reclassification among capital accounts. See Note 2.
(E) Total Return does not reflect fees charged at the Separate Account level.
Refer to the Prospectus of the specific insurance product for such fee
information.
</TABLE>

4
<PAGE>

ALLMERICA INVESTMENT TRUST
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Year

<TABLE>
<CAPTION>
Growth Fund(D)
--------------------------------------------------------------------------------
Year Ended December 31,
1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of year..................... $ 1.939 $ 2.034 $ 1.976 $ 1.471 $ 1.558
--------- --------- --------- --------- ---------
Income from Investment Operations:
Net investment income (A & B)...................... 0.043 0.039 0.034 0.038 0.041
Net realized and unrealized gain (loss)
on investments (B)................................ (0.041) 0.095 0.105 0.548 (0.047)
--------- --------- --------- --------- ---------
Total from Investment Operations:................. 0.002 0.134 0.139 0.586 (0.006)
--------- --------- --------- --------- ---------
Less Distributions:
Dividends from net investment income................ (0.043) (0.039) (0.034) (0.039) (0.041)
Distributions from net realized capital gains....... (0.084) (0.180) (0.047) (0.042) (0.040)
Return of Capital................................... -- (0.010) -- -- --
--------- --------- --------- --------- ---------
Total Distributions:.............................. (0.127) (0.229) (0.081) (0.081) (0.081)
--------- --------- --------- --------- ---------
Net increase (decrease) in net asset value.............. (0.125) (0.095) 0.058 0.505 (0.087)
--------- --------- --------- --------- ---------
Net Asset Value, End of year............................ $ 1.814 $ 1.939 $ 2.034 $ 1.976 $ 1.471
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------

Total Return (E)........................................ 0.16% 6.66% 7.11% 40.44% (0.30)%
Ratios/Supplemental Data:
Net Assets, End of year (000's)......................... $ 335,714 $ 338,545 $ 270,828 $ 182,965 $ 97,179
Ratios to average net assets:
Net investment income............................... 2.25% 1.92% 1.85% 2.26% 2.82%
Operating expenses (A).............................. 0.56% 0.54% 0.58% 0.57% 0.60%
Gross management fee................................ 0.48% 0.49% N/A N/A N/A
Net management fee.................................. 0.48% 0.48% N/A N/A N/A
Portfolio Turnover Rate................................. 46% 42% 19% 24% 39%

<CAPTION>
Growth Fund(D)
--------------------------------------------------------------------------------
Year Ended December 31, Period Ended
1989 1988(C) 1987 1986 12/31/85(1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of year..................... $ 1.308 $ 1.147 $ 1.308 $ 1.136 $ 1.000
--------- --------- --------- --------- ---------
Income from Investment Operations:
Net investment income (A & B)...................... 0.043 0.037 0.035 0.038 0.030
Net realized and unrealized gain (loss)
on investments (B)................................ 0.289 0.200 0.011 0.189 0.123
--------- --------- --------- --------- ---------
Total from Investment Operations: ................ 0.332 0.237 0.046 0.227 0.153
--------- --------- --------- --------- ---------
Less Distributions:
Dividends from net investment income................ (0.046) (0.037) (0.035) (0.049) (0.017)
Distributions from net realized capital gains....... (0.036) (0.039) (0.172) (0.006) --
Return of Capital................................... -- -- -- -- --
--------- --------- --------- --------- ---------
Total Distributions: ............................. (0.082) (0.076) (0.207) (0.055) (0.017)
--------- --------- --------- --------- ---------
Net increase (decrease) in net asset value.............. 0.250 0.161 (0.161) 0.172 0.136
--------- --------- --------- --------- ---------
Net Asset Value, End of year............................ $ 1.558 $ 1.308 $ 1.147 $ 1.308 $ 1.136
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------

Total Return (E)........................................ 25.64% 20.80%* 2.30%* 20.00%* 16.10%*
Ratios/Supplemental Data:
Net Assets, End of year (000's)......................... $ 76,783 $ 52,439 $ 45,703 $ 30,504 $17,112
Ratios to average net assets:
Net investment income............................... 2.98% 2.93% 2.64% 3.24% 4.20%+
Operating expenses (A).............................. 0.71% 0.75% 0.43% 0.46% 0.50%+
Gross management fee................................ N/A N/A N/A N/A N/A
Net management fee.................................. N/A N/A N/A N/A N/A
Portfolio Turnover Rate................................. 33% 99% 28% 49% 20%

See Notes to Financial Statements
- -------------------------------------------------------------------------------

<FN>
+ Annualized
* Unaudited
(1) The Fund commenced operations on April 29, 1985.
(A) Net investment income per share and the annualized operating expense ratio
before reimbursement of fees by the investment adviser for the year ended
December 31, 1993 were $0.038 and 0.55%, respectively.
(B) Amounts are based on the undistributed net investment income balance prior
to reclassification among capital accounts. See Note 2.
(C) Results prior to April 1, 1988 were achieved by a former investment
adviser.
(D) On April 18, 1985, the contract owners of SMA Life Assurance Company's
Separate Accounts VA-A, VA-B, VA-C, VA-G and VA-H (the "Separate Accounts")
approved a Plan of Reorganization enabling each of the Separate Accounts to
exchange its net assets on a tax-free basis for shares of the Funds as
follows:
Net Assets of Separate Account VA-A exchanged for shares of the Growth Fund
Net Assets of Separate Account VA-B exchanged for shares of the Income
Appreciation Fund (now the Investment Grade Income Fund)
Net Assets of Separate Account VA-C exchanged for shares of the Income
Appreciation Fund (now the Investment Grade Income Fund)
Net Assets of Separate Account VA-G exchanged for shares of the Money
Market Fund
Net Assets of Separate Account VA-H exchanged for shares of the Money
Market Fund
The reorganization, effected on April 29, 1985, has been accounted for on
the continuing entity method. Under this method of accounting, the Funds
have carried forward the historical cost basis of the Separate Accounts'
assets and liabilities. Commencing with the reorganization, the Funds issue
and redeem shares in transactions with the Separate Accounts. The Separate
Accounts issue and redeem Accumulation Units ("Units") in transactions with
the Contractholders.
(E) Total Return does not reflect fees charged at the Separate Account level.
Refer to the Prospectus of the specific insurance product for such fee
information.

</TABLE>

<PAGE>

ALLMERICA INVESTMENT TRUST
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Year

<TABLE>
<CAPTION>
Select Growth Fund
---------------------------------------
Year Ended December 31,
1994 1993 1992(1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of year................... $ 1.119 $ 1.111 $ 1.000
--------- --------- ---------
Income from Investment Operations:
Net investment income............................ 0.003 0.001(A) 0.001(A)
Net realized and unrealized gain (loss)
on investments................................. (0.020) 0.008 0.111
--------- --------- ---------
Total from Investment Operations: ........... (0.017) 0.009 0.112
--------- --------- ---------
Less Distributions:
Dividends from net investment income............. (0.003) (0.001) (0.001)
Distributions from net realized capital gains.... -- -- --
Distributions in excess of net capital gains..... -- -- --
--------- --------- ---------
Total Distributions: ........................ (0.003) (0.001) (0.001)
--------- --------- ---------
Net increase (decrease) in net asset value........... (0.020) 0.008 0.111
--------- --------- ---------
Net Asset Value, End of year......................... $ 1.099 $ 1.119 $ 1.111
--------- --------- ---------
--------- --------- ---------

Total Return(D)...................................... (1.49)% 0.84% 11.25%*
Ratios/Supplemental Data:
Net Assets, End of year (000's)...................... $ 88,263 $53,854 $ 9,308
Ratios to average net assets:
Net investment income............................ 0.37% 0.15% 0.40%+
Operating expenses............................... 1.03% 1.05%(A) 1.20%+(A)
Gross management fee............................. 0.85% 0.85% N/A
Net management fee............................... 0.85% 0.82% N/A
Portfolio Turnover Rate.............................. 55% 65% 3%

<CAPTION>
Select Growth and Income Fund
---------------------------------------
Year Ended December 31,
1994 1993 1992(1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of year.................. $ 1.069 $ 0.990 $ 1.000
--------- --------- ---------
Income from Investment Operations:
Net investment income............................ 0.025 0.023(B) 0.008(B)
Net realized and unrealized gain (loss)
on investments................................. (0.018) 0.079 (0.009)
--------- --------- ---------
Total from Investment Operations: ........... 0.007 0.102 (0.001)
--------- --------- ---------
Less Distributions:
Dividends from net investment income............. (0.025) (0.023) (0.008)
Distributions from net realized capital gains.... (0.017) -- (0.001)
Distributions in excess of net capital gains..... (0.007) -- --
--------- --------- ---------
Total Distributions: ........................ (0.049) (0.023) (0.009)
--------- --------- ---------
Net increase (decrease) in net asset value........... (0.042) 0.079 (0.010)
--------- --------- ---------
Net Asset Value, End of year......................... $ 1.027 $ 1.069 $ 0.990
--------- --------- ---------
--------- --------- ---------

Total Return(D)...................................... 0.73% 10.37% (0.11)%*
Ratios/Supplemental Data:
Net Assets, End of year (000's)...................... $ 110,213 $ 60,518 $ 7,302
Ratios to average net assets:
Net investment income............................ 2.51% 2.73% 3.20%+
Operating expenses............................... 0.91% 0.99%(B) 1.10%+(B)
Gross management fee............................. 0.75% 0.75% N/A
Net management fee............................... 0.75% 0.71% N/A
Portfolio Turnover Rate.............................. 107% 25% 4%

<CAPTION>
Equity Index Fund
------------------------------------------------------------------------
Year Ended December 31,
1994 1993 1992 1991 1990(2)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of year.................. $ 1.505 $ 1.409 $ 1.354 $ 1.080 $ 1.000
--------- --------- --------- --------- ---------
Income from Investment Operations:
Net investment income............................ 0.033 0.032(C) 0.030(C) 0.032(C) 0.009
Net realized and unrealized gain (loss)
on investments................................. (0.018) 0.102 0.066 0.279 0.080
--------- --------- --------- --------- ---------
Total from Investment Operations: ........... 0.015 0.134 0.096 0.311 0.089
--------- --------- --------- --------- ---------
Less Distributions:
Dividends from net investment income............. (0.033) (0.031) (0.031) (0.032) (0.009)
Distributions from net realized capital gains.... (0.019) (0.007) (0.010) (0.005) --
Distributions in excess of net capital gains..... -- -- -- -- --
--------- --------- --------- --------- ---------
Total Distributions: ........................ (0.052) (0.038) (0.041) (0.037) (0.009)
--------- --------- --------- --------- ---------
Net increase (decrease) in net asset value........... (0.037) 0.096 0.055 0.274 0.080
--------- --------- --------- --------- ---------
Net Asset Value, End of year......................... $ 1.468 $ 1.505 $ 1.409 $ 1.354 $ 1.080
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Total Return(D)...................................... 1.06% 9.53% 7.25% 29.16% 8.90%*
Ratios/Supplemental Data:
Net Assets, End of year (000's)...................... $ 52,246 $ 42,842 $ 22,393 $ 9,700 $ 5,469
Ratios to average net assets:
Net investment income............................ 2.25% 2.28% 2.47% 2.73% 3.39%+
Operating expenses............................... 0.57% 0.57%(C) 0.57%(C) 0.55%(C) 0.38%+
Gross management fee............................. 0.35% 0.35% N/A N/A N/A
Net management fee............................... 0.35% 0.29% N/A N/A N/A
Portfolio Turnover Rate ............................. 7% 4% 6% 6% 0.24%

See Notes to Financial Statements
- ------------------------------------------------------------------------------

<FN>
+ Annualized
* Not annualized
(1) The Fund commenced operations on August 21, 1992.
(2) The Fund commenced operations on September 28, 1990.
(A) Net investment income per share and the operating expense ratios before
reimbursement of fees by the investment adviser for the years ended
December 31,1993 and 1992 were $0.001 and 1.08% and $0.000 and 1.72%
(annualized), respectively.
(B) Net investment income per share and the operating expense ratios before
reimbursement of fees by the investment adviser for the years ended
December 31, 1993 and 1992 were $0.023 and 1.03% and $0.005 and 2.37%
(annualized), respectively.
(C) Net investment income per share and the operating expense ratios before
reimbursement of fees by the investment adviser for the years ended
December 31, 1993, 1992 and 1991 were $0.031 and 0.63%, $0.028 and 0.75%
and $0.031 and 0.64%, respectively.
(D) Total Return does not reflect fees charged at the Separate Account level.
Refer to the Prospectus of the specific insurance product for such fee
information.

