NORTH AMERICAN FUNDS, 485APOS, 1995-12-15

NORTH AMERICAN FUNDS
485APOS, 1995-12-15

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<PAGE> 1

REGISTRATION NO. 33-27958/811-5797

As Filed with the Securities and Exchange Commission
on December 15, 1995

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

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
---

PRE-EFFECTIVE AMENDMENT NO. / /
---

POST-EFFECTIVE AMENDMENT NO. 21 /X/
---

AND/OR

REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
---

AMENDMENT NO. 23 /X/
---

NORTH AMERICAN FUNDS
(Exact Name of Registrant as Specified in Charter)

116 Huntington Avenue
Boston, Massachusetts 02116
(617) 266-6004
(Address of Principal Executive Offices)

John D. DesPrez III, President
North American Funds
116 Huntington Avenue
Boston, Massachusetts 02116
(Agent for Service)

____________________
Copy to:

Sarah E. Cogan, Esq. James D. Gallagher
Simpson Thacher & Bartlett General Counsel
425 Lexington Avenue North American Security
New York, New York 10017 Life Insurance Company
116 Huntington Avenue
Boston, MA 02116

It is proposed that this filing will become effective 75 days after
filing pursuant to paragraph (a) of Rule 485

<PAGE> 2

Registrant has heretofore registered an indefinite amount of securities under
the Securities Act of 1933 pursuant to Rule 24f-2 and will file its Rule 24f-2
Notice for the fiscal year ended October 31, 1995 on or before
December 29, 1995.

<PAGE> 3
NORTH AMERICAN FUNDS

CROSS REFERENCE TO ITEMS
REQUIRED BY RULE 404(a)

<TABLE>
<CAPTION>
N-1A Item of Part A Caption in Prospectus
- ------------------- ---------------------
<S> <C>
1. Cover Page

2. Summary

3. Financial Highlights; General Information - Performance
Information

4. General Information - Organization of the Fund Investment
Portfolios; Risk Factors

5. Management of the Fund; General Information-Custodian
and Transfer and Dividend Disbursing Agent

5A. Not Applicable

6. Multiple Pricing System; General Information-Dividends
and Distributions; General Information-Taxes; Shareholder
Services-Shareholder Inquiries

7. Multiple Pricing System; Shareholder Services; Purchase of
Shares

8. Multiple Pricing System; Shareholder Services-Redemption
of Shares, and General Methods of Redeeming Shares;
Purchase of Shares

9. Not Applicable

</TABLE>

<PAGE> 4
<TABLE>
<CAPTION>
N-1A Item of Part B Caption in Part B
- ------------------- -----------------
<S> <C>
10. Cover Page

11. Table of Contents

12. Not Applicable

13. Investment Policies; Investment
Practices and Related Risks;
Investment Restrictions;
Portfolio Turnover

14. Management of the Fund
15. Financial Statements
16. Investment Management
Arrangements; Distribution Plan

17. Portfolio Brokerage

18. General

19. Determination of Net Asset Value

20. Taxes

21. Not Applicable

22. Performance Data

23. Financial Statements

</TABLE>

2
<PAGE> 5
SUBJECT TO COMPLETION

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BY ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

NORTH AMERICAN FUNDS

116 Huntington Avenue, Boston, Massachusetts 02116
(800) 872-8037

North American Funds (the "Fund") is an open-end, diversified
management investment company (mutual fund) providing a range of investment
options through thirteen separate investment portfolios (the "Portfolios"),
each of which has a specific investment objective. This Prospectus relates to
the following portfolios of the Fund:

THE SMALL/MID CAP FUND seeks long-term capital appreciation by investing
at least 65% of its assets in companies that at the time of purchase have total
market capitalization between $500 million and $5 billion.
THE INTERNATIONAL SMALL CAP FUND seeks long-term capital appreciation
by investing primarily in securities issued by foreign companies which have
total market capitalization or annual revenue of $1 billion or less.
THE GROWTH EQUITY FUND seeks long-term growth of capital by investing
at least 65% of its assets in common stocks of well-established, high-quality
growth companies.

The GLOBAL GROWTH FUND seeks long-term capital appreciation, by investing
primarily in a global portfolio of equity securities and securities convertible
into or exercisable for equity securities.

The VALUE EQUITY FUND (formerly, the "Growth Fund") seeks
long-term growth of capital by investing primarily in common stocks and
securities convertible into or carrying the right to buy common stocks.

The GROWTH AND INCOME FUND seeks long-term growth of capital and income,
consistent with prudent investment risk, by investing primarily in a
diversified portfolio of common stocks of United States issuers which the
Subadviser believes are of high quality.
The INTERNATIONAL GROWTH AND INCOME FUND seeks to provide long-term growth
of capital and income by investing in a portfolio of securities of foreign
issuers.
The ASSET ALLOCATION FUND seeks the highest total return consistent with a
moderate level of risk tolerance. This Portfolio attempts to limit the decline
in portfolio value in very adverse market conditions to 10% over any twelve
month period. The Asset Allocation Fund will invest in a combination of
equity, fixed-income and money market securities. The Subadviser retains
absolute discretion to determine the amount of the Portfolio's assets invested
in each category of securities at all times. There can be no assurance that
the 10% limit on the decline in portfolio value will not be exceeded.
The STRATEGIC INCOME FUND seeks a high level of total return consistent
with preservation of capital by giving its Subadviser broad discretion to
deploy the Portfolio's assets among certain segments of the fixed-income market
as the Subadviser believes will best contribute to achievement of the
Portfolio's investment objective.
The INVESTMENT QUALITY BOND FUND seeks a high level of current income
consistent with the maintenance of principal and liquidity, by investing
primarily in a diversified portfolio of investment grade corporate bonds and
U.S. Government bonds with intermediate to longer term maturities. Up to 20%
of the Fund's assets may be invested in debt securities rated below investment
grade.

The U.S. GOVERNMENT SECURITIES FUND seeks a high level of current income
consistent with preservation of capital and maintenance of liquidity by
investing in securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.

The NATIONAL MUNICIPAL BOND FUND seeks to achieve a high level of current
income which is exempt from regular federal income taxes, consistent with the
preservation of capital, by investing primarily in a portfolio of municipal
obligations. The Portfolio will not invest in municipal obligations that are
rated below investment grade at the time of purchase.

The MONEY MARKET FUND seeks maximum current income consistent with
preservation of principal and liquidity as is available from investing only in
high quality, U.S. dollar denominated money market instruments with maturities
of 397 days or less.

THERE CAN BE NO ASSURANCE THAT ANY PORTFOLIO WILL ACHIEVE ITS INVESTMENT
OBJECTIVE AND EACH OF THE PORTFOLIOS MAY EMPLOY CERTAIN INVESTMENT PRACTICES
WHICH INVOLVE SPECIAL RISK CONSIDERATIONS. SEE ALSO THE DISCUSSION OF "RISK
FACTORS" IN THIS PROSPECTUS. IN PURSUING THEIR INVESTMENT OBJECTIVES, THE
STRATEGIC INCOME FUND RESERVES THE RIGHT TO INVEST WITHOUT LIMITATION, AND THE
INVESTMENT QUALITY BOND FUND MAY INVEST UP TO 20% OF ITS ASSETS, IN LOWER-RATED
SECURITIES, COMMONLY KNOWN AS "JUNK BONDS." INVESTMENTS OF THIS TYPE INVOLVE
COMPARATIVELY GREATER RISKS, INCLUDING PRICE VOLATILITY AND RISK OF DEFAULT IN
THE PAYMENT OF INTEREST AND PRINCIPAL, THAN HIGHER-QUALITY SECURITIES.
ALTHOUGH THE STRATEGIC INCOME FUND'S SUBADVISER HAS THE ABILITY TO INVEST UP TO
100% OF THE PORTFOLIO'S ASSETS IN LOWER-RATED SECURITIES, THE PORTFOLIO'S
SUBADVISER DOES NOT ANTICIPATE INVESTING IN EXCESS OF 75% OF THE PORTFOLIO'S
ASSETS IN SUCH SECURITIES. PURCHASERS SHOULD CAREFULLY ASSESS THE RISKS
ASSOCIATED WITH AN INVESTMENT IN THE STRATEGIC INCOME FUND. SEE "RISK FACTORS
- -- HIGH YIELD SECURITIES."

AN INVESTMENT IN THE MONEY MARKET FUND IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT THE MONEY
MARKET FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE. SHARES OF THE FUND ARE NOT DEPOSITS

1
<PAGE> 6
OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, AND THE
SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.

This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before making an investment decision.
Investors are encouraged to read this Prospectus and to retain it for future
reference. Additional information about the Fund has been filed with the
Securities and Exchange Commission and is available upon request and without
charge by writing the Fund at the above address or calling (800) 872-8037 and
requesting the "Statement of Additional Information for North American Funds",
dated the date of this Prospectus (hereinafter "Statement of Additional
Information"). The Statement of Additional Information is incorporated by
reference into this Prospectus.

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.

The date of this Prospectus is February __, 1996.

2
<PAGE> 7

<TABLE>
<CAPTION>
TABLE OF CONTENTS

<S> <C>
SUMMARY .........................................
The Fund .......................................
Classes of Shares ..............................
Fee Table and Example ..........................
FINANCIAL HIGHLIGHTS ............................
MULTIPLE PRICING SYSTEM .........................
INVESTMENT PORTFOLIOS ...........................
Small/mid Cap Fund .............................
International Small Cap Fund ...................
Growth Equity Fund .............................
Global Growth Fund .............................

Value Equity Fund (Formerly,
The Growth Fund) ............................
Growth and Income Fund ........................
International Growth and Income Fund ..........
Asset Allocation Fund .........................
Strategic Income Fund .........................
Investment Quality Bond Fund ..................
U.S. Government Securities Fund ...............
National Municipal Bond Fund ..................
Money Market Fund .............................
RISK FACTORS ....................................
Investment Restrictions Generally .............
High Yield Securities .........................
Foreign Securities ............................
Warrants ......................................
Lending Portfolio Securities ..................
When-Issued Securities ("Forward Commitments")
Hedging And Other Strategic Transactions ......
Illiquid Securities ...........................
MANAGEMENT OF THE FUND ..........................
Advisory Arrangements .........................
Subadvisory Arrangements ......................
Fund Expenses .................................
GENERAL INFORMATION .............................
Net Asset Value ...............................
Dividends and Distributions ...................
Taxes .........................................
National Municipal Bond Funds - Taxation ......
Performance Information .......................
Organization of the Fund ......................
Custodian and Transfer and Dividend
Disbursing Agents .............................
Independent Accountants .......................
PURCHASE OF SHARES ..............................
Introduction ..................................
General Methods of Purchasing Shares ..........
Share Price ...................................
Class A Shares ................................
Class B Shares ................................
Class C Shares ................................
Other Dealer Compensation .....................
Distribution Expenses .........................
SHAREHOLDER SERVICES ............................
Automatic Investment Plan .....................
Exchange Privilege ............................
Transfer of Shares ............................
Redemption of Shares ..........................
General Methods of Redeeming Shares ...........
Reinstatement Privilege .......................
Minimum Account Balance .........................
Redemption In Kind ............................
Additional Shareholder Privileges ...............
Automatic Investment Plan .....................
Automatic Dividend Diversification (ADD) ......
Systematic Investing ..........................
Systematic Withdrawal Plan ....................
Checkwriting ..................................
Telephone Transactions ........................
Certificates ..................................
How to Obtain Information on Your Investment ..
APPENDIX I ......................................
APPENDIX II .....................................
</TABLE>

1
<PAGE> 8
SUMMARY

THE FUND

The Fund is an open-end, diversified, management investment company
organized as a business trust under the laws of the Commonwealth of
Massachusetts on September 28, 1988.

NASL Financial Services, Inc. ("NASL Financial" or, in its capacity as the
Fund's investment adviser, the "Adviser") serves as the investment adviser and
distributor for the Fund. NASL Financial is a wholly-owned subsidiary of the
Fund's sponsor, North American Security Life Insurance Company, based in
Boston, Massachusetts, the ultimate controlling parent of which
is The Manufacturers Life Insurance Company ("Manulife"), a Canadian mutual
life insurance company based in Toronto, Canada.

<TABLE>

NASL Financial provides certain expense guarantees and administrative
services to the Fund and its shareholders pursuant to an investment advisory
contract (the "Advisory Agreement"). In addition, it contracts with and
compensates seven investment subadvisers which provide portfolio
management services to the Fund (the "Subadviser(s)"): Fred Alger Management,
Inc. ("Alger"), Founders Asset Management, Inc. ("Founders"), Oechsle
International Advisors, L.P. ("Oechsle International"), Goldman Sachs Asset
Management ("GSAM"), Wellington Management Company ("Wellington Management"),
J.P. Morgan Investment Management, Inc. ("J.P. Morgan") and Salomon Brothers
Asset Management Inc ("SBAM"). See "MANAGEMENT OF THE FUND." The Subadvisers
provide investment management services to the various Portfolios of the Fund as
shown in the following table.

<S> <C>
Subadviser Portfolio(s)

Alger Small/Mid Cap Fund

Founders International Small Cap Fund
Growth Equity Fund
- ------------------------------------------------------------------------------
Oechsle International Global Growth Fund

GSAM Value Equity Fund (formerly, the "Growth Fund")
Asset Allocation Fund

Wellington Management Growth and Income Fund
Investment Quality Bond Fund
Money Market Fund

J.P. Morgan International Growth and Income Fund

SBAM Strategic Income Fund
U.S. Government Securities Fund
National Municipal Bond Fund
</TABLE>
[/R]

NASL Financial also serves as the distributor of the Fund's shares and in
that role has entered into an exclusive promotional agent agreement with Wood
Logan Distributors, Inc. ("Wood Logan") to provide marketing services in
connection with the sales of Fund's shares. See "PURCHASE OF SHARES --
Distribution Expenses."

Each Portfolio has a stated specific investment objective, as set forth on
the cover of this Prospectus and described below. See "INVESTMENT PORTFOLIOS."
There can be no assurance that any Portfolio will attain its investment
objective. The Fund's annual report to shareholders, which is available
without charge upon request, contains a discussion of Fund performance.

In addition to the risks inherent in any investment in securities, certain
Portfolios of the Fund are subject to particular risks associated with
investing in high yield securities, investing in foreign securities, investing
in warrants, lending portfolio securities, investing in when-issued securities
and engaging in various hedging and other strategic transactions (also referred
to as "derivative transactions"). See "RISK FACTORS."

CLASSES OF SHARES
1
<PAGE> 9
As of April 1, 1994, the Fund began offering three classes of shares in
each Portfolio ("Class A" shares, "Class B" shares and "Class C" shares) to the
general public with each class having a different sales charge structure and
expense level (the "Multiple Pricing System"). Each class has distinct
advantages and disadvantages for different investors, and investors may choose
the class that best suits their circumstances and objectives. See "MULTIPLE
PRICING SYSTEM."

CLASS A SHARES. Purchases of Class A shares of less than $1 million are
offered for sale at net asset value per share plus a front end sales charge of
up to 4.75% (with the exception of Class A shares of the Money Market Fund,
which are offered without such a charge). Purchases of Class A shares of $1
million or more made on or after May 1, 1995 are offered for sale at net asset
value without a front end sales charge but subject to a contingent deferred
sales charge ("CDSC") of 1% of the dollar amount subject thereto during the
first year after purchase. The applicable percentage is assessed on an amount
equal to the lesser of the original purchase price or the redemption price of
the shares redeemed. In addition, Class A shares are subject to a distribution
fee of up to .10% of their respective average annual net assets and a service
fee of up to .25% of their respective average annual net assets (with the
exception of Class A shares of the Money Market Fund, which bear no such fees,
and Class A shares of the National Municipal Bond Fund, which are subject to a
service fee of up to .15% of Class A average annual net assets and are not
subject to any distribution fee).

CLASS B SHARES. Class B shares are offered for sale for purchases of
$250,000 or less. Class B shares are offered for sale at net asset value
without a front end sales charge but are subject to a CDSC of 5% of the dollar
amount subject thereto during the first and second year after purchase, and
declining by 1% each year thereafter to 0% after the sixth year. The
applicable percentage is assessed on an amount equal to the lesser of the
original purchase price or the redemption price of the shares redeemed. Class
B shares are also subject to a distribution fee of up to .75% of their
respective average annual net assets and a service fee of up to .25% of their
respective average annual net assets (with the exception of Class B shares of
the Money Market Fund, which bear no such fees). Class B shares will
automatically convert to Class A shares of the same Portfolio six years after
purchase.

CLASS C SHARES. Class C shares are offered for sale for purchases of less
than $1 million, at net asset value without a front end sales charge . Class C
shares purchased on or after May 1, 1995, are subject to a CDSC of 1% of the
dollar amount subject thereto during the first year after purchase. Shares
purchased prior to May 1, 1995 are not subject to any CDSC upon redemption.
The applicable percentage is assessed on an amount equal to the lesser of the
original purchase price or the redemption price of shares redeemed. Class C
shares are subject to a distribution fee of up to .75% of their respective
average annual net assets and a service fee of up to .25% of their respective
average annual net assets (with the exception of Class C shares of the Money
Market Fund, which bear no such fees). Class C shares will automatically
convert to Class A shares of the same Portfolio ten years after purchase.

The Fund implemented the Multiple Pricing System by reclassifying the then
existing shares of each Portfolio as shares
of a particular class of each such Portfolio. This reclassification was
effected in such a manner so that the shares of each Portfolio outstanding at
April 1, 1994 would be subject to identical distribution and service fees both
before and after the reclassification. Specifically, all outstanding shares of
the Strategic Income, Investment Quality Bond, U.S. Government Securities,
National Municipal Bond, and Money Market Funds were reclassified as Class A
shares of each such Portfolio, and all outstanding shares of the Global Growth,
Value Equity, Growth and Income and Asset Allocation Funds were
reclassified as Class C shares of each such Portfolio.

For a discussion of factors to consider in selecting the most beneficial
class of shares for a particular investor, see "MULTIPLE PRICING
SYSTEM--Factors for Consideration."

2
<PAGE> 10
<TABLE>
FEE TABLE AND EXAMPLE

The following tables are intended to assist investors in understanding the
expenses applicable to each class of shares of each Portfolio:

SHAREHOLDER TRANSACTION EXPENSES
<CAPTION>
Class A CLASS B CLASS C
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases of shares
(as a percentage of offering price)
All Portfolios except Money Market Fund ........ 4.75%* None None
Money Market Fund .............................. None None None

Sales charge imposed on dividend reinvestment
All Portfolios ................................. None None None

Contingent Deferred Sales Charge
(as a percentage of original purchase price
or redemption price, whichever is lower)
All Portfolios except Money Market Fund ........ 1% first year** 5% first year 1% first year***
................................................ 0% after 5% second year 0% after first year
................................................ first year 4% third year
................................................ 3% fourth year
................................................ 2% fifth year
................................................ 1% sixth year, and
................................................ 0% after sixth year
................................................
................................................
................................................
................................................
Money Market Fund .............................. None None None

Exchange Fee ...................................... None None None

<FN>

*See schedule of sales charge breakpoints under "Purchases of Shares - Class A Shares."
**For purchases of $1 million or more made on or after May 1, 1995.
***For purchases made on or after May 1, 1995.
</TABLE>
<TABLE>
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets after fee waivers and expense reimbursements
in certain cases)
<CAPTION>
PORTFOLIO CLASS A CLASS B CLASS C
<S> <C> <C> <C>

SMALL/MID CAP
Management fees ................. 0.925% 0.925% 0.925%
Rule 12b-1 fees ................. 0.350% 1.000% 1.000%
Other expenses*(after fee waiver) 0.400% 0.400% 0.400%
------ ------ ------
Total fund operating expenses*
(after fee waiver) .............. 1.675% 2.325% 2.325%

INTERNATIONAL SMALL CAP
Management fees ................. 1.050% 1.050% 1.050%
Rule 12b-1 fees ................. 0.350% 1.000% 1.000%
Other expenses*(after fee waiver) 0.500% 0.500% 0.500%
------ ------ ------
Total fund operating expenses*
(after fee waiver) .............. 1.900% 2.550% 2.550%

</TABLE>

3
<PAGE> 11
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------

GROWTH EQUITY FUND
Management Fees ................. 0.900% 0.900% 0.900%
Rule 12b-1 Fees ................. 0.350% 1.000% 1.000%
Other Expenses*(after fee waiver) 0.400% 0.400% 0.400%
------ ------ ------
Total fund operating expenses*
(after fee waiver) .............. 1.650% 2.300% 2.300%

GLOBAL GROWTH
Management fees ................. 0.900% 0.900% 0.900%
Rule 12b-1 fees ................. 0.350% 1.000% 1.000%
Other expenses*(after fee waiver) 0.500% 0.500% 0.500%
------ ------ ------
Total fund operating expenses*
(after fee waiver) .............. 1.750% 2.400% 2.400%

VALUE EQUITY (FORMERLY,
THE "GROWTH FUND")

Management fees ................. 0.725% 0.725% 0.725%
Rule 12b-1 fees ................. 0.350% 1.000% 1.000%
Other expenses*(after fee waiver) 0.265% 0.265% 0.265%
------ ------ ------
Total fund operating expenses*
(after fee waiver) .............. 1.340% 1.990% 1.990%
GROWTH AND INCOME
Management fees ................. 0.725% 0.725% 0.725%
Rule 12b-1 fees ................. 0.350% 1.000% 1.000%
Other expenses*(after fee waiver) 0.265% 0.265% 0.265%
------ ------ ------
Total fund operating expenses*
(after fee waiver) .............. 1.340% 1.990% 1.990%
INTERNATIONAL GROWTH AND INCOME
Management fees ................. 0.900% 0.900% 0.900%
Rule 12b-1 fees ................. 0.350% 1.000% 1.000%
Other expenses*(after fee waiver) 0.500% 0.500% 0.500%
------ ------ ------
Total fund operating expenses*
(after fee waiver) .............. 1.750% 2.400% 2.400%
ASSET ALLOCATION
Management fees ................. 0.725% 0.725% 0.725%
Rule 12b-1 fees ................. 0.350% 1.000% 1.000%
Other expenses*(after fee waiver) 0.265% 0.265% 0.265%
------ ------ ------
Total fund operating expenses*
(after fee waiver) .............. 1.340% 1.990% 1.990%
STRATEGIC INCOME
Management fees ................. 0.750% 0.750% 0.750%
Rule 12b-1 fees ................. 0.350% 1.000% 1.000%
Other expenses*(after fee waiver) 0.400% 0.400% 0.400%
------ ------ ------
Total fund operating expenses*
(after fee waiver) .............. 1.500% 2.150% 2.150%
INVESTMENT QUALITY BOND
Management fees ................. 0.600% 0.600% 0.600%
Rule 12b-1 fees ................. 0.350% 1.000% 1.000%
Other expenses*(after fee waiver) 0.300% 0.300% 0.300%
------ ------ ------
Total fund operating expenses*
(after fee waiver) .............. 1.250% 1.900% 1.900%
U.S. GOVERNMENT SECURITIES
Management fees ................. 0.600% 0.600% 0.600%
Rule 12b-1 fees ................. 0.350% 1.000% 1.000%
Other expenses*(after fee waiver) 0.300% 0.300% 0.300%
------ ------ ------

Total fund operating expenses*
(after fee waiver) .............. 1.250% 1.900% 1.900%

NATIONAL MUNICIPAL BOND
Management fees ................. 0.600% 0.600% 0.600%
Rule 12b-1 fees ................. 0.150% 1.000% 1.000%
</TABLE>

4
<PAGE> 12
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Other expenses*(after fee waiver) 0.240% 0.240% 0.240%
------ ------ ------
Total fund operating expenses*
(after fee waiver) .............. 0.990% 1.840% 1.840%

MONEY MARKET
Management fees ................. 0.200% 0.200% 0.200%
Rule 12b-1 fees ................. 0.000% 0.000% 0.000%
Other expenses*(after fee waiver) 0.300% 0.300% 0.300%
------ ------ ------
Total fund operating expenses[*]
(after fee waiver) .............. 0.500% 0.500% 0.500%

<FN>

*Amounts listed under "Other expenses" and "Total fund operating expenses" in the table above for each class of all
Portfolios (except the Small/Mid Cap, the International Small Cap and the Growth Equity Fund) are based on the application of
expense limitations applicable during the current fiscal year. See "Advisory Arrangements" below. Amounts listed under "Other
expenses" and "Total fund operating expenses" for the Small/Mid Cap, the International Small Cap and the Growth Equity Fund are
based on estimates for current fiscal year expenses. To the extent that actual expenses are lower than the expense limitations,
"Other expenses" may vary as between classes of a Portfolio as a result of certain class-specific incremental expenses being
allocated to a particular class of shares.

</TABLE>
The amounts set forth under the caption "Shareholder Transaction Expenses"
are the maximum sales charges applicable to purchases of Fund shares. Because
a portion of the 12b-1 fees payable by each class of shares is considered an
asset based sales charge by the National Association of Securities Dealers,
Inc. ("NASD"), long-term shareholders in each class of each Portfolio (other
than the Money Market Fund) may pay more than the economic equivalent of the
maximum front end sales charges permitted by the NASD. See "PURCHASE OF SHARES
- -- Class A Shares -- Reduced Sales Charges" in this Prospectus.

The fees and expenses listed under the caption "Annual Fund Operating
Expenses" are described in this Prospectus under the captions "MANAGEMENT OF THE
FUND" and "PURCHASE OF SHARES -- Distribution Expenses." The Advisory Agreement
and Distribution Plans operate to limit Total Fund Operating Expenses to the
amounts listed in the fee table. Such contractual expense limits shall
remain in effect unless the Adviser notifies the Fund with 30 days
notice that it will not continue the limits. See "MANAGEMENT OF THE FUND
- -- Advisory Agreement." Total Fund Operating Expenses for the year ended
October 31, 1995, absent reimbursement or waiver are set forth below
under "Financial Highlights."

<TABLE>
EXAMPLE

An investor would pay the following expenses on a $1,000 investment,
assuming (1) a 5% annual return and (2) redemption at the end of each time
period, with the exception of the lines marked "Class B No redemption" in which
case it is assumed that no redemption is made at the end of each time period:

<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>

SMALL/MID CAP
Class A Shares $64 $98
Class B Shares $74 $113
Class B No Redemption $24 $73
Class C Shares $34 $73
Class C No Redemption $24 $73

INTERNATIONAL SMALL CAP
Class A Shares $66 $104
Class B Shares $76 $119
Class B No Redemption $26 $79
Class C Shares $36 $79
Class C No Redemption $26 $79

GROWTH EQUITY FUND
Class A Shares $63 $97
Class A Shares $73 $112

</TABLE>

5
<PAGE> 13
<TABLE>

<S> <C> <C> <C> <C>
Class B No Redemption $23 $72
Class C Shares $33 $72
Class C No Redemption $23 $72

- ---------------------------------------------------------------------------
GLOBAL GROWTH
Class A Shares $64 $100 $138 $244
Class B Shares $74 $115 $148 $243*
Class B No redemption $24 $75 $128 $243*
Class C Shares $34 $75 $128 $274
Class C No redemption $24 $75 $128 $274

VALUE EQUITY (FORMERLY,
THE "GROWTH FUND")

Class A Shares $60 $88 $117 $201
Class B Shares $70 $102 $127 $200*
Class B No redemption $20 $62 $107 $200*
Class C Shares $30 $62 $107 $232
Class C No redemption $20 $62 $107 $232

GROWTH AND INCOME
Class A Shares $60 $88 $117 $201
Class B Shares $70 $102 $127 $200*
Class B No redemption $20 $62 $107 $200*
Class C Shares $30 $62 $107 $232
Class C No redemption $20 $62 $107 $232

INTERNATIONAL GROWTH AND INCOME
Class A Shares $64 $100 $138 $244
Class B Shares $74 $115 $148 $243
Class B No redemption $24 $75 $128 $243
Class C Shares $34 $75 $128 $274
Class C No redemption $24 $75 $128 $274

ASSET ALLOCATION
Class A Shares $60 $88 $117 $201
Class B Shares $70 $102 $127 $200*
Class B No redemption $20 $62 $107 $200*
Class C Shares $30 $62 $107 $232
Class C No redemption $20 $62 $107 $232

STRATEGIC INCOME
Class A Shares $62 $93 $125 $218
Class B Shares $72 $107 $135 $217*
Class B No redemption $22 $67 $115 $217*
Class C Shares $32 $67 $115 $248
Class C No redemption $22 $67 $115 $248

INVESTMENT QUALITY BOND
Class A Shares $60 $85 $113 $191
Class B Shares $69 $100 $123 $190*
Class B No redemption $19 $60 $103 $190*
Class C Shares $29 $60 $103 $222
Class C No redemption $19 $60 $103 $222

U.S. GOVERNMENT SECURITIES
Class A Shares $60 $85 $113 $191
Class B Shares $69 $100 $123 $190*
Class B No redemption $19 $60 $103 $190*
Class C Shares $29 $60 $103 $222
Class C No redemption $19 $60 $103 $222

NATIONAL MUNICIPAL BOND
Class A Shares $57 $78 $100 $163
Class B Shares $69 $98 $120 $173*
Class B No redemption $19 $58 $100 $173*
Class C Shares $29 $58 $100 $216
Class C No redemption $19 $58 $100 $216

</TABLE>

6
<PAGE> 14

<TABLE>
MONEY MARKET
<S> <C> <C> <C> <C>
Class A Shares $5 $16 $28 $63
Class B Shares $5 $16 $28 $63
Class C Shares $5 $16 $28 $63
<FN>

* Reflects the conversion to Class A shares six years after purchase;
therefore years seven through ten reflect Class A expenses.

</TABLE>

The foregoing Fee Table and Example are intended to assist investors in
understanding the various costs and expenses that investors in the Fund bear
directly and indirectly. The examples for the Small/Mid Cap, International
Small Cap and Growth Equity Fund do not include 5 and 10 year figures because
they are newly formed Portfolios. ACTUAL EXPENSES FOR ALL THE PORTFOLIOS MAY
BE HIGHER OR LOWER THAN THE AMOUNTS SHOWN IN THE FEE TABLE AND, CONSEQUENTLY,
THE ACTUAL EXPENSES INCURRED BY AN INVESTOR MAY BE GREATER (IN THE EVENT THE
EXPENSE LIMITATIONS ARE REMOVED) OR LESS THAN THE AMOUNTS SHOWN IN THE EXAMPLE.
MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN, THE PERFORMANCE OF EACH
PORTFOLIO WILL VARY AND MAY RESULT IN A RETURN GREATER OR LESS THAN 5%.

* * * * *

The information in the foregoing summary is qualified in its entirety by
the more detailed information appearing elsewhere in this Prospectus and in the
Statement of Additional Information.

Information about the performance of each Portfolio is contained in the
Fund's annual report to shareholders which may be obtained without charge.

7
<PAGE> 15
FINANCIAL HIGHLIGHTS

[To Be Filed By Amendment]

8
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FINANCIAL HIGHLIGHTS

9
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FINANCIAL HIGHLIGHTS

10
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FINANCIAL HIGHLIGHTS

11
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FINANCIAL HIGHLIGHTS

12
<PAGE> 20
FINANCIAL HIGHLIGHTS

13
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FINANCIAL HIGHLIGHTS

<PAGE> 22
FINANCIAL HIGHLIGHTS

15
<PAGE> 23
FINANCIAL HIGHLIGHTS

16
<PAGE> 24
FINANCIAL HIGHLIGHTS

17
<PAGE> 25
FINANCIAL HIGHLIGHTS

18
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FINANCIAL HIGHLIGHTS

19
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FINANCIAL HIGHLIGHTS

20
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FINANCIAL HIGHLIGHTS

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MULTIPLE PRICING SYSTEM

The Fund's Multiple Pricing System permits an investor to choose the
method of purchasing shares that is most beneficial given the amount of the
purchase and the length of time the investor expects to hold the shares.

CLASS A SHARES. Purchases of Class A shares of less than $1million are
offered for sale at net asset value per share plus a front end sales charge of
up to 4.75% payable at the time of purchase (with the exception of Class A
shares of the Money Market Fund, which are offered without such a charge).
Purchases of Class A shares of $1 million or more made on or after May 1, 1995
are offered for sale at net asset value without a front end sales charge but
[ARE] subject to a contingent deferred sales charge ("CDSC") of 1% of the
dollar amount subject thereto during the first year after purchase. See
"MULTIPLE PRICING SYSTEM-Contingent Deferred Sales Charge." In addition,
Class A shares are subject to a distribution fee of up to .10% of their
respective average annual net assets and a service fee of up to .25% of their
respective average annual net assets (with the exception of Class A shares of
the Money Market Fund, which bear no such fees, and Class A shares of the
National Municipal Bond Fund, which are subject to a service fee of up to .15%
of Class A average annual net assets and are not subject to any distribution
fee). Certain purchases of Class A shares qualify for reduced front end sales
charges. See "PURCHASE OF SHARES -- Class A Shares -- Reduced Sales Charges"
and "-- Distribution Expenses."

CLASS B SHARES. Class B shares are offered for sale for purchases of
$250,000 or less. Class B shares are offered for sale at net asset value
without a front end sales charge, but are subject to a CDSC of 5% of the dollar
amount subject thereto during the first and second year after purchase, and
declining by 1% each year thereafter to 0% after the sixth year. See "MULTIPLE
PRICING SYSTEM- Contingent Deferred Sales Charge." In addition, Class B
shares are subject to a distribution fee of up to .75% of their respective
average annual net assets and a service fee of up to .25% of their respective
average annual net assets (with the exception of Class B shares of the Money
Market Fund, which bear no such fees). The Class B shares enjoy the benefit of
permitting all of the investor's dollars to work from the time the investment
is made. The higher ongoing distribution and service fees paid by Class B
shares will cause such shares to have a higher expense ratio and to pay lower
dividends than Class A shares. See "PURCHASE OF SHARES -- Class B Shares" and
"-- Distribution Expenses." Class B shares will automatically convert to Class
A shares six years after the end of the calendar month in which the
shareholder's order to purchase was accepted. See "MULTIPLE PRICING SYSTEM --
Conversion Feature."

CLASS C SHARES. Class C shares are offered for purchases of less than $1
million, at net asset value without a front end sales charge. Class C shares
purchased on or after May 1, 1995 are subject to a CDSC of 1% of the dollar
amount subject thereto during the first year after purchase. Shares purchased
prior to May 1, 1995 are not subject to any CDSC upon redemption. See
"MULTIPLE CLASS PRICING SYSTEM-Contingent Deferred Sales Charge." Class C
shares are subject to a distribution fee of up to .75% of their respective
average annual net assets and a service fee of up to .25% of their respective
average annual net assets (with the exception of Class C shares of the Money
Market Fund, which bear no such fees). Class C shares, like Class B shares,
enjoy the benefit of permitting all of the investor's dollars to work from the
time the investment is made. The higher ongoing distribution and service fees
paid by Class C shares will cause such shares to have a higher expense ratio
and to pay lower dividends than Class A shares. See "PURCHASE OF SHARES --
Class C Shares" and "--Distribution Expenses." Class C shares will
automatically convert to Class A shares ten years after the end of the calendar
month in which the shareholder's order to purchase was accepted. See "MULTIPLE
PRICING SYSTEM -- Conversion Feature."

CONTINGENT DEFERRED SALES CHARGE. Purchases of $1 million or more of
Class A shares made on or after May 1, 1995 are subject to a CDSC of 1% if
redeemed within one year of purchase; purchases of Class B shares are subject
to a CDSC of 5% during the first and second year after purchase declining by 1%
each year thereafter to 0% after the sixth year; and Class C shares purchased
on or after May 1, 1995 are subject to a CDSC of 1% if redeemed within one year
of purchase. The applicable percentage is assessed on an amount equal to the
lesser of the original purchase price or the redemption price of the shares
redeemed. The CDSC is not applicable with respect to redemption of shares of
the Money Market Fund which were initially purchased as such and which were
never exchanged for shares of the same class of another Portfolio. However, in
the case of shares of the Money Market Fund which were obtained through an
exchange, such shares are subject to any applicable CDSC due at redemption.
Similarly, shares initially purchased as shares of the Money Market Fund which
are subsequently exchanged for shares of the same class of other Portfolios
will be subject to any applicable CDSC due at redemption. See "SHAREHOLDER
SERVICES -- Exchange Privilege."

CONVERSION FEATURE. Class B shares and Class C shares will automatically
convert to Class A shares six years and ten years, respectively, after the end
of the calendar month in which the shareholder's order to purchase was accepted
and will thereafter no longer be subject to the higher distribution and service
fees. Such conversion will be on the basis of the relative net asset values
per share, without the imposition of any sales charge, fee or other charge.
The purpose of the conversion feature is to relieve the holders of Class B
shares and Class C shares from most of the burden of distribution-related
expenses at such time as when the shares have been outstanding for a duration
sufficient for the Fund's distributor, NASL Financial Services, Inc. (in such
capacity, the "Distributor"), to have been substantially compensated for
distribution-related expenses incurred in connection with Class B shares or
Class C shares, as the case may be. Accordingly, Class B and Class C shares of
the Money Market Fund do not convert to Class A shares of the Money Market Fund
at any time, as shares of all classes of the Money Market Fund do not bear any
distribution or service fees. In addition, because Class B and Class C shares
of the Money Market Fund are not subject to any distribution or service fees,
the applicable conversion period is tolled for any period

22
<PAGE> 30
of time in which Class B or Class C shares are held in that Portfolio.
For example, if Class B shares of a Portfolio other than the Money Market Fund
are exchanged for Class B shares of the Money Market Fund two years after
purchase and are subsequently exchanged one year later for Class B shares of a
Portfolio other than the Money Market Fund, the one year of ownership in the
Money Market Fund does not count in the determination of the time of conversion
to Class A shares.

For purposes of the conversion of Class B and Class C shares to Class A
shares, shares purchased through the reinvestment of dividends and
distributions paid on Class B shares or Class C shares, as the case may be, in
a shareholder's Fund account will be considered to be held in a separate
sub-account. Each time any Class B shares or Class C shares in the
shareholder's Fund account (other than those in the sub-account) convert to
Class A shares, a pro rata portion of the Class B shares or Class C shares, as
the case may be, in the sub-account will also convert to Class A shares.

The conversion of Class B shares to Class A shares and the conversion of
Class C shares to Class A shares are both subject to the continuing
availability of a ruling of the Internal Revenue Service that payment of
different dividends on Class A shares and Class B shares, and on Class A shares
and Class C shares, does not result in the Portfolios' dividends or
distributions constituting "preferential dividends" under the Internal Revenue
Code of 1986, as amended (the "Code"), and the continuing availability of an
opinion of counsel to the effect that the conversion of shares does not
constitute a taxable event under Federal income tax law. The conversion of
Class B shares and Class C shares may be suspended if such an opinion is no
longer available. In that event, no further conversions of Class B shares or
Class C shares would occur, and those shares might continue to be subject to
higher distribution and service fees for an indefinite period which may extend
beyond the period ending six years or ten years, respectively, after the end of
the calendar month in which the shareholder's order to purchase was accepted.

FACTORS FOR CONSIDERATION. The Fund's Multiple Pricing System is designed
to provide investors with the option of choosing the class of shares which is
best suited to their individual circumstances and objectives. The different
sales charges, distribution and service fees and conversion features applicable
to each class, as outlined above, should all be taken into consideration by
investors in making the determination of which alternative is best suited for
them. To assist investors in evaluating the costs and benefits of purchasing
shares of each class, the information provided above under the caption "Fee
Table and Example" sets forth the charges applicable to each class of shares
and illustrates an example of a hypothetical investment in each class of shares
of each Portfolio.

There are several key distinctions among the classes of shares that
investors should understand and evaluate in comparing the options presented by
the Multiple Pricing System. Class A shares are subject to lower distribution
and service fees than are Class B and Class C shares, and, accordingly, pay
correspondingly higher dividends per share. However, because for purchases of
less than $1 million of Class A shares a front end sales charge is deducted at
the time of purchase, investors purchasing Class A shares do not have all of
their funds invested initially and, therefore, initially own fewer shares than
they would own if they had invested the identical sum in Class B shares or
Class C shares instead. In addition, Class C shares are subject to the same
ongoing distribution and service fees as Class B shares but are subject to a
CDSC for a shorter period of time (one year as opposed to six years) than Class
B shares. However, Class B shares convert to Class A shares, and lower ongoing
distribution and service fees, in a shorter time frame than do Class C shares.

In light of these distinctions among the classes of shares, investors
should weigh such factors as (i) whether they qualify for a reduced front end
sales load for a purchase of Class A shares; (ii) whether, at the time of
purchase, they anticipate being subject to a CDSC upon redemption if they
purchase Class A shares (purchases of $1 million or more), Class B shares or
Class C shares; (iii) the differential in the relative amounts that would be
paid during the anticipated life of investments (which are made at the same
time and in the same amount) in each class which are attributable to (a) the
front end sales charge (for purchases of less than $1 million) and any
applicable CDSC (for purchases of $1 million or more) and accumulated
distribution and service fees payable with respect to Class A shares and (b)
the accumulated distribution and service fees (and any applicable CDSC) payable
with respect to Class B shares or Class C shares prior to their conversion to
Class A shares; and (iv) to what extent the differential referred to above
might be offset by the higher yield of Class A shares. Investors should also
weigh these considerations against the fact that the higher continued
distribution and service fees associated with Class B shares and Class C shares
will be offset to the extent any return is realized on the additional funds
initially invested and that there can be no assurance as to the return, if any,
which will be realized on such additional funds. Class A shares are, in
general, the most beneficial for the investor who qualifies for reduced front
end sales charges, as described herein under "PURCHASE OF SHARES -- Class A
Shares." For this reason, Class B shares are not offered for purchases in
excess of $250,000 and Class C shares are not offered for purchases of $1
million or more. Investors should consult their investment representative for
assistance in evaluating the relative benefits of the different classes of
shares.

The distribution and shareholder service expenses incurred by the
Distributor in connection with the sale of shares will be paid, in the case of
Class A shares (purchases of less than $1 million), from the proceeds of front
end sales charges and ongoing distribution and service fees and in the case of
Class A shares (purchases of $1 million or more), Class B shares and Class C
shares, from the proceeds of CDSCs and ongoing distribution and service fees.
Sales personnel of broker-dealers distributing the Fund's shares and any other
persons entitled to receive compensation for selling or servicing the Fund's
shares may receive different compensation for selling or servicing one

23
<PAGE> 31
class of shares over another. INVESTORS SHOULD UNDERSTAND THAT FRONT
END SALES CHARGES, CDSCS AND ONGOING DISTRIBUTION AND SERVICE FEES ARE ALL
INTENDED TO COMPENSATE THE DISTRIBUTOR FOR DISTRIBUTION SERVICES. SEE
"PURCHASE OF SHARES -- DISTRIBUTION EXPENSES."

Dividends paid by the Fund with respect to each class of shares will be
calculated in substantially the same manner at the same time on the same day,
except that distribution and service fees and any other costs specifically
attributable to a particular class of shares will be borne solely by the
applicable class. See "GENERAL INFORMATION -- Dividends and Distributions."
Shares of the Fund may be exchanged for shares of the same class of any other
Portfolio, but not for shares of other classes of any Portfolio. See
"SHAREHOLDER SERVICES -- Exchange Privilege."

The Trustees of the Fund have determined that currently no conflict of
interest exists between the classes of shares. On an ongoing basis, the
Trustees of the Fund, pursuant to their fiduciary duties under the Investment
Company Act of 1940 (the "1940 Act") and state laws, will seek to ensure that
no such conflict arises.

INVESTMENT PORTFOLIOS

Each Portfolio has a stated investment objective which it pursues through
separate investment policies. The differences in objectives and policies among
the Portfolios can be expected to affect the return of each Portfolio and the
degree of market and financial risk to which each Portfolio is subject.

The investment objective of each Portfolio represent fundamental policies
of each such Portfolio and may not be changed without the approval of the
holders of a majority of the outstanding shares of the Portfolio. Except for
certain investment restrictions, the policies by which a Portfolio seeks to
achieve its investment objectives may be changed by the Trustees of the Fund
without the approval of the shareholders.

The following is a description of the investment objective and policies of
each Portfolio. More complete descriptions of the money market instruments in
which each Portfolio may invest and of the options, futures and currency
transactions that certain Portfolios may engage in are set forth in the
Statement of Additional Information. With regard to fixed income securities
there is an inverse relationship between changes in the direction of interest
rates and the market value of the securities. A more complete description of
the debt security ratings used by the Fund assigned by Moody's Investors
Service, Inc. ("Moody's"), Standard and Poor's Ratings Group ("Standard &
Poor's" or "S&P") or Fitch Investors Service, Inc. ("Fitch") is included in
Appendix I to this Prospectus.

SMALL/MID CAP FUND

The investment objective of the Small/Mid Cap Fund is to seek long term
capital appreciation. Alger manages the small/mid cap fund and will pursue this
objective by investing at least 65% of the portfolio's total assets (except
during temporary defensive periods) in small/mid cap equity securities. As used
in this prospectus small/mid cap equity securities are equity securities of
companies that, at the time of purchase, have "total market capitalization" --
present market value per share multiplied by the total number of shares
outstanding -- between $500 million and $5 billion. The portfolio may invest up
to 35% of its total assets in equity securities of companies that, at the time
of purchase, have total market capitalization of $5 billion or greater and in
excess of that amount (up to 100% of its assets) during temporary defensive
periods.

The Small/Mid Cap Fund seeks to achieve its investment objective by
investing in equity securities, such as common or preferred stocks, or
securities convertible into or exchangeable for equity securities, including
warrants and rights. The Portfolio will invest primarily in companies whose
securities are traded on domestic stock exchanges or in the over-the-counter
market.

The Small/Mid Cap Fund may invest a significant portion of its assets in
the securities of small companies. Small companies are those which are still
in the developing stages of their life cycles and will attempt to achieve rapid
growth in both sales and earnings. Investments in small companies involve
greater risk than is customarily associated with more established companies.
These companies often have sales and earnings growth rates which exceed those
of large companies. Such growth rates may be reflected in more rapid share
price appreciation. However, 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 values of the Small/Mid Cap Fund may
fluctuate more widely than the popular market averages. Accordingly, an
investment in the portfolio may not be appropriate for all investors.

In order to afford the Portfolio the flexibility to take advantage of new
opportunities for investments in accordance with its investment objectives, it
may hold up to 15% of its net assets (up to 100% of their assets during
temporary defensive periods) in money market instruments, bank and thrift
obligations, obligations issued or guaranteed by the U.S. Government or by its
agencies

24
<PAGE> 32

or instrumentalities, foreign bank obligations and obligations of
foreign branches of domestic banks, variable rate master demand notes and
repurchase agreements. When the Portfolio is in a defensive position, the
opportunity to achieve capital growth will be limited, and, 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 its investments and may not achieve its investment
objective.

FOREIGN SECURITIES. The Portfolio may invest up to 20% of its total
assets in foreign securities and will be subject to certain risks as a result
of these investments. These risks are described under the caption "RISK
FACTORS -- Foreign Securities" in this Prospectus. Moreover, substantial
investments in foreign securities may have adverse tax implications as
described under "GENERAL INFORMATION -Taxes" in this Prospectus. The Portfolio
may also purchase American Depository Receipts ("ADRs") or U.S.
dollar-denominated securities of foreign issuers that are not included in the
20% foreign securities limitation. See "RISK FACTORS - Foreign Securities" in
this Prospectus for a description of ADRs.

USE OF HEDGING AND OTHER STRATEGIC TRANSACTIONS. The Small/Mid Cap Fund
is currently authorized to use all of the various investment strategies
referred to under "RISK FACTORS -- Hedging and Other Strategic Transactions".
The Statement of Additional Information contains a description of these
strategies and of certain risks associated therewith.

INTERNATIONAL SMALL CAP FUND

The investment objective of the International Small Cap Fund is to seek
long-term capital appreciation. Founders manages the International Small Cap
Fund and will pursue this objective by investing primarily in securities issued
by foreign companies which have total market capitalizations (present market
value per share multiplied by the total number of shares outstanding) or annual
revenues of $1 billion or less. These securities may represent companies in
both established and emerging economies throughout the world.

At least 65% of the portfolio's total assets will normally be invested in
foreign securities representing a minimum of three countries (other than the
United States). The Portfolio may invest in larger foreign companies or in U.S.
based companies if, in Founders' opinion, they represent better prospects for
appreciation.

The International Small Cap Fund may invest a significant portion of its
assets in the securities of small companies. Small 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. Investments in small
companies involve greater risk than is customarily associated with more
established companies. These companies often have sales and earnings growth
rates which exceed those of large companies. Such growth rates may be
reflected in more rapid share price appreciation. However, 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 values
of the International Small Cap Fund may fluctuate more widely than the popular
market averages. Accordingly, an investment in the Portfolio may not be
appropriate for all investors.

The International Small Cap Fund will invest primarily in equity
securities but may also invest in convertible securities, preferred stocks,
bonds, debentures and other corporate obligations when Founders believes that
these investments offer opportunities for capital appreciation. Current income
will not be a substantial factor in the selection of these securities. The
portfolio will only invest in bonds, debentures and corporate
obligations--other than convertible securities and preferred stock--rated
investment-grade (BBB or higher by Moody's or Baa or higher by S&P) at the time
of purchase or, if unrated, of comparable quality in the opinion of Founders.
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 Founders 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 rated in categories no lower than B. The
Portfolio is not required to dispose of debt securities whose ratings are
down-graded below these ratings subsequent to the Portfolio's purchase of the
securities. See "RISK FACTORS - High Yield (High Risk) Securities." A
description of the ratings used by Moody's and S&P is set forth in Appendix I
to the Prospectus.

The International Small Cap Fund may invest temporarily in the following
securities if Founders determines that it is appropriate for purposes of
enhancing liquidity or preserving capital in light of prevailing market or
economic conditions: cash, cash equivalents, U.S. government obligations,
commercial paper, bank obligations, repurchase agreements, and 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. When the Portfolio is in a defensive
position, the opportunity to achieve capital growth will be limited, and, to
the exent 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 and may not achieve its investment
objective.

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<PAGE> 33

FOREIGN SECURITIES. The Portfolio may invest up to 100% of its total
assets in foreign securities and will be subject to special risks as a result
of these investments. These risks are described under the caption "RISK
FACTORS -- Foreign Securities" in this Prospectus. Moreover, substantial
investments in foreign securities may have adverse tax implications as
described under "GENERAL INFORMATION -Taxes" in this Prospectus.

Foreign investments of the International Small Cap Fund 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 and of issuers located in such countries are expected to be more volatile
and more uncertain as to payments of interest and principal. The secondary
market for such securities is expected to be less liquid than for securities of
major industrialized nations. Such countries may include (but are not limited
to) Argentina, Bolivia, Brazil, Chile, China, Colombia, Costa Rica, Czech
Republic, Ecuador, Egypt, Greece, Hong Kong, Hungary, India, Indonesia,
Ireland, Israel, Jordan, Malaysia, Mexico, New Zealand, Nigeria, North Korea,
Pakistan, Paraguay, Peru, Philippines, Poland, Portugal, Singapore, Slovak
Republic. South Africa, South Korea, Spain, Sri Lanka, Taiwan, Thailand,
Turkey, Uruaguay, Venezuela, Vietnam and the countries of the former Soviet
Union. Investments of the Portfolio may include securities created through the
Brady Plan, a program under which heavily indebted countries have restructured
their bank debt into bonds. See "OTHER INSTRUMENTS--High Yield Foreign
Sovereign Debt Securities" in the Statement of Additional Information.

USE OF HEDGING AND OTHER STRATEGIC TRANSACTIONS. The International Small
Cap Fund is currently authorized to use all of the various investment
strategies referred to under "RISK FACTORS -- Hedging and Other Strategic
Transactions." The Statement of Additional Information contains a description
of these strategies and of certain risks associated therewith.

GROWTH EQUITY FUND

The investment objective of the Growth Equity Fund is to seek long-term
growth of capital. Founders manages the Growth Equity Fund and will pursue
this objective by investing, under normal market conditions, at least 65% of
its assets in common stocks of well-established, high-quality growth companies
that Founders believes have the potential to increase earnings faster than the
rest of the market. These companies tend to have strong performance records,
solid market positions and reasonable financial strength, and have continuous
operating records of three years or more. The Portfolio may also invest up to
30% of its assets in foreign securities, with no more than 25% invested in any
one foreign country.

The Growth Equity Fund may invest in convertible securities, preferred
stocks, bonds, debentures and other corporate obligations when founders
believes that these investments offer opportunities for capital appreciation.
Current income will not be a substantial factor in the selection of these
securities. The Portfolio will only invest in bonds, debentures and corporate
obligations--other than convertible securities and preferred stock--rated
investment-grade (BBB or higher by Moody's and Baa or higher by S&P) or, if
unrated, of comparable quality in the opinion of Founders at the time of
purchase. 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 Founders 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 rated in categories no lower than
B. The Portfolio is not required to dispose of debt securities whose ratings
are down-graded below these ratings subsequent to the Portfolio's purchase of
the securities. See "RISK FACTORS - High Yield Securities."

The Growth Equity Fund may invest temporarily in the following securities
if Founders determines that it is appropriate for purposes of enhancing
liquidity or preserving capital in light of prevailing market or economic
conditions: cash, cash equivalents, U.S. government obligations, commerial
paper, bank obligations, repurchase agreements, and 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. When the Portfolio is in a defensive
position, the opportunity to achieve capital growth will be limited, and, 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 and may not achieve
its investment objective.

USE OF HEDGING AND OTHER STRATEGIC TRANSACTIONS. The Growth Equity Fund
is currently authorized to use all of the various investment strategies
referred to under "RISK FACTORS -- Hedging and Other Strategic Transactions."
the Statement of Additional Information contains a description of these
strategies and of certain risks associated therewith.

GLOBAL GROWTH FUND

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The investment objective of the Global Growth Fund is long term capital
appreciation. Oechsle International manages the Global Growth Fund and will
pursue this objective by investing the assets of the Global Growth Fund
primarily in a global portfolio of equity securities and securities convertible
into or exercisable for equity securities.

Under normal circumstances, at least 80% of the assets of the Global
Growth Fund will be invested in a global portfolio of equity securities and
securities convertible into or exercisable for equity securities. There is no
limitation on the percentage of the Global Growth Fund's assets that may be
invested in any one country, although the Global Growth Fund will maintain an
exposure to the equity markets in at least three countries under normal
circumstances (one of which may be the United States). When Oechsle
International sees selected opportunities for long-term capital appreciation in
the fixed-income markets, up to 20% of the assets of the Global Growth Fund may
be invested in fixed-income securities. Such opportunities may include
situations where there is expected to be a substantial decline in interest
rates in a particular country or when a substantial strengthening of a
country's currency relative to the U.S. dollar is anticipated, but the equity
markets in such country appear unattractive. The Portfolio may also, under
normal circumstances, maintain a reserve of cash equivalents pending the
selection of appropriate investments and to meet redemption requests. Cash
reserves are generally held in short-term U.S. Government instruments, although
non-U.S. Government securities may be held for this purpose from time to time.

When Oechsle International foresees unusual market risks, the Global
Growth Fund may temporarily take a defensive position to attempt to preserve
the value of the Portfolio's assets and to reduce portfolio volatility by
investing substantially all of such assets in fixed-income securities or cash
and cash equivalents. Similarly, if Oechsle International foresees unusual
market risks in the international markets, the Global Growth Fund may take a
temporary defensive position by investing substantially all of its assets in
U.S. securities. In either case, during periods when the Global Growth Fund
adopts a defensive position, it may not achieve its objective of long-term
capital appreciation.

Oechsle International seeks to achieve the Global Growth Fund's investment
objective of long-term capital appreciation by selecting equity investments
based on a two-pronged approach of (i) choosing a limited group of countries
with strong and stable national financial markets with total market
capitalization in excess of $5 billion, and (ii) identifying a select group of
companies in such countries with attractive investment potential and market
capitalization of $200 million or more. The following is a brief description
of the Oechsle International two-pronged investment approach.

COUNTRY SELECTION. The Global Growth Fund will seek long-term capital
appreciation by emphasizing markets identified as attractive. While the Global
Growth Fund is permitted to concentrate its investments in as few as three
countries, it is Oechsle International's intention under normal circumstances
to attempt to reduce overall portfolio risk through diversification of
investments across a limited group of national markets. Diversification
provides a prudent method of reducing risk. Opportunities for global investing
have broadened in recent years. For example, in 1980 the U.S. stock market
capitalization represented approximately 70% of the total world stock market
capitalization and by 1990 such share had fallen to approximately 30%.

Investments generally will be limited to companies in countries where
total market capitalization exceeds $5 billion. The Global Growth Fund's focus
will normally be on the largest, most liquid international equity markets
including, but not limited to, the United States, Japan, the United Kingdom,
the Federal Republic of Germany, Canada, France and Italy.

SECURITY SELECTION. Investments will generally be made in companies with
market capitalizations of at least $200 million. Oechsle International focuses
its research effort on exchange listed U.S. companies and a universe of
approximately 1,000 non-U.S. companies, most of which are included in either
the Morgan Stanley Capital International Europe, Australia and Far East Index
or other major international indices. The Global Growth Fund intends to
purchase and hold securities for long-term capital appreciation and does not
expect to trade for short-term gain.

As stated above, the Global Growth Fund may invest up to 20% of its assets
in fixed-income securities to attempt to take advantage of selected
opportunities in the debt markets for long-term capital appreciation. The
types of fixed-income securities in which the Global Growth Fund may invest
are: (i) debt obligations issued or guaranteed by the U.S. Government or one of
its agencies or political subdivisions; (ii) debt obligations issued or
guaranteed by a foreign sovereign government or one of its agencies or
political subdivisions; (iii) debt obligations issued or guaranteed by
supranational organizations (e.g., the International Bank for Reconstruction
and Development (the "World Bank"), the European Coal and Steel Community, the
Asian Development Bank and the Inter-American Development Bank) that are
assigned within the four highest bond ratings by Moody's or Standard & Poor's
or, if not rated, that are of equivalent investment quality as determined by
Oechsle International pursuant to guidelines established by the Trustees; and
(iv) corporate debt securities assigned within the three highest bond ratings
by Moody's or Standard & Poor's or, if not rated, that are of equivalent
investment quality as determined by Oechsle International pursuant to
guidelines established by the Trustees of the Fund.

While bonds carrying the fourth highest quality rating ("Baa" by Moody's
or "BBB" by Standard & Poor's) are considered as investment grade and are
viewed to have adequate capacity for payment of principal and interest,
investments in such securities involve a higher degree of risk than that
associated with investments in debt securities in the higher rating categories
and such bonds lack outstanding

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<PAGE> 35
investment characteristics and have speculative characteristics. For
example, changes in economic conditions or other circumstances are more likely
to lead to a weakened capacity to make principal and interest payments than is
the case with higher grade bonds. While the Global Growth Fund will not invest
in corporate debt securities rated below "A" by Moody's or Standard & Poor's or
debt obligations of supranational organizations rated below "Baa" by Moody's or
"BBB" by Standard & Poor's, it is not required to dispose of securities that
may be downgraded below such ratings.

The Global Growth Fund will be subject to special risks as a result of its
ability to invest up to 100% of its assets in foreign securities. These risks
are described under the caption "RISK FACTORS -- Foreign Securities" in this
Prospectus. Moreover, substantial investments in foreign securities may have
adverse tax implications as described under "GENERAL INFORMATION -- Taxes" in
this Prospectus. The ability to diversify its investments among the equity
markets in different countries may, however, reduce the overall level of market
risk to the extent it may reduce the Global Growth Fund's exposure to a single
market.

USE OF HEDGING AND OTHER STRATEGIC TRANSACTIONS. The Global Growth Fund
is currently authorized to use all of the various investment strategies
referred to under "RISK FACTORS -- Hedging and Other Strategic Transactions
(also referred to derivative transactions)." A "derivative" is generally
defined as an instrument whose value is based upon, or derived from, some
underlying index, reference rate (e.g., interest rate or currency exchange
rate, security, commodity or other asset). It is not presently anticipated
that any of these strategies will be used to a significant degree by the
Portfolio. The Statement of Additional Information contains a description of
these strategies and of certain risks associated therewith.

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VALUE EQUITY FUND

The Value Equity Fund was known as the "Growth Fund" prior to February __,
1996.)

The investment objective of the Value Equity Fund is long-term
growth of capital. Growth of income may accompany growth of capital. GSAM
manages the Value Equity Fund which will seek to attain its objective
by investing under normal circumstances at least 65% of its total assets in
equity securities, consisting of common or preferred stocks, including options
and warrants.

The Value Equity Fund will invest primarily in equity securities that
GSAM believes are undervalued in price and whose worth will eventually be
recognized by the market.

