AMERICAN SKANDIA TRUST, 497, 1997-05-05

AMERICAN SKANDIA TRUST
497, 1997-05-05

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PROSPECTUS MAY 1, 1997
AMERICAN SKANDIA TRUST
One Corporate Drive, Shelton, Connecticut 06484
- -------------------------------------------------------------------------------

American Skandia Trust (the "Trust") is a managed, open-end investment company
whose separate portfolios ("Portfolios") are diversified, unless otherwise
indicated. The Trust seeks to meet the differing investment objectives of its
Portfolios. The Portfolios as of the date of this Prospectus and their
respective investment objectives are as follows:

Lord Abbett Growth and Income Portfolio seeks long-term growth of capital and
income while attempting to avoid excessive fluctuations in market value. JanCap
Growth Portfolio seeks growth of capital in a manner consistent with
preservation of capital. T. Rowe Price Asset Allocation Portfolio seeks a high
level of total return by investing primarily in a diversified group of fixed
income and equity securities. T. Rowe Price International Equity Portfolio seeks
total return on its assets from long-term growth of capital and income
principally through investments in common stocks of established, non-U.S.
companies. T. Rowe Price International Bond Portfolio (formerly, the AST Scudder
International Bond Portfolio) seeks to provide high current income and capital
appreciation by investing in high-quality, non dollar-denominated government and
corporate bonds outside the United States. Founders Capital Appreciation
Portfolio seeks capital appreciation. INVESCO Equity Income Portfolio seeks high
current income while following sound investment practices. Capital growth
potential is an additional, but secondary, consideration in the selection of
portfolio securities. PIMCO Limited Maturity Bond Portfolio seeks to maximize
total return, consistent with preservation of capital and prudent investment
management. AST Putnam International Equity Portfolio (formerly, the Seligman
Henderson International Equity Portfolio) seeks capital appreciation.

Investments in American Skandia Trust are neither insured nor guaranteed by the
United States Government. Such investments are not bank deposits, and are not
insured by, guaranteed by, obligations of, or otherwise supported by, any bank.

This Prospectus sets forth concisely the information that a prospective investor
should know before investing in shares of the Trust and should be retained for
future reference. A Statement of Additional Information, dated May 1, 1997,
containing additional information about the Trust has been filed with the
Securities and Exchange Commission and is hereby incorporated by reference into
this Prospectus. That Statement is available without charge upon request to the
Trust at the address listed above or by calling (203) 926-1888.

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

Shares of the Trust are available to, and are marketed as a pooled funding
vehicle for, life insurance companies ("Participating Insurance Companies")
writing variable annuity contracts and variable life insurance policies. As of
the date of this Prospectus, the only Participating Insurance Companies are
American Skandia Life Assurance Corporation and Kemper Investors Life Insurance
Company. From time to time, however, the Trust may enter into participation
agreements with other Participating Insurance Companies. Shares of the Trust
also may be offered directly to qualified pension and retirement plans,
including, but not limited to, plans under sections 401, 403, 408 and 457 of the
Internal Revenue Code of 1986, as amended ("Qualified Plans"). The Trust sells
and redeems its shares at net asset value without any sales charges, commissions
or redemption fees. Each variable annuity contract and variable life insurance
policy involves fees and expenses not described in this Prospectus. Certain
Portfolios may not be available in connection with a particular variable annuity
contract or variable life insurance policy or Qualified Plan. Please read the
Prospectus of the variable annuity contracts and variable life insurance
policies issued by Participating Insurance Companies for information regarding
contract fees and expenses and any restrictions on purchases.

FN-444 (5/97)

<PAGE>

TABLE OF CONTENTS

Caption Page
<S> <C>

Portfolio Annual Expenses 3
Financial Highlights 6
Investment Objectives and Policies 8
Lord Abbett Growth and Income Portfolio 8
JanCap Growth Portfolio 9
T. Rowe Price Asset Allocation Portfolio 11
T. Rowe Price International Equity Portfolio 15
T. Rowe Price International Bond Portfolio 17
Founders Capital Appreciation Portfolio 20
INVESCO Equity Income Portfolio 24
PIMCO Limited Maturity Bond Portfolio 26
AST Putnam International Equity Portfolio 32
Certain Risk Factors and Investment Methods 34
Regulatory Matters 41
Portfolio Turnover 41
Brokerage Allocation 42
Investment Restrictions 42
Net Asset Values 42
Purchase and Redemption of Shares 42
Management of the Trust 43
Tax Matters 49
Organization and Description of Shares of the Trust 50
Performance 50
Transfer and Shareholder Servicing Agent
and Custodian 51
Counsel and Auditors 51
Other Information 52
</TABLE>

<PAGE>

PORTFOLIO ANNUAL EXPENSES (as a percentage of average net assets): Unless
otherwise indicated, the expenses shown on the following page are for the year
ending December 31, 1996. "N/A" indicates that no entity has agreed to reimburse
the particular expense indicated. The expenses of the portfolios either are
currently being partially reimbursed or may be partially reimbursed in the
future. Management Fees, Other Expenses and Total Annual Expenses are provided
on both a reimbursed and not reimbursed basis, if applicable.

Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
NONE* Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of
offering price) NONE* Deferred Sales Load (as a percentage of original purchase
price or redemption proceeds, as applicable) NONE* Redemption Fees (as a
percentage of amount redeemed, if applicable) NONE* Exchange Fee NONE*

* Because shares of the Portfolios may be purchased through variable insurance
contacts, the prospectus of the Participating Insurance Company sponsoring such
contract should be carefully reviewed for information on relevant charges and
expenses. The table on the following page does not reflect any such charges.

<TABLE>
<CAPTION>
Annual Fund Operating Expenses (as a percentage of average net assets)

Total Total
Annual Annual
Management Management Other Other Expenses Expenses
Fee Fee Expenses Expenses after any without any
after any without any after any without any applicable applicable
Portfolio: voluntary voluntary any applicable applicable waiver or waiver or
waiver waiver reimbursement reimbursement reimbursementreimbursement
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>

Lord Abbett Growth and Income N/A 0.75% N/A 0.22% N/A 0.97%
JanCap Growth N/A 0.90% N/A 0.20% N/A 1.10%
T. Rowe Price Asset Allocation N/A 0.85% N/A 0.35% N/A 1.20%
T. Rowe Price Int'l Equity N/A 1.00% N/A 0.30% N/A 1.30%
T. Rowe Price Int'l Bond(1) N/A 0.80% N/A 0.36% N/A 1.16%
Founders Capital Appreciation N/A 0.90% N/A 0.26% N/A 1.16%
INVESCO Equity Income N/A 0.75% N/A 0.23% N/A 0.98%
PIMCO Limited Maturity Bond N/A 0.65% N/A 0.24% N/A 0.89%
AST Putnam Int'l Equity(2) N/A 0.89% N/A 0.27% N/A 1.16%
</TABLE>

(1) Prior to May 1, 1996, the Investment Manager had engaged Scudder, Stevens &
Clark, Inc. as Sub-advisor for the Portfolio, for a total Investment Management
fee payable at the annual rate of 1.00% of the average daily net assets of the
Portfolio. As of May 1, 1996, the Investment Manager engaged Rowe Price-Fleming
International, Inc. as Sub-advisor for the Portfolio, for a total Investment
Management fee payable at the annual rate of .80% of the average daily net
assets of the Portfolio. The Management Fee in the above chart reflects the
current Investment Management fee payable to the Investment Manager. (2) Prior
to October 15, 1996, the Investment Manager had engaged Seligman Henderson Co.
as Sub-advisor for the Portfolio, for a total Investment Management fee payable
at the annual rate of 1.0% of the average daily nets assets of the Portfolio.
The Investment Manager had also voluntarily agreed to waive a portion of its fee
equal to .15% on assets in excess of $75 million. As of October 15, 1996, the
Investment Manager engaged Putnam Investment Management, Inc. as Sub-advisor for
the Portfolio, for a total Investment Management fee payable at the annual rate
of 1.0% of the average daily net assets of the Portfolio not in excess of $75
million; plus .85% of the Portfolio's average daily net assets over $75 million.
The Management Fee in the above chart reflects the current Investment Management
fee payable to the Investment Manager.

The purpose of the above table is to assist you in understanding the various
costs and expenses that you would bear directly or indirectly as an investor in
the Portfolio(s).

EXPENSE EXAMPLES: The examples reflect expenses of the Portfolio.

The examples shown assume that the total annual expenses for the Portfolios
throughout the period specified will be the lower of the total annual expenses
without any applicable reimbursement or expenses after any applicable
reimbursement.

<PAGE>

THE EXAMPLES ARE ILLUSTRATIVE ONLY - THEY SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE PORTFOLIOS - ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.

<TABLE>
<CAPTION>
You would pay the following expenses rounded to the nearest dollar on a $1,000 investment assuming 5% annual return at
the end of each time period.
After:
Portfolio: 1 yr. 3 yrs. 5 yrs. 10 yrs.
- --------- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Lord Abbett Growth and Income 10 31 54 120
JanCap Growth 11 35 61 135
T. Rowe Price Asset Allocation 12 38 66 145
T. Rowe Price International Equity 13 41 71 156
T. Rowe Price International Bond 12 37 64 141
Founders Capital Appreciation 12 37 64 141
INVESCO Equity Income 10 31 54 120
PIMCO Limited Maturity Bond 9 28 49 110
AST Putnam International Equity 12 37 64 141
</TABLE>

<PAGE>

(This page has been intentionally left blank.)

<PAGE>

FINANCIAL HIGHLIGHTS (Selected Per Share Data for an Average Share Outstanding
and Ratios Throughout Each Period): The tables below contain financial
information which has been audited in conjunction with the annual audits of the
financial statements of American Skandia Trust by Deloitte & Touche LLP,
Independent Auditors. Audited Financial Statements for the year ended December
31, 1996 and the Independent Auditors' Report thereon are included in the
Trust's Statement of Additional Information, which is available without charge
upon request to the Trust at One Corporate Drive, Shelton, Connecticut or by
calling (203) 926-1888. Further information about the performance of the
Portfolios is contained in the annual reports of the separate accounts funding
the variable annuity contracts and variable life insurance policies, which also
may be obtained without charge upon request to the Trust at that address or
phone number. The information presented in these financial highlights is
historical and is not intended to indicate future performance of the Portfolios.

<TABLE>
<CAPTION>
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INCREASE (DECREASE) FROM
INVESTMENT OPERATIONS
-------------------------------------- LESS DISTRIBUTIONS
NET ASSET NET ------------------------------------- NET ASSET
VALUE INVESTMENT NET REALIZED TOTAL FROM FROM NET FROM NET VALUE
YEAR BEGINNING INCOME & UNREALIZED INVESTMENT INVESTMENT REALIZED TOTAL END
PORTFOLIO ENDED OF PERIOD (LOSS) GAIN (LOSS) OPERATIONS INCOME GAINS DISTRIBUTIONS OF PERIOD
- ------------ -------- --------- ---------- ------------ ---------- ---------- -------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AST Putnam 12/31/96 $ 18.20 $ 0.16 $ 1.55 $ 1.71 $ (0.32) $ (0.37) $ (0.69) $19.22
Internanational 12/31/95 17.61 0.14 1.44 1.58 -- (0.99) (0.99) 18.20
Equity* 12/31/94 17.34 0.10 0.36 0.46 (0.03) (0.16) (0.19) 17.61
12/31/94 17.34 0.10 0.36 0.46 (0.03) (0.16) (0.19) 17.61
12/31/93 12.74 0.14 4.46 4.60 -- -- -- 17.34
12/31/92 13.90 (0.17) (0.99) (1.16) -- -- -- 12.74
12/31/91 12.99 0.01 0.90 0.91 -- -- -- 13.90
12/31/90 13.76 0.22 (0.63) (0.41) (0.23) (0.13) (0.36) 12.99
12/31/89(2) 10.00 0.06 3.70 3.76 -- -- -- 13.76

Lord Abbett 12/31/96 $ 14.98 $ 0.23 $ 2.48 $ 2.71 $ (0.17) $ (0.35) $ (0.52) $17.17
Growth and 12/31/95 12.00 0.16 3.22 3.38 (0.20) (0.20) (0.40) 14.98
Income 12/31/94 12.06 0.20 0.06 0.26 (0.12) (0.20) (0.32) 12.00
12/31/93 10.70 0.11 1.35 1.46 (0.04) (0.06) (0.10) 12.06
12/31/92(3) 10.00 0.07 0.63 0.70 -- -- -- 10.70

JanCap Growth 12/31/96 $ 15.40 $ 0.02 $ 4.19 $ 4.21 $ (0.02) $ (0.80) $ (0.82) $18.79
12/31/95 11.22 0.06 4.18 4.24 (0.06) -- (0.06) 15.40
12/31/94 11.78 0.06 (0.59) (0.53) (0.03) -- (0.03) 11.22
12/31/93 10.53 0.03 1.22 1.25 -- -- -- 11.78
12/31/92(4) 10.00 (0.01) 0.54 0.53 -- -- -- 10.53

T. Rowe Price 12/31/96 $ 12.01 $ 0.27 $ 1.28 $ 1.55 $ (0.25) $ (0.04) $ (0.29) $13.27
Asset 12/31/95 9.94 0.26 2.02 2.28 (0.21) -- (0.21) 12.01
Allocation 12/31/94(5) 10.00 0.21 (0.27) (0.06) -- -- -- 9.94

INVESCO 12/31/96 $ 12.50 $ 0.27 $ 1.79 $ 2.06 $ (0.24) $ (0.33) $ (0.57) $13.99
Equity Income 12/31/95 9.75 0.25 2.65 2.90 (0.15) -- (0.15) 12.50
12/31/94(5) 10.00 0.16 (0.41) (0.25) -- -- -- 9.75

Founders Capital 12/31/96 $ 14.25 $ (0.03) $ 2.85 $ 2.82 $ -- $ (0.27) $ (0.27) $16.80
Appreciation 12/31/95 10.84 (0.04) 3.54 3.50 (0.09) -- (0.09) 14.25
12/31/94(5) 10.00 0.11 0.73 0.84 -- -- -- 10.84

T. Rowe Price 12/31/96 $ 10.65 $ 0.06 $ 1.44 $ 1.50 $ (0.08) $ -- $ (0.08) $12.07
International 12/31/95 9.62 0.07 0.99 1.06 (0.01) (0.02) (0.03) 10.65
Equity 12/31/94(5) 10.00 0.02 (0.40) (0.38) -- -- -- 9.62

T. Rowe Price 12/31/96 $ 10.60 $ 0.23 $ 0.38 $ 0.61 $ (0.14) $ (0.17) $ (0.31) $10.90
International 12/31/95 9.68 0.31 0.75 1.06 (0.14) -- (0.14) 10.60
Bond** 12/31/94(6) 10.00 0.27 (0.59) (0.32) -- -- -- 9.68

PIMCO Limited 12/31/96 $ 10.47 $ 0.56 $ (0.15) $ 0.41 $ (0.05) $ (0.02) $ (0.07) $10.81
Maturity Bond 12/31/95(7) 10.00 0.05 0.42 0.47 -- -- -- 10.47
</TABLE>

- --------------------------------------------------------------------------------
+ Represents total commissions paid on portfolio securities divided by the
total number of shares purchased or sold on which commissions are charged.
This disclosure is required by the SEC beginning in 1996.

(1) Annualized.
(2) Commenced operations on April 19, 1989.
(3) Commenced operations on May 1, 1992.
(4) Commenced operations on November 6, 1992.
(5) Commenced operations on January 4, 1994.
(6) Commenced operations on May 3, 1994.
(7) Commenced operations on May 2, 1995.

* Prior to October 15, 1996, Seligman Henderson Co. served as Sub-advisor to
the AST Putnam International Equity Portfolio (formerly the Seligman
Henderson International Equity Portfolio). Putnam Investment Management,
Inc. has served as Sub-advisor to the Portfolio since October 15, 1996.
** Prior to May 1, 1996, Scudder Stevens & Clark served as Sub-advisor to the
T. Rowe Price International Bond Portfolio (formerly the AST Scudder
International Bond Portfolio). Rowe Price-Fleming International, Inc. has
served as Sub-advisor to the Portfolio since May 1, 1996.
*** Prior to October 15, 1996, Seligman Henderson Co. served as Sub-advisor to
the Founders Passport Portfolio (formerly the Seligman Henderson
International Small Cap Portfolio). Founders Asset Management Inc. has
served as Sub-advisor to the Portfolio since October 15, 1996.

See Notes to Financial Statements.

<PAGE>

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS OF NET INVESTMENT INCOME
RATIOS OF EXPENSES (LOSS)
TO AVERAGE NET ASSETS TO AVERAGE NET ASSETS
------------------------------- -------------------------------
SUPPLEMENTAL DATA AFTER BEFORE AFTER BEFORE
---------------------------------------------- ADVISORY ADVISORY ADVISORY ADVISORY
NET ASSETS AT PORTFOLIO AVERAGE FEE WAIVER FEE WAIVER FEE WAIVER FEE WAIVER
TOTAL END OF PERIOD TURNOVER COMMISSION AND EXPENSE AND EXPENSE AND EXPENSE AND EXPENSE
PORTFOLIO RETURN (IN 000'S) RATE RATE PAID+ REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT
------ ------------- -------- ---------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AST Putnum 9.65% $ 346,211 124% $ 0.0151 1.16% 1.26% 0.88% 0.78%
International 10.00% 268,056 59% -- 1.17% 1.27% 0.88% 0.78%
Equity* 2.64% 238,050 49% -- 1.22% 1.32% 0.55% 0.46%
36.11% 150,646 32% -- 1.52% 1.52% 0.28% 0.28%
(8.35%) 24,998 55% -- 2.50% 2.50% (1.62%) (1.62%)
7.01% 15,892 59% -- 2.50% 2.82% 0.12% (0.20%)
(2.97%) 6,015 76% -- 2.38% 8.80% 1.67% (4.75%)
37.60% 1,299 55% -- 1.17%(1) 67.51%(1) 3.72%(1) (62.62%)(1)

Lord Abbett 18.56% $ 530,497 43% $ 0.0655 0.97% 0.97% 1.92% 1.92%
Growth and 28.91% 288,749 50% -- 0.99% 0.99% 2.50% 2.50%
Income 2.22% 92,050 60% -- 1.06% 1.06% 2.45% 2.45%
13.69% 48,385 57% -- 1.22% 1.33% 2.05% 1.94%
7.00% 10,159 34% -- 0.99%(1) 1.75%(1) 2.49%(1) 1.73%(1)

JanCap Growth 28.36% $ 892,324 79% $ 0.0569 1.10% 1.10% 0.25% 0.25%
37.98% 431,321 113% -- 1.12% 1.12% 0.51% 0.51%
(4.51%) 245,645 94% -- 1.18% 1.18% 0.62% 0.62%
11.87% 157,852 92% -- 1.22% 1.22% 0.35% 0.35%
5.30% 15,218 2% -- 1.33%(1) 2.21%(1) (0.90%)(1) (1.78%)(1)

T. Rowe Price 13.14% $ 120,149 31% $ 0.0366 1.20% 1.20% 3.02% 3.02%
Asset 23.36% 59,399 18% -- 1.25% 1.29% 3.53% 3.49%
Allocation (0.60%) 23,463 32% -- 1.25%(1) 1.47%(1) 3.64%(1) 3.42%(1)

INVESCO 17.09% $ 348,680 58% $ 0.0603 0.98% 0.98% 2.83% 2.83%
Equity Income 30.07% 176,716 89% -- 0.98% 0.98% 3.34% 3.34%
(2.50%) 65,201 63% -- 1.14%(1) 1.14%(1) 3.41%(1) 3.41%(1)

Founders Capital 20.05% $ 220,068 69% $ 0.0573 1.16% 1.16% (0.38%) (0.38%)
Appreciation 32.56% 90,460 68% -- 1.22% 1.22% (0.28%) (0.28%)
8.40% 28,559 198% -- 1.30%(1) 1.55%(1) 2.59%(1) 2.34%(1)

T. Rowe Price 14.17% $ 402,559 11% $ 0.0255 1.30% 1.30% 0.84% 0.84%
International 11.09% 195,667 17% -- 1.33% 1.33% 1.03% 1.03%
Equity (3.80%) 108,751 16% -- 1.75%(1) 1.77%(1) 0.45%(1) 0.43%(1)

T. Rowe Price 5.98% $ 98,235 241% N/A 1.21% 1.21% 5.02% 5.02%
International 11.10% 45,602 325% -- 1.53% 1.53% 6.17% 6.17%
Bond** (3.20%) 15,218 163% -- 1.68%(1) 1.68%(1) 7.03%(1) 7.03%(1)

PIMCO Limited 3.90% $ 209,013 247% N/A 0.89% 0.89% 5.69% 5.69%
Maturity Bond 4.70% 161,940 205% -- 0.89%(1) 0.89%(1) 4.87%(1) 4.87%(1)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

INVESTMENT OBJECTIVES AND POLICIES: The investment objective and policies for
each of the Portfolios are described below, and should be considered separately.
While certain policies apply to all Portfolios, generally each Portfolio has a
different investment objective and certain policies may vary. As a result, the
risks, opportunities and returns in each Portfolio may differ. Those investment
policies specifically labeled as "fundamental" may not be changed without
approval of the shareholders of the affected Portfolio. Each Portfolio's
investment objective or investment policies, unless otherwise specified, is not
a fundamental policy and may be changed without shareholder approval. There can
be no assurance that any Portfolio's investment objective will be achieved. Risk
factors in relation to various securities and instruments in which the
Portfolios may invest are described in the sections of this Prospectus and the
Trust's Statement of Additional Information entitled "Certain Risk Factors and
Investment Methods." Additional information about the investment objectives and
policies of each Portfolio may be found in the Trust's Statement of Additional
Information under "Investment Objectives and Policies."

American Skandia Investment Services, Incorporated ("ASISI") is the
investment manager ("Investment Manager") for the Trust. Currently, ASISI
engages a sub-advisor ("Sub-advisor") for each Portfolio. The Sub-advisor for
each Portfolio is as follows: (a) Lord Abbett Growth and Income Portfolio: Lord,
Abbett & Co.; (b) JanCap Growth Portfolio: Janus Capital Corporation; (c) AST
Janus Overseas Growth Portfolio: Janus Capital Corporation; (d) T. Rowe Price
Asset Allocation Portfolio: T. Rowe Price Associates, Inc.; (e) T. Rowe Price
International Equity Portfolio: Rowe Price-Fleming International, Inc.; (f) T.
Rowe Price International Bond Portfolio: Rowe Price-Fleming International, Inc.;
(g) Founders Capital Appreciation Portfolio: Founders Asset Management, Inc.;
(h) INVESCO Equity Income Portfolio: INVESCO Trust Company; (i) PIMCO Limited
Maturity Bond Portfolio: Pacific Investment Management Company; (j) AST Putnam
International Equity Portfolio: Putnam Investment Management, Inc.

Subject to approval of the Board of Trustees of the Trust, the Trust
may add one or more portfolios and may cease to offer one or more portfolios,
any such cessation to be subject to obtaining required regulatory approvals.

Lord Abbett Growth and Income Portfolio:

Investment Objective: The investment objective of the Lord Abbett Growth and
Income Portfolio is long-term growth of capital and income while attempting to
avoid excessive fluctuations in market value. This is a fundamental objective of
the Portfolio.

Investment Policies:

The Sub-advisor will try to keep the Portfolio's assets invested in
those securities which are selling at reasonable prices in relation to value. To
do so, the Portfolio may forgo some opportunities for gains when, in the
judgment of the Sub-advisor, they carry excessive risk. The Sub-advisor will try
to anticipate major changes in the economy and select stocks for the Portfolio
which it believes will benefit most from these changes.

The Portfolio normally will invest in common stocks (including
securities convertible into common stocks) of seasoned companies which are
expected to show above-average growth and which the Sub-advisor believes to be
in sound financial condition. Although the prices of common stocks fluctuate and
their dividends vary, historically, common stocks held over long periods of time
have appreciated in value and their dividends have increased when the companies
they represent have prospered and grown.