</TABLE>
6

<PAGE>

ALLMERICA INVESTMENT TRUST
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Year

<TABLE>
<CAPTION>
Investment Grade Income Fund (formerly Income Appreciation Fund)(B)
--------------------------------------------------------------------------
Year Ended December 31,
1994 1993 1992 1991 1990
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of year . . . . . . . . $ 1.111 $ 1.074 $ 1.085 $ 1.004 $ 1.011
--------- --------- --------- --------- ---------
Income from Investment Operations
Net investment income. . . . . . . . . . . . . 0.066 0.065(A) 0.075 0.080 0.083
Net realized and unrealized gain (loss)
on investments. . . . . . . . . . . . . . . . (0.099) 0.049 0.013 0.081 (0.006)
--------- --------- --------- --------- ---------
Total from Investment Operations: . . . . . (0.033) 0.114 0.088 0.161 0.077
--------- --------- --------- --------- ---------
Less Distributions:
Dividends from net investment income . . . . . (0.066) (0.065) (0.075) (0.080) (0.084)
Distributions from net realized capital gains. -- (0.012) (0.024) -- --
--------- --------- --------- --------- ---------
Total Distributions:. . . . . . . . . . . . (0.066) (0.077) (0.099) (0.080) (0.084)
--------- --------- --------- --------- ---------
Net increase (decrease) in net asset value . . . . (0.099) 0.037 (0.011) 0.081 (0.007)
--------- --------- --------- --------- ---------
Net Asset Value, End of year . . . . . . . . . . . $ 1.012 $ 1.111 $ 1.074 $ 1.085 $ 1.004
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Total Return (C) . . . . . . . . . . . . . . . . . (2.96)% 10.80% 8.33% 16.75% 8.02%
Ratios/Supplemental Data.
Net Assets, End of year (000's). . . . . . . . . . $ 109,972 $ 107,124 $ 52,874 $ 29,018 $ 18,226
Ratios to average net assets:
Net investment income. . . . . . . . . . . . . 6.25% 6.16% 7.25% 8.10% 9.14%
Operating expenses . . . . . . . . . . . . . . 0.58% 0.54%(A) 0.59% 0.60% 0.56%
Gross management fee . . . . . . . . . . . . . 0.42% 0.45% N/A N/A N/A
Net management fee . . . . . . . . . . . . . . 0.42% 0.44% N/A N/A N/A
Portfolio Turnover Rate. . . . . . . . . . . . . . 129% 55% 71% 52% 5%

<CAPTION>
Investment Grade Income Fund (formerly Income appreciation Fund)(B)
--------------------------------------------------------------------------
Year Ended December 31, Period Ended
1989 1988 1987 1986 12/31/85(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of year . . . . . . . . $ 0.968 $ 0.974 $ 1.095 $ 1.096 $ 1.000
--------- --------- --------- --------- ---------
Income from Investment Operations
Net investment income. . . . . . . . . . . . . 0.082 0.084 0.089 0.092 0.070
Net realized and unrealized gain (loss)
on investments. . . . . . . . . . . . . . . . 0.044 (0.006) (0.080) 0.025 0.063
--------- --------- --------- --------- ---------
Total from Investment Operations: . . . . . 0.126 0.078 0.009 0.117 0.133
--------- --------- --------- --------- ---------
Less Distributions:
Dividends from net investment income . . . . . (0.083) (0.084) (0.093) (0.114) (0.037)
Distributions from net realized capital gains. -- -- (0.037) (0.004) --
--------- --------- --------- --------- ---------
Total Distributions:. . . . . . . . . . . . (0.083) (0.084) (0.130) (0.118) (0.037)
--------- --------- --------- --------- ---------
Net increase (decrease) in net asset value . . . . 0.043 (0.006) (0.121) (0.001) 0.096
--------- --------- --------- --------- ---------
Net Asset Value, End of year . . . . . . . . . . . $ 1.011 $ 0.968 $ 0.974 $ 1.095 $ 1.096
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Total Return (C) . . . . . . . . . . . . . . . . . 13.52% 8.2%* 1.0%* 8.6%* 13.6%*
Ratios/Supplemental Data
Net Assets, End of year (000's). . . . . . . . . . $ 13,171 $ 8,951 $ 8,118 $ 10,576 $ 5,946
Ratios to average net assets:
Net investment income. . . . . . . . . . . . . 8.67% 8.57% 8.37% 8.92% 9.70%+
Operating expenses . . . . . . . . . . . . . . 0.78% 0.77% 0.55% 0.58% 0.60%+
Gross management fee . . . . . . . . . . . . . N/A N/A N/A N/A N/A
Net management fee . . . . . . . . . . . . . . N/A N/A N/A N/A N/A
Portfolio Turnover Rate. . . . . . . . . . . . . . 4% 12% 54% 59% 18%

See Notes to Financial Statements
- -------------------------------------------------------------------------------
<FN>
+ Annualized
* Unaudited
(1) The Fund commenced operations on April 29, 1985.
(A) Net investment income per share and the operating expense ratio before
reimbursement of fees by the investment adviser for the year ended December
31, 1993 were $0.065 and 0.55%, respectively.
(B) See footnote (D) at page 5.
(C) Total Return does not reflect fees charged at the Separate Account level.
Refer to the Prospectus of the specific insurance product for such fee
information.

</TABLE>

<PAGE>

ALLMERICA INVESTMENT TRUST
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Year

<TABLE>
<CAPTION>
Government Bond Fund
----------------------------------------------------
Year Ended December 31,
1994 1993 1992 1991(1)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of year . . . . . . . . $ 1.070 $ 1.051 $ 1.047 $ 1.000
--------- --------- --------- ---------
Income from Investment Operations:
Net investment income. . . . . . . . . . . . . 0.063 0.055(A) 0.057(A) 0.022
Net realized and unrealized gain (loss)
on investments. . . . . . . . . . . . . . . . (0.073) 0.024 0.009 0.051
--------- --------- --------- ---------
Total from Investment Operations. . . . . . (0.010) 0.079 0.066 0.073
--------- --------- --------- ---------

Less Distributions:
Dividends from net investment income . . . . . (0.063) (0.055) (0.057) (0.022)
Distributions from net realized capital gains. -- (0.003) (0.005) (0.004)
Return of Capital. . . . . . . . . . . . . . . -- (0.002) -- --
--------- --------- --------- ---------
Total Distributions . . . . . . . . . . . . (0.063) (0.060) (0.062) (0.026)
--------- --------- --------- ---------
Net increase (decrease) in net asset value . . . . (0.073) 0.019 0.004 0.047
--------- --------- --------- ---------
Net Asset Value, End of year . . . . . . . . . . . $ 0.997 $ 1.070 $ 1.051 $ 1.047
--------- --------- --------- ---------
--------- --------- --------- ---------
Total Return (C) . . . . . . . . . . . . . . . . . (0.88)% 7.51% 6.59% 7.60%*
Ratios/Supplemental Data:
Net Assets, End of year (000's). . . . . . . . . . $ 42,078 $ 77,105 $ 33,689 $ 7,591
Ratios to average net assets
Net investment income. . . . . . . . . . . . . 5.60% 5.51% 6.13% 5.55%+
Operating expenses . . . . . . . . . . . . . . 0.70% 0.61%(A) 0.68%(A) 0.54%+
Gross management fee . . . . . . . . . . . . . 0.50% 0.50% N/A N/A
Net management fee . . . . . . . . . . . . . . 0.50% 0.49% N/A N/A
Portfolio Turnover Rate. . . . . . . . . . . . . . 106% 35% 67% 65%

<CAPTION>
Money Market Fund (D)
----------------------------------------------------------------
Year Ended December 31,
1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of year . . . . . . . . $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income. . . . . . . . . . . . . 0.039 0.030(B) 0.037 0.060 0.078
Net realized and unrealized gain (loss)
on investments. . . . . . . . . . . . . . . . -- -- -- -- --
------- ------- ------- ------- -------
Total from Investment Operations. . . . . . 0.039 0.030 0.037 0.060 0.078
------- ------- ------- ------- -------
Less Distributions:
Dividends from net investment income . . . . . (0.039) (0.030) (0.037) (0.060) (0.078)
Distributions from net realized capital gains. -- -- -- -- --
Return of Capital. . . . . . . . . . . . . . . -- -- -- -- --
------- ------- ------- ------- -------
Total Distributions . . . . . . . . . . . . (0.039) (0.030) (0.037) (0.060) (0.078)
------- ------- ------- ------- -------
Net increase (decrease) in net asset value . . . . -- -- -- -- --
------- ------- ------- ------- -------
Net Asset Value, End of year . . . . . . . . . . . $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Total Return (C) . . . . . . . . . . . . . . . . . 3.93% 3.00% 3.78% 6.22% 8.17%
Ratios/Supplemental Data:
Net Assets, End of year (000's). . . . . . . . . . $95,991 $71,052 $64,506 $ 39,909 $ 28,330
Ratios to average net assets
Net investment income. . . . . . . . . . . . . 3.94% 2.95% 3.65% 5.98% 8.22%
Operating expenses . . . . . . . . . . . . . . 0.45% 0.42%(B) 0.44% 0.43% 0.42%
Gross management fee . . . . . . . . . . . . . 0.31% 0.32% N/A N/A N/A
Net management fee . . . . . . . . . . . . . . 0.31% 0.31% N/A N/A N/A
Portfolio Turnover Rate. . . . . . . . . . . . . . N/A N/A N/A N/A N/A

<CAPTION>
Money Market Fund (D)
------------------------------------------------------------------
Year Ended December 31,
1989 1988 1987 1986 12/31/85(2)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of year . . . . . . . . $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income. . . . . . . . . . . . . 0.086 0.071(B) 0.061(B) 0.058(B) 0.046(B)
Net realized and unrealized gain (loss)
on investments. . . . . . . . . . . . . . . . -- -- -- -- --
------- ------- ------- ------- -------
Total from Investment Operations. . . . . . 0.086 0.071 0.061 0.058 0.046
------- ------- ------- ------- -------
Less Distributions:
Dividends from net investment income . . . . . (0.086) (0.071) (0.061) (0.058) (0.046)
Distributions from net realized capital gains. -- -- -- -- --
Return of Capital. . . . . . . . . . . . . . . -- -- -- -- --
------- ------- ------- ------- -------
Total Distributions . . . . . . . . . . . . (0.086) (0.071) (0.061) (0.058) (0.046)
------- ------- ------- ------- -------
Net increase (decrease) in net asset value . . . . -- -- -- -- --
Net Asset Value, End of year . . . . . . . . . . . $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Total Return (C) . . . . . . . . . . . . . . . . . 9.07% 7.3% 6.2% 6.1%* 5.6%*
Ratios/Supplemental Data:
Net Assets, End of year (000's). . . . . . . . . . $12,060 $ 7,156 $ 4,726 $ 833 $ 770
Ratios to average net assets
Net investment income. . . . . . . . . . . . . 8.62% 7.13% 6.14% 5.87% 6.84%+
Operating expenses . . . . . . . . . . . . . . 0.58% 0.60%(B) 0.60%(B) 0.60%(B) 0.77%+(B)
Gross management fee . . . . . . . . . . . . . N/A N/A N/A N/A N/A
Net management fee . . . . . . . . . . . . . . N/A N/A N/A N/A N/A
Portfolio Turnover Rate. . . . . . . . . . . . . . N/A N/A N/A N/A N/A

See Notes to Financial Statements
- -------------------------------------------------------------------------------
<FN>
+ Annualized
* Unaudited
(1) The Fund commenced operations on August 26, 1991.
(2) The Fund commenced operations on April 29, 1985.
(A) Net investment income per share and the operating expense ratios before
reimbursement of fees by the investment adviser for the years ended
December 31, 1993 and 1992 were $0.055 and 0.62% and $0.056 and 0.69%,
respectively.
(B) Net investment income per share and the operating expense ratios before
reimbursement of fees by the investment adviser for the years ended
December 31, 1993, 1988, 1987, and 1986 and for the period ended December
31, 1985 were $0.030 and 0.43%, $0.084* and 0.71%, $0.076* and 0.75%,
$0.116* and 1.20%, and $0.081* and 1.35% (annualized), respectively.
(C) Total Return does not reflect fees charged at the Separate Account level.
Refer to the Prospectus of the specific insurance product for such fee
information.
(D) See Footnote (D) at page 5.

</TABLE>

<PAGE>

HOW ARE THE FUNDS MANAGED?

The overall responsibility for the supervision of the affairs of the Trust vests
in the Board of Trustees of the Trust who meet on a quarterly basis. Allmerica
Investment Management Company, Inc. (the "Manager") is responsible for the
management of the Trust's day-to-day business affairs and has general
responsibility for the management of the investments of the Funds. The Manager,
at its expense, has contracted with certain Sub-Advisers to manage the
investments of the Funds, subject to the requirements of the Investment Company
Act of 1940.

The Manager is a wholly-owned subsidiary of State Mutual, a mutual life
insurance company, which was organized in Massachusetts in 1844. The Manager,
organized August 19, 1985, also serves as manager of the Allmerica Funds, an
open-end investment company. The Manager and State Mutual are located at 440
Lincoln Street, Worcester, Massachusetts 01653.

The Manager has entered into Sub-Adviser Agreements for the management of the
investments of each of the Funds. The Sub-Advisers, who have been selected on
the basis of various factors including management experience, investment
techniques and staffing, are each authorized to engage in portfolio transactions
on behalf of the applicable Funds subject to such general or specific
instructions as may be given by the Trustees and/or the Manager. The terms of a
Sub-Adviser Agreement cannot be materially changed without the approval of a
majority interest of the shareholders of the affected Fund. The Sub-Advisers
have been selected by the Manager and the Trustees in consultation with Rogers,
Casey & Associates ("Rogers, Casey"), a leading pension consulting firm. The
cost of such consultation is borne by the Manager.

Rogers, Casey provides consulting services to pension plans representing over
$150 billion in total assets and, in its consulting capacity, monitors the
investment performance of over 1,000 investment advisers. From time to time
specific clients of Rogers, Casey and the Sub-Advisers will be named in sales
materials. At times, Rogers, Casey assists in the development of asset
allocation strategies which may be used by shareholders in the diversification
of their portfolio across different asset classes.

Ongoing performance of the independent Sub-Advisers is reviewed and evaluated by
a committee whose members may include senior officers of State Mutual, its
affiliates or the Manager and an independent consultant. Combined, the
committee has over 150 years of investment experience. Historical performance
information regarding the Sub-Adviser for the Select Capital Appreciation Fund
is set forth in Appendix B. Historical performance data for all Funds except
the Select Capital Appreciation Fund (which had not commenced operations prior
to December 31, 1994) is set forth in the "Financial Highlights" tables starting
on Page 3. The Manager is solely responsible for the payment of all fees to the
Sub-Advisers. The Sub-Advisers for each of the Funds are as follows:

<TABLE>
<S> <C>
Select International Equity Fund Bank of Ireland Asset Management Limited
Select Aggressive Growth Fund Nicholas-Applegate Capital Management
Select Capital Appreciation Fund Janus Capital Corporation
Small Cap Value Fund David L. Babson & Co. Inc.
Growth Fund Miller Anderson & Sherrerd
Select Growth Fund Provident Investment Counsel
Select Growth and Income Fund John A. Levin & Co., Inc.
Equity Index Fund Allmerica Asset Management, Inc.
Investment Grade Income Fund Allmerica Asset Management, Inc.
Government Bond Fund Allmerica Asset Management, Inc.
Money Market Fund Allmerica Asset Management, Inc.
</TABLE>

For a sample listing of the Sub-Advisers' clients, see "Investment Management
and Other Services" in the SAI. For more information on each of the Sub-
Advisers see "What Are The Investment Objectives And Policies?" and "Fund
Manager Information."

The Manager also has entered into an Administrative Services Agreement with The
Shareholder Services Group, Inc. ("TSSG"), a wholly-owned subsidiary of First
Data Corp., whereby TSSG performs administrative services for each of the Funds
and is entitled to receive an administrative fee and certain out-of-pocket
expenses. The Manager is solely responsible for the payment of the
administrative fee to TSSG.

<PAGE>

WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES?

Each Fund has a separate investment objective and policies designed to meet
different investment and financial needs, as described below. There is no
assurance that a Fund will achieve its investment objective.