The Value Equity Fund will invest primarily in securities
listed on national securities exchanges and securities traded in the
"over-the-counter" market. Under normal market conditions, the Value
Equity Fund may invest up to 35% of its total assets in government
securities, short-term debt securities, money market instruments, cash or
investment grade bonds (i.e., rated within the four highest bond ratings
assigned by Moody's or S&P or, if not rated, determined to be of comparable
quality by GSAM). Government securities and investment grade bonds may include
mortgage backed securities, asset backed securities and municipal securities.
See "U.S. Government Securities Fund" below and "Other Instruments" in the
Statement of Additional Information for a description of these securities.
When in GSAM's opinion market or economic conditions warrant a temporary
defensive posture, the Value Equity Fund may place any portion of its
assets in these types of non-equity assets. The lowest rated category of
investment grade bonds have some speculative characteristics and instruments
with such ratings are subject to greater fluctuations in value than more highly
rated instruments as economic conditions change. The Value Equity
Fund is not required to dispose of such instruments in the event they are
downgraded below investment grade.

The Value Equity Fund will be subject to certain risks as a
result of its ability to invest up to 20% of its assets in foreign securities.
These risks are described under the caption "RISK FACTORS -- Foreign
Securities" in this Prospectus. Moreover, substantial investments in foreign
securities may have adverse tax implications as described under "GENERAL
INFORMATION -- Taxes" in this Prospectus.

USE OF HEDGING AND OTHER STRATEGIC TRANSACTIONS. The Value
Equity Fund is currently authorized to use all of the various investment
strategies referred to under "RISK FACTORS -- Hedging and Other Strategic
Transactions." The Statement of Additional Information contains a description
of these strategies and of certain risks associated therewith.

GROWTH AND INCOME FUND

The investment objective of the Growth and Income Fund is to provide
long-term growth of capital and income consistent with prudent investment risk.

Wellington Management manages the Growth and Income Fund and seeks to
achieve the Portfolio's objective by investing primarily in a diversified
portfolio of common stocks of U.S. issuers which Wellington Management believes
are of high quality. Wellington Management believes that high quality is
evidenced by a leadership position within an industry, a strong or improving
balance sheet, relatively high return on equity, steady or increasing dividend
payout, and strong management skills. The Growth and Income Fund's investments
will primarily emphasize dividend paying stocks of larger companies. The
Growth and Income Fund may also invest in securities convertible into or which
carry the right to buy common stocks, including those convertible securities
issued in the Euromarket; preferred stocks; and marketable debt securities of
domestic issuers and of foreign issuers (payable in U.S. dollars), if such
marketable debt securities of domestic issuers and foreign issuers are rated at
the time of purchase "A" or better by Moody's or S&P or, if unrated, deemed to
be of equivalent quality in Wellington Management's judgment. When market or
financial conditions warrant a temporary defensive posture, the Growth and
Income Fund may, in order to reduce risk and achieve attractive total
investment return, invest in securities which are authorized for purchase by
the Investment Quality Bond Fund or the Money Market Fund. The Subadviser
expects that under normal market conditions, the Growth and Income Fund's
portfolio will consist primarily of equity securities.

Investments will be selected on the basis of fundamental analysis to
identify those securities that, in Wellington Management's judgment, provide
the potential for long-term growth of capital and income. Fundamental analysis
involves assessing a company and its business environment, management, balance
sheet, income statement, anticipated earnings and dividends and other related
measures of value. When selecting securities of issuers domiciled outside of
the United States, Wellington Management will also monitor and evaluate the
economic and political climate and the principal securities markets of the
country in which each company is located.

The Growth and Income Fund will invest primarily in securities listed on
national securities exchanges, but from time to time it may also purchase
securities traded in the "over-the-counter" market.

The Growth and Income Fund will be subject to certain risks as a result of
its ability to invest up to 20% of its assets in foreign securities. These
risks are described under the caption "RISK FACTORS -- Foreign Securities" in
this Prospectus. Moreover, substantial

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<PAGE> 37
investments in foreign securities may have adverse tax implications as
described under "GENERAL INFORMATION -- Taxes" in this Prospectus.

USE OF HEDGING AND OTHER STRATEGIC TRANSACTIONS. The Growth and Income
Fund is currently authorized to use all of the various investment strategies
referred to under "RISK FACTORS -- Hedging and Other Strategic Transactions."
However, it is not presently anticipated that any of these strategies will be
used to a significant degree by the Portfolio. The Statement of Additional
Information contains a description of these strategies and of certain risks
associated therewith.

INTERNATIONAL GROWTH AND INCOME FUND

The investment objective of the International Growth and Income Fund is to
seek long-term growth of capital and income. The Portfolio is designed for
investors with a long-term investment horizon who want to take advantage of
investment opportunities outside the United States.

J.P. Morgan manages the International Growth and Income Fund and will seek
to achieve the Portfolio's investment objective by investing, under normal
circumstances, at least 65% of its total assets in equity securities of foreign
issuers, consisting of common stocks and other securities with equity
characteristics such as preferred stock, warrants, rights and convertible
securities. The Portfolio will focus primarily on the common stock of
established companies based in developed countries outside the United States.
Such investments will be made in at least three foreign countries. For this
purpose, a developed country is any country included in the MSCI World Index.
The countries currently included in this Index are: Australia, Austria,
Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy,
Japan, Malaysia, Netherlands, New Zealand, Norway, Singapore, Spain, Sweden,
Switzerland, United Kingdom and the U.S. The Portfolio invests in securities
listed on foreign or domestic securities exchanges and securities traded in
foreign or domestic over-the-counter markets, and may invest in certain
restricted or unlisted securities. See "RISK FACTORS -- Foreign Securities."
Under normal circumstances, the International Growth and Income Fund expects to
invest primarily in equity securities. However, the Portfolio may invest up to
35% of its assets in debt obligations of corporate, sovereign issuers or
supranational organizations rated A or higher by Moody's or S&P, or if unrated,
of equivalent credit quality as determined by the Subadviser. See "Strategic
Income Fund" below for additional information on supranational organizations.
Under normal circumstances, the Portfolio will be invested approximately 85% in
equity securities and 15% in fixed income securities. J.P. Morgan may allocate
the Portfolio's investment in these asset classes in a manner consistent with
the Portfolio's investment objective and current market conditions. Using a
variety of analytical tools, J.P. Morgan assesses the relative attractiveness
of each asset class and determines an optimal allocation between them. Yields
on non-U.S. equity securities tend to be lower than those on equity securities
of U.S. issuers. Therefore, current income from the Portfolio may not be as
high as that available from a portfolio of U.S. equity securities.

In pursuing the International Growth and Income Fund's objective, J.P.
Morgan will actively manage the assets of the Portfolio through country
allocation and stock valuation and selection. Based on fundamental research,
quantitative valuation techniques and experienced judgment, J.P. Morgan uses a
structured decision-making process to allocate the Portfolio primarily across
the developed countries of the world outside the United States. This universe
is typically represented by the Morgan Stanley Europe, Australia and Far East
Index (the "EAFE Index").

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

Finally, J.P. Morgan actively manages currency exposure, in conjunction
with country and stock allocation, in an attempt to protect and possibly
enhance the International Growth and Income Fund's market value. Through the
use of forward foreign currency exchange contracts, J.P. Morgan will adjust the
Portfolio's foreign currency weightings to reduce its exposure to currencies
that the Subadviser deems unattractive and, in certain circumstances, increase
exposure to currencies deemed attractive, as market conditions warrant, based
on fundamental research, technical factors and the judgment of a team of
experienced currency managers.

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

The International Growth and Income Fund may also invest in securities on
a when-issued or delayed delivery basis, enter into repurchase and reverse
repurchase agreements, loan its portfolio securities and purchase certain
privately placed securities. See "RISK FACTORS."

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The International Growth and Income Fund may make money market investments
pending other investments or settlement or for liquidity purposes. In
addition, when J.P. Morgan believes that investing for defensive purposes is
appropriate, such as during periods of unusual or unfavorable market or
economics conditions, up to 100% of the Portfolio's assets may be temporarily
invested in money market instruments. The money market investments permitted
for the Portfolio include obligations of the U.S. Government and its agencies
and instrumentalities, other debt securities, commercial paper, bank
obligations and repurchase agreements, as described below under "Money Market
Fund."

The International Growth and Income Fund will be subject to special risks
as a result of its ability to invest up to 100% of its assets in foreign
securities. These risks are described under the caption "RISK FACTORS --
Foreign Securities" in this Prospectus. The ability to diversify its
investments among the equity markets of different countries may, however,
reduce the overall level of market risk to the extent it may reduce the
Portfolio's exposure to a single market. Moreover, substantial investments in
foreign securities may have adverse tax implications as described under
"GENERAL INFORMATION -- Taxes" in this Prospectus.

USE OF HEDGING AND OTHER STRATEGIC TRANSACTIONS. The International Growth
and Income Fund is currently authorized to use all of the various investment
strategies referred to under "RISK FACTORS -- Hedging and Other Strategic
Transactions". With the exception of currency transactions, however, it is not
presently anticipated that any of these strategies will be used to a
significant degree by the Portfolio. The Statement of Additional Information
contains a description of these strategies and of certain risks associated
therewith.

ASSET ALLOCATION FUND

The investment objective of the Asset Allocation Fund is to obtain the
highest total return consistent with a moderate level of risk tolerance. The
Asset Allocation Fund is designed for:

* The investor who wants to maximize total return potential, but lacks the
time, temperament or expertise to do so effectively;

* The investor who does not want to monitor the financial markets in order
to make periodic exchanges among Portfolios;

* The investor who wants the opportunity to improve on the return of an
income-oriented investment program, but wants to take advantage of the risk
management features of the Asset Allocation Fund; and

* Retirement program fiduciaries who have a responsibility to limit risk
in a meaningful way, while seeking the highest potential total return.

The Asset Allocation Fund may invest in a combination of equity,
fixed-income and money market securities. GSAM manages the Asset Allocation
Fund and the amount of the Portfolio's assets invested in each category of
securities is dependent upon GSAM's judgment as to what percentage of the
Portfolio's assets in each category will contribute to the limitation of risk
and the achievement of its investment objective. GSAM reserves complete
discretion to determine the allocations among the categories of securities.

GSAM attempts to limit the maximum amount of decline in value the
Portfolio incurs under very adverse market conditions to a moderate level of
risk tolerance, defined as a 10% decline over a twelve month period. Very
adverse market conditions are defined as a substantial increase in long-term
interest rates accompanied by a similarly substantial decline in one or more
commonly-followed stock market indices over a twelve month period. Of course,
GSAM cannot predict with certainty when very adverse market conditions will
arise. Consequently, GSAM must manage the Asset Allocation Fund under all
market conditions with a view toward limiting risk and Portfolio decline should
very adverse market conditions arise. GSAM will invest the Asset Allocation
Fund's assets to attempt to give the Portfolio a substantial participation in
favorable equity and bond markets, although the expected total return will not
necessarily exceed the best returns available from either of those markets.
When market conditions deteriorate (and the probability of very adverse market
conditions rises), GSAM will give greater emphasis to fixed-income securities
and money market instruments in an effort to limit overall declines in
portfolio value. There can be no assurance that actual declines in portfolio
value will not exceed the 10% limitation set forth above.

The types and characteristics of equity securities to be purchased by the
Asset Allocation Fund are set forth above in the discussion of investment
objectives and policies for the Value Equity Fund; the types and
characteristics of the fixed-income securities to be purchased are set forth
below in the discussion of the investment objective and policies for the
Investment Quality Bond and U.S. Government Securities Funds (the Asset
Allocation Fund is not, however, authorized to invest in non-investment grade
securities as is the Investment Quality Bond Fund); and the types and
characteristics of the money market securities to be purchased are set forth
below in the discussion of the investment objective and policies of the Money
Market Fund. In addition to these securities, the Asset Allocation Fund may
also invest in municipal obligations. See "National Municipal Bond Fund" below
for a description of these securities. Potential investors should review the
discussions therein when considering an investment in shares of the Asset
Allocation Fund.

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The Asset Allocation Fund will be subject to certain risks as a result of
its ability to invest up to 20% of its assets in foreign securities. These
risks are described under the caption "RISK FACTORS -- Foreign Securities" in
this Prospectus. Moreover, substantial

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investments in foreign securities may have adverse tax implications as
described under "GENERAL INFORMATION -- Taxes" in this Prospectus.

USE OF HEDGING AND OTHER STRATEGIC TRANSACTIONS. The Asset Allocation
Fund is currently authorized to use all of the various investment strategies
referred to under "RISK FACTORS -- Hedging and Other Strategic Transactions."
The Statement of Additional Information contains a description of these
strategies and of certain risks associated therewith.

STRATEGIC INCOME FUND

The investment objective of the Strategic Income Fund is to seek a high
level of total return consistent with preservation of capital.

The Strategic Income Fund seeks to achieve its objective by giving its
Subadviser, SBAM, broad discretion to deploy the Strategic Income Fund's assets
among certain segments of the fixed-income market as SBAM believes will best
contribute to the achievement of the Portfolio's objective. At any point in
time, SBAM will deploy the Portfolio's assets based on SBAM's analysis of
current economic and market conditions and the relative risks and opportunities
present in the following market segments: U.S. Government obligations,
investment grade domestic corporate debt, high yield corporate debt securities,
mortgage-backed securities and investment grade and high yield international
debt securities. SBAM is an affiliate of Salomon Brothers Inc ("SBI"), and in
making investment decisions is able to draw on the research and market
expertise of SBI with respect to fixed-income securities. In addition, SBAM
has entered into a subadvisory consulting agreement with its London based
affiliate, Salomon Brothers Asset Management Limited ("SBAM Limited") pursuant
to which SBAM Limited will provide certain advisory services to SBAM relating
to currency transactions and investments in non-dollar denominated debt
securities for the benefit of the Portfolio.

In pursuing the Strategic Income Fund's investment objective, the
Portfolio reserves the right to invest without limitation in lower-rated
securities, commonly known as "junk bonds." (i.e., rated "B" or below by
Moody's (Moody's lowest rating is C, See Appendix I.) or "BB" or below by
S&P(S&P lowest rating is D, see Appendix I.), or if unrated, of comparable
quality as determined by SBAM). No minimum rating standard is required for a
purchase by the Portfolio. Investments of this type involve comparatively
greater risks, including price volatility and risk of default in the payment of
interest and principal, than higher-quality securities. Although the
Portfolio's Subadviser has the ability to invest up to 100% of the Portfolio's
assets in lower-rated securities, the Portfolio's Subadviser does not
anticipate investing in excess of 75% of the Portfolio's assets in such
securities. Purchasers should carefully assess the risks associated with an
investment in this Portfolio. See "RISK FACTORS -- High Yield Securities."

SBAM will determine the amount of assets to be allocated to each type of
security in which it invests based on its assessment of the maximum level of
total return that can be achieved from a portfolio which is invested in these
securities without incurring undue risks to principal value. In making this
determination, SBAM will rely in part on quantitative analytical techniques
that measure relative risks and opportunities of each type of security based on
current and historical economic, market, political and technical data for each
type of security, as well as on its own assessment of economic and market
conditions both on a global and local (country) basis. In performing
quantitative analysis, SBAM will employ prepayment analysis and option adjusted
spread technology to evaluate mortgage securities, mean variance optimization
models to evaluate international debt securities, and total rate of return
analysis to measure relative risks and opportunities in other fixed-income
markets. Economic factors considered will include current and projected levels
of growth and inflation, balance of payment status and monetary policy. The
allocation of assets to international debt securities will further be
influenced by current and expected currency relationships and political and
sovereign factors. The Portfolio's assets may not always be allocated to the
highest yielding securities if SBAM feels that such investments would impair
the Portfolio's ability to preserve shareholder capital. SBAM will
continuously review this allocation of assets and make such adjustments as it
deems appropriate. The Portfolio does not plan to establish a minimum or a
maximum percentage of the assets which it will invest in any particular type of
fixed-income security.

In addition, SBAM will have discretion to select the range of maturities
of the various fixed-income securities in which the Portfolio invests. Such
maturities may vary substantially from time to time depending on economic and
market conditions.

The types and characteristics of the U.S. Government obligations,
mortgage-backed securities, investment grade corporate debt securities and
investment grade international debt securities to be purchased by the Portfolio
are set forth in the discussion of investment objectives and policies for the
Investment Quality Bond and U.S. Government Securities Funds, and in the
section entitled "OTHER INSTRUMENTS" in the Statement of Additional
Information; and the types and characteristics of the money market securities
to be purchased are set forth in the discussion of investment objectives and
policies of the Money Market Fund. Potential investors should review the
discussion therein in considering an investment in shares of the Strategic
Income Fund. As described below, the Strategic Income Fund may also invest in
high yield domestic and foreign debt securities.

The Strategic Income Fund may also invest in debt obligations issued or
guaranteed by a foreign sovereign government or one of its agencies or
political subdivisions and debt obligations issued or guaranteed by
supranational organizations. Supranational entities include international
organizations designated or supported by governmental entities to promote
economic reconstruction or development and international banking institutions
and related government agencies. Examples include the International Bank for
Reconstruction and

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Development (the "World Bank"), the European Coal and Steel
Community, the Asian Development Bank and the Inter-American Development Bank.
Such supranational issued instruments may be denominated in multi-national
currency units.

The Strategic Income Fund currently intends to invest substantially all of
its assets in fixed-income securities. In order to maintain liquidity,
however, the Strategic Income Fund may invest up to 20% of its assets in
high-quality short-term money market instruments. If at some future date, in
the opinion of SBAM, adverse conditions prevail in the market for fixed-income
securities, the Strategic Income Fund for temporary defensive purposes may
invest its assets without limit in high-quality short-term money market
instruments.

As discussed above, the Strategic Income Fund may invest in U.S.
dollar-denominated securities issued by domestic issuers that are rated below
investment grade or, if unrated, determined by SBAM to be of comparable
quality. Although SBAM does not anticipate investing in excess of 75% of the
Strategic Income Fund's assets in domestic and developing country debt
securities that are rated below investment grade, the Strategic Income Fund may
invest a greater percentage in such securities when, in the opinion of SBAM,
the yield available from such securities outweighs their additional risks. By
investing a portion of the Strategic Income Fund's assets in securities rated
below investment grade, as well as through investments in mortgage securities
and international debt securities, as described below, SBAM expects to provide
investors with a higher yield than a high-quality domestic corporate bond fund
while at the same time presenting less risk than a fund that invests
principally in securities rated below investment grade. Certain of the debt
securities in which the Strategic Income Fund may invest may have, or be
considered comparable to securities having, the lowest ratings for
non-subordinated debt instruments assigned by Moody's or S&P (i.e., rated C by
Moody's or CCC or lower by S&P). See "RISK FACTORS -- High Yield Securities --
General."

In light of the risks associated with high yield corporate and sovereign
debt securities, SBAM will take various factors into consideration in
evaluating the creditworthiness of an issuer. For corporate debt securities,
these will typically include the issuer's financial resources, its sensitivity
to economic conditions and trends, the operating history of the issuer, and the
experience and track record of the issuer's management. For sovereign debt
instruments, these will typically include the economic and political conditions
within the issuer's country, the issuer's overall and external debt levels and
debt service ratios, the issuer's access to capital markets and other sources
of funding, and the issuer's debt service payment history. SBAM will also
review the ratings, if any, assigned to the security by any recognized rating
agencies, although SBAM's judgment as to the quality of a debt security may
differ from that suggested by the rating published by a rating service. The
Strategic Income Fund's ability to achieve its investment objective may be more
dependent on SBAM's credit analysis than would be the case if it invested in
higher quality debt securities. A description of the ratings used by Moody's
and S&P is set forth in Appendix I to this Prospectus.

The high yield sovereign debt securities in which the Strategic Income
Fund may invest are U.S. dollar-denominated and non-dollar-denominated debt
securities, including Brady Bonds, that are issued or guaranteed by governments
or governmental entities of developing and emerging countries. SBAM expects
that these countries will consist primarily of those which have issued or have
announced plans to issue Brady Bonds, but the Portfolio is not limited to
investing in the debt of such countries. Brady Bonds are debt securities
issued under the framework of the Brady Plan, an initiative announced by former
U.S. Treasury Secretary Nicholas F. Brady in 1989 as a mechanism for debtor
nations to restructure their outstanding external indebtedness. SBAM
anticipates that the Portfolio's initial investments in sovereign debt will be
concentrated in Latin American countries, including Mexico and Central and
South American and Caribbean countries. SBAM expects to take advantage of
additional opportunities for investment in the debt of North African countries,
such as Nigeria and Morocco, Eastern European countries, such as Poland and
Hungary, and Southeast Asian countries, such as the Philippines. Sovereign
governments may include national, provincial, state, municipal or other foreign
governments with taxing authority. Governmental entities may include the
agencies and instrumentalities of such governments, as well as state-owned
enterprises. For a more detailed discussion on high yield sovereign debt
securities, see "OTHER INSTRUMENTS -- 5. High Yield Foreign Sovereign Debt
Securities" in the Statement of Additional Information.

The Strategic Income Fund will be subject to special risks as a result of
its ability to invest up to 100% of its assets in foreign securities. These
risks are described under the captions "RISK FACTORS -- High Yield Securities"
and "RISK FACTORS -- Foreign Securities" in this Prospectus. Moreover,
substantial investments in foreign securities may have adverse tax implications
as described under "GENERAL INFORMATION -- Taxes" in this Prospectus. The
ability to spread its investments among the fixed-income markets in a number of
different countries may, however, reduce the overall level of market risk to
the extent it may reduce the Strategic Income Fund's exposure to a single
market.

USE OF HEDGING AND OTHER STRATEGIC TRANSACTIONS. The Strategic Income
Fund is currently authorized to use all of the various investment strategies
referred to under "RISK FACTORS -- Hedging and Other Strategic Transactions."
With the exception of currency transactions, however, it is not presently
anticipated that any of these strategies will be used to a significant degree
by the Portfolio. The Statement of Additional Information contains a
description of these strategies and of certain risks associated therewith.

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INVESTMENT QUALITY BOND FUND

The investment objective of the Investment Quality Bond Fund is to provide
a high level of current income consistent with the maintenance of principal and
liquidity.

Wellington Management manages the Investment Quality Bond Fund and seeks
to achieve its objective by investing primarily in a diversified portfolio of
investment grade corporate bonds and U.S. Government bonds with intermediate to
longer term maturities. Investment management will emphasize sector analysis,
which focuses on relative value and yield spreads among security types and
among quality, issuer, and industry sectors, call protection and credit
research. Credit research on corporate bonds is based on both quantitative and
qualitative criteria established by Wellington Management, such as an issuer's
industry, operating and financial profiles, business strategy, management
quality, and projected financial and business conditions. Wellington
Management will attempt to maintain a high, steady and possibly growing income
stream.

At least 65% of the Investment Quality Bond Fund's assets will be invested
in the following types of bonds:

* marketable debt securities of domestic issuers and of foreign
issuers (payable in U.S. dollars) rated at the time of purchase "A"
or better by Moody's or S&P or, if unrated, of comparable quality as
determined by Wellington Management; and

* securities issued or guaranteed as to principal or interest by the U.S.
Government or its agencies or instrumentalities, including mortgage-backed
securities (described below under U.S. Government Securities Fund).

The balance of the Investment Quality Bond Fund's investments may include:
domestic and foreign debt securities rated below "A" by Moody's and S&P (and
unrated securities of comparable quality as determined by Wellington
Management), preferred stocks, convertible securities (including those issued
in the Euromarket) and securities carrying warrants to purchase equity
securities, privately placed debt securities, asset-backed securities and
privately issued mortgage securities. The Portfolio may also invest in cash or
cash equivalent securities which are authorized for purchase by the Money
Market Fund. At least 65% of the Investment Quality Bond Fund's assets will be
invested in bonds and debentures.

In pursuing its investment objective, the Investment Quality Bond Fund may
invest up to 20% of its assets in domestic and foreign high yield corporate and
government debt securities, commonly known as "junk bonds" (i.e., rated "B" or
below by Moody's (Moody's lowest rating is "C", See Appendix I) or "BB" or
below by S&P (S&P's lowest rating is "D", See Appendix I), or if unrated, of
comparable quality as determined by Wellington Management). No minimum rating
standard is required for a purchase by the Portfolio. The high yield sovereign
debt securities in which the Portfolio will invest are described above under
"Strategic Income Fund." Domestic and foreign high yield debt securities
involve comparatively greater risks, including price volatility and risk of
default in the payment of interest and principal, than higher-quality
securities. See "RISK FACTORS -- High Yield Securities."

The Investment Quality Bond Fund may also invest in debt securities
carrying the fourth highest quality rating ("Baa" by Moody's or "BBB" by S&P)
and unrated securities of comparable quality as determined by Wellington
Management. While such securities are considered investment grade and are
viewed to have adequate capacity for payment of principal and interest,
investments in such securities involve a higher degree of risk than that
associated with investments in debt securities in the higher rating categories
and such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well. For example, changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade bonds. While the Investment Quality Bond Fund may only invest up to 20%
of its assets in bonds rated below "Baa" by Moody's or "BBB" by S&P (or, if
unrated, of comparable quality as determined by Wellington Management) at the
time of investment, it is not required to dispose of downgraded bonds that
cause the Investment Quality Bond Fund to exceed this 20% maximum.

The Investment Quality Bond Fund will be subject to certain risks as a
result of its ability to invest up to 20% of its assets in foreign securities.
These risks are described under the caption "RISK FACTORS -- Foreign
Securities" in this Prospectus. Moreover, substantial investments in foreign
securities may have adverse tax implications as described under "GENERAL
INFORMATION -- Taxes" in this Prospectus. The Investment Quality Bond Fund may
also invest in forward commitments and warrants. See "RISK FACTORS --
Warrants" and "-- When-Issued Securities ("Forward Commitments")."

USE OF HEDGING AND OTHER STRATEGIC TRANSACTIONS. The Investment Quality
Bond Fund is currently authorized to use all of the various investment
strategies referred to under "RISK FACTORS -- Hedging and Other Strategic
Transactions." The Statement of Additional Information contains a description
of these strategies and of certain risks associated therewith.

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<PAGE> 43
U.S. GOVERNMENT SECURITIES FUND

The investment objective of the U.S. Government Securities Fund is to
obtain a high level of current income consistent with preservation of capital
and maintenance of liquidity. SBAM manages the U.S. Government Securities Fund
and seeks to attain its objective by investing under normal circumstances 100%
of its assets in debt obligations and mortgage-backed securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities. The
securities in which the U.S. Government Securities Fund may invest are:

(1) mortgage-backed securities guaranteed by the Government National
Mortgage Association ("GNMA"), popularly known as "Ginnie Maes," that are
supported by the full faith and credit of the U.S. Government and which are the
"modified pass-through" type of mortgage-backed security ("GNMA Certificates").
Such securities entitle the holder to receive all interest and principal
payments due whether or not payments are actually made on the underlying
mortgages;

(2) U.S. Treasury obligations;

(3) obligations issued or guaranteed by agencies or instrumentalities of
the U.S. Government which are backed by their own credit and may not be backed
by the full faith and credit of the U.S. Government;

(4) mortgage-backed securities guaranteed by agencies or instrumentalities
of the U.S. Government which are supported by their own credit but not the full
faith and credit of the U.S. Government, such as the Federal Home Loan Mortgage
Corporation and the Federal National Mortgage Association; and

(5) collateralized mortgage obligations issued by private issuers for
which the underlying mortgage-backed securities serving as collateral are
backed (i) by the credit alone of the U.S. Government agency or instrumentality
which issues or guarantees the mortgage-backed securities, or (ii) by the full
faith and credit of the U.S. Government.

The mortgage-backed securities in which the U.S. Government Securities
Fund invests represent participating interests in pools of residential
mortgage loans which are guaranteed by the U.S. Government, its agencies or
instrumentalities of the U.S. Government. However, the guarantee of these types
of securities runs only to the principal and interest payments and not to the
market value of such securities. In addition, the guarantee only runs to the
portfolio securities held by the U.S. Government Securities Fund and not to the
purchase of shares of the Portfolio.

Mortgage-backed securities are issued by lenders such as mortgage bankers,
commercial banks, and savings and loan associations. Such securities differ
from conventional debt securities which provide for periodic payment of
interest in fixed amounts (usually semiannually) with principal payments at
maturity or specified call dates. Mortgage-backed securities provide monthly
payments which are, in effect, a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans. Principal prepayments result from the sale of
the underlying property or the refinancing or foreclosure of underlying
mortgages.

The yield of mortgage-backed securities is based on the average life of
the underlying pool of mortgage loans, which is computed on the basis of the
maturities of the underlying instruments. The actual life of any particular
pool may be shortened by unscheduled or early payments of principal and
interest. The occurrence of prepayments is affected by a wide range of
economic, demographic and social factors and, accordingly, it is not possible
to accurately predict the average life of a particular pool. For pools of
fixed rate 30-year mortgages, it has been common practice to assume that
prepayments will result in a 12-year average life. The actual prepayment
experience of a pool of mortgage loans may cause the yield realized by the U.S.
Government Securities Fund to differ from the yield calculated on the basis of
the average life of the pool. In addition, if any of these mortgage-backed
securities are purchased at a premium, the premium may be lost in the event of
early prepayment which may result in a loss to the Portfolio.

Prepayments tend to increase during periods of falling interest rates,
while during periods of rising interest rates prepayments will most likely
decline. Reinvestment by the U.S. Government Securities Fund of scheduled
principal payments and unscheduled prepayments may occur at higher or lower
rates than the original investment, thus affecting the yield of the Portfolio.
Monthly interest payments received by the Portfolio have a compounding effect
which will increase the yield to shareholders as compared to debt obligations
that pay interest semiannually. Because of the reinvestment of prepayments of
principal at current rates, mortgage-backed securities may be less effective
than Treasury bonds of similar maturity at maintaining yields during periods of
declining interest rates. Also, although the value of debt securities may
increase as interest rates decline, the value of these pass-through type of
securities may not increase as much due to the prepayment feature.

While the Portfolio seeks a high level of current income, it cannot invest
in instruments such as lower grade corporate obligations which offer higher
yields but are subject to greater risks. The Portfolio will not knowingly
invest in a high risk mortgage security. The term "high risk mortgage security"
is defined generally as any mortgage security that exhibits greater price
volatility than a benchmark security,

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<PAGE> 44
the Federal National Mortgage Association current coupon 30-year mortgage-
backed pass through security. Shares of the Portfolio are neither insured nor
guaranteed by the U.S. Government, its agencies or instrumentalities.

In order to make the U.S. Government Securities Fund an eligible
investment for federal credit unions ("FCUs"), federal savings and loan
institutions and national banks, the Portfolio will invest in U.S. Government
securities that are eligible for investment by such institutions without
limitation, and will also generally be managed so as to qualify as an eligible
investment for such institutions. The Portfolio will comply with all
investment limitations applicable to FCUs including (i) the requirement that a
FCU may only purchase collateralized mortgage obligations which would meet the
high risk securities test of Part 703 of the National Credit Union
Administration Rules and Regulations or would be held solely to reduce interest
rate risk and (ii) the requirement that a FCU may not purchase zero coupon
securities having maturities greater than ten years.

USE OF HEDGING AND OTHER STRATEGIC TRANSACTIONS. The U.S. Government
Securities Fund is not currently authorized to use any of the various
investment strategies referred to under "RISK FACTORS -- Hedging and Other
Strategic Transactions." However, such strategies may be used in the future by
the Portfolio. The Statement of Additional Information contains a description
of these strategies and of certain risks associated therewith.

NATIONAL MUNICIPAL BOND FUND

The National Municipal Bond Fund's investment objective is to achieve a
high level of current income which is exempt from regular federal income taxes,
consistent with the preservation of capital, by investing primarily in a
portfolio of municipal obligations. SBAM manages the National Municipal Bond
Fund and as a matter of fundamental policy, the Portfolio will invest under
normal circumstances, at least 80% of its net assets in municipal obligations
the interest on which is exempt from regular federal income tax. A portion of
the Portfolio's dividends paid in respect of its shares may be subject to the
federal alternative minimum tax. For a discussion on taxation of the National
Municipal Bond Fund, see "GENERAL INFORMATION -- National Municipal Bond Fund
- -- Taxation."

The Portfolio will not invest in municipal obligations that are rated
below investment grade at the time of investment. However, the Portfolio may
retain in its portfolio a municipal obligation whose rating drops below "Baa"
or "BBB" after its acquisition by the Portfolio, if SBAM considers the
retention of such obligation advisable. The Portfolio intends to emphasize
investments in municipal obligations with long-term maturities and expects to
maintain an average portfolio maturity of 20 to 30 years and an average
portfolio duration of 8 to 11 years. The average portfolio maturity and
duration, however, may be shortened from time to time depending on market
conditions.

The types of obligations in which the National Municipal Bond Fund may
invest include the following:

MUNICIPAL BONDS

The Portfolio may invest in municipal bonds that are rated at the time of
purchase within the four highest ratings assigned by Moody's, S&P or Fitch, or
determined by SBAM to be of comparable quality. The four highest ratings
currently assigned by Moody's to municipal bonds are "Aaa", "Aa", "A" and
"Baa"; the four highest ratings assigned by S&P and Fitch to municipal bonds
are "AAA", "AA", "A" and "BBB". A more complete description of the debt
security ratings used by the Portfolio assigned by Moody's, S&P and Fitch is
included in Appendix I to this Prospectus.

Although municipal obligations rated in the fourth highest rating category
by Moody's (i.e., "Baa") or S&P or Fitch (i.e., "BBB") are considered
investment grade, they may be subject to greater risks than other higher rated
investment grade securities. Municipal obligations rated "Baa" by Moody's, for
example, are considered medium grade obligations that lack outstanding
investment characteristics and have speculative characteristics as well.
Municipal obligations rated "BBB" by S&P and Fitch are regarded as having an
adequate capacity to pay principal and interest.

Municipal bonds are debt obligations that are typically issued to obtain
funds for various public purposes, such as construction of public facilities
(e.g., airports, highways, bridges and schools). Municipal bonds at the time
of issuance are generally long-term securities with maturities of as much as
twenty years or more, but may have remaining maturities of shorter duration at
the time of purchase by the Portfolio.

MUNICIPAL NOTES

The Fund may invest in municipal notes rated at the time of purchase
"MIG1", "MIG2" (or "VMIG-1" or "VMIG-2", in the case of variable rate demand
notes), "P-2" or better by Moody's, "SP-2", "A-2" or better by S&P, or "F-2" or
better by Fitch, or if not rated, determined by SBAM to be of comparable
quality.

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Municipal notes are issued to meet the short-term funding requirements of
local, regional and state governments. Municipal notes generally have
maturities at the time of issuance of three years or less. Municipal notes
that may be purchased by the Portfolio include, but are not limited to:

TAX ANTICIPATION NOTES. Tax anticipation notes ("TANs") are sold as
interim financing in anticipation of collection of taxes. An uncertainty in a
municipal issuer's capacity to raise taxes as a result of such factors as a
decline in its tax base or a rise in delinquencies could adversely affect the
issuer's ability to meet its obligations on outstanding TANs.

BOND ANTICIPATION NOTES. Bond anticipation notes ("BANs") are sold as
interim financing in anticipation of a bond sale. The ability of a municipal
issuer to meet its obligations on its BANs is primarily dependent on the
issuer's adequate access to the longer term municipal bond market and the
likelihood that the proceeds of such bond sales will be used to pay the
principal of, and interest on, BANs.

REVENUE ANTICIPATION NOTES. Revenue anticipation notes ("RANs") are sold
as interim financing in anticipation of receipt of other revenues. A decline
in the receipt of certain revenues, such as anticipated revenues from another
level of government, could adversely affect an issuer's ability to meet its
obligations on outstanding RANs.

TANs, BANs and RANs are usually general obligations of the issuer.

MUNICIPAL COMMERCIAL PAPER

The Portfolio may also purchase municipal commercial paper that is rated
at the time of purchase "P-2" or better by Moody's, "A-2" or better by S&P, or
"F-2" or better by Fitch, or if not rated, determined by SBAM to be of
comparable quality.

Municipal commercial paper that may be purchased by the Portfolio consists
of short term obligations of a municipality. Such paper is likely to be issued
to meet seasonal working capital needs of a municipality or as interim
construction financing. Municipal commercial paper, in many cases, is backed
by a letter of credit lending agreement, note repurchase agreement or other
credit facility agreement offered by banks or other institutions.

CHARACTERISTICS OF MUNICIPAL OBLIGATIONS

Municipal obligations are debt obligations issued by or on behalf of
states, cities, municipalities and other public authorities. The two principal
classifications of municipal obligations that may be held by the Portfolio are
"general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or
other specific revenue source such as the user of a facility being financed.
Revenue securities may include private activity bonds. Such bonds may be
issued by or on behalf of public authorities to finance various privately
operated facilities and are not payable from the unrestricted revenues of the
issuer. As a result, the credit quality of private activity bonds is
frequently related directly to the credit standing of private corporations or
other entities. In addition, the interest on private activity bonds issued
after August 7, 1986 is subject to the federal alternative minimum tax. The
Portfolio will not be restricted with respect to the proportion of its assets
that may be invested in such obligations. Accordingly, the Portfolio may not
be a suitable investment vehicle for individuals or corporations that are
subject to the federal alternative minimum tax.

The National Municipal Bond Fund's portfolio may also include "moral
obligation" securities, which are normally issued by special purpose public
authorities. If the issuer of moral obligation securities is unable to meet
its debt service obligations from current revenues, it may draw on a reserve
fund, the restoration of which is a moral commitment but not a legal obligation
of the state or municipality that created the issuer.

In addition, the Portfolio may invest in municipal lease obligations
("MLOs"). MLOs are not fully backed by the municipality's credit and their
interest may become taxable if the lease is assigned. If the governmental user
does not appropriate sufficient funds for the following year's lease payments,
the lease will terminate, with the possibility of default on the MLO and loss
to the Portfolio. SBAM intends to invest more than 5% of the Portfolio's net
assets in municipal lease obligations and the Trustees of the Fund have
established procedures the Subadviser will use to examine certain factors in
evaluating the liquidity of such obligations. These factors include (i) the
frequency of trades and quotes for the MLO; (ii) the number of dealers willing
to purchase or sell such MLO and the number of other potential purchasers;
(iii) the willingness of dealers to undertake to make a market in the MLO; (iv)
the nature of the MLO and the nature of the marketplace trades (e.g., the time
needed to dispose of the security and the method of soliciting offers); (v) the
nature of the offering of such MLO (e.g., the size of the issue and the number
of anticipated holders); (vi) the ability of the MLO to maintain its
marketability throughout the time the instrument is held in the Portfolio; and
(vii) other factors, if any, which SBAM deems relevant to determining the
existence of a trading market for such MLO. The Portfolio also may invest in
resource recovery bonds, which may be general obligations of the issuing
municipality or supported by corporate or bank guarantees. The viability of
the resource recovery project, environmental protection regulations and project
operator tax incentives may affect the value and credit quality of resource
recovery bonds.

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OTHER PERMITTED INVESTMENTS

The Portfolio currently intends to invest substantially all of its assets
in obligations the interest on which is exempt from regular federal income
taxes. However, in order to maintain liquidity, the Portfolio may invest up to
20% of its assets in taxable obligations, including taxable high-quality
short-term money market instruments. The Portfolio may invest in the following
taxable high-quality short-term money market instruments: obligations of the
U.S. Government or its agencies or instrumentalities; commercial paper of
issuers rated, at the time of purchase, "A-2" or better by S&P, "P-2" or better
by Moody's, or "F-2" or better by Fitch or which if unrated, in the opinion of
SBAM, are of comparable quality; certificates of deposit, bankers' acceptances
or time deposits of U.S. banks with total assets of at least $1 billion
(including obligations of foreign branches of such banks) and of the 75 largest
foreign commercial banks in terms of total assets (including domestic branches
of such banks), and repurchase agreements with respect to such obligations.

If at some future date, in the opinion of SBAM, adverse conditions prevail
in the market for obligations the interest on which is exempt from regular
federal income taxes, the Portfolio may invest its assets without limit in
taxable high-quality short-term money market instruments. Dividends paid by
the Portfolio that are attributable to interest derived from taxable money
market instruments will be taxable to investors.

From time to time, the Portfolio may invest more than 25% of its assets in
obligations whose interest payments are from revenues of similar projects (such
as utilities or hospitals) or whose issuers share the same geographic location.
As a result, the Portfolio may be more susceptible to a single economic,
political or regulatory development than would a portfolio of securities with a
greater variety of issuers. These developments include proposed legislation or
pending court decisions affecting the financing of such projects and market
factors affecting the demand for their services or products.

Opinions relating to the validity of municipal obligations and to the
exemption of interest thereon from regular federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the
Portfolio nor SBAM will review the proceedings relating to the issuance of
municipal obligations or the basis for such opinions.

ADDITIONAL INVESTMENT ACTIVITIES

FLOATING AND VARIABLE RATE OBLIGATIONS. Certain of the obligations that
the National Municipal Bond Fund may purchase may have a floating or variable
rate of interest. Floating or variable rate obligations bear interest at rates
that are not fixed, but vary with changes in specified market rates or indices,
such as the prime rate, and at specified intervals. Certain of the floating or
variable rate obligations that may be purchased by the Portfolio may carry a
demand feature that would permit the holder to tender them back to the issuer
of the underlying instrument or to a third party at par value prior to
maturity. Such obligations include variable rate demand notes, which are
instruments issued pursuant to an agreement between the issuer and the holder
that permit the indebtedness thereunder to vary and provide for periodic
adjustments in the interest rate.

PARTICIPATION CERTIFICATES. The instruments that may be purchased by the
Portfolio include participation certificates issued by a bank, insurance
company or other financial institution in obligations owned by such
institutions or affiliated organizations that may otherwise be purchased by the
Portfolio. A participation certificate gives the Portfolio an undivided
interest in the underlying obligations in the proportion that the Portfolio's
interest bears to the total principal amount of such obligations. Certain of
such participation certificates may carry a demand feature that would permit
the holder to tender them back to the issuer or to a third party prior to
maturity.

VARIABLE RATE AUCTION SECURITIES AND INVERSE FLOATERS. The National
Municipal Bond Fund may invest in variable rate auction securities and inverse
floaters which are instruments created when an issuer or dealer separates the
principal portion of a long-term, fixed-rate municipal bond into two long-term,
variable-rate instruments. The interest rate on the variable rate auction
portion reflects short-term interest rates, while the interest rate on the
inverse floater portion is typically higher than the rate available on the
original fixed-rate bond. Changes in the interest rate paid on the portion of
the issue relative to short-term interest rates inversely affect the interest
rate paid on the latter portion of the issue. The latter portion therefore is
subject to greater price volatility than the original fixed-rate bond. Since
the market for these instruments is new, the holder of one portion may have
difficulty finding a ready purchaser. Depending on market availability, the
two portions may be recombined to form a fixed-rate municipal bond.

USE OF HEDGING AND OTHER STRATEGIC TRANSACTIONS

The National Municipal Bond Fund is currently authorized to use only
certain of the various investment strategies referred to under "RISK FACTORS --
Hedging and Other Strategic Transactions." Specifically, the Portfolio may
purchase or sell futures contracts on (a) debt securities that are backed by
the full faith and credit of the U.S. Government, such as long-term U.S.
Treasury Bonds and Treasury Notes and (b) municipal bond indices. Currently,
at least one exchange trades futures contracts on an index of long-term
municipal bonds, and the Portfolio reserves the right to conduct futures
transactions based on an index which may be developed in the future to
correlate with

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<PAGE> 47
price movements in municipal obligations. It is not presently
anticipated that any of these strategies will be used to a significant degree
by the Portfolio. The Statement of Additional Information contains a
description of these strategies and of certain risks associated therewith.

MONEY MARKET FUND

The investment objective of the Money Market Fund is to obtain maximum
current income consistent with preservation of principal and liquidity as is
available from short-term investments. Wellington Management manages the
Money Market Fund and seeks to achieve this objective by investing in high
quality, U.S. dollar-denominated money market instruments of the following
types:

(1) obligations issued or guaranteed as to principal or interest by the
U.S. Government, or any agency or authority controlled or supervised by and
acting as an instrumentality of the U.S. Government pursuant to authority
granted by Congress (hereinafter "U.S. Government securities");

(2) certificates of deposit, bank notes, time deposits, Eurodollars,
Yankee obligations and bankers' acceptances of U.S. banks, foreign branches of
U.S. banks, foreign banks and U.S. savings and loan associations which at the
date of investment have capital, surplus and undivided profits as of the date
of their most recent published financial statements in excess of $100,000,000
(or less than $100,000,000 if the principal amount of such bank obligations is
insured by the Federal Deposit Insurance Corporation or the Savings Association
Insurance Fund);

(3) commercial paper which at the date of investment is rated (or
guaranteed by a company whose commercial paper is rated) within the two highest
rating categories by any nationally recognized statistical rating organization
("NRSRO") (such as "P-1" or "P-2" by Moody's or "A-1" or "A-2" by S&P) or, if
not rated, is issued by a company which Wellington Management, acting pursuant
to guidelines established by the Trustees, has determined to be of minimal
credit risk and comparable quality;

(4) corporate obligations maturing in 397 days or less which at
the date of investment are rated within the two highest rating categories by
any NRSRO (such as "Aa" or higher by Moody's or "AA" or higher by S&P);

(5) Short-term obligations issued by state and local governmental
issuers;

(6) obligations of foreign governments, including Canadian and
Provincial Government and Crown Agency Obligations;

(7) securities that have been structured to be eligible money market
instruments such as participation interests in special purpose trusts that meet
the quality and maturity requirements in whole or in part due to arrangements
for credit enhancement or for shortening effective maturity; and

(8) repurchase agreements with respect to any of the foregoing
obligations (without limitation).

Commercial paper may include variable amount master demand notes, which
are obligations that permit investment of fluctuating amounts at varying rates
of interest. Such notes are direct lending arrangements between the Money
Market Fund and the note issuer, and Wellington Management will monitor the
creditworthiness of the issuer and its earning power and cash flow, and will
also consider situations in which all holders of such notes would redeem at the
same time. Variable amount master demand notes are redeemable on demand.

The Money Market Fund will invest only in U.S. dollar-denominated
instruments. All of the Money Market Fund's investments will mature in 397
days or less and the Portfolio will maintain a dollar-weighted average
portfolio maturity of 90 days or less. By limiting the maturity of its
investments, the Money Market Fund seeks to lessen the changes in the value of
its assets caused by fluctuations in short-term interest rates. Due to the
short maturities of its investments, the Money Market Fund will tend to have a
lower yield than, and the value of its underlying investments will be less
volatile than the investments of, portfolios that invest in longer-term
securities. In addition, the Money Market Fund will invest only in securities
the Trustees determine to present minimal credit risks and which at the time of
purchase are "eligible securities" as defined by Rule 2a-7 under the 1940 Act.
Generally, eligible securities must be rated by a NRSRO in one of the two
highest rating categories for short-term debt obligations or be of comparable
quality. The Money Market Fund also intends to maintain a stable per share net
asset value of $1.00, although there is no assurance that it will be able to do
so.

The Money Market Fund will be subject to certain risks as a result of its
ability to invest up to 20% of its assets in foreign securities. These risks
are described under the caption "RISK FACTORS -- Foreign Securities" in this
Prospectus.

USE OF HEDGING AND OTHER STRATEGIC TRANSACTIONS. The Money Market Fund is
not authorized to use any of the various investment strategies referred to
under "RISK FACTORS --Hedging and Other Strategic Transactions."
____________________________

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The portfolio turnover rate of each of the Fund's Portfolios may vary from
year to year, as well as within a year. Higher portfolio turnover rates can
result in corresponding increases in portfolio transaction costs for a
Portfolio. See "PORTFOLIO TURNOVER" in the Statement of Additional
Information.

The ability of the U.S. Government Securities Fund to provide a high level
of current income and the ability of the Money Market Fund to obtain maximum
current income is restrained because that Portfolio invests predominantly in
U.S. Government bonds; debt obligations and mortgage-backed securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities; and
U.S. dollar-denominated money market instruments, respectively.

RISK FACTORS

INVESTMENT RESTRICTIONS GENERALLY

The Fund is subject to a number of restrictions in pursuing its investment
objectives and policies. Such restrictions generally serve to limit investment
practices that may subject the Fund to investment and market risk. The
following is a brief summary of certain restrictions that may be of interest to
investors. Some of these restrictions are subject to exceptions not stated
here. Such exceptions and a complete list of the investment restrictions
applicable to the individual Portfolios and to the Fund are set forth in the
Statement of Additional Information under the caption "INVESTMENT
RESTRICTIONS."

Except for the restrictions specifically identified as fundamental, all
investment restrictions described in this Prospectus and in the Statement of
Additional Information are not fundamental, so that the Trustees of the Fund
may change them without shareholder approval. Fundamental policies may not be
changed without the affirmative vote of a majority of the outstanding voting
securities.

Fundamental policies applicable to all Portfolios include prohibitions
on (i) investing more than 25% of the total assets of any Portfolio in the
securities of issuers having their principal activities in any particular
industry (with exceptions for U.S. Government securities and, with respect to
the Money Market Fund, obligations of domestic branches of U.S. banks, and with
respect to the National Municipal Bond Fund, obligations issued or guaranteed
by any state or territory, and possession of the United States, the District of
Columbia, or any of their authorities, agencies, instrumentalities or political
subdivisions) (for purposes of this restriction, supranational issuers will be
considered to comprise an industry as will each foreign government that issues
securities purchased by a Portfolio); (ii) borrowing money, except for
temporary or emergency purposes (but not for leveraging) and then not in
excess of 33 1/3% of the value of the total assets of the Portfolio at
the time the borrowing is made (as a nonfundamental investment policy, a
Portfolio will not purchase additional securities at any time its
borrowings exceed 5% of total assets) and except in connection with reverse
repurchase agreements, mortgage dollar rolls and other similar transactions,
and (iii) purchasing securities of any issuer if the purchase would cause
more than 5% of the value of a Portfolio's total assets to be invested in the
securities of any one issuer (excluding U.S. Government securities and bank
obligations) or cause more than 10% of the voting securities of the issuer to
be held by a Portfolio, except that up to 25% of the value of each Portfolio's
total assets (except the Money Market Fund) may be invested without regard to
this restriction.

Restrictions that apply to all Portfolios and that are not fundamental
include prohibitions on (i) knowingly investing more than 10% of the net assets
of any Portfolio in "illiquid" securities (including repurchase agreements
maturing in more than seven days but excluding master demand notes), (ii)
pledging, hypothecating, mortgaging or transferring more than 10% of the total
assets of any Portfolio as security for indebtedness, and (iii) purchasing
securities of other investment companies, other than in connection with a
merger, consolidation or reorganization, if the purchase would cause more than
10% of the value of a Portfolio's total assets to be invested in investment
company securities.

Finally, the Money Market Fund is subject to certain restrictions required
by Rule 2a-7 under the 1940 Act. In order to comply with such restrictions,
the Money Market Fund will, among other things, not purchase the securities of
any issuer if it would cause (i) more than 5% of its total assets to be
invested in the securities of any one issuer (excluding U.S. Government
securities and repurchase agreements fully collateralized by U.S. Government
securities), except as permitted by Rule 2a-7 for certain securities for a
period of up to three business days after purchase, (ii) more than 5% of its
total assets to be invested in "second tier securities," as defined by Rule
2a-7, or (iii) more than the greater of $1 million or 1% of its total net
assets to be invested in the second tier securities of that issuer.

HIGH YIELD SECURITIES

GENERAL. The Strategic Income Fund may invest without limitation, and the
Investment Quality Bond Fund may invest up to 20% of its assets, in "high
yield" securities. The International Small Cap and the Growth Equity Funds
may also invest in "high yield" securities to the extent described above under
the description of each portfolio. Securities rated below investment grade
and comparable unrated securities offer yields that fluctuate over time, but
generally are superior to the yields offered by higher rated securities.

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However, securities rated below investment grade also involve greater risks
than higher rated securities. Under rating agency guidelines, medium- and
lower-rated securities and comparable unrated securities will likely have some
quality and protective characteristics that are outweighed by large
uncertainties or major risk exposures to adverse conditions. Certain of the
debt securities in which the Strategic Income and Investment Quality Bond Funds
may invest may have, or be considered comparable to securities having, the
lowest ratings for non-subordinated debt instruments assigned by Moody's or S&P
(i.e., rated C by Moody's or CCC or lower by S&P). These securities are
considered to have extremely poor prospects of ever attaining any real
investment standing, to have a current identifiable vulnerability to default,
to be unlikely to have the capacity to pay interest and repay principal when
due in the event of adverse business, financial or economic conditions, and/or
to be in default or not current in the payment of interest or principal. Such
securities are considered speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations. Accordingly, it is possible that these types of factors could, in
certain instances, reduce the value of securities held by the Strategic Income
and Investment Quality Bond Funds with a commensurate effect on the value of
the Portfolio's shares. The Strategic Income Fund may invest without
limitation in high yield debt securities, and accordingly, it should not be
considered as a complete investment program for all investors.

Because the Strategic Income and Investment Quality Bond Funds will invest
primarily in fixed-income securities, the net asset value of each Portfolio's
shares can be expected to change as general levels of interest rates fluctuate,
although the market values of securities rated below investment grade and
comparable unrated securities tend to react less to fluctuations in interest
rate levels than do those of higher-rated securities. Except to the extent
that values are affected independently by other factors such as developments
relating to a specific issuer, when interest rates decline, the value of a
fixed-income portfolio can generally be expected to rise. Conversely, when
interest rates rise, the value of a fixed-income portfolio can generally be
expected to decline.

The secondary markets for high yield corporate and sovereign debt
securities are not as liquid as the secondary markets for higher rated
securities. The secondary markets for high yield debt securities are
concentrated in relatively few market makers and participants in the market are
mostly institutional investors, including insurance companies, banks, other
financial institutions and mutual funds. In addition, the trading volume for
high yield debt securities is generally lower than that for higher-rated
securities and the secondary markets could contract under adverse market or
economic conditions independent of any specific adverse changes in the
condition of a particular issuer. These factors may have an adverse effect on
a Fund's ability to dispose of particular portfolio investments and
may limit the ability of those Portfolios to obtain accurate market quotations
for purposes of valuing securities and calculating net asset value. If a
Fund is not able to obtain precise or accurate market quotations for a
particular security, it will become more difficult for the Board of Trustees to
value such Portfolio's investment portfolio and the Fund's Trustees may have to
use a greater degree of judgment in making such valuations. Less liquid
secondary markets may also affect a Portfolio's ability to sell securities at
their fair value. In addition, each Portfolio may invest up to 10% of its net
assets, measured at the time of investment, in illiquid securities, which may
be more difficult to value and to sell at fair value. If the secondary markets
for high yield debt securities are affected by adverse economic conditions, the
proportion of a Portfolio's assets invested in illiquid securities may
increase.

CORPORATE DEBT SECURITIES. While the market values of securities rated
below investment grade and comparable unrated securities tend to react less to
fluctuations in interest rate levels than do those of higher-rated securities,
the market values of certain of these securities also tend to be more sensitive
to individual corporate developments and changes in economic conditions than
higher-rated securities. In addition, such securities generally present a
higher degree of credit risk. Issuers of these securities are often highly
leveraged and may not have more traditional methods of financing available to
them, so that their ability to service their debt obligations during an
economic downturn or during sustained periods of rising interest rates may be
impaired. The risk of loss due to default by such issuers is significantly
greater than with investment grade securities because such securities generally
are unsecured and frequently are subordinated to the prior payment of senior
indebtedness. The current economic recession has resulted in default levels in
excess of historic averages.

FOREIGN SOVEREIGN DEBT SECURITIES. Investing in foreign sovereign debt
securities will expose a Fund to the direct or indirect consequences
of political, social or economic changes in the developing and emerging
countries that issue the securities. The ability and willingness of sovereign
obligors in developing and emerging countries or the governmental authorities
that control repayment of their external debt to pay principal and interest on
such debt when due may depend on general economic and political conditions
within the relevant country. Countries such as those in which these Portfolios
may invest have historically experienced, and may continue to experience, high
rates of inflation, high interest rates, exchange rate trade difficulties and
extreme poverty and unemployment. Many of these countries are also
characterized by political uncertainty or instability. Additional factors
which may influence the ability or willingness to service debt include, but are
not limited to, a country's cash flow situation, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of its debt
service burden to the economy as a whole, and its government's policy towards
the International Monetary Fund, the World Bank and other international
agencies.

The ability of a foreign sovereign obligor to make timely payments on its
external debt obligations will also be strongly influenced by the obligor's
balance of payments, including export performance, its access to international
credits and investments, fluctuations in interest rates and the extent of its
foreign reserves. A country whose exports are concentrated in a few
commodities or whose economy depends on certain strategic imports could be
vulnerable to fluctuations in international prices of these commodities or
imports. To the extent that a

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country receives payment for its exports in currencies other than dollars, its
ability to make debt payments denominated in dollars could be adversely
affected. If a foreign sovereign obligor cannot generate sufficient earnings
from foreign trade to service its external debt, it may need to depend on
continuing loans and aid from foreign governments, commercial banks and
multilateral organizations, and inflows of foreign investment. The commitment
on the part of these foreign governments, multilateral organizations and others
to make such disbursements may be conditioned on the government's implementation
of economic reforms and/or economic performance and the timely service of its
obligations. Failure to implement such reforms, achieve such levels of economic
performance or repay principal or interest when due may result in the
cancellation of such third parties' commitments to lend funds, which may further
impair the obligor's ability or willingness to timely service its debts. The
cost of servicing external debt will also generally be adversely affected by
rising international interest rates, because many external debt obligations bear
interest at rates which are adjusted based upon international interest rates.
The ability to service external debt will also depend on the level of the
relevant government's international currency reserves and its access to foreign
exchange. Currency devaluations may affect the ability of a sovereign obligor
to obtain sufficient foreign exchange to service its external debt.

As a result of the foregoing, a governmental obligor may default on its
obligations. If such an event occurs, the Strategic Income or Investment
Quality Bond Fund may have limited legal recourse against the issuer and/or
guarantor. Remedies must, in some cases, be pursued in the courts of the
defaulting party itself, and the ability of the holder of foreign sovereign
debt securities to obtain recourse may be subject to the political climate in
the relevant country. In addition, no assurance can be given that the holders
of commercial bank debt will not contest payments to the holders of other
foreign sovereign debt obligations in the event of default under their
commercial bank loan agreements.

Sovereign obligors in developing and emerging countries are among the
world's largest debtors to commercial banks, other governments, international
financial organizations and other financial institutions. These obligors have
in the past experienced substantial difficulties in servicing their external
debt obligations, which led to defaults on certain obligations and the
restructuring of certain indebtedness. Restructuring arrangements have
included, among other things, reducing and rescheduling interest and principal
payments by negotiating new or amended credit agreements or converting
outstanding principal and unpaid interest to Brady Bonds, and obtaining new
credit to finance interest payments. Holders of certain foreign sovereign debt
securities may be requested to participate in the restructuring of such
obligations and to extend further loans to their issuers. There can be no
assurance that the Brady Bonds and other foreign sovereign debt securities in
which the Portfolios may invest will not be subject to similar restructuring
arrangements or to requests for new credit which may adversely affect a
Portfolio's holdings. Furthermore, certain participants in the secondary
market for such debt may be directly involved in negotiating the terms of these
arrangements and may therefore have access to information not available to
other market participants.

In addition to high yield foreign sovereign debt securities, the Strategic
Income and Investment Quality Bond Funds may also invest in investment grade
foreign securities. For a discussion of such securities and their associated
risks, see "Foreign Securities" below.

FOREIGN SECURITIES

Each of the Funds except the U.S. Government Securities and the
National Municipal Bond Fund may invest up to 20% (100% in the case of the
International Small Cap, Global Growth, International Growth and Income and
Strategic Income Funds) of its total assets in securities of foreign issuers.
(In the case of the Small/Mid Cap Fund, ADRs and U.S. dollar denominated
securities are not included in this 20% limitation.) Such foreign securities
may be denominated in foreign currencies, except with respect to the Money
Market Fund which may only invest in U.S. dollar-denominated securities
of foreign issuers. The types of foreign securities in which the Money Market
Fund may invest are set forth above under "INVESTMENT PORTFOLIOS - Money Market
Fund." The U.S. Government Securities and National Municipal Bond Fund may not
invest in foreign securities.