The Sub-advisor will be constantly balancing the opportunity for profit
against the risk of loss for the Portfolio. In the past, very few industries
have continuously provided the best investment opportunities. The Sub-advisor
will take a flexible approach and adjust the Portfolio to reflect changes in the
opportunity for sound investments relative to the risks assumed. Therefore, the
Portfolio will sell securities that the Sub-advisor judges to be overpriced and
reinvest the proceeds in other securities which the Sub-advisor believes offer
better values.

At such times that the Sub-advisor deems appropriate and consistent
with this Portfolio's investment objective, the Portfolio may: (a) write covered
call options which are traded on a national securities exchange with respect to
securities in the Portfolio; (b) invest up to 10% of the Portfolio's net assets
(at the time of investment) in foreign securities; and (c) invest in straight
bonds and other debt securities, including lower-rated high-yield bonds. It is
not intended for the Portfolio to write covered call options with respect to
securities with an aggregate market value of more than 10% of the Portfolio's
gross assets at the time an option is written. For a discussion of the risks
involved in options transactions and in investing in lower-rated high-yield debt
securities or foreign securities, see this Prospectus and the Trust's Statement
of Additional Information under "Certain Risk Factors and Investment Methods."
For an additional description of covered options, see the Trust's Statement of
Additional Information under "Investment Objectives and Policies."

The Portfolio will not purchase securities for trading purposes. To
create reserve purchasing power and also for temporary defensive purposes, the
Portfolio may invest in short-term debt and other high quality fixed-income
securities.

Lending Portfolio Securities. The Portfolio may engage in the lending of
its securities. It is expected that no more that 5% of the Portfolio's gross
assets may be committed to securities lending. For a discussion of the risks
involved therein, see this Prospectus under "Certain Risk Factors and Investment
Methods."

Lower-Rated High-Yield Bonds. The Portfolio may invest no more than 5%
of its net assets (at the time of investment) in lower-rated (BB/Ba or lower)
high-yield bonds. For a description of these instruments and the risks involved
therein, see this Prospectus and the Trust's Statement of Additional Information
under "Certain Risk Factors and Investment Methods."

Illiquid Securities. Subject to guidelines promulgated by the Board of
Trustees of the Trust, the Portfolio may invest in securities eligible for
resale pursuant to Rule 144A of the Securities Act of 1933. For a discussion of
these instruments and the risks involved therein, see this Prospectus under
"Certain Risk Factors and Investment Methods" and the Trust's Statement of
Additional Information under "Investment Objectives and Policies."

Borrowing. For a discussion of limitations on borrowing by the Portfolio
and risks involved in borrowing, see this Prospectus under "Certain Risk Factors
and Investment Methods."

JanCap Growth Portfolio:

Investment Objective: The investment objective of the JanCap Growth Portfolio is
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 Portfolio's investments, therefore, will be incidental to
the Portfolio's objective. This is a fundamental objective of the Portfolio.

Investment Policies:

The Portfolio will pursue its objective by investing primarily in
common stocks. Common stock investments will be in industries and companies that
the Sub-advisor believes are experiencing favorable demand for their products
and services, and which operate in a favorable competitive and regulatory
environment. Although the Sub-advisor expects to invest primarily in equity
securities, the Sub-advisor may increase the Portfolio's cash position without
limitation when the Sub-advisor is of the opinion that appropriate investment
opportunities for capital growth with desirable risk/reward characteristics are
unavailable. The Portfolio may also invest to a lesser degree in preferred
stocks, convertible securities, warrants, and debt securities when the Portfolio
perceives an opportunity for capital growth from such securities or so that the
Portfolio may receive a return on its idle cash. Debt securities that the
Portfolio may purchase include corporate bonds and debentures (not to exceed 5%
of net assets in bonds rated below investment grade), government securities,
mortgage- and asset-backed securities, zero-coupon bonds, indexed/structured
notes, high-grade commercial paper, certificates of deposit and repurchase
agreements. For a discussion of risks involved in lower-rated securities,
mortgage- and asset-backed securities and zero coupon bonds, see this Prospectus
and the Trust's Statement of Additional Information under "Certain Risk Factors
and Investment Methods."

Although it is the general policy of the Portfolio to purchase and hold
securities for capital growth, changes in the Portfolio will be made as the
Sub-advisor deems advisable. For example, Portfolio changes may result from
liquidity needs, securities having reached a price objective, or by reason of
developments not foreseen at the time of the original investment decision.
Portfolio changes may be effected for other reasons. In such circumstances,
investment income will increase and may constitute a large portion of the return
on the Portfolio and the Portfolio will not participate in the market advances
or declines to the extent that it would if it were fully invested.

Because investment changes usually will be made without reference to
the length of time a security has been held, a significant number of short-term
transactions may result. To a limited extent, the Portfolio may also purchase
individual securities in anticipation of relatively short-term price gains, and
the rate of portfolio turnover will not be a determining factor in the sale of
such securities. However, certain tax rules may restrict the Portfolio's ability
to sell securities in some circumstances when the security has been held for
less than three months. Increased portfolio turnover necessarily results in
correspondingly higher brokerage costs for the Portfolio.

The Portfolio may invest in "special situations" from time to time. A
"special situation" arises when, in the opinion of the Sub-advisor, the
securities of a particular company will be recognized and appreciate in value
due to a specific development, such as a technological breakthrough, management
change or new product at that company. Investment in "special situations"
carries an additional risk of loss in the event that the anticipated development
does not occur or does not attract the expected attention.

Foreign Securities. The Portfolio may also purchase securities of
foreign issuers, including foreign equity and debt securities and depositary
receipts. Foreign securities are selected on a stock-by-stock basis without
regard to any defined allocation among countries or geographic regions. However,
certain factors such as expected levels of inflation, government policies
influencing business conditions, the outlook for currency relationships, and
prospects for economic growth among countries, regions or geographic areas may
warrant greater consideration in selecting foreign stocks. No more than 25% of
the Portfolio's assets may be invested in foreign securities denominated in
foreign currency and not publicly traded in the United States. For a discussion
of depositary receipts and the risks involved in investing in foreign
securities, including the risk of currency fluctuations, see this Prospectus and
the Trust's Statement of Additional Information under "Certain Risk Factors and
Investment Methods."

Futures, Options and Other Derivative Instruments. Subject to certain
limitations, the Portfolio may purchase and write options on securities,
financial indices, and foreign currencies, and may invest in futures contracts
on securities, financial indices, and foreign currencies ("futures contracts"),
options on futures contracts, forward contracts and swaps and swap-related
products. These instruments will be used primarily to hedge the Portfolio's
positions against potential adverse movements in securities prices, foreign
currency markets or interest rates. To a limited extent, the Portfolio may also
use derivative instruments for non-hedging purposes such as increasing the
Portfolio's income or otherwise enhancing return. The Portfolio will not use
futures contracts and options for leveraging purposes. There can be no
assurance, however, that the use of these instruments by the Portfolio will
assist it in achieving its investment objective. The use of futures, options,
forward contracts and swaps involves investment risks and transaction costs to
which the Portfolio would not be subject absent the use of these strategies. The
Sub-advisor may, from time to time, at its own expense, call upon the experience
of experts to assist it in implementing these strategies. The Portfolio may also
use a variety of currency hedging techniques, including forward currency
contracts, to manage exchange rate risk with respect to investments exposed to
foreign currency fluctuations.

Risks of Futures and Options Transactions. There are risks involved in
futures and options transactions. For a discussion of futures and options
transactions and the risks involved therein, see this Prospectus under "Certain
Risk Factors and Investment Methods" and the Trust's Statement of Additional
Information under "Investment Objectives and Policies" and "Certain Risk Factors
and Investment Methods."

Repurchase Agreements. Subject to guidelines promulgated by the Board
of Trustees of the Trust, the Portfolio may enter into repurchase agreements,
which involve the purchase of a security by the Portfolio and a simultaneous
agreement (generally with a bank or dealer) to repurchase the security from the
Portfolio at a specified date or upon demand. The Portfolio's repurchase
agreements will at all times be fully collateralized. Pursuant to an exemptive
order granted by the Securities and Exchange Commission, the Portfolio and other
funds advised by the Sub-advisor may invest in repurchase agreements and other
money market instruments through a joint trading account. For a discussion of
repurchase agreements and the risks involved therein, see this Prospectus under
"Certain Risk Factors and Investment Methods."

Reverse Repurchase Agreements. The Portfolio is permitted to enter into
reverse repurchase agreements. In a reverse repurchase agreement, the Portfolio
sells a security and agrees to repurchase it at a mutually agreed upon date and
price. For a discussion of reverse repurchase agreements and the risks involved
therein, see this Prospectus under "Certain Risk Factors and Investment
Methods."

When-Issued, Delayed Delivery and Forward Transactions. The Portfolio
may purchase securities on a when-issued or delayed delivery basis, which
generally involves the purchase of a security with payment and delivery due at
some time in the future. The Portfolio does not earn interest on such securities
until settlement and bears the risk of market value fluctuations in between the
purchase and settlement dates. For an additional discussion of when-issued
securities and certain risks involved therein, see the Trust's Statement of
Additional Information under "Certain Risk Factors and Investment Methods."

Illiquid Securities. Subject to guidelines promulgated by the Board of
Trustees of the Trust, the Portfolio may also invest up to 15% of its net assets
in securities that are considered illiquid because of the absence of a readily
available market or due to legal or contractual restrictions. Securities
eligible for resale under Rule 144A of the Securities Act of 1933, and
commercial paper issued under Section 4(2) of the Securities Act of 1933, could
be deemed "liquid" when saleable in a readily available market. For a discussion
of illiquid securities and the risks involved therein, see this Prospectus under
"Certain Risk Factors and Investment Methods."

Lower-Rated High-Yield Bonds. The Portfolio may invest no more than 5%
of its net assets (at the time of investment) in lower-rated high-yield bonds.
For a discussion of these instruments and the risks involved therein, see this
Prospectus and the Statement of Additional Information under "Certain Risk
Factors and Investment Methods."

Borrowing. Subject to the Portfolio's restrictions on borrowing, the
Portfolio may also borrow money from banks. For a discussion of the limitations
on borrowing by the Portfolio and certain risks involved in borrowing, see this
Prospectus under "Certain Risk Factors and Investment Methods" and the Trust's
Statement of Additional Information under "Investment Objectives and Policies."

Portfolio Turnover. The Portfolio may have higher portfolio turnover
than other mutual funds with similar investment objectives. For a discussion of
portfolio turnover and its effects, see this Prospectus and the Trust's
Statement of Additional Information under "Portfolio Turnover."

T. Rowe Price Asset Allocation Portfolio:

Investment Objective: The investment objective of the T. Rowe Price Asset
Allocation Portfolio is to seek a high level of total return by investing
primarily in a diversified group of fixed income and equity securities. This is
a fundamental objective of the Portfolio.

Investment Policies:

The Portfolio is designed to balance the potential appreciation of
common stocks with the income and principal stability of bonds over the long
term. Under normal market conditions over the long-term, the Portfolio expects
to allocate its assets so that approximately 40% of such assets will be in fixed
income securities and approximately 60% in equity securities. This mix may vary
over shorter time periods within the ranges set forth below:

Range

Fixed Income Securities 30-50%
Equity Securities 50-70%

The primary consideration in varying from the 60-40 allocation will be
the Sub-advisor's outlook for the different markets in which the Portfolio
invests. Shifts between bonds and stocks will normally be done gradually and the
Sub-advisor will not attempt to precisely "time" the market. There is, of
course, no guarantee that even the Sub-advisor's gradual approach to allocating
the Portfolio's assets will be successful in achieving the Portfolio's
objective. The Portfolio will also maintain cash reserves to facilitate the
Portfolio's cash flow needs (redemptions, expenses and purchases of Portfolio
securities) and it may invest in cash reserves without limitation for temporary
defensive purposes.

Assets allocated to the fixed income portion of the Portfolio primarily
will be invested in U.S. and foreign investment grade bonds and high-yield
bonds, and cash reserves.

Assets allocated to the equity portion of the Portfolio primarily will
be invested in the common stocks of a diversified group of U.S. and foreign
large and small companies.

<PAGE>

The Portfolio's share price will fluctuate with changing market
conditions and interest rate levels and your investment may be worth more or
less when redeemed than when purchased. The Portfolio should not be relied upon
for short-term financial needs, nor used to play short-term swings in the stock
or bond markets. The Portfolio cannot guarantee that it will achieve its
investment objectives.

Fixed Income Securities. The Portfolio's fixed income securities will
be allocated among investment grade, high-yield and non-dollar debt securities
generally within the ranges indicated below:

Range

Investment Grade 50-100%
High Yield 0-30%
Non-dollar 0-30%
Cash Reserves 0-20%

Investment Grade. Long, intermediate and short-term investment
grade debt securities (e.g., those rated AAA, AA, A or BBB by Standard & Poor's
Corporation ("S&P"), or if not rated, of equivalent investment quality as
determined by Sub-advisor). The weighted average maturity for this portion of
the Portfolio is generally expected to be intermediate, although it may vary
significantly.

High-Yield, Lower-Rated Securities. High-yielding,
income-producing debt securities (commonly referred to as "junk bonds") and
preferred stocks including convertible securities. Bonds may be purchased
without regard to maturity. However, the average maturity of the bonds is
expected to be approximately 10 years, although it may vary if market conditions
warrant. Quality will generally range from lower-medium to low and the Portfolio
may also purchase bonds in default if, in the opinion of the Sub-advisor, there
is significant potential for capital appreciation. Lower-rated debt obligations
are generally considered to be high risk investments. See this Prospectus and
the Trust's Statement of Additional Information for a discussion of the risks
involved in investing in high-yield, lower-rated debt securities.

Non-Dollar. Non-dollar denominated, high-quality (e.g., AAA
and AA by S&P, or if not rated, of equivalent investment quality as determined
by the Sub-advisor) government and corporate debt securities of at least three
countries. See this Prospectus and the Trust's Statement of Additional
Information for a discussion of the risks involved in foreign investing.

Cash Reserves. Liquid short-term investments of one year or
less having the highest ratings by at least one established rating organization,
or if not rated, of equivalent investment quality as determined by the
Sub-advisor.

Equity Securities. The Portfolio's equity securities will be allocated
among large and small-cap U.S. and non-dollar equity securities within the
ranges indicated below:

Range

Large Cap 45-100%
Non-dollar 0-35%
Small Cap 0-30%

Large-Cap. Generally, stocks of well-established companies with
capitalization over $1 billion which can produce increasing dividend income.

Non-Dollar. Common stocks of established non-U.S. companies.
Investments may be made solely for capital appreciation or solely for income or
any combination of both for the purpose of achieving a higher overall return.
The Sub-advisor intends to diversify this portion of the Portfolio broadly among
countries and to normally have at least three different countries represented.
The countries of the Far East and Western Europe as well as South Africa,
Australia, Canada, and other areas (including developing countries) may be
included. Under unusual circumstances, however, investment may be substantially
in one or two countries. See this Prospectus and the Trust's Statement of
Additional Information for a discussion of the risks in international investing
under "Certain Risk Factors and Investment Methods."

Small-Cap Investing and Associated Risks. Common stocks of small
companies or companies which offer the possibility of accelerated earnings
growth because of rejuvenated management, new products or structural changes in
the economy. Current income is not a factor in the selection of these stocks.
Higher risks are often associated with small companies. These companies may have
limited product lines, markets and financial resources, or they may be dependent
on a small or inexperienced management group. In addition, their securities may
trade less frequently and in limited volume and move more abruptly than
securities of larger companies. However, securities of smaller companies may
offer greater potential for capital appreciation since they are often overlooked
or undervalued by investors.

The Portfolio's investments include, but are not limited to, equity and
fixed income securities of any type, as well as the investments described below.

Asset-Backed Securities. The Portfolio may invest in asset-backed
securities. There are risks involved in asset-backed securities. For a
discussion of asset-backed securities and the risks involved therein, see this
Prospectus and the Trust's Statement of Additional Information under "Certain
Risk Factors and Investment Methods."

Cash Reserves. While the Portfolio will remain invested in primarily
common stocks and bonds, it may, for temporary defensive purposes, invest in
reserves without limitation. The Portfolio may establish and maintain reserves
as Sub-advisor believes is advisable to facilitate the Portfolio's cash flow
needs (e.g., redemptions, expenses and purchases of portfolio securities ) or
for temporary, defensive purposes. The Portfolio's reserves will be invested in
domestic and foreign money market instruments rated within the top two credit
categories by a national rating organization, or if unrated, of equivalent
investment quality as determined by the Sub-advisor.

Collateralized Mortgage Obligations (CMOs). There are risks involved in
CMOs. The Portfolio may also invest in CMOs. For a discussion of CMOs and the
risks involved therein, see this Prospectus and the Trust's Statement of
Additional Information under "Certain Risk Factors and Investment Methods."

Stripped Mortgage Securities. Stripped mortgage securities are created
by separating the interest and principal payments generated by a pool of
mortgage-backed bonds to create two classes of securities. Generally, one class
receives interest only payments (IO's) and the other class receives principal
only payments (PO's).

IO's and PO's are acutely sensitive to interest rate changes and to the
rate of principal prepayments. They are very volatile in price and may have
lower liquidity than most mortgage-backed securities. Certain CMO's may also
exhibit these qualities, especially those which pay variable rates of interest
which adjust inversely with and more rapidly than short-term interest rates.
There is no guarantee the Portfolio's investment in CMO's, IO's or PO's will be
successful, and the Portfolio's total return could be adversely affected as a
result.

For an additional discussion of stripped mortgage securities and the
risks involved therein, see this Prospectus under "Certain Risk Factors and
Investment Methods."

Convertible Securities, Preferred Stocks, and Warrants. The Portfolio
may invest in debt or preferred equity securities convertible into or
exchangeable for equity securities. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on the company's earnings and assets before common stock owners, but after bond
owners. Warrants are options to buy a stated number of shares of common stock at
a specified price any time during the life of the warrants (generally, two or
more years).

Foreign Securities. The Portfolio may invest up to 35% of its total assets
in U.S. dollar-denominated and non U.S. dollar-denominated securities issued by
foreign issuers. Some of the countries in which the Portfolio may invest may be
considered to be developing and may involve special risks. For a discussion of
these risks as well as the risks involved in investing in foreign securities in
general, see this Prospectus and the Trust's Statement of Additional Information
under "Certain Risk Factors and Investment Methods."

Foreign Currency Transactions. Foreign securities of the Portfolio are
subject to currency risk, that is, the risk that the U.S. dollar value of these
securities may be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations. To manage this risk
and facilitate the purchase and sale of foreign securities, the Portfolio will
engage in foreign currency transactions involving the purchase and sale of
forward foreign currency exchange contracts. For a discussion of foreign
currency transactions, certain risks involved therein, and the risks of currency
fluctuations generally, see this Prospectus and the Trust's Statement of
Additional Information under "Certain Risk Factors and Investment Methods."

Futures Contracts and Options. The Portfolio may enter into futures
contracts (or options thereon) to hedge all or a portion of its portfolio,
against changes in prevailing levels of interest rates or currency exchange
rates, or as an efficient means of adjusting its exposure to the bond, stock,
and currency markets. The Portfolio will not use futures contracts for
leveraging purposes. The Portfolio may also write call and put options and
purchase put and call options on securities, financial indices, and currencies.
The aggregate market value of the Portfolio's portfolio securities or currencies
covering call or put options will not exceed 25% of the Portfolio's net assets.

For an additional discussion of futures contracts and options and the
risks involved therein, see this Prospectus under "Certain Risk Factors and
Investment Methods" and the Trust's Statement of Additional Information under
"Investment Objectives and Policies" and "Certain Risk Factors."

Hybrid Instruments. As part of its investment program and to maintain
greater flexibility, the Portfolio may invest in instruments which have the
characteristics of futures, options and securities. Such instruments may take a
variety of forms, such as debt instruments with interest or principal payments
determined by reference to the value of a currency, securities index or
commodity at a future point in time. The risks of such investments would reflect
both the risks of investing in futures, options and securities, including
volatility and illiquidity. Under certain conditions, the redemption value of a
hybrid instrument could be zero. For a discussion of hybrid securities and the
risks involved therein, see the Trust's Statement of Additional Information
under "Investment Objectives and Policies" and "Certain Risk Factors and
Investment Methods."

Lending of Portfolio Securities. As a fundamental policy, for the
purpose of realizing additional income, the Portfolio may lend securities with a
value of up to 33 1/3% of its total assets to broker-dealers, institutional
investors, or other persons. Any such loan will be continuously secured by
collateral at least equal to the value of the security loaned. For an additional
discussion on limitations on lending and risks of lending, see this Prospectus
under "Certain Risk Factors and Investment Methods" and the Trust's Statement of
Additional Information under "Investment Objectives and Policies."

Mortgage-Backed Securities. The Portfolio may invest in mortgage-backed
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or institutions such as banks, insurance companies and savings
and loans. Some of these securities, such as GNMA certificates, are backed by
the full faith and credit of the U.S. Treasury while others, such as Freddie Mac
certificates, are not. There are risks involved in mortgage-backed securities.
For an additional discussion of mortgage-backed securities, see the Trust's
Statement of Additional Information under "Investment Objectives and Policies"
and "Certain Risk Factors and Investment Methods."

Illiquid Securities. Subject to guidelines promulgated by the Board of
Trustees of the Trust, the Portfolio may acquire illiquid securities (no more
than 15% of net assets). Because an active trading market does not exist for
such securities, the sale of such securities may be subject to delay and
additional costs. The Portfolio will not invest more than 10% of its total
assets in restricted securities (other than securities eligible for resale under
Rule 144A of the Securities Act of 1933). For a discussion of illiquid and
restricted securities and the risks involved therein, see this Prospectus under
"Certain Risk Factors and Investment Methods" and the Trust's Statement of
Additional Information under "Investment Objectives and Policies."

Repurchase Agreements. Subject to guidelines promulgated by the Board
of Trustees of the Trust, the Portfolio may enter into repurchase agreements
with a well-established securities dealer or a bank which is a member of the
Federal Reserve System. For a discussion of repurchase agreements and the risks
involved therein, see this Prospectus under "Certain Risk Factors and Investment
Methods" and the Trust's Statement of Additional Information under "Investment
Objectives and Policies."

Borrowing. For a discussion of the limitations on borrowing by the
Portfolio and certain risks involved therein, see this Prospectus under "Certain
Risk Factors and Investment Methods" and the Trust's Statement of Additional
Information under "Investment Restrictions."

<PAGE>

T. Rowe Price International Equity Portfolio:

Investment Objective: The investment objective of the T. Rowe Price
International Equity Portfolio is to seek a total return on its assets from
long-term growth of capital and income, principally through investments in
common stocks of established, non-U.S. companies. Investments may be made solely
for capital appreciation or solely for income or any combination of both for the
purpose of achieving a higher overall return. Total return consists of capital
appreciation or depreciation, dividend income, and currency gains or losses.
This is a fundamental objective of the Portfolio.

Investment Policies:

The Portfolio intends to diversify investments broadly among countries
and to normally have at least three different countries represented in the
Portfolio. The Portfolio may invest in countries of the Far East and Western
Europe as well as South Africa, Australia, Canada and other areas (including
developing countries). Under unusual circumstances, the Portfolio may invest
substantially all of its assets in one or two countries.

In seeking its objective, the Portfolio will invest primarily in common
stocks of established foreign companies which have the potential for growth of
capital or income or both. However, the Portfolio may also invest in a variety
of other equity-related securities, such as preferred stocks, warrants and
convertible securities, as well as corporate and governmental debt securities,
when considered consistent with the Portfolio's investment objectives and
program. Under normal market conditions, the Portfolio's investment in
securities other than common stocks is limited to no more than 35% of total
assets. Under exceptional economic or market conditions abroad, the Portfolio
may temporarily invest all or a major portion of its assets in U.S. government
obligations or debt obligations of U.S. companies. The Portfolio will not
purchase any debt security which at the time of purchase is rated below
investment grade. This would not prevent the Portfolio from retaining a security
downgraded to below investment grade after purchase.

The Portfolio may also invest its reserves in domestic as well as
foreign money market instruments. Also, the Portfolio may enter into forward
foreign currency exchange contracts in order to protect against uncertainty in
the level of future foreign exchange rates.