The Select International Equity Fund, Select Aggressive Growth Fund, Select
Capital Appreciation Fund, Select Growth Fund, and the Select Growth and Income
Fund may each invest up to 15% of its assets in securities which are subject to
restriction on resale or for which market quotations are not readily available.
Each of the Funds except the Select International Equity, Select Capital
Appreciation, Small Cap Value, Government Bond and Money Market Fund may invest
up to 25% of its assets in foreign securities (not including its investments in
American Depositary Receipts ("ADRs")), and the Select International Equity Fund
and the Select Capital Appreciation Fund may each invest any percentage of its
assets in foreign securities. The Investment Grade Income Fund may not invest
in foreign securities other than obligations issued by the Government of Canada
and political subdivisions thereof. See "Certain Investment Strategies and
Policies." The Select Growth Fund and Select Growth and Income Fund each may
invest up to 35% of its assets in fixed-income securities, including not more
than 15% in lower-rated securities, commonly known as "junk bonds." The Select
Capital Appreciation Fund may invest up to 35% of its assets in such lower-rated
securities. Fixed-income securities rated in the fourth highest grade by
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation
("S&P") (Baa and BBB, respectively) are investment grade but are considered to
have some speculative characteristics. Lower-rated securities or "junk bonds"
(rated Ba/BB or lower) involve the risks discussed under "Certain Investment
Strategies and Policies."

A Fund's investment objective is fundamental and may not be changed without
shareholder approval. Unless otherwise indicated, a Fund's investment policies
are not fundamental and may be changed without shareholder approval.

SELECT INTERNATIONAL EQUITY FUND

Investment Objective: The Select International Equity Fund seeks maximum long-
term total return (capital appreciation and income) primarily by investing in
common stocks of established non-U.S. companies.

Sub-Adviser: Bank of Ireland Asset Management Limited ("BIAM") serves as Sub-
Adviser for the Select International Equity Fund. BIAM is an indirect wholly-
owned subsidiary of Bank of Ireland. Its main offices are at 26 Fitzwilliam
Place, Dublin 2, Ireland. Its U.S. offices are at 2 Greenwich Plaza, Greenwich,
CT 06830. Bank of Ireland provides investment management services through a
network of sister companies, including BIAM which represents U.S. clients. As
of December 31, 1994, Bank of Ireland managed approximately $11 billion in
global securities for Irish, United Kingdom, European and U.S. clients.

Investment Policies: To achieve its objective, the Select International Equity
Fund will invest primarily in common stocks of established non-U.S. companies.
Under normal market conditions, at least 65% of the Fund's total assets will be
invested in the securities of companies domiciled in at least five foreign
countries, not including the United States. The Fund may also acquire fixed
income debt securities. It will do so, at the discretion of BIAM, primarily for
defensive purposes.

The Fund's investments may include ADRs which may be sponsored or unsponsored by
the underlying issuer. The Fund may also utilize European Depositary Receipts
("EDRs") which are similar to ADRs, in bearer form, designed for use in the
European securities markets and some Global Depositary Receipts ("GDRs").
Investments in foreign securities carry additional risks not present in domestic
securities. See "Certain Investment Strategies and Policies-Foreign
Securities." The Fund may, for hedging purposes, engage in the options and
futures strategies described under "Certain Investment Strategies and Policies."
Certain state insurance regulations may impose additional restrictions on the
Fund's holdings of foreign securities.

For the fiscal year ended December 31, 1994, the portfolio turnover rate for the
Fund was 19%. The portfolio turnover rate for the Fund may vary greatly from
year to year.

SELECT AGGRESSIVE GROWTH FUND

Investment Objective: The Select Aggressive Growth Fund seeks above-average
capital appreciation by investing primarily in common stocks of companies which
are believed to have significant potential for capital appreciation.

Sub-Adviser: Nicholas-Applegate Capital Management ("NACM") serves as Sub-
Adviser to the Select Aggressive Growth Fund. NACM is an institutional
investment manager supervising accounts with approximately $13.3 billion in
total assets

<PAGE>

as of December 31, 1994. NACM's clients are primarily major corporate employee
benefit funds, public employee retirement plans, foundations and endowment funds
and investment companies. Founded in 1976, NACM is located at 600 West
Broadway, San Diego, California 92101.

Investment Policies: Under normal circumstances, at least 65% of the assets of
the Select Aggressive Growth Fund will be invested in equity securities,
consisting of common stocks, securities convertible into common stocks
(including bonds, notes and preferred stocks) and warrants. The Fund's assets
may also be invested in other debt securities and preferred stocks when such
securities are believed appropriate in light of the Fund's investment objective
and market conditions.

The selection of securities is made solely on the basis of potential for capital
appreciation. Dividend and interest income, if any, from portfolio securities
is incidental to the Fund's investment objective. While investments may be made
in well-known and established companies, a significant portion of the Fund's
investments is expected to be in securities of newer and relatively unseasoned
companies or companies which represent new or changing industries.

At any given point a substantial portion of the Fund's equity investments may be
in securities which are not listed for trading on national securities exchanges
and which, although publicly traded, may be less liquid than securities issued
by larger, more seasoned companies which trade on national securities exchanges.
Up to 15% of the Fund's assets may be invested in restricted or illiquid
securities.

Securities of newer companies may be closely held with only a small portion of
their outstanding securities owned by the general public. Newer companies may
have relatively small revenue, lack depth of management and have a small share
of the market for their products or services; thus, they may be more vulnerable
to changes in economic conditions, market fluctuations and other factors
affecting the profitability or marketability of companies. Due to these and
other factors, the price movement of the securities held by the Fund can be
expected to be more volatile than is the case for the market as a whole, and the
net asset value of a share of the Fund may fluctuate significantly.
Consequently, the Fund should not be considered suitable for investors who are
unable or unwilling to assume the risk of loss inherent in an aggressive growth
portfolio, nor should investment in the Fund be considered a balanced or
complete investment program.

For the fiscal year ended December 31, 1994, the portfolio turnover rate for the
Fund was 100%. The portfolio turnover rate was 100% because the Sub-Adviser's
investment approach typically results in above-average portfolio turnover as
securities are sold when the Sub-Adviser believes the reasons for their initial
purchase are no longer valid or when it believes that the sale of a security
owned by the Fund and the purchase of another security can enhance return. A
security may be sold to avoid a prospective decline in market value or purchased
in anticipation of a market rise. Although it is not possible to predict future
portfolio turnover rates accurately, and such rates may vary greatly from year
to year, the Sub-Adviser anticipates that the annual portfolio turnover
generally will not exceed 100%. A high portfolio turnover rate will likely
result in greater brokerage costs to the Fund.

SELECT CAPITAL APPRECIATION FUND

Investment Objective: The Select Capital Appreciation Fund seeks long-term
growth of capital in a manner consistent with the preservation of capital.
Realization of income is not a significant investment consideration and any
income realized on the Fund's investments will be incidental to its primary
objective.

Sub-Adviser: Janus Capital Corporation ("JCC") serves as Sub-Adviser to the
Select Capital Appreciation Fund. JCC has served as investment adviser to the
Janus Fund since 1969 and currently serves as investment adviser to all of the
Janus retail funds, as well as adviser or sub-adviser to other mutual funds and
individual, corporate, charitable and retirement accounts. Kansas City Southern
Industries, Inc. ("KCSI") owns approximately 83% of the outstanding voting stock
of JCC. KCSI is a publicly traded holding company whose primary subsidiaries
are engaged in transportation and financial services. As of December 31, 1994,
JCC had approximately $22 billion in total assets under management. JCC is
located at 100 Fillmore Street, Suite 300, Denver, Colorado 80206-4923.

Investment Policies: The Fund invests in common stocks when the Sub-Adviser
believes that the relevant market environment favors profitable investing in
those securities. The Fund normally intends to maintain an average market

<PAGE>

capitalization between $1 billion and $5 billion. Although the Fund expects to
emphasize such securities, it may also invest in smaller or larger companies.
Common stock investments are selected in industries and companies that the Sub-
Adviser believes are experiencing favorable demand for their products and
services, and which operate in a favorable competitive environment and
regulatory climate. The Sub-Adviser's analysis and selection process focuses on
stocks with earnings growth potential that may not be recognized by the market.
Such securities are selected solely for their capital growth potential;
investment income is not a consideration. Medium-sized companies may suffer
more significant losses as well as realize more substantial growth than larger
issuers; thus, investments in such companies tend to be more volatile and
somewhat speculative.

The selection criteria for domestic issuers apply equally to stocks of foreign
issuers. In addition, factors such as expected levels of inflation, government
policies influencing business conditions, the outlook for currency
relationships, and prospects for relative economic growth among countries,
regions or geographic areas may warrant greater consideration in selecting
foreign stocks. The Fund may invest without limit in foreign securities. The
Fund may invest directly in foreign securities denominated in foreign currency
and not publicly traded in the United States. The Fund also may purchase
foreign securities through ADRs, EDRs, GDRs and other types of receipts or
shares evidencing ownership of the underlying foreign securities. In addition,
the Fund may invest indirectly in foreign securities through foreign investment
funds or trusts (including passive foreign investment companies). Certain state
insurance regulations may impose additional restrictions on the Fund's holdings
of foreign securities. Investments in foreign securities carry additional risks
not present in domestic securities. See "Certain Investment Strategies and
Policies--Foreign Securities."

Although the Fund normally invests primarily in common stocks, the Fund's cash
position may increase when the Sub-Adviser is unable to locate investment
opportunities with desirable risk/reward characteristics. The Fund also may
invest in preferred stocks, warrants, government securities, corporate bonds and
debentures, high-grade commercial paper, certificates of deposit, other debt
securities or repurchase agreements or reverse repurchase agreements when the
Sub-Adviser perceives an opportunity for capital growth from such securities or
so that the Fund may receive a return on its idle cash. The Fund also may
invest in debt securities rated below investment grade, which involve risks
discussed under "Certain Investment Strategies and Policies." When the Fund
invests in such securities, investment income will increase and may constitute a
large portion of the return realized by the Fund and the Fund probably will not
participate in market advances or declines to the extent that it would if it
remained fully invested in common stocks.

The Fund may invest in "special situations" from time to time. A special
situation arises when, in the opinion of the Sub-Adviser, the securities of a
particular issuer will be recognized and appreciate in value due to a specific
development with respect to that issuer. Developments creating a special
situation might include, among others, a new product or process, a technological
breakthrough, a management change or other extraordinary corporate event, or
differences in market supply of and demand for the security. Investment in
special situations may carry an additional risk of loss in the event that the
anticipated development does not occur or does not attract the expected
attention.

The Fund may, for hedging purposes, engage in options and futures strategies and
may utilize forward contracts, interest rate swaps and swap-related products.
See "Certain Investment Strategies and Policies."

SMALL CAP VALUE FUND

Investment Objective: The Small Cap Value Fund seeks long-term growth of
capital by investing primarily in a diversified portfolio of common stocks of
smaller, faster-growing companies whose securities at the time of purchase are
considered by the Sub-Adviser to be realistically valued in the smaller company
sector of the market.

Sub-Adviser: David L. Babson & Co. Inc. ("Babson") serves as Sub-Adviser to the
Small Cap Value Fund. Founded in 1940, Babson had over $8.2 billion in assets
under management as of December 31, 1994, and provides investment advice to
individuals, state and local government agencies, pensions and profit sharing
plans, trusts, estates, banks and other organizations, and also serves as the
investment adviser to the Babson Funds (a family of mutual funds). The Sub-
Adviser is owned by the active members of the professional staff and is located
at One Memorial Drive, Cambridge, Massachusetts, 02142.

Investment Policies: A stock will be considered to be attractively valued and,
therefore, eligible for investment in the Fund, if it is trading at a price
which the Sub-Adviser believes is reasonable relative to its own past valuation
history as well as compared to a large universe of stocks as selected by the
investment adviser, based on one or more of the following comparisons:

<PAGE>

1. price relative to earnings,
2. price relative to sales,
3. price relative to assets as measured by book value.

The Small Cap Value Fund generally intends to invest at least 65% of its total
assets in stocks of smaller companies with market capitalization of $250 million
to $1 billion at the time of purchase and which are listed on a national or
regional exchange or over-the-counter with prices quoted daily in the financial
press. The Fund at times may invest temporarily in preferred stocks, bonds or
other defensive issues. Normally, however, the Fund will maintain at least 80%
of the portfolio in common stocks. There are no restrictions or guidelines
regarding the investment of Fund assets in shares listed on an exchange or
traded over-the-counter.

The Small Cap Value Fund seeks superior, but often neglected, companies with
significant (and usually dominant) market share, sustainable competitive
advantage in their primary business, solid finances, and stable or improving
margins. A strong valuation discipline is applied to potential investments with
target companies possessing above-average growth potential that is
underestimated by the market, providing attractive valuations. These companies
typically operate profitable businesses, are outside Wall Street's spotlight,
and are not widely held by institutional investors. The portfolio is
diversified among different industry sectors, but is not an index approach.
Stocks are bought as investments and generally held for the long term, rather
than as active trading vehicles.

Smaller, less seasoned firms are generally subject to greater business risk.
See "Select Aggressive Growth Fund" above for a discussion of the risk factors
related to newer companies.

The Fund does not intend to invest in any security which, at the time of
purchase, is not readily marketable.

For the fiscal year ended December 31, 1994, the portfolio turnover rate for the
Fund was 4%. The portfolio turnover rate for the Fund may vary from year to
year.

GROWTH FUND

Investment Objective: The Growth Fund seeks to achieve long-term growth of
capital through investments primarily in common stocks and securities
convertible into common stocks that are believed to represent significant
underlying value in relation to current market prices. Realization of current
income, if any, is incidental to this objective.

Sub-Adviser: Miller Anderson & Sherrerd ("MAS") serves as Sub-Adviser for the
Growth Fund. MAS, a partnership formed in 1969, is located at One Tower Bridge,
West Conshohocken, Pennsylvania 19428. MAS provides investment counseling
services to employee benefit plans, endowment funds, foundations, and other
institutional investors, and had over $30 billion in assets under management as
of December 31, 1994. MAS is the adviser of the MAS Fund, a registered
investment company offering investment alternatives to institutional clients,
with a minimum initial investment of $1 million. MAS also manages certain
assets for State Mutual and its affiliates.

Investment Policies: The Growth Fund is not limited to investments in any
particular type of company and may invest in any company which, in the opinion
of management, is likely to further its investment objectives. The Growth Fund
will pursue its investment objectives by maintaining a flexible position
regarding the type of companies as well as the types of securities, in which it
will invest. Investments may include, but are not limited to, developing or
well-established companies, whether small or large. It is anticipated that
there will be a mix of assets in the Growth Fund. For example, portions of the
Growth Fund may be invested in equity securities of good quality or in
well-established companies considered to represent good value, based on factors
including historical investment standards (such as price/book value ratios and
price/earnings ratios) or in smaller emerging growth companies which are in the
development stage and are expected to achieve above-average earnings growth
because of special factors (such as changes in the economy, the relative
attractiveness of the various securities markets, or changes in consumer
demand).