Securities of foreign issuers include obligations of foreign branches of U.S.
banks and of foreign banks, common and preferred stocks, debt securities issued
by foreign governments, corporations and supranational organizations, and
American Depository Receipts, European Depository Receipts and Global
Depository Receipts. ("ADRs", "EDRs" and "GDRs", respectively). ADRs are
U.S. dollar-denominated securities backed by foreign securities deposited in a
U.S. securities depository. ADRs are created for trading in the U.S. markets.
The value of an ADR will fluctuate with the value of the underlying security,
reflect any changes in exchange rates and otherwise involve risks associated
with investing in foreign securities. ADRs in which the Portfolios may invest
may be sponsored or unsponsored. There may be less information available about
foreign issuers of unsponsored ADRs. EDRs and GDRs are receipts evidencing an
arrangement with a non-U.S. bank similar to that for ADRs and are designed for
use in non-U.S. securities markets. EDRs and GDRs are not necesarily quoted in
the same currency as the underlying security. Each of the Portfolios, except for
the Global Growth and Strategic Income Funds, anticipates that its foreign
investments will consist primarily of ADRs that are regularly traded on
recognized U.S. exchanges or in the U.S. "over-the-counter" market.

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<PAGE> 51
Foreign securities may be subject to foreign government taxes which reduce
their attractiveness. See "GENERAL INFORMATION -- Taxes." In addition,
investing in securities denominated in foreign currencies and in the securities
of foreign issuers, particularly non-governmental issuers, involves risks which
are not ordinarily associated with investing in domestic issuers. These risks
include political or economic instability in the country involved and the
possibility of imposition of currency controls. Since certain Portfolios may
invest in securities denominated or quoted in currencies other than the U.S.
dollar, changes in foreign currency exchange rates may affect the value of
investments in the Portfolio and the unrealized appreciation or depreciation of
investments insofar as U.S. investors are concerned. Foreign currency exchange
rates are determined by forces of supply and demand on the foreign exchange
markets. These forces are, in turn, affected by the international balance of
payments and other economic and financial conditions, government intervention,
speculation and other factors. The Portfolios may incur transaction charges in
exchanging foreign currencies.

There may be less publicly available information about a foreign issuer
than about a domestic issuer. Foreign issuers, including foreign branches of
U.S. banks, are subject to different accounting and reporting requirements
which are generally less extensive than the requirements applicable to domestic
issuers. Foreign stock markets (other than Japan) have substantially less
volume than the U.S. exchanges and securities of foreign issuers are generally
less liquid and more volatile than those of comparable domestic issuers. These
risks are heightened in the case of emerging markets. There is frequently less
governmental regulation of exchanges, broker-dealers and issuers than in the
United States, and brokerage costs may be higher. In addition, investments in
foreign companies may be subject to the possibility of nationalization,
withholding of dividends at the source, expropriation or confiscatory taxation,
currency blockage, political or economic instability or diplomatic developments
that could adversely affect the value of those investments. Finally, in the
event of a default on any foreign obligation, it may be difficult for the Fund
to obtain or to enforce a judgment against the issuer.

Foreign markets, especially emerging markets, may have different clearance
and settlement procedures, and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when a portion of the assets of a
Portfolio is uninvested and no return is earned thereon. The inability of a
Portfolio to make intended security purchases due to settlement could cause the
Portfolio to miss attractive investment opportunities. Inability to dispose of
portfolio securities due to settlement problems could result in losses to a
Portfolio due to subsequent declines in values of the portfolio securities or,
if the Portfolio has entered into a contract to sell the security, possible
liability to the purchaser. Certain foreign markets, especially emerging
markets, may require governmental approval for the repatriation of investment
income, capital or the proceeds of sales of securities by foreign investors. A
Portfolio could be adversely affected by delays in, or a refusal to grant, any
required governmental approval for repatriation of capital, as well as by the
application to the Portfolio of any restrictions on investments.

In addition to the foreign securities listed above, the Strategic Income
and Investment Quality Bond Funds may also invest in foreign sovereign debt
securities, which involve certain additional risks. See "RISK FACTORS -- High
Yield Securities -- Foreign Sovereign Debt Securities" above.

WARRANTS

Subject to certain restrictions, each of the Portfolios except the
National Municipal Bond and Money Market Funds may purchase warrants, including
warrants traded independently of the underlying securities. It is a
non-fundamental investment restriction of each Portfolio not to purchase
warrants if as a result that Portfolio would then have more than 10% of its
total net assets invested in warrants, or if more than 5% of the value of the
Portfolio's total net assets would be invested in warrants which are not listed
on a recognized United States or foreign stock exchange, except for warrants
included in units or attached to other securities.

LENDING PORTFOLIO SECURITIES

To attempt to increase its income, each Portfolio may lend its portfolio
securities in amounts up to 33% of its total non-cash assets to brokers,
dealers and other financial institutions, provided such loans are callable at
any time by the Portfolio and are at all times fully secured by cash, cash
equivalents or securities issued or guaranteed by the U.S. government or its
agencies or instrumentalities, marked to market to the value of loaned
securities on a daily basis. As with any extensions of credit, there may be
risks of delay in recovery and in some cases even loss of rights in the
collateral should the borrower of the securities fail financially. However,
these loans of portfolio securities will only be made to firms deemed by the
Subadvisers to be creditworthy.

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WHEN-ISSUED SECURITIES ("FORWARD COMMITMENTS")

In order to help ensure the availability of suitable securities, each of
the Portfolios may purchase debt securities on a "when-issued" or on a "forward
delivery" basis, which means that the obligations will be delivered to the
Portfolio at a future date, which may be a month or more after the date of
commitment (referred to as "forward commitments"). It is expected that, under
normal circumstances, a Portfolio purchasing securities on a when-issued or
forward delivery basis will take delivery of the securities, but the Portfolio
may sell the securities before the settlement date, if such action is deemed
advisable. In general, a Portfolio does not pay for the securities or start
earning interest on them until the purchase of the obligation is scheduled to
be settled, but it does, in the meantime, record the transaction and reflect
the value each day of the securities in determining its net asset value. At
the time delivery is made, the value of when-issued or forward delivery
securities may be more or less than the transaction price, and the yields then
available in the market may be higher than those obtained in the transaction.
While awaiting delivery of the obligations purchased on such bases, a Portfolio
will establish a segregated account consisting of cash or liquid high quality
debt securities equal to the amount of the commitments to purchase when-issued
or forward delivery securities. The availability of liquid assets for this
purpose and the effect of asset segregation on a Portfolio's ability to meet
its current obligations, to honor requests for redemption and to have its
investment portfolio managed properly will limit the extent to which the
Portfolio may purchase when-issued or forward delivery securities. Except as
may be imposed by these factors, there is no limit on the percentage of a
Portfolio's total assets that may be committed to such transactions.

HEDGING AND OTHER STRATEGIC TRANSACTIONS

Individual Portfolios may be authorized to use a variety of investment
strategies described below for hedging purposes only, including hedging various
market risks (such as interest rates, currency exchange rates and broad or
specific market movements), and managing the effective maturity or duration of
debt instruments held by the Portfolio. The description in this Prospectus of
each Portfolio indicates which, if any, of these types of transactions may be
used by the Portfolio. Although these strategies are regularly used by some
investment companies and other institutional investors, it is not presently
anticipated that any of these strategies will be used to a significant degree
by any Portfolio unless otherwise specifically indicated in the description of
the Portfolio contained in this Prospectus. Limitations on the portion of a
Portfolio's assets that may be used in connection with the investment
strategies described below are set out in the Statement of Additional
Information.

Subject to the constraints described above, an individual Portfolio may
(if and to the extent so authorized) purchase and sell (or write)
exchange-listed and over-the-counter put and call options on securities, index
futures contracts, financial futures contracts and fixed-income indices and
other financial instruments, enter into financial futures contracts, enter into
interest rate transactions, and enter into currency transactions (collectively,
these transactions are referred to in this Prospectus as "Hedging and Other
Strategic Transactions"). Other Strategic Transactions are also referred to as
derivative transactions. A "derivative" is generally defined as an instrument
whose value is based upon, or derived from, some underlying index, reference
rate (e.g. interest rate or currency exchange rate, security, commodity or
other asset). Portfolio's interest rate transactions may take the form of
swaps, caps, floors and collars, and a Portfolio's currency transactions may
take the form of currency forward contracts, currency futures contracts,
currency swaps and options on currencies or currency futures contracts.

Hedging and Other Strategic Transactions may generally be used to attempt
to protect against possible changes in the market value of securities held or
to be purchased by a Portfolio resulting from securities markets or currency
exchange rate fluctuations, to protect a Portfolio's unrealized gains in the
value of its securities, to facilitate the sale of those securities for
investment purposes, to manage the effective maturity or duration of a
Portfolio's securities or to establish a position in the derivatives markets as
a temporary substitute for purchasing or selling particular securities. A
Portfolio may use any or all types of Hedging and Other Strategic Transactions
which it is authorized to use at any time; no particular strategy will dictate
the use of one type of transaction rather than another, as use of any
authorized Hedging and Other Strategic Transaction will be a function of
numerous variables, including market conditions. The ability of a Portfolio to
utilize Hedging and Other Strategic Transactions successfully will depend on,
in addition to the factors described above, the Subadviser's ability to predict
pertinent market movements, which cannot be assured. These skills are
different from those needed to select a Portfolio's securities. None of the
Portfolios is a "commodity pool" (i.e., a pooled investment vehicle which
trades in commodity futures contracts and options thereon and the operator of
which is registered with the Commodity Futures Trading Commission (the
"CFTC")). Futures contracts and options on futures contracts will be
purchased, sold or entered into only for bona fide hedging to the extent
permitted by CFTC regulations. The use of certain Hedging and Other Strategic
Transactions will require that a Portfolio segregate cash, liquid high grade
debt obligations or other assets to the extent a Portfolio's obligations are
not otherwise "covered" through ownership of the underlying security, financial
instrument or currency. Risks associated with Hedging and Other Strategic
Transactions are described in "HEDGING AND OTHER STRATEGIC TRANSACTIONS -- Risk
Factors" in the Statement of Additional Information. A detailed discussion of
various Hedging and Other Strategic Transactions, including applicable
regulations of the CFTC and the requirement to segregate assets with respect to
these transactions, also appears in the Statement of Additional Information.

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ILLIQUID SECURITIES

Each of the Portfolios is precluded from investing in excess of 10% of its
net assets in securities that are not readily marketable. Excluded from the
10% limitation are securities that are restricted as to resale but for which a
ready market is available pursuant to exemption provided by Rule 144A adopted
under the Securities Act of 1933, as amended (the "1933 Act") or other
exemptions from the registration requirements of the 1933 Act. Whether
securities sold pursuant to Rule 144A are readily marketable for purposes of
the Fund's investment restriction is a determination to be made by the
Subadvisers, subject to the Trustees' oversight and for which the Trustees are
ultimately responsible. The Subadvisers will also monitor the liquidity of
Rule 144A securities held by the Portfolios for which they are responsible. To
the extent Rule 144A securities held by a Portfolio should become illiquid
because of a lack of interest on the part of qualified institutional investors,
the overall liquidity of the Portfolio could be adversely affected. In
addition, the Money Market Fund may invest in commercial paper issued in
reliance on the exemption from registration afforded by Section 4(2) of the
1933 Act. Section 4(2) commercial paper is restricted as to the disposition
under federal securities law, and is generally sold to institutional investors,
such as the Fund, who agree that they are purchasing the paper for investment
purposes and not with a view to public distribution. Any resale by the
purchaser must be made in an exempt transaction. Section 4(2) commercial paper
is normally resold to other institutional investors like the Money Market Fund
through or with the assistance of the issuer or investment dealers who make a
market in Section 4(2) commercial paper, thus providing liquidity. The Money
Market Fund's subadviser believes that Section 4(2) commercial paper meets its
criteria for liquidity and is quite liquid. The Money Market Fund intends,
therefore, to treat Section 4(2) commercial paper as liquid and not subject to
the investment limitation applicable to illiquid securities. The Money Market
Fund's subadviser will monitor the liquidity of Section 4(2) commercial paper
held by the Money Market Fund, subject to the Trustees' oversight and for which
the Trustees are ultimately responsible.

REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS

Each of the Fund's Portfolios may enter into repurchase agreements and
reverse repurchase agreements. Repurchase agreements involve the acquisition by
a Portfolio of debt securities subject to an agreement to resell them at an
agreed-upon price. Under a repurchase agreement, at the time the Portfolio
acquires a security, it agrees to resell it to the original seller (a financial
institution or broker/dealer which meets the guidelines established by the
Trustees) and must deliver the security (and/or securities that may be added to
or substituted for it under the repurchase agreement) to the original seller on
an agreed-upon date in the future. The repurchase price is in excess of the
purchase price. The arrangement is in economic effect a loan collateralized by
securities.

The Trustees have adopted procedures that establish certain
creditworthiness, asset and collateralization requirements for the
counterparties to a Portfolio's repurchase agreements. The Trustees will
regularly monitor the use of repurchase agreements and the Subadvisers will,
pursuant to procedures adopted by the Trustees, continuously monitor the amount
of collateral held with respect to a repurchase transaction so that it equals
or exceeds the amount of the obligation.

A Portfolio's risk in a repurchase transaction is limited to the ability
of the seller to pay the agreed-upon sum on the delivery date. In the event of
bankruptcy or other default by the seller, there may be possible delays and
expenses in liquidating the instrument purchased, decline in its value and loss
of interest. Securities subject to repurchase agreements will be valued every
business day and additional collateral will be requested if necessary so that
the value of the collateral is at least equal to the value of the repurchase
obligation, including the interest accrued thereon.

Each Portfolio of the Fund may enter into "reverse" repurchase agreements.
Under a reverse repurchase agreement, a Portfolio may sell a debt security and
agree to repurchase it at an agreed upon time and at an agreed upon price. The
Portfolio retains record ownership of the security and the right to receive
interest and principal payments thereon. At an agreed upon future date, the
Portfolio repurchases the security by remitting the proceeds previously
received, plus interest. The difference between the amount the Portfolio
receives for the security and the amount it pays on repurchase is deemed to be
payment of interest. The Portfolio will maintain in a segregated custodial
account cash, Treasury bills or other U.S. Government securities having an
aggregate value equal to the amount of such commitment to repurchase including
accrued interest, until payment is made. In certain types of agreements, there
is no agreed-upon repurchase date and interest payments are calculated daily,
often based on the prevailing overnight repurchase rate.

Mortgage Dollar Rolls

46
<PAGE> 54

Each Portfolio of the Fund (except the Money Market Fund) may enter into
mortgage dollar rolls. Under a mortgage dollar roll, a Portfolio sells
mortgage-backed securities for delivery in the future (generally within 30
days) and simultaneously contracts to repurchase substantially similar (same
type, coupon and maturity) securities on a specified future date. During the
roll period, the Portfolio forgoes principal and interest paid on the
mortgage-backed securities. A Portfolio is compensated by the difference
between the current sale price and the lower forward price for the future
purchase (often referred to as the "drop") as well as by the interest earned on
the cash proceeds of the initial sale. A Portfolio may also be compensated by
receipt of a commitment fee. A Portfolio may only enter into covered rolls. A
"covered roll" is a specific type of dollar roll for which there is an
offsetting cash or cash equivalent security position which matures on or before
the forward settlement date of the dollar roll transaction. Dollar roll
transactions involve the risk that the market value of the securities sold by
the portfolio may decline below the repurchase price of those securities.

MANAGEMENT OF THE FUND

Under Massachusetts law and the Fund's Declaration of Trust and By-Laws,
the business and affairs of the Fund are managed under the direction of the
Trustees.

ADVISORY ARRANGEMENTS

NASL Financial Services, Inc., ("NASL Financial" or, in its capacity as
investment adviser to the Fund, the "Adviser"), a Massachusetts corporation
whose principal offices are located at 116 Huntington Avenue, Boston,
Massachusetts 02116, is the investment adviser to the Fund. NASL Financial
is a wholly-owned subsidiary of North American Security Life Insurance Company
("Security Life"), a Delaware stock life insurance company the controlling
ultimate parent of which is The Manufacturers Life Insurance Company
("Manulife"), a Canadian mutual life insurance company based in Toronto,
Canada. Prior to January 1, 1996, Security Life was a wholly owned
subsidiary of North American Life Assurance Company ("NAL"), a Canadian mutual
life insurance company. On January 1, 1996 NAL and Manulife merged with the
combined company retaining the name Manulife.

Pursuant to its Advisory Agreement with the Fund (the "Advisory
Agreement"), the Adviser oversees the administration of all aspects of the
business and affairs of the Fund; selects, contracts with and compensates
subadvisers to manage the assets of the Fund's Portfolios; and reimburses the
Fund if the total of certain expenses allocated to any Portfolio exceeds
certain limitations. The Adviser serves as investment adviser to one other
investment company, NASL Series Trust. NASL Series Trust is a mutual fund that
serves as the underlying investment medium for variable annuity contracts
issued by Security Life and its wholly-owned subsidiary, First North American
Life Assurance Company. At January 31, 1996, NASL Series Trust
had assets of approximately $---- billion.

Under the terms of the Advisory Agreement, the Adviser selects, contracts
with and compensates subadvisers to manage the investment and reinvestment of
the assets of the Portfolios of the Fund. The Adviser monitors the compliance
of such subadvisers with the investment objectives and related policies of each
Portfolio and reviews the performance of such subadvisers and reports
periodically on such performance to the Trustees.

The Adviser oversees all aspects of the Fund's business and affairs. In
that connection, the Adviser permits its directors, officers and employees to
serve as Trustees or President, Vice President, Treasurer or Secretary of the
Fund, without cost to the Fund. The Adviser also provides certain services,
and the personnel to perform such services, to the Fund for which the Fund
reimburses the Adviser's costs of providing such services and personnel. Such
services include maintaining certain records of the Fund and performing all
administrative, financial, accounting, bookkeeping and recordkeeping functions
of the Fund, except for any of those functions performed by the Fund's
custodian or transfer and shareholder servicing agents. The reimbursement paid
by the Fund to the Adviser for personnel costs include employee compensation
and allocated portions of the Adviser's related personnel expenses of office
space, utilities, office equipment and miscellaneous office expenses.

The Adviser has agreed to reduce a Portfolio's advisory fee, or if
necessary to reimburse the Fund, in order to prevent the expenses of a Portfolio
from exceeding either the most restrictive expense limitation imposed by
applicable state law or a fixed expense limitation contained in the Advisory
Agreement, whichever results in the lowest expenses to the Fund. The fixed
limitation may be terminated by the Adviser at any time on 30 days' written
notice. The most restrictive state law provision limits a Portfolio's annual
expenses, excluding taxes, portfolio brokerage commissions, interest, certain
litigation and indemnification expenses, extraordinary expenses and a portion of
the Portfolio's distribution fees, to 2.5% of the first $30,000,000 of the
average net assets of the Portfolio, 2.0% of the next $70,000,000 and 1.5% of
the remaining average net assets of the Portfolio. The fixed limitation
contained in the Advisory Agreement, and as of the date of this Prospectus the
operative limitation on the Fund's expenses, limits a Portfolio's annual
expenses, excluding taxes, portfolio brokerage commissions, interest, certain
litigation and indemnification expenses, extraordinary expenses and all of the
Portfolio's distribution fees as a percentage of average net assets to 1.325%
for the Small/Mid Cap

47
<PAGE> 55

Fund, 1.55% for the International Small Cap Fund, 1.30% for the Growth Equity
Fund, 1.40% for the Global Growth and the International Growth and Income
Funds, .99% for the Value Equity, Growth and Income and Asset Allocation Funds,
1.15% for the Strategic Income Fund, .90% for the Investment Quality Bond and
U.S. Government Securities Funds, 0.85% for the National Municipal Bond Fund
and .50% for the Money Market Fund.

As compensation for its services, the Adviser receives a fee from the Fund
computed separately for each Portfolio. The fee for each Portfolio is stated
as an annual percentage of the current value of the net assets of the
Portfolio. The fee, which is accrued daily and payable monthly, is calculated
for each day by multiplying the fraction of one over the number of calendar
days in the year by the annual percentage prescribed for a Portfolio, and
multiplying this product by the value of the net assets of the Portfolio at the
close of business on the previous business day of the Fund. The following is a
schedule of the management fees each Portfolio currently is obligated to pay
the Adviser under the Advisory Agreement (prior to the application of any fee
waivers):

BETWEEN BETWEEN
$50,000,000 $200,000,000
FIRST AND AND EXCESS OVER
FUNDS $50,000,000 $200,000,000 $500,000,000 $500,000,000
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Small/Mid Cap Fund ........... .925% .900% .875% .850%
International Small Cap Fund .. 1.05% 1.00% .900% .800%
Growth Equity Fund ............ .900% .850% .825% .800%
Global Growth Fund ............ .900% .900% .700% .700%
Value Equity Fund ............. .725% .675% .625% .550%

Growth and Income Fund ........ .725% .675% .625% .550%
International Growth and
Income Fund .................. .900% .850% .800% .750%
Asset Allocation Fund ......... .725% .675% .625% .550%
Strategic Income Fund ......... .750% .700% .650% .600%
Investment Quality Bond Fund .. .600% .600% .525% .475%
U.S. Government
Securities Fund .............. .600% .600% .525% .475%
National Municipal Bond Fund .. .600% .600% .600% .600%
Money Market Fund ............. .200% .200% .200% .145%
</TABLE>
[/R]

As of March 16, 1993, August 1, 1994 and November 23, 1992,
respectively, the Value Equity, Growth and Income and Asset Allocation Funds
reached sufficient size to realize a reduction in the fee as a percent of excess
net assets. The fees paid by the Global Growth, International Growth and Income
and Strategic Income Funds are higher than the fees paid by many funds to their
advisers, but are not higher than the fees paid by many funds with similar
investment objectives and policies.

A more comprehensive statement of the terms of the Advisory Agreement
appears in the Statement of Additional Information and this agreement is on
file with and is available from the Commission.

SUBADVISORY ARRANGEMENTS

Investment decisions for the Global Growth Fund are made by its
Subadviser, Oechsle International Advisors, L.P. ("Oechsle International").
Oechsle International, founded in 1986, is a Delaware limited partnership whose
principal offices are located at One International Place, Boston, Massachusetts
02110. Oechsle International, which also has offices in London, England,
Frankfurt, Germany and Tokyo, Japan, as of January 31, 1996,
managed approximately $____ billion for institutional and private
investors. Oechsle International is a money manager providing management and
advisory services with respect to all primary international securities markets.
Each year Oechsle International's investment professionals concentrate on 25
different countries, averaging 600 visits to companies annually.

Steven H. Schaefer has been primarily responsible for the day-to-day
management of the Global Growth Fund since August 1989 and since 1991 Stephen
J. Butters has shared this responsibility. Messrs. Schaefer and Butters are
also portfolio subadvisers to NASL Series Trust's Global Equity Trust.

Mr. Schaefer has been a General Partner and Portfolio Manager at Oechsle
International and Managing Director for the firm's London subsidiary since
1986.
48
<PAGE> 56
Mr. Butters works in the U.S. Equity management sector of Oechsle
International. Prior to joining Oechsle International in 1991, Mr. Butters
worked at the Putnam Management Company as Senior Vice President and Portfolio
Manager from 1982 to 1988. He also founded his own firm, Butters Lyons, in
1988 where he provided investment management services to individuals and small
business corporations.

Investment decisions for the Value Equity and Asset Allocation
Funds are made by their Subadviser, Goldman Sachs Asset Management ("GSAM").
The main business address of GSAM is One New York Plaza, New York, New York
10004. GSAM also has offices in London, Tokyo, Singapore, and
Sydney. GSAM is a separate operating division of Goldman, Sachs & Co. Goldman,
Sachs & Co., located at 85 Broad Street, New York, New York 10004, was
registered as an investment adviser in 1981 and together with its affiliates
currently acts as an investment adviser, administrator or distributor to 80
mutual fund portfolios. As of January 31, 1996, GSAM and its
affiliates managed assets in excess of $__ billion; with domestic mutual
fund assets in excess of $__ billion and offshore mutual fund assets in
excess of $2 billion for over 16 thousand individual and institutional
accounts. Goldman, Sachs & Co. was founded in 1869, has 32 offices worldwide,
employs approximately 8,900 individuals and is one of the leading worldwide
investment banking and brokerage organizations and provides a broad range of
financing and investing services both in the U.S. and abroad. GSAM has access
to the resources of Goldman, Sachs & Co. including its staff of approximately
375 research professionals that cover more than 1,600 companies in over 60
industries.

Mitchell E. Cantor and Paul D. Farrell are primarily
responsible for the day-to-day management of the Value Equity Fund.
Mr. Cantor, Jonathan Beinner, Richard Lucy, Theodore Sotir, and Kaysie
P. Uniacke are primarily responsible for the day-to-day management of the Asset
Allocation Fund.

Mitchell Cantor is a vice president and senior portfolio manager for the
Value Equity Fund as well as NASL Series Trust's Value Equity Trust.
Mr. Cantor is also a vice president and senior equity portfolio manager for the
Asset Allocation Fund. Mr. Cantor joined Goldman Sachs Asset Management in
1991. Before joining GSAM, he was a senior partner at Sanford C. Bernstein &
Co. where he served as Research Director for the Investment Management
Division. Mr. Cantor was at Sanford C. Bernstein & Co. from August 1983 to
October 1991.

Jonathan Beinner is a vice president and senior fixed income portfolio
manager for the Asset Allocation Fund. Mr. Beinner joined GSAM is
1990 after working in the training and arbitrage group of Franklin Savings
Assocation since 1988.

Richard Lucy is a vice president and senior fixed income portfolio manager
for the Asset Allocation Fund. Mr. Lucy joined GSAM in 1992 after spending
nine years managing fixed income assets at Brown Brothers Harriman & Co.

Paul Farrell is a vice president and senior portfolio manager for the
Value Equity Fund as well as NASL Series Trust's Value Equity Trust.
Before joining GSAM in 1991, Mr. Farrell served as a managing director at Plaza
Investments, the investment subsidiary of GEICO Corp., a major insurance
company, from February 1991 to August 1991. Mr. Farrell was previously
employed in the Investment Research Department at Goldman Sachs from June 1986
to February 1991. Mr. Farrell is a Certified Financial Analyst as well.

Kaysie Uniacke is a vice president and senior fixed income portfolio
manager for the money market portion of the Asset Allocation Portfolio. Ms.
Uniacke has been with Goldman Sachs since 1983.

Theodore Sotir is a vice president and senior fixed income portfolio
manager for the Asset Allocation Portfolio. Before joining GSAM in 1993, he
was a portfolio manager at Fidelity Management Trust Company from January 1992
to February 1993. Prior to joining Fidelity, Mr. Sotir worked for Goldman
Sachs for six years and was a vice president in the Mortgage Securities
Department.

Wellington Management Company ("Wellington Management"), the Subadviser
to the Growth and Income, Investment Quality Bond and Money Market Funds,
founded in 1933, is a Massachusetts partnership whose principal business
address is 75 State Street, Boston, Massachusetts 02109. Wellington Management
is a professional investment counseling firm which provides investment services
to investment companies, employee benefit plans, endowments, foundations and
other institutions and individuals. As of January 31, 1996,
Wellington Management had investment management authority with
respect to approximately $__ billion of assets. The managing partners of
Wellington Management are Robert W. Doran, Duncan M. McFarland, and John B.
Neff.

<PAGE> 57
Matthew E. Megargel, Senior Vice President of Wellington Management, has
served as portfolio manager to the Growth and Income Fund since February 1992.
Mr. Megargel also serves as the portfolio manager for NASL Series Trust's
Growth and Income Trust. Mr. Megargel joined Wellington Management in 1983 as a
research analyst and took on additional responsibilities as a portfolio manager
in 1988. In 1991, he became solely a portfolio manager with Wellington
Management.

Thomas L. Pappas, Vice President of Wellington Management, has served as
portfolio manager to the Investment Quality Bond Fund since March 1994. Mr.
Pappas also serves as portfolio manager for NASL Series Trust's Investment
Quality Bond Trust. Mr. Pappas has been a portfolio manager with Wellington
Management since 1987.

John C. Keogh, Senior Vice President of Wellington Management, serves as
portfolio manager to the Money Market Fund. He has served as portfolio manager
to the Money Market Fund since December 1991, when Wellington Management became
sub-adviser to the Money Market Fund. Mr. Keogh also serves as portfolio
manager for NASL Series Trust's Money Market Trust. Mr. Keogh has been a
portfolio manager with Wellington Management since 1983.

J.P. Morgan Investment Management, Inc. ("J.P. Morgan") is the
Subadviser to the International Growth and Income Fund. J.P. Morgan, with
principal offices at 522 Fifth Avenue, New York, New York 10036, is a
wholly-owned subsidiary of J.P. Morgan & Co. Incorporated ("J.P. Morgan &
Co."), a bank holding company organized under the laws of Delaware which is
located at 60 Wall Street, New York, New York 10260. Through offices in New
York City and abroad, J.P. Morgan & Co., through J.P. Morgan and other
subsidiaries, offers a wide range of services to governmental, institutional,
corporate and individual customers and acts as investment adviser to individual
and institutional clients with combined assets under management of over $168
$___ billion (of which J.P. Morgan advises over $___ billion) as of January 31,
1996. J.P. Morgan has managed international securities for institutional
investors since 1974. As of January 31, 1996, the non-U.S. securities under
J.P. Morgan's management was approximately $___ billion. J.P. Morgan provides
investment advice and portfolio management services to the Portfolio. Subject
to the supervision of the Fund's Trustees, J.P. Morgan makes the Portfolio's
day-to-day investment decisions, arranges for the execution of portfolio
transactions and generally manages the Portfolio's investments.

J.P. Morgan uses a sophisticated, disciplined, collaborative process for
managing the Portfolio. The following persons are primarily responsible for
the day-to-day management and implementation of J.P. Morgan's process for the
Portfolio (their business experience for the past 5 years is indicated
parenthetically): Paul A. Quinsee, Vice President (employed by J.P. Morgan
since February 1992, previously Vice President, Citibank), and Gareth A.
Fielding, Assistant Vice President (employed by J.P. Morgan since February
1992, previously he received his MBA from Imperial College at London
University, while he was a self-employed trader on the London International
Financial Futures Exchange.

Mr. Quinsee is primarily responsible for the day-to-day management of
eleven other institutional and investment company accounts that invest in
international securities constituting approximately $__ billion of
assets. Since July 1994, Mr. Fielding has been responsible for the day-to-day
management (in some cases with another person) of 15 institutional and
investment company portfolios that invest primarily in international fixed
income securities, constituting approximately $__ billion of assets. Mr.
Fielding is a specialist in mortgage and asset-backed securities. Prior to
July 1994, Mr. Fielding traded global fixed income products on J.P. Morgan's
London trading desk.

Salomon Brothers Asset Management Inc ("SBAM"), the Subadviser to the
Strategic Income, U.S. Government Securities and National Municipal Bond Funds,
is an indirect, wholly-owned subsidiary of Salomon Brothers Holding Company
Inc. ("SBHC"), which is in turn wholly owned by Salomon Inc. The business
address of SBAM, SBHC and Salomon Inc. is 7 World Trade Center, New York, New
York 10048. SBAM was incorporated in 1987 and together with its affiliates in
Tokyo, Frankfurt, London and Hong Kong, provides a full range of fixed income
and equity investment advisory services to individuals and institutional
clients throughout the world, and serves as investment adviser to various
investment companies. As of January 31, 1996, SBAM and its
advisory affiliates had approximately $12 billion in assets under management.
SBAM has access to Salomon Brothers Inc's more than 250 economists, mortgage,
bond, sovereign, and equity analysts.

In connection with SBAM's service as subadviser to the Strategic Income
Fund, Salomon Brothers Asset Management Limited ("SBAM Limited"),
whose business address is Victoria Plaza, 111 Buckingham Palace Road, London
SW1W OSB, England, provides certain subadvisory services to SBAM relating to
currency transactions and investments in non-dollar denominated debt securities
for the benefit of the Strategic Income Fund. SBAM Limited is compensated by
SBAM at no additional expense to the Fund. Like SBAM, SBAM Limited is an
indirect, wholly-owned subsidiary of Salomon Brothers Holding Company Inc.
SBAM Limited is a member of the Investment Management Regulatory Organization
Limited in the United Kingdom and is registered as an investment adviser in the
United States pursuant to the Investment Advisers Act of 1940, as amended.

50
<PAGE> 58
Steven Guterman has been primarily responsible for the day-to-day
management of the mortgage-backed securities and U.S. government securities
portions of the Strategic Income Fund since November 1993 and the U.S.
Government Securities Fund since December 1991. Mr. Guterman is assisted by
Roger Lavan in the management of the two foregoing portfolios. Peter J. Wilby
has been primarily responsible for the day-to-day management of the high yield
and sovereign debt portions of the Strategic Income Fund. David J. Scott is
primarily responsible for the portion of the Strategic Income Fund relating to
currency transactions and investments in non-dollar denominated debt
securities. MaryBeth Whyte is primarily responsible for the day-to-day
management of the National Municipal Bond Fund.

Mr. Guterman joined SBAM in 1990 and is a Senior Portfolio Manager,
responsible for SBAM's investment company and institutional portfolios which
invest primarily mortgage-backed securities and U.S. government issues. Mr.
Guterman also serves as portfolio manager for two offshore funds that invest in
mortgage-backed securities. In addition, Mr. Guterman serves as portfolio
manager for a number of SBAM's institutional clients. Mr. Guterman joined
Salomon Brothers Inc in 1983. He initially worked in the mortgage research
group where he became a Research Director and later traded derivative
mortgage-backed securities for Salomon Brothers Inc.

Mr. Lavan joined SBAM in 1990 and is a Portfolio Manager and Quantitative
Fixed Income Analyst. He is responsible for working with senior portfolio
managers to monitor and analyze market relationships and identify and implement
relative value transactions in SBAM's investment company and institutional
portfolios which invest in mortgage-backed securities and U.S. Government
Securities. Prior to joining SBAM, Mr. Lavan spent four years analyzing
portfolios for Salomon Brothers' Fixed Income Sales Group and Product Support
Divisions.

Mr. Wilby joined SBAM in 1989 and is Senior Portfolio Manager responsible
for SBAM's investment company and institutional portfolios which invest in high
yield non U. S. and U.S. corporate debt securities and high yield foreign
sovereign debt securities. Mr. Wilby is the portfolio manager for Global
Partners Income Fund Inc., The Emerging Markets Income Fund Inc, The Emerging
Markets Income Fund II Inc., The Emerging Markets Floating Rate Fund Inc.,
Salomon Brothers Worldwide Income Fund Inc, Salomon Brothers High Income Fund
Inc, and the foreign sovereign debt component of Salomon Brothers 2008
Worldwide Dollar Government Term Trust Inc. From 1984 to 1989, Mr. Wilby was
employed by Prudential Capital Management Group ("PCMG"). He served as
director of PCMG's credit research unit and as a corporate and sovereign credit
analyst with PCMG. Mr. Wilby later managed high yield bonds and leveraged
equities in the mutual funds and institutional portfolios of PCMG.

Prior to joining SBAM Limited in April 1994, Mr. Scott worked at J.P.
Morgan Investment Management where he was responsible for global and non-dollar
portfolios. Before joining J.P. Morgan Investment Management, Mr. Scott worked
at Mercury Asset Management where he was responsible for captive insurance
portfolios and products.

Ms. Whyte joined SBAM in July 1994 and is responsible for directing SBAM
investment policy for all municipal portfolios. Prior to joining SBAM, Ms.
Whyte was a Senior Vice President and head of the Municipal Bond Area at
Fiduciary Trust Company International. Her responsibilities included active
managing and advising portfolios with assets of approximately $__ billion.
Ms. Whyte was a member of the Fixed Income Investment Policy Committee at
Fiduciary. Ms. Whyte's previous experience includes managing portfolios for
high net worth individuals, mutual funds and pension funds while employed by
U.S. Trust Company, and Bernstein-Macaulay Inc.

Investment decisions for the Small/Mid Cap Fund are made by its
Subadviser, Fred Alger Management, Inc. ("Alger"). Alger, located at 75 Maiden
Lane, New York, New York 10038, has been in the business of providing
investment advisory services since 1964 and as of January 31, 1996 had
approximately $__ billion under management, including $__ billion in mutual
fund accounts and $ __ billion in other advisory accounts. Alger is wholly
owned by Fred Alger & Company, Incorporated which in turn is wholly owned by
Alger Associates, Inc., a financial services holding company. Fred M. Alger,
III and his brother, David D. Alger, are the majority shareholders of Alger
Associates, Inc. and may be deemed to control that company and its
subsidiaries.

David D. Alger, President of Alger Management, is primarily responsible
for the day-to-day management of the Small/Mid Cap Fund. He has been employed
by Alger as Executive Vice President and Director of Research since 1971 and as
President since 1995 and he serves as portfolio manager for other mutual funds
and investment accounts managed by Alger Management. Also participating in the
management of the Small/Mid Cap Fund are Ronald Tartaro and Seilai Khoo. Mr.
Tartaro has been employed by Alger Management since 1990 and he serves as a
senior research analyst. Prior to 1990, he was a member of the technical staff
at AT&T Bell Laboratories. Ms. Khoo has been employed by Alger Management
since 1989 and she serves as a senior vice president.

Investment decisions for the International Small Cap Fund and the Growth
Equity Fund are made by its Subadviser, Founders Asset Management, Inc.,
("Founders") located at 2930 East Third Avenue, Denver, Colorado 80206, a
registered investment adviser first established as an asset manager in 1938.
Bjorn K. Borgen, President and Director of Founders, owns 100% of the voting
stock of Founders.

51
<PAGE> 59

To facilitate the day-to-day investment management of the International
Small Cap Fund and the Growth Equity Fund, Founders employs a unique
team-and-lead-manager system. The management team is composed of several
members of the Investment Department, including Founders' chief Investment
Officer, lead portfolio managers, assistant portfolio managers, portfolio
traders and research analysts. Team members share responsibility for providing
ideas, information, knowledge and expertise in the management of each of the
portfolios. Each team member has one or more areas of expertise that is
applied to the management of the portfolios. Daily decisions on portfolio
selection for each portfolio rests with a lead portfolio manager assigned to
the portfolio.

Michael W. Gerding, Vice President of investments, is the lead
portfolio manager for the International Small Cap Fund. Mr. Gerding is a
chartered financial analyst who has been part of Founders' investment
department for five years. Mr. Gerding is the lead portfolio manager of the
International Small Cap Fund. Prior to joining Founders, Mr. Gerding served as
a portfolio manager and researach analyst with NCNB Texas for several years.
Mr. Gerding earned a BBA in finance and an MBA from Texas Christian University.

Edward F. Keely, Portfolio Manager. Mr. Keely is a chartered financial
analyst who joined Founders in 1989 and is the lead portfolio manager for the
Growth Equity Fund. A graduate of The Colorado College, Mr. Keely holds a
bachelor of arts degree in economics.

Under the terms of each of the subadvisory agreements between the
Adviser and a Subadviser (the "Subadvisory Agreements"), the Subadviser
assigned to a Portfolio manages the investment and reinvestment of the assets
of such Portfolio, subject to the supervision of the Trustees. The Subadviser
formulates a continuous investment program for such Portfolio consistent with
its investment objectives and policies outlined in this Prospectus. The
Subadviser implements such programs by purchases and sales of securities and
regularly reports to the Adviser and the Trustees with respect to their
implementation. The factors considered by the Subadvisers in allocating
brokerage among broker/dealers are described in the Statement of Additional
Information under the caption "PORTFOLIO BROKERAGE." Among the factors that
may be considered is the willingness of broker/dealers to sell shares of the
Fund.

As compensation for their services, the Subadvisers receive fees from
the Adviser computed separately for each Portfolio. The fee for each Portfolio
is stated as an annual percentage of the current value of the net assets of the
Portfolio. The fee, which is accrued daily and payable monthly, is calculated
for each day by multiplying the fraction of one over the number of calendar
days in the year by the annual percentage prescribed for a Portfolio, and
multiplying this product by the value of the net assets of the Portfolio at the
close of business on the previous business day of the Fund. Once the average
net assets of a Portfolio exceed specified amounts, the fee is reduced with
respect to the excess. Absent any applicable fee waivers, the following is a
schedule of the management fees the Adviser is obligated to pay the Subadvisers
for each Portfolio under the Subadvisory Agreements. THESE FEES ARE PAID OUT
OF THE ADVISORY FEES DESCRIBED ABOVE AND ARE NOT ADDITIONAL CHARGES TO THE
PORTFOLIOS OR THEIR SHAREHOLDERS.

<TABLE>
<CAPTION>
BETWEEN BETWEEN
$50,000,000 $200,000,000
FIRST AND AND EXCESS OVER
FUNDS $50,000,000 $200,000,000 $500,000,000 $500,000,000
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>

Small/Mid Cap Fund ............... .___% .___% .___% .___%
International Small Cap Fund ..... .___% .___% .___% .___%
Growth Equity Fund ............... .___% .___% .___% .___%

Global Growth Fund ............... .550% .550% .400% .400%

Value Equity Fund ................ .325% .275% .225% .150%

Growth and Income Fund ........... .325% .275% .225% .150%
International Growth
and Income Fund ................. .500% .450% .400% .350%
Asset Allocation Fund ............ .325% .275% .225% .150%

Strategic Income Fund** .......... .350% .300% .250% .200%

Investment Quality Bond Fund ..... .225% .225% .150% .100%
U.S. Government Securities Fund .. .225% .225% .150% .100%
National Municipal Bond Fund ..... .250% .250% .250% .250%
Money Market Fund ................ .075% .075% .075% .020%
</TABLE>

52
<PAGE> 60

** In connection with the subadvisory consulting agreement between SBAM
and SBAM Limited, SBAM will pay SBAM Limited, as full compensation for all
services provided under the subadvisory consulting agreement, a portion of its
subadvisory fee, such amount being an amount equal to the fee payable under
SBAM's subadvisory agreement multiplied by portion of the assets of the
Strategic Income Fund that SBAM Limited has been delegated to manage divided by
the current value of the net assets of the Portfolio.

A more comprehensive statement of the terms of the Subadvisory Agreements
appears in the Statement of Additional Information and these agreements are on
file with and are available from the Commission.

All or a portfion of fund brokerage commissions may be paid to affiliates
of Salomon, J.P. Morgan, Goldman, Alger and Oechsle internatioinal.
information on the amount of these commissions is set forth in the Statement of
Additional Information under "Portfolio Brokerage."

FUND EXPENSES

Subject to the expense limitations discussed above, the Fund is
responsible for the payment of all expenses of its organization, operations and
business, except for those expenses the Adviser has agreed to bear pursuant to
the Advisory Agreement or its Distribution Agreement with the Fund or the
Subadvisers have agreed to pay pursuant to the Subadvisory Agreements. Among
the expenses to be borne by the Fund, in addition to certain expenses incurred
by the Adviser as described above, are the expense of the advisory and
distribution fees; all charges and expenses relating to the transfer,
safekeeping, servicing and accounting for the Fund's property, including
charges of depositories, custodians and other agents; all expenses of
maintaining and servicing shareholder accounts, including charges of the Fund's
transfer, dividend disbursing, shareholder recordkeeping, redemption and other
agents; costs of shareholder reports and other communications to current
shareholders; the expenses of meetings of the Fund's shareholders and the
solicitation of management proxies in connection therewith; all expenses of
preparing Fund Prospectuses and Statements of Additional Information; the
expenses of determining the Portfolios' net asset value per share; the
compensation of Trustees who are not directors, officers or employees of the
Adviser and all expenses of meetings of the Trustees; all charges for services
and expenses of the Fund's legal counsel and independent auditors; all fees and
expenses of registering and qualifying, and maintaining the registration and
qualification of, the Fund and its shares under all federal and state laws
applicable to the Fund and its business activities; all expenses associated
with the issue, transfer and redemption of Fund shares; brokers' and other
charges incident to the purchase, sale or lending of the Fund's securities;
taxes and other governmental fees payable by the Fund; and any nonrecurring
expenses including litigation expenses and any expenses the Fund may incur as a
result of its obligation to indemnify its Trustees, officers and agents. All
expenses are accrued daily and deducted from total income before dividends are
paid.

GENERAL INFORMATION

NET ASSET VALUE

The net asset value of the shares of each class of each Portfolio is
calculated separately and, except as described below, is determined once daily
as of the close of regularly scheduled trading on the New York Stock Exchange
(the "Exchange"), Monday through Friday. Net asset value per share of each
class of each Portfolio (other than the Money Market Fund, as described below)
is calculated by dividing the value of the portion of the Portfolio's
securities and other assets attributable to that class, less the liabilities
attributable to that class, by the number of shares of that class outstanding.
No determination is required on (i) days on which changes in the value of such
Portfolio's securities holdings will not materially affect the current net
asset value of the shares of the Portfolio, (ii) days during which no shares of
such Portfolio are tendered for redemption and no order to purchase or sell
such shares is received by the Fund, or (iii) the following business holidays
or the days on which such holidays are observed by the Exchange: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Generally, trading in non-U.S. securities,
as well as U.S. Government securities and money market instruments, is
substantially completed each day at various times prior to the close of
regularly scheduled trading on the Exchange. The values of such securities
used in computing the net asset value of the shares of a class of a Portfolio
are generally determined as of such times. Occasionally, events which affect
the values of such securities may occur between the times at which they are
generally determined and the close of regularly scheduled trading on the
Exchange and would therefore not be reflected in the computation of a class's
net asset value. If events materially affecting the value of such securities
occur during such period, then these securities will be valued at their fair
value as determined in good faith by the Subadvisers under procedures
established and regularly reviewed by the Trustees.

Securities held by each of the Portfolios other than the Money Market
Fund, except for money market instruments with remaining maturities of 60 days
or less, are valued as follows: securities which are traded on stock exchanges
are valued at the last sales price as of the

<PAGE> 61
close of the Exchange, or lacking
any sales, at the closing bid prices. Securities traded only in the
"over-the-counter" market are valued at the last bid prices quoted by brokers
that make markets in the securities at the close of trading on the Exchange.
Securities and assets for which market quotations are not readily available or
not obtained from a pricing service are valued at fair value as determined in
good faith by the Trustees, although the actual calculations may be made by
persons acting pursuant to the direction of the Trustees. If approved by the
Trustees, the Fund may make use of a pricing service or services in determining
the net asset value of the classes of the Portfolios.

The Trustees have authorized the Portfolios to value certain debt
securities by reference to valuations obtained from pricing services which take
into account appropriate factors such as institution-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics and other market data in determining valuations of such
securities, without extensive reliance upon quoted prices, since such
valuations are believed by the Trustees to more accurately reflect the fair
value of such securities.

All instruments held by the Money Market Fund and money market instruments
with a remaining maturity of 60 days or less held by the other Portfolios are
valued on an amortized cost basis. With respect to each class of shares of the
Money Market Fund, this method of calculation facilitates maintaining a
constant net asset value of $1.00 per share. However, there can be no
assurance that the $1.00 net asset value will be maintained at all times. The
Trustees have determined that the amortized cost method of valuation fairly
reflects a market based net asset value.

DIVIDENDS AND DISTRIBUTIONS

Except for the National Municipal Bond Fund, each Portfolio's dividends
from net investment income together with distributions of short-term capital
gains (collectively "income dividends") are taxable as ordinary income to
shareholders whether paid in additional shares or in cash. Any long-term
capital gains ("capital gains distributions") distributed to shareholders are
treated as such by the shareholders, whether paid in cash or additional shares,
regardless of the length of time a shareholder has owned his or her shares.
Shareholders are provided annually with full information on dividends and
capital gains distributions for tax purposes. Shareholders may not have to pay
state or local taxes on dividends derived from interest on U.S. Government
obligations. Shareholders should consult their tax advisers regarding the
applicability of state and local taxes to dividends and distributions. Each
Portfolio will send shareholders a statement after the end of every calendar
year stating the amount of dividends derived from interest on U.S. Government
obligations.

The Small/Mid Cap, International Small Cap, Growth Equity, Global
Growth, Value Equity, and Asset Allocation Funds declare and pay any
income dividends annually; the Growth and Income and International Growth and
Income Funds declare and pay any income dividends semiannually; and the
Strategic Income, Investment Quality Bond, U.S. Government Securities, National
Municipal Bond, and Money Market Funds declare income dividends daily and pay
them monthly. See "PURCHASE OF SHARES -- General Methods of Purchasing
Shares." Each of the Portfolios, other than the Money Market Fund, declares
and pays any capital gains dividends annually. Generally, income dividends of
Portfolios other than the Strategic Income, Investment Quality Bond, U.S.
Government Securities, National Municipal Bond and Money Market Funds and
capital gains dividends of Portfolios other than the Money Market Fund paid
shortly after a purchase of shares prior to the record date, although in effect
a return of capital, will be subject to income tax.

The maximum distribution and service fees payable by the Class B shares
and Class C shares of each Portfolio (other than the Money Market Fund, which
bears no such fees) are more than the maximum fees payable by each such
Portfolio's Class A shares. In addition, certain incremental expenses which
are specifically allocable to a particular class of shares in a Portfolio are
separately allocated to that class of shares. As a result, the per share
dividend on Class B and Class C shares will generally be lower than the per
share dividend on Class A shares of a Portfolio.

For the convenience of shareholders, all income dividends and capital
gains distributions are paid in full and fractional shares of the same class of
a Portfolio on the payment date unless a shareholder has requested payment in
cash. Shareholders may elect to have dividends and distributions from a class
of a Portfolio invested in shares of the same class of another Portfolio at the
respective net asset value. See SHAREHOLDER SERVICES -- Automatic Dividend
Diversification."

TAXES

It is expected that each Portfolio of the Fund will qualify as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"). To so qualify, each Portfolio intends to distribute to
shareholders as dividends or capital gains distributions substantially all of
its net investment income and net realized capital gains, if any. The
requirements for qualification as a regulated investment company may cause a
Portfolio to restrict the degree to which it engages in short-term trading and
transactions in options and futures contracts. Qualification as a regulated
investment company relieves the Fund and each Portfolio of any liability for
federal income taxes to the extent its earnings are distributed in accordance
with applicable provisions of the Code. Each Portfolio will be subject to a 4%
nondeductible excise tax on its taxable income to the extent it does not meet
certain distribution requirements by the end of each calendar year. Each
Portfolio intends to make sufficient distributions to avoid application of this
excise tax.

<PAGE> 62
Funds investing in foreign securities or currencies may be required to pay
withholding or other taxes to foreign governments. Foreign tax withholding from
dividends and interest, if any, is generally from 10% to 35%, although lesser
and greater amounts may be incurred. The investment yield of the Portfolios
investing in foreign securities or currencies will be reduced by these foreign
taxes. Shareholders will bear the cost of any foreign taxes, but may not be
able to claim a foreign tax credit or deduction for these foreign taxes. If a
Portfolio is eligible for and makes an election to allow the shareholders of
that Portfolio to claim a foreign tax credit or deduction for these taxes for
any taxable year, the shareholders will be notified. In addition, Portfolios
investing in securities of passive foreign investment companies may be subject
to U.S. federal income taxes (and interest on such taxes) as a result of such
investments. The investment yield of the Portfolios making such investments
will be reduced by these taxes and interest. Shareholders will bear the cost of
these taxes and interest, but will not be able to claim a deduction for these
amounts.

The redemption, sale or exchange of Fund shares (including the exchange of
shares of one Portfolio for shares of another) is a taxable event and may
result in a gain or loss. Gain or loss, if any, recognized on the sale or
other disposition of shares of the Fund will be taxed as capital gain or loss
if the shares are capital assets in the shareholder's hands. Generally, a
shareholder's gain or loss will be a long-term gain or loss if the shares have
been held for more than one year. If a shareholder sells or otherwise disposes
of a share of the Fund before holding it for more than six months, any loss on
the sale or other disposition of such share shall be treated as a long-term
capital loss to the extent of any capital gain dividends received by the
shareholder with respect to such share. A loss realized on a sale or exchange
of shares may be disallowed if other shares are acquired within a 61-day period
beginning 30 days before and ending 30 days after the date that the shares are
disposed of.

Unless a shareholder of any Portfolio includes his or her taxpayer
identification number (social security number for individuals) in the
Shareholder Application and certifies that he or she is not subject to backup
withholding, the Fund is required to withhold and remit to the U.S. Treasury
31% of non-exempt distributions and other reportable payments to the
shareholder.

NATIONAL MUNICIPAL BOND FUND - TAXATION

The National Municipal Bond Fund intends to qualify and elect to be
treated as a regulated investment company under the Code. The National
Municipal Bond Fund will be subject to federal corporate income tax currently
at a 35% rate on any undistributed income other than tax-exempt income from
municipal obligations and to alternative minimum tax currently at a 20% rate on
alternative minimum taxable income, which includes interest income on certain
"private activity" obligations that is otherwise exempt from tax. The National
Municipal Bond Fund also intends to satisfy conditions under the Code that will
enable interest from municipal obligations, which is exempt from regular
federal income taxes in the hands of each Portfolio, to qualify as
"exempt-interest dividends" when distributed to such Portfolio's shareholders.
Under the Code, such dividends are exempt from regular federal income taxes.

Although exempt-interest dividends paid by the National Municipal Bond
Fund will be excluded by shareholders of the Portfolios from their gross income
for regular federal income tax purposes, under the Code all or a portion of
such dividends may be (i) a preference item for purposes of the alternative
minimum tax, (ii) a component of the "ACE" adjustment for purposes of
determining the amount of corporate alternative minimum tax or (iii) a factor
in determining the extent to which a shareholder's Social Security benefits are
taxable. Moreover, the receipt of exempt-interest dividends from each of the
Portfolios may increase a corporate shareholder's liability for environmental
taxes under Section 59A of the Code and may also affect the federal tax
liability of certain foreign corporations, S Corporations and insurance
companies. Furthermore, under the Code, interest on indebtedness incurred or
continued to purchase or carry portfolio shares, which interest is deemed to
relate to exempt-interest dividends, will not be deductible by shareholders of
the Portfolio for federal income tax purposes.

The National Municipal Bond Fund intends that substantially all dividends
and distributions it pays to its shareholders will be designated as
exempt-interest dividends and as such will be exempt from regular federal
income taxes. However, to the extent each Portfolio earns income from taxable
investments or realizes capital gains, some portion of its dividends and
distributions may not qualify as exempt-interest dividends and may be subject
to regular federal income taxes.

The exemption of exempt-interest dividend income from regular federal
income taxation does not necessarily result in similar exemptions for such
income under the income or other tax laws of state or local taxing authorities.
In general, states exempt from state income tax only that portion of any
exempt-interest dividend that is derived from interest received by a regulated
investment company on its holdings of obligations issued by that state or its
political subdivisions and instrumentalities.

A notice detailing the tax status of dividends and distributions paid by
the National Municipal Bond Fund will be mailed annually to the National
Municipal Bond Fund's shareholders. As part of this notice, the Portfolio will
report to its shareholders the percentage of interest income earned by the
Portfolio during the preceding year on tax-exempt obligations indicating, on a
state-by-state basis, the source of such income.

_______________________

<PAGE> 63
Descriptions of tax consequences set forth in this Prospectus and in the
Statement of Additional Information are intended to be a general guide.
Investors should consult their tax advisers concerning a prospective investment
in the Fund.

PERFORMANCE INFORMATION

From time to time the Fund may advertise certain information about the
performance of all classes of one or more of the Portfolios. Such performance
information may include time periods prior to the establishment of the
multi-class distribution system, as described more fully in the Statement of
Information under the caption "PERFORMANCE INFORMATION." Information about
performance of a class of shares of a Portfolio is not intended to indicate
future performance. The Fund's annual report to shareholders, which is
available without charge upon request, contains further discussions of Fund
performance.

The Fund may advertise the yield and/or total return performance for all
classes of one or more of the Portfolios in accordance with the rules of the
Commission. The National Municipal Bond Fund may also present from time to
time yield, tax-equivalent yield and standardized and nonstandardized total
return in advertisements. When yield is used in sales literature, the total
return figures will also be included. The Commission has issued rules setting
forth the uniform calculation of both yield and total return, but shareholders'
actual experience may be more or less than the figures produced by these
formulas.

Each Portfolio may include the total return for all classes of shares in
advertisements or other written material. Each such piece will include at
least the average annual total return quotations for one year, five years, ten
years (if available) and/or from the commencement of operations. Total return
is measured by comparing the value of an investment at the beginning of the
relevant period to the redemption value of the investment at the end of the
period; the calculation assumes the initial investment is made at the current
maximum net offering price, assumes immediate reinvestment of any dividends or
capital gains distributions and adjusts for the current maximum sales charge of
4.75% for Class A shares and the applicable CDSC imposed on a redemption of
Class B shares or Class C shares held for the period indicated. Yield and
total return are calculated separately for each class of a Portfolio.

Each of the Portfolios may advertise yield for all classes, accompanied by
total return. The yield will be computed by dividing the net investment income
per share earned during a recent one month period (after deducting expenses net
of reimbursements applicable to each class) by the maximum offering price
(including the maximum front end sales charge or applicable CDSC) on the last
day of the period, and annualizing the result (assuming compounding of
interest) in order to arrive at annual percentage rate. The National Municipal
Bond Fund may also present from time to time the tax-equivalent yield of all
classes. The tax-equivalent yield is calculated by determining the portion of
yield which is tax-exempt and calculating the equivalent taxable yield and
adding to such amount any fully taxable yield.

The Money Market Fund may advertise yield and effective yield for all
classes. The yield is based upon the income earned by the Portfolio over a
seven-day period and is then annualized, i.e., the income earned in the period
is assumed to be earned every seven days over a 365 day period and is stated as
a percentage of the investment. Effective yield is calculated similarly, but
when annualized the income earned by the investment is assumed to be reinvested
weekly in shares of the same class and thus compounded in the course of a 365
day period. The effective yield will be higher than the yield because of the
compounding effect of this assumed reinvestment.

All performance information may be compared with data published by Lipper
Analytical Services, Inc. or to unmanaged indices of performance, including,
but not limited to, the Dow Jones Industrial Average, Standard & Poor's 500,
Value Line Composite, Lehman Brothers Bond, Government Corporate, Corporate and
Aggregate Indices, Merrill Lynch Government & Agency and Intermediate Agency
Indices, the EAFE Index or the Morgan Stanley Capital International World
Index. In addition, during certain time periods the yield and total return of
a class and/or a Portfolio may be affected by expense waivers and/or expense
reimbursements. When so affected, the yield and total return figures will be
accompanied by a statement regarding such waiver and/or reimbursement. While
performance information may be helpful in evaluating whether a Portfolio may be
fulfilling its objective, past performance should not be regarded as
representative of future results. Yields and net asset values will fluctuate
with market conditions and the value of shares redeemed may be more or less
than their cost. The Money Market Fund operates under procedures designed to
stabilize the net asset value of all classes at $1.00 per share. The Fund will
include performance data for each class of a Portfolio in any advertisement or
information including performance data of such Portfolio. The Fund may also
utilize performance information in hypothetical illustrations provided in
narrative form.

<PAGE> 64
ORGANIZATION OF THE FUND

The Fund was organized as a Massachusetts business trust on September 28,
1988. The Value Equity, U.S. Government Securities and Money Market
Funds commenced operations on August 28, 1989 with the acquisition of
substantially all the assets of the corresponding portfolios of Hidden Strength
Funds. The Global Growth Fund became available to investors on November 7,
1990, and the Growth and Income and Investment Quality Bond Funds became
available to investors on May 1, 1991. The Asset Allocation Fund became
available July 13, 1992, following the combination of the former Conservative,
Moderate and Aggressive Asset Allocation Trusts into the Asset Allocation Fund.
The former asset allocation trusts commenced operations August 28, 1989 with
the acquisition of substantially all the assets of the corresponding portfolios
of Hidden Strength Funds. The National Municipal Bond Fund became available to
investors on June 30, 1993. The Strategic Income Fund became available to
investors on November 30, 1993. The International Growth and Income Fund
became available to investors on January 9, 1995. The Small/Mid
Cap, International Small Cap and Growth Equity Funds became available to
investors on ______.

All shares of beneficial interest, $.001 par value per share, of each
Portfolio have equal voting rights (except as described below with respect to
matters specifically affecting a class of shares) and have no pre-emptive or
conversion rights. At a meeting of the Board of Trustees held on December 16,
1993, the Trustees, including each Trustee who is not an "interested person,"
as such term is defined under the 1940 Act, unanimously approved amendments to
the Fund's Declaration of Trust to permit implementation of the Multiple
Pricing System. Shareholders of the Fund approved these amendments at a
special meeting held on February 18, 1994. The Multiple Pricing System was
implemented on April 1, 1994. An order dated February 28, 1994 was issued to
the Fund and NASL Financial by the Commission permitting the issuance and sale
of multiple classes of shares representing interests in the Fund's existing
Portfolios. Shares of each class of a Portfolio represent interests in that
Portfolio in proportion to each share's net asset value. The per share net
asset value of each class of shares in a Portfolio is calculated separately and
may differ as between classes as a result of the differences in distribution
and service fees payable by the classes and the allocation of certain
incremental class-specific expenses to the appropriate class to which such
expenses apply.