In addition to the investments described below, the Portfolio's
investments may include, but are not limited to, American Depositary Receipts
(ADRs), bonds, notes, other debt securities of foreign issuers, and the
securities of foreign investment funds or trusts (including passive foreign
investment companies).

Cash Reserves. While the Portfolio will remain primarily invested in
common stocks, it may, for temporary defensive measures, invest in cash reserves
without limitation. The Portfolio may establish and maintain reserves as
Sub-advisor believes is advisable to facilitate the Portfolio's cash flow needs
(e.g., redemptions, expenses and purchases of portfolio securities) or for
temporary, defensive purposes. The Portfolio's reserves may be invested in
domestic and foreign money market instruments rated within the top two credit
categories by a national rating organization, or if unrated, of equivalent
investment quality as determined by the Sub-advisor.

Foreign Currency Transactions. The Portfolio will normally conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market, or through
entering into forward contracts to purchase or sell foreign currencies. The
Portfolio will generally not enter into a forward contract with a term of
greater than one year.

The Portfolio will generally enter into forward foreign currency
exchange contracts only under two circumstances. First, when the Portfolio
enters into a contract for the purchase or sale of a security denominated in a
foreign currency, it may desire to "lock in" the U.S. dollar price of the
security. Second, when Sub-advisor believes that the currency of a particular
foreign country may suffer or enjoy a substantial movement against another
currency, it may enter into a forward contract to sell or buy the former foreign
currency (or another currency which acts as a proxy for that currency)
approximating the value of some or all of the Portfolio's securities denominated
in such foreign currency. Under certain circumstances, the Portfolio may commit
a substantial portion or the entire value of its portfolio to the consummation
of these contracts. Sub-advisor will consider the effect such a commitment of
its portfolio to forward contracts would have on the investment program of the
Portfolio and the flexibility of the Portfolio to purchase additional
securities.

For a discussion of foreign currency contracts and the risks involved
therein, see this Prospectus and the Trust's Statement of Additional Information
under "Certain Risk Factors and Investment Methods."

Futures Contracts and Options. The Portfolio may enter into stock index
or currency futures contracts (or options thereon) to hedge a portion of the
portfolio, to provide an efficient means of regulating the Portfolio's exposure
to the equity markets, or as a hedge against changes in prevailing levels of
currency exchange rates. The Portfolio will not use futures contracts for
leveraging purposes. Such contracts may be traded on U.S. or foreign exchanges.
The Portfolio may write covered call options and purchase put and call options
on foreign currencies, securities, and stock indices. The aggregate market value
of the Portfolio's currencies or portfolio securities covering call or put
options will not exceed 25% of the Portfolio's total assets. The Portfolio will
not commit more than 5% of its total assets to premiums when purchasing call or
put options.

For an additional discussion of futures contracts and options and the
risks involved therein, see this Prospectus and the Trust's Statement of
Additional Information under "Certain Risk Factors and Investment Methods" and
the Trust's Statement of Additional Information under "Investment Objectives and
Policies."

Hybrid Investments. The Portfolio may invest up to 10% of its total
assets in hybrid instruments. As part of its investment program and to maintain
greater flexibility, the Portfolio may invest in these instruments, which have
the characteristics of futures, options and securities. Such instruments may
take a variety of forms, such as debt instruments with interest or principal
payments determined by reference to the value of a currency, security index or
commodity at a future point in time. The risks of such investments would reflect
both the risks of investing in futures, options, currencies, and securities,
including volatility and illiquidity. Under certain conditions, the redemption
value of a hybrid instrument could be zero. For a discussion of hybrid
investments and the risks involved therein, see the Trust's Statement of
Additional Information under "Investment Objectives and Policies" and "Certain
Risk Factors and Investment Methods."

Passive Foreign Investment Companies. The Portfolio may purchase the
securities of certain foreign investment funds or trusts called passive foreign
investment companies. Such trusts have been the only or primary way to invest in
certain countries. In addition to bearing their proportionate share of the
Portfolio's expenses (management fees and operating expenses), shareholders will
also indirectly bear similar expenses of such trusts.

Illiquid Securities. Subject to guidelines promulgated by the Board of
Trustees of the Trust, the Portfolio may acquire illiquid securities (no more
than 15% of net assets). The Portfolio will not invest more than 10% of its
total assets in restricted securities (other than securities eligible for resale
under Rule 144A of the Securities Act of 1933). For a discussion of illiquid and
restricted securities and the risks involved therein, see this Prospectus under
"Certain Risk Factors and Investment Methods" and the Trust's Statement of
Additional Information under "Investment Objectives and Policies."

Lending of Portfolio Securities. As a fundamental policy, for the
purpose of realizing additional income, the Portfolio may lend securities with a
value of up to 33 1/3% of its total assets to broker-dealers, institutional
investors, or other persons. Any such loan will be continuously secured by
collateral at least equal to the value of the security loaned. For an additional
discussion of limitations on lending and risks of lending, see this Prospectus
under "Certain Risk Factors and Investment Methods" and the Trust's Statement of
Additional Information under "Investment Objectives and Policies."

Borrowing. For a discussion of the limitations on borrowing by the
Portfolio and risks involved in borrowing, see this Prospectus under "Certain
Risk Factors and Investment Methods" and the Trust's Statement of Additional
Information under "Investment Restrictions."

T. Rowe Price International Bond Portfolio:

Investment Objective: The investment objective of the T. Rowe Price
International Bond Portfolio is to provide high current income and capital
appreciation by investing in high-quality, non dollar-denominated government and
corporate bonds outside the United States. This is a fundamental objective of
the Portfolio.

Special Risk Considerations. The Portfolio is intended for long-term
investors who can accept the risks associated with investing in international
bonds. Total return consists of income after expenses, bond price gains (or
losses) in terms of the local currency and currency gains (or losses). The value
of the Portfolio will fluctuate in response to various economic factors, the
most important of which are fluctuations in foreign currency exchange rates and
interest rates.

Because the Portfolio's investments are primarily denominated in
foreign currencies, exchange rates are likely to have a significant impact on
total Portfolio performance. For example, a fall in the U.S. dollar's value
relative to the Japanese yen will increase the U.S. dollar value of a Japanese
bond held in the Portfolio, even though the price of that bond in yen terms
remains unchanged. Conversely, if the U.S. dollar rises in value relative to the
yen, the U.S. dollar value of a Japanese bond will fall. Investors should be
aware that exchange rate movements can be significant and endure for long
periods of time.

The Sub-advisor's techniques include management of currency, bond
market and maturity exposure and security selection which will vary based on
available yields and the Sub-advisor's outlook for the interest rate cycle in
various countries and changes in foreign currency exchange rates. In any of the
markets in which the Portfolio invests, longer maturity bonds tend to fluctuate
more in price as interest rates change than shorter-term instruments -- again
providing both opportunity and risk.

Because of the Portfolio's long-term investment objectives, investors
should not rely on an investment in the Portfolio for their short-term financial
needs and should not view the Portfolio as a vehicle for playing short-term
swings in the international bond and foreign exchange markets. Shares of the
Portfolio alone should not be regarded as a complete investment program. Also,
investors should be aware that investing in international bonds may involve a
higher degree of risk than investing in U.S. bonds.

Investments in foreign securities involve special considerations. For a
discussion of the risks involved in investing in foreign securities, see this
Prospectus and the Trust's Statement of Additional Information under "Certain
Risk Factors and Investment Methods."

Investment Policies:

To achieve its objectives, the Portfolio will invest at least 65% of
its assets in high-quality, non dollar-denominated government and corporate
bonds outside the United States. The Portfolio also seeks to moderate price
fluctuation by actively managing its maturity structure and currency exposure.
The Sub-advisor bases its investment decisions on fundamental market factors,
currency trends, and credit quality. The Portfolio generally invests in
countries where the combination of fixed-income returns and currency exchange
rates appears attractive, or, if the currency trend is unfavorable, where the
currency risk can be minimized through hedging.

Although the Portfolio expects to maintain an intermediate to long
weighted average maturity, it has no maturity restrictions on the overall
portfolio or on individual securities. Normally, the Portfolio does not hedge
its foreign currency exposure back to the dollar, nor involve more than 50% of
total assets in cross hedging transactions. Therefore, changes in foreign
interest rates and currency exchange rates are likely to have a significant
impact on total return and the market value of portfolio securities. Such
changes provide greater opportunities for capital gains and greater risks of
capital loss. The Sub-advisor attempts to reduce these risks through
diversification among foreign securities and active management of maturities and
currency exposures.

The Portfolio may also invest up to 20% of its assets in below
investment-grade, high-risk bonds, including bonds in default or those with the
lowest rating. Defaulted bonds are acquired only if the Sub-advisor foresees the
potential for significant capital appreciation. Securities rated below
investment-grade are commonly referred to as "junk bonds" and involve greater
price volatility and higher degrees of speculation with respect to the payment
of principal and interest than higher quality fixed-income securities. The
market prices of such lower-rated debt securities may decline significantly in
periods of general economic difficulty. In addition, the trading market for
these securities is generally less liquid than for higher rated securities and
the Portfolio may have difficulty disposing of these securities at the time it
wishes to do so. The lack of a liquid secondary market for certain securities
may also make it more difficult for the Portfolio to obtain accurate market
quotations for purposes of valuing its portfolio and calculating its net asset
value. For a discussion of the risks involved in lower-rated debt securities,
see this Prospectus and the Trust's Statement of Additional Information under
"Certain Risk Factors and Investment Methods."

The Portfolio's investments may also include:

Debt securities issued or guaranteed by a foreign national government,
its agencies, instrumentalities or political subdivisions; debt securities
issued or guaranteed by supranational organizations (e.g., European Investment
Bank, InterAmerican Development Bank or the World Bank); bank or bank holding
company debt securities; debt securities convertible into common stock.

The Portfolio may invest in zero coupon securities which pay no cash
income and are sold at substantial discounts from their value at maturity. When
held to maturity, their entire income, which consists of accretion of discount,
comes from the difference between the issue price and their value at maturity.
Zero coupon securities are subject to greater market value fluctuations from
changing interest rates than debt obligations of comparable maturities which
make current cash distribution of interest. For a discussion of zero coupon
securities, see the Trust's Statement of Additional Information under "Certain
Risk Factors and Investment Methods."

The Portfolio may purchase securities which are not publicly offered.
If such securities are purchased, they may be subject to restrictions applicable
to restricted securities. The Portfolio may invest up to 15% of its net assets
in illiquid securities. For a discussion of the risks involved with illiquid and
restricted securities, see this Prospectus under "Certain Risk Factors and
Investment Methods."

The Portfolio intends to select its investments from a number of
country and market sectors. It may substantially invest in the issuers in one or
more countries and intends to have investments in securities of issuers from a
minimum of three different countries. For temporary defensive or emergency
purposes, however, the Portfolio may invest without limit in U.S. debt
securities, including short-term money market securities. It is impossible to
predict for how long such alternative strategies will be utilized.

Short-Term Investments. To protect against adverse movements of
interest rates and for liquidity, the Portfolio may also purchase short-term
obligations denominated in U.S. and foreign currencies (including the ECU) such
as, but not limited to, bank deposits, bankers' acceptances, certificates of
deposit, commercial paper, short-term government, government agency,
supranational agency and corporate obligations, and repurchase agreements.

Nondiversified Investment Company. The Portfolio may invest more than
5% of its assets in the fixed-income securities of individual foreign
governments. The Portfolio generally will not invest more than 5% of its assets
in any individual corporate issuer, provided that (1) the Portfolio may place
assets in bank deposits or other short-term bank instruments with a maturity of
up to 30 days provided that (i) the bank has a short-term credit rating of A1+
(or, if unrated, the equivalent as determined by the Sub-advisor) and (ii) the
Portfolio may not maintain more than 10% of its total assets with any single
bank; and (2) the Portfolio may maintain more than 5% of its total assets,
including cash and currencies, in custodial accounts or deposits of the Trust's
custodian or sub-custodians. In addition, the Portfolio intends to qualify as a
regulated investment company for purposes of the Internal Revenue Code. Such
qualification requires the Portfolio to limit its investments so that, at the
end of each calendar quarter, with respect to at least 50% of its total assets,
not more than 5% of such assets are invested in the securities of a single
issuer, and with respect to the remaining 50%, no more than 25% is invested in a
single issuer. Since, as a nondiversified investment company, the Portfolio is
permitted to invest a greater proportion of its assets in the securities of a
smaller number of issuers, the Portfolio may be subject to greater credit risk
with respect to its portfolio securities than an investment company that is more
broadly diversified.

Brady Bonds. The Portfolio may invest in Brady Bonds. Brady bonds,
named after former U.S. Secretary of the Treasury Nicholas Brady, are used as a
means of restructuring the external debt burden of a government in certain
emerging markets. A Brady bond is created when an outstanding commercial bank
loan to a government or private entity is exchanged for a new bond in connection
with a debt restructuring plan. Brady bonds may be collateralized or
uncollateralized and issued in various currencies (although typically in the
U.S. dollar). They are often fully collateralized as to principal in U.S.
Treasury zero coupon bonds. However, even with this collateralization feature,
Brady Bonds are often considered speculative, below investment grade investments
because the timely payment of interest is the responsibility of the issuing
party (for example, a Latin American country) and the value of the bonds can
fluctuate significantly based on the issuer's ability or perceived ability to
make these payments. Finally, some Brady Bonds may be structured with floating
rate or low fixed rate coupons. The Portfolio does not expect to have more than
10% of its total assets invested in Brady Bonds.

Repurchase Agreements. Subject to guidelines promulgated by the Board
of Trustees of the Trust, the Portfolio may enter into repurchase agreements
with well-established securities dealers or a bank that is a member of the
Federal Reserve System. For a discussion of repurchase agreements and the risks
involved therein, see this Prospectus under "Certain Risk Factors and Investment
Methods."

When-Issued or Delayed Delivery Securities. The Portfolio may purchase
securities on a when-issued or forward delivery basis, for payment and delivery
at a later date. The price and yield are generally fixed on the date of
commitment to purchase. During the period between purchase and settlement, no
interest accrues to the Portfolio. At the time of settlement, the market value
of the security may be more or less than the purchase price. For an additional
discussion of when-issued securities and the risks involved therein, see the
Trust's Statement of Additional Information under "Certain Risk Factors and
Investment Methods."

Passive Foreign Investment Companies. The Portfolio may purchase the
securities of certain foreign investment funds or trusts called passive foreign
investment companies. Such trusts have been the only or primary way to invest in
certain countries. In addition to bearing their proportionate share of the
trusts' expenses (management fees and operating expenses) shareholders will also
indirectly bear similar expenses of such trusts.

Hybrid Instruments. The Portfolio may invest up to 10% of its total
assets in hybrid instruments. As part of its investment program and to maintain
greater flexibility, the Portfolio may invest in these instruments, which have
the characteristics of futures, options and securities. Such instruments may
take a variety of forms, such as debt instruments with interest or principal
payments determined by reference to the value of a currency, securities index or
commodity at a future point in time. The risks of such investments would reflect
both the risks of investing in futures, options and securities, including
volatility and illiquidity. Under certain conditions, the redemption value of a
hybrid instrument could be zero. For a discussion of hybrid securities and the
risks involved therein, see the Trust's Statement of Additional Information
under "Certain Risk Factors and Investment Methods."

Foreign Currency Transactions. The Portfolio may engage in foreign
currency transactions either on a spot (cash) basis at the rate prevailing in
the currency exchange market at the time or through forward currency contracts
("forwards") with terms generally of less than one year. Forwards will be used
primarily to adjust the foreign exchange exposure of the Portfolio with a view
to protecting the Portfolio from adverse currency movements, based on the
Sub-advisor's outlook, and the Portfolio might be expected to enter into such
contracts under the following circumstances:

Lock In. When management desires to lock in the U.S. dollar price on the
purchase or sale of a security denominated in a foreign currency.

Cross Hedge. If a particular currency is expected to decrease
against another currency, the Portfolio may sell the currency expected to
decrease and purchase a currency which is expected to increase against the
currency sold in an amount approximately equal to some or all of the Portfolio's
holdings denominated in the currency sold.

Proxy Hedge. The Sub-advisor might choose to use a proxy
hedge, where the Portfolio, having purchased a bond, will sell a currency whose
value is believed to be closely linked to the currency in which the bond is
denominated. Interest rates prevailing in the country whose currency was sold
would be expected to be closer to those in the U.S. and lower than those of
bonds denominated in the currency of the original holding. This type of hedging
entails greater risk than a direct hedge because it is dependent on a stable
relationship between the two currencies paired as proxies and the relationships
can be very unstable at times.

For an additional discussion of foreign currency exchange contracts and
the risks involved therein, see this Prospectus and the Trust's Statement of
Additional Information under "Certain Risk Factors and Investment Methods."

Costs of Hedging. When the Portfolio purchases a foreign bond with a
higher interest rate than is available on U.S. bonds of a similar maturity, the
additional yield on the foreign bond could be substantially lost if the
Portfolio were to enter into a direct hedge by selling the foreign currency and
purchasing the U.S. dollar. This is what is known as the "cost" of hedging.
Proxy hedging attempts to reduce this cost through an indirect hedge back to the
U.S. dollar. It is important to note that hedging costs are treated as capital
transactions and are not, therefore, deducted from the Portfolio's dividend
distribution and are not reflected in its yield. Instead such costs will, over
time, be reflected in the Portfolio's net asset value per share.

Futures and Options. The Portfolio may buy and sell futures and options
contracts for any number of reasons including: to manage their exposure to
changes in interest rates, securities prices and foreign currencies; as an
efficient means of adjusting overall exposure to certain markets; to enhance
income; to protect the value of portfolio securities; and to adjust the
portfolio's duration. The Portfolio may purchase, sell, or write call and put
options on securities, financial indices, and foreign currencies. The total
market value of securities against which the Portfolio has written call or put
options may not exceed 25% of its total assets. The Portfolio will not commit
more than 5% of its total assets to premiums when purchasing call or put
options.

For an additional discussion of such transactions and the risks
involved therein, see this Prospectus and the Trust's Statement of Additional
Information under "Certain Risk Factors and Investment Methods."

Founders Capital Appreciation Portfolio:

Investment Objective: The investment objective of the Founders Capital
Appreciation Portfolio is capital appreciation. This is a fundamental objective
of the Portfolio.

Investment Policies:

To achieve its objective, the Portfolio will normally invest at least
65% of its total assets in common stocks of U.S. companies with market
capitalizations of $1.5 billion or less. Market capitalization is a measure of
the size of a company and is based upon the total market value of a company's
outstanding equity securities. Ordinarily, the common stocks of the U.S.
companies selected for this Portfolio will not be listed on a national
securities exchange but will be traded in the over-the-counter market.

Risks of Investments in Small and Medium-Sized Companies. The Portfolio
normally will invest a significant proportion of its assets in the securities of
small and medium-sized companies. As used with respect to this Portfolio, small
and medium-sized companies are those which are still in the developing stages of
their life cycles and are attempting to achieve rapid growth in both sales and
earnings. Capable management and fertile operating areas are two of the most
important characteristics of such companies. In addition, these companies should
employ sound financial and accounting policies; demonstrate effective research
and successful product development and marketing; provide efficient service; and
possess pricing flexibility. The Portfolio tries to avoid investing in companies
where operating results may be affected adversely by excessive competition,
severe governmental regulation, or unsatisfactory productivity.

Small and medium-sized companies often have sales and earnings growth
rates which exceed those of large companies. Such growth rates may in turn be
reflected in more rapid share price appreciation. However, investments in these
companies involve greater risk than is customarily associated with more
established companies. Smaller companies often have limited operating histories,
product lines, markets, or financial resources, and they may be dependent upon
one-person management. These companies may be subject to intense competition
from larger entities, and the securities of such companies may have limited
marketability and may be subject to more abrupt or erratic movements in price
than securities of larger companies or the market averages in general.
Therefore, the net asset value of the Portfolio's shares may fluctuate more
widely than the popular market averages.

Fixed Income Securities. The Portfolio may invest in convertible
securities, preferred stocks, bonds, debentures, and other corporate obligations
when the Sub-advisor believes that these investments offer opportunities for
capital appreciation. Current income will not be a substantial factor in the
selection of these securities. Bonds, debentures, and corporate obligations,
other than convertible securities and preferred stock, purchased by the
Portfolio will be rated investment grade at the time of purchase (Baa or higher
by Moody's Investors Service, Inc. ("Moody's") or BBB or higher by Standard &
Poor's ("S&P")). Bonds in the lowest investment grade category (Baa or BBB) may
have speculative characteristics, with changes in the economy or other
circumstances more likely to lead to a weakened capacity of the bonds to make
principal and interest payments than would occur with bonds rated in higher
categories. Convertible securities and preferred stocks purchased by the
Portfolio may be rated in medium and lower categories by Moody's or S&P (Ba or
lower by Moody's and BB or lower by S&P), but will not be rated lower than B.
The Portfolio may also invest in unrated convertible securities and preferred
stocks in instances in which the Sub-advisor believes that the financial
condition of the issuer or the protection afforded by the terms of the
securities limits risk to a level similar to that of securities eligible for
purchase by the Portfolio rated in categories no lower than B. Securities rated
B are referred to as "high risk" securities, generally lack characteristics of a
desirable investment, and are deemed speculative with respect to the issuer's
capacity to pay interest and repay principal over a long period of time. At no
time will the Portfolio have more than 5% of its assets invested in any
fixed-income securities (not including convertible securities and preferred
stock) which are unrated or are rated below investment grade either at the time
of purchase or as a result of a reduction in rating after purchase. For a
description of ratings of securities, see the Appendix to the Trust's Statement
of Additional Information. For a discussion of the special risks involved in
lower-rated debt securities, see this Prospectus and the Trust's Statement of
Additional Information under "Certain Risk Factors and Investment Methods."

The fixed-income securities in which the Portfolio may invest are
generally subject to two kinds of risk: credit risk and market risk. Credit risk
relates to the ability of the issuer to meet interest or principal payments, or
both, as they come due. The ratings given a security by Moody's and S&P provide
a generally useful guide as to such credit risk. The lower the rating given a
security by such rating service, the greater the credit risk such rating service
perceives to exist with respect to such security. Increasing the amount of
Portfolio assets invested in unrated or lower-grade securities, while intended
to increase the yield produced by those assets, also will increase the credit
risk to which those assets are subject. Market risk relates to the fact that the
market values of securities in which the Portfolio may invest generally will be
affected by changes in the level of interest rates. An increase in interest
rates will tend to reduce the market values of such securities, whereas a
decline in interest rates will tend to increase their values. Medium- and
lower-rated securities (Baa or BBB and lower) and non-rated securities of
comparable quality tend to be subject to wider fluctuations in yields and market
values than higher-rated securities. Medium-rated securities (those rated Baa or
BBB) have speculative characteristics while lower-rated securities are
predominantly speculative. The Portfolio is not required to dispose of straight
debt securities whose ratings are downgraded below Baa or BBB subsequent to the
Portfolio's purchase of the securities, unless such a disposition is necessary
to reduce the Portfolio's holdings of such securities to less than 5% of its
total assets. Relying in part on ratings assigned by credit agencies in making
investments will not protect the Portfolio from the risk that fixed-income
securities in which it invests will decline in value, since credit ratings
represent evaluations of the safety of principal, dividend and interest payments
on preferred stocks and debt securities, not the market values of such
securities, and such ratings may not be changed on a timely basis to reflect
subsequent events.

The Sub-advisor seeks to reduce overall risk associated with the
investments of the Portfolio through diversification and consideration of
relevant factors affecting the value of securities. No assurance can be given,
however, regarding the degree of success that will be achieved in this regard or
in the Portfolio achieving its investment objective.

Foreign Securities. The Portfolio may invest in dollar-denominated
American Depositary Receipts which are traded on exchanges or over-the-counter
in the United States without limit, and in foreign securities. The term "foreign
securities" refers to securities of issuers, wherever organized, which in the
judgment of the Sub-advisor have their principal business activities outside of
the United States. The determination of whether an issuer's principal activities
are outside of the United States will be based on the location of the issuer's
assets, personnel, sales, and earnings, and specifically on whether more than
50% of the issuer's assets are located, or more than 50% of the issuer's gross
income is earned, outside of the United States, or on whether the issuer's sole
or principal stock exchange listing is outside the United States. For a
discussion of American Depository Receipts, see this Prospectus under "Certain
Risk Factors and Investment Methods."