The Growth Fund proposes to keep its assets fully invested, but may maintain
reasonable amounts in cash or in high-grade, short-term debt securities to meet
current expenses and anticipated redemptions, and during temporary periods
pending investment in accordance with its policies. The term "high-grade,
short-term debt securities" means Items (a), (b) and (c) of Money Market
Instruments under the Investment Grade Income Fund's investment objective and
policies.

The Growth Fund normally will invest substantially all of its assets in
equity-type securities, including common stocks, warrants (which are options to
purchase common stock at specified prices during a specified time period with
the investment

<PAGE>

risk that the market value of the underlying common stock may not be high enough
in relation to the warrant exercise price to justify purchase pursuant to the
terms of the warrant) and those preferred stocks and debt securities convertible
into or carrying rights to purchase common stock or to participate in earnings,
and real estate securities to the extent permitted by paragraph four under
Investment Restrictions in the SAI. In periods considered by management to
warrant a more defensive position, the Growth Fund may place a larger proportion
of its portfolio in high-grade preferred stocks, bonds, or other fixed-income
securities, including U.S. Government securities, whether or not convertible
into stock or with rights attached, or retain cash. The Fund may engage in the
options and futures strategies described under "Certain Investment Strategies
and Policies."

The Growth Fund may invest in both listed and unlisted securities. The Growth
Fund may also invest in foreign, as well as domestic securities. The Growth
Fund will not concentrate its foreign investments in any particular foreign
country, or limit its investments to issuers listed on particular exchanges or
traded in particular money market centers. Investments in foreign securities
carry additional risks not present in domestic securities. See "Certain
Investment Strategies and Policies." The Sub-Adviser will consider these and
other factors before investing and will not cause the Growth Fund to invest in
foreign securities unless, in its opinion, such investments will meet the
standards and objectives of the Growth Fund.

The investment objective and policies in the first, third and fourth paragraphs
of this section on the Growth Fund are fundamental and may not be changed
without shareholder approval.

For the fiscal year ended December 31, 1994, the portfolio turnover rate for the
Fund was 46%. The portfolio turnover rate for the Fund may vary greatly from
year to year.

SELECT GROWTH FUND

Investment Objective: The Select Growth Fund seeks to achieve long-term growth
of capital by investing in a diversified portfolio consisting primarily of
common stocks selected on the basis of their long-term growth potential.

Sub-Adviser: Provident Investment Counsel ("PIC") serves as Sub-Adviser to the
Select Growth Fund. PIC has been an investment manager for over 40 years. As
of December 31, 1994, PIC had assets under management of approximately $14.3
billion. PIC provides investment advisory services to major corporate
retirement plans, public employee retirement plans, investment companies and
foundation and endowment funds. PIC, located at 300 North Lake Avenue,
Pasadena, California 91101, is a wholly-owned subsidiary of United Asset
Management Corporation, a Boston-based professional services holding company
listed on the New York Stock Exchange.

Investment Policies: The Select Growth Fund seeks to attain its objective by
investing in securities of companies that appear to have favorable long-term
growth characteristics. Potential for long-term growth is the determinative
factor in the selection of all portfolio securities. Although the Fund may
invest in dividend-paying stocks, the generation of current income is not an
objective of the Fund. Any income that is received is incidental to the Fund's
objective of long-term growth of capital.

When choosing securities for the portfolio, the Sub-Adviser for the Select
Growth Fund focuses on companies that display strong financial characteristics
and earnings growth potential, whereas the Sub-Adviser for the Growth Fund
emphasizes a value-oriented approach which compares individual stocks and groups
of stocks to one another.

At least 65% of the Fund's assets under normal conditions will consist of
growth-oriented common stocks. The Fund may invest in common stock of large
well-known companies as well as smaller growth companies, which generally
include companies with a market capitalization of $500 million or less ("Smaller
Growth Companies"). The stocks of Smaller Growth Companies may involve a higher
degree of risk than other types of securities and the price movement of such
securities can be expected to be more volatile than is the case of the market on
the whole. The Fund may hold stocks traded on one or more of the national
exchanges as well as in the over-the-counter markets. Because opportunities for
capital growth may exist not only in new and expanding areas of the economy but
also in mature and cyclical industries, the Fund's portfolio investments are not
limited to any particular type of company or industry. The Fund also may
purchase convertible bonds and preferred stocks, warrants and debt securities if
the Fund's Sub-Adviser believes they would help achieve the Fund's objective of
long-term growth.

The Fund may invest up to 35% of its assets in both higher-rated and lower-rated
fixed-income securities in seeking its objective of long-term growth of capital.
The dollar weighted average maturity of the Fund's fixed-income securities will
vary depending on, among other things, current market conditions. The Fund may
invest up to 15% of its assets in lower-rated securities, commonly known as
"junk bonds," which involve risks discussed under "Certain Investment Strategies
and

<PAGE>

Policies." For more information concerning the rating categories of corporate
debt securities see Appendix A to the Prospectus.

The Select Growth Fund's objective of seeking long-term growth of capital means
that its assets generally will be subject to greater risk than may be involved
in investing in securities that are not selected for growth potential.

For the fiscal year ended December 31, 1994, the portfolio turnover rate for the
Fund was 55%. The portfolio turnover rate for the Fund may vary greatly from
year to year.

SELECT GROWTH AND INCOME FUND

Investment Objective: The Select Growth and Income Fund seeks a combination of
long-term growth of capital and current income. The Fund will invest primarily
in dividend-paying common stocks and securities convertible into common stocks.

Sub-Adviser: John A. Levin & Co., Inc. ("JAL") serves as Sub-Adviser to the
Growth and Income Fund. John A. Levin has been the sole owner of JAL since June
30, 1988. The firm was founded in 1982 and had approximately $3.9 billion in
assets under management as of December 31, 1994. JAL's clients include U.S. and
foreign individuals and their related trust and charitable organizations; pooled
funds for individuals and university endowments; and pension and profit sharing
funds.

Investment Policies: To achieve its objective of long-term growth of capital
and current income, the Select Growth and Income Fund will invest primarily in
dividend-paying common stocks and securities convertible into common stocks. It
may invest in a wide range of equity securities, consisting of both dividend-
paying and non-dividend-paying common stocks, preferred stocks, securities
convertible into common and preferred stocks and warrants. These may include
securities of large well-known companies as well as Smaller Growth Companies.
The securities of Smaller Growth Companies involve certain risks as described
above under the "Select Growth Fund". The Fund may hold securities traded on
one or more of the national exchanges as well as in the over-the-counter
markets. The Fund's portfolio investments are not limited to any particular
type of company or industry. The Fund may purchase individual stocks not
presently paying dividends that offer opportunities for capital growth or future
income, provided that the Sub-Adviser believes the overall portfolio is
appropriately positioned to achieve its income objective. To achieve current
income, the Fund may invest up to 35% of its assets in both higher-rated and
lower-rated fixed-income securities, including not more than 15% in lower-rated
securities, commonly known as "junk bonds." In certain circumstances,
fixed-income securities may be purchased by the Fund for long-term growth
potential. (However, the Fund expects to have substantially less than 35% of its
assets invested in fixed-income securities in most circumstances.) Lower-rated
fixed-income securities involve risks discussed under "Certain Investment
Strategies and Policies." For more information concerning the rating categories
of corporate debt securities see Appendix A to the Prospectus. The dollar
weighted average maturity of the Fund's fixed-income securities will vary
depending on, among other things, current market conditions. Purchases and
sales of portfolio securities are made at such times and in such amounts as
deemed advisable in light of market, economic and other conditions.

When the Sub-Adviser determines that market conditions warrant a temporary
defensive position, the Fund may invest without limitation in high-grade, fixed-
income securities, U.S. Government securities, or hold assets in cash or cash
equivalents. To the extent the Fund is so invested, it is not achieving its
objective to the same degree as under normal conditions. The Fund may, for
hedging purposes, engage in the options and futures strategies described under
"Certain Investment Strategies and Policies." There can, of course, be no
assurance of growth of capital, and because the Fund invests a substantial
portion of its assets in common stocks and other securities which fluctuate in
value, there is substantial risk of market decline. The Fund's Sub-Adviser
seeks to minimize this risk through detailed analyses of financial markets and
issuers of equity securities and through investment in a diversified portfolio
of such securities.

For the fiscal year ended December 31, 1994, the portfolio turnover rate for the
Fund was 107%. The portfolio turnover rate exceeded 100% due to a change in
Sub-Adviser for the Fund during the year. In the fourth quarter, approximately
50% of the portfolio securities were sold as part of the new Sub-Adviser's
strategy of changing the mix of securities in the portfolio to accommodate the
Sub-Adviser's investment approach. The portfolio turnover rate for the Fund may
vary greatly from year to year. A high portfolio turnover rate will likely
result in greater brokerage costs to the Fund.

<PAGE>

EQUITY INDEX FUND

Investment Objective: The Equity Index Fund seeks to achieve investment results
that correspond to the aggregate price and yield performance of a representative
selection of common stocks that are publicly traded in the United States.

Sub-Adviser: Allmerica Asset Management, Inc. ("AAM") serves as Sub-Adviser to
the Equity Index Fund. AAM, a wholly-owned subsidiary of State Mutual, was
incorporated in 1993 and is located at 440 Lincoln Street, Worcester,
Massachusetts 01653. As of December 31, 1994, AAM had approximately $11
billion in assets under management. AAM serves as investment adviser to State
Mutual's General Account and to a number of affiliated insurance companies and
other affiliated accounts and as Adviser to Allmerica Securities Trust, a
closed-end diversified company.

Investment Policies: The Equity Index Fund will seek to achieve its objective by
attempting to replicate the aggregate price and yield performance of the S&P
Composite Stock Price Index ("S&P 500"). The Fund uses the S&P 500 as the
performance standard because it represents over 70 percent of the total market
value of all publicly traded common stocks in the U.S., is well-known to
investors, and, in the opinion of the Sub-Adviser, is representative of the
performance of common stocks publicly traded in the U.S. Many, but not all, of
the stocks in the S&P 500 are issued by companies that are among the 500 largest
as measured by the aggregate market value of their outstanding stock (market
price per share multiplied by number of shares outstanding). Inclusion of a
stock in the S&P 500 does not imply that S&P has endorsed it as an investment.
With respect to investing in common stocks, there can be no assurance of capital
appreciation and there is a substantial risk of market decline.

The method used to select investments for the Fund involves investing in common
stocks in approximately the order of their weightings in the S&P 500, beginning
with those having the highest weightings. In addition, the Fund purchases
stocks with smaller weightings in order to represent other sectors of the S&P
500 for diversification purposes.

The Equity Index Fund will invest only in those stocks, and in such amounts, as
its Sub-Adviser determines to be necessary or appropriate for the Fund to
approximate the performance of the S&P 500. Under normal circumstances it is
expected that the Fund will hold between 300 and 475 different stocks included
in the S&P 500. The Fund may compensate for the omission of a stock that is
included in the S&P 500, or for purchasing stocks in other than the same
proportions that they are represented in the S&P 500, by purchasing stocks that
are believed to have characteristics that correspond to those of the omitted
stocks. The Fund may invest in short-term debt securities to maintain liquidity
or pending investment in stocks. The Fund also may engage in the options and
futures strategies described under "Certain Investment Strategies and Policies."

Because of its policy of tracking the S&P 500, the Equity Index Fund is not
managed according to traditional methods of active investment management, which
involve the buying and selling of securities based upon investment analysis of
economic, financial and market factors. Consequently, the projected adverse
financial performance of a company would not normally result in the sale of the
company's stock and projected superior financial performance by a company would
not normally lead to an increase in the holdings of the company. From time to
time the Sub-Adviser may make adjustments in the portfolio because of cash
flows, mergers, changes in the composition of the S&P 500 and similar reasons.
Portfolio turnover is expected to be lower than that of most funds investing in
common stock. For the fiscal year ended December 31, 1994, the portfolio
turnover rate for the Fund was 7%.

The Equity Index Fund's ability to duplicate the performance of the S&P 500 will
be influenced by the size and timing of cash flows into or out of the Fund, the
liquidity of the securities included in the S&P 500, transaction and operating
expenses, and other factors. In addition, the Fund will incur expenses
(including advisory and administrative fees) that are not reflected in the
performance results of the S&P 500. These factors, among others, may result in
"tracking error," which is a measure of the degree to which the Fund's results
differ from the results of the S&P 500. Due to such factors, the return of the
Fund may be lower than the return of the S&P 500.

Tracking error is measured by the difference between total return for the S&P
500 with dividends reinvested and total return for the Fund with dividends
reinvested after deductions of fees and expenses. For the 12 months ended
December 31, 1994, the S&P 500 gained 1.30% versus a gain of 1.06% for the
Equity Index Fund producing a tracking error of .24%. Tracking error is
monitored by the Sub-Adviser on a daily basis. All tracking error deviations
are reviewed to determine the effectiveness of investment policies and
techniques. If the tracking error deviation exceeds industry standards for the
Fund's asset size, the Sub-Adviser will bring the deviation to the attention of
the Trustees.

<PAGE>

While the Board of Trustees of the Trust has initially selected the S&P 500 as
the index the Fund will attempt to replicate, the Trustees reserve the right to
select another index at any time without seeking shareholder approval if they
believe that the S&P 500 no longer represents a broad spectrum of common stocks
that are publicly traded in the United States or if there are legal, economic or
other factors limiting the use of any particular index. If the Trustees change
the index that the Equity Index Fund attempts to replicate, the Equity Index
Fund may incur significant transaction costs in switching from one index to
another.

S&P is not in any way affiliated with the Equity Index Fund or the Trust.
"Standard & Poor's," "Standard & Poor's 500" and "500" are trademarks of S&P.

INVESTMENT GRADE INCOME FUND

Investment Objective: The Investment Grade Income Fund seeks as high a level of
total return, which includes capital appreciation as well as income, as is
consistent with prudent investment management.

Sub-Adviser: AAM serves as Sub-Adviser to the Investment Grade Income Fund.
See "Equity Index Fund" for more information about AAM.

Investment Policies: The Fund will invest its assets in the following money
market instruments and debt securities.

Money Market Instruments:

(a) Obligations issued or guaranteed by the United States Government, its
agencies or instrumentalities;
(b) Commercial paper rated Prime-1 by Moody's, or A-1 by S&P or unrated, but
determined by the Sub-Adviser to be of comparable quality;
(c) Bankers acceptances or negotiable certificates of deposit issued by the
25 largest U.S. banks (in terms of deposits); and
(d) Cash and cash equivalents.