All shares of the Fund have equal voting rights and will be voted in the
aggregate, and not by series (Portfolio) or class, except where voting by
series or class is required by law or where the matter involved affects only
one series or class (for example, matters pertaining to the plan of
distribution relating to Class A shares will only be voted on by Class A
shares). Matters required by the 1940 Act to be voted upon by each affected
series include changes to (i) the Advisory Agreement, (ii) a Subadvisory
Agreement and (iii) fundamental investment objectives and policies. The Fund
is not generally required to hold annual meetings of shareholders. However, the
Trustees may call special meetings of shareholders for action by shareholder
vote as may be requested in writing by the holders of 25% or more of the
outstanding shares of the Fund (10% in the case of a meeting requested for the
purpose of removing a Trustee) or as may be required by applicable laws.
Shareholders seeking to call a meeting for the purpose of removing a Trustee
will be assisted by the Fund in communicating with other shareholders, provided
the shareholders seeking to call a meeting are at least ten in number, have
been shareholders for at least six months and hold in the aggregate at least
one percent of the outstanding shares or shares having a value of at least
$25,000, whichever is less. Also, Trustees may be removed by action of the
holders of two-thirds or more of the outstanding shares of the Fund. The
Trustees are authorized to create additional series and classes of shares at
any time without approval by shareholders.

Under Massachusetts law, shareholders of a business trust may, in certain
circumstances, be held personally liable as partners for the obligations of the
Fund. However, the Declaration of Trust pursuant to which the Fund was
organized contains an express disclaimer of shareholder liability for acts or
obligations of each Portfolio of the Fund and requires that notice of such
disclaimer be given in each instrument entered into or executed by the Fund.
The Declaration of Trust also provides for indemnification out of a Portfolio's
property for any shareholder of such Portfolio held personally liable for any
of the Portfolio's obligations. Thus, the risk of a shareholder being
personally liable as a partner for obligations of a Portfolio is limited to the
unlikely circumstance in which the Portfolio itself would be unable to meet its
obligations.

CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENTS

State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, currently acts as Custodian of all the
Portfolios' assets, as well as the bookkeeping, transfer and dividend
disbursing agent for all of the Portfolios of the Fund. State Street has
selected various banks and trust companies in foreign countries to maintain
custody of certain foreign securities. State Street is authorized to use the
facilities of the Depository Trust Company, the Participants Trust Company and
the book-entry system of the Federal Reserve Banks.

INDEPENDENT ACCOUNTANTS

57
<PAGE> 65

Coopers & Lybrand L.L.P., One Post Office Square, Boston, Massachusetts
02109 serves as the Fund's independent accountant. The audited financial
statements of the Fund at October 31, 1995, included in the Statement of
Additional Information and the Financial Highlights for the period from the
commencement of operations through October 31, 1995, included in this
Prospectus have been audited by Coopers & Lybrand L.L.P. as indicated in their
reports in the Statement of Additional Information and are included therein in
reliance upon such reports and upon the authority of such firm as experts in
accounting and auditing.

PURCHASE OF SHARES

INTRODUCTION

The Fund offers three classes of shares in each Portfolio to the general
public. Purchases of Class A shares of less than $1 million are sold with a
front end sales charge. Purchases of Class A shares of $1 million or more made
on or after May 1, 1995 are offered for sale at net asset value without a front
end sales charge but may be subject to a CDSC upon redemption. Class B shares
are sold without a front end sales charge but may be subject to a CDSC upon
redemption. Class C shares are sold without a front end sales charge, but may
be subject to a CDSC upon redemption. Shares of all classes of the Money
Market Fund are sold at net asset value (without the imposition of a front end
sales charge or CDSC). See "MULTIPLE PRICING SYSTEM" for a discussion of
factors to consider in selecting which class of shares to purchase.

Shares are offered continuously for sale through securities dealers and
banks which have executed an agreement (a "Dealer Agreement") with NASL
Financial, the distributor of the Fund's shares (in such capacity, the
"Distributor").

The initial purchase of any class of shares in any Portfolio must be at
least $1,000, with the exception that the initial purchase to a retirement plan
account may be made with a minimum of $50. In addition, an account can be
established with a minimum of $50 if the account will be receiving periodic,
regular investments through programs such as Automatic Investment Plans,
Automatic Dividend Diversification, and Systematic Investing (see "SHAREHOLDER
SERVICES -- Additional Shareholder Privileges" for a description of these
programs). The minimum for subsequent investments is $50.

When purchasing shares of any Portfolio of the Fund, investors must
specify whether the purchase is for Class A, Class B or Class C shares.

GENERAL METHODS OF PURCHASING SHARES

1. By Mail. To make an initial account purchase, mail a check made
payable to "North American Funds" with a completed New Account Application
(copy enclosed with this Prospectus) to:

North American Funds
P.O. Box 8505
Boston, MA 02266-8505

To make a purchase of shares to an existing North American Funds account,
please note your account number on the check and forward it with an account
investment slip to the above address.

Note: To establish certain tax deferred retirement plan accounts, such as
IRAs, you will be required to complete a separate application which may be
obtained from the Distributor or a securities dealer who has a Dealer Agreement
with the Distributor.

2. By Federal Funds Wire. Shares may be purchased in any Portfolio by
wire transfer. To obtain instructions for Federal Funds Wire purchases, please
contact the Customer Service Department at (800) 872-8037.

3. Through a Securities Dealer. You may purchase shares by contacting a
securities dealer who has a Dealer Agreement with the Distributor.

Orders for shares of all Portfolios except the Money Market Fund will be
assigned the next closing price after receipt of the order. Orders for the
Money Market Fund will be assigned the next closing price after the payment has
been converted to Federal Funds and dividends will begin to accrue on the
business day after such conversion. While orders for shares of the Strategic
Income, Investment Quality Bond, U.S. Government Securities and National
Municipal Bond Fund are assigned the next closing price after receipt of the
order, dividends will begin to accrue on the business day after the purchase
has been converted into Federal Funds.

SHARE PRICE

<PAGE> 66
The public offering price of the Class A shares of each Portfolio is the
net asset value per share (next determined following receipt of an order) plus,
in the case of all Portfolios except the Money Market Fund, a front end sales
charge, if applicable. The share price for Class B shares and Class C shares
is the net asset value per share (next determined following receipt of an
order).

CLASS A SHARES

The public offering price for purchases of Class A shares of less than $1
million is the net asset value per share plus a front end sales charge,
expressed as a percentage of the offering price as set forth in the table
below. No front end sales charge is imposed on the purchase of Class A shares
of the Money Market Fund. However, when Class A shares of the Money Market
Fund on which no sales charge has been paid or waived are exchanged for Class A
shares of another Portfolio, the sales charge applicable to purchases of Class
A shares will be assessed at that time. Purchases of Class A shares of $1
million or more are offered for sale at net asset value subject to a CDSC of 1%
of the dollar amount subject thereto if redeemed within one year of purchase.
See "PURCHASES OF SHARES --Contingent Deferred Sales Charge" below. The CDSC
may be waived on certain redemptions of shares. See "PURCHASES OF SHARES -
Waiver of CDSC."

CLASS A SALES CHARGE TABLE

<TABLE>
<CAPTION>
CONCESSION TO
PERCENTAGE OF BROKER DEALER AS
AMOUNT OF PERCENTAGE OF THE NET AMOUNT A PERCENTAGE OF
PURCHASE PAYMENT THE OFFERING PRICE INVESTED OFFERING PRICE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 ... 4.75% 4.99% 4.00%

$100,000 but less than
$250,000 ............. 4.00% 4.17% 3.25%

$250,000 but less than
$500,000 ............. 3.00% 3.09% 2.50%

$500,000 but less than
1 million ............ 2.25% 2.30% 1.75%

$1 million or more ... none* none* See below**
</TABLE>

*A contingent deferred sales charge may apply. See "PURCHASES OF SHARES -
Contingent Deferred Sales Charge."

**For purchases of Class A shares of $1 million or more the Distributor will
pay a commission to dealers as follows: 1.00% on sales up to $5 million (0.50%
for sales of the National Municipal Bond Fund), plus 0.50% of the amount in
excess of $5 million; provided, however, that the Distributor may pay a
commission on sales in excess of $5 million of up to 1.00% to certain dealers
which, at the Distributor's invitation, enter into an agreement with the
Distributor in which the dealer agrees to return any commission paid to it on
the sale (or a pro rata portion thereof) if the shareholder redeems his shares
within a period of time after purchase as specified by the Distributor.
Purchases of $1 million or more for each shareholder account will be aggregated
over a 12 month period (commencing from the date of the first such purchase)
for purposes of determining the level of commission to be paid during that
period with respect to such account.

The Distributor may reallow concessions to securities dealers with whom it
has agreements and retain the balance over such concessions, and at times the
Distributor may reallow the entire front end sales charge to such dealers. In
such circumstances, dealers may be deemed to be underwriters under the 1933
Act. Also, during an initial offering period following the introduction of a
new portfolio, and from time to time thereafter, additional amounts may be paid
by the Distributor or its promotional agent that would result in total dealer
concessions exceeding the offering price.

The Distributor may also pay banks and other financial service firms
("Service Organizations") that provide services for their clients to facilitate
transactions in Class A shares of a Portfolio, a transaction fee up to an
amount equal to the greater of the full applicable front end sales charge or
the "Concession to a Broker Dealer as a Percentage of Offering Price" as shown
in the above table. Banks are currently prohibited under the Glass-Steagall Act
from providing certain underwriting or distribution services. If banking firms
are prohibited from acting in any capacity or providing any of the described
services, management will consider what action, if any, is appropriate. It is
not anticipated that termination of a relationship with a bank would result in
any material adverse consequences to a Portfolio. In addition, State
securities laws may differ from federal laws regarding Service Organizations
which may be required to register under State securities laws as brokers and/or
dealers.

59
<PAGE> 67
REDUCED SALES CHARGES

Investors purchasing Class A shares may be able to benefit from a
reduction or elimination of the front end sales charge through several purchase
plans.

Right of Accumulation. For the purposes of determining which sales charge
level in the table above is applicable to a purchase of Class A shares,
investors may combine the total of the value of the shares being purchased with
the amount equal to the current net asset value of the investor's holdings of
shares in all Portfolios of the Fund, including holdings in Class B and Class C
shares, but excluding shares purchased or held in the Money Market Fund. Also,
for purposes of the foregoing calculation, shares (including holdings in Class
B and Class C shares, but excluding shares purchased or held in the Money
Market Fund) beneficially owned by the investor's spouse and the investor's
children under the age of 21 may, upon written notice to the transfer agent,
also be included in the investor's beneficial holdings at the current net asset
value to reach a level specified in the above table. The investor must notify
the transfer agent in writing of all share accounts to be considered in
exercising the right of accumulation described above.

Statement of Intention. For the purposes of determining which sales
charge level in the table above is applicable to a purchase of Class A shares,
investors may also establish a total investment goal in shares of the Fund to
be achieved over a thirteen-month period and may purchase Class A shares during
such period at the applicable reduced front end sales charge. All shares,
including Class B shares and Class C shares (but excluding shares purchased or
held in the Money Market Fund), previously purchased and still beneficially
owned by the investor and his or her spouse and children under the age of 21
may, upon written notice to the transfer agent, also be included at the current
net asset value to reach a level specified in the table above.

Shares totaling 5% of the dollar amount of the Statement of Intention will
be held in escrow by the Transfer Agent in the name of the purchaser. The
effective date of a Statement of Intention may be back-dated up to 90 days, in
order that any investments made during this 90-day period, valued at the
purchaser's cost, can be applied to the fulfillment of the Statement of
Intention goal.

The Statement of Intention does not obligate the investor to purchase, nor
the Fund to sell, the indicated amount. In the event the investment goal is
not achieved within the thirteen-month period, the purchaser is required to pay
the front end sales charge that would otherwise have applied to the purchases
of Class A shares made during this period. If a payment is due under the
preceding sentence, it must be made directly to the Distributor within twenty
days of notification or, if not paid, the Distributor will liquidate sufficient
escrowed shares to obtain such difference. Certain transitional rules apply to
shareholders who had a statement of intention in effect prior to April 1, 1994.
For additional information, shareholders should contact the Fund, Wood Logan
or eligible securities dealers.

Group Purchases. Subject to applicable regulations, reduced front end
sales charges as set forth in the "Class A Sales Charge Schedule" are available
on the purchase of Class A shares when sales are made to a group of individuals
in such a manner as results in a savings of sales expenses. Approval of group
purchase reduced front end sales charge plans is subject to the discretion of
the Distributor.

Certain Qualified Purchasers. No front end sales charge or CDSC is
applicable to any sale of Class A shares to a Trustee or officer of the Fund,
or to the immediate families (i.e., the spouse, children, mother or father) of
such persons, or any full-time employee or registered representative of
broker/dealers having Dealer Agreements with the Distributor ("Selling Broker")
and their immediate families (or any trust, pension, profit sharing or other
benefit plan for the benefit of such persons), or any full-time employee of a
bank, savings and loan, credit union or other financial institution that
utilizes a Selling Broker to clear purchases of Fund shares, and their
immediate families. In addition, no front end sales charge or CDSC is
applicable on any sale to North American Security Life Insurance Company or any
of its affiliates, the Subadvisers or Wood Logan, or to a director, officer,
full-time employee or sales representative of North American Security Life
Insurance Company or any of its affiliates, the Subadvisers or any of their
affiliates or of Wood Logan, or to the immediate families of such persons, or
any trust, pension, profit-sharing or other benefit plan for the benefit of
such persons.

No front end sales charge or CDSC on Class A shares is applicable to
continuing purchase payments made in connection with Code Section 401 qualified
plans that were invested in the Fund prior to April 1, 1994.

A qualified retirement plan that is currently a shareholder of the Fund
may make additional purchases of Class A shares at net asset value (i.e.,
without the imposition of a front end sales load or CDSC). A commission or
transaction fee of 1.00% will be paid by the Distributor to broker-dealers,
banks and other financial service firms subject to a chargeback to the firm for
redemptions made within one year from the date of purchase.

Class A shares may be purchased at net asset value by certain
broker-dealers and other financial institutions which have entered into an
agreement with the Distributor, which includes a requirement that such shares
be sold for the benefit of clients participating in a "wrap account" or a
similar account program under which such clients pay a fee to such
broker-dealer or other financial institution. Class A shares may also be
purchased at net asset value by registered investment advisers for the benefit
of client accounts if the adviser charges a fee (other than brokerage
commissions) for his services.

<PAGE> 68
CLASS B SHARES

Class B shares are offered for sale at net asset value, and are offered
for purchases of $250,000 or less. Class B shares which are redeemed within
six years of purchase are subject to a CDSC at the rates set forth in the table
below, charged as a percentage of the dollar amount subject thereto. See
"PURCHASES OF SHARES - Contingent Deferred Sales Charge."

CLASS B CDSC TABLE

<TABLE>
<CAPTION>
CDSC
AS A PERCENTAGE OF
YEAR(S) SINCE PURCHASE ORDER DOLLAR AMOUNT SUBJECT TO CHARGE
- ------------------------------------------------------------------------------
<S> <C>
Up to 2 years 5%
2 years or more but less than 3 years 4%
3 years or more but less than 4 years 3%
4 years or more but less than 5 years 2%
5 years or more but less than 6 years 1%
6 or more years 0%
</TABLE>

The CDSC may be waived on certain redemption of shares. See "PURCHASES OF
SHARES - Waiver of CDSC"

CLASS C SHARES

Class C shares are offered for sale at net asset value and are offered for
purchases of less than $1 million. Class C shares are sold without a front end
sales charge. Class C shares purchased on or after May 1, 1995 subject to a
CDSC of 1% of the dollar amount subject thereto during the first year after
purchase. Shares purchased prior to May 1, 1995 are not subject to a CDSC. See
"PURCHASES OF SHARES - Contingent Deferred Sales Charge"

The CDSC may be waived on certain redemptions of shares. See "PURCHASES
OF SHARES - Waiver of CDSC."

CONTINGENT DEFERRED SALES CHARGE

Class A shares (purchases of $1 million or more) and Class C shares
purchased on or after May 1, 1995 which are redeemed within one year of
purchase are subject to a CDSC at the rate of 1% of the dollar amount subject
thereto. Class B shares which are redeemed within six years of purchase are
subject to a CDSC at the rates set forth above under "PURCHASES OF SHARES -
Class B Shares." The CDSC generally is not applicable with respect to
redemption of shares of the Money Market Fund. However, in the case of shares
of the Money Market Fund which were obtained through an exchange of the same
class of shares of another Portfolio, such shares will be subject to any
applicable CDSC due at redemption. Similarly, shares initially purchased as
shares of the Money Market Fund which are subsequently exchanged for the same
class of shares of other Portfolios will be subject to any applicable CDSC due
at redemption. See "SHAREHOLDER SERVICES - Exchange Privilege." The CDSC is
assessed on an amount equal to the lesser of the net asset value at redemption
or the initial purchase price of the shares being redeemed. Solely for
purposes of determining the amount of time from the purchase of shares until
redemption, all orders accepted during a month are aggregated and deemed to
have been made on the last business day of that month.

In determining the amount of the CDSC that may be applicable to a
redemption, any shares in the redeeming shareholder's account that may be
redeemed without charge will be assumed to be redeemed prior to those subject to
a charge . In addition, if the CDSC is determined to be applicable to redeemed
shares, it will be assumed that shares held for the longest duration are
redeemed first. No CDSC is imposed on (i) amounts representing increases in the
net asset value per share; or (ii) shares acquired through reinvestment of
income dividends or capital gains distributions. Because shares of the Money
Market Fund are not subject to any distribution or service fees, the CDSC period
is tolled for any period of time in which shares are held in that Portfolio.
For example, if Class C shares of a Portfolio other than the Money Market Fund
are exchanged for the same class of shares of the Money Market Fund six months
after purchase and are subsequently redeemed one year later, these shares are
subject to a CDSC since the CDSC period is tolled during the period of time the
shares are in the Money Market Fund. Furthermore, when Money Market Fund shares
are exchanged for the same class of shares of any other Portfolio, the CDSC
becomes (or, in the case of Money Market Fund shares which were subject to a
CDSC prior to a previous exchange for Money Market Fund shares, again becomes)
applicable to those shares commencing at the time of exchange. If such shares
are subsequently redeemed, only time of ownership spent in Portfolios other than
the Money Market Fund counts toward determining the applicable CDSC.

WAIVER OF CDSC

61
<PAGE> 69
Systematic Withdrawal Plan. The CDSC on Class A, Class B and Class C
shares may be waived in connection with a Systematic Withdrawal Plan. See
"SHAREHOLDER SERVICES - Systematic Withdrawal Plan." Up to 12% of the value of
an account (i.e., up to 1% per month of the value of the account at the time
the systematic withdrawal is taken) may be withdrawn without the imposition of
CDSC. If distributions (dividends and capital gains) are reinvested into an
account and systematic withdrawals are also taken from the account, the
distributions (which are never assessed a CDSC) will be included in the
calculation of the 1% per month that may be withdrawn without the imposition of
a CDSC.

Qualified Retirement Plans. The CDSC on Class A, Class B and Class C
shares may be waived in connection with redemptions from qualified retirement
plans (other than Individual Retirement Accounts ("IRAs")) in the case of (i)
death or disability (as defined in section 72(m)(7) of the Code, as amended
from time to time) of the participant in the retirement plan, (ii) required
minimum distributions from the retirement plan due to attainment of age 70 1/2,
(iii) tax-free return of an excess contribution to the retirement plan, (iv)
retirement of the participant in the retirement plan, (v) a loan from the
retirement plan (repayment of a loan, however, will constitute a new sale for
purposes of assessing the CDSC), (vi) "financial hardship" of the participant
in the retirement plan, as that term is defined in Treasury Regulation
1.401(k)-1(d)(2), as amended from time to time, (vii) termination of
employment of the participant in the plan (excluding, however, a partial or
other termination of the retirement plan), and (viii) the plan participant
obtaining age 59 1/2.

Other Waivers. The CDSC on Class A, Class B and Class C shares may be
waived in connection with (i) redemptions made following the death of a
shareholder, (ii) redemptions effected pursuant to the Fund's right to
liquidate a shareholder's account if the aggregate net asset value of the
shares held in the account is less than the applicable minimum account size and
(iii) a tax-free return of an excess contribution to any retirement plan.

OTHER DEALER COMPENSATION

The Distributor may, either directly or through Wood Logan, from time to
time assist dealers by, among other things, providing sales literature to, and
holding educational programs for the benefit of, dealers' registered
representatives. Participation of registered representatives in such
informational programs may require the sale of minimum dollar amounts of shares
of the Portfolios of the Fund. The Distributor and/or Wood Logan will also
provide additional promotional incentives to dealers in connection with sales
of shares of all classes of the Portfolios of the Fund. These incentives shall
include payment for travel expenses, including lodging (which may be at a
luxury resort), incurred in connection with trips taken by qualifying
registered representatives and members of their families within or outside the
United States. Incentive payments will be provided for out of the front end
sales charges and CDSCs retained by the Distributor, any applicable
Distribution Plan payments or the Distributor's other resources. Other than
Distribution Plan payments, the Fund does not bear distribution expenses. The
staff of the SEC has indicated that dealers who receive more than 90% of the
sales charge may be considered underwriters.

DISTRIBUTION EXPENSES

In addition to the front-end sales charge which may be deducted at the
time of purchase of Class A shares of less than $1 million and the CDSC which
may apply on redemptions of Class A shares (purchases of $1 million or more),
Class B shares, and Class C shares, each class of shares of each Portfolio is
authorized under the Distribution Plan applicable to that class of shares (the
"Class A Plan," the "Class B Plan" and the "Class C Plan," collectively, the
"Plans") adopted pursuant to Rule 12b-1 under the 1940 Act to use the assets
attributable to such class of shares of the Portfolio to finance certain
activities relating to the distribution of shares to investors. The Plans are
"compensation" plans providing for the payment of a fixed percentage of average
net assets to finance distribution expenses. The Plans provide for the payment
by each class of shares of each Portfolio of the Fund, other than the Money
Market Fund, of a monthly distribution and service fee to the Distributor, as
principal underwriter for the Fund. Portions of the fees prescribed below are
used to provide payments to the Distributor, to promotional agents, to brokers,
dealers or financial institutions (collectively, "Selling Agents") and to
Service Organizations for ongoing account services to shareholders and are
deemed to be "service fees" as defined in paragraph (b)(9) of Section 26 of the
Rules of Fair Practice of the NASD.

Under the Class A Plan, Class A shares of each Portfolio (except as
described in the next sentence) are subject to a fee of up to .35% of their
respective average annual net assets, five-sevenths of which (.25%) constitutes
a "service fee." Class A shares of the Money Market Fund bear no such fees and
Class A shares of the National Municipal Bond Fund are subject to a fee of up
to .15% of Class A average annual net assets, the entire amount of which
constitutes a "service fee." Under the Class B Plan, Class B shares of each
Portfolio (with the exception of the Money Market Fund) are subject to a fee of
up to 1.00% of their respective average annual net assets, one-fourth (.25%) of
which constitutes a "service fee." Under the Class C Plan, Class C shares of
each Portfolio (with the exception of the Money Market Fund) are subject to a
fee of up to 1.00% of their respective average annual net assets, one-fourth
(.25%) of which constitutes a "service fee."

<PAGE> 70
services and expenses may include the development, formulation and
implementation of marketing and promotional activities, the preparation,
printing and distribution of prospectuses and reports to recipients other than
existing shareholders, the preparation, printing and distribution of sales
literature, expenditures for support services such as telephone facilities and
expenses and shareholder services as the Fund may reasonably request,
provision to the Fund of such information, analyses and opinions with respect
to marketing and promotional activities as the Fund may, from time to time,
reasonably request, commissions, incentive compensation or other compensation
to, and expenses of, account executives or other employees of the Distributor
or Selling Agents, attributable to distribution or sales support activities,
respectively, overhead and other office expenses of the Distributor or Selling
Agents, attributable to distribution or sales support activities, respectively,
and any other costs and expenses relating to distribution or sales support
activities. The Distributor may pay directly Selling Agents and may provide
directly the distribution services described above, or it may arrange for such
payment or the performance of some or all of such services by Wood Logan, the
Fund's exclusive promotional agent, at such level of compensation as may be
agreed to by the Distributor and Wood Logan.

The Distributor currently pays a trail commission to securities dealers,
with respect to accounts that such dealers continue to service for shares sold
after April 1, 1994 as follows: Class A shares - .25% annually,commencing from
the date the purchase order is accepted, for all Portfolios (except the
National Municipal Bond Fund, for which the trail commission is .15%, and the
Money Market Fund, for which no trail commission is paid); Class B shares -
.25% annually, for all Portfolios (except the National Municipal Bond Fund, for
which the trail commission is .15%, and the Money Market Fund, for which no
trail commission is paid); and Class C shares - 1.0% annually, for the Global
Growth, Value Equity, Growth and Income, International Growth and
Income, Asset Allocation and Strategic Bond Funds and .90% annually, for the
Investment Quality Bond, U.S. Government Securities and National Municipal Bond
Fund (no trail commission is paid on the Money Market Fund). The trail
commission payable following conversion of Class B and Class C shares to Class
A shares will be in accordance with the amounts paid for Class A shares. For
Class B and Class C shares sold on or after May 1, 1995, trail commisssions
commence 13 months after purchase. For Class B and Class C shares sold prior
to May 1, 1995, trail commissions commence the date the purchase order is
accepted. Trail commissions for shares sold prior to April 1, 1994 will be
paid as noted below.

In the case of Class B shares and Class C shares sold on or after May 1,
1995, the Distributor will advance to securities dealers the first year service
fee at a rate equal to 0.25% of the purchase price of such shares and, as
compensation therefor, the Distributor may retain the service fee paid by the
Fund with respect to such shares for the first year after purchase. In the
case of sales of Class B shares, the Distributor will pay each dealer a fee of
4% of the amount of Class B shares purchased (0.25% is the advancement of the
first year service fee and the remainder is a commission or transaction fee).
No commission or transaction fee is paid for sales of shares of Class B of the
Money Market Fund. In the case of sales of Class C shares, the Distributor
will pay each securities dealer a fee of 1% (0.90% in the case of the
Investment Quality Bond, U.S. Government Securities and National Municipal Bond
Fund) of the purchase price of Class C shares purchased through such securities
dealer (0.25% is the advancement of the first year service fee and the
remainder is a commission or transaction fee). No commission or transaction
fee is paid for sales of shares of Class C of the Money Market Fund.

The Distributor will also pay a trail commission to securities dealers,
with respect to accounts that such dealers continue to service for shares sold
prior to April 1, 1994, as follows: (i) for the Value Equity, Growth
and Income, Global Growth and Asset Allocation Funds, 0.90%, (ii) for the U.S.
Government Securities, Investment Quality Bond and Strategic Income Funds,
0.35% and for the National Municipal Bond Fund, 0.15%. No trail commission
will be paid on shares of the Money Market Fund. The trail commission above
will be paid on shares purchased prior to April 1, 1994 provided the shares
remain in the same Portfolio. If the shares are exchanged or transfered from
the Portfolio at any time on or after April 1, 1994, then the trail commission
for shares sold after April 1, 1994 as stated above will be paid.

The distribution and service fees attributable to the Class B shares and
the Class C shares are designed to permit an investor to purchase shares
without the assessment of a front end sales charge, and, with respect to the
Class C shares, without the assessment of a CDSC as well, and at the same time
permit the Distributor to compensate securities dealers with respect to sales
of such shares.

The Distributor is authorized by each Plan to retain any excess of the
fees it receives thereunder over its payments to selected dealers or Wood Logan
and its expenses incurred in connection with providing distribution services.
Thus, payments under a Plan may result in a profit to the Distributor. Each
Plan also provides that to the extent that any payments by any class of any
Portfolio of the Fund to the Distributor in its capacity as investment adviser
to the Fund, such as for investment management fees, may be deemed to be an
indirect payment of distribution expenses, those indirect payments are deemed
to be authorized by the Plans. Payments made under the Plans are subject to
quarterly review by the Trustees and the Plans are subject to annual review and
approval by the Trustees.

In adopting the Plans, the Trustees determined that the adoption of the
Plans is in the best interests of the Fund and its shareholders, that there is
a reasonable likelihood that the Plans will benefit the Fund and its
shareholders, and that the Plans are essential to, and an integral part of, the
Fund's program for financing the sale of shares of the various Portfolios of
the Fund to the public.

<PAGE> 71

same as that of the Fund and the Distributor also
serves as the investment adviser to the Fund as described above under
"MANAGEMENT OF THE FUND." The Distributor has entered into an exclusive
promotional agent agreement with Wood Logan pursuant to which Wood Logan will
solicit securities dealers to sell Fund shares, offer sales training to
registered representatives of such dealers, prepare and distribute certain
sales and promotional materials and otherwise assist in the distribution of
Fund shares. For providing such services, the Distributor will pay Wood Logan
such amounts as are agreed to from time to time pursuant to the promotional
agent agreement. Wood Logan, a broker/dealer registered under the 1934 Act and
a member of the NASD, is a subsidiary of Wood Logan Associates, Inc., a
corporation which is a wholly owned subsidiary of a holding company
that is 85% owned by Manulife and approximately 15% owned by principals of Wood
Logan Associates. The address of Wood Logan is 1455 East Putnam Avenue, Old
Greenwich, Connecticut 06870.

SHAREHOLDER SERVICES

FURTHER INFORMATION ON ANY OF THE PROGRAMS DESCRIBED IN THE FOLLOWING SECTIONS
MAY BE OBTAINED FROM THE FUND, WOOD LOGAN AND ELIGIBLE SECURITIES DEALERS. FOR
ADDITIONAL INFORMATION, SHAREHOLDERS SHOULD CONTACT THE FUND, WOOD LOGAN OR
ELIGIBLE SECURITIES DEALERS.

AUTOMATIC INVESTMENT PLAN

Shareholders who open an account who wish to make subsequent monthly
investments in a Portfolio may establish an Automatic Investment Plan as part
of the initial Application or subsequently by submitting an Application. Under
this plan, on or about the tenth day of each month the Transfer Agent will
debit the shareholder's bank account in the amount specified by the shareholder
(which monthly amount may not be less than $50). The proceeds will be invested
in shares of the specified class of a Portfolio of the Fund at the applicable
offering price determined on the date of the debit. In the event of a full
exchange, this plan will follow into the new Portfolio unless otherwise
specified. Participation in the Automatic Investment Plan may be discontinued
upon 30 days' written notice to the Transfer Agent, or if a debit is not
honored.

EXCHANGE PRIVILEGE

Shares of any Portfolio may be exchanged for shares of the same class of
any other Portfolio with the same account registration at the relative net
asset value per share without the imposition of any front end sales charge or
CDSC, except as described below. Shares of one class may not be exchanged for
shares of any other class of any Portfolio.

Class A Shares - Class A shares of any Portfolio may be exchanged for
Class A shares of any other Portfolio at the relative net asset value per share
without the imposition of a front end sales charge or CDSC which would be due
upon redemption with respect to the shares being exchanged. However, a front
end sales charge will be imposed with respect to Class A shares (purchases of
less than $1 million) which are issued upon an exchange from Class A Money
Market Fund shares and as to which no front end sales charge had been
previously paid or waived. See "SHAREHOLDER SERVICES - Money Market Fund -
Assessment of CDSC."

Class B Shares - Class B shares of any Portfolio may be exchanged for
Class B shares of any other Portfolio, including the Money Market Fund, at the
relative net asset value per share without the imposition at that time of any
CDSC which would be due upon redemption with respect to the shares being
exchanged. See "SHAREHOLDER SERVICES - Money Market Fund - Assessment of
CDSC."

Class C Shares - Class C shares of any Portfolio may be exchanged for
Class C shares of any other Portfolio, including the Money Market Fund, at the
relative net asset value per share without the imposition at that time of any
CDSC which would be due upon redemption with respect to the shares being
exchanged. See "SHAREHOLDER SERVICES - Money Market Fund - Assessment of CDSC."

Money Market Fund - Assessment of CDSC - The CDSC period for Class A
shares (purchases of $1 million or more), Class B shares and Class C shares is
tolled for any period of time in which they are held in the Money Market Fund.
For example, if Class C shares of a Portfolio, other than the Money Market
Fund, are exchanged for Class C shares of the Money Market Fund six months
after purchase and are subsequently redeemed one year later, these Class C
shares are subject to a CDSC since the CDSC period is tolled during the period
of time the shares are in the Money Market Fund. Furthermore, when Money
Market Fund shares are exchanged for shares of any other Portfolio, the CDSC
becomes (or, in the case of Money Market Fund shares which were subject to a
CDSC prior to a previous exchange for Money Market Fund shares, again becomes)
applicable to those shares commencing at the time of exchange. If such shares
are subsequently redeemed, only time of ownership spent in Portfolios other
than the Money Market Fund counts toward determining the applicable CDSC.

General Information - Exchanges are regarded as sales for federal and
state income tax purposes and could result in a gain or loss, depending on the
original cost of shares exchanged. If the exchanged shares were acquired within
the previous 90 days, the gain or loss may have to be computed without regard
to any sales charges incurred on the exchanged shares (except to the extent
those sales charges exceed the sales charges waived in connection with the
exchange). See "GENERAL INFORMATION -- Taxes." Exchanges are free and
unlimited

<PAGE> 72
in number and will usually occur on the same day as requested. The
terms of the foregoing exchange privilege are subject to change and the
privilege may be terminated at any time. The exchange privilege is only
available where the exchange may legally be made.

By mail - an exchange will be honored by a written letter of request to
the Fund if signed by all registered owners of the account.

By telephone - All accounts are eligible for the telephone exchange
privilege. See "-- ADDITIONAL SHAREHOLDER PRIVILEGES -- Telephone Exchanges."

TRANSFER OF SHARES

Shareholders may transfer fund shares to family members and others at any
time without incurring a front end sales charge (Class A shares purchases of
less than $1 million) and without a CDSC being imposed at that time (Class A
shares purchases of $1 million or more, Class B shares and Class C shares).
Shareholders should consult their tax adviser concerning such transfers.

REDEMPTION OF SHARES

You may redeem shares of your account in any amount and at any time at the
applicable net asset value next determined after the request for redemption is
received in proper order by the Fund. As described under "PURCHASE OF SHARES,"
redemptions of Class A shares purchases of $1 million or more, Class B shares
and Class C shares may subject to a CDSC. The Fund will normally send the
proceeds from a redemption (less any applicable CDSC) on the next business day,
but if making immediate payment could adversely affect the Fund, it may take up
to seven days for payment to be made. Payment may also be delayed if the
shares to be redeemed were purchased by check and that check has not cleared.

GENERAL METHODS OF REDEEMING SHARES

1. By Mail. You may redeem shares by mail by sending a written request for
the redemption to the Fund. The request will be processed after receipt of all
required documents in proper order: certificates of beneficial interest (if
issued); a stock power signed by all account owners exactly as the account is
registered specifying the number of shares or dollars to be redeemed; and in
the case of a redemption to be paid to a person or address other than the
person or address of record and/or in an amount greater than $50,000, a
guarantee of the stock power signatures(s) without restriction, condition or
qualification by an officer of a commercial bank, Trust Company, Federal
savings and loan institution, member firm of a national securities exchange or
NASD member. If shares are held in the name of a corporation, trust, estate,
custodianship, partnership or pension or profit sharing plan, additional
documentation may be necessary.

2. Through a Securities Dealer. You may sell your shares by contacting a
securities dealer who has a Dealer Agreement with the Distributor. (See
"GENERAL -- Repurchase of Shares" in the Statement of Additional Information
for more details.) The dealer may assess a nominal fee for this service.

REINSTATEMENT PRIVILEGE

With regard to Class A shares (purchases of less than $1 million), you may
reinstate at net asset value any portion of shares which have been previously
redeemed if the redemption occurred within 90 days of the request. With regard
to Class A shares (purchases of $1 million or more), Class B shares and Class C
shares, if an investor redeems these shares and pays a CDSC upon redemption,
and then uses those proceeds to purchase the same class of shares of any
Portfolio within 90 days, the shares purchased will be credited with any CDSC
paid in connection with the prior redemption.

Any gain recognized on a redemption or repurchase is taxable despite the
reinstatement in the Portfolio. Any loss realized as a result of the
redemption or repurchase may not be allowed as a deduction for federal income
tax purposes but may be applied, depending on the amount reinstated, to adjust
the cost basis of the shares acquired upon reinstatement. In addition, if the
shares redeemed or repurchased had been acquired within the 90 days preceding
the redemption or repurchase, the amount of any gain or loss on the redemption
or repurchase may have to be computed without regard to any sales charges
incurred on the redeemed or repurchased shares (except to the extent those
sales charges exceed the sales charges waived in connection with the
reinstatement). See "GENERAL INFORMATION -- Taxes."

MINIMUM ACCOUNT BALANCE

The Fund reserves the right to involuntarily redeem your account any time
the value of your account falls below $500 as a result of redemption, with the
exception of a retirement plan account and with respect to an account
established with a minimum of $50 pursuant to programs such as Automatic
Investment Plans, Automatic Dividend Diversification, and Systematic Investing.
You will be notified in writing prior to the redemption and be allowed 30 days
to make additional investments before the redemption is processed.

<PAGE> 73
REDEMPTION IN KIND

The Trustees of the Fund reserve the right to redeem proceeds in whole or
in part by a distribution in kind of marketable securities held by a Portfolio
of the Fund. See "GENERAL -- Redemption in Kind" in the Statement of
Additional Information for more details.

ADDITIONAL SHAREHOLDER PRIVILEGES

CERTAIN PRIVILEGES LISTED IN THIS SECTION MAY NOT BE OFFERED BY THE FUND IF YOU
HOLD SHARES WITH THE FUND IN THE "STREET NAME" OF A FINANCIAL INSTITUTION, OR
IF THE ACCOUNT IS NETWORKED THROUGH NATIONAL SECURITIES CLEARING CORPORATION
(NSCC).

AUTOMATIC INVESTMENT PLAN

If you open an account and wish to make subsequent, periodic investments
in a Portfolio by electronic funds transfer from a bank account, you may
establish an Automatic Investment Plan on your account. The bank at which your
account is maintained must be a member of the Automated Clearing House (ACH).
The frequency with which the investments occur is specified by you (monthly,
every alternate month, quarterly, etc.) with the exception that no more than
one investment will be processed each month. On or about the tenth of the
month, the Fund will debit your bank account in the specified amount (minimum
of $50 per draft) and the proceeds will be invested at the applicable offering
price determined on the date of the debit. In the event of a full exchange,
this plan will follow into the new Portfolio unless otherwise specified.

AUTOMATIC DIVIDEND DIVERSIFICATION (ADD)

The ADD program allows you to have all dividends and any other
distributions from a Portfolio automatically used to purchase shares of the
same class of any other Portfolio of the Fund. The receiving account must be
in the same name as your existing account. The purchase of shares to the
Portfolio receiving the cross-investment of the dividends will be using the net
asset value at the close of business of the dividend payable date.

SYSTEMATIC INVESTING

You may request that your shares of any class of the Money Market, U.S.
Government Securities or National Municipal Bond Fund be exchanged monthly for
shares of the same class of up to three other Portfolios. A predetermined
dollar amount of at least $50 per exchange will then occur on or about the 15th
of each month in accordance with the instructions you provided on the initial
account application or on the Systematic Investing application. This
Systematic Investing program is also referred to as "Dollar Cost Averaging."

SYSTEMATIC WITHDRAWAL PLAN

You may establish a plan for redemptions to be made automatically at
monthly, quarterly, semiannual or annual intervals with payments sent directly
to you or to persons designated by you as recipients of the withdrawals. Up to
12% of the value of an account (i.e., up to 1% per month of the value of the
account at the time the Systematic Withdrawal is taken) may be withdrawn
without the imposition of CDSC. See "PURCHASES OF SHARES - Waiver of CDSC."
Requests for this service not made on the initial application require signature
guarantees unless the payments are to be made to you and mailed to the address
of record on your account. You are required to have a minimum account value of
$10,000 per Portfolio in order to establish this plan. Maintenance of a
Systematic Withdrawal Plan concurrently with purchases of additional shares may
be disadvantageous to you because of the sales charges on certain purchases and
redemptions.

The redemptions will occur on or about the 25th day of the month and the
checks will generally be mailed within two days after the redemption occurs.
No redemption will occur if the account balance falls below the amount required
to meet the requested withdrawal amount. This service may be terminated at any
time, and, while no fee is currently charged (although a CDSC may be
applicable), the Distributor reserves the right to initiate a fee of up to $5
per withdrawal upon 30 days' written notice to the shareholder.

CHECKWRITING

Checkwriting is available only to Class A and Class C shareholders of the
U.S. Government Securities, National Municipal Bond and Money Market Funds.
You will be issued a book of blank checks if the request is indicated on the
account application and is accompanied by a correctly completed and endorsed
signature card. The checks may be made payable to the order of anyone in any
amount not less than $250. You should not attempt to close your account by
check.

Checks which exceed the value of the account at the time of receipt by the
Fund will not be honored. In addition, the privilege will be invalid when your
account is closed.

<PAGE> 74
When a check is presented for payment, a sufficient number of shares will
be redeemed to cover the amount of the check and any applicable CDSC. If the
amount of the check plus any applicable CDSC is greater than the value of the
shares held in the shareholder's account, the check will be returned unpaid.

This privilege cannot be used for the redemption of shares held in
certificate form.

TELEPHONE TRANSACTIONS

Shareholders are permitted to request exchanges and/or redemptions by
telephone. The Fund will not be liable for following instructions communicated
by telephone that it reasonably believes to be genuine. The Fund will employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine and may only be liable for any losses due to unauthorized or
fraudulent instructions where it fails to employ its procedures properly. Such
procedures include the following. Upon telephoning a request, shareholders
will be asked to provide their account number, and if not available, their
social security number. For the shareholder's and Fund's protection, all
conversations with shareholders will be tape recorded. All telephone
transactions will be followed by a confirmation statement of the transaction.

Telephone Exchanges. You are automatically authorized to effect telephone
exchanges by calling the Fund, unless you elect not to authorize telephone
exchanges in the Application (if you initially elect not to allow telephone
exchanges in the Application, you may request authorization by executing an
appropriate authorization form provided by the Fund upon request.) Exchanges
will only be made if proper account identification is given by the dealer or
shareholder of record. Requests will be processed on the same day as receipt
of the telephone call if the request is made before the close of the regularly
scheduled trading on the Exchange (normally 4:00 p.m. New York time).

This privilege cannot be used for the exchange of shares held in
certificate form.

Telephone Redemptions. You may request the option to redeem shares of any
Portfolio by telephone by completing the "Expedited Telephone Redemptions"
portion of the account application. In order to obtain that day's closing net
asset value on the redemption, the telephone call must be received by the Fund
prior to the close of the regularly scheduled trading on the Exchange (normally
4:00 p.m. New York time).

Payment for shares will be made by federal wire or by mail as specified by
you in the Application. Payment will normally be sent on the business day
following the date of receipt of the request. Payment by wire to your bank
account must be in amounts of $1000 or more. Although the Fund does not assess
a charge for wire transfers, your bank may assess a charge for the transaction.
Payments by mail may only be sent to your account address of record and may
only be payable to the registered owner(s).

This privilege cannot be used for the redemption of shares held in
certificate form.

CERTIFICATES

Although the Fund does not recommend the issuance of certificates, shares
will be issued in certificate form if specifically requested by the
shareholder.

HOW TO OBTAIN INFORMATION ON YOUR INVESTMENT

1. Confirmation of Share Transactions and Dividend Payments. Share
transactions in all Portfolios, other than transactions pursuant to a
Systematic Withdrawal Plan, Automatic Investment Plan, and Systematic Investing
Plan, will be confirmed immediately in the form of an account confirmation
statement which will be mailed to the account address of record.

The Fund will confirm all account activity occurring within a calendar
quarter, including the payment of dividend and capital gain distributions and
transactions made as a result of a Systematic Withdrawal Plan, Automatic
Investment Plan, and Systematic Investing Plan, shortly after the end of each
calendar quarter.

The Fund also reserves the right to confirm, with respect to certain tax
qualified plans and certain group plans, purchases and sales of Fund shares on
a quarterly basis. Transactions in shares of the Money Market Fund, other than
those confirmed quarterly as set forth above, will be confirmed monthly.

A copy of all confirmation statements will be sent to the securities
dealer firm listed on your account.

67
<PAGE> 75
2. Shareholder Inquiries. Please direct any questions or requests that
you may have concerning the Fund or your account by writing to North American
Funds, P.O. Box 8505, Boston, Massachusetts 02266-8505, or by calling the
Mutual Fund Customer Service Department at 1-800-872-8037.

<PAGE> 76
APPENDIX I

DEBT SECURITY RATINGS

Standard & Poor's Ratings Group ("S&P")

Commercial Paper:

<TABLE>
<S> <C>
A-1 The rating A-1 is the highest rating assigned by S&P to commercial
paper. This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign designation.

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

Bonds:

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

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

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

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

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

D Bonds rated D are in default. The D category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired. The D rating is also used upon
the filing of a bankruptcy petition if debt service payments are
jeopardized.
</TABLE>

The ratings set forth above may be modified by the addition of a plus or minus
to show relative standing within the major rating categories.

Moody's Investors Service, Inc. ("Moody's")

Commercial Paper:

<TABLE>
<S> <C>
P-1 The rating P-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated P-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
P-1 repayment capacity will normally be evidenced by the following
characteristics: (1) leading market positions in established
industries; (2) high rates of return on funds employed; (3) conservative
capitalization structures with moderate reliance on debt and ample asset
protection; (4) broad margins in earnings coverage of fixed financial
charges and high internal cash generation; and (5) well established
access to a range of financial markets and assured sources of alternate
liquidity.

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

</TABLE>

A-1

<PAGE> 77
Bonds:

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

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

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

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

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

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

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

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

C Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

Moody's applies numerical modifiers "1", "2" and "3" to certain of its rating
classifications. The modifier "1" indicates that the security ranks in the
higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.

Fitch Investors Service, Inc. ("Fitch")

Commercial Paper:

F-1+ Exceptionally strong credit quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely
payment.

F-1 Very strong credit quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues
rated "F-1+".

F-2 Issues assigned this rating have a satisfactory degree of assurance for
timely payment but the margin of safety is not as great as for issues
assigned "F-1+" or "F-1".

Bonds:

A-2

<PAGE> 78
AAA Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.

AA Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA".
Because bonds rated in the "AAA" and "AA" categories are not
significantly vulnerable to foreseeable future developments, short-term
debt of these issuers is generally rated "F-1+".

A Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.

BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than
for bonds with higher ratings.

BB Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt
service requirements.

B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business
and economic activity throughout the life of the issue.

CCC Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.

CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C Bonds are in imminent default in payment of interest or principal.

DDD-DD- Bonds are in default on interest and/or principal payments. Such bonds
and D are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the
obligor. "DDD" represents the highest potential for recovery on these
bonds, and "D" represents the lowest potential for recovery.

Plus and minus signs are used with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs,
however, are not used in the "AAA" category.

ADDITIONAL MOODY'S AND S&P MUNICIPAL BOND RATINGS

MOODY'S RATINGS OF STATE AND MUNICIPAL NOTES

MIG-1/VMIG-1 Notes rated MIG-1/VMIG-1 are of the best quality. There
is present strong protection by established cash flows,
superior liquidity support or broad-based access to the
market for refinancing.

MIG-2/VMIG-2 Notes which are rated MIG-2/VMIG-2 are of high quality.
Margins of protection are ample though not so large as in
the preceding group.

S&P RATINGS OF STATE AND MUNICIPAL NOTES

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

SP-2 Notes which are rated SP-2 have a satisfactory capacity to
pay principal and interest.

A-3

<PAGE> 79
APPENDIX II

STRATEGIC INCOME FUND DEBT RATINGS

The average distribution of investments in corporate and government bonds
by ratings for the fiscal year ended October 31, [1995], calculated
monthly on a dollar-weighted basis, for the Strategic Income Fund, was as
follows:

<TABLE>

<CAPTION>
UNRATED BUT
OF COMPARABLE
MOODY'S STANDARD & POOR'S QUALITY PERCENTAGE
- ---------------------------------------------------------------
<S> <C> <C> <C>
Aaa AAA

Aa AA

A A

Baa BBB

Ba BB

B B

Caa CCC

Ca CC

C C

Unrated as a Group:

U.S. Government Securities*

</TABLE>

The actual distribution of the Strategic Income Fund's corporate and
government bond investments by ratings on any given date will vary. In
addition, the distribution of the Portfolio's investments by ratings as set
forth above should not be considered as representative of the Portfolio's
future portfolio composition.

*Obligations issued or guaranteed by the U.S. Government or its agencies,
authorities or instrumentalities.

A-4

<PAGE> 80

INVESTMENT QUALITY BOND FUND DEBT RATINGS

The average distribution of investments in corporate and government bonds
by ratings for the fiscal year ended October 31, 1995, calculated monthly on a
dollar-weighted basis, for the Investment Quality Bond Fund, was as follows:

<TABLE>
<CAPTION>
UNRATED BUT
OF COMPARABLE
MOODY'S STANDARD & POOR'S QUALITY PERCENTAGE
---------------------------------------------------------------------
<S> <C> <C> <C>
Aaa AAA
Aa AA
A A
Baa BBB
Ba BB
B B
Caa CCC
Ca CC
C C
D

Unrated as a Group:
U.S. Government Securities*
</TABLE>

The actual distribution of the Investment Quality Bond Fund's corporate
and government bond investments by ratings on any given date will vary. In
addition, the distribution of the Portfolio's investments by ratings as set
forth above should not be considered as representative of the Portfolio's
future portfolio composition.

* Obligations issued or guaranteed by the U.S. Government or its agencies,
authorities or instrumentalities.

A-5

<PAGE> 81

SUBJECT TO COMPLETION

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY
SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES
LAWS OF ANY SUCH STATE.

STATEMENT OF ADDITIONAL INFORMATION

NORTH AMERICAN FUNDS

North American Funds (the "Fund") is a professionally managed open-end
investment company that currently has thirteen investment portfolios: the
Small/Mid Cap Fund, the International Small Cap Fund, the Growth Equity Fund,
the Global Growth Fund, the Value Equity Fund (formerly, the Growth Fund), the
Growth and Income Fund, the International Growth and Income Fund, the Asset
Allocation Fund, the Strategic Income Fund, the Investment Quality Bond Fund,
the U.S. Government Securities Fund, the National Municipal Bond Fund and the
Money Market Fund (the "Portfolios"). The investment objective of each
Portfolio is described in the Fund's Prospectus dated February __, 1996 (the
"Prospectus") under the caption "Investment Portfolios." Each Portfolio
currently offers three classes of shares: "Class A" shares, "Class B" shares
and "Class C" shares, all as described in the Prospectus under the caption
"Multiple Pricing System."

This Statement of Additional Information is not a prospectus but should be
read in conjunction with the Prospectus, which may be obtained from North
American Funds, 116 Huntington Avenue, Boston, Massachusetts, 02116.

The date of this Statement of Additional Information is February __, 1996.

<PAGE> 82

<TABLE>
TABLE OF CONTENTS

<S> <C>
INVESTMENT POLICIES ............................................................ 1
MONEY MARKET INSTRUMENTS ....................................................... 1
OTHER INSTRUMENTS .............................................................. 2
Mortgage Securities ............................................................ 2
Asset-Backed Securities ........................................................ 4
Zero Coupon Securities and Pay-in-Kind Bonds ................................... 5
High Yield Domestic Corporate Debt Securities .................................. 6
High Yield Foreign Sovereign Debt Securities ................................... 6
Municipal Lease Obligations .................................................... 7
HEDGING AND OTHER STRATEGIC TRANSACTIONS ....................................... 7
General Characteristics of Options ............................................. 7
General Characteristics of Futures Contracts and Options on Futures Contracts .. 9
Options on Securities Indices and Other Financial Indices ...................... 9
Currency Transactions .......................................................... 9
Combined Transactions .......................................................... 10
Swaps, Caps, Floors and Collars ................................................ 10
Eurodollar Instruments ......................................................... 11
Municipal Bond Index Futures Contracts ......................................... 11
Risk Factors ................................................................... 11
Risks of Hedging and Other Strategic Transactions Outside the United States .... 12
Use of Segregated and Other Special Accounts ................................... 12
Other Limitations .............................................................. 13
Warrant Transactions and Risks ................................................. 13
INVESTMENT RESTRICTIONS ........................................................ 13
PORTFOLIO TURNOVER ............................................................. 15
MANAGEMENT OF THE FUND ......................................................... 16
Compensation of Trustees ....................................................... 17
Principal Holders of Securities ................................................ 18
INVESTMENT MANAGEMENT ARRANGEMENTS ............................................. 18
Advisory and Subadvisory Agreements ............................................ 18
DISTRIBUTION PLANS ............................................................. 21
Underwriters ................................................................... 24
PORTFOLIO BROKERAGE ............................................................ 25
DETERMINATION OF NET ASSET VALUE ............................................... 29
PERFORMANCE INFORMATION ........................................................ 30
TAXES .......................................................................... 35
National Municipal Bond Fund - Taxation Issues ................................. 37
SHAREHOLDER SERVICES ........................................................... 38
GENERAL ........................................................................ 38
Adviser's Rationale for Multi-Manager Fund ..................................... 38
Fund Shares .................................................................... 41
Redemption in Kind ............................................................. 41
Repurchase of Shares ........................................................... 42
Payment for the Shares Presented ............................................... 42
Transfer Agent ................................................................. 42
Independent Accountants ........................................................ 42
FINANCIAL STATEMENTS ........................................................... 42
</TABLE>

1
<PAGE> 83

INVESTMENT POLICIES

The following discussion supplements the description of the Fund's
Portfolios set forth in the Prospectus under the caption "INVESTMENT
PORTFOLIOS."

MONEY MARKET INSTRUMENTS

The Money Market Fund will be invested in the types of money market
instruments described below. Certain of the instruments listed below may also
be purchased by the other Portfolios in accordance with their investment
policies and all Portfolios may purchase such instruments to invest otherwise
idle cash or for defensive purposes, except that the U.S. Government Securities
Fund may not invest in the instruments described in 2 and 7 below.

1. U.S. Government and Government Agency Obligations. U.S. Government
obligations are debt securities issued or guaranteed as to principal or
interest by the U.S. Treasury. These securities include treasury bills, notes
and bonds. U.S. Government agency obligations are debt securities issued or
guaranteed as to principal or interest by an agency or instrumentality of the
U.S. Government pursuant to authority granted by Congress. U.S. Government
agency obligations include, but are not limited to, the Student Loan Marketing
Association, Federal Home Loan Banks, Federal Intermediate Credit Banks and the
Federal National Mortgage Association. U.S. instrumentality obligations
include, but are not limited to, the Export-Import Bank and Farmers Home
Administration. Some obligations issued or guaranteed by U.S. Government
agencies or instrumentalities are supported by the right of the issuer to
borrow from the U.S. Treasury or the Federal Reserve Banks, such as those
issued by Federal Intermediate Credit Banks; others, such as those issued by
the Federal National Mortgage Association, are supported by discretionary
authority of the U.S. Government to purchase certain obligations of the agency
or instrumentality; and others, such as those issued by the Student Loan
Marketing Association, are supported only by the credit of the agency or
instrumentality. There are also separately traded interest components of
securities issued or guaranteed by the U.S. Treasury. No assurance can be
given that the U.S. Government will provide financial support to such U.S.
Government sponsored agencies or instrumentalities in the future, since it is
not obligated to do so by law. The foregoing types of instruments are
hereafter collectively referred to as "U.S. Government securities."

2. Certificates of Deposit and Bankers' Acceptances. Certificates of
deposit are certificates issued against funds deposited in a bank or a savings
and loan association. They are for a definite period of time and earn a
specified rate of return. Bankers' acceptances are short-term credit
instruments evidencing the obligation of a bank to pay a draft which has been
drawn on it by a customer. These instruments reflect the obligation both of
the bank and of the drawer to pay the face amount of the instrument upon
maturity. They are primarily used to finance the import, export, transfer or
storage of goods. They are termed "accepted" when a bank guarantees their
payment at maturity.

Fund Portfolios may acquire obligations of foreign banks and foreign
branches of U.S. banks. These obligations are not insured by the Federal
Deposit Insurance Corporation.

3. Commercial Paper. Commercial paper consists of unsecured promissory
notes issued by corporations to finance short-term credit needs. Commercial
paper is issued in bearer form with maturities generally not exceeding nine
months. Commercial paper obligations may include variable amount master demand
notes. Variable amount master demand notes are obligations that permit the
investment of fluctuating amounts at varying rates of interest pursuant to
direct arrangements between a Portfolio, as lender, and the borrower. These
notes permit daily changes in the amounts borrowed. A Portfolio has the right
to increase the amount under the note at any time up to the full amount
provided by the note agreement, or to decrease the amount, and the borrower may
prepay up to the full amount of the note without penalty. Because variable
amount master demand notes are direct lending arrangements between the lender
and borrower, it is not generally contemplated that such instruments will be
traded, and there is no secondary market for these notes, although they are
redeemable (and thus immediately repayable by the borrower) at face value, plus
accrued interest, at any time. A Portfolio will only invest in variable amount
master demand notes issued by companies which at the date of investment have an
outstanding debt issue rated "Aaa" or "Aa" by Moody's or "AAA" or "AA" by S&P
and which the applicable Subadviser has determined present minimal risk of loss
to the Portfolio. A Subadviser will look generally at the financial strength
of the issuing company as "backing" for the note and not to any security
interest or supplemental source such as a bank letter of credit. A variable
amount master demand note will be valued each day as a Portfolio's net asset
value is determined, which value will generally be equal to the face value of
the note plus accrued interest unless the financial position of the issuer is
such that its ability to repay the note when due is in question.

4. Corporate Obligations. Corporate obligations include bonds and notes
issued by corporations to finance longer-term credit needs than those supported
by commercial paper. While such obligations generally have maturities of ten
years or more, the Money Market Fund will only purchase obligations which have
remaining maturities of thirteen months or less from the date of purchase and
which are rated "AA" or higher by Standard & Poor's or "Aa" or higher by
Moody's.

5. Repurchase Agreements. Repurchase agreements are arrangements
involving the purchase of obligations by a Portfolio and the simultaneous
agreement to resell the same obligations on demand or at a specified future
date and at an agreed upon price.

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The majority of repurchase transactions run from day to day and delivery
pursuant to the resale provision typically will occur within one to five
business days of the purchase. A repurchase agreement can be viewed as a loan
made by a Portfolio to the seller of the obligation with such obligation
serving as collateral for the seller's agreement to repay the amount borrowed
with interest. Such transactions afford an opportunity for a Portfolio to earn
a return on cash which is only temporarily available. Repurchase agreements
entered into by the Portfolio will be with banks, brokers or dealers. However,
a Portfolio will enter into a repurchase agreement with a broker or dealer only
if the broker or dealer agrees to deposit additional collateral should the
value of the obligation purchased by the Portfolio decrease below the resale
price.

The Trustees have adopted procedures that establish certain
creditworthiness, asset and collateralization requirements for the
counterparties to a Portfolio's repurchase agreements. These procedures limit
the counterparties to repurchase transactions to those financial institutions
which are members of the Federal Reserve System and/or a primary government
securities dealer reporting to the Federal Reserve Bank of New York's Market
Reports Division or a broker/dealer which meet certain creditworthiness
criteria or which report U.S. Government securities positions to the Federal
Reserve Board. However, the Trustees reserve the right to change the criteria
used to select such financial institutions and broker/dealers. The Trustees
will regularly monitor the use of repurchase agreements and the Subadvisers
will, pursuant to procedures adopted by the Trustees, continuously monitor the
amount of collateral held with respect to a repurchase transaction so that it
equals or exceeds the amount of the obligations.

Should an issuer of a repurchase agreement fail to repurchase the
underlying obligation, the losses to the Portfolio, if any, would be the
difference between the repurchase price and the underlying obligation's market
value. A Portfolio might also incur certain costs in liquidating the
underlying obligation. Moreover, if bankruptcy or other insolvency proceedings
should be commenced with respect to the seller, realization upon the underlying
obligation by the Portfolio might be delayed or limited. Generally, repurchase
agreements are of a short duration, often less than one week but on occasion
for longer periods.