Foreign investments may include securities issued by companies located
in countries not considered to be major industrialized nations. Such countries
are subject to more economic, political and business risk than major
industrialized nations and the securities they issue are expected to be more
volatile and more uncertain as to payment of interest and principal. The
secondary market for such securities is expected to be less liquid than for
securities of major industrialized nations. Examples of such countries include,
but are not limited to: Argentina, Australia, Austria, Belgium, Bolivia, Brazil,
Chile, China, Colombia, Costa Rica, Croatia, Czech Republic, Denmark, Ecuador,
Egypt, Finland, Greece, Hong Kong, Hungary, India, Indonesia, Ireland, Italy,
Israel, Jordan, Malaysia, Mexico, Netherlands, New Zealand, Nigeria, North
Korea, Norway, Pakistan, Paraguay, Peru, Philippines, Poland, Portugal,
Singapore, Slovak Republic, South Africa, South Korea, Spain, Sri Lanka, Sweden,
Switzerland, Taiwan, Thailand, Turkey, Uruguay, Venezuela, Vietnam and the
countries of the former Soviet Union. Investments may include securities created
through the Brady Plan, a program under which heavily indebted countries have
restructured their bank debt into bonds. Since the Portfolio will pay dividends
in dollars, it may incur currency conversion costs. The Portfolio will not
invest more than 25% of its total assets in any one foreign country.

Investments in foreign securities involve certain risks which are not
typically associated with U.S. investments. For a discussion of the special
risks involved in investing in developing countries and certain risks involved
in investing in foreign securities in general, including the risk of currency
fluctuations, see this Prospectus and the Trust's Statement of Additional
Information under "Certain Risk Factors and Investment Methods."

Foreign Currency Exchange Contracts. The Portfolio is permitted to use
forward foreign currency contracts in connection with the purchase or sale of a
specific security. The Portfolio may conduct its foreign currency exchange
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign exchange currency market, or on a forward basis to "lock in" the U.S.
dollar price of the security. By entering into a forward contract for the
purchase or sale, for a fixed amount of U.S. dollars, of the amount of foreign
currency involved in the underlying transactions, the Portfolio attempts to
protect itself against possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the applicable foreign currency during
the period between the date on which the security is purchased or sold and the
date on which such payments are made or received.

In addition, the Portfolio may enter into forward contracts for hedging
purposes. When the Sub-advisor believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar (or
sometimes against another currency), the Portfolio may enter into forward
contracts to sell, for a fixed dollar or other currency amount, foreign currency
approximating the value of some or all of the its securities denominated in that
currency. The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible. The future value of such
securities in foreign currencies changes as a consequence of market movements in
the value of those securities between the date on which the contract is entered
into and the date it expires.

The Portfolio generally will not enter into forward contracts with a
term greater than one year. In addition, the Portfolio generally will not enter
into forward contracts or maintain a net exposure to such contracts where the
fulfillment of the contracts would require the Portfolio to deliver an amount of
foreign currency in excess of the value of its securities or other assets
denominated in that currency. Under normal circumstances, consideration of the
possibility of changes in currency exchange rates will be incorporated into the
Portfolio's long-term investment strategies. In the event that forward contracts
are considered to be illiquid, the securities would be subject to the
Portfolio's limitation on investing in illiquid securities. For an additional
discussion of foreign currency contracts and the risks involved therein, see
this Prospectus and the Trust's Statement of Additional Information under
"Certain Risk Factors and Investment Methods."

Illiquid Securities. Subject to guidelines promulgated by the Board of
Trustees of the Trust, the Portfolio may invest up to 15% of the market value of
its net assets in securities which are not readily marketable, including
repurchase agreements maturing in more than seven days. Securities that are not
readily marketable are those that, for whatever reason, cannot be disposed of in
the ordinary course of business at approximately the amount at which the
Portfolio has valued the investment.

The Portfolio may invest in Rule 144A securities (securities issued in
offerings made pursuant to Rule 144A under the Securities Act of 1933). Rule
144A securities may be resold to qualified institutional buyers as defined under
Rule 144A, and may or may not be deemed to be readily marketable. Factors which
may be considered by Sub-advisor in evaluating whether such a security is
readily marketable include eligibility for trading, trading activity, dealer
interest, purchase interest, and ownership transfer requirements. The
Sub-advisor is required to monitor the readily marketable nature of each Rule
144A security no less frequently than quarterly.

For an additional discussion of Rule 144A securities and illiquid and
restricted securities, and the risks involved therein, see this Prospectus under
"Certain Risk Factors and Investment Methods" and the Trust's Statement of
Additional Information under "Investment Options and Policies."

Borrowing. The Portfolio may borrow money from banks for extraordinary
or emergency purposes in amounts up to 10% of its net assets. While any
borrowings are outstanding, no purchases of securities will be made. For a
discussion of certain risks involved in borrowing, see this Prospectus under
"Certain Risk Factors and Investment Methods."

Futures Contracts and Options. The Portfolio may enter into futures
contracts (or options thereon) for hedging purposes. The acquisition or sale of
a futures contract could occur, for example, if the Portfolio held or considered
purchasing equity securities and sought to protect itself from fluctuations in
prices without buying or selling those securities. The Portfolio may also enter
into interest rate and foreign currency futures contracts. Interest rate futures
contracts currently are traded on a variety of fixed-income securities. Foreign
currency futures contracts currently are traded on the British pound, Canadian
dollar, Japanese yen, Swiss franc, German mark and on Eurodollar deposits.

An option is a right to buy or sell a security at a specified price
within a limited period of time. The Portfolio may write ("sell") covered call
options on any or all of its portfolio securities from time to time as the
Sub-advisor shall deem appropriate. The extent of the Portfolio's option writing
activities will vary from time to time depending upon the Sub-advisor's
evaluation of market, economic and monetary conditions.

The Portfolio may purchase options on securities and stock indices.
Options on stock indices are similar to options on securities. However, because
options on stock indices do not involve the delivery of an underlying security,
the option represents the holder's right to obtain from the writer in cash a
fixed multiple of the amount by which the exercise price exceeds (in the case of
a put) or is less than (in the case of a call) the closing value of the
underlying index on the exercise date. The purpose of these transactions is not
to generate gain, but to "hedge" against possible loss. Therefore, successful
hedging activity will not produce net gain to the Portfolio. The Portfolio may
also purchase put and call options on futures contracts. An option on a futures
contract provides the holder with the right to enter into a "long" position in
the underlying futures contract, in the case of a call option, or a "short"
position in the underlying futures contract, in the case of a put option, at a
fixed exercise price to a stated expiration date. Upon exercise of the option by
the holder, a contract market clearing house establishes a corresponding short
position for the writer of the option, in the case of a call option, or a
corresponding long position, in the case of a put option.

The Portfolio will not, as to any positions, whether long, short or a
combination thereof, enter into futures and options thereon for which the
aggregate initial margins and premiums exceed 5% of the fair market value of its
total assets after taking into account unrealized profits and losses on options
entered into. The Portfolio may buy and sell options on foreign currencies for
hedging purposes in a manner similar to that in which futures on foreign
currencies would be utilized.

Temporary Investments. Up to 100% of the assets of the Portfolio may be
invested temporarily in U.S. government obligations, commercial paper, bank
obligations, repurchase agreements, negotiable U.S. dollar-denominated
obligations of domestic and foreign branches of U.S. depository institutions,
U.S. branches of foreign depository institutions, and foreign depository
institutions, cash, or in other cash equivalents, if the Sub-advisor determines
it to be appropriate for purposes of enhancing liquidity or preserving capital
in light of prevailing market or economic conditions. While the Portfolio is in
a defensive position, the opportunity to achieve capital growth will be limited;
moreover, to the extent that this assessment of market conditions is incorrect,
the Portfolio will be foregoing the opportunity to benefit from capital growth
resulting from increases in the value of equity investments.

U.S. government obligations include Treasury bills, notes and bonds,
and issues of United States agencies, authorities and instrumentalities. Some
government obligations, such as Government National Mortgage Association
pass-through certificates, are supported by the full faith and credit of the
United States Treasury. Other obligations, such as securities of the Federal
Home Loan Banks, are supported by the right of the issuer to borrow from the
United States Treasury; and others, such as bonds issued by Federal National
Mortgage Association (a private corporation), are supported only by the credit
of the agency, authority or instrumentality.

The Portfolio may acquire certificates of deposit and bankers'
acceptances of banks which meet criteria established by the Trustees of the
Trust, if any. A certificate of deposit is a short-term obligation of a bank. A
bankers' acceptance is a time draft drawn by a borrower on a bank, usually
relating to an international commercial transaction.

The obligations of foreign branches of U.S. depository institutions may
be general obligations of the parent depository institution in addition to being
an obligation of the issuing branch. These obligations, and those of foreign
depository institutions, may be limited by the terms of the specific obligation
and by governmental regulation. The payment of these obligations, both interest
and principal, may also be affected by governmental action in the country of
domicile of the institution or branch, such as imposition of currency controls
and interest limitations. In connection with these investments, the Portfolio
will be subject to the risks associated with the holding of portfolio securities
overseas, such as possible changes in investment or exchange control
regulations, expropriation, confiscatory taxation, or political or financial
instability.

Obligations of U.S. branches of foreign depository institutions may be
general obligations of the parent depository institution in addition to being an
obligation of the issuing branch, or may be limited by the terms of a specific
foreign regulation applicable to the depository institutions and by government
regulation (both domestic and foreign).

Repurchase Agreements. Subject to guidelines promulgated by the Board
of Trustees of the Trust, the Portfolio may enter into repurchase agreements
with banks or well-established securities dealers. All repurchase agreements
entered into by the Portfolio will be fully collateralized and marked to market
daily. The Portfolio has not adopted any limits on the amount of its total
assets that may be invested in repurchase agreements which mature in less than
seven days. For a discussion of repurchase agreements and the risks involved
therein, see this Prospectus under "Certain Risk Factors and Investment
Methods."

Portfolio Turnover. The Portfolio reserves the right to sell its
securities, regardless of the length of time that they have been held, when it
is determined by the Sub-advisor that those securities have attained or are
unable to meet the investment objective of the Portfolio. The Portfolio may
engage in short-term trading and therefore normally will have annual portfolio
turnover rates which are considered to be high and may be greater than those of
other investment companies seeking capital appreciation. Portfolio turnover
rates may also increase as a result of the need for the Portfolio to effect
significant amounts of purchases or redemptions of portfolio securities due to
economic, market, or other factors that are not within the Sub-advisor's
control. For a discussion of portfolio turnover and its effects, see this
Prospectus and the Trust's Statement of Additional Information under "Portfolio
Turnover."

INVESCO Equity Income Portfolio:

Investment Objective: The investment objective of the INVESCO Equity Income
Portfolio is to seek high current income while following sound investment
practices. This is a fundamental objective of the Portfolio. Capital growth
potential is an additional, but secondary, consideration in the selection of
portfolio securities.

Investment Policies:

The Portfolio seeks to achieve its objective by investing in securities
which will provide a relatively high-yield and stable return and which, over a
period of years, may also provide capital appreciation. The Portfolio normally
will invest at least 65% of its assets in dividend-paying, marketable common
stocks of domestic and foreign issuers. Up to 10% of the Portfolio's total
assets may be invested in equity securities that do not pay regular dividends.
The Portfolio also will invest in convertible bonds, preferred stocks and debt
securities. In periods of uncertain market and economic conditions, as
determined by the Board of Trustees, the Portfolio may depart from the basic
investment objective and assume a defensive position with up to 50% of its
assets temporarily invested in high quality corporate bonds, or notes and
government issues, or held in cash.

The Portfolio's investments in common stocks may, of course, decline in
value. To minimize the risk this presents, the Sub-advisor only invests in
common stocks and equity securities of domestic and foreign issuers which are
marketable; and will not invest more than 5% of the Portfolio's assets in the
securities of any one company or more than 25% of the Portfolio's assets in any
one industry.

Debt Securities. The Portfolio's investments in debt securities will
generally be subject to both credit risk and market risk. Credit risk relates to
the ability of the issuer to meet interest or principal payments, or both, as
they come due. Market risk relates to the fact that the market values of debt
securities in which the Portfolio invests generally will be affected by changes
in the level of interest rates. An increase in interest rates will tend to
reduce the market values of debt securities, whereas a decline in interest rates
will tend to increase their values. Although the Sub-advisor will limit the
Portfolio's debt security investments to securities it believes are not highly
speculative, both kinds of risk are increased by investing in debt securities
rated below the top four grades by Standard & Poor's Corporation ("Standard &
Poor's) or Moody's Investors Services, Inc. ("Moody's") and unrated debt
securities, other than Government National Mortgage Association modified
pass-through certificates.

In order to decrease its risk in investing in debt securities, the
Portfolio will invest no more than 15% of its assets in debt securities rated
below AAA, AA, A or BBB by Standard & Poor's, or Aaa, Aa, A or Baa by Moody's,
and in no event will the Portfolio ever invest in a debt security rated below
Caa by Moody's or CCC by Standard & Poor's. Lower rated bonds by Moody's
(categories Ba, B, Caa) are of poorer quality and may have speculative
characteristics. Bonds rated Caa may be in default or there may be present
elements of danger with respect to principal or interest. Lower rated bonds by
Standard & Poor's (categories BB, B, CCC) include those which are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with their terms; BB indicates
the lowest degree of speculation and CCC a high 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. For more information on the ratings of debt securities, see the
Appendix to the Trust's Statement of Additional Information.

While the Sub-advisor will monitor all of the debt securities in the
Portfolio for the issuers' ability to make required principal and interest
payments and other quality factors, the Sub-advisor may retain in the Portfolio
a debt security whose rating is changed to one below the minimum rating required
for purchase of such a security.

For a discussion of the special risks involved in lower-rated bonds,
see this Prospectus and the Statement of Additional Information under "Certain
Risk Factors and Investment Methods."

Portfolio Turnover. There are no fixed limitations regarding portfolio
turnover. The rate of portfolio turnover may fluctuate as a result of constantly
changing economic conditions and market circumstances. Securities initially
satisfying the Portfolio's basic objectives and policies may be disposed of when
they are no longer suitable. As a result, the Portfolio's annual portfolio
turnover rate may be higher than that of other investment companies seeking
current income with capital growth as a secondary consideration. For a
discussion of portfolio turnover and its effects, see this Prospectus and the
Trust's Statement of Additional Information under "Portfolio Turnover."

Repurchase Agreements. Subject to guidelines promulgated by the Board
of Trustees of the Trust, the Portfolio may enter into repurchase agreements
with respect to debt instruments eligible for investment by the Portfolio. These
agreements are entered into with member banks of the Federal Reserve System,
registered broker-dealers, and registered government securities dealers which
are deemed creditworthy. A repurchase agreement is a means of investing moneys
for a short period. In a repurchase agreement, the Portfolio acquires a debt
instrument (generally a security issued by the U.S. Government or an agency
thereof, a banker's acceptance or a certificate of deposit) subject to resale to
the seller at an agreed upon price and date (normally, the next business day).
In the event that the original seller defaults on its obligation to repurchase
the security, the Portfolio could incur costs or delays in seeking to sell such
security. To minimize risk, the securities underlying each repurchase agreement
will be maintained with the Portfolio's custodian in an amount at least equal to
the repurchase price under the agreement (including accrued interest), and such
agreements will be effected only with parties that meet certain creditworthiness
standards established by the Trust's Board of Trustees. The Portfolio will not
enter into a repurchase agreement maturing in more than seven days if as a
result more than 15% of the Portfolio's total net assets would be invested in
such repurchase agreements and other illiquid securities. The Portfolio has not
adopted any limit on the amount of its total assets that may be invested in
repurchase agreements maturing in seven days or less.

Lending Portfolio Securities. The Portfolio also may lend its
securities to qualified brokers, dealers, banks, or other financial
institutions. This practice permits the Portfolio to earn income, which, in
turn, can be invested in additional securities to pursue the Portfolio's
investment objective. Loans of securities by the Portfolio will be
collateralized by cash, letters of credit, or securities issued or guaranteed by
the U.S. Government or its agencies, equal to at least 100% of the current
market value of the loaned securities, determined on a daily basis. Lending
securities involves certain risks, the most significant of which is the risk
that a borrower may fail to return a portfolio security. The Sub-advisor
monitors the creditworthiness of borrowers in order to minimize such risks. The
Portfolio will not lend any security if, as a result of such loan, the aggregate
value of securities then on loan would exceed 33-1/3% of the Portfolio's total
net assets (taken at market value). For an additional discussion on lending, see
this Prospectus under "Certain Risk Factors and Investment Methods."

Foreign Securities. The Portfolio may invest up to 25% of its total
assets in foreign securities. Investments in securities of foreign companies and
in foreign markets involve certain additional risks not associated with
investments in domestic companies and markets. The Portfolio may invest in
countries considered to be developing which may involve special risks. For a
discussion of these risks and the risks of investing in foreign securities in
general, including the risk of currency fluctuations, see this Prospectus and
the Trust's Statement of Additional Information under "Certain Risk Factors and
Investment Methods."

Illiquid Securities. Subject to guidelines promulgated by the Board of
Trustees of the Trust, the Portfolio may invest up to 15% of its net assets in
securities that are illiquid by virtue of legal or contractual restrictions on
resale or the absence of a readily available market. The Board of Trustees or
the Investment Manager, acting pursuant to authority delegated by the Board of
Trustees, may determine that a readily available market exists for securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933, or
any successor to that rule, and therefore that such securities are not subject
to the foregoing limitation. For a discussion of restricted securities and the
risks involved therein, see this Prospectus under "Certain Risk Factors and
Investment Methods."

Borrowing. For a discussion of the risks involved with and the limitations
on borrowing and risks involved in borrowing, see this Prospectus under "Certain
Risk Factors and Investment Methods."

PIMCO Limited Maturity Bond Portfolio:

Investment Objective: The investment objective of the PIMCO Limited Maturity
Bond Portfolio is to seek to maximize total return, consistent with preservation
of capital and prudent investment management. This is a fundamental objective of
the Portfolio.

Investment Policies:

In selecting securities for the Portfolio, the Sub-advisor utilizes
economic forecasting, interest rate anticipation, credit and call risk analysis,
foreign currency exchange rate forecasting, and other security selection
techniques. The proportion of each Portfolio's assets committed to investment in
securities with particular characteristics (such as maturity, type and coupon
rate) will vary based on the Sub-advisor's outlook for the U.S. and foreign
economies, the financial markets, and other factors.

The Portfolio will invest at least 65% of its total assets in the
following types of securities, which may be issued by domestic or foreign
entities and denominated in U.S. dollars or foreign currencies: securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
("U.S. Government securities"); corporate debt securities, including convertible
securities and commercial paper; mortgage and other asset-backed securities;
inflation-indexed bonds issued by both governments and corporations, variable
and floating rate debt securities; bank certificates of deposit, fixed time
deposits and bankers' acceptances; repurchase agreements and reverse repurchase
agreements; obligations of foreign governments or their subdivisions, agencies
and instrumentalities, international agencies or supranational entities; and
foreign currency exchange-related securities, including foreign currency
warrants.

The Portfolio may hold different percentages of its assets in these
various types of securities, and may invest all of its assets in derivative
instruments or in mortgage- or asset-backed securities. There are special risks
involved in these instruments.

The Portfolio will invest in a diversified portfolio of fixed income
securities of varying maturities with a portfolio duration from one to three
years. The Portfolio may invest up to 10% of its assets in corporate debt
securities that are rated below investment grade but rated B or higher by
Moody's or S&P (or, if unrated, determined by the Sub-advisor to be of
comparable quality). The Portfolio may also invest up to 20% of its assets in
securities denominated in foreign currencies. The Portfolio will make use of use
of average portfolio credit quality standards to assist institutional investors
whose own investment guidelines limit its investments accordingly. In
determining the Portfolio's overall dollar-weighted average quality, unrated
securities are treated as if rated, based on the Sub-advisor's view of their
comparability to rated securities. In the event that ratings services assign
different ratings to the same security, the Sub-advisor will determine which
rating it believes best reflects the security's quality and risk at that time,
which may be the higher of the several assigned ratings. The Portfolio's
investments may range in quality from securities rated in the lowest category in
which the Portfolio is permitted to invest to securities rated in the highest
category (as rated by Moody's or S&P or, if unrated, determined by the
Sub-advisor to be of comparable quality). The percentage of a the Portfolio's
assets invested in securities in a particular rating category will vary. See the
Appendix to the Statement of Additional Information for a description of Moody's
and S&P ratings applicable to fixed income securities.

The Portfolio may buy or sell interest rate futures contracts, options
on interest rate futures contracts and options on debt securities for the
purpose of hedging against changes in the value of securities which the
Portfolio owns or anticipates purchasing due to anticipated changes in interest
rates. The Portfolio may invest in securities denominated in foreign currencies,
and also may engage in foreign currency exchange transactions by means of buying
or selling foreign currencies on a spot basis, entering into foreign currency
forward contracts, and buying and selling foreign currency options, foreign
currency futures, and options on foreign currency futures. Foreign currency
exchange transactions may be entered into for the purpose of hedging against
foreign currency exchange risk arising from the Portfolio's investment or
anticipated investment in securities denominated in foreign currencies. The
Portfolio also may enter into foreign currency forward contracts and buy or sell
foreign currencies or foreign currency options for purposes of increasing
exposure to a particular foreign currency or to shift exposure to foreign
currency fluctuations from one country to another.

The Portfolio may enter into swap agreements for purposes of attempting
to obtain a particular investment return at a lower cost to the Portfolio than
if the Portfolio had invested directly in an instrument that provided that
desired return. In addition, the Portfolio may purchase and sell securities on a
when-issued or delayed-delivery basis, sell securities short, and enter into
forward commitments to purchase securities; lend their securities to brokers,
dealers and other financial institutions to earn income; and borrow money for
investment purposes.

The "total return" sought by the Portfolio will consist of interest and
dividends from underlying securities, capital appreciation reflected in
unrealized increases in value of portfolio securities (realized by the
shareholder only upon selling shares) or realized from the purchase and sale of
securities, and use of futures and options, or gains from favorable changes in
foreign currency exchange rates. Generally, over the long term, the total return
obtained by a portfolio investing primarily in fixed income securities is not
expected to be as great as that obtained by a portfolio that invests primarily
in equity securities. At the same time, the market risk and price volatility of
a fixed income portfolio is expected to be less than that of an equity
portfolio, so that a fixed income portfolio is generally considered to be a more
conservative investment. The change in market value of fixed income securities
(and therefore their capital appreciation or depreciation) is largely a function
of changes in the current level of interest rates. When interest rates are
falling, a portfolio with a shorter duration generally will not generate as high
a level of total return as a portfolio with a longer duration. Conversely, when
interest rates are rising, a portfolio with a shorter duration will generally
outperform longer duration portfolios. When interest rates are flat, shorter
duration portfolios generally will not generate as high a level of total return
as longer duration portfolios (assuming that long-term interest rates are higher
than short-term rates, which is commonly the case). With respect to the
composition of any fixed income portfolio, the longer the duration of the
portfolio, the greater the anticipated potential for total return, with,
however, greater attendant market risk and price volatility than for a portfolio
with a shorter duration. The market value of securities denominated in
currencies other than the U.S. dollar also may be affected by movements in
foreign currency exchange rates.

Unless otherwise indicated, all limitations applicable to Portfolio
investments (as stated in this Prospectus and in the Trust's Statement of
Additional Information) apply only at the time a transaction is entered into.
Any subsequent change in a rating assigned by any rating service to a security
(or, if unrated, deemed to be of comparable quality), or change in the
percentage of Portfolio assets invested in certain securities or other
instruments, or change in the average duration of the Portfolio's investment
portfolio, resulting from market fluctuations or other changes in the
Portfolio's total assets will not require the Portfolio to dispose of an
investment until the Sub-advisor determines that it is practicable to sell or
close out the investment without undue market consequences to the Portfolio.