Debt Securities:

(a) Obligations issued or guaranteed by the United States Government, its
agencies or instrumentalities;
(b) Debt securities which are rated Aaa, Aa, A, or Baa by Moody's, or AAA,
AA, A or BBB by S&P or unrated, but determined by the Sub-Adviser to be
of comparable quality;
(c) Obligations (payable in U.S. dollars) of, or guaranteed by, the
Government of Canada or of a Province of Canada or any instrumentality or
political subdivision thereof.

The Fund may engage in the options and futures strategies described under
"Certain Investment Strategies and Policies."

The debt securities in which the Fund may invest are considered "investment
grade" in that they are generally suitable for purchase by prudent investors.
However, the lowest category of investment grade securities (rated Baa by
Moody's or BBB by S&P) may have speculative characteristics, such that changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case of
debt securities with higher ratings. The portfolio of the Fund is actively
managed by AAM, as Sub-Adviser, in order to anticipate events leading to price
or ratings changes. If the rating of a security falls below investment grade,
or an unrated security is deemed to have fallen below investment grade, AAM
analyzes relevant economic and market data in making a determination of whether
to retain or dispose of the investment. The performance of the securities in
the portfolio is monitored continuously, and the securities are purchased and
sold as conditions warrant and permit.

For the fiscal year ended December 31, 1994, the portfolio turnover rate for the
Fund was 129%. The portfolio turnover rate exceeded 100% due to ongoing
portfolio strategies and interest rate volatility. A change in the mix of
mortgage holdings was pursued in favor of pass-through mortgage obligations to
control risk and liquidity and to attempt to increase the total return for the
Fund. A year-end consolidation of the Fund's holdings of mortgage-backed
securities also affected the Fund's portfolio turnover rate. The portfolio
turnover rate for the Fund may vary greatly from year to year. A high portfolio
turnover rate may result in greater brokerage costs to the Fund.

See Appendix A for an explanation of the ratings of Moody's and S&P.

<PAGE>

GOVERNMENT BOND FUND

Investment Objective: The Government Bond Fund seeks high income, preservation
of capital and maintenance of liquidity primarily through investments in debt
instruments issued or guaranteed by the U.S. Government or its agencies or
instrumentalities ("U.S. Government securities") and in related options, futures
and repurchase agreements. Under normal conditions, at least 80% of the Fund's
assets will be invested in U.S. Government securities.

Sub-Adviser: AAM serves as Sub-Adviser to the Government Bond Fund. See "Equity
Index Fund" for more information about AAM.

Investment Policies: Some U.S. Government securities, such as Treasury bills,
notes and bonds, which differ only in their interest rates, maturities, and
times of issuance, are supported by the full faith and credit of the United
States. Other U.S. Government securities are supported by (i) the right of the
issuer to borrow from the U.S. Treasury; (ii) discretionary authority of the
U.S. Government to purchase the obligations of the agency or instrumentality or
(iii) only the credit of the instrumentality itself. No assurances 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. The Fund
may invest in mortgage-backed government securities, including pass-through
securities and participation certificates of the Government National Mortgage
Association ("Ginnie Mae"), the Federal Home Loan Mortgage Corporation ("Freddie
Mac") and the Federal National Mortgage Association ("Fannie Mae").

The Government Bond Fund may invest in any other security or agreement
collateralized or otherwise secured by U.S. Government securities. The Fund also
may invest in separately traded principal and interest components of securities
guaranteed or issued by the U.S. Treasury if such components are traded
independently under the Separately Traded Registered Interest and Principal
Securities program. The Fund may enter into repurchase agreements, and may from
time to time have temporary investments in short-term debt obligations
(including certificates of deposit, bankers acceptances and commercial paper)
pending the making of other investments or for liquidity purposes.

The Government Bond Fund may engage in several active management strategies,
including the lending of portfolio securities, forward commitment purchases of
securities, writing covered call and covered put options on U.S. Government
securities, purchasing such call and put options, and entering into closing
purchase and sale transactions. The Fund also may engage in the options and
futures strategies described under "Certain Investment Strategies and Policies."

U.S. Government securities may be purchased or sold without regard to the length
of time they have been held to attempt to take advantage of short-term
differentials in yields, with the objective of seeking income while conserving
capital. While short-term trading increases portfolio turnover, the Government
Bond Fund incurs little or no brokerage costs for U.S. Government securities.
For the fiscal year ended December 31, 1994, the portfolio turnover rate for the
Fund was 106%. The portfolio turnover rate for the Fund exceeded 100% due to
the same factors as are set forth in the discussion of portfolio turnover for
the Investment Grade Income Fund.

MONEY MARKET FUND

Investment Objective: The Money Market Fund seeks to obtain maximum current
income consistent with preservation of capital and liquidity.

Sub-Adviser: AAM serves as Sub-Adviser to the Money Market Fund. See "Equity
Index Fund" for more information about AAM.

Investment Policies: The Fund seeks to achieve its objective by investing in the
following high quality money market instruments:

(a) Obligations issued or guaranteed by the United States Government, its
agencies or instrumentalities;

(b) Commercial paper which meets the ratings requirements as set forth in
the paragraph below;

(c) Obligations of banks or savings and loan associations (such as bankers
acceptances and certificates of deposit, including dollar-denominated
obligations of foreign branches of U.S. banks ("Eurodollars") and U.S.
branches of foreign banks if such U.S. branches are subject to state
banking requirements and Federal Reserve reporting

<PAGE>

requirements) which at the date of the investment have deposits of at
least $1 billion as of their most recently published financial
statements;

(d) Repurchase agreements with respect to obligations described under (a)
above (such obligations subject to repurchase agreement may bear
maturities of more than one year). For more information concerning
repurchase agreements, see "Certain Investment Strategies and
Policies;"

(e) Cash and cash equivalents.

The Money Market Fund will not purchase any security unless (i) the security has
received the highest quality rating by at least two nationally recognized
statistical rating organizations ("NRSROs") or by one NRSRO if only one has
rated the security, or (ii) the security is unrated and in the opinion of AAM,
as Sub-Adviser, in accordance with guidelines adopted by the Trustees, is of a
quality comparable to the highest rating of an NRSRO. These standards must be
satisfied at the time an investment is made. If the quality of the investment
later declines, the Fund may continue to hold the investment, but the Trustees
will evaluate whether the security continues to present minimal credit risks.
See Appendix A for examples of NRSRO ratings.

The Fund will limit its portfolio investments to securities with a remaining
maturity of 397 days as of the time of purchase, in accordance with the
Trustees' guidelines. The portfolio will be managed so as to maintain a dollar
weighted maturity of 90 days or less. In order to maximize the yield on its
assets, the Fund intends to be as fully invested at all times as is reasonably
practicable.

There is always the risk that the issuer of an instrument may be unable to make
payment upon maturity.

MANAGEMENT FEES AND EXPENSES

Under its Management Agreement with the Trust, the Manager is obligated to
perform certain administrative and management services for the Trust, furnishes
to the Trust all necessary office space, facilities, and equipment, and pays the
compensation, if any, of officers and Trustees who are affiliated with the
Manager. Other than the expenses specifically assumed by the Manager under the
Management Agreement, all expenses incurred in the operation of the Trust are
borne by the Trust, including fees and expenses associated with the registration
and qualification of the Trust's shares under the Securities Act of 1933, other
fees payable to the Securities and Exchange Commission, independent accountant
fees, legal and custodian fees, association membership dues, taxes, interest,
insurance premiums, brokerage commissions, fees and expenses of the Trustees who
are not affiliated with the Manager, expenses for proxies, prospectuses, and
reports to shareholders, Fund recordkeeping expenses and other expenses. The
Manager has voluntarily agreed to absorb any charges and expenses associated
with Fund recordkeeping that exceed 0.10% of a Fund's average net assets.

For the services to the Funds, the Manager receives fees computed daily at an
annual rate based on the average daily net asset value of each Fund as set forth
below:

<TABLE>
<CAPTION>
Select
Select Select Capital Select
Aggressive International Appreciation Small Cap Growth Growth
Growth Fund Equity Fund Fund Value Fund Fund Fund
----------- ----------- ------------ ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Manager Fee 1.00% 1.00% 1.00% 0.85% (1) 0.85%

Select Growth Investment Government Money
and Income Equity Index Grade Income Bond Market
Fund Fund Fund Fund Fund
------------- ------------ ------------ ---------- ------
<S> <C> <C> <C> <C> <C>
Manager Fee 0.75% (1) (1) 0.50% (1)

</TABLE>

<PAGE>

(1) The Manager's fees for the Growth Fund, Equity Index Fund, Investment Grade
Income Fund and Money Market Fund, computed daily at an annual rate based on the
average daily net asset value of each Fund, are based on the following schedule:

<TABLE>
<CAPTION>
Equity Investment Money
Index Grade Market
Assets Growth Fund Fund Income Fund Fund
------ ----------- ------ ----------- ------
<S> <C> <C> <C> <C>
First $50 Million 0.60% 0.35% 0.50% 0.35%
Next $200 Million 0.50% 0.30% 0.35% 0.25%
Over $250 Million 0.35% 0.25% 0.25% 0.20%
</TABLE>

The Manager is solely responsible for the payment of all fees to the Sub-
Advisers. The Manager pays each Sub-Adviser fees computed daily at an annual
rate based on the average daily net asset value of each Fund as set forth below.
In certain Funds, Sub-Adviser fees vary according to the level of assets in such
Funds, which will reduce the fees paid by the Manager as Fund assets grow, but
will not reduce the operating expenses of such Funds.

<TABLE>
<CAPTION>
Select
Select Select Capital Select
Aggressive International Appreciation Small Cap Growth Growth
Growth Fund Equity Fund Fund Value Fund Fund Fund
----------- ------------- ------------ ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Sub-Adviser Fee 0.60% (2) (3) 0.50% (4) (5)

Select Growth Investment
and Income Equity Index Grade Income Government Money Market
Fund Fund Fund Bond Fund Fund
---- ---- ---- --------- ----
<S> <C> <C> <C> <C> <C>
Sub-Adviser Fee (6) 0.10% 0.20% 0.20% 0.10%

<FN>

(2) For its services, BIAM will receive a fee computed daily at an annual rate
based on the average daily net assets of the Select International Equity Fund,
under the following schedule:

Assets Rate
------ ----

First $50 Million 0.45%
Next $50 Million 0.40%
Over $100 Million 0.30%

(3) For its services, JCC will receive a fee computed daily at an annual rate
based on the average daily net assets of the Select Capital Appreciation Fund,
under the following schedule:

Assets Rate
------ ----

First $100 Million 0.60%
Over $100 Million 0.55%

(4) For its services, MAS will receive a fee based on the aggregate assets of
the Growth Fund and certain other accounts of the Manager and its affiliates
which are managed by MAS, under the following schedule:

Assets Rate
------ ----

First $50 Million 0.50%
$50 Million to $100 Million 0.375%
$100 Million to $500 Million 0.25%
$500 Million to $850 Million 0.20%
Over $850 Million 0.15%

20
<PAGE>

(5) For its services, PIC will receive a fee computed daily at an annual rate
based on the average daily net assets of the Select Growth Fund, under the
following schedule:

Assets Rate
------ ----

First $50 Million 0.50%
Next $100 Million 0.45%
Next $100 Million 0.35%
Next $100 Million 0.30%
Over $350 Million 0.25%

(6) For its services, JAL will receive a fee computed daily at an annual rate
based on the average daily net assets of the Select Growth and Income Fund,
under the following schedule:

Assets Rate
------ ----

First $100 Million 0.40%
Next $200 Million 0.25%
Over $300 Million 0.30%
</TABLE>

For the fiscal year ended December 31, 1994, the Funds paid the Manager gross
fees before reimbursement at a rate based on the Fund's average daily net
assets, under the following schedule:

<TABLE>
<CAPTION>
Fund Rate
---- ----
<S> <C>
Select International Equity Fund 1.00%
Select Aggressive Growth Fund 1.00%
Small Cap Value Fund 0.85%
Growth Fund 0.48%
Select Growth Fund 0.85%
Select Growth and Income Fund 0.75%
Equity Index Fund 0.35%
Investment Grade Income Fund 0.42%
Government Bond Fund 0.50%
Money Market Fund 0.31%
</TABLE>

The Select Capital Appreciation Fund had not commenced operations as of December
31, 1994.

The following table shows voluntary expense limitations which the Manager has
declared for each Fund and the operating expenses incurred for the fiscal year
ended December 31, 1994 for each Fund:

<TABLE>
<CAPTION>
Percentage of Average Daily Net Assets
--------------------------------------

Voluntary Expense Operating
Fund Limitations Expenses
---- ----------- --------
<S> <C> <C>
Select International Equity Fund 1.50% 1.50%+
Select Aggressive Growth Fund 1.35% 1.16%
Select Capital Appreciation Fund 1.35% *
Small Cap Value Fund 1.25% 1.08%
Growth Fund 1.20% 0.56%
Select Growth Fund 1.20% 1.03%
Select Growth and Income Fund 1.10% 0.91%
Equity Index Fund 0.60% 0.57%
Investment Grade Income Fund 1.00% 0.58%
Government Bond Fund 1.00% 0.70%
Money Market Fund 0.60% 0.45%
<FN>
+Annualized

<PAGE>

*The Select Capital Appreciation Fund had not commenced operations as of
December 31, 1994.

</TABLE>

The Manager will voluntarily reimburse its fees and any expenses above the
expense limitations. The expense limitations are voluntary and may be removed
at any time after a Fund's first fiscal year of operation without prior notice
to existing shareholders. As shown above, all Funds are within expense
limitations for the year ended December 31, 1994. The Manager reserves the
right to recover from a Fund any fees, within a current fiscal year period,
which were reimbursed in that same year to the extent that total annual expenses
did not exceed the applicable expense limitation. Non-recurring and
extraordinary expenses are generally excluded in the determination of expense
ratios of the Funds for purposes of determining any required expense
reimbursement. Quotations of yield or total return for any period when an
expense limitation is in effect will be greater than if the limitation had not
been in effect.

FUND MANAGER INFORMATION

The following individuals are primarily responsible for the day-to-day
management of the particular Funds as indicated below:

The following individuals have served as members of a committee of fund managers
for the SELECT INTERNATIONAL EQUITY FUND since the Fund's inception in May 1994:

Denis Donovan, Executive Vice President and Director of Portfolio Management at
BIAM, joined Bank of Ireland in 1985 and has been Director of Portfolio
Management since 1987. Prior to Bank of Ireland, Mr. Donovan spent more than
thirteen years in money market securities and foreign exchange operations with
the Central Bank of Ireland (Irish equivalent of the U.S. Federal Reserve).