6. Warrants, Rights, Preferred Stock and Convertible Securities.
Certain of the portfolios may invest in warrants, rights, preferred stock and
convertible securities to the extent noted in the Prospectus. A warrant is a
security, usually issued together with a bond or preferred stock, that entitles
the holder to buy a proportionate amount of common stock at a specified price,
usually higher than the market price at the time of issuance, for a period of
years or to perpetuity. (For additional information on warrants see "Hedging
and Other Strategic Transactions - Warrant Transactions and Risks.") In
contrast, rights, which also represent the right to buy common shares, normally
have a subscription price lower than the current market value of the common
stock and a life of two to four weeks. A warrant is usually issued as a
sweetener, to enhance the marketability of the accompanying fixed income
securties. Preferred stock is a class of capital stock that pays dividends at
a specified rate and that has preference over common stock in the payment of
dividends and the liquidation of assets. Preferred stock does not ordinarily
carry voting rights. Convertible securities are securities (usually preferred
shares or bonds) that are exchangeable for a set number of another form of
securities (usually common stock) at a prestated price. The convertible
feature is usually designed as a sweetener to enhance the marketability of the
security.

7. Canadian and Provincial Government and Crown Agency Obligations.
Canadian Government obligations are debt securities issued or guaranteed as to
principal or interest by the Government of Canada pursuant to authority granted
by the Parliament of Canada and approved by the Governor in Council, where
necessary. These securities include treasury bills, notes, bonds, debentures
and marketable Government of Canada loans. Canadian Crown agency obligations
are debt securities issued or guaranteed by a Crown corporation, company or
agency ("Crown agencies") pursuant to authority granted by the Parliament of
Canada and approved by the Governor in Council, where necessary. Certain Crown
agencies are by statute agents of Her Majesty in right of Canada, and their
obligations, when properly authorized, constitute direct obligations of the
Government of Canada. Such obligations include, but are not limited to, those
issued or guaranteed by the Export Development Corporation, Farm Credit
Corporation, Federal Business Development Bank and Canada Post Corporation. In
addition, certain Crown agencies which are not by law agents of Her Majesty may
issue obligations which by statute the Governor in Council may authorize the
Minister of Finance to guarantee on behalf of the Government of Canada. Other
Crown agencies which are not by law agents of Her Majesty may issue or
guarantee obligations not entitled to be guaranteed by the Government of
Canada. No assurance can be given that the Government of Canada will support
the obligations of Crown agencies which are not agents of Her Majesty, which it
has not guaranteed, since it is not obligated to do so by law.

Provincial Government obligations are debt securities issued or guaranteed
as to principal or interest by the government of any province of Canada
pursuant to authority granted by the Legislature of any such province and
approved by the Lieutenant Governor in Council of any such province, where
necessary. These securities include treasury bills, notes, bonds and
debentures. Provincial Crown agency obligations are debt securities issued or
guaranteed by a provincial Crown corporation, company or agency ("provincial
Crown agencies") pursuant to authority granted by a provincial Legislature and
approved by the Lieutenant Governor in Council of such province, where
necessary. Certain provincial Crown agencies are by statute agents of Her
Majesty in right of a particular province of Canada, and their obligations,
when properly authorized, constitute direct obligations of such province.
Other provincial Crown agencies which are not by law agents of Her Majesty in
right of a particular province of Canada may issue

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obligations which by statute the Lieutenant Governor in Council of such
province may guarantee, or may authorize the Treasurer thereof to guarantee, on
behalf of the government of such province. Finally, other provincial Crown
agencies which are not by law agencies of Her Majesty may issue or guarantee
obligations not entitled to be guaranteed by a provincial government. No
assurance can be given that the government of any province of Canada will
support the obligations of provincial Crown agencies which are not agents of
Her Majesty, which it has not guaranteed, as it is not obligated to do so by
law. Provincial Crown agency obligations described above include, but are not
limited to, those issued or guaranteed by a provincial railway corporation, a
provincial hydroelectric or power commission or authority, a provincial
municipal financing corporation or agency and a provincial telephone commission
or authority.

Any Canadian obligation acquired by the Money Market Fund will be
denominated in U.S. dollars.

OTHER INSTRUMENTS

The following provides a more detailed explanation of some of the other
instruments that the Small/Mid Cap, International Small Cap, Growth Equity,
International Growth and Income, Asset Allocation, Strategic Income, Investment
Quality Bond, U.S. Government Securities and National Municipal Bond Funds may
invest in.

1. MORTGAGE SECURITIES

Mortgage securities differ from conventional bonds in that principal is
paid over the life of the securities rather than at maturity. As a result, a
Portfolio receives monthly scheduled payments of principal and interest, and
may receive unscheduled principal payments representing prepayments on the
underlying mortgages. When a Portfolio reinvests the payments and any
unscheduled prepayments of principal it receives, it may receive a rate of
interest which is higher or lower than the rate on the existing mortgage
securities. For this reason, mortgage securities may be less effective than
other types of debt securities as a means of locking in long-term interest
rates.

In addition, because the underlying mortgage loans and assets may be
prepaid at any time, if a Portfolio purchases mortgage securities at a premium,
a prepayment rate that is faster than expected will reduce yield to maturity,
while a prepayment rate that is slower than expected will have the opposite
effect of increasing yield to maturity. Conversely, if a Portfolio purchases
these securities at a discount, faster than expected prepayments will increase,
while slower than expected payments will reduce, yield to maturity.

Adjustable rate mortgage securities are similar to the mortgage securities
discussed above, except that unlike fixed rate mortgage securities, adjustable
rate mortgage securities are collateralized by or represent interests in
mortgage loans with variable rates of interest. These variable rates of
interest reset periodically to align themselves with market rates. Most
adjustable rate mortgage securities provide for an initial mortgage rate that
is in effect for a fixed period, typically ranging from three to twelve months.
Thereafter, the mortgage interest rate will reset periodically in accordance
with movements in a specified published interest rate index. The amount of
interest due to an adjustable rate mortgage holder is determined in accordance
with movements in a specified published interest rate index by adding a
pre-determined increment or "margin" to the specified interest rate index.
Many adjustable rate mortgage securities reset their interest rates based on
changes in the one-year, three-year and five-year constant maturity Treasury
rates, the three-month or six-month Treasury Bill rate, the 11th District
Federal Home Loan Bank Cost of Funds, the National Median Cost of Funds, the
one-month, three-month, six-month or one-year London Interbank Offered Rate
("LIBOR") and other market rates.

A Portfolio will not benefit from increases in interest rates to the
extent that interest rates rise to the point where they cause the current
coupon of adjustable rate mortgages held as investments to exceed any maximum
allowable annual or lifetime reset limits (or "cap rates") for a particular
mortgage. In this event, the value of the mortgage securities in a Portfolio
would likely decrease. Also, the Portfolio's net asset value could vary to the
extent that current yields on adjustable rate mortgage securities are different
than market yields during interim periods between coupon reset dates. During
periods of declining interest rates, income to a Portfolio derived from
adjustable rate mortgages which remain in a mortgage pool will decrease in
contrast to the income on fixed rate mortgages, which will remain constant.
Adjustable rate mortgages also have less potential for appreciation in value as
interest rates decline than do fixed rate investments.

PRIVATELY-ISSUED MORTGAGE SECURITIES. Privately-issued pass through
securities provide for the monthly principal and interest payments made by
individual borrowers to pass through to investors on a corporate basis, and in
privately-issued collateralized mortgage obligations, as further described
below. Privately-issued mortgage securities are issued by private originators
of, or investors in, mortgage loans, including mortgage bankers, commercial
banks, investment banks, savings and loan associations and special purpose
subsidiaries of the foregoing. Since privately-issued mortgage certificates
are not guaranteed by an entity having the credit status of GNMA or FHLMC, such
securities generally are structured with one or more types of credit
enhancement. For a description of the types of credit enhancements that may
accompany privately-issued mortgage securities, see "Asset-Backed

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Securities--Types of Credit Support" below. A Portfolio will not limit its
investments to asset-backed securities with credit enhancements.

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). CMOs generally are bonds or
certificates issued in multiple classes that are collateralized by or represent
an interest in mortgages. CMOs may be issued by single-purpose, stand-alone
finance subsidiaries or trusts of financial institutions, government agencies,
investment banks or other similar institutions. Each class of CMOs, often
referred to as a "tranche", may be issued with a specific fixed coupon rate
(which may be zero) or a floating coupon rate, and has a stated maturity or
final distribution date. Principal prepayments on the underlying mortgages may
cause the CMOs to be retired substantially earlier than their stated maturities
or final distribution dates. Interest is paid or accrued on CMOs on a monthly,
quarterly or semiannual basis. The principal of and interest on the underlying
mortgages may be allocated among the several classes of a series of a CMO in
many ways. The general goal sought to be achieved in allocating cash flows on
the underlying mortgages to the various classes of a series of CMOs is to
create tranches on which the expected cash flows have a higher degree of
predictability than the underlying mortgages. As a general matter, the more
predictable the cash flow is on a CMO tranche, the lower the anticipated yield
will be on that tranche at the time of issuance. As part of the process of
creating more predictable cash flows on most of the tranches in a series of
CMOs, one or more tranches generally must be created that absorb most of the
volatility in the cash flows on the underlying mortgages. The yields on these
tranches are relatively higher than on tranches with more predictable cash
flows. Because of the uncertainty of the cash flows on these tranches, and the
sensitivity thereof to changes in prepayment rates on the underlying mortgages,
the market prices of and yield on these tranches tend to be highly volatile.

CMOs purchased may be:

(1) collateralized by pools of mortgages in which each mortgage is
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. Government;

(2) collateralized by pools of mortgages in which payment of principal
and interest is guaranteed by the issuer and the guarantee is
collateralized by U.S. Government securities; or

(3) securities for which the proceeds of the issuance are invested in
mortgage securities and payment of the principal and interest is supported
by the credit of an agency or instrumentality of the U.S. Government.

STRIPS. In addition to the U.S. Government securities discussed above,
certain Portfolios may invest in separately traded interest components of
securities issued or guaranteed by the U.S. Treasury. The interest components
of selected securities are traded independently under the Separate Trading of
Registered Interest and Principal of Securities program ("STRIPS"). Under the
STRIPS program, the interest components are individually numbered and
separately issued by the U.S. Treasury at the request of depository financial
institutions, which then trade the component parts independently.

STRIPPED MORTGAGE SECURITIES. Stripped mortgage securities are derivative
multiclass mortgage securities. Stripped mortgage securities may be issued by
agencies or instrumentalities of the U.S. Government, or by private issuers,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing. Stripped
mortgage securities have greater volatility than other types of mortgage
securities in which a Portfolio invests. Although stripped mortgage securities
are purchased and sold by institutional investors through several investment
banking firms acting as brokers or dealers, the market for such securities has
not yet been fully developed. Accordingly, stripped mortgage securities are
generally illiquid and to such extent, together with any other illiquid
investments, will not exceed 10% of a Portfolio's net assets.

Stripped mortgage securities are usually structured with two classes that
receive different proportions of the interest and principal distributions on a
pool of mortgage assets. A common type of stripped mortgage security 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 not only to changes
in prevailing interest rates but also the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on a Portfolio's yield to
maturity. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, a Portfolio may fail to

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fully recoup its initial investment in these securities even if the
securities have received the highest rating by a nationally recognized
statistical rating organization.

As interest rates rise and fall, the value of IOs tends to move in the
same direction as interest rates. The value of the other mortgage securities
described in this Statement of Additional Information, like other debt
instruments, will tend to move in the opposite direction of interest rates.
Accordingly, the Fund believes that investing in IOs, in conjunction with the
other mortgage securities described herein, will contribute to a Portfolio's
relatively stable net asset value.

In addition to the stripped mortgage securities described above, the
Strategic Income Fund may invest in similar securities such as Super POs and
Levered IOs which are more volatile than POs, IOs and IOettes. Risks
associated with instruments such as Super POs are similar in nature to those
risks related to investments in POs. Risks connected with Levered IOs and
IOettes are similar in nature to those associated with IOs. The Strategic
Income Fund may also invest in other similar instruments developed in the
future that are deemed consistent with the investment objective, policies and
restrictions of the Portfolio.

Under the Internal Revenue Code of 1986, as amended (the "Code"), POs may
generate taxable income from the current accrual of original issue discount,
without a corresponding distribution of cash to a Portfolio. See "Taxes --
Pay-in-kind Bonds, Zero Coupon Bonds and Discount Obligations."

INVERSE FLOATERS. The Strategic Income Fund and the National Municipal
Bond Fund may invest in inverse floaters, which are also derivative mortgage
securities. Inverse floaters may be issued by agencies or instrumentalities of
the U.S. Government, or by private issuers, including savings and loan
associations, mortgage banks, commercial banks, investment banks and special
purpose subsidiaries of the foregoing. Inverse floaters have greater
volatility than other types of mortgage securities in which a Portfolio invests
(with the exception of stripped mortgage securities). Although inverse
floaters are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, the market for such
securities has not yet been fully developed. Accordingly, inverse floaters are
generally illiquid and to such extent, together with any other illiquid
investments, will not exceed 10% of a Portfolio's net assets.

Inverse floaters are structured as a class of security that receives
distributions on a pool of mortgage assets and whose yields move in the
opposite direction of short-term interest rates and at an accelerated rate.
Such securities have the effect of providing a degree of investment leverage
since they will generally increase or decrease in value in response to changes
in market interest rates at a rate which is a multiple (typically two) of the
rate at which fixed-rate long-term debt obligations increase or decrease in
response to such changes. As a result, the market values of such securities
will generally be more volatile than the market value of fixed-rate
obligations.

2. ASSET-BACKED SECURITIES

The securitization techniques used to develop mortgage securities are also
being applied to a broad range of other assets. Through the use of trusts and
special purpose corporations, automobile and credit card receivables are being
securitized in pass-through structures similar to mortgage pass-through
structures or in a pay-through structure similar to the CMO structure.
Generally the issuers of asset-backed bonds, notes or pass-through certificates
are special purpose entities and do not have any significant assets other than
the receivables securing such obligations. In general, the collateral
supporting asset-backed securities is of a shorter maturity than mortgage
loans. As a result, investment in these securities should result in greater
price stability for a Portfolio's shares. Instruments backed by pools of
receivables are similar to mortgage-backed securities in that they are subject
to unscheduled prepayments of principal prior to maturity. When the
obligations are prepaid, a Portfolio must reinvest the prepaid amounts in
securities the yields of which reflect interest rates prevailing at the time.
Therefore, a Portfolio's ability to maintain a portfolio which includes
high-yielding asset-backed securities will be adversely affected to the extent
that prepayments of principal must be reinvested in securities which have lower
yields than the prepaid obligations. Moreover, prepayments of securities
purchased at a premium could result in a realized loss. A Portfolio will only
invest in asset-backed securities rated, at the time of purchase, "AA" or
better by S&P or "Aa" or better by Moody's or which, in the opinion of the
applicable Subadviser, are of comparable quality.

As with mortgage securities, asset-backed securities are often backed by a
pool of assets representing the obligations of a number of different parties
and use similar credit enhancement techniques. For a description of the types
of credit enhancement that may accompany privately-issued mortgage securities,
see "Types of Credit Support" below. A Portfolio will not limit its
investments to asset-backed securities with credit enhancements. Although
asset-backed securities are not generally traded on a national securities
exchange, such securities are widely traded by brokers and dealers, and to such
extent will not be considered illiquid securities for the purposes of the
investment restriction under "Investment Restrictions" below.

TYPES OF CREDIT SUPPORT. Mortgage securities and asset-backed securities
are often backed by a pool of assets representing the obligations of a number
of different parties. To lessen the effect of failure by obligors on
underlying assets to make payments, such securities may contain elements of
credit support. Such credit support falls into two categories: (i) liquidity
protection and (ii)

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protection against losses resulting from ultimate default by an obligor on the
underlying assets. Liquidity protection refers to the provision of advances,
generally by the entity administering the pool of assets, to ensure that the
pass-through of payments due on the underlying pool occurs in a timely fashion.
Protection against losses resulting from ultimate default enhances the
likelihood of ultimate payment of the obligations on at least a portion of the
assets in the pool. Such protection may be provided through guarantees,
insurance policies or letters of credit obtained by the issuer or sponsor from
third parties, through various means of structuring the transaction or through
a combination of such approaches. The Portfolio will not pay any additional
fees for such credit support, although the existence of credit support may
increase the price of a security.

The ratings of mortgage securities and asset-backed securities for which
third-party credit enhancement provides liquidity protection or protection
against losses from default are generally dependent upon the continued
creditworthiness of the provider of the credit enhancement. The ratings of
such securities could be subject to reduction in the event of deterioration in
the creditworthiness of the credit enhancement provider even in cases where the
delinquency and loss experience on the underlying pool of assets is better than
expected.

Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal
thereof and interest thereon, with the result that defaults on the underlying
assets are borne first by the holders of the subordinated class), creation of
"reserve funds" (where cash or investments sometimes funded from a portion of
the payments on the underlying assets are held in reserve against future
losses) and "over-collateralization" (where the scheduled payments on, or the
principal amount of, the underlying assets exceed those required to make
payment of the securities and pay any servicing or other fees). The degree of
credit support provided for each issue is generally based on historical
information with respect to the level of credit risk associated with the
underlying assets. Delinquency or loss in excess of that which is anticipated
could adversely affect the return on an investment in such security.

3. ZERO COUPON SECURITIES AND PAY-IN-KIND BONDS

Zero coupon securities and pay-in-kind bonds involve special risk
considerations. Zero coupon securities are debt securities that do not provide
for the payment of cash income but are sold at substantial discounts from their
value at maturity. When a zero coupon security is held to maturity, its entire
return, which consists of the amortization of discount, comes from the
difference between its purchase price and its maturity value. This difference
is known at the time of purchase, so that investors holding zero coupon
securities until maturity know at the time of their investment what the return
on their investment will be. Certain zero coupon securities also are sold at
substantial discounts from their maturity value and provide for the
commencement of regular interest payments at a deferred date. The Portfolios
also may purchase pay-in-kind bonds. Pay-in-kind bonds are bonds that pay all
or a portion of their interest in the form of additional debt or equity
securities. The U.S. Government Securities Fund will not invest in zero coupon
securities having maturities of greater than ten years.

Zero coupon securities and pay-in-kind bonds tend to be subject to greater
price fluctuations in response to changes in interest rates than are ordinary
interest-paying debt securities with similar maturities. The value of zero
coupon securities appreciates more during periods of declining interest rates
and depreciates more during periods of rising interest rates.

Zero coupon securities and pay-in-kind bonds may be issued by a wide
variety of corporate and governmental issuers. Although zero coupon securities
and pay-in-kind bonds are generally not traded on a national securities
exchange, such securities are widely traded by brokers and dealers and, to such
extent, will not be considered illiquid for the purposes of the investment
restriction under "Investment Restrictions" below.

Current federal income tax law requires the holder of a zero coupon
security or certain pay-in-kind bonds to accrue income with respect to these
securities prior to the receipt of cash payments. To maintain its
qualification as a regulated investment company and avoid liability for federal
income and excise taxes, a Portfolio may be required to distribute income
accrued with respect to these securities and may have to dispose of portfolio
securities under disadvantageous circumstances in order to generate cash to
satisfy these distribution requirements. See "TAXES -- Pay-in-kind Bonds, Zero
Coupon Bonds and Discount Obligations" below.

4. HIGH YIELD DOMESTIC CORPORATE DEBT SECURITIES

The market for high yield U.S. corporate debt securities has undergone
significant changes in the past decade. Issuers in the U.S. high yield market
originally consisted primarily of growing small capitalization companies and
larger capitalization companies whose credit quality had declined from
investment grade. During the mid-1980s, participants in the U.S. high yield
market issued high yield securities principally in connection with leveraged
buyouts and other leveraged recapitalizations. In late 1989 and 1990, the
volume of new issues of high yield U.S. corporate debt declined significantly
and liquidity in the market decreased. Since early 1991, the volume of new
issues of high yield U.S. corporate debt securities has increased substantially
and secondary market liquidity has improved. During the same

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periods, the U.S. high yield debt market exhibited strong returns, as it
continues to be an attractive market in terms of yield and yield spread over
U.S. Treasury securities. Currently, most new offerings of U.S. high yield
securities are being issued to refinance higher coupon debt and to raise funds
for general corporate purposes.

High yield U.S. corporate debt securities include bonds, debentures, notes
and commercial paper and will generally be unsecured. Most of these debt
securities will bear interest at fixed rates. However, a Portfolio may also
invest in debt securities with variable rates of interest or which involve
equity features, such as contingent interest or participations based on
revenues, sales or profits (i.e., interest or other payments, often in addition
to a fixed rate of return, that are based on the borrower's attainment of
specified levels of revenues, sales or profits and thus enable the holder of
the security to share in the potential success of the venture).

5. HIGH YIELD FOREIGN SOVEREIGN DEBT SECURITIES

The Strategic Income, International Small Cap and Investment Quality Bond
Funds expect that a significant portion of their emerging market governmental
debt obligations will consist of "Brady Bonds." Brady Bonds are debt
securities, generally denominated in U.S. dollars, issued under the framework
of the "Brady Plan," an initiative announced by former U.S. Treasury Secretary
Nicholas F. Brady in 1989 as a mechanism for debtor nations to restructure
their outstanding external commercial bank indebtedness. The Brady Plan
framework, as it has developed, contemplates the exchange of external
commercial bank debt for newly issued bonds (Brady Bonds). Brady Bonds may
also be issued in respect of new money being advanced by existing lenders in
connection with the debt restructuring. Investors should recognize that Brady
Bonds have been issued only recently, and accordingly do not have a long
payment history. Brady Bonds issued to date generally have maturities of
between 15 and 30 years from the date of issuance and have traded at a deep
discount from their face value. The Strategic Income, International Small Cap
and Investment Quality Bond Funds may invest in Brady Bonds of emerging market
countries that have been issued to date, as well as those which may be issued
in the future. In addition to Brady Bonds, the Strategic Income, International
Small Cap and Investment Quality Bond Funds may invest in emerging market
governmental obligations issued as a result of debt restructuring agreements
outside of the scope of the Brady Plan. A substantial portion of the Brady
Bonds and other sovereign debt securities in which the Portfolios invest are
likely to be acquired at a discount, which involves certain considerations
discussed below under "TAXES -- Pay-in-kind Bonds, Zero Coupon Bonds and
Discount Obligations."

Agreements implemented under the Brady Plan to date are designed to
achieve debt and debt-service reduction through specific options negotiated by
a debtor nation with its creditors. As a result, the financial packages
offered by each country differ. The types of options have included the
exchange of outstanding commercial bank debt for bonds issued at 100% of face
value of such debt which carry a below-market stated rate of interest
(generally known as par bonds), bonds issued at a discount from the face value
of such debt (generally known as discount bonds), bonds bearing an interest
rate which increases over time and bonds issued in exchange for the advancement
of new money by existing lenders. Discount bonds issued to date under the
framework of the Brady Plan have generally borne interest computed semiannually
at a rate equal to 13/16 of one percent above the then current six month LIBOR
rate. Regardless of the stated face amount and stated interest rate of the
various types of Brady Bonds, the Strategic Income, International Small Cap and
Investment Quality Bond Funds will purchase Brady Bonds in secondary markets,
as described below, in which the price and yield to the investor reflect market
conditions at the time of purchase. Brady Bonds issued to date have traded at
a deep discount from their face value. Certain sovereign bonds are entitled to
"value recovery payments" in certain circumstances, which in effect constitute
supplemental interest payments but generally are not collateralized. Certain
Brady Bonds have been collateralized as to principal due at maturity (typically
15 to 30 years from the date of issuance) by U.S. Treasury zero coupon bonds
with a maturity equal to the final maturity of such Brady Bonds, although the
collateral is not available to investors until the final maturity of the Brady
Bonds. Collateral purchases are financed by the International Monetary Fund
(the "IMF"), the World Bank and the debtor nations' reserves. In addition,
interest payments on certain types of Brady Bonds may be collateralized by cash
or high-grade securities in amounts that typically represent between 12 and 18
months of interest accruals on these instruments with the balance of the
interest accruals being uncollateralized. The Strategic Income, International
Small Cap and Investment Quality Bond Funds may purchase Brady Bonds with no or
limited collateralization, and will be relying for payment of interest and
(except in the case of principal collateralized Brady Bonds) principal
primarily on the willingness and ability of the foreign government to make
payment in accordance with the terms of the Brady Bonds. Brady Bonds issued to
date are purchased and sold in secondary markets through U.S. securities
dealers and other financial institutions and are generally maintained through
European transnational securities depositories.

6. MUNICIPAL LEASE OBLIGATIONS

The National Municipal Bond Fund may invest in municipal lease
obligations. Municipal lease obligations are secured by revenues derived from
the lease of property to state and local government units. The underlying
leases typically are renewable annually by the governmental user, although the
lease may have a term longer than one year. If the governmental user does not
appropriate sufficient funds for the following year's lease payments, the lease
will terminate, with the possibility of default on the

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lease obligations and significant loss to the Portfolio. In the event of a
termination, assignment or sublease by the governmental user, the interest paid
on the municipal lease obligation could become taxable, depending upon the
identity of the succeeding user.

7. Structured Secrities

The Asset Allocation Fund may invest up to 10% of its assets
in structured securities. Structured securities are notes, bonds or debentures,
the value of the principal of and/or interest on which is determined by
reference to changes in the value of specific currencies, interest rates,
commodities, indicies or other financial indicators (the "Reference") or the
relative change in two or more References. The interest rate or the principal
amount payable upon maturity or redemption may be increased or decreased
dependng upon changes in the applicable Reference. The terms of the structured
securities may provide that in certain circumstances no principal is due at
maturity and, therefore, may result in the losss of the Portfolio's investment.
Structured securities may be positively or negatively indexed, so that
appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, the change in
interest rate or the value of the security at maturity may be a multiple of the
change in the value of the Reference. Consequently, structured securities
entail a greater degreee of market risk than other types of debt obligations.
Structured securities may also be more volatile, less liquid and more difficult
to accurately price than less complex securities.

HEDGING AND OTHER STRATEGIC TRANSACTIONS

As described in the Prospectus under "Hedging and Other Strategic
Transactions", an individual Portfolio may be authorized to use a variety of
investment strategies. These strategies will be used for hedging purposes
only, including hedging various market risks (such as interest rates, currency
exchange rates and broad or specific market movements), and managing the
effective maturity or duration of debt instruments held by the Portfolio, (such
investment strategies and transactions are referred to herein as "Hedging and
Other Strategic Transactions"). The description in the Prospectus of each
Portfolio indicates which, if any, of these types of transactions may be used
by the Portfolio.

A detailed discussion of Hedging and Other Strategic Transactions follows
below. No Portfolio which is authorized to use any of these investment
strategies will be obligated, however, to pursue any of such strategies and no
Portfolio makes any representation as to the availability of these techniques
at this time or at any time in the future. In addition, a Portfolio's ability
to pursue certain of these strategies may be limited by the Commodity Exchange
Act, as amended, applicable rules and regulations of the Commodity Futures
Trading Commission ("CFTC") thereunder and the federal income tax requirements
applicable to regulated investment companies which are not operated as
commodity pools.

GENERAL CHARACTERISTICS OF OPTIONS

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

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

OCC-issued and exchange-listed options, with certain exceptions, generally
settle by physical delivery of the underlying security or currency, although in
the future, cash settlement may become available. Index options and Eurodollar
instruments (which are described below under "Eurodollar Instruments") are cash
settled for the net amount, if any, by which the option is "in-the-money" (that
is, the amount by which the value of the underlying instrument exceeds, in the
case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or

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making delivery of the underlying instrument through the process of
exercising the option, listed options are closed by entering into offsetting
purchase or sale transactions that do not result in ownership of the new
option.

A Portfolio's ability to close out its position as a purchaser or seller
of an OCC-issued or exchange-listed put or call option is dependent, in part,
upon the liquidity of the particular option market. Among the possible reasons
for the absence of a liquid option market on an exchange are: (1) insufficient
trading interest in certain options, (2) restrictions on transactions imposed
by an exchange, (3) trading halts, suspensions or other restrictions imposed
with respect to particular classes or series of options or underlying
securities, including reaching daily price limits, (4) interruption of the
normal operations of the OCC or an exchange, (5) inadequacy of the facilities
of an exchange or the OCC to handle current trading volume or (6) a decision by
one or more exchanges to discontinue the trading of options (or a particular
class or series of options), in which event the relevant market for that option
on that exchange would cease to exist, although any such outstanding options on
that exchange would continue to be exercisable in accordance with their terms.

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

Over-the-counter ("OTC") options are purchased from or sold to securities
dealers, financial institutions or other parties (collectively referred to as
"Counterparties" and individually referred to as a "Counterparty") through a
direct bilateral agreement with the Counterparty. In contrast to
exchange-listed options, which generally have standardized terms and
performance mechanics, all of the terms of an OTC option, including such terms
as method of settlement, term, exercise price, premium, guaranties and
security, are determined by negotiation of the parties. It is anticipated that
any Portfolio authorized to use OTC options will generally only enter into OTC
options that have cash settlement provisions, although it will not be required
to do so.

Unless the parties provide for it, no central clearing or guaranty
function is involved in an OTC option. As a result, if a Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with a Portfolio or fails to make a cash
settlement payment due in accordance with the terms of that option, the
Portfolio will lose any premium it paid for the option as well as any
anticipated benefit of the transaction. Thus, the Subadviser must assess the
creditworthiness of each such Counterparty or any guarantor or credit
enhancement of the Counterparty's credit to determine the likelihood that the
terms of the OTC option will be met. A Portfolio will enter into OTC option
transactions only with U.S. Government securities dealers recognized by the
Federal Reserve Bank of New York as "primary dealers," or broker-dealers,
domestic or foreign banks, or other financial institutions that are deemed
creditworthy by the Subadviser. In the absence of a change in the current
position of the staff of the Securities and Exchange Commission (the
"Commission"), OTC options purchased by a Portfolio and the amount of the
Portfolio's obligation pursuant to an OTC option sold by the Portfolio (the
cost of the sell-back plus the in-the-money amount, if any) or the value of the
assets held to cover such options will be deemed illiquid.

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

If and to the extent authorized to do so, a Portfolio may purchase and
sell call options on securities and on Eurodollar instruments that are traded
on U.S. and foreign securities exchanges and in the OTC markets, and on
securities indices, currencies and futures contracts. All calls sold by a
Portfolio must be "covered," that is, the Portfolio must own the securities
subject to the call, must own an offsetting option on a futures position, or
must otherwise meet the asset segregation requirements described below for so
long as the call is outstanding. Even though a Portfolio will receive the
option premium to help protect it against loss, a call sold by the Portfolio
will expose the Portfolio during the term of the option to possible loss of
opportunity to realize appreciation in the market price of the underlying
security or instrument and may require the Portfolio to hold a security or
instrument that it might otherwise have sold.

Each Portfolio reserves the right to purchase or sell options on
instruments and indices which may be developed in the future to the extent
consistent with applicable law, the Portfolio's investment objective and the
restrictions set forth herein.

If and to the extent authorized to do so, a Portfolio may purchase and
sell put options on securities (whether or not it holds the securities in its
portfolio) and on securities indices, currencies and futures contracts. A
Portfolio will not sell put options if, as a result, more than 50% of the
Portfolio's assets would be required to be segregated to cover its potential
obligations under put options other than those with respect to futures
contracts. In selling put options, a Portfolio faces the risk that it may be
required to buy the underlying security at a disadvantageous price above the
market price.

GENERAL CHARACTERISTICS OF FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

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If and to the extent authorized to do so, a Portfolio may trade financial
futures contracts or purchase or sell put and call options on those contracts
as a hedge against anticipated interest rate, currency or market changes, for
duration management and for permissible non-hedging purposes. Futures
contracts are generally bought and sold on the commodities exchanges on which
they are listed with payment of initial and variation margin as described
below. The sale of a futures contract creates a firm obligation by a
Portfolio, as seller, to deliver to the buyer the specific type of financial
instrument called for in the contract at a specific future time for a specified
price (or, with respect to certain instruments, the net cash amount). Options
on futures contracts are similar to options on securities except that an option
on a futures contract gives the purchaser the right, in return for the premium
paid, to assume a position in a futures contract and obligates the seller to
deliver that position.

A Portfolio's use of financial futures contracts and options thereon will
in all cases be consistent with applicable regulatory requirements and in
particular the rules and regulations of the CFTC and generally will be entered
into only for bona fide hedging, risk management (including duration
management). Maintaining a futures contract or selling an option on a futures
contract will typically require a Portfolio to deposit with a financial
intermediary, as security for its obligations, an amount of cash or other
specified assets ("initial margin") that initially is from 1% to 10% of the
face amount of the contract (but may be higher in some circumstances).
Additional cash or assets ("variation margin") may be required to be deposited
thereafter daily as the mark-to-market value of the futures contract
fluctuates. The purchase of an option on a financial futures contract involves
payment of a premium for the option without any further obligation on the part
of a Portfolio. If a Portfolio exercises an option on a futures contract it
will be obligated to post initial margin (and potentially variation margin) for
the resulting futures position just as it would for any futures position.
Futures contracts and options thereon are generally settled by entering into an
offsetting transaction, but no assurance can be given that a position can be
offset prior to settlement or that delivery will occur.

The value of all futures contracts sold by a Portfolio (adjusted for the
historical volatility relationship between such Portfolio and the contracts)
will not exceed the total market value of the Portfolio's securities. The
segregation requirements with respect to futures contracts and options thereon
are described below under "Use of Segregated and Other Special Accounts."

OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES

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

CURRENCY TRANSACTIONS

If and to the extent authorized to do so, a Portfolio may engage in
currency transactions with Counterparties to hedge the value of portfolio
securities denominated in particular currencies against fluctuations in
relative value. Currency transactions include currency forward contracts,
exchange-listed currency futures contracts and options thereon, exchange-listed
and OTC options on currencies, and currency swaps. A forward currency contract
involves a privately negotiated obligation to purchase or sell (with delivery
generally required) a specific currency at a future date, which may be any
fixed number of days from the date of the contract agreed upon by the parties,
at a price set at the time of the contract. A currency swap is an agreement to
exchange cash flows based on the notional difference among two or more
currencies and operates similarly to an interest rate swap, which is described
below under "Swaps, Caps, Floors and Collars". A Portfolio may enter into
currency transactions only with Counterparties that are deemed creditworthy by
the Subadviser.

A Portfolio's dealings in forward currency contracts and other currency
transactions such as futures contracts, options, options on futures contracts
and swaps will be limited to hedging and other non-speculative purposes,
including transaction hedging and position hedging. Transaction hedging is
entering into a currency transaction with respect to specific assets or
liabilities of a Portfolio, which will generally arise in connection with the
purchase or sale of the Portfolio's portfolio securities or the receipt of
income from them. Position hedging is entering into a currency transaction
with respect to portfolio securities positions denominated or generally quoted
in that currency. A Portfolio will not enter into a transaction to hedge
currency exposure to an extent greater, after netting all transactions intended
wholly or partially to offset other transactions, than the aggregate market
value (at the time of entering into the transaction) of the securities held by
the Portfolio that are denominated or generally quoted in or currently
convertible into the currency, other than with respect to proxy hedging as
described below.

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A Portfolio may cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to increase or
decline in value relative to other currencies to which the Portfolio has or in
which the Portfolio expects to have exposure. To reduce the effect of currency
fluctuations on the value of existing or anticipated holdings of its
securities, a Portfolio may also engage in proxy hedging. Proxy hedging is
often used when the currency to which a Portfolio's holdings is exposed is
difficult to hedge generally or difficult to hedge against the dollar. Proxy
hedging entails entering into a forward contract to sell a currency, the
changes in the value of which are generally considered to be linked to a
currency or currencies in which some or all of a Portfolio's securities are or
are expected to be denominated, and to buy dollars. The amount of the contract
would not exceed the market value of the Portfolio's securities denominated in
linked currencies.

Currency transactions are subject to risks different from other portfolio
transactions, as discussed below under "Risk Factors." If a Portfolio enters
into a currency hedging transaction, the Portfolio will comply with the asset
segregation requirements described below under "Use of Segregated and Other
Special Accounts."

COMBINED TRANSACTIONS

If and to the extent authorized to do so, a Portfolio may enter into
multiple transactions, including multiple options transactions, multiple
futures transactions, multiple currency transactions (including forward
currency contracts), multiple interest rate transactions and any combination of
futures, options, currency and interest rate transactions, instead of a single
Hedging and Other Strategic Transaction, as part of a single or combined
strategy when, in the judgment of the Subadviser, it is in the best interests
of the Portfolio to do so. A combined transaction will usually contain
elements of risk that are present in each of its component transactions.
Although combined transactions will normally be entered into by a Portfolio
based on the Subadviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase the risks or
hinder achievement of the portfolio management objective.

SWAPS, CAPS, FLOORS AND COLLARS

A Portfolio may be authorized to enter into interest rate, currency and
index swaps, the purchase or sale of related caps, floors and collars and other
derivatives. A Portfolio will enter into these transactions primarily to seek
to preserve a return or spread on a particular investment or portion of its
portfolio, to protect against currency fluctuations, as a duration management
technique or to protect against any increase in the price of securities a
Portfolio anticipates purchasing at a later date. A Portfolio will use these
transactions for non-speculative purposes and will not sell interest rate caps
or floors if it does not own securities or other instruments providing the
income the Portfolio may be obligated to pay. Interest rate swaps involve the
exchange by a Portfolio with another party of their respective commitments to
pay or receive interest (for example, an exchange of floating rate payments for
fixed rate payments with respect to a notional amount of principal). A
currency swap is an agreement to exchange cash flows on a notional amount based
on changes in the values of the reference indices. The purchase of a cap
entitles the purchaser to receive payments on a notional principal amount from
the party selling the cap to the extent that a specified index exceeds a
predetermined interest rate. The purchase of an interest rate floor entitles
the purchaser to receive payments of interest on a notional principal amount
from the party selling the interest rate floor to the extent that a specified
index falls below a predetermined interest rate or amount. The purchase of a
floor entitles the purchaser to receive payments on a notional principal amount
from the party selling the floor to the extent that a specific index falls
below a predetermined interest rate or amount. A collar is a combination of a
cap and a floor that preserves a certain return with a predetermined range of
interest rates or values.

A Portfolio will usually enter into interest rate swaps on a net basis,
that is, the two payment streams are netted out in a cash settlement on the
payment date or dates specified in the instrument, with the Portfolio receiving
or paying, as the case may be, only the net amount of the two payments.
Inasmuch as these swaps, caps, floors, collars and other similar derivatives
are entered into for good faith hedging or other non-speculative purposes, they
do not constitute senior securities under the Investment Company Act of 1940,
as amended (the "1940 Act"), and, thus, will not be treated as being subject to
the Portfolio's borrowing restrictions. A Portfolio will not enter into any
swap, cap, floor, collar or other derivative transaction unless the
Counterparty is deemed creditworthy by the Subadviser. If a Counterparty
defaults, a Portfolio may have contractual remedies pursuant to the agreements
related to the transaction. The swap market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a
result, the swap market has become relatively liquid. Caps, floors and collars
are more recent innovations for which standardized documentation has not yet
been fully developed and, for that reason, they are less liquid than swaps.

The liquidity of swap agreements will be determined by a Subadviser based
on various factors, including (1) the frequency of trades and quotations, (2)
the number of dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including any
demand or tender features), and (5) the nature of the marketplace for trades
(including the ability to assign or offset a Portfolio's rights and obligations
relating to the investment). Such determination will govern whether a swap
will be deemed to be within the 10% restriction on investments in securities
that are not readily marketable.

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Each Portfolio will maintain cash and appropriate liquid assets (i.e.,
high grade debt securities) in a segregated custodial account to cover its
current obligations under swap agreements. If a Portfolio enters into a swap
agreement on a net basis, it will segregate assets with a daily value at least
equal to the excess, if any, of the Portfolio's accrued obligations under the
swap agreement over the accrued amount the Portfolio is entitled to receive
under the agreement. If a Portfolio enters into a swap agreement on other than
a net basis, it will segregate assets with a value equal to the full amount of
the Portfolio's accrued obligations under the agreement. See "Use of
Segregated and Other Special Accounts."

EURODOLLAR INSTRUMENTS

If and to the extent authorized to do so, a Portfolio may make investments
in Eurodollar instruments, which are typically dollar-denominated futures
contracts or options on those contracts that are linked to the London Interbank
Offered Rate ("LIBOR"), although foreign currency denominated instruments are
available from time to time. Eurodollar futures contracts enable purchasers to
obtain a fixed rate for the lending of funds and sellers to obtain a fixed rate
for borrowings. A Portfolio might use Eurodollar futures contracts and options
thereon to hedge against changes in LIBOR, to which many interest rate swaps
and fixed income instruments are linked.

MUNICIPAL BOND INDEX FUTURES CONTRACTS

The National Municipal Bond Fund may enter into municipal bond index
futures contracts. A municipal bond index futures contract is an agreement to
take or make delivery of an amount of cash equal to the difference between the
value of the index at the beginning and at the end of the contract period. The
National Municipal Bond Fund may enter into short municipal bond index futures
contracts in anticipation of or during a market decline to attempt to offset
the decrease in market value of securities in its respective portfolio that
might otherwise result. When the Portfolio is not fully invested in securities
and anticipates a significant market advance, it may enter into long municipal
bond index futures contracts in order to gain rapid market exposure that may
wholly or partially offset increases in the costs of securities that it intends
to purchase. In a substantial majority of these transactions, the Portfolio
will purchase such securities upon termination of the futures position but,
under unusual market conditions, a futures position may be terminated without
the corresponding purchase of securities.

RISK FACTORS

Hedging and Other Strategic Transactions have special risks associated
with them, including possible default by the Counterparty to the transaction,
illiquidity and, to the extent the Subadviser's view as to certain market
movements is incorrect, the risk that the use of the Hedging and Other
Strategic Transactions could result in losses greater than if they had not been
used. Use of put and call options could result in losses to a Portfolio, force
the sale or purchase of portfolio securities at inopportune times or for prices
higher than (in the case of put options) or lower than (in the case of call
options) current market values, or cause a Portfolio to hold a security it
might otherwise sell.

The use of futures and options transactions entails certain special risks.
In particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related securities position of a
Portfolio could create the possibility that losses on the hedging instrument
are greater than gains in the value of the Portfolio's position. In addition,
futures and options markets could be illiquid in some circumstances and certain
over-the-counter options could have no markets. As a result, in certain
markets, a Portfolio might not be able to close out a transaction without
incurring substantial losses. Although a Portfolio's use of futures and
options transactions for hedging should tend to minimize the risk of loss due
to a decline in the value of the hedged position, at the same time it will tend
to limit any potential gain to a Portfolio that might result from an increase
in value of the position. Finally, the daily variation margin requirements for
futures contracts create a greater ongoing potential financial risk than would
purchases of options, in which case the exposure is limited to the cost of the
initial premium.

Currency hedging involves some of the same risks and considerations as
other transactions with similar instruments. Currency transactions can result
in losses to a Portfolio if the currency being hedged fluctuates in value to a
degree or in a direction that is not anticipated. Further, the risk exists
that the perceived linkage between various currencies may not be present or may
not be present during the particular time that a Portfolio is engaging in proxy
hedging. Currency transactions are also subject to risks different from those
of other portfolio transactions. Because currency control is of great
importance to the issuing governments and influences economic planning and
policy, purchases and sales of currency and related instruments can be
adversely affected by government exchange controls, limitations or restrictions
on repatriation of currency, and manipulations or exchange restrictions imposed
by governments. These forms of governmental actions can result in losses to a
Portfolio if it is unable to deliver or receive currency or monies in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures contracts are
subject to the same risks that apply to the use of futures contracts generally.
Further, settlement of a currency futures contract for the purchase of most
currencies must occur at a bank based in the issuing nation. Trading options
on currency futures contracts is relatively new, and the ability to establish
and close out positions on these options is subject to the maintenance of a
liquid market that may not always be available. Currency exchange rates may
fluctuate based on factors extrinsic to that country's economy.

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Losses resulting from the use of Hedging and Other Strategic Transactions
will reduce a Portfolio's net asset value, and possibly income, and the losses
can be greater than if Hedging and Other Strategic Transactions had not been
used.

RISKS OF HEDGING AND OTHER STRATEGIC TRANSACTIONS OUTSIDE THE UNITED STATES

When conducted outside the United States, Hedging and Other Strategic
Transactions may not be regulated as rigorously as in the United States, may
not involve a clearing mechanism and related guarantees, and will be subject to
the risk of governmental actions affecting trading in, or the prices of,
foreign securities, currencies and other instruments. The value of positions
taken as part of non-U.S. Hedging and Other Strategic Transactions also could
be adversely affected by: (1) other complex foreign political, legal and
economic factors, (2) lesser availability of data on which to make trading
decisions than in the United States, (3) delays in a Portfolio's ability to act
upon economic events occurring in foreign markets during non-business hours in
the United States, (4) the imposition of different exercise and settlement
terms and procedures and margin requirements than in the United States and (5)
lower trading volume and liquidity.

USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS

Use of many Hedging and Other Strategic Transactions by a Portfolio will
require, among other things, that the Portfolio segregate cash, liquid high
grade debt obligations or other assets with its custodian, or a designated
sub-custodian, to the extent the Portfolio's obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by a Portfolio
to pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to
any regulatory restrictions, an amount of cash or liquid high grade debt
obligations at least equal to the current amount of the obligation must be
segregated with the custodian or sub-custodian. The segregated assets cannot
be sold or transferred unless equivalent assets are substituted in their place
or it is no longer necessary to segregate them. A call option on securities
written by a Portfolio, for example, will require the Portfolio to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate liquid high grade
debt obligations sufficient to purchase and deliver the securities if the call
is exercised. A call option sold by a Portfolio on an index will require the
Portfolio to own portfolio securities that correlate with the index or to
segregate liquid high grade debt obligations equal to the excess of the index
value over the exercise price on a current basis. A put option on securities
written by a Portfolio will require the Portfolio to segregate liquid high
grade debt obligations equal to the exercise price. Except when a Portfolio
enters into a forward contract in connection with the purchase or sale of a
security denominated in a foreign currency or for other non-speculative
purposes, which requires no segregation, a currency contract that obligates the
Portfolio to buy or sell a foreign currency will generally require the
Portfolio to hold an amount of that currency, liquid securities denominated in
that currency equal to a Portfolio's obligations or to segregate liquid high
grade debt obligations equal to the amount of the Portfolio's obligations.

OTC options entered into by a Portfolio, including those on securities,
currency, financial instruments or indices, and OCC-issued and exchange-listed
index options will generally provide for cash settlement, although a Portfolio
will not be required to do so. As a result, when a Portfolio sells these
instruments it will segregate an amount of assets equal to its obligations
under the options. OCC-issued and exchange-listed options sold by a Portfolio
other than those described above generally settle with physical delivery, and
the Portfolio will segregate an amount of assets equal to the full value of the
option. OTC options settling with physical delivery or with an election of
either physical delivery or cash settlement will be treated the same as other
options settling with physical delivery.

In the case of a futures contract or an option on a futures contract, a
Portfolio must deposit initial margin and, in some instances, daily variation
margin in addition to segregating assets sufficient to meet its obligations to
purchase or provide securities or currencies, or to pay the amount owed at the
expiration of an index-based futures contract. These assets may consist of
cash, cash equivalents, liquid high grade debt or equity securities or other
acceptable assets. A Portfolio will accrue the net amount of the excess, if
any, of its obligations relating to swaps over its entitlements with respect to
each swap on a daily basis and will segregate with its custodian, or designated
sub-custodian, an amount of cash or liquid high grade debt obligations having
an aggregate value equal to at least the accrued excess. Caps, floors and
collars require segregation of assets with a value equal to a Portfolio's net
obligation, if any.

Hedging and Other Strategic Transactions may be covered by means other
than those described above when consistent with applicable regulatory policies.
A Portfolio may also enter into offsetting transactions so that its combined
position, coupled with any segregated assets, equals its net outstanding
obligation in related options and Hedging and Other Strategic Transactions. A
Portfolio could purchase a put option, for example, if the strike price of that
option is the same or higher than the strike price of a put option sold by the
Portfolio. Moreover, instead of segregating assets if it holds a futures
contracts or forward contract, a Portfolio could purchase a put option on the
same futures contract or forward contract with a strike price as high or higher
than the price of the contract held. Other Hedging and Other Strategic
Transactions may also be offset in combinations. If the offsetting transaction

14
<PAGE> 96
terminates at the time of or after the primary transaction, no segregation is
required, but if it terminates prior to that time, assets equal to any
remaining obligation would need to be segregated.

OTHER LIMITATIONS

No Portfolio will maintain open short positions in futures contracts, call
options written on futures contracts, and call options written on securities
indices if, in the aggregate, the current market value of the open positions
exceeds the current market value of that portion of its securities portfolio
being hedged by those futures and options plus or minus the unrealized gain or
loss on those open positions, adjusted for the historical volatility
relationship between that portion of the Portfolio and the contracts (e.g., the
Beta volatility factor). For purposes of the limitation stated in the
immediately preceding sentence, to the extent the Portfolio has written call
options on specific securities in that portion of its portfolio, the value of
those securities will be deducted from the current market value of that portion
of the securities portfolio. If this limitation should be exceeded at any
time, the Portfolio will take prompt action to close out the appropriate number
of open short positions to bring its open futures and options positions within
this limitation.

WARRANT TRANSACTIONS AND RISKS

Subject to certain restrictions described under "INVESTMENT RESTRICTIONS"
below, each of the Portfolios (other than the Money Market Fund) may purchase
warrants, including warrants traded independently of the underlying securities.
Such transactions entail certain risks. Warrants may be considered more
speculative than certain other types of investments in that prior to their
exercise they do not entitle a holder to dividends and voting rights with
respect to the securities which may be purchased by the exercise thereof, nor
do they represent any rights in the assets of the issuing company. Also, the
value of the warrant does not necessarily change with the value of the
underlying security. If a warrant expires unexercised, the Portfolio will lose
the amount paid for the warrant and any transaction costs.

The degree to which a Portfolio may utilize Hedging and Other Strategic
Transactions may also be affected by certain provisions of the Code.

INVESTMENT RESTRICTIONS

There are two classes of investment restrictions to which the Fund is
subject in implementing the investment policies of the Portfolios: fundamental
and nonfundamental. Nonfundamental restrictions are subject to change by the
Trustees of the Fund without shareholder approval. Fundamental restrictions
may only be changed by a vote of the lesser of (i) 67% or more of the shares
represented at a meeting at which more than 50% of the outstanding shares are
represented or (ii) more than 50% of the outstanding shares.

With respect to the submission of a change in an investment restriction to
the holders of the Fund's outstanding voting securities, the matter shall be
deemed to have been effectively acted upon with respect to a particular
Portfolio if a majority of the outstanding voting securities of the Portfolio
vote for the approval of the matter, notwithstanding (1) that the matter has
not been approved by the holders of a majority of the outstanding voting
securities of any other Portfolio affected by the matter, and (2) that the
matter has not been approved by the vote of a majority of the outstanding
voting securities of the Fund.

All of the restrictions through restriction (8) are fundamental.
Restrictions (9) through (20) are nonfundamental.

Fundamental

The Fund may not issue senior securities, except to the extent that the
borrowing of money in accordance with restriction (3) may constitute the
issuance of a senior security. (For purposes of this restriction, purchasing
securities on a when-issued or delayed delivery basis and engaging in Hedging
and Other Strategic Transactions will not be deemed to constitute the issuance
of a senior security.) In addition, unless a Portfolio is specifically
excepted by the terms of a restriction, each Portfolio will not:

(1) Invest more than 25% of the value of its total assets in securities of
issuers having their principal activities in any particular industry, excluding
U.S. Government securities and, with respect to the Money Market Fund,
obligations of domestic branches of U.S. banks and with respect to the National
Municipal Bond Fund, obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities or by any state, territory or any possession
of the United States, the District of Columbia, or any of their authorities,
agencies, instrumentalities or political subdivisions, or with respect to
repurchase agreements collateralized by any of such obligations. For purposes
of this restriction, supranational issuers will be considered to comprise an
industry as will each foreign government that issues securities purchased by a
Portfolio.

(2) Purchase the securities of any issuer if the purchase would cause
more than 5% of the value of the Portfolio's total assets to be invested in the
securities of any one issuer (excluding U.S. Government securities) or cause
more than 10% of the voting

15
<PAGE> 97
securities of the issuer to be held by the Portfolio, except that up to 25% of
the value of each Portfolio's total assets may be invested without regard to
these restrictions.

(3) Borrow money except that each Portfolio may borrow (i) for temporary
or emergency purposes (not for leveraging) up to 33 1/3% of the value of the
Portfolio's total assets (including amounts borrowed) less liabilities (other
than borrowings) and (ii) in connection with reverse repurchase agreements,
mortgage dollar rolls and other similar transactions.

(4) Underwrite securities of other issuers except insofar as the Fund may
be considered an underwriter under the Securities Act of 1933 in selling
portfolio securities.

(5) Purchase or sell real estate, except that each Portfolio may invest
in securities issued by companies which invest in real estate or interests
therein and each of the Portfolios other than the Money Market Fund may invest
in mortgages and mortgage-backed securities.

(6) Purchase or sell commodities or commodity contracts except that each
Portfolio other than the Investment Quality Bond and Money Market Funds may
purchase and sell futures contracts on financial instruments and indices and
options on such futures contracts, and the Small/Mid Cap, International Small
Cap, Growth Equity, Global Growth, Strategic Income and International Growth
and Income Funds may purchase and sell futures contracts on foreign currencies
and options on such futures contracts. The U.S. Government Securities Fund has
elected for the present to not engage in the purchase or sale of commodities or
commodity contracts to the extent permitted by this restriction, but it
reserves the right to engage in such transactions at a future time.

(7) Lend money to other persons except by the purchase of obligations in
which the Portfolio is authorized to invest and by entering into repurchase
agreements. For purposes of this restriction, collateral arrangements with
respect to options, forward currency and futures transactions will not be
deemed to involve the lending of money.

(8) Lend securities in excess of 33% of the value of its total non-cash
assets. For purposes of this restriction, collateral arrangements with respect
to options, forward currency and futures transactions will not be deemed to
involve loans of securities.

Nonfundamental

(9) Knowingly invest more than 10% of the value of its net assets in
securities or other investments not readily marketable, including repurchase
agreements maturing in more than seven days but excluding variable amount
master demand notes.

(10) Purchase any security if as a result the Portfolio would then have
more than 5% of its total assets (taken at current value) invested in
securities of companies (including predecessors) less than three years old.

(11) Sell securities short or purchase securities on margin except that
it may obtain such short-term credits as may be required to clear transactions.
For purposes of this restriction, collateral arrangements with respect to
Hedging and Other Strategic Transactions will not be deemed to involve the use
of margin.

(12) Write or purchase options on securities, financial indices or
currencies except to the extent a Portfolio is specifically authorized to
engage in Hedging and Other Strategic Transactions.

(13) Purchase securities for the purpose of exercising control or
management.

(14) Purchase securities of other investment companies if the purchase
would cause more than 10% of the value of the Portfolio's total assets to be
invested in investment company securities, provided that (i) no investment will
be made in the securities of any one investment company if immediately after
such investment more than 3% of the outstanding voting securities of such
company would be owned by the Portfolio or more than 5% of the value of the
Portfolio's total assets would be invested in such company and (ii) no
restrictions shall apply to a purchase of investment company securities in
connection with a merger, consolidation or reorganization. For purposes of
this restriction, privately issued collateralized mortgage obligations will
not be treated as investment company securities if issued by "Exemptive
Issuers". Exemptive Issuers are defined as unmanaged, fixed-asset issuers that
(a) invest primarily in mortgage-backed securities, (b) do not issue redeemable
securities as defined in section 2(a)(32) of the 1940 Act, (c) operate under
general exemptive orders exempting them from "all provisions of the Investment
Company Act of 1940," and (d) are not registered or regulated under the 1940
Act as investment companies.

16
<PAGE> 98
(15) Pledge, hypothecate, mortgage or transfer (except as provided in
restriction (8) as security for indebtedness) any securities held by the
Portfolio, except in an amount of not more than 10% of the value of the
Portfolio's total assets and then only to secure borrowings permitted by
restrictions (3) and (11). For purposes of this restriction, collateral
arrangements with respect to Hedging and Other Strategic Transactions will not
be deemed to involve a pledge of assets.

(16) Invest in securities of any issuer if, to the knowledge of the
Portfolio, any officer or Trustee of the Fund or officer or director of the
Adviser owns more than 1/2 of 1% of the outstanding securities of such issuer,
and such Trustees, officers and directors who own more than 1/2 of 1% own in
the aggregate more than 5% of the outstanding securities of such issuer.

(17) Purchase interests in oil, gas or other mineral exploration or
development programs or leases, except that it may acquire the securities of
companies engaged in the production or transmission of oil, gas or other
minerals.

(18) Purchase warrants if, as a result, the Portfolio would then have
more than 10% of its total net assets (taken at the lower of cost or current
value) invested in warrants, or if more than 5% of the value of the Portfolio's
total net assets would be invested in warrants which are not listed on a
recognized United States or foreign stock exchange, except for warrants
included in units or attached to other securities.

(19) Purchase securities of foreign issuers, except that (A) each
Portfolio other than the U.S. Government Securities and National Municipal Bond
Fund may invest up to 20% of its total assets in securities of foreign issuers
(in the case of the Small/Mid Cap Fund, ADRs and U.S. dollar denominated
securities of foreign issuers are not included in this 20% limit) and (B) this
restriction shall not apply to the International Small Cap, Global Growth,
International Growth and Income and Strategic Income Funds.

(20) Purchase or sell real estate limited partnership interests.

In addition to the above policies, the Money Market Fund is subject to
certain restrictions required by Rule 2a-7 under the 1940 Act. In order to
comply with such restrictions, the Money Market Fund will, among other things,
not purchase the securities of any issuer if it would cause (i) more than 5% of
its total assets to be invested in the securities of any one issuer (excluding
U.S. Government securities and repurchase agreements fully collateralized by
U.S. Government securities), except as permitted by Rule 2a-7 for certain
securities for a period of up to three business days after purchase, (ii) more
than 5% of its total assets to be invested in "second tier securities," as
defined by Rule 2a-7, or (iii) more than the greater of $1 million or 1% of its
total assets to be invested in the second tier securities of that issuer.

For the purposes of the investment limitations applicable to the National
Municipal Bond Fund, the identification of the issuer of a municipal obligation
depends on the terms and conditions of the obligation. If the assets and
revenues of an agency, authority, instrumentality, or other political
subdivision are separate from those of the government creating the subdivision
and the obligation is backed only by the assets and revenues of the
subdivision, such subdivision would be regarded as the sole issuer. Similarly,
in the case of a private activity bond, if the bond is backed only by the
assets and revenues of the non-governmental user, such non-governmental user
would be regarded as the sole issuer. If in either case the creating
government or another entity guarantees an obligation, the guarantee would be
considered a separate security and treated as an issue of such government or
entity.

If a percentage restriction is adhered to at the time of an investment, a
later increase or decrease in the investment's percentage of the value of a
Portfolio's total assets resulting from a change in such values or assets will
not constitute a violation of the percentage restriction, except in the case of
the Money Market Fund where the percentage limitation of restriction (9) must
be met at all times.

PORTFOLIO TURNOVER

The annual rate of portfolio turnover will normally differ for each
Portfolio and may vary from year to year. Portfolio turnover is calculated by
dividing the lesser of purchases or sales of portfolio securities during the
fiscal year by the monthly average of the value of the Portfolio's securities
(excluding from the computation all securities, including options, with
maturities at the time of acquisition of one year or less). A high rate of
portfolio turnover generally involves correspondingly greater brokerage
commission expenses, which must be borne directly by the Portfolio. No
portfolio turnover rate can be calculated for the Money Market Fund due to the
short maturities of the instruments purchased. The Small/Mid Cap,
International Small Cap and Growth Fund have recently been established, and
therefore no historical portfolio turnover rates are shown. The Small/Mid Cap,
International Small Cap and Growth Equity Fund anticipate that their annual
portfolio turnover rates generally will not exceed 120%, 100% and 175%,
respectively. The portfolio turnover rate may vary from year to year, as well
as within a year. The portfolio turnover rates for the other Portfolios of
the Fund for the periods November 1, 1993 to October 31, 1994 and November 1,
1994 to October 31, 1995 were as follows:

<PAGE> 99

<TABLE>
<S> <C> <C>
11/1/94 11/1/93
TO TO
10/31/95 10/31/94

Global Growth ............ % 54%
Value Equity ............. % 39%
Growth and Income ........ % 45%
Asset Allocation ......... % 246%
Strategic Income ......... % 136%*
Investment Quality Bond .. % 95%
U.S. Govt. Securities .... % 279%
National Municipal Bond .. % 6%
<FN>

* For the period November 30, 1993 (commencement of operations) to
October 31, 1994, annualized.