<PAGE>

The Portfolio's investments include, but are not limited to, the
following:

U.S. Government Securities. U.S. Government securities are obligations
of, or guaranteed by, the U.S. Government, its agencies or instrumentalities.
Some U.S. Government securities, such as Treasury bills, notes and bonds, and
securities guaranteed by the Government National Mortgage Association ("GNMA"),
are supported by the full faith and credit of the United States; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the U.S. Treasury; others, such as those of the Federal National
Mortgage Association ("FNMA"), are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; and still others, such
as those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality.

Corporate Debt Securities. Corporate debt securities include corporate
bonds, debentures, notes and other similar corporate debt instruments, including
convertible securities. Debt securities may be acquired with warrants attached.
Corporate income-producing securities may also include forms of preferred or
preference stock. The rate of return or return of principal on some debt
obligations may be linked or indexed to the level of exchange rates between the
U.S. dollar and a foreign currency or currencies.

Investments in corporate debt securities that are below investment
grade (rated below Baa (Moody's) or BBB (S&P)) are described as "speculative"
both by Moody's and S&P. Moody's also describes securities rated Baa as having
speculative characteristics. For a description of the special risks involved
with lower-rated high-yield bonds, see this Prospectus and the Trust's Statement
of Additional Information under "Certain Risk Factors and Investment Methods."

Inflation-Indexed Bonds. Inflation-indexed bonds are fixed income
securities whose principal value is periodically adjusted according to the rate
of inflation. The interest rate on these bonds is generally fixed at issuance at
a rate lower than typical bonds. Over the life of an inflation-indexed bond,
however, interest will be paid based on a principal value which is adjusted for
inflation. For example, if the Portfolio purchased an inflation-indexed bond
with a par value of $1,000 and a 3% real rate of return coupon (payable 1.5%
semi-annually), and inflation over the first six months were 1%, the mid-year
par value of the bond would be $1,010 and the first semi-annual interest payment
would be $15.15 ($1,010 times 1.5%).

Repayment of the original bond principal upon maturity (as adjusted for
inflation) is guaranteed in the case of U.S. Treasury inflation-indexed bonds,
even during a period of deflation. However, the current market value of the
bonds is not guaranteed, and will fluctuate. The Portfolio may also invest in
other inflation related bonds which may or may not provide a similar guarantee.
If a guarantee of principal is not provided, the adjusted principal value of the
bond repaid at maturity may be less than the original principal.

The value of inflation-indexed bonds is expected to change in response
to changes in real interest rates (which are nominal interest rates adjusted for
inflation). If inflation were to rise at a faster rate than nominal interest
rates. real interest rates would decline, leading to an increase in value of
inflation-indexed bonds. In contrast, if nominal interest rates increased at a
faster rate than inflation, real interest rates would rise, leading to a
decrease in value of inflation-indexed bonds.

While these securities are expected to be protected from long-term
inflationary trends, short-term increases in inflation may lead to a decline in
value. If interest rates rise due to reasons other than inflation (for example,
due to changes in currency exchange rates), investors in these securities may
not be protected to the extent that the increase is not reflected in the bond's
inflation measure.

The U.S. Treasury has only recently begun issuing inflation-indexed
bonds. As such, there is no trading history of these securities, and there can
be no assurance that a liquid market in these instruments will develop, although
one is expected. There also can be no assurance that the U.S. Treasury will
issue any particular amount of inflation-indexed bonds. Certain foreign
governments, such as the United Kingdom, Canada and Australia, have a longer
history of issuing inflation-indexed bonds, and there may be a more liquid
market in certain of these countries for these securities.

Mortgage-Related and Other Asset-Backed Securities. The Portfolio may
invest all of its assets in mortgage- or asset-backed securities. The value of
some mortgage- or asset-backed securities in which the Portfolio invests may be
particularly sensitive to changes in prevailing interest rates, and, like the
other investments of the Portfolio, the ability of the Portfolio to successfully
utilize these instruments may depend in part upon the ability of the Sub-advisor
to forecast interest rates and other economic factors correctly.

Mortgage-related securities include securities other than those
described above that directly or indirectly represent a participation in, or are
secured by and payable from, mortgage loans on real property, such as CMO
residuals or stripped mortgage-backed securities ("SMBS"), and may be structured
in classes with rights to receive varying proportions of principal and interest.

A common 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
the most extreme case, one class will receive all of the interest (the
interest-only or "IO" class), while the other class will receive all of the
principal (the principal-only or "PO" class). The yield to maturity on an IO
class is extremely sensitive to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on the Portfolio's yield
to maturity from these securities. In addition, the Portfolio may invest in
other asset-backed securities that have been offered to investors.

For an additional discussion of mortgage-related and other asset-backed
securities and the risks involved therein, see this Prospectus and the Trust's
Statement of Additional information under "Certain Risk Factors and Investment
Methods" and the Statement of Additional Information under "Investment
Objectives and Policies--PIMCO Limited Maturity Bond Portfolio."

Repurchase Agreements. Subject to guidelines promulgated by the Board
of Trustees of the Trust, for the purpose of achieving income, the Portfolio may
enter into repurchase agreements, which entail the purchase of a portfolio
eligible security from a bank or broker-dealer that agrees to repurchase the
security at the Portfolio's cost plus interest within a specified time (normally
one day). The Portfolio will not invest more than 15% of its net assets (taken
at current market value) in repurchase agreements maturing in more than seven
days. For a discussion of repurchase agreements and the risks involved therein,
see this Prospectus under "Certain Risk Factors and Investment Methods."

Reverse Repurchase Agreements, Dollar Rolls and Other Borrowings. A
reverse repurchase agreement involves the sale of a security by the Portfolio
and its agreement to repurchase the instrument at a specified time and price,
and for some purposes may be considered a borrowing.

The Portfolio may also enter into dollar rolls, in which the Portfolio
sells mortgage-backed or other securities for delivery in the current month and
simultaneously contracts to purchase substantially similar securities on a
specified future date. In the case of dollar rolls involving mortgage-backed
securities, the mortgage-backed securities that are purchased will be of the
same type and will have the same interest rate as those sold, but will be
supported by different pools of mortgages. The Portfolio foregoes principal and
interest paid during the roll period on the securities sold in a dollar roll,
but the Portfolio is compensated by the different between the current sales
price and the lower price for the future purchase as well as by any interest
earned on the proceeds of the securities sold. The Portfolio also could be
compensated through the receipt of fee income equivalent to a lower forward
price.

These practices will tend to exaggerate the effect on net asset value
of any increase or decrease in the value of the Portfolio's portfolio and may
cause the Portfolio to liquidate portfolio positions when it would not be
advantageous to do so. The Portfolio will maintain a segregated account
consisting of cash or other liquid assets to cover its obligations under reverse
repurchase agreements and dollar rolls. Reverse repurchase agreements and dollar
rolls will be subject to the Portfolio's limitations on borrowings as discussed
in this Prospectus under "Certain Risk Factors and Investment Methods." Apart
from transactions involving reverse repurchase agreements and dollar rolls, the
Portfolio will not borrow money, except for temporary administrative purposes.
For an additional discussion of the risks of borrowing, and of reverse
repurchase agreements and the risks involved therein, see this Prospectus and
the Trust's Statement of Additional information under "Certain Risk Factors and
Investment Methods."

Lending Portfolio Securities. For the purpose of achieving income, the
Portfolio may lend its portfolio securities, provided: (i) the loan is secured
continuously by collateral consisting of U.S. Government securities or cash or
cash equivalents (cash, U.S. Government securities, negotiable certificates of
deposit, bankers' acceptances or letters of credit) maintained on a daily
mark-to-market basis in an amount at least equal to the current market value of
the securities loaned; (ii) the Portfolio may at any time call the loan and
obtain the return of the securities loaned; (iii) the Portfolio will receive any
interest or dividends paid on the loaned securities; and (iv) the aggregate
market value of securities loaned will not at any time exceed one-third of the
total assets of the Portfolio. For a discussion of risks involved in lending,
see this Prospectus under "Certain Risk Factors and Investment Methods."

When-Issued or Delayed Delivery Transactions. The Portfolio may
purchase or sell securities on a when-issued or delayed delivery basis. These
transactions involve a commitment by the Portfolio to purchase or sell
securities for a predetermined price or yield, with payment and delivery taking
place more than seven days in the future, or after a period longer than the
customary settlement period for that type of security. When delayed delivery
purchases are outstanding, the Portfolio will set aside and maintain until the
settlement date in a segregated account, cash or other liquid assets in an
amount sufficient to meet the purchase price. Typically, no income accrues on
securities purchased on a delayed delivery basis prior to the time delivery of
the securities is made, although the Portfolio may earn income on securities it
has deposited in a segregated account. When purchasing a security on a delayed
delivery basis, the Portfolio assumes the rights and risks of ownership of the
security, including the risk of price and yield fluctuations, and takes such
fluctuations into account when determining its net asset value. Because the
Portfolio is not required to pay for the security until the delivery date, these
risks are in addition to the risks associated with the Portfolio's other
investments. If the Portfolio remains substantially fully invested at a time
when delayed delivery purchases are outstanding, the delayed delivery purchases
may result in a form of leverage. When the Portfolio has sold a security on a
delayed delivery basis, the Portfolio does not participate in future gains or
losses with respect to the security. If the other party to a delayed delivery
transaction fails to deliver or pay for the securities, the Portfolio could miss
a favorable price or yield opportunity or could suffer a loss. The Portfolio may
dispose of or renegotiate a delayed delivery transaction after it is entered
into, and may sell when-issued securities before they are delivered, which may
result in a capital gain or loss. There is no percentage limitation on the
extent to which the Portfolios may purchase or sell securities on a
delayed-delivery basis.

Short Sales. The Portfolio may from time to time effect short sales as
part of its overall portfolio management strategies, including the use of
derivative instruments, or to offset potential declines in value of long
positions in similar securities as those sold short. A short sale (other than a
short sale "against the box") is a transaction in which the Portfolio sells a
security it does not own at the time of the sale in anticipation that the market
price of that security will decline. To the extent that the Portfolio engages in
short sales, it must (except in the case of short sales against the box)
maintain asset coverage in the form of cash or other liquid assets in a
segregated account. A short sale is "against the box" to the extent that the
Portfolio contemporaneously owns, or has the right to obtain at no added cost,
securities identical to those sold short.

Foreign Securities. The Portfolio may invest directly in U.S. dollar-
or foreign currency-denominated fixed income securities of non-U.S. issuers. The
Portfolio will limit its foreign investments to securities of issuers based in
developed countries (including newly industrialized countries such as Taiwan,
South Korea and Mexico). Investing in the securities of issuers in any foreign
country involves special risks and considerations not typically associated with
investing in U.S. companies. For a discussion of the risks involved in investing
in foreign securities, including the risk of currency fluctuations, see this
Prospectus and the Trust's Statement of Additional Information under "Certain
Risk Factors and Investment Methods."

Foreign Currency Transactions. The Portfolio may buy and sell foreign
currency futures contracts and options on foreign currencies and foreign
currency futures contracts, enter into forward foreign currency exchange
contracts to reduce the risks of adverse changes in foreign exchange rates. The
Portfolio may enter into these contracts for the purpose of hedging against
foreign exchange risk arising from the Portfolio's investment or anticipated
investment in securities denominated in foreign currencies. For a discussion of
foreign currency transactions and the risks involved therein, see this
Prospectus and the Trust's Statement of Additional Information under "Certain
Risk Factors and Investment Methods."

Options on Securities, Securities Indexes, and Currencies. The
Portfolio may purchase put options on securities. One purpose of purchasing put
options is to protect holdings in an underlying or related security against a
substantial decline in market value. The Portfolio may also purchase call
options on securities. One purpose of purchasing call options is to protect
against substantial increases in prices of securities the Portfolio intends to
purchase pending its ability to invest in such securities in an orderly manner.
The Portfolio may sell put or call options it has previously purchased, which
could result in a net gain or loss depending on whether the amount realized on
the sale is more or less than the premium and other transaction costs paid on
the put or call option which is sold. The Portfolio may write a call or put
option only if the option is "covered" by the Portfolio holding a position in
the underlying securities or by other means which would permit immediate
satisfaction of the Portfolio's obligation as writer of the option. Prior to
exercise or expiration, an option may be closed out by an offsetting purchase or
sale of an option of the same series.

The Portfolio may buy or sell put and call options on foreign
currencies. Currency options traded on U.S. or other exchanges may be subject to
position limits which may limit the ability of the Portfolio to reduce foreign
currency risk using such options. For a discussion of the risks involved in
investing in foreign currency, see this Prospectus and the Trust's Statement of
Additional Information under "Certain Risk Factors and Investment Methods." For
a discussion of options and the risks involved therein, see this Prospectus and
the Trust's Statement of Additional Information under "Certain Risk Factors and
Investment Methods."

Swap Agreements. The Portfolio may enter into interest rate, index and
currency exchange rate swap agreements for purposes of attempting to obtain a
particular desired return at a lower cost to the Portfolio than if the Portfolio
had invested directly in an instrument that yielded that desired return. Swap
agreements are two-party contracts entered into primarily by institutional
investors for periods ranging from a few weeks to more than one year. In a
standard "swap" transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular predetermined
investments or instruments. The gross returns to be exchanged or "swapped"
between the parties are calculated with respect to a "notional amount," i.e.,
the return on or increase in value of a particular dollar amount invested at a
particular interest rate, in a particular foreign currency, or in a "basket" of
securities representing a particular index. Commonly used swap agreements
include interest rate caps, under which, in return for a premium, one party
agrees to make payments to the other to the extent that interest rates exceed a
specified rate, or "cap"; interest rate floors, under which, in return for a
premium, one party agrees to make payments to the other to the extent that
interest rates fall below a specified level, or "floor"; and interest rate
collars, under which a party sells a cap and purchases a floor or vice versa in
an attempt to protect itself against interest rate movements exceeding given
minimum or maximum levels.

The "notional amount" of the swap agreement is only a fictive basis on
which to calculate the obligations which the parties to a swap agreement have
agreed to exchange. Most swap agreements entered into by the Portfolio would
calculate the obligations of the parties to the agreement on a "net basis."
Consequently, the Portfolio's obligations (or rights) under a swap agreement
will generally be equal only to the net amount to be paid or received under the
agreement based on the relative values of the positions held by each party to
the agreement (the "net amount"). The Portfolio's obligations under a swap
agreement will be accrued daily (offset against amounts owed to the Portfolio)
and any accrued but unpaid net amounts owed to a swap counterparty will be
covered by the maintenance of segregated assets consisting of cash or other
liquid assets to avoid any potential leveraging of the Portfolio. A Portfolio
will not enter into a swap agreement with any single party if the net amount
owed or to be received under existing contracts with that party would exceed 5%
of the Portfolio's assets.

Whether the Portfolio's use of swap agreements will be successful in
furthering its investment objective will depend on the Sub-advisor's ability to
predict correctly whether certain types of investments are likely to produce
greater returns than other investments. Because they are two-party contracts and
because they may have terms of greater than seven days, swap agreements may be
considered to be illiquid. Moreover, the Portfolio bears the risk of loss of the
amount expected to be received under a swap agreement in the event of the
default or bankruptcy of a swap agreement counterparty. The Sub-advisor will
cause the Portfolio to enter into swap agreements only with counterparties that
would be eligible for consideration as repurchase agreement counterparties under
the Portfolio's repurchase agreement guidelines. Certain restrictions imposed on
the Portfolio by the Internal Revenue Code may limit the Portfolio's ability to
use swap agreements. The swaps market is a relatively new market and is largely
unregulated. It is possible that developments in the swaps market, including
potential government regulation, could adversely affect the Portfolio's ability
to terminate existing swap agreements or to realize amounts to be received under
such agreements.

Futures Contracts and Options on Futures Contracts. The Portfolio may
invest in interest rate futures contracts, stock index futures contracts and
foreign currency futures contracts and options thereon ("futures options") that
are traded on a U.S. or foreign exchange or board of trade. The Portfolio will
only enter into futures contracts or futures options which are standardized and
traded on a U.S. or foreign exchange or board of trade, or similar entity, or
quoted on an automated quotation system. Each Portfolio will use financial
futures contracts and related options only for "bona fide hedging" purposes, as
such term is defined in applicable regulations of the CFTC, or, with respect to
positions in financial futures and related options that do not qualify as "bona
fide hedging" positions, will enter such non-hedging positions only to the
extent that aggregate initial margin deposits plus premiums paid by it for open
futures option positions, less the amount by which any such positions are
"in-the-money," would not exceed 5% of the Portfolio's total net assets.

<PAGE>

For an additional discussion of futures contracts and related options,
and the risks involved therein, see this Prospectus and the Trust's Statement of
Additional Information under "Certain Risk Factors and Investment Methods."

Portfolio Turnover. The Portfolio may have portfolio turnover higher
than other mutual funds with similar investment objectives. For an additional
discussion of portfolio turnover and its effects, see this Prospectus and the
Trust's Statement of Additional Information under "Portfolio Turnover."

AST Putnam International Equity Portfolio:

Investment Objective: The investment objective of the AST Putnam
International Equity Portfolio is to seek capital appreciation. This is a
fundamental objective of the Portfolio.

Investment Policies:

The Portfolio seeks its objective by investing primarily in equity
securities of companies located in countries other than the United States. The
Portfolio's investments will normally include common stocks, preferred stocks,
securities convertible into common or preferred stocks, and warrants to purchase
common or preferred stocks. The Portfolio may also invest to a lesser extent in
debt securities and other types of investments if the Sub-advisor believes
purchasing them would help achieve the Portfolio's objective. The Portfolio
will, under normal circumstances, invest at least 65% of its total assets in
issuers located in at least three different countries other than the United
States. The Portfolio may hold a portion of its assets in cash or money market
instruments.

The Portfolio will consider an issuer of securities to be "located in a
country other than the United States" if it is organized under the laws of a
country other than the United States and has a principal office outside the
United States, or if it derives 50% or more of its total revenues from business
outside the United States. The Portfolio may invest in securities of issuers in
emerging markets, as well as more developed markets. Investing in emerging
markets generally involves more risks then in investing in developed markets.
For a discussion of the special risks involved in investing in emerging markets
and foreign securities in general, see this Prospectus and the Trust's Statement
of Additional Information under "Certain Risk Factors and Investments Methods."

The Portfolio will not limit its investments to any particular type of
company. The Portfolio may invest in companies, large or small, whose earnings
are believed to be in a relatively strong growth trend, or in companies in which
significant further growth is not anticipated but whose market value per share
is thought to be undervalued. It may invest in small and relatively less
well-known companies which meet these characteristics.

The Sub-advisor believes that the securities markets of many nations
move relatively independently of one another, because business cycles and other
economic or political events that influence one country's securities markets may
have little effect on securities markets in other countries. By investing in a
diversified portfolio of foreign securities, the Sub-advisor attempts to reduce
the risks associated with being invested in the economy of only one country. The
countries which the Sub-advisor believes offer attractive opportunities for
investment may change from time to time.

The Portfolio may seek investment opportunities among securities of
large, widely-traded companies as well as securities of smaller, less well known
companies. Smaller companies may present greater opportunities for capital
appreciation, but may also involve greater risks. They may have limited product
lines, markets or financial resources, or may depend on a limited management
group. Their securities may trade less frequently and in limited volume. As a
result, the prices of these securities may fluctuate more than prices of
securities of larger, more established companies.

Defensive Strategies. At times, the Sub-advisor may judge that
conditions in the international securities markets make pursuing the Portfolio's
basic investment strategy inconsistent with the best interests of its
shareholders. At such times, the Sub-advisor may temporarily use alternative
strategies, primarily designed to reduce fluctuations in the value of portfolio
assets. In implementing these defensive strategies, the Portfolio may invest
without limit in cash and money market instruments, securities primarily traded
in the U.S. markets, or in any other securities the Sub-advisor considers
consistent with such defensive strategies. It is impossible to predict when or
for how long the Portfolio will use these alternative strategies.

<PAGE>

Options and Futures Transactions. The Portfolio may engage in a variety
of transactions involving the use of options and futures contracts and in
foreign currency exchange transactions for purposes of increasing its investment
return or hedging against market changes. The Portfolio may seek to increase its
current return by writing covered call options and covered put options on its
portfolio securities or other securities in which it may invest. The Portfolio
receives a premium from writing a call or put option, which increases the
Portfolio's return if the option expires unexercised or is closed out at a net
profit. The Portfolio may also buy and sell put and call options on such
securities for hedging purposes. When the Portfolio writes a call option on a
portfolio security, it gives up the opportunity to profit from any increase in
the price of the security above the exercise price of the option; when it writes
a put option, the Portfolio takes the risk that it will be required to purchase
a security from the option holder at a price above the current market price of
the security. The Portfolio may terminate an option that it has written prior to
its expiration by entering into a closing purchase transaction in which it
purchases an option having the same terms as the option written. The Portfolio
may also from time to time buy and sell combinations of put and call options on
the same underlying security to earn additional income.

The Portfolio may buy and sell index futures contracts for hedging
purposes. An "index future" is a contract to buy or sell units of a particular
index at an agreed price on a specified future date. Depending on the change in
value of the index between the time when the Portfolio enters into and
terminates an index future transaction, the Portfolio realizes a gain or loss.
The Portfolio may also purchase and sell call and put options on index futures
or on indices in addition or as an alternative to purchasing or selling index
futures or, to the extent permitted by applicable law, to earn additional
income. The Portfolio may also purchase warrants, issued by banks and other
financial institutions, whose values are based on the values from time to time
of one or more securities indices.

The Portfolio generally expects that its options and futures contract
transactions will be conducted on recognized exchanges. In certain instances,
however, the Portfolio may purchase and sell options in the over-the-counter
markets. The Portfolio's ability to terminate options in over-the-counter
markets may be more limited than for exchange-traded options and may also
involve the risk that securities dealers participating in such transactions
would be unable to meet their obligations to the Portfolio.

Because the markets for certain options and futures contracts in which
the Portfolio will invest (including markets located in foreign countries) are
relatively new and still developing and may be subject to regulatory restraints,
the Portfolio's ability to engage in transactions using such investments may be
limited. The Portfolio's ability to engage in hedging transactions may be
limited by certain regulatory requirements and tax considerations. The
Portfolio's hedging transactions may affect the character or amount of the
Portfolio's distributions. For an additional discussion of options and futures
transactions and certain risks involved therein, see this Prospectus and the
Trust's Statement of Additional Information under "Certain Risk Factors and
Investment Methods."

Foreign Currency Exchange Transactions. The Portfolio may engage in
foreign currency exchange transactions to protect against uncertainty in the
level of future exchange rates. The Sub-advisor may engage in foreign currency
exchange transactions in connection with the purchase and sale of portfolio
securities ("transaction hedging") and to protect against changes in the value
of specific portfolio positions ("position hedging").

The Portfolio may engage in transaction hedging to protect against a
change in foreign currency exchange rates between the date on which the
Portfolio contracts to purchase or sell a security and the settlement date, or
to "lock in" the U.S. dollar equivalent of a dividend or interest payment in a
foreign currency. The Portfolio may purchase or sell a foreign currency on a
spot (or cash) basis at the prevailing spot rate in connection with the
settlement of transactions in portfolio securities denominated in that foreign
currency.

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

The Portfolio may engage in position hedging to protect against a
decline in value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in value of a
currency in which securities the Portfolio intends to buy are denominated). For
position hedging purposes, the Portfolio may purchase or sell foreign currency
futures contacts, foreign currency forward contracts, and options on foreign
currency futures contracts and on foreign currencies. In connection with
position hedging, the Portfolio may also purchase or sell foreign currency on a
spot basis.

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

The decision as to whether and to what extent the Portfolio will engage
in foreign currency exchange transactions will depend on a number of factors,
including prevailing market conditions, the composition of the Portfolio's
portfolio and the availability of suitable transactions. Accordingly, there can
be no assurance that the Portfolio will engage in foreign currency exchange
transactions at any given time or from time to time. For an additional
discussion of foreign currency exchange transactions, certain risks involved
therein, and the risk of currency fluctuations generally, see this Prospectus
and the Trust's Statement of Additional Information under "Certain Risk Factors
and Investment Methods."