Brendan Donohoe, Senior Portfolio Manager at BIAM, has almost fourteen years
investment management experience and joined Bank of Ireland in 1980.

Mark Cunningham, Senior Portfolio Manager at BIAM, joined Bank of Ireland in
1984 as Manager for Capital Markets for three years. Mr. Cunningham then worked
in Sudan for two years as Head of the Irish Relief Organization, after which he
rejoined BIAM as Senior Portfolio Manager in 1990.

Peter Wood, Senior Portfolio Manager at BIAM, has over thirteen years experience
in investment management. Mr. Wood joined Bank of Ireland in 1985 and is
currently responsible for portfolio construction. Prior to Bank of Ireland, Mr.
Wood spent five years with Allied Irish Investment Bank as a Portfolio Manager.

John O'Callaghan, Senior Portfolio Manager, joined BIAM in 1987. Mr.
O'Callaghan is a Chartered Financial Analyst.

The following individuals have served as members of a committee of fund managers
for the SELECT AGGRESSIVE GROWTH FUND since March 1994, with the exception of
Mr. Nicholas, who has served as a fund manager since the Fund's inception in
August 1992:

Arthur E. Nicholas, Partner and Chief Investment Officer at NACM, is the co-
founder of NACM. Prior to NACM, Mr. Nicholas was Managing Director and Chief
Investment Officer of Pacific Century Advisers. He was also associated with
Security Pacific Bank for over two years and with San Diego Trust & Savings Bank
for ten years.

Lawrence S. Speidell is a Senior Vice President and Director of
Global/Systematic Portfolio Management and Research at NACM. Prior to joining
NACM in 1994, Mr. Speidell spent ten years with Batterymarch Financial
Management ("Batterymarch"). He was also Senior Vice President and Portfolio
Manager at Putnam Management Company from 1971 to 1983.

John J. Kane, Senior Portfolio Manager, Global at NACM, has twenty-six years of
economic/investment experience. Prior to NACM, Mr. Kane was employed by ARCO
Investment Management Company and General Electric Company.

Craig R. Occhialini, Vice President and Portfolio Manager, is a member of the
domestic portfolio management and research group at NACM. Prior to joining NACM
in 1991, Mr. Occhialini was employed by Wilshire Associates. Mr. Occhialini has
six years of investment experience.

<PAGE>

Ernesto Ramos, Ph.D., Senior Portfolio Manager, International, is a team leader
of the international equity group at NACM. Prior to joining NACM, Mr. Ramos was
an investment strategist with Batterymarch and was employed by Bolt Beranek &
Newman, Inc. Mr. Ramos was also a teaching fellow at Harvard University.

Douglas B. Stone, Portfolio Manager, is a member of the Global/Systematic team
at NACM. Prior to NACM, Mr. Stone was a Senior Research Analyst and Vice
President with the Frank Russell Company and an economist with the U.S.
Department of Interior.

James P. Goff has been the fund manager for the SELECT CAPITAL APPRECIATION FUND
since its inception in April 1995. Mr. Goff joined JCC in 1988 and has managed
the Janus Enterprise Fund since 1992 and has co-managed the Janus Venture Fund
since December 1993. Mr. Goff is a Chartered Financial Analyst.

The following individuals have served as fund managers for the SMALL CAP VALUE
FUND since the Fund's inception in April 1993:

Peter Schlieman, Executive Vice President and Director, joined Babson in 1979.
Prior to 1979, Mr. Schlieman was employed at the Boston Company Investment
Research & Technology, Inc. for nine years.

Lance F. James, Vice President, joined Babson in 1986. Prior to joining Babson,
Mr. James was employed as an Account Manager at Hewitt Associates for two years
and as a Senior Associate at EBF Associates of Boston for one year. Mr. James
was also employed by Rockwell International Corporation for five years as a
Manager.

The following individuals have served as members of a committee of fund managers
for the GROWTH FUND since the Fund's inception in April 1988, with the exception
of Mr. Scharbaum, who has served on the committee since 1993:

Nicholas Kovich, Equity Portfolio Manager, joined MAS in 1988. Prior to MAS,
Mr. Kovich was employed by Waddell & Reed Asset Management Company from 1982 to
1988 as an Investment Research Analyst and Portfolio Manager.

John Connolly, Partner, joined MAS in 1990. Prior to joining MAS, Mr. Connolly
was employed by Dean Witter Reynolds as a Senior Vice President and Chief
Investment Strategist from 1984 to 1990 and by Shearson/American Express as
Senior Vice President and Director of Research from 1979 to 1984.

Gary G. Schlarbaum, Partner, joined MAS in 1987. Prior to 1987, Mr. Schlarbaum
was employed by First Chicago Investment Advisors from 1984 to 1987. Prior to
First Chicago, Mr. Schlarbaum held teaching positions at Purdue University and
the University of Pennsylvania.

The following individuals have served as members of a committee of fund managers
for the SELECT GROWTH FUND since the Fund's inception in August 1992, with the
exception of Mr. Powers, who has served on the committee since June 1994:

Jeffrey J. Miller, Managing Director, has been with PIC for over twenty years
and is a Chartered Financial Analyst and a Chartered Investment Counselor.

Larry D. Tashjian, Managing Director, has over fourteen years of investment
management experience, ten of which have been with PIC. Mr. Tashjian also is a
Chartered Financial Analyst and a Chartered Investment Counselor.

Michael W. Powers, Senior Vice President, has been with PIC since 1991 and is a
Chartered Financial Analyst. Prior to joining PIC, Mr. Powers was a member of
the Interest Rate Swaps Group for a major West Coast bank.

The following individuals have served as members for a committee of fund
managers for the SELECT GROWTH AND INCOME FUND since September 1994:

John A. Levin, President, has been with JAL since 1982 and has been the firm's
sole owner since 1988.

Melody L. Prenner Sarnell, Securities Analyst, has been with JAL since 1984.
Prior to joining JAL, Ms. Sarnell was employed by John M. Blewer, Inc.

Jeffrey A. Kigner, Securities Analyst, has been with JAL since 1984. Prior to
1984, Mr. Kigner was employed by Carlin & Co.

<PAGE>

Lisa M. Coleman, Vice President, has been employed by AAM as fund manager for
the INVESTMENT GRADE INCOME FUND since January 1994 and for the GOVERNMENT BOND
FUND since March 1995. Prior to joining AAM, Ms. Coleman was a Deputy
Manager/Portfolio Manager in the global fixed income area for Brown Brothers
Harriman & Company in New York.

HOW ARE SHARES VALUED?

The net asset value of the shares of each Fund is determined once daily as of
the close of the New York Stock Exchange (the "Exchange") on each day on which
the Exchange is open for trading.

Equity securities are valued on the basis of their market value, if market
quotations are readily available. In other cases, they are valued at their fair
value as determined in good faith by the Trustees, although the actual
calculations may be by persons acting pursuant to the direction of the Trustees.
Debt securities (other than short-term obligations) are normally valued on the
basis of valuations formulated by a pricing service which utilizes data
processing methods to determine valuations for normal, institutional-size
trading units of such securities. Such methods include the use of market
transactions for comparable securities and various relationships between
securities which are generally recognized by institutional traders. All
securities of the Money Market Fund are valued at amortized cost. Debt
obligations in the other Funds having a remaining maturity of 60 days or less
are valued at amortized cost when it is determined that amortized cost
approximates fair value. Short-term obligations of the other Funds having a
remaining maturity of more than 60 days are marked to market based upon readily
available market quotations for such obligations or similar securities.

Unlike the Money Market Fund, which attempts to maintain a stable net asset
value, the net asset value of the other Funds will fluctuate.

TAXES AND DISTRIBUTIONS TO SHAREHOLDERS

It is the policy of the Trust to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies so that the Trust will
not be subject to federal income tax on any net income and any capital gains to
the extent they are distributed or are deemed to have been distributed to
shareholders. Dividends out of net investment income will be declared and paid
quarterly in the case of the Growth Fund, Select Growth and Income Fund, Equity
Index Fund, Investment Grade Income Fund and Government Bond Fund, annually in
the case of the Select Aggressive Growth Fund, Select International Equity Fund,
Select Capital Appreciation Fund, Small Cap Value Fund, and the Select Growth
Fund; and daily in the case of the Money Market Fund. Distributions of net
capital gains, if any, for the year are made annually. All dividends and
capital gain distributions are applied to purchase additional Fund shares at net
asset value as of the payment date. Fund shares are held by the Separate
Accounts and any distributions are automatically reinvested by the Separate
Accounts. Tax consequences to investors in the Separate Accounts that are
invested in the Trust are described in the prospectuses for such Accounts.

SALE AND REDEMPTION OF SHARES

Shares of the Funds are sold in a continuous offering and currently may be
purchased only by Separate Accounts of State Mutual or its subsidiaries. The
Separate Accounts are the funding mechanisms for variable annuity contracts.
The Separate Accounts invest in shares of one or more of the Funds. Shares of
each Fund are sold at their net asset value as next computed after receipt of
the purchase order without the addition of any selling commission or "sales
load." The Distributor, Allmerica Investments, Inc., at its expense, may
provide promotional incentives to dealers that sell variable annuity contracts
for which the Funds serve as investment vehicles.

Shares of the Trust are also currently being issued to Separate Accounts of
SMA, State Mutual and subsidiaries of State Mutual which issue variable or group
annuity policies or variable premium life insurance policies ("mixed funding").
Although neither SMA nor the Trust currently foresees any disadvantage, it is
conceivable that in the future such mixed funding may be disadvantageous for
variable or group annuity policyowners or variable premium life insurance
policyowners ("Policyowners"). The Trustees of the Trust intend to monitor
events in order to identify any conflicts that may arise between such
Policyowners and to determine what action, if any, should be taken in response
thereto. If the Trustees were to conclude that separate funds should be
established for variable annuity, group annuity and variable premium life
separate accounts, SMA will pay the attendant expenses.

<PAGE>

The Trust redeems shares of each Fund at their net asset value as next computed
after receipt of the request for redemption. The redemption price may be more
or less than the shareholder's cost. No fee is charged by the Trust on
redemption. The variable contracts funded through the Separate Accounts are
sold subject to certain fees and charges which may include sales and redemption
charges, described in the prospectus or offering circular for such Separate
Accounts.

Redemption payments will be paid within seven days after receipt of the written
request therefor by the Trust, except that the right of redemption may be
suspended or payments postponed whenever permitted by applicable law and
regulations.

HOW IS PERFORMANCE DETERMINED?

The Funds' performance may be quoted in advertising. A Fund's performance may
be compared to the performance of other investments or relevant indices. All
performance information is based on historical results and is not intended to
indicate future performance.

For Funds other than the Money Market Fund, "yield" is calculated by dividing a
Fund's annualized net investment income per share during a recent 30-day period
by the net asset value per share on the last day of that period. For the Money
Market Fund, "yield" represents an annualization of the change in value of an
investment (excluding any capital changes) in the Fund for a specific seven-day
period; "effective yield" compounds that yield for a year and is, for that
reason, greater than the Fund's yield.

Total returns are based on the overall dollar or percentage change in value of a
hypothetical investment in a Fund assuming all dividends and capital gain
distributions are reinvested. Cumulative total return reflects the Fund's
performance over a stated period of time. Average annual total return reflects
the hypothetical annually compounded return that would have produced the same
cumulative return if the Fund's performance had been constant over the entire
period. Because average annual returns tend to smooth out variations in the
Fund's return, they are not the same as actual year-by-year results.

YIELDS AND TOTAL RETURNS QUOTED FOR THE FUNDS INCLUDE THE EFFECT OF DEDUCTING
THE FUND'S EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE TO A
PARTICULAR INSURANCE PRODUCT. SINCE SHARES OF THE FUNDS CAN BE PURCHASED ONLY
THROUGH A VARIABLE ANNUITY CONTRACT OR VARIABLE LIFE CONTRACT, YOU SHOULD
CAREFULLY REVIEW THE PROSPECTUS FOR THE SEPARATE ACCOUNTS FOR INFORMATION ON
RELEVANT CHARGES AND EXPENSES. INCLUDING THESE CHARGES IN THE QUOTATIONS OF THE
FUNDS' YIELD AND TOTAL RETURN WOULD HAVE THE EFFECT OF DECREASING PERFORMANCE.
PERFORMANCE INFORMATION FOR THE FUNDS MUST ALWAYS BE ACCOMPANIED BY, AND BE
REVIEWED WITH, PERFORMANCE INFORMATION FOR THE SEPARATE ACCOUNTS WHICH INVEST IN
THE FUNDS.

ORGANIZATION AND CAPITALIZATION OF THE TRUST

The Trust was established as a Massachusetts business trust under the laws of
Massachusetts by an Agreement and Declaration of Trust dated October 11, 1984
(the "Trust Declaration"). A copy of the Trust Declaration is on file with the
Secretary of the Commonwealth of Massachusetts.

The Trust has an unlimited authorized number of shares of beneficial interest
which may be divided into an unlimited number of series of such shares, and
which are presently divided into twelve series of shares, one series underlying
each Fund. The Select Income Fund is not included in this Prospectus. The
Trust's shares are entitled to one vote per share (with proportional voting for
fractional shares). The rights accompanying Fund shares are legally vested in
the Separate Accounts. As a matter of policy, however, holders of variable
premium life insurance or variable annuity contracts funded through the Separate
Accounts have the right to instruct the Separate Accounts as to voting Fund
shares on all matters to be voted on by Fund shareholders. Voting rights of the
participants in the Separate Accounts are more fully set forth in the prospectus
or offering circular relating to those Accounts. See "Organization of the
Trust" in the SAI for the definition of a "majority vote" of shareholders.

The Trust is not required to hold annual meetings of shareholders. The Trustees
or shareholders holding at least 10% of the outstanding shares may call special
meetings of shareholders.

SMA, State Mutual or an affiliate thereof has contributed funds for the initial
capital for the Equity Index Fund, Small Cap Value Fund, Select International
Equity Fund, and Select Capital Appreciation Fund, giving it a controlling
interest in such Funds. It is their present intent to redeem shares purchased
with such funds when the respective Fund is large enough to

<PAGE>

maintain a diversified portfolio. See "Voting Rights" in the prospectus for the
separate investment accounts for information concerning the current voting
policies on shares which are not attributable to allocations by Policyowners.