</TABLE>

Prior rates of portfolio turnover do not provide an accurate guide as to what
the rate will be in any future year, and prior rates and estimated rates are
not a limiting factor when it is deemed appropriate to purchase or sell
securities for a Portfolio. Each Portfolio of the Fund intends to comply with
the various requirements of the Code so as to qualify as a "regulated
investment company" thereunder. One such requirement is that a Portfolio must
derive less than 30% of its gross income from gains on the sale or other
disposition of stock or securities held for less than three months.
Accordingly, the ability of a particular Portfolio to effect certain portfolio
transactions may be limited.

<TABLE>
MANAGEMENT OF THE FUND

The Trustees and officers of the Fund, together with information as to
their principal occupations during the past five years, are listed below:

<CAPTION>
Name, Address and age Position with the Fund Principal Occupation
- --------------------- ---------------------- During Past Five
Years
-----
<S> <C> <C>

Don B. Allen Trustee Senior Lecturer, William E. Simon
136 Knickerbocker Rd. Graduate School of Business
Pittsford, NY Admin., University of Rochester.
14534
Age: 67

Charles L. Bardelis Trustee President and Chief Executive Officer,
297 Dillingham Avenue Island Commuter Corporation
Falmouth, MA 02540 (marine transport).
Age: 54

Samuel Hoar Trustee Senior Mediator, Judicial
Arbitration Mediation Services
"JAMS/Endispute", June 1,
1994 to date; Partner, Goodwin,
Proctor & Hoar, prior to
June 1, 1994.

</TABLE>

18
<PAGE> 100

<TABLE>
<CAPTION>
Name, Address and age Position with the Fund Principal Occupation
- --------------------- ---------------------- During Past Five
Years
------------
<S> <C> <C>
73 Tremont Street
Boston, MA 02109
Age: 67

Brian L. Moore* Chairman of Executive Vice President, Canadian
5650 Yonge Street the Trustees Insurance Operations, The Manufacturers
North York, Ontario Life Insurance Company, Chief
Canada M2M 4G4 Executive Officer and President, The
Age: 51 North American Group, Oct. 1993 to
December 31, 1995 Executive Vice
President and Chief Financial Officer,
September 1988 to Oct. 1993, North
American Life Assurance Company.

Robert J. Myers Trustee Consulting Actuary (self-employed),
9610 Wire Avenue April 1983 to date; Chairman,
Silver Spring, MD 20901 Commission on Railroad Retirement
Age: 82 Reform 1988-1990.

John D. DesPrez III President and Chief President and Chief Executive Officer,
116 Huntington Avenue Executive Officer March 1993 to date, North American
Boston, MA 02116 Funds; Vice President and General
Age: 38 Counsel, January 1991 to June 1994,
North American Security Life Insurance
Company; Private law practice
1989-1990.

John G. Vrysen Vice President Vice President and Actuary, January
116 Huntington Avenue 1986 to date, North American Security
Boston, MA 02116 Life Insurance Company.
Age: 40

James D. Gallagher Secretary Vice President and General Counsel,
116 Huntington Avenue June 1994 to date, North American
Boston, MA 02116 Security Life Insurance Company;
Age: 41 Vice President and Associate General
Counsel, 1990-1994, The Prudential
Insurance Company of America

James Boyle Vice President, Vice President, Treasurer and Chief
116 Huntington Avenue Treasurer and Chief Administrative Officer, June 1994
Boston, MA 02116 Administrative Officer to date, North American Funds;
Age: 36 Corporate Controller, July 1993 to
June 1994, North American Security Life
Insurance Company; Mutual Fund Accounting
Executive, June 1992 to July 1993,
North American Security Life Insurance
Company; Audit Manager, 1990 to
June 1992, Coopers & Lybrand.
<FN>

* Trustee who is an "interested person", as defined in the 1940 Act.
</TABLE>
19
<PAGE> 101
<TABLE>
COMPENSATION OF TRUSTEES

The Fund does not pay any remuneration to its Trustees who are officers or
employees of the Adviser or its affiliates. Trustees not so affiliated receive
an annual retainer of $4,000, a fee of $1,000 for each meeting of the
Trustees that they attend in person and a fee of $200 for each such meeting
conducted by telephone. Trustees are reimbursed for travel and other
out-of-pocket expenses. The officers listed above are furnished to the Fund
pursuant to the Advisory Agreement described below and receive no compensation
from the Fund. These officers spend only a portion of their time on the
affairs of the Fund.

COMPENSATION TABLE
========================================================================

<CAPTION>
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM FROM FUND COMPLEX
NAME OF PERSON, FUND FOR PRIOR FOR PRIOR FISCAL
POSITION FISCAL YEAR#* YEAR#*
- ------------------------------------------------------------------------
<S> <C> <C>
Don B. Allen, Trustee $ $
- ------------------------------------------------------------------------
Charles L. Bardelis,
Trustee $ $
- ------------------------------------------------------------------------
Samuel Hoar,
Trustee $ $
- ------------------------------------------------------------------------
Robert J. Myers,
Trustee $ $
========================================================================
<FN>

* Compensation received for services as Trustee.

# Fund Complex includes all portfolios of the Fund as well as all portfolios of
NASL Series Trust of which the Adviser is the investment adviser.
</TABLE>

PRINCIPAL HOLDERS OF SECURITIES

As of November 30, 1995 (i) Frontier Trust Company, Trustee FBO Saia
Motor Freight Line Incorporated 401k Plan, Springhouse Corporate Center II, 323
Norristown Road, Ambler, Pennsylvania 192202-2756 owned record 144,324.766
shares (7.1% of the outstanding shares) of Investment Quality Bond Fund,
1,526,314.380 shares (8.7% of the outstanding shares) of the Money Market
Fund, (ii) Security Life, 116 Huntington Avenue, Boston, Massachusetts 02116
beneficially owned 401,070.064 shares (17.5% of the outstanding shares) of
the International Growth and Income Fund; and (iii) Nalco Pension Plan for US
Members, Elliot & Page, 120 Adelaide Street West 1120, Toronto, Ontario owned
of record 494,609.628 shares (5.2% of the outstanding shares) of the Global
Growth Fund and (iv) Arlene Moskowitz, Trustee, Calabasas Mental Health
Services, Retirement Fund, 4043 Camamito Meliado, San Diego, CA 92122-51055
owned of record 945,467.170 (5.4% of the outstanding shares) of the Money
Market Fund. As of such date, no other shareholder owned of record or, to the
knowledge of the Fund, beneficially owned more than 5% of the outstanding
shares of any Portfolio of the Fund. The officers and Trustees of the Fund as
a group own less than 1% of the outstanding shares of each Portfolio of the
Fund.

INVESTMENT MANAGEMENT ARRANGEMENTS

The following information supplements the material appearing in the
Prospectus under the caption "MANAGEMENT OF THE FUND." The principal terms of
the Advisory and Subadvisory Agreements are described in the Prospectus. The
following
20
<PAGE> 102
supplemental discussion of such agreements covers certain legal terms
of such agreements. The Advisory and Subadvisory Agreements discussed below
have been filed with and are available from the Commission.

ADVISORY AND SUBADVISORY AGREEMENTS

The Advisory Agreement, each Subadvisory Agreement (except the Founders
Asset Management, Inc. Subadvisory Agreement and the Fred Alger Management,
Inc. Subadvisory Agreement) and the Salomon Brothers Asset Management Limited
Consulting Agreement were approved by the Trustees on September 28, 1995 and by
the shareholders of the portfolios on December 5, 1995. These approvals
occurred in connection with the change of control of NASL Financials as a
result of the merger of North American Life Assurance Company, the ultimate
controlling parent of NASL Financial, with The Manufacturers Life Insurance
Company on January 1, 1996.

On December 15, 1995, the Trustees appointed Fred Alger Management, Inc. .
("Alger") pursuant to a new Subadvisory Agreement with Alger ("Alger
Subadvisory Agreement") as subadviser to the Small/Mid Cap Fund. The Alger
Subadvisory Agreement, which provides for the management of the
newly-established Small/Mid Cap Fund, was approved by the Trustees, including
a majority of the Trustees who are not parties to the Alger Subadvisory
Agreement or interested persons of any party to such Agreement on December 15,
1995. The Alger Subadvisory Agreement was approved by

21
<PAGE> 103

the sole shareholder of the Small/Mid Cap Fund on _______, 1996.

On December 15, 1995, the Trustees appointed Founders Asset Management,
Inc. ("Founders") pursuant to a new Subadvisory Agreement with Founders
("Founders Subadvisory Agreement") as subadviser to the International Small Cap
and the Growth Equity Fund. The Founders Subadvisory Agreement, which provides
for the management of the newly-established International Small Cap and Growth
Equity Fund, was approved by the Trustees, including a majority of the Trustees
who are not parties to the Founders Subadvisory Agreement or interested persons
of any party to such Agreement on December 15, 1995. The Founders Subadvisory
Agreement was approved by the sole shareholder of the International Small Cap
and Growth Equity Fund on _______, 1996.

<TABLE>
For the periods November 1, 1992 to October 31, 1993, November 1, 1993
to October 31, 1994, and November 1, 1994 to October 31, 1995, the Fund paid
total advisory fees to the Adviser of $2,131,846 , $2,788,783 and $ _________,
respectively. The amounts represented by each of the Portfolios are as
follows:

<CAPTION>
PORTFOLIO 11/1/92 TO 10/31/93 11/1/93 TO 10/31/94 11/1/94 to 10/31/95
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Growth $256,968 $882,302
Value Equity $362,202 $556,612
Growth and Income $167,521 $333,531
International Growth and Income N/A N/A ***
Strategic Income N/A 0*
Investment Quality Bond $37,709 $89,202
U.S. Government $773,785 $860,225
National Municipal Bond $1,819** $19,807
Money Market $12,455 $38,127
- ---------------------------------------------------------------------------------------------------
Asset Allocation $518,640 $703,958
<FN>

*For the period November 30, 1993 (commencement of operations) to October 31, 1994.

**For the period June 30, 1993 (commencement of operations) to October 31, 1993.

***For the period January 9, 1995 (commencement of operations) to October 31, 1995.
</TABLE>

For information concerning waivers of advisory fees and expense
reimbursements, see note 5 to the financial statements dated October 31, 1995
included in this Statement of Additional Information.

<TABLE>
For the same periods, the Adviser paid total subadvisory fees of $927,697, $1,614,038,
$_____________, respectively. The amounts represented by each of
the Portfolios are as follows:

</TABLE>

22
<PAGE> 104

<TABLE>

<S> <C> <C> <C>
Value Equity $160,668 $241,581
Growth and Income $ 75,095 $148,991
International Growth
and Income N/A N/A ***
Strategic Income* N/A $ 0 #
Investment Quality Bond $ 14,141 $ 33,714
U.S. Government $290,169 $323,714
National Municipal Bond $ 0** $ 9,819
Money Market $ 4,475 $ 14,296
- ---------------------------------------------------------------------------------------------
Asset Allocation $226,096 $298,522
<FN>

*For the period November 30, 1993 (commencement of operations) to October 31, 1994.

**For the period June 30, 1993 (commencement of operations) to October 31, 1993.

***For the period January 9, 1995 (commencement of operations) to October 31, 1995.

#Of this amount, $ ____ was paid by SBAM to Salomon Brothers Asset Management Limited
under the Subadvisory Consulting Agreement.
</TABLE>

The Prospectus refers to a subadvisory consulting agreement between SBAM
and Salomon Brothers Asset Management Limited ("SBAM Limited"). Under that
agreement SBAM Limited provides certain investment advisory services to SBAM
relating to currency transactions and investments in non-dollar denominated
debt securities for the benefit of the Strategic Income Fund. SBAM pays SBAM
Limited, as full compensation for all services provided under the subadvisory
consulting agreement, a portion of its subadvisory fee, such amount being an
amount equal to the fee payable under SBAM's subadvisory agreement multiplied
by the current value of the net assets of the portion of the assets of the
Strategic Income Fund that SBAM Limited has been delegated to manage divided by
the current value of the net assets of the Portfolio. The Fund will not incur
any additional expenses in connection with SBAM Limited's services. SBAM
Limited is a wholly owned subsidiary of Salomon Brothers Europe Limited
("SBEL"). Salomon (International) Finance A G ("SIF") owns 100% of SBEL's
Convertible Redeemable Preference Shares and 36.8% of SBEL's Ordinary Shares,
while the remaining 63.2% of SBEL's Ordinary Shares are owned by Salomon
Brothers Holding Company Inc ("SBH"). SIF is wholly owned by SBH, which is in
turn, a wholly owned subsidiary of Salomon Inc.

The Advisory Agreement and each Subadvisory Agreement, including the SBAM
Limited Consulting Agreement (collectively, the "Agreements") will continue in
effect as to a Portfolio for a period no more than two years from the date of
its execution or the execution of an amendment making the agreement applicable
to that Portfolio only so long as such continuance is specifically approved at
least annually either by the Trustees or by the vote of a majority of the
outstanding voting securities of each of the Portfolios of the Fund, provided
that in either event such continuance shall also be approved by the vote of the
majority of the Trustees who are not interested persons of any party to the
Agreements, cast in person at a meeting called for the purpose of voting on
such approval. The required shareholder approval of any continuance of any of
the Agreements shall be effective with respect to any Portfolio if a majority
of the outstanding voting securities of the class of capital stock of that
Portfolio vote to approve such continuance, notwithstanding that such
continuance may not have been approved by a majority of the outstanding voting
securities of the Fund.

If the shareholders of any Portfolio fail to approve any continuance of
any Agreement, the Adviser or Subadviser (including SBAM Limited), as
applicable, will continue to act as such with respect to such Portfolio pending
the required approval of the continuance of such Agreement, of a new contract
with the Adviser or Subadviser or different investment adviser or subadviser,
or other definitive action. In the case of the Adviser and Oechsle
International, the compensation received by them in respect of such a Portfolio
during such period will be no more than its actual costs incurred in furnishing
investment advisory and

23
<PAGE> 105
management services to such Portfolio or the amount it would have received
under the Agreement in respect of such Portfolio, whichever is less. In the
case of Wellington Management and SBAM, the compensation received by them in
respect of such a Portfolio during such a period will be no more than that
permitted by Rule 15a-4 under the 1940 Act. In the case of GSAM, the
compensation received by it in respect of such a Portfolio during such period
will be no more than the amount it would have received under the Agreement in
respect of such Portfolio. In the case of J.P. Morgan, the compensation
received by it in respect of such a Portfolio during such a period will be no
more than the amount permitted by Rule 15a-4 under the 1940 Act.

The Agreements may be terminated at any time, without the payment of
penalty, by the Trustees of the Fund or by the vote of a majority of the
outstanding voting securities of the applicable Portfolios of the Fund, with
respect to any Portfolio by the vote of a majority of the outstanding shares of
such Portfolio, or by the Adviser or applicable Subadviser on 60 days' written
notice to the other party or parties to the Agreement and, in the case of the
Subadvisory Agreements, to the Fund. Each of the Agreements will automatically
terminate in the event of its assignment.

The Agreements may be amended by the parties provided that such amendment
is specifically approved by the vote of a majority of the outstanding voting
securities of the Fund or applicble Portfolio(s), as the case may be, and by
the vote of a majority of the Trustees of the Fund who are not interested
persons of the Fund, of the Adviser or of the applicable Subadviser or of SBAM
Limited, cast in person at a meeting called for the purpose of voting upon such
approval. The required shareholder approval of any amendment shall be
effective with respect to any Portfolio if a majority of the outstanding voting
securities of that Portfolio vote to approve the amendment, notwithstanding
that the amendment may not be approved by a majority of the outstanding voting
securities of (i) any other Portfolio affected by the amendment or (ii) all the
Portfolios of the Fund.

Each Subadvisory Agreement, except the Oechsle and J.P. Morgan Subadvisory
Agreements and the SBAM Limited Consulting Agreement, provides that the
Subadviser or SBAM Limited will not be liable to the Fund or the Adviser for
any losses resulting from any matters to which the agreement relates other than
losses resulting from the Subadviser's or SBAM Limited's willful misfeasance,
bad faith or gross negligence in the performance of, or from reckless disregard
of, its duties. The Oechsle and J.P. Morgan Subadvisory Agreement each
provide that the subadviser will not be liable to the Fund or NASL Financial
for any losses resulting from any error of judgment made in the good faith
exercise of the Subadviser's investment discretion in connection with
selecting investments, except for losses resulting from willful misfeasance,
bad faith or gross negligence of, or from reckless disregard of, it duties, and
that it shall not be liable for any losses resulting from any other matters
except for losses resulting from willful misfeasance, bad faith or negligence
in the performance of, or from disregard of, its duties.

DISTRIBUTION PLANS

The Fund currently offers three classes of shares in each Portfolio:
"Class A" shares, "Class B" shares and "Class C" shares (the "Multiple Pricing
System"). See "MULTIPLE PRICING SYSTEM" and "HOW TO PURCHASE SHARES" in the
Prospectus.

In addition to the front end sales charge which may be deducted at the
time of purchase of Class A shares and the CDSC which may apply on redemption
of Class B shares, each class of shares of each Portfolio is authorized under
the Distribution Plan applicable to that class of shares (the "Class A Plan,"
the "Class B Plan" and the "Class C Plan," collectively, the "Plans") adopted
pursuant to Rule 12b-1 under the 1940 Act to use the assets attributable to
such class of shares of the Portfolio to finance certain activities relating to
the distribution of shares to investors. The Plans are "compensation" plans
providing for the payment of a fixed percentage of average net assets to
finance distribution expenses. The Plans provide for the payment by each class
of shares of each Portfolio of the Fund, other than the Money Market Fund, of a
monthly distribution and service fee to the Distributor, as principal
underwriter for the Fund. Portions of the fees prescribed below are used to
provide payments to the Distributor, to promotional agents, to brokers, dealers
or financial institutions (collectively, "Selling Agents") and to Service
Organizations for ongoing account

24
<PAGE> 106

services to shareholders and are deemed to be "service fees" as defined in
paragraph (b)(9) of Section 26 of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc.

Under the Class A Plan, Class A shares of each Portfolio (except as
described in the next sentence) are subject to a fee of up to .35% of their
respective average annual net assets, five-sevenths of which (.25%) constitutes
a "service fee." Class A shares of the National Municipal Bond Fund are
subject to a fee of up to .15% of Class A average annual net assets, the entire
amount of which constitutes a "service fee," and Class A shares of the Money
Market Fund bear no such fees. Under the Class B Plan, Class B shares of each
Portfolio (with the exception of the Money Market Fund) are subject to a fee of
up to 1.00% of their respective average annual net assets, one-fourth (.25%) of
which constitutes a "service fee." Under the Class C Plan, Class C shares of
each Portfolio (with the exception of the Money Market Fund) are subject to a
fee of up to 1.00% of their respective average annual net assets, one-fourth
(.25%) of which constitutes a "service fee."

Payments under the Plans are used primarily to compensate the Distributor
for distribution services provided by it in connection with the offering and
sale of the applicable class of shares, and related expenses incurred,
including payments by the Distributor to compensate or reimburse Selling Agents
for sales support services provided and related expenses incurred by such
Selling Agents. Such services and expenses may include the development,
formulation and implementation of marketing and promotional activities, the
preparation, printing and distribution of prospectuses and reports to
recipients other than existing shareholders, the preparation, printing and
distribution of sales literature, expenditures for support services such as
telephone facilities and expenses and shareholder services as the Fund may
reasonably request, provision to the Fund of such information, analyses and
opinions with respect to marketing and promotional activities as the Fund may,
from time to time, reasonably request, commissions, incentive compensation or
other compensation to, and expenses of, account executives or other employees
of the Distributor or Selling Agents, attributable to distribution or sales
support activities, respectively, overhead and other office expenses of the
Distributor or Selling Agents, attributable to distribution or sales support
activities, respectively, and any other costs and expenses relating to
distribution or sales support activities. The Distributor may pay directly
Selling Agents and may provide directly the distribution services described
above, or it may arrange for such payment or the performance of some or all of
such services by Wood Logan, the Fund's exclusive promotional agent, at such
level of compensation as may be agreed to by the Distributor and Wood Logan.

The distribution and service fees attributable to the Class B shares and
Class C shares are designed to permit an investor to purchase shares without
the assessment of a front end sales charge, and, with respect to the Class C
shares, without the assessment of a front end sales charge or a CDSC, and at
the same time permit the Distributor to compensate securities dealers with
respect to sales of such shares.

The Distributor, a wholly-owned subsidiary of North American Security Life
Insurance Company, is a broker/dealer registered under the Securities Exchange
Act of 1934, as amended ("1934 Act") and a member of the NASD. The
Distributor's address is the same as that of the Fund and the Distributor also
serves as the investment adviser to the Fund as described above under
"MANAGEMENT OF THE FUND." The Distributor has entered into an exclusive
promotional agent agreement with Wood Logan pursuant to which Wood Logan will
solicit securities dealers to sell Fund shares, offer sales training to
registered representatives of such dealers, prepare and distribute certain
sales and promotional materials and otherwise assist in the distribution of
Fund shares. For providing such services, the Distributor will pay Wood Logan
such amounts as are agreed to from time to time pursuant to the promotional
agent agreement. Wood Logan, a broker/dealer registered under the 1934 Act and
a member of the NASD, is a subsidiary of Wood Logan Associates, Inc., a
corporation which is a wholly owned subsidiary of a holding company that is
85% owned by Manulife and approximately 15% owned by principals of Wood Logan.
The address of Wood Logan is 1455 East Putnam Avenue, Old Greenwich,
Connecticut 06870.

Neither a Plan nor any related agreements can take effect until approved
by a majority vote of both all the Trustees and those Trustees who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the operation of a Plan or in any agreements related to it (the
"Qualified Trustees"), cast in person at a meeting called for the purpose of
voting on such

25
<PAGE> 107

Plan and the related agreements. Such approvals of the Plans were obtained on
December 16, 1993. The Plan relating to Class A shares was approved (i) with
respect to the Strategic Income, Investment Quality Bond, U.S. Government
Securities, National Municipal Bond and Money Market Funds, by the shareholders
of each such Portfolio on February 18, 1994, as the initial shareholders of the
Class A shares in each such Portfolio, (ii) with respect to the Global Growth,
Value Equity, Growth Equity and Income and Asset Allocation Funds, by the
Distributor on March 30, 1994 as sole initial shareholder of the Class A shares
of each such Portfolio, (iii) with respect to the International Growth and
Income Fund, by the Distributor on January 4, 1995 as sole initial shareholder
of the Class A shares of such Portfolio and (iv) with respect to the Small/Mid
Cap, Growth Equity and the International Small Cap Funds, by the Distributor on
_____, 1996 as sole initial shareholder of the Class A shares of such
Portfolios. The Plan relating to Class B shares was approved (i) with respect
to each Portfolio (except the International Growth and Income, Small/Mid Cap,
Growth Equity and International Small Cap Funds) by the Distributor on March
30, 1994 as sole initial shareholder of the Class B shares of each such
Portfolio , (ii) with respect to the International Growth and Income Fund, by
the Distributor on January 4, 1995 as sole initial shareholder of the Class B
shares of such Portfolio and (iii) with respect to the Small/Mid Cap, Growth
Equity and International Small Cap Funds by the Distributor on ____, 1996 as
sole initial shareholder of the Class B shares of each such Portfolios. The
Plan relating to Class C shares was approved (i) with respect to the Global
Growth, Value Equity, Growth Equity and Income and Asset Allocation Funds, by
the shareholders of each such Portfolio on February 18, 1994, as the initial
shareholders of the Class C shares in each such Portfolio, (ii) with respect to
the Strategic Income, Investment Quality Bond, U.S. Government Securities,
National Municipal Bond and Money Market Funds, by the shareholders of each
such Portfolio on March 30, 1994, as the initial shareholders of the Class C
shares in each such Portfolio , (iii) with respect to the International Growth
and Income Fund, by the Distributor on January 4, 1995 as sole initial
shareholder of the Class C shares of such Portfolio and (iv) with respect to
the Small/Mid Cap, Growth Equity and the International Small Cap Funds, by the
Distributor on _____, 1996 as sole initial shareholder of the Class C shares

The Plans will continue in effect only so long as their continuance is
specifically approved at least annually by the Trustees in the manner described
above for Trustee approval of the Plans. The Trustees will receive quarterly
and annual statements concerning distribution and shareholder servicing
expenditures. In such statements, only expenditures properly attributable to
the sale or servicing of a particular class of shares will be used to justify
any distribution or servicing fee charged to that class. Expenditures not
related to the sale or servicing of a particular class will not be presented to
the Trustees to justify any fee attributable to that class. The statements,
including the allocations upon which they are based, will be subject to the
review and approval of the Qualified Trustees in the exercise of their
fiduciary duty. Each Plan may be terminated at any time with respect to any
one or more Portfolios by a majority vote of the Qualified Trustees or by vote
of a majority of the outstanding voting securities attributable to Class A,
Class B and Class C shares, as applicable, of such Portfolio or Portfolios. If
a Plan is terminated by the Trustees or is otherwise discontinued with respect
to one or more Portfolios, no further payments would be made by the Fund in
respect of the Class A, Class B and Class C shares, as applicable, of such
Portfolio or Portfolios under that Plan. A Plan may remain in effect with
respect to Class A, Class B, Class C or shares, as applicable, of a Portfolio
even if it has been terminated with respect to the Class A, Class B and Class C
shares, as applicable, of one or more other Portfolios.

A Plan may not be amended with respect to any class of any Portfolio so as
to materially increase the amount of the fees payable thereunder unless the
amendment is approved by a vote of at least a majority of the outstanding
voting securities of such class of such Portfolio. In addition, no material
amendment to a Plan may be made unless approved by the Trustees in the manner
described above for Trustee approval of the Plans.

For the period November 1, 1994 to October 31, 1995 (January 9, 1995 to
October 31, 1995, in the case of the International Growth and Income Fund), the
Fund paid distribution and service fees pursuant to the Class A Plan to the
Distributor of $________comprised of $______ from the Global Growth Fund,
$_____ from the Value Equity Fund, $_____ from the Growth and Income Fund,
$_____ from the Strategic Income Fund, $_____ from the Asset Allocation Fund,
$_____ from the Investment Quality Bond Fund, $_____ from the U.S. Government
Securities Fund , %______ from the International Growth and Income and %_______
from the National Municipal Bond Fund. Of the total, $______ was paid by the
Distributor to

26
<PAGE> 108

Wood Logan for providing promotional and shareholder services.
Of this latter amount, approximately __% was spent for sales literature and
printing prospectuses for other than current shareholders, __% represented
allocated overhead expenses of Wood Logan and __% represented allocated
compensation of personnel of Wood Logan. The balance of the fees were, in
accordance with the Class A Plan, retained by the Distributor and used to fund
shareholder servicing, promotional activities and expenses.

For the period November 1, 1994 to October 31, 1995 (January 9, 1995 to
October 31, 1995), the Fund paid distribution and service fees pursuant to the
Class B Plan to the Distributor of $______ comprised of $_____ from the
Global Growth Fund, $_____ from the Value Equity Fund, $____ from the Growth
and Income Fund, $_____ from the Strategic Income Fund, $____ from the Asset
Allocation Fund, $_____ from the Investment Quality Bond Fund, $____ from the
U.S. Government Securities Fund, $____ from the International Growth and
Income Fund and $____ from the National Municipal Bond Fund. Of the total,
$__ was paid by the Distributor to Wood Logan for providing promotional and
shareholder services. Of this latter amount, approximately __% was spent for
sales literature and printing prospectuses for other than current shareholders,
__% represented allocated overhead expenses of Wood Logan and __% represented
allocated compensation of personnel of Wood Logan. The balance of the fees
were, in accordance with the Class B Plan, retained by the Distributor and used
to fund shareholder servicing, promotional activities and expenses.

For the period November 1, 1994 to October 31, 1995 (January 9, 1995 to
October 31, 1995), the Fund paid distribution and service fees pursuant to the
Class C Plan to the Distributor of $______, comprised of $______ from the
Global Growth Fund, $_____ from the Value Equity Fund, $______ from the
Growth and Income Fund, $_____ from the Strategic Income Fund, $_____ from
the Asset Allocation Fund, $______ from the Investment Quality Bond Fund,
$_____ from the U.S. Government Securities Fund, $______ from the
International Growth and Income Fund and $______ from the National Municipal
Bond Fund. Of the total, $_______ was paid by the Distributor to Wood Logan
for providing promotional and shareholder services. Of this latter amount,
approximately __% was spent for sales literature and printing prospectuses for
other than current shareholders, __% represented allocated overhead expenses of
Wood Logan and ___% represented allocated compensation of personnel of Wood
Logan. The balance of the fees were, in accordance with the Class C Plan,
retained by the Distributor and used to fund shareholder servicing, promotional
activities and expenses.

<TABLE>
UNDERWRITERS

For the periods November 1, 1992 to October 31, 1993, November 1, 1993
to October 31, 1994, and November 1, 1994 to October 31, 1995, the Distributor
received underwriting commissions of $2,015,919, $1,344,806 and $______,
respectively. The amounts were comprised as reflected below, with respect to
shares of the following Portfolios:

<CAPTION>
11/1/93 TO 11/1/94 TO
PORTFOLIO 11/1/92 TO 10/31/93 10/31/94 10/31/95
<S> <C> <C> <C>
- ----------------------------------------------------------------------------
Global Growth $394,036 $413,960
Value Equity $375,981 $213,835
Growth and Income $255,407 $102,711
International Growth
and Income N/A N/A ***
Strategic Income* N/A $206,721
Investment Quality Bond $ 63,081 $ 33,392
U.S. Government $370,320 $155,785
National Municipal Bond $ 21,203** $ 20,201
Asset Allocation $500,052 $198,201
</TABLE>

27
<PAGE> 109

*For the period November 30, 1993 (commencement of operations) to
October 31, 1994.

**For the period June 30, 1993 (commencement of operations) to
October 31, 1993.

***For the period January 9, 1995 (commencement of operations) to
October 31, 1995.

Of the total underwriting commissions received during the period, $__,
$__ and $___, respectively, was retained by the Distributor. The balance of
such commissions was paid to securities dealers and the promotional agent.
During such periods the Distributor did not receive directly or indirectly from
the Fund any compensation on the redemption or repurchase of Fund shares,
brokerage commissions or other underwriting compensation.

PORTFOLIO BROKERAGE

Pursuant to the Subadvisory Agreements, the Subadvisers are responsible
for placing all orders for the purchase and sale of portfolio securities of the
Fund. The Subadvisers have no formula for the distribution of the Fund's
brokerage business, their intention being to place orders for the purchase and
sale of securities with the primary objective of obtaining the most favorable
overall results for the Fund. The cost of securities transactions for each
Portfolio will consist primarily of brokerage commissions or dealer or
underwriter spreads. Bonds and money market instruments are generally traded
on a net basis and do not normally involve either brokerage commissions or
transfer taxes.

Occasionally, securities may be purchased directly from the issuer.
For securities traded primarily in the over-the-counter market, the Subadvisers
will, where possible, deal directly with dealers who make a market in the
securities unless better prices and execution are available elsewhere. Such
dealers usually act as principals for their own account.

The Subadvisers consider various factors in selecting brokers through
which orders for client accounts are executed. The Subadvisers' primary
consideration is the broker's ability to provide the best execution of the
trade (including both trade price and commission). Assuming equal execution
capabilities, the Subadvisers also take other factors into account.

In determining which brokers provide best execution, the Subadvisers
look primarily to the stock price quoted by the broker, and normally place
orders with the broker through which they can obtain the most favorable price.
If the same price is available from more than one broker, a Subadviser's
judgment as to the following factors may influence the selection of a broker
for a particular trade: the execution, clearance and settlement capabilities of
the brokers under consideration; the nature of the security being traded; the
size of the transaction; the desired timing of the trade; the activity existing
and expected in the market for the particular security; confidentiality; the
financial stability of the brokers under consideration; actual or apparent
operational problems of any broker under consideration; and the negotiated
commission rates available at the time of the trade. The Subadvisers may also
consider the willingness of particular brokers to sell shares of the Fund and
difficulty of execution.

The Subadvisers also consider the nature and extent of research
services provided when they select brokers. Assuming equal execution
capabilities as described above, the Subadvisers may direct commission business
to brokers who provide research services. Such services include, but are not
limited to: analyses and reports concerning economic factors and trends,
industries, specific securities, portfolio strategy, and valuation and
performance of accounts; advice regarding critical factors supporting research
recommendations and special reports or information based on the specific
requests of a Subadviser's portfolio manager/analysts. The Subadvisers may
also from time to time obtain research services prepared by third parties and
provided by brokers in exchange for a predetermined amount of commission
business. These services include portfolio monitoring, analysis and
performance measurement systems, various economic forecasting and research
services covering stocks and bonds, research and trading conferences, and a
source of information as to block trading opportunities. Some third party
arrangements are cancelable at any time while others require notice. Such
third party arrangements do not involve a substantial amount of the
Subadvisers' commission business on behalf of clients.

28
<PAGE> 110
In accordance with industry practice, commission rates are normally
determined through negotiations with brokers conducted by the Subadvisers'
traders. These negotiations take into account industry norms for particular
transactions, the size and type of trades, the size and expertise of the
brokerage firm involved and the nature of brokerage and research services
provided, including special services in connection with a particular trade.
(Such special services could include, among other things, the assumption of
market risk in connection with a trade or series of trades or the facilitation
of trades in a thin or volatile market.) Commission rates paid by the
Subadvisers in those cases may be higher than those charged by brokers for
execution of similar trades without the provision of research and/or special
services.

No precise monetary value can be assigned to research and special
execution services furnished to the Subadvisers by brokers. The Subadvisers
will review all research services and will determine if the amounts of
commissions directed to brokers are reasonable in relation to the value of the
brokerage and research services provided, viewed in terms of both particular
transactions and the Subadvisers' overall responsibilities with respect to the
accounts over which they exercise investment discretion. Each Subadviser will
maintain an internal allocation procedure to identify those brokers who provide
them with research services and the amount of research services they provide,
and will endeavor to direct sufficient commissions to them to ensure the
continued receipt of such services as the Subadviser believes to be valuable.

Research services furnished by brokers will generally be used in servicing
all of the Portfolios of the Fund advised by a Subadviser, although not all of
such services may be used in connection with any particular Portfolio that paid
commissions to the brokers providing such services.

The Subadvisers' practices in selecting brokers will be reviewed
periodically by the Trustees of the Fund.

The Subadvisers and/or their affiliates currently manage portfolios and
accounts other than those of the Fund. Although investment recommendations or
determinations for the Fund's Portfolios will be made by the Subadvisers
independently from the investment recommendations and determinations made by
them for any other portfolio or account or by the Subadvisers' affiliates for
the portfolios or accounts they manage, investments deemed appropriate for the
Fund's Portfolios by the Subadvisers may also be deemed appropriate by them or
affiliated advisers for other portfolios or accounts, so that the same security
may be purchased or sold at or about the same time for both the Fund's
Portfolios and such other portfolios or accounts. In such circumstances, the
Subadvisers may determine that orders for the purchase or sale of the same
security for the Fund's Portfolios and one or more other portfolios or accounts
should be combined, in which event the transactions will be priced and
allocated in a manner deemed by the Subadvisers to be equitable and in the best
interests of the Fund's Portfolios and such other portfolios or accounts.
While in some instances combined orders could adversely affect the price or
volume of a security, the Subadvisers and the Fund believe that its
participation in such transactions on balance will produce better overall
results for the Fund.

<TABLE>
For the periods November 1, 1992 to October 31, 1993, November 1, 1993
to October 31, 1994 and November 1, 1994 to October 31, 1995, the Fund paid
brokerage commissions in connection with portfolio transactions of $469,160,
$777,036 and $________, respectively. The amounts represented by each of the
Portfolios are as follows:

<CAPTION>
11/1/93 TO 11/1/94 TO
PORTFOLIO 11/1/92 TO 10/31/93 10/31/94 10/31/95
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Global Growth $217,000 $462,441
Value Equity $137,373 $140,638
Growth and Income $ 21,681 $ 70,381
International Growth
and Income N/A N/A ***
Strategic Income* N/A $ 0
Investment Quality Bond $ 0 $ 0
U.S. Government $ 0 $ 0
National Municipal Bond $ 0** $ 0

</TABLE>

29
<PAGE> 111
<TABLE>

<S> <C> <C>
Money Market $ 0 $ 0
Asset Allocation $ 93,105 $103,576
<FN>
*For the period November 30, 1993 (commencement of operations) to October 31, 1994.

**For the period June 30, 1993 (commencement of operations) to October 31, 1993.

***For the period January 9, 1995 (commencement of operations) to October 31, 1995.

</TABLE>

Goldman Sachs & Co., ("Goldman"), Salomon Brothers Inc ("Salomon"), J.P.
Morgan Securities Inc. and J.P. Morgan Securities LTD. ("J.P. Morgan
Securities") and Dresden Bank are affiliated brokers of the Fund due to the
positions of GSAM, SBAM, J.P. Morgan and Oechsle International, respectively,
as Subadviser to Fund Portfolios.

<TABLE>
Brokerage commissions were paid to GOLDMAN, SACHS & CO. as follows:

From November 1, 1992 to October 31, 1993, brokerage commissions were paid to
GOLDMAN, SACHS & CO. as follows:

<CAPTION>
% OF FUND'S
BROKERAGE % OF AGGREGATE
COMMISSIONS $ AMOUNT OF
REPRESENTED TRANSACTION FOR
PORTFOLIO 11/1/92 TO 10/31/93 FOR THE PERIOD THE PERIOD
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Growth $ 3,666 2% 2%
Value Equity $20,374 15% 20%
Growth and Income $ 120 1% 3%
Asset Allocation $11,525 12% 2%
Investment Quality $ 0 0% 0%
U.S. Government $ 0 0% 0%
National Municipal
Bond $ 0 0% 0%
Money Market $ 0 0% 0%
</TABLE>

From November 1, 1993 to October 31, 1994, brokerage commissions were paid to
Goldman, Sachs & Co. as follows:*

30
<PAGE> 112

<TABLE>
<CAPTION>
% OF FUND'S
BROKERAGE % OF AGGREGATE
COMMISSIONS $ AMOUNT OF
REPRESENTED TRANSACTIONS
PORTFOLIO 11/1/93 TO 10/31/94 FOR THE PERIOD FOR THE PERIOD
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Growth $0 0% 0%
Value Equity $10,169 7% 1%
Growth and Income $2,502 4% 1%
Asset Allocation $9,284 9% 0.12%
Strategic Income $0 0% 0%
Investment Quality $0 0% 0.48%
U.S. Government $0 0% 0%
National Municipal Bond $0 0% 37%
Money Market $0 0% 4%
</TABLE>

<TABLE>

From November 1, 1994 to October 31, 1995, brokerage commission were
paid to Goldman, Sachs & Co. as follows:

<CAPTION>
% OF FUND'S
BROKERAGE % OF AGGREGATE
COMMISSIONS $ AMOUNT OF
REPRESENTED TRANSACTIONS
PORTFOLIO 11/1/94 TO 10/31/95 FOR THE PERIOD FOR THE PERIOD
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Growth $ % %
Value Equity $ % %
Asset Alloc. $ % %
International
Growth and Income
[add other
portfolios]
</TABLE>

<TABLE>
From November 1, 1992 to October 31, 1993, brokerage commissions were paid to
Salomon Brothers Inc as follows:

% OF FUND'S
BROKERAGE % OF AGGREGATE
COMMISSIONS $ AMOUNT OF
PORTFOLIO 11/1/92 TO 10/31/93 REPRESENTED
<S> <C> <C> <C>

</TABLE>

31
<PAGE> 113

<TABLE>
<CAPTION>
TRANSACTIONS
FOR THE PERIOD FOR THE PERIOD
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Growth $2,269 1% 1%
Value Equity $6,609 5% 5%
Growth & Income $1,524 7% 6%
Asset Allocation $4,061 4% 16%
Investment Quality
Bond $0 0% 0%
U.S. Government $0 0% 0%
National Municipal
Bond $0 0% 0%
Money Market $0 0% 0%
</TABLE>

<TABLE>
From November 1, 1993 to October 31, 1994, brokerage commissions were paid to
Salomon Brothers Inc as follows:*

<CAPTION>
% OF FUND'S
BROKERAGE % OF AGGREGATE
COMMISSIONS $ AMOUNT OF
REPRESENTED TRANSACTIONS
PORTFOLIO 11/1/93 TO 10/31/94 FOR THE PERIOD FOR THE PERIOD
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Growth $2,277 0% 1%
Value Equity $7,181 5% 0.13%
Growth & Income $7,908 11% 1%
Asset Allocation $7,396 7% 4%
Strategic Income $0 0% 0%
Investment Quality
Bond $0 0% 1%
U.S. Government $0 0% 0.25%
National Municipal
Bond $0 0% 0%
Money Market $0 0% 1%
</TABLE>

From November 1, 1994 to October 31, 1995, brokerage commissions were paid to
Salomon Brothers Inc as follows:

32
<PAGE> 114

<TABLE>
<CAPTION>
% OF FUND'S
BROKERAGE % OF AGGREGATE
COMMISSIONS $ AMOUNT OF
REPRESENTED TRANSACTIONS
PORTFOLIO 11/1/43 TO 10/31/95 FOR THE PERIOD FOR THE PERIOD
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Value Equity $ % %
[add other portfolios]
</TABLE>

<TABLE>

From January 1, 1995 to October 31, 1995, brokerage commissions were paid to
J.P.MORGAN SECURITIES as follows:*

<CAPTION>
% OF FUND'S
BROKERAGE % OF AGGREGATE
COMMISSIONS $ AMOUNT OF
REPRESENTED TRANSACTIONS
PORTFOLIO 1/9/95 TO 10/31/95 FOR THE PERIOD FOR THE PERIOD
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Growth $ % %
Value Equity
Growth & Income
Asset Allocation
Strategic Income
Investment Quality
Bond
U.S. Government
National Municipal
Bond
Money Market
</TABLE>

<TABLE>

From November 1, 1994 to October 31, 1995, brokerage commissions were paid to
DRESDEN BANK as follows:*

<CAPTION>
% OF FUND'S
BROKERAGE % OF AGGREGATE
COMMISSIONS $ AMOUNT OF
REPRESENTED TRANSACTIONS
PORTFOLIO 11/1/94 TO 10/31/95 FOR THE PERIOD FOR THE PERIOD
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Growth $ % %
Value Equity
Growth & Income
Asset Allocation
Strategic Income
Investment Quality
Bond
U.S. Government
National Municipal
</TABLE>

33
<PAGE> 115

% OF FUND'S
BROKERAGE % OF AGGREGATE
COMMISSIONS $ AMOUNT OF
REPRESENTED TRANSACTIONS
PORTFOLIO 11/1/94 TO 10/31/95 FOR THE PERIOD FOR THE PERIOD
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bond
Money Market
</TABLE>

DETERMINATION OF NET ASSET VALUE

The following supplements the discussion under the caption "GENERAL
INFORMATION -- Net Asset Value" set forth in the Prospectus. The assets
belonging to each class of shares of a Portfolio will, in each case, be
invested together in a single portfolio. The net asset value of each class
will be determined separately by subtracting the expenses and liabilities
allocated to that class from the assets belonging to that class.

The following provides further information concerning the Fund's use of
the amortized cost method of valuation for certain types of securities.

All instruments held by the Money Market Fund and money market instruments
with a remaining maturity of 60 days or less held by the other Portfolios will
be valued on an amortized cost basis. Under this method of valuation, the
instrument is initially valued at cost (or in the case of instruments initially
valued at market value, at the market value on the day before its remaining
maturity is such that it qualifies for amortized cost valuation); thereafter,
the Fund assumes a constant proportionate amortization in value until maturity
of any discount or premium, regardless of the impact of fluctuating interest
rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price that would be
received upon sale of the instrument.

The Money Market Fund uses the amortized cost valuation method in reliance
upon Rule 2a-7 under the 1940 Act. As required by Rule 2a-7, the Money Market
Fund will maintain a dollar weighted average maturity of 90 days or less. In
addition, the Money Market Fund is permitted to purchase only securities that
the Trustees determine to present minimal credit risks and which are at the
time of purchase "eligible securities," as defined by Rule 2a-7. Generally,
eligible securities must be rated by a nationally recognized statistical rating
organization in one of the two highest rating categories for short-term debt
obligations or be of comparable quality. The Money Market Fund will invest
only in obligations that have remaining maturities of 397 days or less.

The Trustees have established procedures designed to stabilize, to the
extent reasonably possible, the Money Market Fund's price per share (for each
class) as computed for the purposes of sales and redemptions at $1.00. Such
procedures include a directive to the Adviser to establish procedures which
will allow for the monitoring of the propriety of the continued use of
amortized cost valuation to maintain a constant net asset value of $1.00 per
share. Such procedures also include a directive to the Adviser that requires
that on determining net asset value per share based upon available market
quotations, the Money Market Fund shall value weekly (a) all portfolio
instruments for which market quotations are readily available at market, and
(b) all portfolio instruments for which market quotations are not readily
available or are not obtainable from a pricing service, at their fair value as
determined in good faith by the Trustees, although the actual calculations may
be made by persons acting pursuant to the direction of the Trustees. If the
fair value of a security needs to be determined, the Subadviser will provide
determinations, in accordance with procedures and methods established by the
Trustees of the Fund, of the fair value of securities held by the Portfolios
for which market quotations are not readily available for purposes of enabling
the Portfolio's Custodian to calculate net asset value. The Adviser, with the
Subadviser's assistance, periodically (but no less frequently than annually)
shall prepare a written report to the Trustees verifying the accuracy of the
pricing system or estimate. A non-negotiable security which is not treated as
an illiquid security because it may be redeemed with the issuer, subject to a
penalty for early redemption, shall be assigned a value that takes into account
the reduced amount that would be received if it were currently liquidated. In
the event that the deviation from the amortized cost exceeds .50 of 1% or more
or a difference of $.005 per share in net asset value, the Adviser shall
promptly call a special meeting of the Trustees to determine what, if any,
action should be initiated. Where the Trustees believe the extent of any
deviation from the Fund's amortized cost price per share may result in material
dilution or other unfair results to investors or existing shareholders, it
shall take such action as it deems appropriate to eliminate or reduce to the
extent reasonably practical such dilution or unfair results. The actions that
may be taken by the Board include, but are not limited to: (a) redeeming shares
in kind; (b) selling portfolio instruments prior to maturity to realize capital
gains or losses or to shorten the average portfolio maturity of the Portfolio;
(c) withholding or reducing dividends;(d) utilizing a net asset value per share
based on available market quotations; and (e)investing all cash in instruments
with a maturity on the next business day.

34
<PAGE> 116

PERFORMANCE INFORMATION

As indicated in the Prospectus, the Fund may advertise its yield and/or
total return performance for all classes of shares of one or more of the
Portfolios, calculated in accordance with the rules of the Commission. Such
performance information may include time periods prior to the implementation of
the Multiple Pricing System on April 1, 1994, and will be calculated as
described below. For purposes of quoting and comparing the performance of the
classes of the Portfolios to that of other mutual funds and to stock or other
relevant indices in advertisements or in reports to shareholders, performance
will be stated in terms of total return and yield. Both "total return" and
"yield" figures are based on historical performance, show the performance of a
hypothetical investment and are not intended to indicate future performance.

<TABLE>

Under the rules of the Commission, funds advertising performance must
include total return quotes, "T" below, calculated according to the following
formula:

P(1 + T)n = ERV

<S> <C> <C>
Where: P = a hypothetical initial payment of $1,000

T = average annual total return

n = number of years (1, 5 or 10)

ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the "n" year period (or fractional portion
thereof) at the end of such period.
</TABLE>

The average annual total return will be calculated under the foregoing
formula and the time periods used in advertising will be based on rolling
calendar quarters, updated to the last day of the most recent quarter prior to
submission of the advertising for publication, and will cover one, five, and
ten year periods (if available) plus the time period since the effective date
of the Fund's registration statement. When the period since inception for a
Portfolio is less than one year, the total return quoted will be the aggregate
return for the period. In calculating the ending redeemable value, for Class A
shares, the current maximum front end sales charge of 4.75% (as a percentage of
the offering price) is deducted from the initial $1,000 payment, and for Class
B shares, the applicable CDSC imposed on a redemption of shares held for the
period is deducted. The schedule of CDSCs due upon redemption is described
under "PURCHASE OF SHARES -- Class B Shares" in the Prospectus. The formula
also assumes that all dividends and distributions have been reinvested at net
asset value as described in the Prospectus on the reinvestment dates during the
period. Total return, or "T" in the formula above, is computed by finding the
average annual compounded rates of return over the 1, 5 and 10 year periods (or
fractional portions thereof) that would equate the initial amount invested to
the ending redeemable value. Any sales charges that might in the future be
made applicable to reinvestments would be included as would any recurring
account charges that might be imposed by the Fund.

The Fund implemented the Multiple Pricing System by reclassifying the then
existing shares of each Portfolio as shares of a particular class of each such
Portfolio. This reclassification was effected in such a manner so that the
shares of each Portfolio outstanding at April 1, 1994 would be subject to
identical distribution and service fees both before and after the
reclassification. Specifically, all outstanding shares of the Strategic
Income, Investment Quality Bond, U.S. Government Securities, National Municipal
Bond and Money Market Funds were reclassified as Class A shares of each such
Portfolio, and all outstanding shares of the Global Growth, Value Equity,
Growth Equity and Income and Asset Allocation Funds were reclassified as Class
C shares of each such Portfolio.

35
<PAGE> 117
<TABLE>

The figures shown in the table below are, for all classes, restated to
reflect front end sales charges and CDSCs currently payable by each class of
shares under the Multiple Pricing System (as described above), and (for all of
the tables presented below) are based on the distribution and service fees and
other expenses actually paid by each Portfolio for the periods presented,
rather than the distribution and service fees and other expenses currently
payable by each class of shares under the Multiple Pricing System, which in
certain cases are different. Until April 1, 1994, each Portfolio paid
distribution and service fees under the Prior Plan. Under the Prior Plan, (i)
the Global Growth, Value Equity, Growth and Income and Asset Allocation Funds
paid the Distributor a distribution fee at an annual rate of up to .75% of
average daily net assets and a service fee of up to .25% of average daily net
assets; (ii) the Strategic Income, Investment Quality Bond and U.S. Government
Securities Funds paid the Distributor a distribution fee at an annual rate of
up to .10% of average daily net assets and a service fee of up to .25% of
average daily net assets; (iii) the National Municipal Bond Fund paid the
Distributor no distribution fee and a service fee at an annual rate of up to
.15% of average daily net assets; and (iv) the Money Market Fund did not pay
any fees. The distribution and service fees currently payable by each class of
shares under the Multiple Pricing System are described in "DISTRIBUTION PLANS"
in this Statement of Additional Information.

The following tables set forth the average annual total returns for
each class of shares of each Portfolio for certain periods of time ending
October 31, 1995, restated to reflect the effects of the maximum front end
sales charges and any applicable CDSCs payable by an investor under the
Multiple Pricing System:***

CLASS A SHARES

<CAPTION>
THROUGH
10/31/95 ONE YEAR FIVE YEARS SINCE INCEPTION INCEPTION DATE
<S> <C> <C> <C> <C>

Global Growth % N/A % (11-01-90)
Value Equity % % % (08-28-89)
Growth & Income % N/A % (05-01-91)
International Growth % % % (01-09-95)
Strategic Income % N/A % (11-01-93)
Asset Allocation % % % (08-28-89)
Investment Quality Bond % N/A % (05-01-91)
U.S. Government Securities % % % (08-28-89)
National Municipal Bond % N/A % (07-06-93)
</TABLE>

CLASS B SHARES

36
<PAGE> 118

<TABLE>
<CAPTION>
THROUGH
10/31/95 ONE YEAR FIVE YEARS SINCE INCEPTION INCEPTION DATE
<S> <C> <C> <C> <C>

CLASS C SHARES

<TABLE>
<CAPTION>
THROUGH
10/31/95 ONE YEAR FIVE YEARS SINCE INCEPTION INCEPTION DATE
<S> <C> <C> <C> <C>

As described in the Prospectus under the caption "FEE TABLE AND EXAMPLE,"
the Portfolios have been and still are subject to certain fee reimbursements.
Absent such reimbursement, the returns shown above would be lower.

</TABLE>

The performance data quoted represents past performance; investment
returns and principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. On July 10, 1992, the former Aggressive, Moderate and Conservative Asset
Allocation Trusts were reorganized into the Asset Allocation Fund. The Asset
Allocation Fund's investment objectives, policies and restrictions are
identical to the old Moderate Asset Allocation Trust. The

37
<PAGE> 119

performance figures shown above for the Asset Allocation Fund therefore are
based on the past performance of the former Moderate Asset Allocation
Trust for the period prior to July 10, 1992.

A Portfolio's yield is a way of showing the rate of income the Portfolio
earns on its investments as a percentage of the Portfolio's share price. Under
the rules of the Commission, yield must be calculated according to the
following formula:

a-b 6
YIELD = 2[(--- + 1) - 1]
cd
Where:
a = dividends and interest earned during the period.

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

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

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

Yields for the classes of the Portfolios of the Fund used in advertising are
computed by dividing the class of the Portfolio's interest and dividend income
for a given 30 day period, net of expenses, by the average number of shares
entitled to receive distributions during the period, dividing this figure by
the offering price (including the applicable front end sales charge or CDSC) at
the end of the period and annualizing the result (assuming compounding of
income) in order to arrive at an annual percentage rate. Income is calculated
for purposes of yield quotations in accordance with standardized methods
applicable to all stock and bond mutual funds. Dividends from equity
investments are treated as if they were accrued on a daily basis, solely for
the purposes of yield calculations. In general, interest income is reduced
with respect to bonds trading at a premium over their par value by subtracting
a portion of the premium from income on a daily basis, and is increased with
respect to bonds trading at a discount by adding a portion of the discount to
daily income. Capital gains and losses generally are excluded from the
calculation. Income calculated for the purposes of calculating the Portfolio's
yield differs from income as determined for other accounting purposes. Because
of the different accounting methods used, and because of the compounding
assumed in yield calculations, the yield quoted for a class of a Portfolio may
differ from the rate of distributions paid over the same period or the rate of
income reported in the Fund's financial statements. The yields for Classes A,
B and C of the Investment Quality Bond Fund for the thirty day period ended
October 31, 1995 were _____%, ____% and ____%, respectively. The yields for
Classes A, B and C of the U.S. Government Securities Fund for the thirty day
period ended October 31, 1995 were ___%, ___% and ___%, respectively. The
yields for Classes A, B and C of the Strategic Income Fund for the thirty day
period ended October 31, 1995 were ____%, ___% and ____%, respectively.

Yield quotations for the Investment Quality Bond and U.S. Government
Securities and Strategic Income Funds will reflect the fact that such
Portfolios will have paid no advisory fees during certain periods of their
operations. Therefore, the yield for those Portfolios encompassing the periods
during which no advisory fees were paid will be higher than the yields the
Portfolios would have realized had the suspension of advisory fees not been in
effect.

The yields for Classes A, B and C of the National Municipal Bond Fund for
the thirty day period ended October 31, 1995 were ____%, ___% and ____%,
respectively. With respect to the National Municipal Bond Fund, tax-equivalent
yields are computed by dividing that portion of yield that is tax-exempt by
one, minus a stated income tax rate and adding the quotient to that portion, if
any, of the yield that is not tax-exempt.

Yields for the Money Market Fund will be computed on the basis of
seven-day periods, and such quotations will be in lieu of total return
quotations for the one, five and ten year periods described above. Yields will
be computed by dividing the net change, exclusive of capital changes, in the
value of a hypothetical account having a balance of one share at the beginning
of the seven-day period by the value of the account at the beginning of the
period and multiplying the return so determined ("base period return") by
365/7. Effective yields will be computed by compounding the base period return
in accordance with the following formula:

Effective yield = [(Base period return +1)365/7] - 1

For the seven-day period ended October 31, 1995, yields for Classes A, B and C
of the Money Market Fund were 5.71%, 5.71% and 5.71%, respectively. For the
seven-day period ended October 31, 1995, the effective yields for Classes A, B
and C of the Money Market Fund were ______%, _____% and _____%, respectively.

38
<PAGE> 120

Yield and total return are calculated separately for each class of shares
of a Portfolio. As discussed above, these calculations adjust for the
different front end sales charges and CDSCs currently payable with respect to
each class, and are based on distribution and service fees and other expenses
actually paid by each Portfolio for the periods presented.

The Fund may also from time to time include in such advertising a total
aggregate return figure or an average annual total return figure that is not
calculated according to the formula set forth above in order to compare
performance more accurately with other measures of investment return. Each
class of a Portfolio may quote an aggregate total return figure in comparing
total return with data published by Lipper Analytical Services, Inc. or with
the performance of various indices including, but not limited to, the Dow Jones
Industrial Average, the Standard & Poor's 500 Stock Index, the Value Line
Composite Index, the Lehman Brothers Bond, Government Corporate, Corporate and
Aggregate Indices, Merrill Lynch Government & Agency Index, Merrill Lynch
Intermediate Agency Index, Morgan Stanley Capital International Europe,
Australia, Far East Index or the Morgan Stanley Capital International World
Index. For such purposes, aggregate total return is calculated for the
specified periods of time by assuming the investment of $1,000 in shares of a
class of a Portfolio and assuming the reinvestment of each dividend or other
distribution at net asset value on the reinvestment date. Percentage increases
are determined by subtracting the initial value of the investment from the
ending value and by dividing the remainder by the beginning value. The Fund
does not, for these purposes, deduct from the initial value invested any amount
representing front end sales charges or CDSCs applicable to a class. To
calculate its average annual total return, the aggregate return is then
annualized according to the Commission's formula for total return quotes,
outlined above. When the period since inception is less than one year, the
total return quoted will be the aggregate return for the period. The Fund
will, however, disclose the maximum front end sales charge or CDSC applicable
to each class and will also disclose that the performance data does not reflect
sales charges and that the inclusion of sales charges would reduce the
performance quoted. Such alternative total return information will be given no
greater prominence in such advertising than the information prescribed under
Commission rules and all advertisements containing performance data will
include a legend disclosing that such performance data represent past
performance and that the investment return and principal value of an investment
will fluctuate so that an investor's shares, when redeemed, may be worth more
or less than their original cost. The Fund may also advertise the performance
rankings assigned certain Portfolios (or classes thereof) or their investment
subadvisers by various publications and statistical services, including but not
limited to SEI, Lipper Analytical Services, Inc.'s Mutual Fund Performance
Analysis, Intersec Research Survey of Non-U.S. Equity Fund Returns, Frank
Russell International Universe, and any other data which may be presented from
time to time by such analysis as Dow Jones, Morningstar, Chase Investment
Performance, Wilson Associates, Stanger, CDA Investment Technology, the
Consumer Price Index ("CPI"), The Bank Rate Monitor National Index,
IBC/Donaghue's Average/U.S. Government and Agency, or as they appear in various
publications including but not limited to The Wall Street Journal, Forbes,
Barrons, Fortune, Money Magazine, The New York Times, Financial World and
Financial Services Week.

Calculated in the manner set forth immediately above, the average annual
total returns for each class of each Portfolio for the one and five year
periods ended October 31, 1995 and since inception to October 31, 1995 are as
follows:***

CLASS A SHARES

39
<PAGE> 121

<TABLE>
THROUGH
10/31/95 ONE YEAR FIVE YEARS SINCE INCEPTION INCEPTION Date
<S> <C> <C> <C> <C>
Global Growth ____% N/A ___% (11-01-90)
Value Equity ____% ___% ___% (08-28-89)
Growth & Income ____% N/A ___% (05-01-91)
International Growth ____% ___% ___% (01-09-95)
Strategic Income ____% N/A ___% (11-01-93)
Asset Allocation ____% ___% ___% (08-28-89)
Investment Quality Bond ____% N/A ___% (05-01-91)
U.S. Government Securities ____% ___% ___% (08-28-89)
National Municipal Bond ____% N/A ___% (07-06-93)
</TABLE>

<TABLE>
CLASS B SHARES

THROUGH
10/31/95 ONE YEAR FIVE YEARS SINCE INCEPTION INCEPTION Date
<S> <C> <C> <C> <C>
Global Growth ____% N/A ___% (11-01-90)
Value Equity ____% ___% ___% (08-28-89)
Growth & Income ____% N/A ___% (05-01-91)
International Growth ____% ___% ___% (01-09-95)
Strategic Income ____% N/A ___% (11-01-93)
Asset Allocation ____% ___% ___% (08-28-89)
Investment Quality Bond ____% N/A ___% (05-01-91)
U.S. Government Securities ____% ___% ___% (08-28-89)
National Municipal Bond ____% N/A ___% (07-06-93)
</TABLE>

CLASS C SHARES

40
<PAGE> 122

The Fund may also from time to time include in advertising and sales
literature the following: 1) information regarding its portfolio subadvisers,
such as information regarding a subadviser's specific investment expertise,
client base, assets under management or other relevant information; 2)
quotations about the Fund, its portfolios or its investment subadvisers that
appear in various publications and media; and 3) general discussions of
economic theories, including but not limited to discussions of how demographics
and political trends may effect future financial markets, as well as market or
other relevant information. The Fund will include performance data for each
class of shares of a Portfolio in any advertisement or information including
performance data of such Portfolio.