Lending Portfolio Securities. The Portfolio may lend its securities to
broker-dealers. Such transactions must be fully collateralized at all times.
These transactions involve some risk to the Portfolio if the other party should
default on its obligation and the Portfolio is delayed or prevented from
recovering the collateral or completing the transaction. For a discussion of
securities lending and certain risks involved therein, see this Prospectus under
"Certain Risk Factors and Investment Methods" and the Trust's Statement of
Additional Information under "Investment Objectives and Policies."

Repurchase Agreements. Subject to guidelines promulgated by the Board
of Trustees of the Trust, the Portfolio may enter into repurchase agreements.
Such transactions must be fully collateralized at all times. These transactions
involve some risk to the Portfolio if the other party should default on its
obligation and the Portfolio is delayed or prevented from recovering the
collateral or completing the transaction. For a discussion of repurchase
agreements and certain risks involved therein, see this Prospectus under
"Certain Risk Factors and Investment Methods" and the Trust's Statement of
Additional Information under "Investment Objectives and Policies."

Forward Commitments. The Portfolio may purchase securities for future
delivery, which may increase its overall investment exposure and involves a risk
of loss if the value of the securities declines prior to the settlement date.
These transactions involve some risk to the Portfolio if the other party should
default on its obligation and the Portfolio is delayed or prevented from
recovering the collateral or completing the transaction. For a discussion of
forward commitments and certain risks involved therein, see the Trust's
Statement of Additional Information under "Investment Objectives and Policies."

Borrowing. For a discussion of limitations on borrowing by the Portfolio
and certain risks involved in borrowing, see this Prospectus under "Certain Risk
Factors and Investment Methods" and the Trust's Statement of Additional
Information under "Investment Restrictions."

CERTAIN RISK FACTORS AND INVESTMENT METHODS:

Some of the risk factors related to certain securities, instruments and
techniques that may be used by one or more of the Portfolios are described in
the "Investment Objectives and Policies" section of this Prospectus and in the
"Investment Objectives and Policies" and "Certain Risk Factors and Investment
Methods" sections of the Trust's Statement of Additional Information. The
following is a description of certain additional risk factors related to various
of these securities, instruments and techniques. The risks so described only
apply to those Portfolios which may invest in such securities and instruments or
use such techniques. Also included is a general description of some of the
investment instruments, techniques and methods which may be used by one or more
of the Portfolios. The methods described only apply to those Portfolios which
may use such methods.

<PAGE>

Derivative Instruments:

To the extent permitted by the investment objectives and policies of a
Portfolio, a Portfolio may invest in securities and other instruments that are
commonly referred to as "derivatives." For instance, a Portfolio may purchase
and write call and put options on securities, securities indexes and foreign
currencies, and enter into futures contracts and use options on futures
contracts, and enter into swap agreements with respect to foreign currencies,
interest rates, and securities indexes. A Portfolio may use these techniques to
hedge against changes in interest rates, foreign currency exchange rates or
securities prices or as part of their overall investment strategies.

In general, derivative instruments are those securities or other
instruments whose value is derived from or related to the value of some other
instrument or asset, but not those securities whose payment of principal and/or
interest depend upon cash flows from underlying assets, such as mortgage or
asset-backed securities. The value of some derivative instruments in which a
Portfolio invests may be particularly sensitive to changes in prevailing
interest rates, and, like the other investments of a Portfolio, the ability of
the Portfolio to successfully utilize these instruments may depend in part upon
the ability of the Sub-advisor to forecast interest rates and other economic
factors correctly. If the Sub-advisor incorrectly forecasts such factors and has
taken positions in derivative instruments contrary to prevailing market trends,
the Portfolio could be exposed to the risk of a loss.

A Portfolio might not employ any of the derivative strategies described
below, and no assurance can be given that any strategy used will succeed. If a
Sub-advisor incorrectly forecasts interest rates, market values or other
economic factors in utilizing a derivatives strategy for a Portfolio, the
Portfolio might have been in a better position if it had not entered into the
transaction at all. The use of these strategies involves certain special risks,
including a possible imperfect correlation, or even no correlation, between
price movements of derivative instruments and price movements of related
investments. In addition, while some strategies involving derivative instruments
can reduce the risk of loss, they can also reduce the opportunity for gain, or
even result in losses, by offsetting favorable price movements in related
investments. Furthermore, a Portfolio may be unable to purchase or sell a
portfolio security at a time that otherwise would be favorable for it to do so,
or need to sell a portfolio security at a disadvantageous time, due to the need
to maintain asset coverage or offsetting positions in connection with
transactions in derivative instruments. Finally, a Portfolio may be unable to
close out or to liquidate its derivatives positions.

Options:

Call Options. A call option on a security gives the purchaser of the
option, in return for a premium paid to the writer (seller), the right to buy
the underlying security at the exercise price at any time during the option
period. Upon exercise by the purchaser, the writer (seller) of a call option has
the obligation to sell the underlying security at the exercise price. When a
Portfolio purchases a call option, it will pay a premium to the party writing
the option and a commission to the broker selling the option. If the option is
exercised by such Portfolio, the amount of the premium and the commission paid
may be greater than the amount of the brokerage commission that would be charged
if the security were to be purchased directly. By writing a call option, a
Portfolio assumes the risk that it may be required to deliver the security
having a market value higher than its market value at the time the option was
written. The Portfolio will write call options in order to obtain a return on
its investments from the premiums received and will retain the premiums whether
or not the options are exercised. Any decline in the market value of Portfolio
securities will be offset to the extent of the premiums received (net of
transaction costs). If an option is exercised, the premium received on the
option will effectively increase the exercise price.

If a Portfolio writes a call option on a security it already owns, it
gives up the opportunity for capital appreciation above the exercise price
should market price of the underlying security increase, but retains the risk of
loss should the price of the underlying security decline. Writing call options
also involves the risk relating to a Portfolio's ability to close out options it
has written.

A call option on a securities index is similar to a call option on an
individual security, except that the value of the option depends on the weighted
value of the group of securities comprising the index, and all settlements are
made in cash. A call option may be terminated by the writer (seller) by entering
into a closing purchase transaction in which it purchases an option of the same
series as the option previously written.

<PAGE>

Put Options. A put option on a security gives the purchaser of the
option, in return for premium paid to the writer (seller), the right to sell the
underlying security at the exercise price at any time during the option period.
Upon exercise by the purchaser, the writer of a put option has the obligation to
purchase the underlying security at the exercise price. By writing a put option,
a Portfolio assumes the risk that it may be required to purchase the underlying
security at a price in excess of its current market value.

A put option on a securities index is similar to a put option on an
individual security, except that the value of the option depends on the weighted
value of the group of securities comprising the index, and all settlements are
made in cash.

A Portfolio may sell a call option or a put option which it has
previously purchased prior to the purchase (in the case of a call) or the sale
(in the case of a put) of the underlying security. Any such sale would result in
a net gain or loss depending on whether the amount received on the sale is more
or less than the premium and other transaction costs paid on the call or put
which is sold.

Futures Contracts and Related Options:

A financial futures contract calls for delivery of a particular
security at a specified price at a certain time in the future. The seller of the
contract agrees to make delivery of the type of security called for in the
contract and the buyer agrees to take delivery at a specified future time. A
Portfolio may also write call options and purchase put options on financial
futures contracts as a hedge to attempt to protect the Portfolio's securities
from a decrease in value. When a Portfolio writes a call option on a futures
contract, it is undertaking the obligation of selling a futures contract at a
fixed price at any time during a specified period if the option is exercised.
Conversely, the purchaser of a put option on a futures contract is entitled (but
not obligated) to sell a futures contract at a fixed price during the life of
the option.

Financial futures contracts consist of interest rate futures contracts
and securities index futures contracts. An interest rate futures contract
obligates the seller of the contract to deliver, and the purchaser to take
delivery of, interest rate securities called for in a contract at a specified
future time at a specified price. A stock index assigns relative values to
common stocks included in the index and the index fluctuates with changes in the
market values of the common stocks included. A stock index futures contract is a
bilateral contract pursuant to which two parties agree to take or make delivery
of an amount of cash equal to a specified dollar amount times the difference
between the stock index value at the close of the last trading day of the
contract and the price at which the futures contract is originally struck. An
option on a financial futures contract gives the purchaser the right to assume a
position in the contract (a long position if the option is a call and a short
position if the option is a put) at a specified exercise price at any time
during the period of the option.

Futures contracts and options can be highly volatile and could result
in reduction of a Portfolio's total return, and a Portfolio's attempt to use
such investments for hedging purposes may not be successful. Successful futures
strategies require the ability to predict future movements in securities prices,
interest rates and other economic factors. A Portfolio's potential losses from
the use of futures extends beyond its initial investment in such contracts.
Also, losses from options and futures could be significant if a Portfolio is
unable to close out its position due to distortions in the market or lack of
liquidity.

The use of futures and options involves investment risks and
transaction costs to which a Portfolio would not be subject absent the use of
these strategies. If a Sub-advisor seeks to protect a Portfolio against
potential adverse movements in the securities, foreign currency or interest rate
markets using these instruments, and such markets do not move in a direction
adverse to the Portfolio, the Portfolio could be left in a less favorable
position than if such strategies had not been used. The successful use of these
strategies therefore may depend on the ability of the Sub-advisor to correctly
forecast interest rate movements and general stock market price movements. Risks
inherent in the use of futures and options include: (a) the risk that interest
rates, securities prices and currency markets will not move in the directions
anticipated; (b) imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; (c) the fact that skills needed to use these strategies are
different from those needed to select portfolio securities; (d) the possible
absence of a liquid secondary market for any particular instrument at any time;
and (e) the possible need to defer closing out certain hedged positions to avoid
adverse tax consequences. A Portfolio's ability to terminate option positions
established in the over-the-counter market may be more limited than in the case
of exchange-traded options and may also involve the risk that securities dealers
participating in such transactions would fail to meet their obligations to such
Portfolio.

<PAGE>

The use of options and futures involves the risk of imperfect
correlation between movements in options and futures prices and movements in the
price of securities which are the subject of a hedge. Particularly with respect
to options on stock indices and stock index futures, the risk of imperfect
correlation increases as the composition of the Portfolio diverges from the
composition of the relevant index.

Pursuant to regulations of the Commodity Futures Trading Commission,
the Trust has represented that:

(i) it will not purchase or sell futures or options on futures
contracts or stock indices for purposes other than bona fide hedging
transactions (as defined by the CFTC) if as a result the sum of the initial
margin deposits and premiums required to establish positions in futures
contracts and related options that do not fall within the definition of bona
fide hedging transactions would exceed 5% of the fair market value of each
Portfolio's net assets; and

(ii) a Portfolio will not enter into any futures contracts if the
aggregate amount of that Portfolio's commitments under outstanding futures
contracts positions would exceed the market value of its total assets.

Asset-Backed Securities:

Asset-backed securities represent a participation in, or are secured by
and payable from, a stream of payments generated by particular assets, for
example, credit card, automobile or trade receivables. Asset-backed commercial
paper, one type of asset-backed security, is issued by a special purpose entity,
organized solely to issue the commercial paper and to purchase interests in the
assets. The credit quality of these securities depends primarily upon the
quality of the underlying assets and the level of credit support and/or
enhancement provided.

The underlying assets (e.g., loans) are subject to prepayments which
shorten the securities' weighted average life and may lower their return. If the
credit support or enhancement is exhausted, losses or delays in payment may
result if the required payments of principal and interest are not made. The
value of these securities also may change because of changes in the market's
perception of the creditworthiness of the servicing agent for the pool, the
originator of the pool, or the financial institution providing the credit
support or enhancement.

Mortgage Pass-Through Securities:

Mortgage pass-through securities are securities representing interests
in "pools" of mortgage loans secured by residential or commercial real property
in which payments of both interest and principal on the securities are generally
made monthly, in effect "passing through" monthly payments made by the
individual borrowers on the mortgage loans which underlie the securities (net of
fees paid to the issuer or guarantor of the securities). Early repayment of
principal on some mortgage-related securities (arising from prepayments of
principal due to sale of the underlying property, refinancing, or foreclosure,
net of fees and costs which may be incurred) expose a Portfolio to a lower rate
of return upon reinvestment of principal. Also, if a security subject to
prepayment has been purchased at a premium, in the event of prepayment the value
of the premium would be lost. Like other fixed-income securities, when interest
rates rise, the value of a mortgage-related security will generally decline;
however, when interest rates are declining, the value of mortgage-related
securities with prepayment features may not increase as much as other
fixed-income securities. The value of these securities also may change because
of changes in the market's perception of the creditworthiness of the federal
agency or private institution that issued them. In addition, the mortgage
securities market in general may be adversely affected by changes in
governmental regulation or tax policies.

Collateralized Mortgage Obligations (CMOs):

CMOs are obligations fully collateralized by a portfolio of mortgages
or mortgage-related securities. Payments of principal and interest on the
mortgages are passed through to the holders of the CMOs on the same schedule as
they are received, although certain classes of CMOs have priority over others
with respect to the receipt of prepayments on the mortgages. Therefore,
depending on the type of CMOs in which a Portfolio invests, the investment may
be subject to a greater or lesser risk of prepayment than other types of
mortgage-related securities. CMOs may also be less marketable than other
securities.

<PAGE>

Stripped Agency Mortgage-Backed Securities:

Stripped Agency Mortgage-Backed securities represent interests in a
pool of mortgages, the cash flow of which has been separated into its interest
and principal components. "IOs" (interest only securities) receive the interest
portion of the cash flow while "POs" (principal only securities) receive the
principal portion. Stripped Agency Mortgage-Backed Securities may be issued by
U.S. Government Agencies or by private issuers. Unlike other debt instruments
and other mortgage-backed securities, the value of IOs tends to move in the same
direction as interest rates.

The cash flows and yields on IO and PO classes are extremely sensitive
to the rate of principal payments (including prepayments) on the related
underlying mortgage assets. For example, a rapid or slow rate of principal
payments may have a material adverse effect on the prices of IOs or POs,
respectively. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, an investor may fail to recoup fully its
initial investment in an IO class of a stripped mortgage-backed security, even
if the IO class is rated AAA or Aaa or is derived from a full faith and credit
obligation. Conversely, if the underlying mortgage assets experience slower than
anticipated prepayments of principal, the price on a PO class will be affected
more severely than would be the case with a traditional mortgage-backed
security.

Foreign Securities:

Investments in securities of foreign issuers may involve risks that are
not present with domestic investments. While investments in foreign securities
are intended to reduce risk by providing further diversification, such
investments involve sovereign risk in addition to credit and market risks.
Sovereign risk includes local political or economic developments, potential
nationalization, withholding taxes on dividend or interest payments, and
currency blockage (which would prevent cash from being brought back to the
United States). Compared to United States issuers, there is generally less
publicly available information about foreign issuers and there may be less
governmental regulation and supervision of foreign stock exchanges, brokers and
listed companies. Brokerage commissions on foreign securities exchanges, which
may be fixed, are generally higher than in the United States. Foreign issuers
are not generally subject to uniform accounting and auditing and financial
reporting standards, practices and requirements comparable to those applicable
to domestic issuers. Securities of some foreign issuers are less liquid and
their prices are more volatile than securities of comparable domestic issuers.
In some countries, there may also be the possibility of expropriation or
confiscatory taxation, limitations on the removal of funds or other assets,
difficulty in enforcing contractual and other obligations, political or social
instability or revolution, or diplomatic developments which could affect
investments in those countries. Settlement of transactions in some foreign
markets may be delayed or less frequent than in the United States, which could
affect the liquidity of investments. For example, securities which are listed on
foreign exchanges or traded in foreign markets may trade on days (such as
Saturday or Holidays) when a Portfolio does not compute its price or accept
orders for the purchase, redemption or exchange of its shares. As a result, the
net asset value of a Portfolio may be significantly affected by trading on days
when shareholders cannot make transactions. Further, it may be more difficult
for the Trust's agents to keep currently informed about corporate actions which
may affect the price of portfolio securities. Communications between the U.S.
and foreign countries may be less reliable than within the U.S., increasing the
risk of delayed settlements or loss of certificates for portfolio securities.

Currency Fluctuations. Investments in foreign securities may be
denominated in foreign currencies. The value of Portfolio investments
denominated in foreign currencies may be affected, favorably or unfavorably, by
the relative strength of the U.S. dollar, changes in foreign currency and U.S.
dollar exchange rates and exchange control regulations. A Portfolio's net asset
value per share may, therefore, be affected by changes in currency exchange
rates. Changes in foreign currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by a Portfolio. Foreign currency exchange rates generally are
determined by the forces of supply and demand in foreign exchange markets and
the relative merits of investment in different countries, actual or perceived
changes in interest rates or other complex factors, as seen from an
international perspective. Currency exchange rates also can be affected
unpredictably by intervention by U.S. or foreign governments or central banks or
the failure to intervene, or by currency controls or political developments in
the U.S. or abroad. In addition, a Portfolio may incur costs in connection with
conversions between various currencies. Investors should understand and consider
carefully the special risks involved in foreign investing. These risks are often
heightened for investments in emerging or developing countries.

Developing Countries. Investing in developing countries involves
certain risks not typically associated with investing in U.S. securities, and
imposes risks greater than, or in addition to, risks of investing in foreign,
developed countries. These risks include: the risk of nationalization or
expropriation of assets or confiscatory taxation; currency devaluations and
other currency exchange rate fluctuations; social, economic and political
uncertainty and instability (including the risk of war); more substantial
government involvement in the economy; higher rates of inflation; less
government supervision and regulation of the securities markets and participants
in those markets; controls on foreign investment and limitations on repatriation
of invested capital and on a Portfolio's ability to exchange local currencies
for U.S. dollars; unavailability of currency hedging techniques in certain
developing countries; the fact that companies in developing countries may be
smaller, less seasoned and newly organized companies; the difference in, or lack
of, auditing and financial reporting standards, which may result in
unavailability of material information about issuers; the risk that it may be
more difficult to obtain and/or enforce a judgment in a court outside the United
States; and greater price volatility, substantially less liquidity and
significantly smaller market capitalization of securities markets.

American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and
Global Depositary Receipts ("GDRs"):

ADRs are dollar-denominated receipts generally issued by a domestic
bank that represents the deposit of a security of a foreign issuer. ADRs may be
publicly traded on exchanges or over-the-counter in the United States. EDRs are
receipts similar to ADRs and are issued and traded in Europe. GDRs may be
offered privately in the United States and also trade in public or private
markets in other countries. Depositary Receipts may be issued as sponsored or
unsponsored programs. In sponsored programs, the issuer makes arrangements to
have its securities traded in the form of a Depositary Receipt. In unsponsored
programs, the issuer may not be directly involved in the creation of the
program. Although regulatory requirements with respect to sponsored and
unsponsored programs are generally similar, the issuers of unsponsored
Depositary Receipts are not obligated to disclose material information in the
United States and, therefore, the import of such information may not be
reflected in the market value of such securities.

Forward Foreign Currency Exchange Contracts:

A forward foreign currency exchange contract involves an obligation to
purchase or sell a specified currency at a future date, which may be any fixed
number of days from the date the contract is agreed upon by the parties, at a
price set at the time of the contract. By entering into a forward foreign
currency contract, a Portfolio "locks in" the exchange rate between the currency
it will deliver and the currency it will receive for the duration of the
contract. As a result, a Portfolio reduces its exposure to changes in the value
of the currency it will deliver and increases its exposure to changes in the
value of the currency into which it will exchange. The effect on the value of a
Portfolio is similar to selling securities denominated in one currency and
purchasing securities denominated in another. The Portfolios may enter into
these contracts for the purposes of hedging against foreign exchange risk
arising from such Portfolio's investment or anticipated investment in securities
denominated in or exposed to foreign currencies. Although a Sub-advisor may,
from time to time, seek to protect a Portfolio by using forward contracts,
anticipated currency movements may not be accurately predicted and the Portfolio
may incur a gain or a loss on a forward contract. A forward contract may reduce
a Portfolio's losses on securities denominated in foreign currency, but it may
also reduce the potential gain on the securities depending on changes in the
currency's value relative to the U.S. dollar or other currencies.

Lower-Rated High-Yield Bonds:

Lower-rated high-yield bonds (commonly known as "junk bonds") are
generally considered to be high risk investments, as they are subject to a
higher risk of default than higher-rated bonds. In addition, the market for
lower-rated high-yield bonds generally is more limited than the market for
higher-rated bonds, and because their markets may be thinner and less active,
the market prices of lower-rated high-yield bonds may fluctuate more than the
prices of higher-rated bonds, particularly in times of market stress. In
addition, while the market for high-yield corporate debt securities has been in
existence for many years, the market in recent years has experienced a dramatic
increase in the large-scale use of such securities to fund highly leveraged
corporate acquisitions and restructurings. Accordingly, past experience may not
provide an accurate indication of future performance of the high-yield bond
market, especially during periods of economic recession. Other risks which may
be associated with lower-rated high-yield bonds include: the exercise of any
redemption or call provisions in a declining market may result in their
replacement by lower yielding bonds; and legislation, from time to time, may
adversely affect their market. Since the risk of default is higher among
lower-rated high-yield bonds, a Sub-advisor's research and analysis are an
important ingredient in the selection of lower-rated high-yield bonds. Through
portfolio diversification, good credit analysis and attention to current
developments and trends in interest rates and economic conditions, investment
risk may be reduced, although there is no assurance that losses will not occur.

Illiquid and Restricted Securities:

The Board of Trustees of the Trust has promulgated guidelines with
respect to illiquid securities. Illiquid securities are deemed as such because
they are subject to restrictions on their resale ("restricted securities") or
because, based upon their nature or the market for such securities, they are not
readily marketable. Restricted securities are acquired through private placement
transactions, directly from the issuer or from security holders, generally at
higher yields or on terms more favorable to investors than comparable publicly
traded securities. However, the restrictions on resale may make it difficult for
a Portfolio to dispose of such securities at the time considered most
advantageous by its Sub-advisor, and/or may involve expenses that would not be
incurred in the sale of securities that were freely marketable. A Portfolio that
may purchase restricted securities may qualify for and trade restricted
securities in the "institutional trading market" pursuant to Rule 144A of the
Securities Act of 1933. Trading in the institutional trading market may enable a
Sub-advisor to dispose of restricted securities at a time the Sub-advisor
considers advantageous and/or at a more favorable price than would be available
if such securities were not traded in such market. However, the institutional
trading market is relatively new and liquidity of a Portfolio's investments in
such market could be impaired if trading does not develop or declines. Risks
associated with restricted securities include the potential obligation to pay
all or part of the registration expenses in order to sell certain restricted
securities. A considerable period of time may elapse between the time of the
decision to sell a security and the time a Portfolio may be permitted to sell it
under an effective registration statement. If, during such a period, adverse
conditions were to develop, a Portfolio might obtain a less favorable price than
prevailing when it decided to sell.

Repurchase Agreements:

The Board of Trustees of the Trust has promulgated guidelines with
respect to repurchase agreements. Repurchase agreements are agreements by which
a Portfolio purchases a security and obtains a simultaneous commitment from the
seller to repurchase the security at an agreed upon price and date. The resale
price is in excess of the purchase price and reflects an agreed upon market rate
unrelated to the coupon rate on the purchased security. A repurchase transaction
is usually accomplished either by crediting the amount of securities purchased
to the account of a Portfolio's custodian maintained in a central depository or
book-entry system or by physical delivery of the securities to a Portfolio's
custodian in return for delivery of the purchase price to the seller. Repurchase
transactions are intended to be short-term transactions with the seller
repurchasing the securities, usually within seven days.

A Portfolio which enters into a repurchase agreement bears a risk of
loss in the event that the other party to such an agreement defaults on its
obligation and such Portfolio is delayed or prevented from exercising its rights
to dispose of the collateral securities, including the risk of a possible
decline in value of the underlying securities during the period such Portfolio
seeks to assert these rights, as well as the risk of incurring expenses in
asserting these rights and the risk of losing all or part of the income from
such an agreement. If the seller institution defaults, a Portfolio might incur a
loss or delay in the realization of proceeds if the value of the collateral
securing the repurchase agreement declines and it might incur disposition costs
in liquidating the collateral. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by a
Portfolio might be delayed pending court action.