FUND RECORDKEEPING AGENT

The Shareholder Services Group, Inc., d/b/a 440 Financial ("440 Financial"), a
wholly-owned subsidiary of First Data Corp., calculates net asset value per
share and maintains general accounting records for each Fund. 440 Financial is
entitled to receive an annual Fund recordkeeping fee based on Fund assets and
certain out-of-pocket expenses.

CUSTODIAN

The Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New York, New York
10036, is the Custodian of the securities and other assets of the Trust.

INVESTMENT RESTRICTIONS

The following is a description of certain investment restrictions which are
fundamental and may not be changed with respect to a Fund without shareholder
approval. For a description of certain other investment restrictions, reference
should be made to the SAI.

1. No Fund will concentrate its investments in particular industries,
including debt obligations of foreign governments, but a Fund may invest
up to 25% of the value of its total assets in a particular industry.
The restriction does not apply to investments in obligations issued or
guaranteed by the United States of America, its agencies or
instrumentalities, or to investments by the Money Market Fund in
securities issued or guaranteed by domestic branches of U.S. banks.

2. As to 75% of the value of its total assets (100% for the Money Market
Fund), no Fund will invest more than 5% of the value of its total assets
in the securities of any one issuer (other than securities issued by or
guaranteed as to principal or interest by the United States Government
or any agency or instrumentality thereof) or acquire more than 10% of
the voting securities of any issuer. The remaining 25% of assets (other
than for the Money Market Fund) may be invested in the securities of one
or more issuers without regard to such limitations.

Pursuant to Internal Revenue Service Regulations, no more than 55% of the assets
of a Fund will be invested in securities of any one issuer (including the U.S.
Treasury), no more than 70% in two issuers, no more than 80% in three issuers
and no more than 90% in four issuers.

These limitations apply as of the time of purchase. If through market action
the percentage limitations are exceeded, the Fund will not be required to reduce
the amount of its holding in such investments.

CERTAIN INVESTMENT STRATEGIES AND POLICIES

REPURCHASE AGREEMENTS (APPLICABLE TO ALL FUNDS) AND REVERSE REPURCHASE
AGREEMENTS (APPLICABLE TO THE SELECT CAPITAL APPRECIATION FUND)

Each Fund may invest in repurchase agreements, under which the Fund acquires
ownership of a security (ordinarily U.S. Government securities) but the seller
agrees, at the time of sale, to purchase the security at a mutually agreed upon
time and price. Should any seller of a repurchase agreement fail to repurchase
the underlying security, or should any seller become insolvent or involved in a
bankruptcy proceeding, a Fund could incur costs and losses. Repurchase
Agreements maturing in more than seven days are subject to the 15% limit on
illiquid securities.

When the Select Capital Appreciation Fund invests in a reverse repurchase
agreement, it sells a security to another party such as a bank or broker-dealer,
in return for cash, and agrees to buy the security back at a future date and
price. Reverse repurchase agreements may be used to provide cash to satisfy
unusually heavy redemption requests or for other temporary or emergency purposes
without the necessity of selling portfolio securities or to earn additional
income on portfolio securities, such as treasury bills and notes.

<PAGE>

"WHEN-ISSUED" SECURITIES (APPLICABLE TO ALL FUNDS)

Each Fund may purchase securities on a when-issued or delayed delivery basis.
Delivery and payment normally take place 15 to 45 days after the commitment to
purchase. No income accrues on when-issued securities prior to delivery.
Purchase of when-issued securities involves the risk that yields available in
the market when delivery occurs may be higher than those available when the
when-issued order is placed resulting in a decline in the market value of the
security. There is also the risk that under some circumstances the purchase of
when-issued securities may act to leverage the Fund.

LENDING OF SECURITIES (APPLICABLE TO ALL FUNDS)

For the purpose of realizing additional income, the Funds may lend portfolio
securities to broker-dealers or financial institutions amounting to not more
than 30% of their respective total assets taken at current value. While any
such loan is outstanding, a Fund will continue to receive amounts equal to the
interest or dividends paid by the issuer on the securities, as well as interest
(less any rebates to be paid to the borrower) on the investment of the
collateral or fee from the borrower. Each Fund will have the right to call each
loan and obtain the securities. Lending portfolio securities involves certain
risks, including possible delays in receiving additional collateral or in the
recovery of the securities or possible loss of rights in the collateral should
the borrower fail financially. Loans will be made in accordance with guidelines
established by the Board of Trustees.

FOREIGN SECURITIES (APPLICABLE TO EACH FUND EXCEPT THE SMALL CAP VALUE FUND,
INVESTMENT GRADE INCOME FUND, GOVERNMENT BOND FUND AND MONEY MARKET FUND)

Investments in foreign markets involve substantial risks not typically
associated with investing in the U.S. which should be carefully considered by
the investor. Such risks may include political and economic instability,
differing accounting and financial reporting standards, higher commission rates
on foreign portfolio transactions, less readily available public information
regarding issuers, potential adverse changes in tax and exchange control
regulations and the potential for restrictions on the flow of international
capital. Foreign securities also involve currency risks. Accordingly, the
relative strength of the U.S. dollar may be an important factor in the
performance of that Fund, depending on the extent of the Fund's foreign
investments. Some foreign securities exchanges may not be as developed or
efficient as those in the U.S. and securities traded on foreign securities
exchanges are generally subject to greater price volatility. There is also the
possibility of adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation and limitations on the removal of funds
or other assets. Investments in emerging countries involve exposure to economic
structures that are generally less diverse and mature than in the U.S., and to
political systems which may be less stable. In addition, securities of
issuers located in emerging countries may have limited marketability and may be
subject to more abrupt or erratic price fluctuations.

Each Fund, except the Small Cap Value Fund, Investment Grade Income Fund,
Government Bond Fund and Money Market Fund, may buy or sell foreign currencies
and foreign currency forward contracts, options on foreign currencies and
foreign currency futures contracts and options thereon. Although such
instruments may reduce the risk of loss due to a decline in the value of the
currency that is sold, they also limit any possible gain which might result
should the value of the currency increase. Such instruments will be used
primarily to protect the Fund from adverse currency movements; however, they
also involve the risk that anticipated currency movements will not be accurately
predicted, thus adversely affecting the Fund's total return. See "Options and
Futures Transactions."

The Funds' investments may include ADRs. For many foreign securities, there are
U.S. dollar-denominated ADRs which are traded in the United States on exchanges
or over the counter. ADRs represent the right to receive securities of foreign
issuers deposited in a domestic bank or a correspondent bank. An ADR may be
sponsored by the issuer of the underlying foreign security, or it may be issued
in unsponsored form. The holder of a sponsored ADR is likely to receive more
frequent and extensive financial disclosure concerning the foreign issuer than
the holder of an unsponsored ADR and will generally bear lower transaction
charges. Each Fund may invest in both sponsored and unsponsored ADRs. The
Select International Equity Fund and the Select Capital Appreciation Fund also
may utilize EDRs, which are designed for use in European securities markets and
also may invest in GDRs.

OPTIONS AND FUTURES TRANSACTIONS (APPLICABLE TO EACH FUND EXCEPT THE SMALL CAP
VALUE FUND AND MONEY MARKET FUND) AND FORWARD CONTRACTS AND SWAPS (APPLICABLE TO
THE SELECT CAPITAL APPRECIATION FUND)

Through the writing and purchase of put and call options on its securities,
financial indices and foreign currencies and the purchase and sale of futures
contracts and related options with respect to securities, financial indices and
(in the case of the

<PAGE>

Select Capital Appreciation Fund) foreign currencies in which it may invest,
each Fund except the Money Market Fund and the Small Cap Value Fund may at times
seek to hedge against fluctuations in net asset value. Each Fund's ability to
engage in options and futures strategies will depend on the availability of
liquid markets in such instruments. It is impossible to predict the amount of
trading interest that may exist in various types of options or futures
contracts. Therefore, there is no assurance that the Funds will be able to
utilize these instruments effectively for the purposes stated above.

Additionally, the Select Capital Appreciation Fund may invest in forward
contracts and swaps which may expose the Fund to additional investment risks and
transaction costs.

Risks inherent in the use of futures, options, forward contracts and swaps
("derivative instruments") include (1) the risk that interest rates, securities
prices and currency markets will not move in the directions anticipated; (2)
imperfect correlation between the price of derivative instruments and movements
in the prices of the securities, interest rates or currencies being hedged; (3)
the fact that skills needed to use these strategies are different from those
needed to select portfolio securities; (4) the possible absence of a liquid
secondary market for any particular instrument at any time; and (5) the possible
need to defer closing out certain hedged positions to avoid adverse tax
consequences.

The Funds will purchase futures and options only on exchanges or boards of trade
when there appears to be an active secondary market, but there can be no
assurance that a liquid secondary market will exist for any futures or options
at any particular time.

In connection with transactions in futures and related options, the Funds will
be required to deposit as "initial margin" an amount of cash and/or securities.
Thereafter, subsequent payments are made to and from the broker to reflect
changes in the value of the futures contract.

A more detailed explanation of futures, options, and other derivative
instruments, and the risks associated with them, is included in the SAI.

RESTRICTED SECURITIES (APPLICABLE TO THE SELECT INTERNATIONAL EQUITY FUND,
SELECT AGGRESSIVE GROWTH FUND, SELECT CAPITAL APPRECIATION FUND, SELECT GROWTH
FUND, AND SELECT GROWTH AND INCOME FUND)

The Funds may purchase fixed-income securities that are not registered under the
Securities Act of 1933 ("1933 Act") ("restricted securities"), but can be
offered and sold to "qualified institutional buyers" under Rule 144A of the
1933 Act. However, each Fund will not invest more than 15% of its assets in
restricted securities (as defined in its investment restrictions) unless the
Funds' Board of Trustees determines, based upon a continuing review of the
trading markets for the specific restricted security, that such restricted
securities are liquid. The Board of Trustees has adopted guidelines and
delegated to the Manager the daily function of determining and monitoring
liquidity of restricted securities. The Board, however, will retain sufficient
oversight and be ultimately responsible for the determinations. Since it is not
possible to predict with assurance exactly how this market for restricted
securities sold and offered under Rule 144A will develop, the Board will
carefully monitor the Funds' investments in securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity in the Funds to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted securities.
As a result, the Funds might not be able to sell these securities when their
Sub-Adviser wishes to do so, or might have to sell them at less than fair value.
In addition, market quotations are less readily available. Therefore, judgment
may at times play a greater role in valuing these securities than in the case of
unrestricted securities.

INVESTMENTS IN MONEY MARKET SECURITIES (APPLICABLE TO ALL FUNDS)

Any Fund may hold at least a portion of its assets in cash equivalents or money
market instruments. There is always the risk that the issuer of a money market
instrument may be unable to make payment upon maturity.

The Money Market Fund may hold uninvested cash reserves pending investment,
during temporary defensive periods or if, in the opinion of the Sub-Adviser,
suitable securities are not available for investment. Securities in which the
Money Market Fund may invest may not earn as high a level of current income as
long-term, lower-quality securities which, however, generally have less
liquidity, greater market risk and more fluctuation in market value.

<PAGE>

HIGH YIELD SECURITIES (APPLICABLE TO THE SELECT CAPITAL APPRECIATION FUND,
SELECT GROWTH FUND, AND THE SELECT GROWTH AND INCOME FUND)

Corporate debt securities purchased by the Select Capital Appreciation Fund, the
Select Growth Fund, and the Select Growth and Income Fund will be rated at the
time of purchase B or better by Moody's or S&P, or equivalently rated by another
NRSRO, or unrated but believed by the Sub-Adviser to be of comparable quality
under the guidelines established for the Funds. The Select Growth Fund and the
Select Growth and Income Fund may not invest more than 15% of their assets and
the Select Capital Appreciation Fund may not invest more than 35% of its assets
at the time of investment in securities rated below Baa by Moody's or BBB by
S&P, or equivalently rated by another NRSRO, or unrated but believed by the Sub-
Adviser to be of comparable quality. Securities rated B by Moody's or S&P (or
equivalently by another NRSRO) are below investment grade and are considered, on
balance, to be predominantly speculative with respect to capacity to pay
interest and repay principal and will generally involve more credit risk than
securities in the higher rating categories.

Periods of economic uncertainty and changes can be expected to result in
increased volatility of market prices of lower-rated securities, commonly known
as "high yield" securities or "junk bonds," and of the asset value of the Select
Capital Appreciation Fund, the Select Growth Fund and the Select Growth and
Income Fund. Many issuers of high-yield corporate debt securities are
substantially leveraged, which may impair their ability to meet debt service
obligations. Also, during an economic downturn or substantial period of rising
interest rates, highly leveraged issuers may experience financial stress.

The lack of a liquid secondary market in certain lower-rated securities may have
an adverse impact on market price, and the ability of a Fund to dispose of
particular issues when necessary to meet its liquidity needs or in response to a
specific economic event such as a deterioration in the credit worthiness of the
issuer. In addition, a less liquid market may interfere with the ability of a
Fund to accurately value high-yield securities and, consequently, value a Fund's
assets. Furthermore, adverse publicity and investor perceptions may decrease
the value and liquidity of high yield securities. It is reasonable to expect
any recession to severely disrupt the market for high yield fixed-income
securities, have an adverse impact on the value of such securities, and
adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon. The market prices of lower-rated securities
are generally less sensitive to interest rate changes than higher-rated
investments, but more sensitive to adverse economic or political changes, or
individual developments specific to the issuer. Periods of economic or
political uncertainty and change can be expected to result in volatility of
prices of these securities.

The Funds also may invest in unrated debt securities of foreign and domestic
issuers. Unrated debt, while not necessarily of lower quality than rated
securities, may not have as broad a market. Sovereign debt of foreign
governments is generally rated by country. Because these ratings do not take
into account individual factors relevant to each issue and may not be updated
regularly, the Sub-Adviser may treat such securities as unrated debt. Unrated
debt securities and securities with different ratings from more than one agency
will be included in the 15% and 35% limits of the Funds as stated above, unless
such Fund's Sub-Adviser deems such securities to be the equivalent of investment
grade securities. See Appendix A for a description of the bond ratings.