TAXES

The following information supplements the disclosure contained in the
Prospectus under the heading "Taxes."

Each Portfolio intends to qualify as a regulated investment company (a
"RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code") and to continue to so qualify. Qualification as a RIC requires, among
other things, that each Portfolio: (a) derive at least 90% of its gross income
in each taxable year from dividends, interest, payments with respect to
securities loans and gains from the sale or other disposition of stock,
securities or foreign currencies, or other income (including gains from
options, futures or forward contracts) derived with respect to its business of
investing in such stocks or securities; (b) derive less than 30% of its gross
income in each taxable year from the sale or other disposition of any of the
following held for less than three months: (i) stock or securities, (ii)
options, futures, or forward contracts, or (iii) foreign currencies (or foreign
currency options, futures or froward contracts) that are not directly related
to its principal business of investing in stock or securities (or options and
futures with respect to stocks or securities) (the "30% limitation"); and (c)
diversify its holdings so that, at the end of each quarter of each taxable
year, (i) at least 50% of the market value of a Portfolio's assets is
represented by cash, cash items, U.S. government securities, securities of
other regulated investment companies and other securities with such other
securities limited, in respect of any issuer, to an amount not greater than 5%
of the value of a Portfolio's assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities (other than U.S. government securities or
the securities of other regulated investment companies) of any one issuer.

In addition, a Portfolio will be subject to a nondeductible 4% excise tax
on the amount by which the aggregate income it distributes in any calendar year
is less than the sum of: (a) 98% of a Portfolio's ordinary income for such
calendar year; (b) 98% of

41
<PAGE> 123

its capital gain net income (the excess of capital gains over capital losses,
both long- and short-term) for the one-year period ending on October 31 of
each year; and (c) 100% of the undistributed ordinary income and gains from
prior years. For this purpose, any income or gains retained by a Portfolio
subject to corporate income tax will be considered to have been distributed by
year-end. Each Portfolio expects to distribute substantially all of its net
income and gain, and, assuming that it does so, it will not be subject to this
excise tax.

Pay-in-kind Bonds, Zero Coupon Bonds and Discount Obligations. Certain
Portfolios may make investments that produce income that is not matched by a
corresponding cash distribution to the Portfolio, such as investments in
pay-in-kind bonds or in discount obligations such as zero coupon securities,
certain sovereign debt securities and stripped mortgage securities having
original issue discount or market discount (if a Portfolio elects to accrue the
market discount on a current basis with respect to such instruments). Such
income would be treated as income earned by the Portfolio and therefore would
be subject to the distribution requirements of the Code. Because such income
may not be matched by a corresponding cash distribution to the Portfolio, the
Portfolio may be required to borrow money or dispose of other securities to be
able to make distributions to its investors. For example, pursuant to a
provision of the Code governing the treatment of securities such as the
stripped mortgage securities described in this Statement of Additional
Information, a principal-only ("PO") class will be treated as having been
issued with original issue discount and, consequently, will result in income to
the Portfolio without a corresponding distribution of cash to the Portfolio. A
portion of the amount received on a PO class will constitute a return of the
Portfolio's investment and as such will not be income.

Futures and Forward Transactions. Under Section 1256 of the Code, gain or
loss on certain futures contracts and forward contracts ("Section 1256
contracts") will be treated as 60% long-term and 40% short-term capital gain or
loss (hereinafter "blended gain or loss"). In addition, Section 1256 contracts
held by a Portfolio at the end of each taxable year will be required to be
treated as sold at market value on the last day of such taxable year for U.S.
federal income tax purposes and the resulting gain or loss will be treated as
blended gain or loss.

Offsetting positions held by a Portfolio involving certain futures
transactions may be considered to constitute, for federal income tax purposes,
"straddles" which are subject to special rules under the Code. Under these
rules, depending on different elections which may be made by a Portfolio, the
amount, timing and character of gain and loss realized by a Portfolio and its
shareholders may be affected.

The requirements for qualification as a regulated investment company under
the Code may limit a Portfolio's ability to engage in certain transactions in
futures contracts and forward contracts.

Special Rules for Certain Foreign Currency Transactions. Under section
988 of the Code, special rules are provided for certain transactions in a
foreign currency other than the taxpayer's functional currency (i.e., in a
Portfolio's case, currencies other than the United States dollar). In general,
foreign currency gains or losses from certain forward contracts not traded in
the interbank market and from futures contracts that are not "regulated futures
contracts" will be treated as ordinary income or loss under section 988 of the
Code. In certain circumstances, a Portfolio may elect capital gain or loss
treatment for such transactions. The rules under section 988 of the Code may
also affect the timing of income recognized by a Portfolio.

Investments in Passive Foreign Investment Companies. If a Portfolio
purchases shares in a foreign investment company treated for U.S. federal
income tax purposes as a "passive foreign investment company" (a "PFIC"), a
Portfolio may be subject to U.S. federal income tax on a portion of any "excess
distribution" or gain from the disposition of such shares even if such income
is distributed as a taxable dividend by the Portfolio to its shareholders.
Additional charges in the nature of interest may be imposed on a Portfolio in
respect of deferred taxes arising from such distributions or gains. If a
Portfolio were to invest in a PFIC and elected to treat the PFIC as a
"qualified electing fund" under the Code, in lieu of the foregoing
requirements, a Portfolio would be required to include in income each year a
portion of the ordinary earnings and net capital gain of the qualified electing
fund, even if not distributed to the Portfolio, and such amounts would be
subject to the distribution requirements described in the Prospectus.

Legislation pending in the U.S. Congress would unify and, in certain
cases, modify the anti-deferral rules contained in various provisions of the
Code, including the provisions dealing with PFICs, related to the taxation of
U.S. shareholders of foreign corporations. In the case of a PFIC, having
"marketable stock," the proposed legislation would permit U.S. shareholders,
such as a Portfolio, to elect to mark-to-market the PFC stock annually. The
proposed legistlation generally would treat all PFIC stock owned by a Portfolio
as "marketable stock." Otherwise, U.S. shareholders would be treated
substantially the same as under current law. Special rules applicable to
mutual funds would classify as "marketable stock" all stock in PFCs held by a
Portfolio; however, a Portfolio would not be liable for tax on income from PFCs
that is distributed to its shareholders. It is unclear if or when the proposed
legislation will become law and if it is enacted, the form it will take.
Moreover, on March 31, 1992 the IRS proposed regulations providing a
mark-to-market election for RICs that would have effects similar to the
proposed legislation. These regulations would be effective for taxable years
ending after promulgation of the regulations as final regulations.

42
<PAGE> 124

Foreign Withholding Taxes. Certain dividends and interest received by a
Portfolio may be subject to foreign withholding taxes. If more than 50% in
value of a Portfolio's total assets at the close of any taxable year consists
of stocks or securities of foreign corporations, the Portfolio may elect to
treat any foreign income taxes paid by it as paid by its shareholders. If
eligible, the Portfolio(s) intend to make this election. If a Portfolio makes
this election, its shareholders will be required to include in income their
respective pro rata portions of foreign income taxes paid by the Portfolio(s)
and, if they itemize their deductions, will be entitled to deduct such
respective pro rata portions in computing their taxable income or,
alternatively, to claim foreign tax credits (subject to the limitations
discussed below). Each year that a Portfolio makes this election, it will
report to its shareholders the amount per share of foreign income taxes it has
elected to have treated as paid by its shareholders.

Generally, a credit for foreign income taxes is subject to the limitation
that it may not exceed the shareholder's U.S. tax attributable to his or her
total foreign source taxable income. For this purpose, the source of a
Portfolio's income flows through to its shareholders. A Portfolio's gains from
the sale of securities will be treated as derived from U.S. sources and certain
currency fluctuation gains, including fluctuation gains from foreign currency
denominated debt securities, receivables and payables, will be treated as
ordinary income derived from U.S. sources. The limitation on the foreign tax
credit is applied separately to foreign source passive income, such as the
portion of dividends received from a Portfolio that qualifies as foreign source
income. In addition, the foreign tax credit is allowed to offset only 90% of
the revised alternative minimum tax imposed on corporations and individuals.
Because of these limitations, shareholders may be unable to claim a credit for
the full amount of their proportionate share of the foreign taxes paid by a
Portfolio.

NATIONAL MUNICIPAL BOND - TAXATION ISSUES

Because the National Municipal Bond Fund will primarily invest in
municipal obligations, dividends from these Portfolios will generally be exempt
from regular federal income tax in the hands of shareholders subject to the
possible application of the alternative minimum tax. Federal tax law imposes
an alternative minimum tax with respect to both corporations and individuals
based on certain items of tax preference. Interest on certain municipal
obligations, such as bonds issued to make loans for housing purposes or to
private entities (but not to certain tax-exempt organizations such as
universities and non-profit hospitals) is included as an item of tax preference
in determining the amount of a taxpayer's alternative minimum taxable income.
To the extent that a Portfolio receives income from municipal obligations
treated as a tax preference item for purposes of the alternative minimum tax, a
portion of the dividends paid by it, although otherwise exempt from federal
income tax, will be taxable to shareholders to the extent that their tax
liability will be determined under the alternative minimum tax. The Portfolio
will annually supply shareholders with a report indicating the percentage of
portfolio income attributable to municipal obligations subject to the
alternative minimum tax. Additionally, taxpayers must disclose to the Internal
Revenue Service on their tax returns the entire amount of tax-exempt interest
(including exempt-interest dividends on shares of the Portfolio) received or
accrued during the year.

In addition, for corporations, the alternative minimum taxable income is
increased by a percentage of the amount by which an alternative measure of
income ("adjusted current earnings", referred to as "ACE") exceeds the amount
otherwise determined to be the alternative minimum taxable income. Interest on
all municipal obligations, and therefore all exempt-interest dividends paid by
the Portfolio, is included in calculating ACE.

Under the Omnibus Budget Reconciliation Act of 1993, all or a portion of
the National Municipal Bond Fund's gain from the sale or redemption of
tax-exempt obligations acquired after April 30, 1993 attributable to market
discount will be treated as ordinary income rather than capital gain. This
rule may increase the amount of ordinary income dividends received by
shareholders.

The Superfund Act of 1986 imposes a separate tax on corporations at a rate
of 0.12% of the excess of such corporation's "modified alternative minimum
taxable income" over $2,000,000. A portion of a corporate shareholder's
tax-exempt interest, including exempt-interest dividends from the Portfolio,
may be includable in calculating such shareholder's modified alternative
minimum taxable income.

Taxpayers that may be subject to the alternative minimum tax should
consult their tax advisers before investing in the Portfolio.

Shares of the Portfolio would not be a suitable investment for tax-exempt
institutions and may not be a suitable investment for retirement plans
qualified under Section 401 of the Code, H.R. 10 plans and individual
retirement accounts, because such plans and accounts are generally tax-exempt
and, therefore, would not gain any additional benefit from the receipt of
exempt-interest dividends from the Portfolio. Moreover, subsequent
distributions of such dividends to the beneficiaries will be taxable.

In addition, the Portfolio may not be an appropriate investment for
entities that are "substantial users" of facilities financed by private
activity bonds or "related persons" thereof. A "substantial user" is defined
under United States Treasury Regulations to include a non-exempt person who
regularly uses a part of such facilities in his trade or business and, unless
such facility, or part thereof, is constructed, reconstructed or acquired
specifically for the non-exempt person, whose gross revenue derived with
respect to the facilities financed by the issuance of bonds is more than 5% of
the total revenue derived by all users of such facilities. "Related

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<PAGE> 125

persons" include certain related natural persons, affiliated corporations,
partnerships and their partners and S Corporations and their shareholders.
The foregoing is not a complete statement of all of the provisions of the Code
covering the definitions of "substantial user" and "related person". For
additional information, investors should consult their tax advisers before
investing in the Portfolio.

All or a portion of the exempt-interest dividends received by certain
foreign corporations may be subject to the federal branch profits tax.
Likewise, all or a portion of the exempt-interest dividends may be taxable to
certain Subchapter S Corporations that have Subchapter C earnings and profits
and substantial passive investment income. In addition, the exempt-interest
dividends may reduce the deduction for loss reserves for certain insurance
companies. Such corporations and insurance companies should consult their tax
advisers before investing in the Portfolio. The Code may also require
shareholders that receive exempt-interest dividends to treat as taxable income
a portion of certain otherwise nontaxable social security and railroad
retirement benefit payments.

SHAREHOLDER SERVICES

Systematic Withdrawal Plan. You may establish a plan for redemptions to be
made automatically at monthly, quarterly, semiannual or annual intervals with
payments sent directly to you or to persons designated by you as recipients of
the withdrawals (the "Withdrawal Plan"). Requests for this service not made on
the initial application require signature guarantees unless the payments are to
be made to you and mailed to the address of record on your account. You are
required to have a minimum account value of $10,000 per Portfolio in order to
establish this plan. The Withdrawal Plan provides for monthly or other
periodic checks in any amount not less than $50. Maintenance of a Withdrawal
Plan concurrently with purchases of additional shares may be disadvantageous to
you because of the front end sales charge on certain purchases and the CDSC on
certain redemptions.

The Fund acts as agent for the shareholder in redeeming sufficient full
and fractional shares to provide the amount of the periodic withdrawal payment.
The Withdrawal Plan may be terminated at any time, and, while no fee is
currently charged (although a CDSC may be applicable to certain redemptions
that exceed 12% annually of the value of the account), the Fund reserves the
right to initiate a fee of up to $5 per withdrawal upon 30 days' written notice
to the shareholder.

Withdrawal payments should not be considered as dividends, yield, or
income. If periodic withdrawals continuously exceed reinvested dividends and
capital gains distributions, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted.

Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must be recognized for federal income tax purposes.
Withdrawals which are made concurrently with purchases of additional shares are
generally inadvisable because of the front end sales charges and CDSCs which
may be applicable to the purchase of additional shares or to redemptions.

Automatic Investment Plan. A shareholder who wishes to make additional
investments in the Fund on a regular basis may do so by authorizing the Fund on
the Shareholder Application to deduct a fixed amount (not less than $50) each
month from the shareholder's checking account at his or her bank. This amount
will automatically be invested on the same day that the pre-authorized check is
issued. The shareholder will receive a confirmation from the Fund, and the
checking account statement will show the amount charged.

Tax Deferred Retirement Plans. Retirement plans are either available or
expected to be available for use by Individual Retirement Accounts ("IRAs"),
plans under Section 403(b)(7) of the Code, and other retirement plans.
Adoption of such plans should be on advice of legal counsel or a tax adviser.
With the exception of the National Municipal Bond Fund, the Portfolio may be
available for purchase through retirement plans or other programs offering
deferral of or exemption from income taxes, which may produce superior
after-tax returns over time. For example, a $1,000 investment earning a
taxable return of 10% annually would have an after-tax value of $1,949 after
ten years, assuming tax was deducted from the return each year at a 31% rate.
An equivalent tax-deferred investment would have an after-tax value of
$2,099.86 after ten years, assuming tax was deducted at a 31% rate from the
deferred earnings at the end of the ten year period.

For further information regarding plan administration, custodial fees and
other details, investors should contact their broker or Wood Logan or call the
shareholder inquiry number for the Fund.

GENERAL

ADVISER'S RATIONALE FOR MULTI-MANAGER FUND

Every investment adviser has different strengths and weaknesses. Finding
the right investment adviser is an important part of choosing the right family
of mutual funds. That is why in creating the Fund, the Fund selected seven
companies that are, in the opinion of the Adviser, among the world's most
distinguished asset management firms. Each of these firms has been recognized

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<PAGE> 126
as among the finest in the world for their particular investment style or area
of investment expertise. The Adviser believes that together the Portfolios
offer investors a unique opportunity to benefit from some of the industry's
finest investment professionals.

It is well recognized that one of the basic principles of managing money
is diversification. The Fund is designed, in the opinion of the Adviser, to
make it easy for investors to create a sound and diversified investment program
that can help them meet their current and future investment needs. The Fund is
specifically designed to enable investors to allocate their assets effectively
across a spectrum of investment Portfolios representing particular investment
styles or asset classes. As conditions change, investors in the Fund can
easily adjust the allocation of their assets among the Fund's investment
Portfolios.

Small/Mid Cap Fund. The investment objective of the Small/Mid Cap Fund is to
seek long term capital appreciation. Alger manages the Small/Mid Cap Fund and
will pursue this objective by investing at least 65% of the portfolio's total
assets (except during temporary defensive periods) in small/mid cap equity
securities. As used herein small/mid cap equity securities are equity
securities of companies that, at the time of purchase, have "total market
capitalization" -- present market value per share multiplied by the total
number of shares outstanding -- between $500 million and $5 billion. The
portfolio may invest up to 35% of its total assets in equity securities of
companies that, at the time of purchase, have total market capitalization of $5
billion or greater and in excess of that amount (up to 100% of its assets )
during temporary defensive periods.

International Small Cap Fund. The investment objective of the International
Small Cap Fund is to seek long-term capital appreciation. Founders manages the
International Small Cap Fund and will pursue this objective by investing
primarily in securities issued by foreign companies which have total market
capitalizations (present market value per share multiplied by the total number
of shares outstanding) or annual revenues of $1 billion or less. These
securities may represent companies in both established and emerging economies
throughout the world.

At least 65% of the portfolio's total assets will normally be invested in
foreign securities representing a minimum of three countries (other than the
United States). The portfolio may invest in larger foreign companies or in U.S.
based companies if, in Founders' opinion, they represent better prospects for
appreciation.

The International Small Cap Fund will invest primarily in equity
securities but may also invest in convertible securities, preferred stocks,
bonds, debentures and other corporate obligations when Founders believes that
these investments offer opportunities for capital appreciation. Current income
will not be a substantial factor in the selection of these securities. The
Portfolio will only invest in bonds, debentures and corporate
obligations--other than convertible securities and preferred stock--rated
investment-grade (BBB or higher by Moody's or Baa or higher by S&P) at the time
of purchase. or, if unrated, of comparable quality in the opinion of Founders.
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 Founders 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 rated in categories no lower than B. The
Portfolio is not required to dispose of debt securities whose ratings are
down-graded below these ratings subsequent to the Portfolio's purchase of the
securities.

Growth Equity Fund. The investment objective of the Growth Equity Fund is to
seek long-term growth of capital. Founders manages the Growth Equity Fund and
will pursue this objective by investing at least 65% of its assets in common
stocks of well-established, high-quality growth companies. These companies
tend to have strong performance records, solid market positions and reasonable
financial strength, and have continuous operating records of three years or
more. The Portfolio may also invest up to 30% of its assets in foreign
securities, with no more than 25% invested in any one foreign country.

The Growth Equity Fund may invest in convertible securities, preferred
stocks, bonds, debentures and other corporate obligations when Founders
believes that these investments offer opportunities for capital appreciation.
Current income will not be a substantial factor in the selection of these
securities. The Portfolio will only invest in bonds, debentures and corporate
obligations--other than convertible securities and preferred stock--rated
investment-grade (BBB or higher by Moody's and Baa or higher by S&P) or, if
unrated, of comparable quality in the opinion of Founders at the time of
purchase. 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 Founders believes that the financial condition of
the issuer or the protection afforded by the

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<PAGE> 127

terms of the securities limits risk to a level similar to that of securities
rated in categories no lower than B. The Portfolio is not required to
dispose of debt securities whose ratings are down-graded below these ratings
subsequent to the Portfolio's purchase of the securities.

GLOBAL GROWTH FUND. The Global Growth Fund seeks long-term capital
appreciation by investing primarily in a portfolio of global equity securities
convertible into or exercisable for equity securities. Currently, according to
Morgan Stanley Capital International, approximately two-thirds of the world's
equity investment opportunities are traded in markets outside the United
States. Investing in companies located outside the United States can provide
U.S. investors with advantages and opportunities not available through domestic
investing alone. In addition, a portfolio of U.S. and foreign stocks can
provide diversification that can lessen the risk of poor performance in any
single stock market or economy.

In selecting securities for this Fund, Oechsle International pursues a
strategy of diversification by both countries and companies, concentrating on
markets identified as fundamentally attractive. Research is used to identify
unique opportunities for above average returns that can result from
inefficiencies within the various mature and diverse stock markets throughout
the world. Oechsle International seeks to avoid immature, speculative markets
that generally experience greater volatility than more mature markets.

VALUE EQUITY FUND. The Value Equity Fund seeks long-term growth of
capital by investing primarily in equity securities, including common stocks
and securities convertible into or carrying the right to buy common stocks.
Historically, over the long-term, the U.S. stock market has significantly
out-performed other investments. According to Ibbotson Associates, Inc., for
the __ years ended December 31, 199_, common stocks returned on an average
annual total return basis ___%, compared to ___% for long-term government
bonds, and stocks have outperformed bonds in __ of the last __ years. Of
course, different periods may show different results. In addition, stocks
generally experience greater price volatility than investments in fixed income
securities.

GSAM's investment approach emphasizes a "bottoms-up" securities selection
discipline that places emphasis on the identification of companies whose
prospects for growth and other financial characteristics, when compared to the
price of their securities, indicates fundamental value and the potential for
significant capital appreciation. In analyzing companies for investment, the
following factors, among others, are considered: strong competitive advantages,
including well-recognized trademarks or established brands; niche business; and
growth oriented companies in more mature market segments, as well as companies
having a significant market position in a fast-growing segment of the economy.
The strategy for selecting investments emphasizes fundamental research using a
team approach with investments made on the basis of a company's strong free
cash flow, return on invested capital, strong balance sheets or substantial
interest coverage, soundness of financial and accounting policies, overall
financial and management strength, and attractive valuations.

GROWTH AND INCOME FUND. The Growth and Income Fund seeks long-term growth of
capital and income consistent with prudent investment risk by investing
primarily in a diversified portfolio of dividend-paying common stocks of U.S.
issuers believed to be of high quality. In selecting investments for this
Fund, Wellington Management emphasizes medium to large capitalization companies
having: leadership position within their industries; solid balance sheets and
low leverage; relatively high return on equity; steady or increasing dividends;
and strong management. The Growth and Income Fund is structured to provide, in
the opinion of the Adviser, an excellent opportunity for investors to
participate in the growth of the U.S. stock market through a conservatively
managed, well-diversified portfolio of stocks. By investing primarily in
medium to large capitalization issuers with above-average dividend yields, the
Fund seeks to reduce the volatility generally experienced by stocks through the
income cushion provided by dividend income. In addition to providing potential
downside protection, over the past 30 years reinvested dividends have accounted
for approximately 70% of the total appreciation of the S&P 500. An important
feature of the Fund is its exposure to convertible securities. The Fund
dedicates a portion of its assets to convertible securities, which, in general,
provide higher yields than common stocks while participating in the stock's
capital appreciation potential.

INTERNATIONAL GROWTH AND INCOME FUND. The International Growth and Income Fund
seeks long-term growth of capital and income. The Portfolio is designed for
investors with a long-term investment horizon who want to diversify their
investments by adding international securities and take advantage of investment
opportunities outside the United States.

J.P. Morgan seeks to achieve its objective by investing, under normal
circumstances, at least 65% of its total assets in equity securities of foreign
issuers, consisting of common stocks and other securities with equity
characteristics such as preferred stock, warrants, rights and convertible
securities. The Portfolio will focus primarily on the common stock of
established companies based in developed countries outside the United States.
Such investments will be made in at least three foreign countries. The
Portfolio may also invest in securities of issuers located in emerging markets
countries. The Portfolio invests in securities listed on foreign or domestic
securities exchanges and securities traded in foreign or domestic
over-the-counter markets, and may invest in certain restricted or unlisted
securities. Under normal circumstances, the International Growth and Income
Fund expects to invest primarily

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<PAGE> 128

in equity securities. However, the Portfolio may invest up to 35% of its
assets in corporate or sovereign issuers rated A or higher by Moody's or S&P, or
if unrated, of equivalent credit quality as determined by the Subadviser.

ASSET ALLOCATION FUND. The Asset Allocation Fund seeks to obtain the highest
total return consistent with a moderate level of risk tolerance by investing in
a combination of equity, fixed-income and money market securities. The
percentage of the Fund's assets invested in each category depends on the
judgment of GSAM. GSAM's investment strategy for this Fund seeks to limit
downside risk by effectively allocating the Fund's assets based on various
factors, including: the relative attractiveness of the various asset classes
and individual securities, GSAM's outlook for the economy, current and
anticipated interest rates, and the rate of inflation. The Fund attempts to
limit any decline in its portfolio value to a maximum of 10% over any 12-month
period, even under very adverse market conditions.

STRATEGIC INCOME FUND. The Strategic Income Fund seeks a high level of total
return consistent with preservation of capital by giving SBAM broad discretion
to deploy the Fund's assets among various segments of the fixed income market.
SBAM may deploy the Fund's assets based on their analysis of current economic
and market conditions and the relative risks and opportunities present in a
wide range of market segments, including: U.S. Government securities;
mortgage-backed securities; high yield corporate bonds; high yield
international bonds; and investment quality corporate and foreign bonds.

SBAM expects that the Fund's investments will emphasize U.S. Government
securities, high yield corporate bonds and high yield international bonds.
SBAM believes that there is a low correlation among these distinct bond markets
and, historically, they have rarely reacted to interest rate changes and
economic conditions at the same time or in the same manner. Diversifying the
portfolio among securities in markets with low correlation is designed to
reduce the risk of owning securities in just one bond market. While there is
no guarantee that this market diversification will produce the results
intended, SBAM believes that it can help to alleviate the risk of investing in
less than investment grade securities.

INVESTMENT QUALITY BOND FUND. The Investment Quality Bond Fund seeks a high
level of current income consistent with the maintenance of principal and
liquidity by investing primarily in a diversified portfolio of investment grade
corporate bonds and U.S. government bonds with intermediate to longer-term
maturities. In the present low interest rate environment, high quality U.S.
Government securities and investment grade corporate bonds can offer an
opportunity for investors to achieve rates of return higher than those
available from short-term investments such as certificates of deposit, savings
accounts, and money market funds. Historically, investors have achieved
consistently higher levels of income from investment grade corporate bonds than
U.S. Treasury securities. Nevertheless, investment grade bonds are subject to
greater credit risk than U.S. Treasury securities. In addition, certificates
of deposit and savings accounts are insured and offer a fixed rate of return
and money market funds seek to provide a stable net asset value. The
investment returns and principal value of the Investment Quality Bond Fund will
fluctuate with changes in market conditions.

This Fund will be invested primarily in investment grade corporate bonds,
mortgage-related bonds and U.S. government bonds with intermediate to long-term
maturities. This Fund may also invest up to 20% of its assets in
non-investment grade fixed income securities. Wellington Management, in
managing the Fund's investments, emphasizes a sector rotation strategy which
seeks to identify relative value among these three major sectors of the fixed
income marketplace.

U.S. GOVERNMENT SECURITIES FUND. The U.S. Government Securities Fund seeks a
high level of current income consistent with preservation of capital and
maintenance of liquidity by investing in securities issued or guaranteed as to
the timely payment of interest or principal by the U.S. government, its
agencies or instrumentalities. The U.S. Government Securities Fund, managed by
SBAM, is designed to provide investors with high current income and a high
degree of credit safety in one fund. To date, the U.S. Government has never
defaulted on or delayed payments of principal or interest on its obligations.
In addition, under normal market conditions, the medium and long-term U.S.
Government securities in which the Fund invests have historically provided
higher yields than short-term securities. Moreover, U.S. Government securities
are considered to be highly liquid.

NATIONAL MUNICIPAL BOND FUND. The National Municipal Bond Fund seeks to
achieve a high level of current income exempt from regular federal income
taxes, consistent with the preservation of capital, by investing primarily in a
portfolio of municipal obligations. A fund that invests in municipal bonds can
provide income free from federal income tax liability, even as taxes rise. In
addition, earnings may grow more quickly when they are permitted to compound
without federal income taxation.

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<PAGE> 129

<TABLE>

An investor may want to determine which investment, tax-exempt or taxable,
will provide a higher after-tax return. To determine the taxable equivalent
yield, simply divide the yield from the tax-exempt investment by the sum of (1
minus the investor's marginal tax rate). The tables below are provided for
making this calculation for selected tax-exempt yield and taxable income
levels. These yields are presented for purposes of illustration only and are
not representative of any yield that the Fund may generate. The tables are
based upon the 1995 federal tax rates (in effect as of ___________________
1995).

================================================================================================
TAXABLE EQUIVALENT YIELDS

<CAPTION>
A TAX-EXEMPT YIELD OF:
SINGLE MARGINAL FEDERAL 3% 4% 5% 6% 7% 8%
TAXABLE INCOME JOINT INCOME TAX RATE IS EQUIVALENT TO A TAXABLE YIELD OF:
- ----------------- --------------- ---------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
under $23,351 under $39,001 15% 3.53, 4.71, 5.88, 7.06, 8.24, 9.41
- ------------------------------------------------------------------------------------------------
$23,351-$56,550 $39,001-$94,250 28% 4.17, 5.56, 6.94, 8.33, 9.72, 11.11
- ------------------------------------------------------------------------------------------------
$56,551-$117,950 $94,251-$143,600 31% 4.35, 5.80, 7.25, 8.70, 10.14, 11.59
- ------------------------------------------------------------------------------------------------
$117,951-$256,500 $143,601-$256,500 36% 4.69, 6.25, 7.81, 9.38, 10.94, 12.50
- ------------------------------------------------------------------------------------------------
over $256,500 over $256,500 39.6% 4.97, 6.62, 8.28, 9.93, 11.59, 13.25
================================================================================================

<FN>
* Certain taxpayers may, to the extent such taxpayers itemize deductions or
claim personal exemptions, be subject to a higher marginal rate.
</TABLE>

FUND SHARES

The Fund's Declaration of Trust permits its Trustees to issue an unlimited
number of full and fractional shares of beneficial interest and to divide or
combine the shares into a greater or lesser number of shares without thereby
changing the proportionate beneficial interests in the Fund.

At a meeting of the Board of Trustees held on December 16, 1993, the
Trustees, including each Trustee who is not an "interested person," as such
term is defined under the Investment Company Act of 1940, as amended,
unanimously approved amendments to the Declaration of Trust to permit
implementation of the Multiple Pricing System. Shareholders of the Fund
approved these amendments at a special meeting held February 18, 1994. The
Multiple Pricing System was implemented on April 1, 1994. All shares of the
Fund have equal voting rights and will be voted in the aggregate, and not by
series (Portfolio) or class, except where voting by series or class is required
by law or where the matter involved affects only one series or class (for
example, matters pertaining to the plan of distribution relating to Class A
shares will only be voted on by Class A shares). Matters required by the 1940
Act to be voted upon by each affected series include changes to (i) the
Advisory Agreement, (ii) a Subadvisory Agreement and (iii) the fundamental
investment objectives and policies.

Shares of each class of a Portfolio represent interests in that Portfolio
in proportion to each share's net asset value. Certain operating expenses
which are specifically allocable to a class of a Portfolio may be so allocated
by the Trustees. Upon the Fund's liquidation, all shareholders of a class
would share pro rata in the net assets of that class available for distribution
to shareholders of the Portfolio, but, as shareholders of such class of such
Portfolio, would not be entitled to share in the distribution of assets
belonging to any other class or Portfolio. As of the date of this Statement of
Additional Information, the Trustees have designated thirteen Portfolios of
the Fund: the Small/Mid Cap Fund, the International Small Cap Fund, the Growth
Equity Fund, the Global Growth Fund, the Value Equity Fund, the Growth and
Income Fund, the International Growth and Income Fund, the Asset Allocation
Fund, the Strategic Income Fund, the Investment Quality Bond Fund, the U.S.
Government Securities Fund, the National Municipal Bond Fund and the Money
Market Fund and three classes of Shares in each Portfolio: Class A, Class B and
Class C shares.

Certificates representing shares are issued only upon written request to
the Fund.

REDEMPTION IN KIND

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<PAGE> 130

Although it is each of the Portfolios' present policy to make payment of
redemption proceeds in cash, if the Trustees determine it appropriate,
redemption proceeds may be paid in whole or in part by a distribution in kind
of marketable securities held by that Portfolio subject to the limitation that
each Portfolio is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Portfolio during any 90-day period
for any one account. If a redemption in kind is made, a shareholder might be
required to bear transaction costs, including brokerage commissions, to dispose
of such securities. The Fund will endeavor to only distribute securities for
which there is an active trading market.

REPURCHASE OF SHARES

The Distributor is authorized to repurchase Portfolio shares through
certain securities dealers who have entered into dealer agreements with the
Distributor. The offer to repurchase may be suspended by the Distributor at
any time. Dealers may charge for their services in connection with a
repurchase, but neither the Fund nor the Distributor makes any such charge.
Repurchase arrangements differ from redemptions in that the dealer buys the
shares as principal from his customer in lieu of tendering shares to the Fund
for redemption as agent for the customer. The proceeds to the shareholder will
be the net asset value of the shares repurchased as next determined after
receipt of the repurchase order by the dealer. By a repurchase, the customer
should be able to receive the sale proceeds from the dealer more quickly.
Shareholders should contact their dealers for further information as to how to
effect a repurchase and the dealer's charges applicable thereto.

PAYMENT FOR THE SHARES PRESENTED

Payment for shares presented for redemption will be based on the net asset
value of the applicable class of the applicable Portfolio next computed after a
request is received in proper form at the Transfer Agent's office. As
described in the Prospectus under the caption "PURCHASE OF SHARES -- Class B
Shares", certain redemptions of Class A, B and C shares may be subject to a
CDSC, which will be deducted from the redemption proceeds. Payment proceeds
will be mailed within seven days following receipt of all required documents.
However, payment may be postponed or the right of redemption suspended (i) for
any period during which the New York Stock Exchange is closed for other than
customary weekend and holiday closing or during which trading on the New York
Stock Exchange is restricted; (ii) for any period during which an emergency
exists as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets; or (iii) for such other
periods as the Commission may by order permit for the protection of
shareholders, provided that applicable rules and regulations of the Commission
shall govern as to whether the conditions described in (i) and (ii) exist.
Payment of proceeds may also be delayed if the shares to be redeemed or
repurchased were purchased by check and that check has not cleared (which may
be up to 15 days or more).

TRANSFER AGENT

State Street Bank and Trust Company acts as the Fund's transfer agent,
provides shareholder services and acts as dividend disbursing and redemption
agent. Its mailing address is P.O. Box 8505, Boston, Massachusetts 02266-8505.
State Street Bank and Trust Company also serves as the custodian for all
Portfolios of the Fund.

INDEPENDENT ACCOUNTANTS

The Fund's independent accountants, Coopers & Lybrand L.L.P., One Post
Office Square, Boston Massachusetts 02109, examine the Fund's annual financial
statements, assist in the preparation of certain reports to the Commission and
prepare the Fund's tax returns.

FINANCIAL STATEMENTS

[TO BE FILED BY AMENDMENT]

49
<PAGE> 131

Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements:

(1) Audited Financial Statements (TO BE FILED BY AMENDMENT)

Report of Independent Public Accountants, December ---, 1995 -- Part
B

Statements of Assets and Liabilities at October 31, 1995 -- Part B

Statements of Operations for the year ended October 31, 1995 -- Part
B

Statements of Changes in Net Assets for the periods October 31,
1995 and October 31, 1994 -- Part B

Financial Highlights -- Parts A and B

Portfolio of Investments owned -- Part B

Notes to Financial Statements, October 31, 1995 -- Part B

(b) Exhibits

(1)(a) Agreement and Declaration of Trust dated September 28, 1988 --
previously filed as Exhibit (b)(1) to North American Security Trust's initial
registration statement on Form N-1A (File No. 33-27958) dated April 5, 1989.

(1)(b) Amended and Restated Agreement and Declaration of Trust dated June
1, 1993 -- previously filed as Exhibit (b)(1)(b) to North American Fund's Post-
Effective Amendment No. 13 on Form N-1A (File No. 33-27958) dated June 1, 1993.

(1)(c) Amended and Restated Agreement and Declaration of Trust dated
February 18, 1994 -- previously filed as Exhibit (b)(1)(c) to North American
Funds' Post-Effective Amendment No. 17 on Form N-1A (File No. 33-27958) dated
April 1, 1994.

(1)(d) Declaration of Trust Amendment -- Establishment and Designation of
Additional Series of Shares for the International Growth and Income Fund, dated
December 28, 1994 -- previously filed as Exhibit (b)(1)(d) to North

1
<PAGE> 132
American Fund's Post Effective Amendment No. 19 on Form N-1A (File
No. 33-27958) filed December 29, 1994.

(1)(e) Declaration of Trust Amendment - Establishment and Designation of
Classes A, B and C, dated March 17, 1994 -- previously filed as
Exhibit (b)(1)(e) to North American Fund's Post-Effective
Amendment No. 19 on Form N-1A (File No. 33-27958) filed December
29, 1994.

(2) By-laws of North American Security Trust -- previously filed as
Exhibit (b)(2) to North American Security Trust's initial
registration statement on Form N-1A (File No. 33-27958) dated
April 5, 1989.

(3) Not applicable.

(4)(a) Specimen Share Certificate for Global Growth Trust -- previously
filed as Exhibit No. (b)(4)(a) to North American Security Trust's
Post-Effective Amendment No. 3 on Form N-1A (File No. 33-27958)
dated February 1, 1991.

(b) Specimen Share Certificate for Growth Trust -- previously filed as
Exhibit (b)(4)(a) to North American Security Trust's Post-Effective
Amendment No. 1 on Form N-1A (File No. 33-27958) dated
December 29, 1989.

(c) Specimen Share Certificate for Growth and Income Trust -- previously
filed as Exhibit (b)(4)(c) to North American Security Trust's
Post-Effective Amendment No. 4 on Form N-1A (File No. 33-27958)
dated February 22, 1991.

(d) Specimen Share Certificate for Investment Quality Bond Trust
previously filed as Exhibit (b)(4)(d) to North American Security
Trust's Post-Effective Amendment No. 6 on Form N-1A (File No.
33-27958) dated April 22, 1991.

(e) Specimen Share Certificate for U.S. Government Securities Trust --
previously filed as Exhibit (b)(4)(b) to North American Security
Trust's Post-Effective Amendment No. 1 on Form N-1A (File No.
33-27958) dated December 29, 1989.

(f) Specimen Share Certificate for Money Market Trust -- previously
filed as Exhibit (b)(4)(c) to North American Security Trust's
Post-Effective Amendment No. 1 on Form N-1A (File No. 33-27958)
dated December 29, 1989.

2
<PAGE> 133
(g) Specimen Share Certificate for Asset Allocation Trust --
previously filed as Exhibit (b)(4)(g) to North American Security
Trust's Post-Effective Amendment No. 8 on Form N-1A (File No. 33-27958)
dated May 12, 1992.

(h) Forms of Specimen Share Certificates for Strategic Income
Fund, National Municipal Bond Fund, California Municipal Bond Fund,
Global Growth Fund, Growth Fund, Growth and Income Fund, U.S.
Government Securities Fund, Money Market Fund and Asset Allocation Fund
-- previously filed as Exhibit (b)(4)(h) to North American Funds'
Post-Effective Amendment No. 13 on Form N-1A (File No. 33-27958) dated
June 30, 1993.

(i) Forms of Specimen Share Certificates: for Strategic Income
Fund - A, Investment Quality Bond Fund - A, National Municipal Bond
Fund - A, California Municipal Bond Fund - A, Global Growth Fund - A,
Growth Fund - A, Growth and Income Fund - A, U.S. Government Securities
Fund - A, Money Market Fund - A, Asset Allocation Fund - A; for
Strategic Income Fund - B, Investment Quality Bond Fund - B, National
Municipal Bond Fund - B, California Municipal Bond Fund - B, Global
Growth Fund - B, Growth Fund - B, Growth and Income Fund - B, U.S.
Government Securities Fund - B, Money Market Fund - B, Asset Allocation
Fund - B; for Strategic Income Fund - C, Investment Quality Bond Fund -
C, National Municipal Bond Fund - C, California Municipal Bond Fund -
C, Global Growth Fund - C, Growth Fund - C, Growth and Income Fund - C,
U.S. Government Securities Fund - C, Money Market Fund - C, and Asset
Allocation Fund - C -- previously filed as Exhibit (b)(4)(i) to North
American Funds' Post-Effective Amendment No. 17 on Form N-1A (File No.
33-27958) dated April 1, 1994.

(j) Forms of Specimen Share Certificates for International
Growth and Income Fund: A, B, C and D -- previously filed as Exhibit
(b)(4)(j) to North American Funds' Post-Effective Amendment No. 18 on
Form N-1A (File No. 33-27958) dated October 20, 1994.

(k) Forms of Specimen Share Certificates, for the Small/Mid
Cap, the International Small Cap and the Growth Equity Fund - A, B and
C. -- Filed herewith.

5. (a)(ix) Form of Amended and Restated Advisory Agreement between North
American Funds and NASL Financial Services, Inc. -- Filed herewith.

3
<PAGE> 134
(b) Subadvisory Agreement Between NASL Financial Services, Inc.
and Oechsle International Advisors, L.P. dated October 1, 1990 --
previously filed as
4
<PAGE> 135
Exhibit (b)(5)(c) to North American Security Trust's Post-Effective
Amendment No. 2 on Form N-1A (File No. 33-27958) dated August 29,
1990.

(c) Subadvisory Agreement Between NASL Financial Services, Inc.
and Wellington Management Company dated May 1, 1991 --
previously filed as Exhibit (b)(5)(c) to North American Security
Trust's Post-Effective Amendment No.6 on Form N-1A (File No.
33-27958) dated November 1, 1991.

(c)(i) Amendment to Subadvisory Agreement Between NASL
Financial Services, Inc. and Wellington Management Company
dated December 13, 1991 -- previously filed as Exhibit (b)(5)(d) to
North American Security Trust's Post-Effective Amendment No. 7 on
Form N-1A (File No. 33-27958) dated December 19, 1991.

(d) Subadvisory Agreement Between NASL Financial Services, Inc. and
Salomon Brothers Asset Management Inc dated December 13, 1991
-- previously filed as Exhibit (b)(5)(e) to North American Security
Trust's Post-Effective Amendment No. 7 on Form N-1A (File No.
33-27958) dated December 19, 1991.

(d)(i) Amendment to Subadvisory Agreement Between NASL Financial Services,
Inc. and Salomon Brothers Asset Management Inc dated March 26,
1993 -- previously filed as Exhibit (d)(i) to North American
Funds' Post-Effective Amendment No. 13 on Form N-1A (File No.
33-27958) dated June 30, 1993.

(d)(ii)Subadvisory Consulting Agreement Between Salomon Brothers Asset
Management Inc and Salomon Brothers Asset Management Limited on
behalf of Strategic Income Fund dated May 11, 1993 -- previously
filed as Exhibit (d)(ii) to North American Funds' Post-Effective
Amendment No. 13 on Form N-1A (File No. 33-27958) dated June 30,
1993.

(e) Subadvisory Agreement Between NASL Financial Services, Inc. and
Goldman Sachs Asset Management dated December 5, 1991 --
previously filed as Exhibit (b)(5)(f) to North American Security
Trust's Post-Effective Amendment No. 7 on Form N-1A (File No.
33-27958) dated December 19, 1991.

(e)(i) Amendment to Subadvisory Agreement between NASL Financial Services,
Inc. and Goldman Sachs Asset Management -- previously filed as
Exhibit (b)(5)(a)(iv) to North American Security Trust's
Post-Effective Amendment No. 8 on Form N-1A (File No. 33-27958)
dated May 12, 1992.

(f) Subadvisory Agreement between NASL Financial Services, Inc. and J.P.
Morgan Investment Management Inc.

5
<PAGE> 136

dated December 1, 1994 -- previously filed as Exhibit (b)(5)(g)
to North American Fund's Post Effective Amendment No. 20 on
June 30, 1995.

(g) Form of Subadvisory Agreement between NASL Financial Services,
Inc. and Fred Alger Management, Inc. - Filed herewith.

(h) Form of Subadvisory Agreement between NASL Financial Services,
Inc. and Founders Asset Management, Inc. - Filed herewith

(6) (a) Distribution Agreement Between North American Security Trust and
NASL Financial Services, Inc. -- previously filed as Exhibit
(b)(6)(a) to North American Security Trust's initial
registration statement on Form N-1A (File No. 33-27958) dated
April 5, 1989.

(b)(i) Amended and Restated Promotional Agent Agreement Among NASL
Financial Services, Inc., Wood Logan Associates, Inc., and North
American Security Life Insurance Company dated June 15, 1990 --
previously filed as Exhibit (b)(6)(b)(i) to North American
Security Trust's Post-Effective Amendment No. 2 on Form N-1A
(File No. 33-27958) dated August 29, 1990.

(b)(ii) Form of Assignment from Wood Logan Associates, Inc. to Wood Logan
Distributors, Inc., dated July 27, 1990 -- previously filed as
Exhibit (b)(6)(b)(ii) to North American Security Trust's
Post-Effective Amendment No. 2 on Form N-1A (File No.
33-27958) dated August 29, 1990.

(c)(i) Form of Dealer Agreement Among NASL Financial Services, Inc.,
Wood Logan Associates, Inc. and Selected Broker-Dealer --
previously filed as Exhibit (b)(6)(c) to North American
Security Trust's initial registration statement on Form N-1A
(File No. 33-27958) dated April 5, 1989.

(c)(ii) Form of Dealer Agreement -- previously filed as Exhibit
(b)(6)(c)(ii) to North American Fund's Post-Effective Amendment
19 on Form N-1A (File No. 33-27958) filed December 29, 1994.

(c)(iii) Form of Dealer Agreement Among NASL Financial Services, Inc.,
Wood Logan Associates, Inc. and Selected Broker-Dealer -
previously filed as Exhibit (b)(6)(c)(iii) to North
American Fund's Post-

6
<PAGE> 137

Effective Amendment 20 on Form N-1A (File No. 33-27958) filed
June 30, 1995.

(7) Not applicable.

(8) (a) Custodian Agreement Between North American Security Trust and
Boston Safe Deposit and Trust Company -- previously filed as
Exhibit (b)(8)(a) to North American Security Trust's
initial registration statement on Form N-1A (File No. 33-27958)
dated November 1, 1991.

(b) Custodian Agreement Between North American Security Trust and
State Street Bank and Trust Company -- previously filed as
Exhibit (b)(8)(a) to North American Security Trust's
initial registration statement on Form N-1A (File No. 33-27958)
dated April 5, 1989.

(c) Transfer and Shareholder Services Contract Between North
American Security Trust and State Street Bank and Trust Company
-- previously filed as Exhibit (b)(8)(b) to North American
Security Trust's initial registration statement on Form N-1A
(File No. 33-27958) dated April 5, 1989.

(d) Forms of Sub-Custodian Agreements Between State Street Bank and
Trust Company and the Bank of New York, Chemical Bank and
Bankers Trust -- previously filed as Exhibit (8)(d) to
North American Funds' Post-Effective Amendment No. 17 on Form
N-1A (File No. 33-27958) dated April 1, 1994.

(9) Not applicable.

(10) (a) Opinion of Ruth Ann Fleming, Esq. -- previously filed as
Exhibit (b)(10) to North American Security Trust's
Post-Effective Amendment No. 2 on Form N-1A (File No.
33-27958) dated August 29, 1990.

(b) Opinion of Christina M. Perrino, Esq. -- previously filed as
Exhibit (b)(10)(b) to North American Security Trust's
Post-Effective Amendment No. 6 on Form N-1A (File No.
33-27958) dated April 22, 1991.

(c) Opinion of Christina M. Perrino, Esq. -- previously filed as
Exhibit (b)(10)(c) to North American Security Trust's
Post-Effective Amendment No. 7 on Form N-1A (File No.
33-27958) dated November 1, 1991.

(d) Opinion of Christina M. Perrino, Esq. -- previously filed as
Exhibit (b)(10)(d) to North American Security Trust's
Post-Effective Amendment No. 9 on Form N-1A (File No.
33-27958) dated July 7, 1992.

7
<PAGE> 138
(e) Opinion of Jeffrey M. Ulness, Esq. -- previously filed as
Exhibit (b)(10)(e) to to North American Security Trust's
Post-Effective Amendment No. 13 on Form N-1A (File No.
33-27958) dated June 29, 1993.

(f) Opinion of Tracy A. Kane, Esq. -- previously filed as Exhibit
(10)(f) to North American Funds' Post-Effective Amendment No.
17 on Form N-1A (File No. 33-27958) dated April 1, 1994.

(g) Opinion of Counsel of Betsy Anne Seel, Esq. -- previously filed
as Exhibit (b)(10)(g) to North American Fund's Post
Effective Amendment No. 19 on Form N-1A (File No. 33-27958)
filed December 29, 1994.

(h) Opinion of Counsel of Betsy Anne Seel, Esq. --Filed herewith.

(11) Consent of Coopers & Lybrand (To Be Filed By Amendment)

(12) Not applicable.

(13) Letter Containing Investment Undertaking of North American Life
Assurance Company -- previously filed as Exhibit (b)(13) to
North American Security Trust's Post-Effective Amendment No. 2
on Form N-1A (File No. 33-27958) dated August 29, 1990.

(14) Model Plans Documents for Custodial IRAs -- previously filed as
Exhibit (b)(14) to North American Security Trust's
Post-Effective Amendment No. 1 on Form N-1A (File No.
33-27958) dated December 29, 1989.

(15) (a) Distribution Plan of North American Security Trust as amended
March 26, 1993 -- previously filed as Exhibit (15)(a) to North
American Funds' Post- Effective Amendment No. 13 on Form N-1A
(File No. 33-27958) dated June 30, 1993.

(b) Distribution Plan of North American Funds as amended June 18,
1993 -- previously filed as Exhibit (15)(b) to North American
Funds' Post-Effective Amendment No. 13 on Form N-1A (File No.
33-27958) dated June 30, 1993.

(c) Distribution Plan of North American Funds as amended
September 30, 1993 -- previously filed as Exhibit (15)(d) to
North American Funds' Post-Effective Amendment No. 14 on Form
N-1A (File No. 33-27958) dated November 30, 1993.

(d) Class A Distribution Plan -- previously filed as Exhibit (15)(d)
to North American Funds' Post-Effective Amendment No. 16
on Form N-1A (File No. 33-27958) dated January 31, 1994.

8
<PAGE> 139
(e) Class B Distribution Plan -- previously filed as
Exhibit (15)(e) to North American Funds' Post-Effective
Amendment No. 16 on Form N-1A (File No. 33-27958) dated January
31, 1994

(f) Class C Distribution Plan -- previously filed as
Exhibit (15)(f) to North American Funds' Post-Effective
Amendment No. 16 on Form N-1A (File No. 33-27958) dated January
31, 1994.

(g) Class A, B and C Distribution Plans as amended March 18, 1994 --
previously filed as Exhibit (15)(g) to North American Funds'
Post-Effective Amendment No. 17 on Form N-1A (File No.
33-27958) dated April 1, 1994.

(h) Form of Class D Distribution Plan -- previously filed as Exhibit
(15)(h) to North American Funds' Post-Effective Amendment No.
18 on Form N-1A (File No. 33-27958) dated October 20, 1994.

(i) Amendment to 12b-1 Distribution Plans for J.P. Morgan
International Growth and Income Fund - Classes A, B, and C --
previously filed as Exhibit 15. to North American Funds' Post
Effective Amendment No. 19 on Form N-1A on December 29, 1994.

(j) Amendment to 12b-1 Plans for the Small/Mid Cap, International
Small Cap and Growth Equity Fund Classes A, B and C -- Filed
herewith.

(16) (a) Schedule of Computations of Total Return and Yield Figures for
the Growth and Income, Investment Quality Bond and Global
Growth Trusts -- previously filed as Exhibit (b)(16)(a)
to North American Security Trust's Post-Effective Amendment No.
7 on Form N-1A (File No. 33-27958) dated November 1, 1991.

(b) Schedule of Computations of Total Return and Yield Figures for
the Growth, U.S. Government and Asset Allocation Trusts --
previously filed as Exhibit (b)(16) to North American Security
Trust's Post-Effective Amendment No. 1 on Form N-1A (File No.
33-27958) filed December 29, 1989.

(c) Schedule of Computations of Total Return and Yield Figures for
Class A, Class B and Class C shares -- previously filed as
Exhibit (16)(c) to North American Funds' Post-Effective
Amendment No. 17 on Form N-1A (File No. 33-27958) dated April
1, 1994.

(d) Schedule of Computations of Total Return and Yield Figures for
Strategic Income Fund Class A, Class B and Class C shares --
previously filed as Exhibit

9
<PAGE> 140
(b)(16)(d) to North American Fund's Post-Effective Amendment
No. 19 on Form N-1A (File No. 33-27958) filed December 29, 1994.

(e) Schedule of Computations of Total Return Figures for the
International Growth and Income Fund, Class A, Class B and
Class C Shares -- previously filed as Exhibit (b)(16)(e) to
North American Fund's Post-Effective Amendment No. 20 on Form
N-1A (File No. 33-27958) filed June 30, 1995.

(17) Financial Data Schedule for financials statements for the year
ended October 31, 1995 (To be filed by amendment)

(18) Rule 18f-3 plan, as amended -- Filed herewith

(19) (a) Power of Attorney - previously filed as Exhibit (b)(17) to
North American Security Trust's Post-Effective Amendment No. 10
on Form N-1A (File No. 33-27958) filed December 30, 1992.

(b) Power of Attorney - Frederick W. Gorbet -- previously filed as
Exhibit (b)(16) to North American Funds' Post-Effective
Amendment No. 16 on Form N-1A (File No. 33-27958) dated
January 31, 1994.

(c) Powers of Attorney -- previously filed as Exhibit (17)(c) to
North American Funds' Post-Effective Amendment No. 18 on Form
N-1A (File No. 33-27958) dated October 20, 1994.

Item 25. Persons Controlled by or Under Common Control with Registrant
-------------------------------------------------------------

No person is directly or indirectly controlled by the Registrant. With
respect to the other portfolios of the Registrant, no person controls the
Registrant by virtue of share ownership in the Registrant. While the
Registrant disclaims any such control relationship, it may be deemed to be
controlled by its investment adviser by virtue of the advisory relationship.
In such case, the Registrant and its adviser, NASL Financial Services, Inc., a
Massachusetts corporation, may be deemed to be under common control of the
adviser's parent corporations. NASL Financial Services, Inc. is 100% owned by
North American Security Life Insurance Company, a stock life insurance company
organized under the laws of Delaware, which in turn is 100% owned by North
American Life. A list of all companies under the control of North American
Life is set forth on the following pages. SEE ATTACHED CHART

10
<PAGE> 141

NORTH AMERICAN LIFE ASSURANCE COMPANY
SUBSIDIARY ORGANIZATION AS AT NOVEMBER 30, 1995 (INCLUDING EXECUTIVE OFFICES)
(CANADA)

NORTH AMERICAN LIFE ASSURANCE COMPANY

- The North American Group Inc.
5650 Yonge Street
Toronto, Ontario
M2M 4G4
100%
Ontario Corporation

- FNA Financial Inc.
5650 Yonge Street
North York, Ontario
M2M 4G4
100%
Federal Corporation

- Elliott & Page Limited
120 Adelaide Street West
Suite 1120
Toronto, Ontario
M5H 1V1
100%
Ontario Corporation

- First North American Insurance Company
5650 Yonge Street
North York, Ontario
M2M 4G4
100%
Federal Insurance Company

- NAL Resources Management Limited
2400, 605-5th Avenue S.W.
Calgary, Alberta
T2P 3H5
100%
Federal Corporation

11
<PAGE> 142

NORTH AMERICAN LIFE ASSURANCE COMPANY
SUBSIDIARY ORGANIZATION AS AT NOVEMBER 30, 1995 (INCLUDING EXECUTIVE OFFICES)
(CANADA)

NORTH AMERICAN LIFE ASSURANCE COMPANY

- FNA Financial Inc.

- NAL Trustco Inc.
5650 Yonge Street
North York, Ontario
M3M 4G4
100%
Ontario Corporation

- Nalafund Investors Limited
5650 Yonge Street
North York, Ontario
M2M 4G4
100%
Federal Corporation

- North American Life Financial Services Inc.
5650 Yonge Street
North York, Ontario
M2M 4G4
100%
(to be dissolved)
Ontario Corporation

- Seamark Asset Management Ltd.
Central Trust Tower, Suite 310
1801 Hollis Street
Halifax, Nova Scotia
B3J 3N4
69.175%
Federal Corporation

12
<PAGE> 143

NORTH AMERICAN LIFE ASSURANCE COMPANY
SUBSIDIARY ORGANIZATION AS AT NOVEMBER 30, 1995 (INCLUDING EXECUTIVE OFFICES)
(CANADA)

NORTH AMERICAN LIFE ASSURANCE COMPANY

- NALACO Mortgage Corporation
5650 Yonge Street
North York, Ontario
M2M 4G4
100%
Ontario Corporation

- NAL Resources Limited
2400, 605-5th Avenue S.W.
Calgary, Alberta
T2P 3H5
100%
Alberta Corporation

- TBD Life Insurance Company
(formerly Sun Alliance and London Insurance Company (Canada)
5650 Yonge Street
North York, Ontario
M2M 4G4
100%
(to be dissolved)
Federal Insurance Company

- North American Capital Corporation
5650 Yonge Street
Toronto, Ontario
M2M 4G4
100%
Ontario Corporation

- 1056416 Ontario Limited
5650 Yonge Street
North York, Ontario
M2M 4G4
100%
(to be dissolved)
Ontario Corporation

<PAGE> 144

NORTH AMERICAN LIFE ASSURANCE COMPANY
SUBSIDIARY ORGANIZATION AS AT NOVEMBER 30, 1995 (INCLUDING EXECUTIVE OFFICES)
(CANADA)

NORTH AMERICAN LIFE ASSURANCE COMPANY

- 484551 Ontario Limited
5650 Yonge Street
North York, Ontario
M2M 4G4
100%
Ontario Corporation

- 911164 Ontario Inc.
5650 Yonge Street
North York, Ontario
M2M 4G4
100%
Ontario Corporation

- 495603 Ontario Limited
5650 Yonge Street
North York, Ontario
M2M 4G4
100%
Ontario Corporation

- 994744 Ontario Inc.
5650 Yonge Street
North York, Ontario
M2M 4G4
100%
Ontario Corporation

14
<PAGE> 145

NORTH AMERICAN LIFE ASSURANCE COMPANY
SUBSIDIARY ORGANIZATION AS AT NOVEMBER 30, 1995 (INCLUDING EXECUTIVE OFFICES)
(UNITED STATES)

NORTH AMERICAN LIFE ASSURANCE COMPANY

- North American Security Life Insurance Company
116 Huntington Avenue
6th Floor
Boston, Massachusetts 02116
100%
Delaware Corporation

- First North American Life Assurance Company
555 Theodore Fremd Avenue
Rye, New York, N.Y. 10580
100%
New York Corporation

- NASL Financial Services, Inc.
116 Huntington Avenue
6th Floor
Boston, Massachusetts 02116
100%
Massachusetts Corporation

- North American Funds
116 Huntington Avenue
Boston, MA 02116
Open-end Management Investment Company
Massachusetts Business Trust
Contact: John D. DesPrez III

- NASL Series Trust
116 Huntington Avenue
Boston, MA 02116
Open-end Management Investment Company
Massachusetts Business Trust
Contact: William J. Atherton

- Wood Logan Associates, Inc.
1455 East Putnam Avenue

15
<PAGE> 146
Old Greenwich, CT 06870
Broker/Dealer
Connecticut Corporation
Contact: Scott Logan

- Wood Logan Associates, Inc.
1455 East Putnam Avenue
Old Greenwich, CT 06870
Broker/Dealer
Connecticut Corporation
Contact: Scott Logan

- Capitol Bankers Life Insurance Company
5650 Yonge Street
North York, Ontario
M2M 4G4
100%
Minnesota Company

- Ennal, Inc.
5650 Yonge Street
North York, Ontario
M2M 4G4
100%
Ohio Corporation

- First North American Realty, Inc.
5650 Yonge Street
North York, Ontario
M2M 4G4
100%
Minnesota Corporation

16
<PAGE> 147

NORTH AMERICAN LIFE ASSURANCE COMPANY
PARTIALLY OWNED CORPORATIONS (INCLUDING EXECUTIVE OFFICES)
AS AT NOVEMBER 30, 1995

- Grayrock Shared Ventures, Ltd.
First Canadian Centre
Suite 2800
350 - 7th Avenue S.W.
Calgary, Alberta
T2P 3N9
NAL 29%
FNAIC 20%
MOLSON 51%
(to be dissolved)
Federal Corporation

- Peel-de Maisonneuve Investments Ltd.
2000 Peel Street
Suite 900
Montreal, PQ
H3A 2W5
NAL 50%
CANDEREL 50%
Federal Corporation

- 2932121 Canada Inc.
2000 Peel Street
Suite 900
Montreal, PQ
H3A 2W5
Federal Corporation

ICA = Insurance Companies Act
OBCA -- Ontario Business Corporations Act
CBCA = Canada Business Corporations Act
ABCA = Alberta Business Corporations Act

17
<PAGE> 148
Item 26. Number of Holders of Securities
-------------------------------

As of November 30, 1995, the number of holders of the shares of
beneficial interest of each class of each series of shares of the Registrant
was as follows:

<TABLE>
<CAPTION>
Title of Series Number of Record Holders
--------------- -------------------------------

Class A Class B Class C
--------- --------- ---------
<S> <C> <C> <C>

Global Growth Fund Shares of 1,206 2,478 6,651
Beneficial Interest

Growth Fund Shares of Beneficial 1,137 2,044 6,747
Interest

Growth and Income Fund Shares 707 1,814 4,317
of Beneficial Interest

Strategic Income Fund Shares of 591 1,074 619
Beneficial Interest

Asset Allocation Fund Shares of 475 848 5,046
Beneficial Interest

Investment Quality Bond Fund 592 333 384
Shares of Beneficial Interest

U.S. Government Securities Fund 3,353 742 923
Shares of Beneficial Interest

National Municipal Bond Fund 153 127 142
Shares of Beneficial Interest

Money Market Fund Shares of 766 158 579
Beneficial Interest

International Growth and Income 323 906 638
Fund Shares of Beneficial Interest
</TABLE>

18
<PAGE> 149
Item 27. Indemnification
---------------

Sections 6.4 and 6.5 of the Agreement and Declaration of Trust of the
Registrant provide that the Registrant shall indemnify each of its Trustees and
officers against all liabilities, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and against
all expenses, including but not limited to accountants and counsel fees,
reasonably incurred in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, before any court
or administrative or legislative body, in which such trustee or officer may be
or may have been involved as a party or otherwise or with which such person may
be or may have been

19
<PAGE> 150
threatened, while in office or thereafter, by reason of being or having been
such a trustee or officer, except that indemnification shall not be provided if
it shall have been finally adjudicated in a decision on the merits by the court
or other body before which the proceeding was brought that such trustee or
officer (i) did not act in good faith in the reasonable belief that his or her
action was in the best interests of the Registrant or (ii) is liable to the
Registrant or its shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
such person's office.