Reverse Repurchase Agreements:

In a reverse repurchase agreement, a Portfolio transfers possession of
a portfolio instrument to another person, such as a broker-dealer or financial
institution in return for a percentage of the instrument's market value in cash
and agrees that on a stipulated date in the future such Portfolio will
repurchase the portfolio instrument by remitting the original consideration plus
interest at an agreed upon rate. When effecting reverse repurchase agreements,
assets of a Portfolio, in a dollar amount sufficient to make payment for the
obligations to be repurchased, are segregated on such Portfolio's records at the
trade date and are maintained until the transaction is settled. Reverse
repurchase agreements involve the risk that the market value of the securities
retained by the Portfolio may decline below the repurchase price of the
securities which it is obligated to repurchase.

Borrowing:

Each Portfolio's borrowings are limited so that immediately after such
borrowing the value of the Portfolio's assets (including borrowings) less its
liabilities (not including borrowings) is at least three times the amount of the
borrowings. Should a Portfolio, for any reason, have borrowings that do not meet
the above test then, within three business days, such Portfolio must reduce such
borrowings so as to meet the necessary test. Under such a circumstance, such
Portfolio may have to liquidate securities at a time when it is disadvantageous
to do so. Gains made with additional funds borrowed will generally cause the net
asset value of such Portfolio's shares to rise faster than could be the case
without borrowings. Conversely, if investment results fail to cover the cost of
borrowings, the net asset value of such Portfolio could decrease faster than if
there had been no borrowings.

Convertible Securities and Warrants:

Convertible securities generally participate in the appreciation or
depreciation of the underlying stock into which they are convertible, but to a
lesser degree. Warrants are options to buy a stated number of shares of common
stock at a specified price any time during the life of the warrants. The value
of warrants may fluctuate more than the value of the securities underlying such
warrants. The value of a warrant detached from its underlying security will
expire without value if the rights under such warrant are not exercised prior to
its expiration date.

Lending:

With respect to the lending of securities, there is the risk of delays
in receiving additional collateral or in the recovery of securities and possible
loss of rights in collateral in the event that a borrower fails financially.

REGULATORY MATTERS:

The Trust currently does not foresee any disadvantages to the holders
of variable annuity contracts and variable life insurance policies of affiliated
or unaffiliated Participating Insurance Companies or participants of Qualified
Plans (see page 2) arising from the fact that the interests of the holders of
variable annuity contracts and variable life insurance policies and participants
of Qualified Plans may differ due to differences of tax treatment or other
considerations or due to conflicts between the affiliated or unaffiliated
Participating Insurance Companies or Qualified Plans. Nevertheless, the Trustees
intend to monitor events in order to identify any material irreconcilable
conflicts which may possibly arise and to determine what action, if any, should
be taken in response to such conflicts. The variable annuity contracts and
variable life insurance policies are described in the separate prospectuses
issued by the Participating Insurance Companies. The Trust assumes no
responsibility for such prospectuses.

PORTFOLIO TURNOVER:

Each Portfolio may generally change its investments at any time in
accordance with its Sub-advisor's appraisal of factors affecting any particular
issuer or the market or economy in general. The frequency of the Portfolio's
transactions -- the Portfolio's turnover rate -- will vary from year to year
depending upon market conditions. High turnover (generally in excess of 100%)
involves correspondingly greater brokerage commissions and other transaction
costs. Trading in fixed income securities does not generally involve the payment
of brokerage commissions, but does involve indirect transaction costs. A 100%
portfolio turnover rate would occur if all the securities in a portfolio of
investments were replaced during a given period. The following Portfolios have
anticipated annual rates of turnover exceeding 100%.

JanCap Growth Portfolio (not to exceed 200% under normal market
conditions).

T. Rowe Price International Bond Portfolio (not to exceed 350%).

Founders Capital Appreciation Portfolio (not to exceed 200% under
normal market conditions).

INVESCO Equity Income Portfolio (not to exceed 200% under normal market
conditions).

PIMCO Limited Maturity Bond Portfolio (not to exceed 350% under normal
market conditions).

For further details regarding the portfolio turnover rates, see
"Portfolio Turnover" in the Trust's Statement of Additional Information.

BROKERAGE ALLOCATION:

Generally, the primary consideration in placing Portfolio securities
transactions with broker-dealers is to obtain, and maintain the availability of,
execution at the best net price available and in the most effective manner
possible. The Trust's brokerage allocation policy may permit a Portfolio to pay
a broker-dealer which furnishes research services a higher commission than that
which might be charged by another broker-dealer which does not furnish research
services, provided that such commission is deemed reasonable in relation to the
value of the services provided by such broker-dealer. Each Portfolio's
Sub-advisor may consider the use of broker-dealers that are, or might be deemed
to be, their affiliates. In addition, a Sub-advisor may consider sale of shares
of the Portfolios or variable insurance products that use the Portfolios as
investment vehicles, or may consider or follow recommendations of the Investment
Manager that take such sales into account, as factors in selection of
broker-dealers to effect transactions, subject to the requirements of best net
price available and most favorable execution. In this regard, the Investment
Manager has directed certain of the Sub-advisors to try to effect a portion of
their Portfolios' transactions through broker-dealers that give prominence to
variable insurance products using the Portfolios as investment vehicles, to the
extent consistent with best net price available and most favorable execution.
For a complete discussion of portfolio transactions and brokerage allocation,
see "Brokerage Allocation" in the Statement of Additional Information.

INVESTMENT RESTRICTIONS:

For each Portfolio the Trust has adopted a number of investment
restrictions which are fundamental policies and may not be changed without the
approval of the holders of a majority of the affected Portfolio's outstanding
voting securities as defined in the 1940 Act. The Statement of Additional
Information describes all the restrictions on each Portfolio's investment
activities.

NET ASSET VALUES:

The net asset value per share of each Portfolio is determined by
dividing the market value of that Portfolio's securities as of the close of
trading plus any cash or other assets (including dividends and accrued interest)
less all liabilities (including accrued expenses) by the number of shares
outstanding in that Portfolio. Each Portfolio will determine the net asset value
of its shares as of 4:00 P.M. Eastern Time on each "business" day, which is each
day that the New York Stock Exchange (the "NYSE") is open for business. The
Trust's Board of Trustees has established procedures for valuing the Portfolios'
securities. In general, these valuations are based on market value with special
provisions for: securities not listed on an exchange or securities market;
securities for which recent market quotations are not readily available;
short-term obligations; and open short positions and options written on
securities. See "Computation of Net Asset Values" in the Statement of Additional
Information.

PURCHASE AND REDEMPTION OF SHARES:

Purchases of shares of the Portfolios may be made only by separate
accounts of Participating Insurance Companies for the purpose of funding
variable annuity contracts and variable life insurance policies or by Qualified
Plans. The separate accounts of the Participating Insurance Companies place
orders to purchase and redeem shares of the Trust based on, among other things,
the amount of premium payments to be invested and the amount of surrender and
transfer requests (as defined in the prospectus describing the variable annuity
contracts and variable life insurance policies) to be effected on that day
pursuant to variable annuity contracts and variable life insurance policies.
Orders received by the Trust or the Trust's transfer agent are effected on days
on which the NYSE is open for trading. For orders received before 4:00 P.M.
Eastern time, purchases and redemptions of the shares of the Trust are effected
at the net asset value per share determined as of 4:00 P.M. Eastern Time on that
same day. Orders received after 4:00 P.M. Eastern Time are effected at the next
calculated net asset value. Payment for redemptions will be made by the Trust's
transfer agent on behalf of the Trust within seven days after the request is
received. The Trust does not assess any fees, either when it sells or when it
redeems its securities. Surrender charges, mortality and expense risk fees and
other charges may be assessed by Participating Insurance Companies under the
variable annuity contracts or variable life insurance policies.
These fees should be described in the Participating Insurance Companies'
prospectuses.

As of the date of this Prospectus, American Skandia Life Assurance
Corporation and Kemper Investors Life Insurance Company are the only
Participating Insurance Companies. In the future, shares of the Trust may be
sold to and held by separate accounts that fund variable annuity and variable
life insurance contracts issued by other affiliated and unaffiliated
Participating Insurance Companies and also directly to Qualified Plans. While it
is not anticipated, should any conflict arise between the holders of variable
annuity contracts and variable life insurance policies of affiliated or
unaffiliated Participating Insurance Companies and participants in Qualified
Plans which would require that a substantial amount of net assets be withdrawn
from the Trust, orderly Portfolio management could be disrupted to the potential
detriment of such holders (see "Other Information" for more details).

MANAGEMENT OF THE TRUST:

As of the date of this Prospectus, the Trust has twenty-three
Portfolios, nine of which are offered through this Prospectus. The Trust may
offer additional Portfolios with a range of investment objectives that
Participating Insurance Companies may consider suitable for variable annuities
and variable life insurance policies or that may be considered suitable for
Qualified Plans. The Trust's current approach to achieving this goal is to seek
to have multiple organizations unaffiliated with each other be responsible for
conducting the investment programs for the Portfolios. Each such organization
would be responsible for the Portfolio or Portfolios to which such
organization's expertise is best suited.

Formerly, the Trust was known as the Henderson International Growth
Fund, which consisted of only one Portfolio. The Investment Manager was
Henderson International, Inc. Shareholders of what was, at the time, the
Henderson International Growth Fund, approved certain changes in a meeting held
April 17, 1992. These changes included engagement of a new Investment Manager,
engagement of a Sub-advisor and election of new Trustees. Subsequent to that
meeting, the new Trustees adopted a number of resolutions, including, but not
limited to, resolutions renaming the Trust. Since that time the Trustees have
adopted a number of resolutions, including, but not limited to, making new
Portfolios available and adopting the form of Management Agreements and
Sub-advisory Agreements between the Investment Manager and the Trust and the
Investment Manager and each Sub-advisor, respectively.

The Trustees are David E.A. Carson, Julian A. Lerner, Thomas M. O'Brien, F.
Don Schwartz, Jan R. Carendi and Gordon C. Boronow. Additional information about
the Trustees and the Trust's executive officers may be found in the Statement of
Additional Information under the section "Management."

Investment Manager: American Skandia Investment Services, Incorporated
("ASISI"), One Corporate Drive, Shelton, Connecticut, acts as Investment Manager
to the Trust. ASISI, a Connecticut corporation organized in 1991, is registered
as an investment adviser with the Securities and Exchange Commission. Prior to
April 7, 1995, ASISI was known as American Skandia Life Investment Management,
Inc. ASISI is a wholly-owned subsidiary of American Skandia Investment Holding
Corporation, whose indirect parent is Skandia Insurance Company Ltd.
("Skandia"). Skandia is a Swedish company that owns, directly or indirectly, a
number of insurance companies in many countries. The predecessor to Skandia
commenced operations in 1855.

American Skandia Life Assurance Corporation, a Participating Insurance
Company, is also a wholly-owned subsidiary of American Skandia Investment
Holding Corporation. Certain officers of the Trust are officers and/or directors
of one or more of the following companies: ASISI, American Skandia Life
Assurance Corporation, American Skandia Marketing, Incorporated (the principal
underwriter for various annuities deemed to be securities for American Skandia
Life Assurance Corporation) and American Skandia Investment Holding Corporation.

Sub-advisors:

Lord Abbett Growth and Income Portfolio: Lord Abbett & Co. ("Lord
Abbett"), The General Motors Building, 767 Fifth Avenue, New York, New York
10153-0203, which acts as the Sub-advisor for the Lord Abbett Growth and Income
Portfolio, has been an investment manager for over 65 years. As of December 31,
1996, Lord Abbett managed approximately $21 billion in a family of mutual funds
and other advisory accounts.

The portfolio manager responsible for management of the Portfolio is W.
Thomas Hudson, Jr., Executive Vice President. Mr. Hudson has served in this
capacity since the Portfolio's inception and has held certain positions in the
equity research department of Lord Abbett since 1982.

JanCap Growth Portfolio: Janus Capital Corporation ("Janus"), 100
Fillmore Street, Denver, Colorado 80206-4923, acts as the Sub-advisor for the
JanCap Growth Portfolio. Janus serves as the investment advisor to the Janus
Funds, as well as advisor or sub-advisor to several other mutual funds and
individual, corporate, charitable and retirement accounts. As of December 31,
1996, Janus managed assets worth over $45 billion. Kansas City Southern
Industries, Inc. ("KCSI") owns approximately 83% of the outstanding voting stock
of Janus, most of which it acquired in 1984. KCSI is a publicly-traded holding
company whose primary subsidiaries are engaged in transportation and financial
services.

The portfolio manager responsible for management of the JanCap Growth
Portfolio is Thomas F. Marsico. Mr. Marsico has managed Janus Growth and Income
Fund since its inception in May 1991 and Janus Twenty Fund since April 1985.

T. Rowe Price Asset Allocation Portfolio: T. Rowe Price Associates, Inc.,
("T. Rowe Price") 100 East Pratt Street, Baltimore, Maryland 21202, was founded
in 1937 by the late Thomas Rowe Price, Jr. As of December 31, 1996, the firm and
its affiliates managed approximately $95 billion for approximately $4.5 million
individual and institutional accounts.

The T. Rowe Price Asset Allocation Portfolio is managed by an Investment
Advisory Committee composed of the following members: Edmund M. Notzon,
Chairman, Heather R. Landon, James M. McDonald, Jerome Clark, Peter Van Dyke, M.
David Testa and Richard T. Whitney. The Committee Chairman has day-to-day
responsibility for managing the Portfolio and works with the Committee in
developing and executing the Portfolio's investment program. Mr. Notzon joined
T. Rowe Price in 1989 and has been managing investments since 1991. Prior to
joining T. Rowe Price, Mr. Notzon was Director of the Analysis and Evaluation
Division at the U.S. Environmental Protection Agency.

T. Rowe Price International Equity Portfolio and T. Rowe Price
International Bond Portfolio: Rowe Price-Fleming International, Inc.
("Price-Fleming") 100 East Pratt Street, Baltimore, Maryland 21202, was founded
in 1979 as a joint venture between T. Rowe Price Associates, Inc. and Robert
Fleming Holdings Limited. Price-Fleming is one of the world's largest
international mutual fund asset managers with approximately $25 billion under
management as of December 31, 1996 in its offices in Baltimore, London, Tokyo,
Hong Kong and Singapore. Each Portfolio has an investment advisory group that
has day-to-day responsibility for managing the Portfolio and developing and
executing the Portfolio's investment program.

The advisory group for the T. Rowe Price International Equity Portfolio
consists of Martin G. Wade, Christopher D. Alderson, Peter B. Askew, Mark J.T.
Edwards, John R. Ford, James B.M. Seddon, Benedict R.F. Thomas, and David J.L.
Warren. Martin Wade joined Price-Fleming in 1979 and has 27 years of experience
with Fleming Group (Fleming Group includes Robert Fleming Holdings Ltd. and/or
Jardine Fleming International Holdings Ltd.) in research, client service and
investment management. Christopher Alderson joined Price-Fleming in 1988, and
has 9 years of experience with the Fleming Group in research and portfolio
management. Peter Askew joined Price-Fleming in 1988 and has 21 years of
experience managing multicurrency fixed income portfolios. Mark J.T. Edwards
joined Price-Fleming in 1986 and has 15 years of experience in financial
analysis. John R. Ford joined Price-Fleming in 1982 and has 16 years of
experience with Fleming Group in research and portfolio management. James B.M.
Seddon joined Price-Fleming in 1987 and has 11 years of experience in investment
management. Benedict R.F. Thomas joined Price-Fleming in 1988 and has 7 years of
portfolio management experience. David J.L. Warren joined Price-Fleming in 1984
and has 16 years experience in equity research, fixed income research and
portfolio management.

The advisory group for the T. Rowe Price International Bond Portfolio
consists of Peter Askew, Christopher Rothery and Michael Conelius. Peter Askew
joined Price-Fleming in 1988 and has 21 years of experience managing
multi-currency fixed-income portfolios. Christopher Rothery joined Price-Fleming
in 1994 and has 8 years of experience managing multi-currency fixed-income
portfolios. Prior to joining Price-Fleming, he worked with Fleming International
Fixed Income Management Limited. Michael Conelius joined Price-Fleming in 1995.
Prior to that, he had been with T. Rowe Price since 1988.

Founders Capital Appreciation Portfolio: Founders Asset Management,
Inc. ("Founders"), Founders Financial Center, 2930 East Third Avenue, Denver,
Colorado 80206, has acted as an investment advisor since 1938 and serves as
investment advisor to Founders Discovery, Frontier, Passport, Special,
International Equity, Worldwide Growth, Growth, Blue Chip, Balanced, Government
Securities, and Money Market Funds. Founders, which is also the investment
advisor for a number of private accounts, managed assets aggregating
approximately $5 billion as of December 31, 1996.

Michael K. Haines, a Senior Vice President of Investments of Founders,
has been responsible for management of the Founders Capital Appreciation
Portfolio since the Portfolio commenced operations in January 1994. Mr. Haines
has been associated with Founders since 1985, serving as a lead portfolio
manager and an assistant portfolio manager.

INVESCO Equity Income Portfolio: INVESCO Trust Company, a trust company
founded in 1969, is a wholly-owned subsidiary of INVESCO Funds Group, Inc., P.O.
Box 173706, Denver, Colorado 80217-3706, which was established in 1932. INVESCO
Trust Company serves as sub-advisor to INVESCO Growth Fund, Inc., INVESCO
Dynamics Fund, Inc.; INVESCO Money Market Funds, Inc.; INVESCO Income Funds,
Inc.; INVESCO Tax-Free Income Funds, Inc.; INVESCO Strategic Portfolios, Inc.;
INVESCO Emerging Opportunity Funds, Inc.; INVESCO Industrial Income Fund, Inc.;
INVESCO Multiple Asset Funds, Inc.; INVESCO Specialty Funds, Inc.; and INVESCO
Variable Investment Funds, Inc. INVESCO Funds Group, Inc. and INVESCO Trust
Company are part of a global financial services firm that managed approximately
$90 billion of assets as of December 31, 1996. INVESCO PLC, the parent of
INVESCO Funds Group, Inc. and INVESCO Trust Company, changed its name to AMVESCO
PLC on March 3, 1997, as part of a merger between a direct subsidiary of INVESCO
PLC and A I M Management Group Inc. that created one of the largest independent
investment management businesses in the world. Subject to obtaining shareholder
approval at its regular Annual Shareholder Meeting, the board of directors of
AMVESCO PLC has concluded that the corporate name should be changed to AMVESCAP
PLC effective May 8, 1997. INVESCO Trust Company will continue to operate under
its existing name.

The merger did not result in any change in the operations of AMVESCO
PLC or INVESCO Trust Company. The merger did, however, result in an
"assignment," as defined in the 1940 Act, of the sub-advisory agreement between
INVESCO Trust Company and the Investment Manager with respect to the INVESCO
Equity Income Portfolio, which, in turn, resulted in the automatic termination
of the sub-advisory agreement. Consequently, the shareholders of the Portfolio
will vote on the approval of a new sub-advisory agreement at a meeting of
shareholders scheduled to be held on June 12, 1997.

The portfolio managers responsible for management of the INVESCO Equity
Income Portfolio are Charles P. Mayer, Portfolio Co-Manager; and Donovan J.
(Jerry) Paul, Portfolio Co-Manager. Mr. Mayer has served as Co-Manager of the
Portfolio since April, 1993. Mr. Mayer began his investment career in 1969 and
is now a senior vice president of INVESCO Trust Company; from 1993 to 1994, he
was vice president of INVESCO Trust Company. From 1984 to 1993, he was a
portfolio manager with Westinghouse Pension. Since 1994, Mr. Paul has served as
Co-Manager of the Portfolio since May 1994. A senior vice president of INVESCO
Trust Company since 1994, he entered the investment management industry in 1976.
From 1993 to 1994, he was president of Quixote Investment Management, Inc. From
1987 to 1992 he was portfolio manager and from 1989 to 1992 he was senior vice
president and director of fixed-income research with Stein, Roe & Farnham, Inc.

PIMCO Limited Maturity Bond Portfolio: Pacific Investment Management
Company ("PIMCO") serves as Sub-advisor to the PIMCO Limited Maturity Bond
Portfolio. It is an investment counseling firm founded in 1971 and, as of
December 31, 1996, has over $88 billion of assets under management. PIMCO is a
subsidiary general partnership of PIMCO Advisors L.P. ("PIMCO Advisors"). A
majority interest in PIMCO Advisors is held by PIMCO Partners, G.P., a general
partnership between Pacific Financial Asset Management Corporation, an indirect
wholly owned subsidiary of Pacific Mutual Life Insurance Company, and PIMCO
Partners, LLC, a California limited liability company controlled by the managing
directors of PIMCO. PIMCO's address is 840 Newport Center Drive, Suite 360,
Newport Beach, California 92660. PIMCO is a registered investment advisor with
the Securities and Exchange Commission and a commodity trader advisor with the
CFTC.

The portfolio manager responsible for management of the PIMCO Limited
Maturity Bond Portfolio is William H. Gross. Mr. Gross is managing director of
PIMCO has been associated with the firm since 1971, and has managed each
Portfolio since its commencement of operations.

AST Putnam International Equity Portfolio: Putnam Investment
Management, Inc. ("Putnam Management"), One Post Office Square, Boston,
Massachusetts 02109, acts as Sub-advisor to the AST Putnam International Equity
Portfolio. Putnam Management is a subsidiary of Putnam Investments, Inc., a
holding company which in turn is wholly owned by Marsh & McLennan Companies,
Inc., a publicly-owned holding company whose principal businesses are
international insurance and reinsurance brokerage, employee benefit consulting
and investment management. Putnam Management is one of America's oldest and
largest money management firms, managing mutual funds since 1937. As of December
31, 1996, Putnam Management and its affiliates managed over $173 billion in
assets.

Justin Scott, Managing Director of Putnam Management, and Omid Kamshad,
Senior Vice President of Putnam Management, have had primary responsibility for
the day-to-day management of the AST Putnam International Equity Portfolio since
Putnam Management became the Portfolio's sub-advisor in October 1996. Mr. Scott
has been employed as an investment professional by Putnam Management since 1988.
Mr. Kamshad has been employed as an investment professional by Putnam Management
since January, 1996. Prior to January, 1996, Mr. Kamshad was Director of
Investments at Lombard Odier International. Prior to April, 1995, he was
Director at Baring Asset Management Company.

Investment Management Agreements: The Trust has entered into Investment
Management Agreements with the Investment Manager (the "Management Agreements")
which provide that the Investment Manager will furnish each applicable Portfolio
with investment advice and investment management and administrative services
with respect to the applicable Portfolio subject to the supervision of the Board
of Trustees and in conformity with the stated policies of the applicable
Portfolio. The Investment Manager has engaged the Sub-advisors noted above to
conduct the investment programs of each Portfolio, including the purchase,
retention, disposition and lending of securities. Such Sub-advisors are required
to provide research and statistical analysis and to keep books and records of
securities transactions. The Investment Manager is responsible for monitoring
the activities of the Sub-advisors and reporting on the activities of the
Sub-advisors to the Trustees. The Investment Manager must also provide or obtain
for the Trust, and thereafter supervise, such executive, administrative,
accounting, custody, transfer agent and shareholder servicing services as are
deemed advisable by the Board of Trustees.

Under the terms of the Management Agreements, each Portfolio pays all
of its expenses, including, but not limited to, the costs incurred in connection
with the maintenance of its registration under the Securities Act of 1933, as
amended, and the 1940 Act, printing and mailing prospectuses and statements of
additional information to shareholders, certain office and financial accounting
services, taxes or governmental fees, brokerage commissions, Portfolio pricing,
custodial, transfer and shareholder servicing agent costs, expenses of outside
counsel and independent accountants, preparation of shareholder reports and
expenses of trustee and shareholder meetings. Expenses incurred by the Trust not
directly attributable to any specific Portfolio or Portfolios are allocated on
the basis of the net assets of the respective Portfolios.

The Investment Manager receives a fee, payable each month, for the
performance of its services. The Investment Manager pays each Sub-advisor a
portion of such fee for the performance of the Sub-advisory services. The
Investment Management fee payable differs from Portfolio to Portfolio,
reflecting the objective, policies and restrictions of each Portfolio and the
nature of each Investment Management Agreement and Sub-advisory Agreement. Each
Portfolio's fee is accrued daily for the purposes of determining the offering
and redemption price of the Portfolio's shares. The fees payable to the
Investment Manager are as follows:

Lord Abbett Growth and Income Portfolio: An annual rate of .75% of the
average daily net assets of the Portfolio.