ASSET-BACKED SECURITIES AND MORTGAGE-BACKED SECURITIES (APPLICABLE TO THE
INVESTMENT GRADE INCOME FUND AND GOVERNMENT BOND FUND)

The Funds may purchase asset-backed securities, which represent a participation
in, or are secured by and payable from, a stream of payments generated by
particular assets, frequently a pool of assets similar to one another. Assets
generating such payments include instruments such as motor vehicle installment
purchase obligations, credit card receivables and home equity loans. Payment of
principal and interest may be guaranteed for certain amounts and time periods by
a letter of credit issued by a financial institution unaffiliated with the
issuer of the securities. The estimated life of an asset-backed security varies
with the prepayment experience of the underlying debt instruments. The rate of
such prepayments, and hence the life of the asset-backed security, will be
primarily a function of current market rates, although other economic and
demographic factors will be involved. Under certain interest rate and
prepayment rate scenarios, the Funds may fail to recoup fully their investment
in asset-backed securities. Each Fund will not invest more than 10% of its
total assets in asset-backed securities.

The Funds also may invest in mortgage-backed securities which are debt
obligations secured by real estate loans and pools of loans on single family
homes, multi-family homes, mobile homes, and in some cases, commercial
properties. The Funds may acquire securities representing an interest in a pool
of mortgage loans that are issued or guaranteed by a U.S. government agency
such as the Government National Mortgage Association ("Ginnie Mae"), the Federal
National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage
Corporation ("Freddie Mac").

<PAGE>

Mortgage-backed securities are in most cases "pass-through" instruments, through
which the holder receives a share of all interest and principal payments from
the mortgages underlying the certificate. Because the prepayment
characteristics of the underlying mortgages vary, it is not possible to predict
accurately the average life or realized yield of a particular issue of pass-
through certificates. During periods of declining interest rates, prepayment of
mortgages underlying mortgage-backed securities can be expected to accelerate.
When the mortgage obligations are prepaid, the Fund reinvests the prepaid
amounts in securities, the yield of which reflects interest rates prevailing at
the time. Moreover, prepayment of mortgages that underlie securities purchased
at a premium could result in losses.

The Funds also may invest in multiple class securities issued by U.S. government
agencies and instrumentalities such as Fannie Mae, Freddie Mac and Ginnie Mae,
including guaranteed collateralized mortgage obligations ("CMOs") and Real
Estate Mortgage Investment Conduit ("REMIC") pass-through or participation
certificates, when consistent with the Funds' investment objectives, policies
and limitations. A CMO is a type of bond secured by an underlying pool of
mortgages or mortgage pass-through certificates that are structured to direct
payments on underlying collateral to different series or classes of obligations.
A REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code and invests in certain mortgages principally secured by interests
in real property and other permitted investments.

CMOs and guaranteed REMIC pass-through certificates ("REMIC Certificates")
issued by Fannie Mae, Freddie Mac and Ginnie Mae are types of multiple pass-
through securities. Investors may purchase beneficial interests in REMICs,
which are known as "regular" interests or "residual" interests. The Funds do
not currently intend to purchase residual interests in REMICS. The REMIC
Certificates represent beneficial ownership interests in a REMIC trust,
generally consisting of mortgage loans or Fannie Mae, Freddie Mac or Ginnie Mae
guaranteed mortgage pass-through certificates. The obligations of Fannie Mae,
Freddie Mac or Ginnie Mae under their respective guaranty of the REMIC
Certificates are obligations solely or Fannie Mae, Freddie Mac or Ginnie Mae,
respectively.

Fannie Mae REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by Fannie Mae. In addition, Fannie Mae
will be obligated to distribute the principal balance of each class of REMIC
Certificates in full, whether or not sufficient funds are otherwise available.

For Freddie Mac REMIC Certificates, Freddie Mac guarantees the timely payment of
interest, and also guarantees the payment of principal as payments are required
to be made on the underlying mortgage participation certificates ("PCs"). PCs
represent undivided interests in specified residential mortgages or
participation therein purchased by Freddie Mac and placed in a PC pool. With
respect to principal payments on PCs, Freddie Mac generally guarantees ultimate
collection of all principal of the related mortgage loans without offset or
deduction. Freddie Mac also guarantees timely payment of principal on certain
PCs referred to as "Gold PCs."

Ginnie Mae REMIC certificates guarantee the full and timely payment of interest
and principal on each class of securities (in accordance with the terms of those
classes, as specified in the related offering circular supplement). This Ginnie
Mae guarantee is backed by the full faith and credit of the United States of
America.

REMIC Certificates issued by Fannie Mae, Freddie Mac and Ginnie Mae are treated
as U. S. government securities for purposes of investment policies. There can
be no assurance that the United States government will provide financial
support to Fannie Mae, Freddie Mac or Ginnie Mae if necessary in the future.

STRIPPED MORTGAGE-BACKED SECURITIES (APPLICABLE TO THE INVESTMENT GRADE INCOME
FUND AND GOVERNMENT BOND FUND)

The Funds may invest in Stripped Mortgage-Backed Securities ("SMBS"). SMBS are
derivative multi-class mortgage securities. SMBS may be issued by agencies or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose entities of the
foregoing.

SMBS are usually structured with two classes that receive different proportions
of the interest and principal distributions on a pool of mortgage assets. One
type of SMBS will have one class receiving some of the interest and most of the
principal from the mortgage assets, while the other class will receive most of
the interest and the remainder of the principal. In some cases, one class will
receive all of the interest (the interest-only or "IO" class), while the other
class will receive all of the principal (the principal-only or "PO" class). The
yield to maturity on an IO class is extremely sensitive to the rate of principal
payments (including prepayments on the related underlying mortgage assets), and
a rapid rate of principal payments may have a material adverse effect on a
portfolio yield to maturity from these securities. If the underlying mortgage
assets

<PAGE>

experience greater than anticipated prepayments of principal, the Funds may fail
to fully recoup their initial investment in these securities even if the
security is in one of the highest rating categories. Certain SMBS may be
deemed "illiquid" and subject to the Funds' limitations on investment in
illiquid securities. The market value of the PO class generally is unusually
volatile in response to changes in interest rates. The yields on a class of
SMBS that receives all or most of the interest from mortgage assets are
generally higher than prevailing market yields on other mortgage-backed
securities because their cash flow patterns are more volatile and there is a
greater risk that the initial investment will not be fully recouped. The Sub-
Adviser will seek to manage these risks (and potential benefits) by investing in
a variety of such securities and by using certain hedging techniques.

FOREIGN CURRENCY HEDGING TECHNIQUES AND INVESTMENT PRACTICES (APPLICABLE TO THE
SELECT INTERNATIONAL EQUITY FUND AND SELECT CAPITAL APPRECIATION FUND)

The Select International Equity Fund and the Select Capital Appreciation Fund
may employ certain strategies in order to manage exchange rate risks. For
example, the Funds may hedge some or all of their investments denominated in a
foreign currency against a decline in the value of that currency. The Funds may
enter into contracts to sell that foreign currency for U.S. dollars (not
exceeding the value of a Fund's assets denominated in that currency) or by
participating in options or futures contracts with respect to such currency
("position hedge"). The Funds also could hedge that position by selling a
second currency, which is expected to perform similarly to the currency in which
portfolio investments are denominated, for U.S. dollars ("proxy hedge"). The
Funds also may enter into a forward contract to sell the currency in which the
security is denominated for a second currency that is expected to perform better
relative to the U.S. dollar if their Sub-Adviser believes there is a reasonable
degree of correlation between movements in the two currencies ("cross-hedge").
As an operational policy, the Funds will not commit more than 10% of their
assets to the consummation of cross-hedge contracts and will either cover
currency hedging transactions with liquid portfolio securities denominated in
the applicable currency or segregate high-grade, liquid assets in the amount of
such commitments. In addition, when the Funds anticipate purchasing securities
denominated in a particular currency, the Funds may enter into a forward
contract to purchase such currency in exchange for the dollar or another
currency ("anticipatory hedge").

These strategies minimize the effect of currency appreciation as well as
depreciation, but do not protect against a decline in the underlying value of
the hedged security. In addition, such strategies may reduce or eliminate the
opportunity to profit from increases in the value of the original currency and
may adversely impact the Funds' performance if their Sub-Adviser's projection of
future exchange rates is inaccurate.

<PAGE>

APPENDIX A

Description of Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's
Corporation ("S&P") commercial paper and bond ratings:

COMMERCIAL PAPER RATINGS

MOODY'S EMPLOYS THREE DESIGNATIONS, ALL JUDGED TO BE INVESTMENT GRADE, TO
INDICATE THE RELATIVE REPAYMENT CAPACITY OF RATED ISSUERS. THE TWO HIGHEST
DESIGNATIONS ARE AS FOLLOWS:

Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:

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

- --High rates of return on funds employed.

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

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

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

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

S&P COMMERCIAL PAPER RATINGS ARE GRADED INTO FOUR CATEGORIES, RANGING FROM "A"
FOR THE HIGHEST QUALITY OBLIGATIONS TO "D" FOR THE LOWEST. THE HIGHEST RATING
IN THE "A" CATEGORIES ARE DESCRIBED AS FOLLOWS:

"A" - Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations 1, 2, and 3 to indicate the relative degree of safety.

"A-1" - This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics will be noted with a plus (+) sign
designation.

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

MUNICIPAL OBLIGATIONS

Moody's ratings for state and municipal and other short-term obligations will be
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing, while various factors of the first importance in long-term
borrowing risk are of lesser importance in the long run. Symbols used will be
as follows:

MIG-1 - Notes bearing this designation are of the best quality enjoying
strong protection from established cash flows of funds for their servicing or
from established and broad-based access to the market for refinancing, or both.

MIG-2 - Notes bearing this designation are of favorable quality, with
all security elements accounted for, but lacking the undeniable strength of the
preceding grade. Market access for refinancing, in particular, is likely to be
less well established.

A short-term rating may also be assigned on an issue having a demand feature.
Such ratings will be designated as VMIG to reflect such characteristics as
payment upon periodic demand rather than fixed maturity dates and payment
relying on external liquidity. Additionally, investors should be alert to the
fact that the source of payment may be limited to the external

<PAGE>

liquidity with no or limited legal recourse to the issuer in the event the
demand is not met. VMIG-1, VMIG-2 and VMIG-3 ratings carry the same definitions
as MIG-1, MIG-2 and MIG-3, respectively.

DESCRIPTION OF MOODY'S BOND RATINGS

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

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

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

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

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

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

Within each rating classification from Aa through B, Moody's has
assigned the numerical modifiers 1, 2 and 3. The modifier 1 indicates that a
security ranks in the higher end of that rating category, 2 in the midrange of a
category and 3 in the lower end of the category.

DESCRIPTION OF S&P'S BOND RATINGS

AAA - Bonds rated AAA have the highest rating assigned by S&P 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 "AAA" 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
interest and repay principal. Although they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for bonds in this category than for bonds in higher rated categories.

BB, B, CCC, CC, C - Bonds rated BB, B, CCC, CC, C are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest 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.

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

<PAGE>

APPENDIX B

Set forth below is historical performance data relating to Janus Capital
Corporation ("JCC"). See "HOW ARE THE FUNDS MANAGED?" in the Prospectus. The
data illustrates past performance in managing accounts with investment
objectives, policies and strategies substantially similar to those employed by
JCC for the Select Capital Appreciation Fund and as measured against specified
market indices. All returns quoted are total rates of return, which include the
impact of capital appreciation as well as the reinvestment of interest and
dividends. Investors should not consider this performance data as an indication
of the future performance of the Fund.

All information relies on data supplied by JCC or from statistical services,
reports or other sources believed by the Manager to be reliable. However, such
information has not been verified and is unaudited. Performance figures for JCC
do not reflect all of its assets under management and may not accurately reflect
the performance of all accounts managed by JCC.

Performance figures reflected herein are net of projected operating expenses of
the Fund but not of charges and expenses of the Separate Accounts investing in
the Fund. The net effect of the operating expenses of the Separate Accounts on
annualized performance, including the compounded effect over time, varies by
accounts on annualized investment performance, and may be substantial. The
account sizes reflected in the performance data below have been determined by
JCC based on the manner in which they prepare performance data generally. In
the opinion of JCC, the relative size of the Fund and their other accounts
reflected herein are sufficiently comparable to the Fund to ensure that
performance of the accounts is relevant. As a regulated investment company
under the Internal Revenue Code, the Fund will not be subject to taxes on its
net investment income and capital gains. Therefore, performance data reflecting
any taxable accounts may not be relevant to the Fund.

<PAGE>

JANUS CAPITAL CORPORATION
SELECT CAPITAL APPRECIATION FUND

ANNUALIZED PERFORMANCE (NET OF FEES)
JANUS CAPITAL S&P 400(2) LIPPER CAPITAL
TIME PERIOD CORPORATION(1) MID CAP APPRECIATION INDEX(3)
- ----------- -------------- ------- ---------------------
(ENDING DECEMBER 31, 1994)
<S> <C> <C> <C> <C>
5 Year 1989 - 1994 ........... 19.8% 11.9% 9.1%
3 Year 1991 - 1994 ........... 13.8 7.1 6.7
1 Year 1993 - 1994 ........... 6.9 (3.6) (2.5)

</TABLE>

[Graph]

(1) The composite includes all separately-managed equity accounts for which
Janus has discretionary authority in which portfolio management focuses on
investment in companies with diverse capitalizations, with emphasis on the
medium, or "Mid-Cap" category and represents substantially similar
investment objectives, policies and strategies to the Select Capital
Appreciation Fund. Accounts enter the composite upon their first full
calendar quarter under management.

The performance results are net of projected Fund expenses of 1.35% for the
Select Capital Appreciation Fund and assume the reinvestment of dividends.
Mortality and expense risk charges and other expenses attributable to the
operation of the separate account invested in the Fund have not been
included. As of December 31, 1994, Janus had approximately $22 billion of
assets under management, of which $1.6 billion was invested using
substantially similar investment objectives, policies and strategies to the
Select Capital Appreciation Fund.

(2) The Standard & Poors' 400 mid-cap Index consists of 400 domestic stocks
chosen for market size (median market capitalization of $676 million)
liquidity and industry group representation. It is a market-value weighted
index (stock price times shares outstanding) with each stock affecting the
index in proportion to its market value. The index is comprised of
industrials, utilities, financials and transportation, in size order. The
weight of each stock in the index is proportional to its price times the
number of shares outstanding. The Standard & Poors' 400 mid-cap is an
unmanaged index and includes the reinvestment of all dividends.

(3) Lipper Capital Appreciation Index is a non-weighted index of the 30 largest
capital appreciation funds. It is calculated daily with adjustments for
income dividends and capital gains distributions as of the ex-dividend
date. Inception date of the index was December 31, 1980. Source: Lipper
Analytical Services, Inc.

These results are unaudited. Past performance of Janus
Capital Corporation should not be interpreted as indicative of future
performance of the Select Capital Appreciation Fund. An investor may not invest
directly in the S&P 400 Mid-Cap index or the Lipper Capital Appreciation index.