JanCap Growth Portfolio: An annual rate of .90% of the average daily net
assets of the Portfolio.

T. Rowe Price Asset Allocation Portfolio: An annual rate of .85% of the
average daily net assets of the Portfolio.

T. Rowe Price International Equity Portfolio: An annual rate of 1.00% of
the average daily net assets of the Portfolio.

T. Rowe Price International Bond Portfolio: An annual rate of .80% of the
average daily net assets of the Portfolio. Prior to May 1, 1996, the Investment
Manager had engaged Scudder, Stevens & Clark, Inc. as Sub-advisor for the
Portfolio (formerly, the AST Scudder International Bond Portfolio), for a total
Investment Management fee of 1.00% of the average daily net assets of the
Portfolio.

Founders Capital Appreciation Portfolio: An annual rate of .90% of the
average daily net assets of the Portfolio.

INVESCO Equity Income Portfolio: An annual rate of .75% of the average
daily net assets of the Portfolio.

PIMCO Limited Maturity Bond Portfolio: An annual rate of .65% of the
average daily net assets of the Portfolio.

AST Putnam International Equity Portfolio: 1.0% of the average daily
net assets of the Portfolio not in excess of $75 million; plus .85% of the
Portfolio's average daily net assets over $75 million. Prior to October 15,
1996, the Investment Manager had engaged Seligman Henderson Co. as Sub-advisor
for the Portfolio (formerly, the Seligman Henderson International Equity
Portfolio), for a total Investment Management fee of 1.0% of the average daily
nets assets of the Portfolio. The Investment Manager had also voluntarily agreed
to waive a portion of its fee equal to .15% on assets in excess of $75 million.
Such agreement was terminated as of the opening of business on October 15, 1996.

The Investment Manager has agreed, by the terms of the Management
Agreements, to reimburse the Portfolio for certain operating expenses so that
total expenses of the Portfolio do not exceed a specified percentage of the
Portfolio's average daily net assets. Such specified percentage differs between
the Portfolios, reflecting the objective, policies and restrictions of each
Portfolio and the expenses involved in conducting an investment program for each
Portfolio. For an additional discussion of Portfolio expense limitations, see
"Management of the Trust: Investment Management Agreements" in the Trust's
Statement of Additional Information.

Sub-Advisory Agreements: The Investment Manager pays each Sub-advisor for the
performance of sub-advisory services. The fee to Sub-advisors differs from
Portfolio to Portfolio, reflecting the objectives, policies and restrictions of
each Portfolio and the nature of each Sub-advisory Agreement. Each Sub-advisor's
fee is accrued daily for purposes of determining the amount payable to the
Sub-advisor. The fees payable to the present Sub-advisors are as follows:

Lord, Abbett & Co. for the Lord Abbett Growth and Income Portfolio: An
annual rate of .50% of the portion of the average daily net assets of the
Portfolio not in excess of $200 million; plus .40% of the portion over $200
million but not in excess of $500 million; plus .375% of the portion over $500
million but not in excess of $700 million; plus .35% of the portion over $700
million but not in excess of $900 million; plus .30% of the portion in excess of
$900 million.

Janus Capital Corporation for the JanCap Growth Portfolio: An annual
rate of .60% of the portion of the average daily net assets of the Portfolio not
in excess of $100 million; plus .55% of the portion over $100 million but not in
excess of $1 billion; plus .50% of the portion over $1 billion. Commencing
September 4, 1996, the Sub-advisor has voluntarily agreed to waive a portion of
its fee equal to .10% of the Portfolio's average daily net assets over $500
million but not in excess of $1 billion; and .05% of the portion of the
Portfolio's average daily net assets over $1 billion. The Sub-advisor may
terminate this voluntary agreement at any time.

T. Rowe Price Associates, Inc. for the T. Rowe Price Asset Allocation
Portfolio: An annual rate of .50 of 1% of the portion of the average daily net
assets of the Portfolio not in excess of $25 million; plus .35 of 1% of the
portion in excess of $25 million but not in excess of $50 million; and .25 of 1%
of the portion in excess of $50 million.

Rowe Price-Fleming International, Inc. for the T. Rowe Price
International Equity Portfolio: An annual rate of .75 of 1% of the portion of
the average daily net assets of the Portfolio not in excess of $20 million; plus
.60 of 1% of the portion of the net assets over $20 million but not in excess of
$50 million; and .50 of 1% of the portion in excess of $50 million. Commencing
May 1, 1996, the Sub-advisor has voluntarily agreed to waive a portion of its
fee equal to .25 of 1% of the portion of the Portfolio's average daily net
assets not in excess of $20 million and .10 of 1% of the portion of the net
assets over $20 million but not in excess of $50 million, so long as the average
daily net assets of the Portfolio equal or exceed $200 million. The Sub-advisor
may terminate this voluntary agreement at any time.

Rowe Price-Fleming International, Inc. for the T. Rowe Price International
Bond Portfolio: An annual rate of .40 of 1% of the average daily net assets of
the Portfolio. Prior to May 1, 1996, the Investment Manager had engaged Scudder,
Stevens & Clark, Inc. (the "Former Sub-advisor") as Sub-advisor for the
Portfolio (formerly, the AST Scudder International Bond Portfolio), for a
Sub-advisory fee of .60 of 1% of the average daily net assets of the Portfolio.

Founders Asset Management, Inc. for the Founders Capital Appreciation
Portfolio: An annual rate of .65 of 1% of the portion of the average daily net
assets of the Portfolio not in excess of $75 million; plus .60 of 1% of the
portion of the net assets over $75 million but not in excess of $150 million;
and .55 of 1% of the net assets in excess of $150 million.

INVESCO Trust Company for the INVESCO Equity Income Portfolio: An
annual rate of .50 of 1% of the portion of the average daily net assets of the
Portfolio not in excess of $25 million; plus .45 of 1% of the portion of the net
assets over $25 million but not in excess of $75 million; plus .40 of 1% of the
portion of the net assets in excess of $75 million but not in excess of $100
million; and .35 of 1% of the portion of the net assets over $100 million.

Pacific Investment Management Company for the PIMCO Limited Maturity
Bond Portfolio: An annual rate of .30 of 1% of the average daily net assets of
the Portfolio not in excess of $150 million; and .25 of 1% on the portion of the
net assets over $150 million.

Putnam Investment Management, Inc. for the AST Putnam International
Equity Portfolio: An annual rate of .65 of 1% of the portion of the average
daily net assets of the Portfolio not in excess of $150 million; plus .55 of 1%
of the portion of the average daily net assets of the Portfolio over $150
million but not in excess of $300 million; plus .45 of 1% of the portion of the
average daily net assets of the Portfolio in excess of $300 million. Prior to
October 15, 1996, the Investment Manager had engaged Seligman Henderson Co. (the
"Former Sub-advisor") as Sub-advisor for the Portfolio (formerly, the Seligman
Henderson International Equity Portfolio), for a Sub-advisory fee of 1.0% of the
average daily nets assets of the Portfolio not in excess of $100 million; plus
.75 of 1% of the portion of the average daily net assets of the Portfolio over
$100 million. The Former Sub-advisor had voluntarily agreed to waive a portion
of its fee equal to .25% on assets not in excess of $50 million; plus .35% on
assets over $50 million but not in excess of $75 million; plus .50% on assets
over $75 million but not in excess of $100 million; plus .25% on assets over
$100 million. Such agreement was terminated as of the opening of business on
October 15, 1996.

Administrator: PFPC Inc., a Delaware corporation which is an indirect
wholly-owned subsidiary of PNC Financial Corp. and has its principal offices at
103 Bellevue Parkway, Wilmington, Delaware 19809, is the administrator for the
Trust (the "Administrator"). The Administrator provides administrative services
to investment companies and other accounts.

The Administration Agreement: The Trust has entered into a Fund Accounting and
Administration Agreement with the Administrator (the "Administration Agreement")
dated May 1, 1992, under which the Administrator has agreed to provide certain
fund accounting and administrative services to the Trust, including, among other
services, accounting relating to the Trust and investment transactions of the
Trust; computation of daily net asset values; maintaining the Trust's books of
account; assisting in monitoring, in conjunction with the Investment Manager,
compliance with the Portfolios' investment objectives, policies and
restrictions; providing office space and equipment necessary for the proper
administration and accounting functions of the Trust; monitoring investment
activity and income of the Trust for compliance with applicable tax laws;
preparing and filing Trust tax returns; preparing financial information in
connection with the preparation of the Trust's annual and semi-annual reports
and making requisite filings thereof; preparing schedules of Trust share
activity for footnotes to financial statements; furnishing financial information
necessary for the completion of certain items to the Trust's registration
statement and necessary to prepare and file Rule 24f-2 notices; providing an
administrative interface between the Investment Manager and the Trust's
custodian; creating and maintaining all necessary records in accordance with
applicable laws, rules and regulations, including, but not limited to, those
records required to be kept pursuant to the 1940 Act; and performing such other
duties related to the administration of the Trust as may be requested by the
Board of Trustees. The Administrator does not have any responsibility or
authority for the management of the assets of the Trust, the determination of
its investment policies, or for any matter pertaining to the distribution of
securities issued by the Trust.

As compensation for the services and facilities provided by the
Administrator under the Administration Agreement, the Trust has agreed to pay to
the Administrator its out-of pocket expenses plus the greater of certain
percentages of the average daily net assets of the Trust or certain specified
minimums calculated for each Portfolio. The percentages of the average daily net
assets are: (a) 0.10% of the first $200 million; (b) 0.06% of the next $200
million; (c) 0.0375% of the next $200 million; and (d) 0.03% of average daily
net assets over $600 million. The minimum amount is $75,000 for each of the Lord
Abbett Growth and Income Portfolio, the JanCap Growth Portfolio, the T. Rowe
Price Asset Allocation Portfolio, the Founders Capital Appreciation Portfolio,
the INVESCO Equity Income Portfolio, and the PIMCO Limited Maturity Bond
Portfolio. The minimum is $100,000 for the T. Rowe Price International Bond
Portfolio and the T. Rowe Price International Equity Portfolio. For a
description of the "out-of-pocket" expenses the Trust is to pay the
Administrator, see "The Administration and Accounting Services Agreement" in the
Trust's Statement of Additional Information.

Sale of Shares: Shares are sold at net asset value to Participating Insurance
Companies and Qualified Plans. The Trust has entered into separate agreements
for the sale of shares with American Skandia Life Assurance Corporation
("ASLAC") and Kemper Investors Life Insurance Company ("Kemper"), respectively.
Pursuant to these agreements, the Trust will pay ASLAC and Kemper for printing
and delivery of certain documents to the beneficial owners of Trust shares who
are holders of variable annuity and variable life insurance policies issued by
ASLAC and Kemper. Such documents include prospectuses, semi-annual and annual
reports and any proxy materials. The Trust will pay ASLAC 0.1%, on an annualized
basis, of the net asset value of the shares legally owned by any separate
account of ASLAC, and will pay Kemper 0.1%, on an annualized basis, of the net
asset value of the shares legally owned by the separate accounts of Kemper named
in the sales agreement. The Trust may enter into Sales Agreements with other
Participating Insurance Companies or certain Qualified Plans in the future.
Qualified Plans and owners of variable annuity contracts and variable insurance
policies will receive annual and semi-annual reports including the financial
statement of the Portfolios that they have authorized for investment.

TAX MATTERS:

This discussion of federal income tax consequences applies to the
Participating Insurance Companies, Qualified Plans and plan participants in
certain types of Qualified Plans since the separate accounts of the
Participating Insurance Companies, the Qualified Plans and plan participants in
certain Qualified Plans will be the shareholders of the Trust. Holders of
variable annuity contracts or variable life insurance policies must consult the
prospectuses of their respective contracts or policies for information on the
federal income tax consequences to such holders, and plan participants must
consult with any applicable plan documents for information on the federal income
tax consequences to such holders. The Trust intends to qualify as a regulated
investment company by satisfying the requirements under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), including requirements
with respect to diversification of assets, distribution of income and sources of
income. It is the Trust's policy to distribute to shareholders all of its
investment income (net of expenses) and any capital gains (net of capital
losses) in accordance with the timing requirements imposed by the Code so that
the Trust will satisfy the distribution requirement of Subchapter M and not be
subject to federal income taxes or the 4% excise tax.

Distributions by the Trust of its net investment income and the excess,
if any, of its net short-term capital gain over its net long-term capital loss
are taxable to shareholders as ordinary income. These distributions are treated
as dividends for federal income tax purposes, but will not qualify for the 70%
dividends-received deduction for corporate shareholders. Distributions by the
Trust of the excess, if any, of its net long-term capital gain over its net
short-term capital loss are designated as capital gain dividends and are taxable
to shareholders as long-term capital gains, regardless of the length of time the
shareholder held his shares.

Portions of certain Portfolio's investment income may be subject to
foreign income taxes withheld at source. The Trust may elect to "pass-through"
to the shareholders of such Portfolios these foreign taxes, in which event each
shareholder will be required to include his pro rata portion thereof in his
gross income, but will be able to deduct or (subject to various limitations)
claim a foreign tax credit for such amount.

Distributions to shareholders will be treated in the same manner for
federal income tax purposes whether received in cash or reinvested in additional
shares of the Trust. In general, distributions by the Trust are taken into
account by the shareholders in the year in which they are made. However, certain
distributions made during January will be treated as having been paid by the
Trust and received by the shareholders on December 31 of the preceding year. A
statement setting forth the federal income tax status of all distributions made
or deemed made during the year, including any amount of foreign taxes "passed
through," will be sent to shareholders promptly after the end of each year.
Notwithstanding the foregoing, distributions by the Trust to certain Qualified
Plans may be exempt from federal income tax.

Under Code Section 817(h), a segregated asset account upon which a
variable annuity contract or variable life insurance policy is based must be
"adequately diversified." A segregated asset account will be adequately
diversified if it satisfies one of two alternative tests set forth in Treasury
regulations. For purposes of these alternative diversification tests, a
segregated asset account investing in shares of a regulated investment company
will be entitled to "look-through" the regulated investment company to its pro
rata portion of the regulated investment company's assets, provided the
regulated investment company satisfies certain conditions relating to the
ownership of its shares. The Trust intends to satisfy these ownership
conditions. Further, the Trust intends that each Portfolio separately will be
adequately diversified. Accordingly, a segregated asset account investing solely
in shares of a Portfolio will be adequately diversified, and a segregated asset
account investing in shares of one or more Trust Portfolios and shares of other
adequately diversified funds generally will be adequately diversified.

The foregoing discussion of federal income tax consequences is based on
tax laws and regulations in effect on the date of this Prospectus, and is
subject to change by legislative or administrative action. As the foregoing
discussion is for general information only, a prospective shareholder should
also review the more detailed discussion of federal income tax considerations
relevant to the Trust that is contained in the Statement of Additional
Information. In addition, each prospective shareholder should consult with his
own tax advisor as to the tax consequences of investments in the Trust,

<PAGE>

including the application of state and local taxes which may differ from the
federal income tax consequences described above.

ORGANIZATION AND DESCRIPTION OF SHARES OF THE TRUST: The Trust is a managed,
open-end investment company organized as a Massachusetts business trust, whose
separate Portfolios are diversified, unless otherwise indicated. The Trust's
Declaration of Trust dated October 31, 1988, which governs certain Trust
matters, permits the Trust's Board of Trustees to issue multiple classes of
shares, and within each class, an unlimited number of shares of beneficial
interest with a par value of $.001 per share. Each share entitles the holder to
one vote for the election of Trustees and on all other matters that are not
specific to one class of shares, and to participate equally in dividends,
distributions of capital gains and net assets of each applicable Portfolio. Only
shareholders of shares of a specific Portfolio may vote on matters specific to
that Portfolio. Shares of one class may not bear the same economic relationship
to the Trust as shares of another class. In the event of dissolution or
liquidation, holders of shares of a Portfolio will receive pro rata, subject to
the rights of creditors, the proceeds of the sale of the assets held in such
Portfolio less the liabilities attributable to such Portfolio. Shareholders of a
Portfolio will not be liable for the expenses, obligations or debts of another
Portfolio.

There are no preemptive or conversion rights applicable to any of the
Trust's shares. The Trust's shares, when issued, will be fully paid,
non-assessable and transferable. The Trustees may at any time create additional
series of shares without shareholder approval.

Generally, there will not be annual meetings of shareholders. A Trustee
may, in accordance with certain rules of the Securities and Exchange Commission,
be removed from office when the holders of record of not less than two-thirds of
the outstanding shares either present a written declaration to the Trust's
custodian or vote in person or by proxy at a meeting called for this purpose. In
addition, the Trustees will promptly call a meeting of shareholders to remove a
Trustee(s) when requested to do so in writing by record holders of not less than
10% of the outstanding shares. Finally, the Trustees shall, in certain
circumstances, give such shareholders access to a list of the names and
addresses of all other shareholders or inform them of the number of shareholders
and the cost of mailing their request.

Under Massachusetts law, shareholders could, under certain
circumstances, be held liable for the obligations of the Trust. However, the
Declaration of Trust disclaims shareholder liability for acts or obligations of
the Trust and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Trust or the
Trustees to all parties, and each party thereto must expressly waive all rights
of action directly against shareholders. The Declaration of Trust provides for
indemnification out of the Trust's property for all loss and expense of any
shareholder of the Trust held liable on account of being or having been a
shareholder. Thus, the risk of a shareholder incurring financial loss on account
of shareholder liability is limited to circumstances in which the Trust would be
unable to meet its obligations wherein the complaining party was held not to be
bound by the disclaimer.

The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Declaration of Trust protects a Trustee against any liability to which the
Trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involving the conduct of
his office. The Declaration of Trust provides for indemnification by the Trust
of the Trustees and officers of the Trust except with respect to any matter as
to which any such person did not act in good faith in the reasonable belief that
his action was in or not opposed to the best interests of the Trust. Such person
may not be indemnified against any liability to the Trust or the Trust's
shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. The Declaration of Trust also authorizes
the purchase of liability insurance on behalf of Trustees and officers.

PERFORMANCE: The Portfolios may measure performance in terms of total return,
which is calculated for any specified period of time by assuming the purchase of
shares of the Portfolio at the net asset value at the beginning of the period.
Each dividend or other distribution paid by each Portfolio during such period is
assumed to have been reinvested at the net asset value on the reinvestment date.
The shares then owned as a result of this process are valued at the net asset
value at the end of the period. The percentage increase is determined by
subtracting the initial value of the investment from the ending value and
dividing the remainder by the initial value. Each Portfolio's total return shows
a Portfolio's overall dollar or percentage change in value, including changes in
share price and assuming each Portfolio's dividends and capital gains
distributions are reinvested. An average annual total return reflects the
hypothetical annually compounded return that would have produced the same
cumulative return if a Portfolio's performance had been constant over the entire
period. Total return figures are based on the overall change in value of a
hypothetical investment in each Portfolio. Because average annual returns for
more than one year tend to smooth out variations in each Portfolio's return,
investors should recognize that such figures are not the same as actual
year-by-year results. To illustrate the components of overall performance, a
Portfolio may separate its cumulative and average annual returns into income
results and capital gains or losses.

The Portfolios may also measure performance in terms of yield. Each
Portfolio's yield shows the rate of income the Portfolio earns on its
investments as a percentage of the Portfolio's share price. To calculate yield,
the Portfolio takes the interest and dividend income it earned from its
investments for a 30-day period (net of expenses), divides it by the average
number of Portfolio shares entitled to receive dividends, and expresses the
result as an annualized percentage rate based on the Portfolio's net asset value
at the end of the 30-day period. For the Portfolio's investments denominated in
foreign currencies, income and expenses are calculated in their respective
currencies and then converted to U.S. dollars. Yields are calculated according
to methods that are standardized for all stock and bond funds. Because yield
calculation methods differ from the method used for other accounting purposes
(for instance, currency gains and losses are not reflected in the yield
calculation), a Portfolio's yield may not equal the income paid to shareholders'
accounts or the income reported in the Portfolio's financial statements.

The Portfolios impose no sales or other charges that would impact the
total return or yield computations. Portfolio performance figures are based upon
historical results and are not intended to indicate future performance. The
investment return and principal value of an investment in any of the Portfolios
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost.

Yield and total returns quoted from the Portfolios include the effect
of deducting each Portfolio's expenses, but may not include charges and expenses
attributable to any particular insurance product. Because shares of the
Portfolios may be purchased through variable insurance contracts, the prospectus
of the Participating Insurance Company sponsoring such contract should be
carefully reviewed for information on relevant charges and expenses. Excluding
these charges from quotations of each Portfolio's performance has the effect of
increasing the performance quoted. The effect of these charges should be
considered when comparing a Portfolio's performance to that of other mutual
funds. In advertising and sales literature, these figures will be accompanied by
figures that reflect the applicable contract charges.

From time to time in advertisements or sales material, the Portfolios
(or Participating Insurance Companies) may discuss their performance ratings or
other information as published by recognized mutual fund statistical or rating
services, such as Lipper Analytical Services, Inc., Morningstar or by
publications of general interest, such as Forbes or Money. The Portfolios may
also compare their performance to that of other selected mutual funds, mutual
fund averages or recognized stock market indicators, including the Standard &
Poor's 500 Stock Index, the Standard & Poor Midcap Index, the Dow Jones
Industrial Average, the Russell 2000 and the NASDAQ composite. In addition, the
Portfolios may compare their total return or yield to the yield on U.S. Treasury
obligations and to the percentage change in the Consumer Price Index. Each of
the T. Rowe Price International Equity Portfolio and T. Rowe Price International
Bond Portfolio may compare its performance to the record of global market
indicators such as Morgan Stanley Capital International Europe, Australia, Far
East Index (EAFE Index), an unmanaged index of foreign common stock prices
translated into U.S. dollars. Such performance ratings or comparisons may be
made with funds that may have different investment restrictions, objectives,
policies or techniques than the Portfolios and such other funds or market
indicators may be comprised of securities that differ significantly from the
Portfolios' investments.

TRANSFER AND SHAREHOLDER SERVICING AGENT AND CUSTODIAN: The custodian for all
cash and securities of the T. Rowe Price International Equity Portfolio, T. Rowe
Price International Bond Portfolio, is Morgan Stanley Trust Company, One
Pierrepont, Brooklyn, New York. The custodian for all cash and securities of the
other Portfolios is PNC Bank, Airport Business Center, International Court 2,
200 Stevens Drive, Philadelphia, Pennsylvania 19113. For these Portfolios,
Morgan Stanley Trust Company will serve as co-custodian with respect to foreign
securities. The Trust's transfer and shareholder servicing agent is PFPC Inc.,
103 Bellevue Parkway, Wilmington, Delaware 19809.

COUNSEL AND AUDITORS: The firm of Werner & Kennedy, 1633 Broadway, 46th Floor,
New York, New York 10019, is counsel for the Trust. Deloitte & Touche LLP, 117
Campus Drive, Princeton, New Jersey 08540, has been appointed independent
auditor for the Trust.

<PAGE>

OTHER INFORMATION: This Prospectus omits certain information contained in the
registration statement filed with the Securities and Exchange Commission. Copies
of the registration statement, including items omitted herefrom, may be obtained
from the Commission by paying the charges prescribed under its rules and
regulations.

Shareholder inquiries should be made by telephone to (203) 926-1888 or,
if in writing, to the Trust's office at One Corporate Drive, Shelton,
Connecticut 06484. Holders of variable annuity contracts or variable life
insurance policies issued by Participating Insurance Companies for which shares
of the Trust are the investment vehicle will receive from the Participating
Insurance Companies unaudited semi-annual financial statements and year-end
financial statements audited by the Trust's independent auditors. If applicable,
each plan participant will receive from the Qualified Plan trustees, or directly
from the Trust, unaudited semi-annual financial statements and year-end
financial statements audited by the Trust's independent auditors. Each report
will show the investments owned by the Trust and the market values of the
investments and will provide other information about the Trust and its
operations.

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND INFORMATION
OR REPRESENTATIONS NOT HEREIN CONTAINED, IF GIVEN OR MADE, MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER OR SOLICITATION IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.