Registrant has previously provided the undertaking set forth in Rule 481
under the Securities Act of 1933.

Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
See "Management of the Fund" in the Prospectus and Statement of Additional
Information and "Investment Management Arrangements" in the Statement of
Additional Information for information regarding the business of the Adviser
and each of the Subadvisers. For information as to the business, profession,
vocation or employment of a substantial nature of each director, officer or
partner of the Adviser and each of the Subadvisers, reference is made to the
respective Form ADV, as amended, filed under the Investment Advisers Act of
1940, each of which is herein incorporated by reference.

Item 29. Principal Underwriters
----------------------
a. NASL Financial Services, Inc. also acts a principal underwriter for NASL
Variable Account, a separate account of North American Security Life
Insurance Company, and as investment adviser of NASL Series Trust, the
shares of which are the underlying investments of that separate account.

b. Officers and Directors of Principal Underwriter

<TABLE>
<CAPTION>
Name and Principal Position and Offices Offices with
Business Address with Underwriter Registrant
- ------------------ -------------------- ------------
<S> <C> <C>

Brian L. Moore * Chairman & Director Chairman

William J. Atherton ** President & Director Trustee

John G. Vrysen ** Vice President Vice President

Richard C. Hirtle ** Vice President & ----
Treasurer
</TABLE>
20
<PAGE> 151
<TABLE>
<CAPTION>
Name and Principal Position and Offices Offices with
Business Address with Underwriter Registrant
- ------------------ -------------------- ------------
<S> <C> <C>
James R. Boyle ---- Vice President,
Treasurer &
Chief
Administrative
Officer

John D. DesPrez III** ---- President

James D. Gallagher** ---- Secretary
</TABLE>

* 5650 Yonge Street
North York, Ontario
Canada M2M 4G4

** 116 Huntington Avenue
Boston, MA 02116

c. None.

Item 30. Location of Accounts and Records
--------------------------------

All accounts, books and other documents required to be maintained under
Section 31(a) of the Investment Company Act of 1940 are kept by NASL Financial
Services, Inc., the Registrant's investment adviser, at its offices at 116
Huntington Avenue, Boston, Massachusetts 02116, by Goldman Sachs Asset
Management, the investment subadviser to the Growth Fund and Asset Allocation
Fund, at its offices at 1 New York Plaza, New York, New York 10004, by Oechsle
International Advisors, L.P., the investment subadviser to the Global Growth
Fund, at its offices at One International Place, Boston, Massachusetts 02110,
by Wellington Management Company, the investment subadviser to the Growth and
Income Fund, the Investment Quality Bond Fund and the Money Market Fund at its
offices at 75 State Street, Boston, Massachusetts 02109, by Salomon Brothers
Asset Management Inc, the investment subadviser to the U.S. Government
Securities Fund, Strategic Income Fund, National Municipal Bond Fund and
California Municipal Bond Fund at its offices at 7 World Trade Center, New
York, New York 10048, by Salomon Brothers Asset Management Limited, who
provides certain advisory services to SBAM relating to currency transactions
and investments in non-dollar denominated debt securities for the benefit of
the Strategic Income Fund at its offices at Victoria Plaza, 111 Buckingham
Palace Road, London SW1W OSB, England, by J.P. Morgan Investment Management
Inc., the investment subadviser to the International Growth and Income Fund at
its offices at 522 5th Avenue, New York, New York 10036, by Fred Alger
Management, Inc., the investment adviser to the Small/Mid Cap Fund at its
offices at 30 Montgomery Street, Jersey City, New Jersey 07302, by Founders
Asset Management, Inc., the investment adviser to the International Small Cap
and Growth Equity Fund at its offices at 2930 East Third Avenue, Denver,
Colorado 80206, by the Registrant at its principal business office located at
116 Huntington Avenue, Boston, Massachusetts 02116, by Boston Safe Deposit and
Trust Company, One Boston Place, Boston, Massachusetts 02108, custodian for the
Global Growth Fund's

21
<PAGE> 152
assets or by State Street Bank and Trust Company, the custodian and transfer
agent for all the other portfolios of the Registrant, at its offices at 225
Franklin Street, Boston, Massachusetts 02110.

Item 31. Management Services
-------------------
Not applicable.

Item 32. Undertakings
------------

(a) Not applicable.

(b) Registrant undertakes to file a post-effective amendment containing
financial statements with respect to the Small/Mid, International Small Cap and
Growth Equity Funds, which need to be certified, within four to six months from
the effective date of this Amendment under the Securities Act of 1933.

(c) Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's Annual Report to Shareholders, upon
request and without charge.

22
<PAGE> 153
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant, North American Funds, has duly
caused this amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of Boston, and
Commonwealth of Massachusetts on the 15 day of December, 1995.

NORTH AMERICAN FUNDS
(Registrant)

By: /s/ JOHN D. DESPREZ III
------------------------------
John D. DesPrez III, President

Attest:

/s/ SUSAN E. HEFFERNAN
- -----------------------
Susan E. Heffernan
Assistant Secretary

24
<PAGE> 154

Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.

<TABLE>
<S> <C> <C>
* Trustee December 15, 1995
-----------------------
Don B. Allen

* Trustee December 15, 1995
-----------------------
William J. Atherton

* Trustee December 15, 1995
-----------------------
Charles L. Bardelis

* Trustee December 15, 1995
-----------------------
Fredrick W. Gorbet

* Trustee December 15, 1995
-----------------------
Samuel Hoar

* Trustee December 15, 1995
----------------------- and Chairman
Brian L. Moore

* Trustee December 15, 1995
-----------------------
Robert J. Myers

* Vice President and December 15, 1995
----------------------- Treasurer (Prin-
James R. Boyle cipal Financial and
Accounting Officer)

/s/ John D. DesPrez III President (Chief December 15, 1995
----------------------- Executive Officer)
John D. DesPrez III

*By: /s/ James D. Gallagher December 15, 1995
----------------------
James D. Gallagher
Attorney-in-Fact
Pursuant to Powers
of Attorney
</TABLE>

26
<PAGE> 155
EXHIBIT INDEX
-------------

Page No.
Where Exhibit
Exhibit No. Description Located
----------- ----------- -------------
<S> <C> <C>

(4)(k) Form of Specimen Share Certificates,
A, B, and C

(5)(a)(ix) Form of Amended and Restated Advisory
Agreement

(5)(g) Form of Subadvisory Agreement Fred Alger
Management, Inc.

(5)(h) Form of Subadvisory Agreement Founders
Asset Management, Inc.

(10)(h) Opinion of Counsel

(15)(j) Amendment to 12b-1 Plans -- Class A, B
and C

(18) Rule 18f-3 Plan, as amended

</TABLE>

<PAGE> 1

Exhibit (4)(k)

<PAGE> 2
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS

INTERNATIONAL SMALL CAP FUND - A
OF
NORTH AMERICAN FUNDS

THIS CERTIFIES THAT

VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF

INTERNATIONAL SMALL CAP FUND - A
OF
NORTH AMERICAN FUNDS

In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 28, 1988, and any amendments thereto
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to the
Trustees under the Declaration collectively as Trustees, but not as individuals
or satisfaction of any obligation or claim or otherwise in connection with the
affairs of the Funds but the Fund property only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this
certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.

TREASURER PRESIDENT

(This language appears on the front of the share certificate.)

1
<PAGE> 3

COUNTERSIGNED:
STATE STREET BANK and TRUST COMPANY
(BOSTON) TRANSFER AGENT
BY
AUTHORIZED SIGNATURE

(This language appears rotated 90 degress in the right margin on the front of
the share certificate.)

2
<PAGE> 4

The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations"

TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
----------
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with the right under Uniform
of survivorship and not as tenants Gifts to Minors
in common Act.......
(State)

Additional abbreviations may also be used though not in the above list.

FOR VALUE RECEIVED, hereby sell, assign and transfer unto
------------
(PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER OF ASSIGNEE)
------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)

represented by the within certificate and do hereby irrevocably constitute and
appoint

_____________________________________________________________________Attorney,

to transfer the same on the books of the within-named Trust, with full power of
substitution in the premises.

Dated_________________________

(SIGN HERE)____________________________

NOTICE: The Signatures to this Assignment must correspond with the name as
written upon the face of the Certificate in every particular, without
alteration or enlargement or any change whatever.

(This language appears on the back of the share certificate, rotated 90
degrees.)

3
<PAGE> 5
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS

INTERNATIONAL SMALL CAP FUND - B
OF
NORTH AMERICAN FUNDS

THIS CERTIFIES THAT

VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF

INTERNATIONAL SMALL CAP FUND - B
OF
NORTH AMERICAN FUNDS

In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 28, 1988, and any amendments thereto
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or satisfaction of any obligation or claim or otherwise in
connection with the affairs of the Funds but the Fund property only shall be
liable.
This certificate is not valid until countersigned by the Transfer
Agent.
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this
certificate the facsimile Seal of the Fund and the facsimile signatures of duly
authorized officers of the Fund, acting not as individuals but as such
officers.

TREASURER PRESIDENT

(This language appears on the front of the share certificate.)

4
<PAGE> 6

COUNTERSIGNED:
STATE STREET BANK and TRUST COMPANY
(BOSTON) TRANSFER AGENT
BY
AUTHORIZED SIGNATURE

(This language appears rotated 90 degress in the right margin on the front of
the share certificate.)

5
<PAGE> 7
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations"

Additional abbreviations may also be used though not in the above list.

represented by the within certificate and do hereby irrevocably constitute and
appoint

_____________________________________________________________________Attorney,

to transfer the same on the books of the within-named Trust, with full power of
substitution in the premises.

Dated_________________________

(SIGN HERE)____________________________

NOTICE: The Signatures to this Assignment must correspond with the name as
written upon the face of the Certificate in every particular, without
alteration or enlargement or any change whatever.

(This language appears on the back of the share certificate, rotated 90
degrees.)

6
<PAGE> 8
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS

INTERNATIONAL SMALL CAP FUND - C
OF
NORTH AMERICAN FUNDS

THIS CERTIFIES THAT

VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF

INTERNATIONAL SMALL CAP FUND -C
OF
NORTH AMERICAN FUNDS

In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 28, 1988, and any amendments thereto
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or satisfaction of any obligation or claim or otherwise in
connection with the affairs of the Funds but the Fund property only shall be
liable.
This certificate is not valid until countersigned by the Transfer
Agent.
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this
certificate the facsimile Seal of the Fund and the facsimile signatures of duly
authorized officers of the Fund, acting not as individuals but as such
officers.

TREASURER PRESIDENT

(This language appears on the front of the share certificate.)

7
<PAGE> 9

COUNTERSIGNED:
STATE STREET BANK and TRUST COMPANY
(BOSTON) TRANSFER AGENT
BY
AUTHORIZED SIGNATURE

(This language appears rotated 90 degress in the right margin on the front of
the share certificate.)

8
<PAGE> 10
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations"

Additional abbreviations may also be used though not in the above list.

represented by the within certificate and do hereby irrevocably constitute and
appoint

_____________________________________________________________________Attorney,

to transfer the same on the books of the within-named Trust, with full power of
substitution in the premises.

Dated_________________________

(SIGN HERE)____________________________

NOTICE: The Signatures to this Assignment must correspond with the name as
written upon the face of the Certificate in every particular, without
alteration or enlargement or any change whatever.

(This language appears on the back of the share certificate, rotated 90
degrees.)

9
<PAGE> 11

ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS

SMALL/MID CAP FUND - A
OF
NORTH AMERICAN FUNDS

THIS CERTIFIES THAT

VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF

SMALL/MID CAP FUND - A
OF
NORTH AMERICAN FUNDS

In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 28, 1988, and any amendments thereto
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or satisfaction of any obligation or claim or otherwise in
connection with the affairs of the Funds but the Fund property only shall be
liable.
This certificate is not valid until countersigned by the Transfer
Agent.
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this
certificate the facsimile Seal of the Fund and the facsimile signatures of duly
authorized officers of the Fund, acting not as individuals but as such
officers.

TREASURER PRESIDENT

(This language appears on the front of the share certificate.)

10
<PAGE> 12

COUNTERSIGNED:
STATE STREET BANK and TRUST COMPANY
(BOSTON) TRANSFER AGENT
BY
AUTHORIZED SIGNATURE

(This language appears rotated 90 degress in the right margin on the front of
the share certificate.)

11
<PAGE> 13
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations"

Additional abbreviations may also be used though not in the above list.

represented by the within certificate and do hereby irrevocably constitute and
appoint

_____________________________________________________________________Attorney,

to transfer the same on the books of the within-named Trust, with full power of
substitution in the premises.

Dated_________________________

(SIGN HERE)____________________________

NOTICE: The Signatures to this Assignment must correspond with the name as
written upon the face of the Certificate in every particular, without
alteration or enlargement or any change whatever.

(This language appears on the back of the share certificate, rotated 90
degrees.)

12
<PAGE> 14
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS

SMALL/MID CAP FUND - B
OF
NORTH AMERICAN FUNDS

THIS CERTIFIES THAT

VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF

SMALL/MID CAP FUND - B
OF
NORTH AMERICAN FUNDS

In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 28, 1988, and any amendments thereto
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or satisfaction of any obligation or claim or otherwise in
connection with the affairs of the Funds but the Fund property only shall be
liable.
This certificate is not valid until countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this
certificate the facsimile Seal of the Fund and the facsimile signatures of duly
authorized officers of the Fund, acting not as individuals but as such
officers.

TREASURER PRESIDENT

(This language appears on the front of the share certificate.)

13
<PAGE> 15

COUNTERSIGNED:
STATE STREET BANK and TRUST COMPANY
(BOSTON) TRANSFER AGENT
BY
AUTHORIZED SIGNATURE

(This language appears rotated 90 degress in the right margin on the front of
the share certificate.)

<PAGE> 16

The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations"

Additional abbreviations may also be used though not in the above list.

represented by the within certificate and do hereby irrevocably constitute and
appoint

_____________________________________________________________________Attorney,

to transfer the same on the books of the within-named Trust, with full power of
substitution in the premises.

Dated_________________________

(SIGN HERE)____________________________

NOTICE: The Signatures to this Assignment must correspond with
the name as written upon the face of the Certificate in every
particular, without alteration or enlargement or any change whatever.

(This language appears on the back of the share certificate, rotated 90
degrees.)

<PAGE> 17
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS

SMALL/MID CAP FUND - C
OF
NORTH AMERICAN FUNDS

THIS CERTIFIES THAT

VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF

SMALL/MID CAP FUND - C
OF
NORTH AMERICAN FUNDS

In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 28, 1988, and any amendments thereto
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or satisfaction of any obligation or claim or otherwise in
connection with the affairs of the Funds but the Fund property only shall be
liable.
This certificate is not valid until countersigned by the Transfer
Agent.
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this
certificate the facsimile Seal of the Fund and the facsimile signatures of duly
authorized officers of the Fund, acting not as individuals but as such
officers.

TREASURER PRESIDENT

(This language appears on the front of the share certificate.)

<PAGE> 18

COUNTERSIGNED:
STATE STREET BANK and TRUST COMPANY
(BOSTON) TRANSFER AGENT
BY
AUTHORIZED SIGNATURE

(This language appears rotated 90 degress in the right margin on the front of
the share certificate.)

<PAGE> 19

The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations"

Additional abbreviations may also be used though not in the above list.

represented by the within certificate and do hereby irrevocably constitute and
appoint

_____________________________________________________________________Attorney,

to transfer the same on the books of the within-named Trust, with full power of
substitution in the premises.

Dated_________________________

(SIGN HERE)____________________________

NOTICE: The Signatures to this Assignment must correspond with
the name as written upon the face of the Certificate in every
particular, without alteration or enlargement or any change whatever.

(This language appears on the back of the share certificate, rotated 90
degrees.)

<PAGE> 20
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS

GROWTH EQUITY FUND - A
OF
NORTH AMERICAN FUNDS

THIS CERTIFIES THAT

VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF

GROWTH EQUITY FUND - A
OF
NORTH AMERICAN FUNDS

In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 28, 1988, and any amendments thereto
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or satisfaction of any obligation or claim or otherwise in
connection with the affairs of the Funds but the Fund property only shall be
liable.
This certificate is not valid until countersigned by the Transfer
Agent.
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this
certificate the facsimile Seal of the Fund and the facsimile signatures of duly
authorized officers of the Fund, acting not as individuals but as such
officers.

TREASURER PRESIDENT

(This language appears on the front of the share certificate.)

<PAGE> 21

COUNTERSIGNED:
STATE STREET BANK and TRUST COMPANY
(BOSTON) TRANSFER AGENT
BY
AUTHORIZED SIGNATURE

(This language appears rotated 90 degress in the right margin on the front of
the share certificate.)

<PAGE> 22

The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations"

Additional abbreviations may also be used though not in the above list.

represented by the within certificate and do hereby irrevocably constitute and
appoint

_____________________________________________________________________Attorney,

to transfer the same on the books of the within-named Trust, with full power of
substitution in the premises.

Dated_________________________

(SIGN HERE)____________________________

NOTICE: The Signatures to this Assignment must correspond with
the name as written upon the face of the Certificate in every
particular, without alteration or enlargement or any change whatever.

(This language appears on the back of the share certificate, rotated 90
degrees.)

21
<PAGE> 23
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS

GROWTH EQUITY FUND - B
OF
NORTH AMERICAN FUNDS

THIS CERTIFIES THAT

VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF

GROWTH EQUITY FUND - B
OF
NORTH AMERICAN FUNDS

In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 28, 1988, and any amendments thereto
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or satisfaction of any obligation or claim or otherwise in
connection with the affairs of the Funds but the Fund property only shall be
liable.
This certificate is not valid until countersigned by the Transfer
Agent.
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this
certificate the facsimile Seal of the Fund and the facsimile signatures of duly
authorized officers of the Fund, acting not as individuals but as such
officers.

TREASURER PRESIDENT

(This language appears on the front of the share certificate.)

<PAGE> 24

COUNTERSIGNED:
STATE STREET BANK and TRUST COMPANY
(BOSTON) TRANSFER AGENT
BY
AUTHORIZED SIGNATURE

(This language appears rotated 90 degress in the right margin on the front of
the share certificate.)

<PAGE> 25

The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations"

Additional abbreviations may also be used though not in the above list.

represented by the within certificate and do hereby irrevocably constitute and
appoint

_____________________________________________________________________Attorney,

to transfer the same on the books of the within-named Trust, with full power of
substitution in the premises.

Dated_________________________

(SIGN HERE)____________________________

NOTICE: The Signatures to this Assignment must correspond with
the name as written upon the face of the Certificate in every
particular, without alteration or enlargement or any change whatever.

(This language appears on the back of the share certificate, rotated 90
degrees.)

<PAGE> 26
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS

GROWTH EQUITY FUND - C
OF
NORTH AMERICAN FUNDS

THIS CERTIFIES THAT

VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF

GROWTH EQUITY FUND - C
OF
NORTH AMERICAN FUNDS

In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 28, 1988, and any amendments thereto
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or satisfaction of any obligation or claim or otherwise in
connection with the affairs of the Funds but the Fund property only shall be
liable.
This certificate is not valid until countersigned by the Transfer
Agent.
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this
certificate the facsimile Seal of the Fund and the facsimile signatures of duly
authorized officers of the Fund, acting not as individuals but as such
officers.

TREASURER PRESIDENT

(This language appears on the front of the share certificate.)

<PAGE> 27
COUNTERSIGNED:
STATE STREET BANK and TRUST COMPANY
(BOSTON) TRANSFER AGENT
BY
AUTHORIZED SIGNATURE

(This language appears rotated 90 degress in the right margin on the front of
the share certificate.)

26
<PAGE> 28

The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations"

Additional abbreviations may also be used though not in the above list.

FOR VALUE RECEIVED, hereby sell, assign and transfer unto
------------
(PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER OF ASSIGNEE)

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

- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares of Beneficial interest
- ------------------------------------------------
represented by the within certificate and do hereby irrevocably constitute and
appoint Attorney,
--------------------------------------------------------------
to transfer the same on the books of the within-named Trust, with full power of
substitution in the premises.

Dated
------------------

(SIGN HERE)
----------------------------

NOTICE: The Signatures to this Assignment must correspond with
the name as written upon the face of the Certificate in every
particular, without alteration or enlargement or any change whatever.

(This language appears on the back of the share certificate, rotated 90
degrees.)

<PAGE> 1

Exhibit (5)(a)(ix)

<PAGE> 2

ADVISORY AGREEMENT

AGREEMENT made this __ day of ______, 199_, between North American
Funds, a Massachusetts business trust (the "Trust"), and NASL Financial
Services, Inc., a Massachusetts corporation ("NASL Financial" or the
"Adviser"). In consideration of the mutual covenants contained herein,
the parties agree as follows:

1. APPOINTMENT OF ADVISER

The Trust hereby appoints NASL Financial, subject to the supervision of
the Trustees of the Trust and the terms of this Agreement, as the
investment adviser for each of the portfolios of the Trust specified in
Appendix A to this Agreement as it shall be amended by the Adviser and the
Trust from time to time (the "Portfolios"). The Adviser accepts such
appointment and agrees to render the services and to assume the
obligations set forth in this Agreement commencing on its effective
date. The Adviser will be an independent contractor and will have no
authority to act for or represent the Trust in any way or otherwise be
deemed an agent unless expressly authorized in this Agreement or another
writing by the Trust and Adviser.

2. DUTIES OF THE ADVISER

a. Subject to the general supervision of the Trustees of the Trust and the
terms of this Agreement, the Adviser will at its own expense select,
contract with, and compensate investment subadvisers ("Subadvisers") to
manage the investments and determine the composition of the assets of the
Portfolios; provided, that any contract with a Subadviser (the
"Subadvisory Agreement") shall be in compliance with and approved as
required by the Investment Company Act of 1940, as amended ("Investment
Company Act"). Subject always to the direction and control of the
Trustees of the Trust, the Adviser will monitor compliance of each
Subadviser with the investment objectives and related investment policies,
as set forth in the Trust's registration statement as filed with the
Securities and Exchange Commission, of any Portfolio or Portfolios under
the management of such Subadviser, and review and report to the Trustees
of the Trust on the performance of such Subadviser.

b. The Adviser will oversee the administration of all aspects of the Trust's
business and affairs and in that connection will furnish to the Trust the
following services:

(1) OFFICE AND OTHER FACILITIES. The Adviser shall furnish to the
Trust office space in the offices of the Adviser or in such
other place as may be agreed upon by the parties hereto from
time to time and such other office facilities, utilities and
office equipment as are necessary for the Trust's operations.

(2) TRUSTEES AND OFFICERS. The Adviser agrees to permit individuals
who are directors, officers or employees of the Adviser to serve
(if duly elected or appointed) as Trustees or President, Vice
President, Treasurer or Secretary of the Trust, without
remuneration from or other cost to the Trust.

(3) OTHER PERSONNEL. The Adviser shall furnish to the Trust, at the
Trust's expense, any other personnel necessary for the
operations of the Trust.

1
<PAGE> 3

(4) FINANCIAL, ACCOUNTING, AND ADMINISTRATIVE SERVICES. The Adviser
shall maintain the existence and records of the Trust; maintain
the registrations and qualifications of Trust shares under
federal and state law; and perform all administrative,
financial, accounting, bookkeeping and recordkeeping functions
of the Trust except for any such functions that may be performed
by a third party pursuant to a custodian, transfer agency or
service agreement executed by the Trust. The Trust shall
reimburse the Adviser for its expenses associated with all such
services, including the compensation and related personnel
expenses and expenses of office space, office equipment,
utilities and miscellaneous office expenses, except any such
expenses directly at tributable to officers or employees of the
Adviser who are serving as President, Vice President, Treasurer
or Secretary of the Trust. The Adviser shall determine the
expenses to be reimbursed by the Trust pursuant to expense
allocation procedures established by the Adviser in accordance
with generally accepted accounting principles.

(5) LIAISONS WITH AGENTS. The Adviser, at its own expense, shall
maintain liaison with the various agents and other persons
employed by the Trust (including the Trust's transfer agent,
custodian, independent accountants and legal counsel) and assist
in the coordination of their activities on behalf of the Trust.
Fees and expenses of such agents and other persons will be paid
by the Trust.

(6) REPORTS TO TRUST. The Adviser shall furnish to or place at the
disposal of the Trust such information, reports, valuations,
analyses and opinions as the Trust may, at any time or from
time to time, reasonably request or as the Adviser may deem
helpful to the Trust, provided that the expenses associated with
any such materials furnished by the Adviser at the request of
the Trust shall be borne by the Trust.

(7) REPORTS AND OTHER COMMUNICATIONS TO TRUST SHAREHOLDERS. The
Adviser shall assist the Trust in developing (but not pay for)
all general shareholder communications including regular
shareholder reports.

3. EXPENSES ASSUMED BY THE TRUST

In addition to paying the advisory fee provided for in Section 5., the
Trust will pay all expenses of its organization, operations and business
not specifically assumed or agreed to be paid by the Adviser as provided
in this Agreement, by a Subadviser as provided in a Subadvisory Agreement,
or by the Distributor as provided in the Distribution Agreement. Without
limiting the generality of the foregoing, the Trust, in addition to
certain expenses described in Section 2. above, shall pay or arrange for
the payment of the following:

a. CUSTODY AND ACCOUNTING SERVICES. All expenses of the transfer, receipt,
safekeeping, servicing and accounting for the Trust's cash, securities,
and other property, including all charges of depositories, custodians and
other agents, if any;

b. SHAREHOLDER SERVICING. All expenses of maintaining and servicing
shareholder accounts, including all charges of the Trust's
transfer, shareholder recordkeeping, dividend disbursing, redemption, and
other agents, if any;

c. SHAREHOLDER COMMUNICATIONS. All expenses of preparing, setting in type,
printing, and distributing reports and other communications to
shareholders;

d. SHAREHOLDER MEETINGS. All expenses incidental to holding meetings of
Trust shareholders, including the printing of notices and proxy material,
and proxy solicitation therefor;

2
<PAGE> 4

e. PROSPECTUSES. All expenses of preparing, setting in type, and printing
of annual or more frequent revisions of the Trust's prospectus and
statement of additional information and any supplements thereto and of
mailing them to shareholders;

f. PRICING. All expenses of computing the net asset value per share for each
of the Portfolios, including the cost of any equipment or services used
for obtaining price quotations and valuing its investment portfolio;

g. COMMUNICATION EQUIPMENT. All charges for equipment or services used for
communication between the Adviser or the Trust and the custodian,
transfer agent or any other agent selected by the Trust;

h. LEGAL AND ACCOUNTING FEES AND EXPENSES. All charges for services and
expenses of the Trust's legal counsel and independent auditors;

i. TRUSTEES AND OFFICERS. Except as expressly provided otherwise in
paragraph 2.b.(2), all compensation of Trustees and officers, all
expenses incurred in connection with the service of Trustees and officers,
and all expenses of meetings of the Trustees and Committees of Trustees;

j. FEDERAL REGISTRATION FEES. All fees and expenses of registering and
maintaining the registration of the Trust under the Investment Company Act
and the registration of the Trust's shares under the Securities Act of
1933, as amended (the "1933 Act"), including all fees and expenses
incurred in connection with the preparation, setting in type, printing and
filing of any registration statement and prospectus under the 1933 Act or
the Investment Company Act, and any amendments or supplements that may be
made from time to time;

k. STATE REGISTRATION FEES. All fees and expenses of qualifying and
maintaining qualification of the Trust and of the Trust's shares for
sale under securities laws of various states or jurisdictions, and of
registration and qualification of the Trust under all other laws
applicable to the Trust or its business activities (including registering
the Trust as a broker- dealer, or any officer of the Trust or any person
as agent or salesman of the Trust in any state);

l. ISSUE AND REDEMPTION OF TRUST SHARES. All expenses incurred in connection
with the issue, redemption, and transfer of Trust shares, including the
expense of confirming all share transactions, and of preparing and
transmitting certificates for shares of beneficial interest in the Trust;

m. BONDING AND INSURANCE. All expenses of bond, liability and other
insurance coverage required by law or regulation or deemed advisable by
the Trust's Trustees including, without limitation, such bond,
liability and other insurance expense that may from time to time be
allocated to the Trust in a manner approved by its Trustees;

n. BROKERAGE COMMISSIONS. All brokers' commissions and other charges
incident to the purchase, sale, or lending of the Trust's portfolio
securities;

o. TAXES. All taxes or governmental fees payable by or with respect to the
Trust to federal, state, or other governmental agencies, domestic or
foreign, including stamp or other transfer taxes, and all expenses
incurred in the preparation of tax returns;

p. TRADE ASSOCIATION FEES. All fees, dues, and other expenses incurred in
connection with the Trust's membership in any trade association or
other investment organization; and

q. NONRECURRING AND EXTRAORDINARY EXPENSES. Such nonrecurring expenses as
may arise, including the costs of actions, suits, or proceedings to
which the Trust is, or is threatened to be made, a party and the expenses
the Trust may incur as a result of its legal

3
<PAGE> 5
obligation to provide indemnification to its Trustees, officers, agents
and shareholders.

4. EXPENSE LIMITATION

a. For purposes of this section the following definitions shall apply:

(1) "Computation Period" means the portion of the current fiscal
year ended on the date as of which a determination is being
made whether the Adviser's compensation should be
reduced or it should reimburse the Trust because of the
Limitation Expenses of a Portfolio.

(2) "Regulatory Limit" means the limitation on investment company
expenses during a Computation Period imposed by any statute or
regulatory authority of any jurisdiction in which shares
of a Portfolio are qualified for offer and sale.

(3) "Fixed Limit" means the percent, specified in Appendix B to this
Agreement, on an annualized basis of the average net asset
value of a portfolio during a Computation Period.

(4) "Expense Limit" means either the Regulatory Limit or Fixed Limit
or both, as applicable.

(5) "Limitation Expenses," with respect to the Regulatory Limit,
means all the expenses of a Portfolio incurred during a
Computation Period excluding all expenses the exclusion of which
may be permitted by the Regulatory Limit and, with respect to
the Fixed Limit, means all the expenses of a Portfolio incurred
during a Computation Period excluding: (i) taxes, (ii)
portfolio brokerage commissions, (iii) interest, (iv)
distribution expenses, and (v) litigation and indemnification
expenses and other extraordinary expenses not incurred in the
ordinary course of the Trust's business.

(6) "Excess Amount" means the amount, if any by which a Portfolio's
Limitation Expenses for a specified period exceed the amount of
the applicable Expense Limit for the same period. Where
there is an Excess Amount with respect to both the Regulatory
Limit and the Fixed Limit, Excess Amount means the greater of
the two.

(7) "Maximum Advisory Compensation" means the total amount of the
compensation payable pursuant to section 5. of this Agreement
to the Adviser with respect to a Portfolio for a specified
period without any adjustment for an Excess Amount.

(8) "Current Advisory Compensation" means the amount of the
compensation payable pursuant to section 5. of this Agreement to
the Adviser with respect to a Portfolio for the last calendar
month of a Computation Period without any adjustment for an
Excess Amount.

b. If in any fiscal year there is an Excess Amount with respect to a
Portfolio, the Maximum Advisory Compensation due the Adviser under this
Agreement with respect to that Portfolio shall be reduced by such Excess
Amount, and the Adviser shall reimburse the Trust for any portion of the
Excess Amount that exceeds the Maximum Advisory Compensation.

c. The amount of the reduction and reimbursement referred to in paragraph b.
shall be determined as follows:

4
<PAGE> 6
(i) For each calendar day, each Portfolio shall adjust the amount of
its daily accrual for the Maximum Advisory Compensation to make the
net amount of the compensation actually paid and accrued for
payment by the Trust to the Adviser with respect to the Portfolio
for the Computation Period then ended equal to the amount determined
by subtracting the Excess Amount for the Computation Period from the
Maximum Advisory Compensation for the Computation Period, or if such
Excess Amount exceeds such Maximum Advisory Compensation, to make
the net amount of the reimbursement actually paid and accrued for
payment by the Adviser to the Trust equal to the amount of such
excess.

(ii) Each month, the Trust shall reduce the amount of the Current
Advisory Compensation, or it shall accompany the payment of the
Current Advisory Compensation with an additional payment, or the
Adviser shall remit an amount to the Trust, which reduction,
additional payment or remittance shall be sufficient in amount, to
make the net amount of the compensation actually paid by the Trust
to the Adviser with respect to the Portfolio for the
Computation Period ended as of the last day of such month equal to
the amount determined by subtracting the Excess Amount for the
Computation Period from the Maximum Advisory Compensation for the
Computation Period, or if such Excess Amount exceeds such Maximum
Advisory Compensation, to make the net amount of the reimbursement
actually paid by the Adviser to the Trust equal to the amount of
such excess.

(iii) If the Excess Amount for a fiscal year should exceed the amount of
the Maximum Advisory Compensation for the fiscal year, the
excess shall be treated as a contribution to the capital of the
Trust by the Adviser to the extent necessary to permit the
Portfolio to maintain its status as a regulated investment company
under Subchapter M of the Internal Revenue Code.

d. The provisions of section 4 of the Agreement shall
continue in effect unless terminated by the Adviser on
30 days' written notice; provided that if the Advisory
Agreement or a Subadvisory Agreement with respect to a
portfolio is earlier terminated, the provisions of
section 4 shall terminate on the effective date of such
termination, but only with respect to the Portfolio or
Portfolios as to which the Advisory Agreement or
Subadvisory Agreement is terminated. Any termination
shall be subject to the settlement of obligations
previously incurred pursuant to section 4 of this
Agreement, with the Computation Period ending on the
effective date of such termination being deemed to be a
fiscal year for purposes of paragraphs b and c (iii) of
section 4. For purposes of this provision, a
termination shall not be deemed to have occurred with
respect to a Portfolio if the termination of a
Subadvisory Agreement is conditioned upon the
effectiveness of another Subadvisory Agreement with
respect to the same Portfolio.

5. COMPENSATION OF ADVISER

Subject to the provisions of section 4. of this
Agreement, the Trust will pay the Adviser with respect
to each Portfolio the compensation specified in
Appendix A of this Agreement.

6. NON-EXCLUSIVITY

The services of the Adviser to the Trust are not to be
deemed to be exclusive, and the Adviser shall be free
to render investment advisory or other services to
others (including other investment companies) and to
engage in other activities. It is understood and
agreed that the directors, officers, and employees of
the Adviser are not prohibited from engaging in any
other business activity or from rendering services to
any other person, or from serving as partners,
officers, directors, trustees or employees of any other
firm or corporation, including other investment
companies.

5
<PAGE> 7

7. SUPPLEMENTAL ARRANGEMENTS

The Adviser may enter into arrangements with other
persons affiliated with the Adviser to better enable it
to fulfill its obligations under this Agreement for the
provision of certain personnel and facilities to the
Adviser.

8. CONFLICTS OF INTEREST

It is understood that Trustees, officers, agents and
shareholders of the Trust are or may be interested in
the Adviser as directors, officers, stockholders, or
otherwise; that directors, officers, agents and
stockholders of the Adviser are or may be interested in
the Trust as Trustees, officers, shareholders or
otherwise; that the Adviser may be interested in the
Trust; and that the existence of any such dual interest
shall not affect the validity hereof or of any
transactions hereunder except as otherwise provided in
the Agreement and Declaration of Trust of the Trust and
the Articles of Incorporation of the Adviser, respec
tively, or by specific provision of applicable law.

9. REGULATION

The Adviser shall submit to all regulatory and
administrative bodies having jurisdiction over the
services provided pursuant to this Agreement any
information, reports or other material which any such
body by reason of this Agreement may request or require
pursuant to applicable laws and regulations.

10. DURATION AND TERMINATION OF AGREEMENT

This Agreement shall become effective on the later of
its execution, the effective date of the Trust's
registration statement under the Securities Act of 1933
or the date of the meeting of the shareholders of the
Trust, at which meeting this Agreement is approved by
the vote of a majority of the outstanding voting
securities (as defined in the Investment Company Act)
of each of the Portfolios. The Agreement will continue
in effect for a period more than two years from the
date of its execution only so long as such continuance
is specifically approved at least annually either by
the Trustees of the Trust or by the vote of a majority
of the outstanding voting securities of each of the
Portfolios, provided that in either event such
continuance shall also be approved by the vote of a
majority of the Trustees of the Trust who are not
interested persons (as defined in the Investment
Company Act) of any party to this Agreement cast in
person at a meeting called for the purpose of voting on
such approval. The required shareholder approval of
the Agreement or of any continuance of the Agreement
shall be effective with respect to any Portfolio if a
majority of the outstanding voting securities of the
series (as defined in Rule 18f-2(h) under the
Investment Company Act) of shares of that Portfolio
votes to approve the Agreement or its continuance,
notwithstanding that the Agreement or its continuance
may not have been approved by a majority of the
outstanding voting securities of (a) any other
Portfolio affected by the Agreement or (b) all the
Portfolios of the Trust.

If the shareholders of any Portfolio fail to approve
the Agreement or any continuance of the Agreement, the
Adviser will continue to act as investment adviser with
respect to such Portfolio pending the required approval
of the Agreement or its continuance or of a new
contract with the Adviser or a different adviser or
other definitive action; provided, that the compensa
tion received by the Adviser in respect of such
Portfolio during such period will be no more than its
actual costs incurred in furnishing investment advisory
and management services to such Portfolio or the amount
it would have received under the Agreement in respect
of such Portfolio, whichever is less.

6
<PAGE> 8
This Agreement will automatically terminate, without the
payment of any penalty, in the event of its assignment
(as defined in the Investment Company Act).

11. PROVISION OF CERTAIN INFORMATION BY ADVISER

The Adviser will promptly notify the Trust in writing
of the occurrence of any of the following events:

a. the Adviser fails to be registered as an investment
adviser under the Investment Advisers Act or under the
laws of any jurisdiction in which the Adviser is
required to be registered as an investment adviser in
order to perform its obligations under this Agreement;

b. the Adviser is served or otherwise receives notice of
any action, suit, proceeding, inquiry or investigation,
at law or in equity, before or by any court, public
board or body, involving the affairs of the Trust; and

c. the chief executive officer or controlling stockholder
of the Adviser or the portfolio manager of any
Portfolio changes.

12. AMENDMENTS TO THE AGREEMENT

This Agreement may be amended by the parties only if
such amendment is specifically approved by the vote of
a majority of the outstanding voting securities of each
of the Portfolios affected by the amendment and by the
vote of a majority of the Trustees of the Trust who are
not interested persons of any party to this Agreement
cast in person at a meeting called for the purpose of
voting on such approval. The required shareholder ap
proval shall be effective with respect to any Portfolio
if a majority of the outstanding voting securities of
the series of shares of that Portfolio vote to approve
the amendment, notwithstanding that the amendment may
not have been approved by a majority of the outstanding
voting securities of (a) any other Portfolio affected
by the amendment or (b) all the Portfolios of the
Trust.

13. ENTIRE AGREEMENT

This Agreement contains the entire understanding and
agreement of the parties.

14. HEADINGS

The headings in the sections of this Agreement are
inserted for convenience of reference only and shall
not constitute a part hereof.

15. NOTICES

All notices required to be given pursuant to this
Agreement shall be delivered or mailed to the last
known business address of the Trust or Adviser in
person or by registered mail or a private mail or
delivery service providing the sender with notice of
receipt. Notice shall be deemed given on the date
delivered or mailed in accordance with this section.

16. SEVERABILITY

Should any portion of this Agreement for any reason be
held to be void in law or in equity, the Agreement
shall be construed, insofar as is possible, as if such
portion had never been contained herein.

7
<PAGE> 9
17. GOVERNING LAW

The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of The
Commonwealth of Massachusetts, or any of the applicable
provisions of the Investment Company Act. To the
extent that the laws of The Commonwealth of
Massachusetts, or any of the provisions in this
Agreement, conflict with applicable provisions of the
Investment Company Act, the latter shall control.

18. LIMITATION OF LIABILITY

The Declaration of Trust establishing the Trust, dated
September 29, 1988, as amended and restated February
18, 1994, a copy of which, together with all amendments
thereto (the "Declaration"), is on file in the office
of the Secretary of The Commonwealth of Massachusetts,
provides that the name "North American Security Trust"
[North American Funds] refers to the Trustees under the
Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder,
officer, employee or agent of the Trust shall be held
to any personal liability, nor shall resort be had to
their private property, for the satisfaction of any
obligation or claim, in connection with the affairs of
the Trust or any Portfolio thereof, but only the assets
belonging to the Trust, or to the particular Portfolio
with which the obligee or claimant dealt, shall be
liable.

IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed under seal by their duly
authorized officers as of the date first mentioned
above.

[SEAL] North American Funds

By:
------------------------------
John D. DesPrez III, President

[SEAL] NASL Financial Services, Inc.

By:
------------------------------
William J. Atherton, President

8
<PAGE> 10

APPENDIX A

1. Value Equity Fund: .725% of the first $50,000,000,
.675% between $50,000,000 and $200,000,000, .625%
between $200,000,000 and $500,000,000 and .55% on the
excess over $500,000,000 of the current net assets of
the Portfolio.

2. Growth and Income Fund: .725% of the first $50,000,000,
.675% between $50,000,000 and $200,000,000, .625%
between $200,000,000 and $500,000,000 and .55% on the
excess over $500,000,000 of the current net assets of
the Portfolio.

3. Asset Allocation Fund: .725% of the first $50,000,000,
.675% between $50,000,000 and $200,000,000, .625%
between $200,000,000 and $500,000,000 and .55% on the
excess over $500,000,000 of the current net assets of
the Portfolio.

4. U.S. Government Securities Fund: .60% of the first $50
million, .60% between $50,000,000 and $200,000,000,
.525% between $200,000,000 and $500,000,000 and .475%
on the excess over $500,000,000 of the current net
assets of the Portfolio.

5. Investment Quality Bond Fund: .60% of the first $50
million, .60% between $50,000,000 and $200,000,000,
.525% between $200,000,000 and $500,000,000 and .475%
on the excess over $500,000,000 of the current net
assets of the Portfolio.

6. Money Market Fund: .20% of the first $50 million, .20%
between $50,000,000 and $200,000,000, .20% between
$200,000,000 and $500,000,000 and .145% on the excess
over $500,000,000 of the current net assets of the
Portfolio.

7. Global Growth Fund: .90% of the first $50 million, .90%
between $50,000,000 and $200,000,000, .70% between
$200,000,000 and $500,000,000 and .70% on the excess
over $500,000,000 of the current net assets of the
Portfolio.

8. National Municipal Bond Fund: .60% of the first $50
million, .60% between $50,000,000 and $200,000,000,
.60% between $200,000,000 and $500,000,000 and .60% on
the excess over $500,000,000 of the current net assets
of the Portfolio.

9. Strategic Income Fund: .75% of the first $50 million,
.70% between $50,000,000 and $200,000,000, .65% between
$200,000,000 and $500,000,000 and .60% on the excess
over $500,000,000 of the current net assets of the
Portfolio.

10. International Growth and Income Fund: .90% of the first
$50 million, .85% between $50,000,000 and $200,000,000,
.80% between $200,000,000 and $500,000,000 and .75% on
the excess over $500,000,000 of the current net assets
of the Portfolio.

11. Small/Mid Cap Fund: .925% of the first $50,000,000,
.900% between $50,000,000 and $200,000,000, .875%
between $200,000,000 and $500,000,000 and .850% on the
excess over $500,000,000 of the current value of the
net assets of the Portfolio.

12. International Small Cap Fund: 1.05% of the first
$50,000,000, 1.0% between $50,000,000 and $200,000,000,
.900% between $200,000,000 and $500,000,000 and .800%
on the excess over $500,000,000 of the average daily
value of the net assets of the Portfolio.

13. Growth Equity Fund: .900% of the first $50,000,000,
.850% between $50,000,000 and $200,000,000, .825%
between $200,000,000 and $500,000,000 and .800% on the
excess over $500,000,000 of the average daily value of
the net assets of the Portfolio.

9
<PAGE> 11
The Percentage Fee for each Portfolio shall be accrued
for each calendar day and the sum of the daily fee
accruals shall be payable monthly to the Adviser. The
daily fee accruals will be computed by multiplying the
fraction of one over the number of calendar days in the
year by the applicable annual rate described in the
preceding paragraph, and multiplying this product by
the net assets of the Portfolio as determined in
accordance with the Fund's prospectus and statement of
additional information as of the close of business on
the previous business day on which the Fund was open
for business.

If this Agreement becomes effective or terminates
before the end of any month, the fee for the period
from the effective date to the end of such month or
from the beginning of such month to the date of
termination, as the case may be, shall be prorated
according to the proportion which such period bears to
the full month in which such effectiveness or
termination occurs.

10
<PAGE> 12
APPENDIX B
----------

The Fixed Limit for each Portfolio for purposes of
paragraph 4.a.(3) shall be:

<TABLE>
<CAPTION>
PORTFOLIO PERCENT
- --------- -------
<S> <C>
Money Market Fund .50%
Investment Quality Bond Fund .90%
U.S. Government Securities Fund .90%
Value Equity Fund .99%
Growth and Income Fund .99%
Asset Allocation Fund .99%
Global Growth Fund 1.40%
National Municipal Bond Fund .85%
Strategic Income Fund 1.15%
International Growth and Income Fund 1.40%
Small/Mid Cap Fund 1.325%
International Small Cap Fund 1.55%
Growth Equity Fund 1.30%
</TABLE>

<PAGE> 1

EXHIBIT (5)(g)

<PAGE> 2

NORTH AMERICAN FUNDS
SUBADVISORY AGREEMENT

AGREEMENT made this_______day of_____________, 199__, between NASL
Financial Services, Inc., a Massachusetts corporation ("NASL Financial" or the
"Adviser"), and Fred Alger Management Inc., a ________ Corporation (the
"Subadviser"). In consideration of the mutual covenants contained herein, the
parties agree as follows:

1. APPOINTMENT OF SUBADVISER

The Subadviser undertakes to act as investment subadviser to, and,
subject to the supervision of the Trustees of North American Funds (the
"Trust") and the terms of this Agreement, to manage the investment and
reinvestment of the assets of the Portfolios specified in Appendix A to this
Agreement as it shall be amended by the Adviser and the Subadviser from
time to time (the "Portfolios"). The Subadviser will be an independent
contractor and will have no authority to act for or represent the Trust or
Adviser in any way except as expressly authorized in this Agreement or
another writing by the Trust and Adviser.

2. SERVICES TO BE RENDERED BY THE SUBADVISER TO THE TRUST

a. Subject always to the direction and control of the Trustees of
the Trust, the Subadviser will manage the investments and
determine the composition of the assets of the Portfolios in
accordance with the Portfolios' registration statement, as amended.
In fulfilling its obligations to manage the investments and
reinvestments of the assets of the Portfolios, the Subadviser
will:

i. obtain and evaluate pertinent economic,
statistical, financial and other information affecting the
economy generally and individual companies or industries
the securities of which are included in the Portfolios or are
under consideration for inclusion in the Portfolios;

ii. formulate and implement a continuous investment program
for each Portfolio consistent with the investment
objectives and related investment policies for each such
Portfolio as described in the Trust's registration statement,
as amended;

iii. take whatever steps are necessary to implement these
investment programs by the purchase and sale of securities
including the placing of orders for such purchases and sales;

iv. regularly report to the Trustees of the Trust with respect
to the implementation of these investment programs; and

v. provide determinations, in accordance with procedures
and methods established by the Trustees of the Trust, of the
fair value of securities held by the Portfolios for which market
quotations are not readily available for purposes of
enabling the Trust's Custodian to calculate net asset value.

b. The Subadviser, at its expense, will furnish (i) all
neces sary investment and management facilities, including
salaries of personnel required for it to execute its duties
faithfully, and (ii) administrative facilities, including
bookkeeping, clerical personnel and equipment necessary for the
efficient conduct of the investment affairs of the Portfolios
(excluding determination of net asset value and shareholder
accounting services).

c. The Subadviser will select brokers and dealers
including Fred Alger & Company, Incorporated, an affiliate of the
Subadviser, to effect all transactions subject to the following
conditions: The Subadviser will place all orders with brokers,
dealers, or issuers, and will negotiate brokerage commissions if
applicable. The Subadviser is directed at all times to seek
to execute brokerage transactions for the Portfolios in
accordance with such policies or practices as may be established by
the Trustees and described in the Trust's registration statement
as amended. The Subadviser may pay a broker-dealer which
provides research and brokerage services a higher spread or
commission for a particular transaction than otherwise might have
been charged by another broker-dealer, if the

1
<PAGE> 3
Subadviser determines that the higher spread or commission
is reasonable in relation to the value of the brokerage and research
services that such broker-dealer provides, viewed in terms of
either the particular transaction or the Subadviser's overall
responsibilities with respect to accounts managed by the
Subadviser. The Subadviser may use for the benefit of the
Subadviser's other clients, or make available to companies affiliated
with the Subadviser or to its directors for the benefit of its
clients, any such brokerage and research services that the
Subadviser obtains from brokers or dealers.

d. The Subadviser will maintain all accounts, books and
records with respect to the Portfolios as are required of an invest
ment adviser of a registered investment company pursuant to the
Investment Company Act of 1940 (the "Investment Company Act") and
Investment Advisers Act of 1940 (the "Investment Advisers Act") and
the rules thereunder.

3. COMPENSATION OF SUBADVISER

The Adviser will pay the Subadviser with respect to each Portfolio
the compensation specified in Appendix A to this Agree ment.

4. LIABILITY OF SUBADVISER

Neither the Subadviser nor any of its partners or employees shall be
liable to the Adviser or Trust for any loss suffered by the Adviser or Trust
resulting from any error of judgment made in the good faith exercise of the
Subadviser's investment discretion in connection with selecting Portfolio
investments except for losses resulting from willful misfeasance, bad faith
or gross negligence of, or from reckless disregard of, the duties of the
Subadviser or any of its partners or employees; and neither the Subadviser
nor any of its partners or employees shall be liable to the Adviser or Trust
for any loss suffered by the Adviser or Trust resulting from any other
matters to which this Agreement relates (i.e., those other matters specified
in Sections 2 and 8 of this Agreement), except for losses resulting from
willful mis feasance, bad faith, or negligence in the performance of, or from
disregard of, the duties of the Subadviser or any of its partners or employees.

5. SUPPLEMENTAL ARRANGEMENTS

The Subadviser may enter into arrangements with other persons
affiliated with the Subadviser to better enable it to fulfill its obligations
under this Agreement for the provision of certain personnel and facilities
to the Subadviser.

6. CONFLICTS OF INTEREST

It is understood that trustees, officers, agents and
shareholders of the Trust are or may be interested in the Subadviser
as trustees, officers, partners or otherwise; that directors, officers,
agents and partners of the Subadviser are or may be interested in the
Trust as trustees, officers, shareholders or otherwise; that the Subadviser
may be interested in the Trust; and that the existence of any such dual
interest shall not affect the validity hereof or of any transactions
hereunder except as otherwise provided in the Agreement and Declaration
of Trust of the Trust and the Certificate of Incorporation of the
Subadviser, respectively, or by specific provision of applicable law.

7. REGULATION

The Subadviser shall submit to all regulatory and ad
ministrative bodies having jurisdiction over the services provided
pursuant to this Agreement any information, reports or other material which
any such body by reason of this Agreement may request or require pursuant to
applicable laws and regulations.

8. DURATION AND TERMINATION OF AGREEMENT

2
<PAGE> 4

Investment Company Act) of the Portfolio. The Agreement will continue
in effect for a period more than two years from the date of its execution only
so long as such continuance is specifically approved at least an nually
either by the Trustees of the Trust or by a majority of the outstanding
voting securities of each of the Portfolios, provided that in either event
such continuance shall also be ap proved by the vote of a majority of the
Trustees of the Trust who are not interested persons (as defined in the
Investment Company Act) of any party to this Agreement cast in person at a
meeting called for the purpose of voting on such approval. The required
shareholder approval of the Agreement or of any continuance of the Agreement
shall be effective with respect to any Portfolio if a majority of the
outstanding voting securities of the series (as defined in Rule 18f-2(h)
under the Investment Company Act) of shares of that Portfolio votes to
approve the Agreement or its continuance, notwithstanding that the
Agreement or its con tinuance may not have been approved by a majority of
the out standing voting securities of (a) any other Portfolio affected by the
Agreement or (b) all the portfolios of the Trust.

If the shareholders of any Portfolio fail to approve the Agreement
or any continuance of the Agreement, the Subadviser will continue to act
as investment subadviser with respect to such Portfolio pending the required
approval of the Agreement or its continuance or of any contract with the
Subadviser or a dif ferent adviser or subadviser or other definitive
action; provided, that the compensation received by the Subadviser in
respect of such Portfolio during such period is in compliance with Rule
15a-4 under the Investment Company Act.

This Agreement may be terminated at any time, without the payment of
any penalty, by the Trustees of the Trust, by the vote of a majority of the
outstanding voting securities of the Trust, or with respect to any Portfolio by
the vote of a majority of the outstanding voting securities of such Portfolio,
on sixty days' written notice to the Adviser and the Subadviser, or by the
Ad viser or Subadviser on sixty days' written notice to the Trust and the
other party. This agreement will automatically ter minate, without the
payment of any penalty, in the event of its assignment (as defined in the
Investment Company Act) or in the event the Advisory Agreement between the
Adviser and the Trust terminates for any reason.

9. PROVISION OF CERTAIN INFORMATION BY SUBADVISER

The Subadviser will promptly notify the Adviser in writing of the
occurrence of any of the following events:

a. the Subadviser fails to be registered as an investment
ad viser under the Investment Advisers Act or under the laws of any
jurisdiction in which the Subadviser is required to be registered as
an investment adviser in order to perform its obligations under this
Agreement;

b. the Subadviser is served or otherwise receives notice of
any action, suit, proceeding, inquiry or investigation, at law or
in equity, before or by any court, public board or body, involving the
affairs of the Trust; and

c. the managing general partner or controlling partner
of the Subadviser or the portfolio manager of any Portfolio
changes.

10. SERVICES TO OTHERS

The Adviser understands, and has advised the Trust's Board of Trustees,
that the Subadviser now acts, or may in the future act, as an investment
adviser to fiduciary and other managed accounts, and as investment adviser
or subadviser to other investment companies. The Adviser has no objection
to the Subadviser acting in such capacities, provdied that whenever the
Portfolios and one or more other investment advisory clients of the Subadviser
have available funds for investment, investments suitable and
appropriate for each will be allocated in a manner believed by the
Subadviser to be equitable to each. The Adviser recognizes, and has advised
the Trust's Board of Trustees, that in some cases this procedure may adversely
affect the size of the position that the participating Portfolio(s) may
obtain in a particular security. In addition, the Adviser understands, and
has advised the Trust's Board of Trustees, that the persons employed by the
Subadviser to assist in the Subadviser's duties under this Agreement
will not devote their full time to such service and nothing contained in
this Agreement will be deemed to limit or restrict the right of the
Subadviser or any of its affiliates to engage in and devote time and attention
to other businesses or to render services of whatever kind or nature.

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<PAGE> 5

11. AMENDMENTS TO THE AGREEMENT

This Agreement may be amended by the parties only if such amendment
is specifically approved by the vote of a majority of the outstanding voting
securities of each of the Portfolios af fected by the amendment and by the
vote of a majority of the Trustees of the Trust who are not interested
persons of any party to this Agreement cast in person at a meeting called for
the pur pose of voting on such approval. The required shareholder ap
proval shall be effective with respect to any Portfolio if a majority of
the outstanding voting securities of that Portfolio vote to approve the
amendment, notwithstanding that the amendment may not have been approved by
a majority of the outstanding voting securities of (a) any other Portfolio
affected by the amendment or (b) all the portfolios of the Trust.

12. ENTIRE AGREEMENT

This Agreement contains the entire understanding and agree ment of
the parties.

13. HEADINGS

The headings in the sections of this Agreement are inserted for
convenience of reference only and shall not constitute a part hereof.

14. NOTICES

All notices required to be given pursuant to this Agreement shall be
delivered or mailed to the last known business address of the Trust or
applicable party in person or by registered mail or a private mail or
delivery service providing the sender with notice of receipt. Notice shall
be deemed given on the date delivered or mailed in accordance with this
paragraph.

15. SEVERABILITY

Should any portion of this Agreement for any reason be held to be void
in law or in equity, the Agreement shall be construed, insofar as is
possible, as if such portion had never been con tained herein.

16. GOVERNING LAW

The provisions of this Agreement shall be construed and in terpreted
in accordance with the laws of The Commonwealth of Mas sachusetts, or any of
the applicable provisions of the Investment Company Act. To the extent that
the laws of The Commonwealth of Massachusetts, or any of the provisions in
this Agreement, con flict with applicable provisions of the Investment
Company Act, the latter shall control.

17. LIMITATION OF LIABILITY

The Amended and Restated Agreement and Declaration of Trust dated
February 18, 1994, a copy of which, together with all amendments thereto
(the "Declaration"), is on file in the office of the Secretary of The
Commonwealth of Massachusetts, provides that the name "North American Funds"
refers to the Trustees under the Declaration collectively as Trustees, but not
as individuals or personally; and no Trustee, shareholder, officer, employee
or agent of the Trust shall be held to any personal liability, nor shall
resort be had to their private property, for the satisfaction of any
obligation or claim, in connection with the affairs of the Trust or any
portfolio thereof, but only the assets belonging to the Trust, or to the
particular portfolio with which the obligee or claimant dealt, shall be
liable.

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<PAGE> 6

IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed under seal by their duly authorized of ficers as of the date
first mentioned above.

[SEAL] NASL Financial Services, Inc.

by: _____________________________
William J. Atherton
President

[SEAL] Fred Alger Management, Inc.

by: _____________________________

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<PAGE> 7

APPENDIX A
----------

The Subadviser shall serve as investment subadviser for the following
portfolio of the Trust. The Adviser will pay the Subadviser, as full
compensation for all services provided under this Agreement, the fee
computed separately for each such Portfolio at an annual rate as follows
(the "Subadviser Percent age Fee"):

Small/Mid Cap Fund: .___% of the first $50,000,000, ..__%
between $50,000,000 and $200,000,000, .___% between
$200,000,000 and $500,000,000 and .___% on the excess over
$500,000,000 of the current value of the net assets of the
Portfolio;

The Subadviser Percentage Fee for each Portfolio shall be accrued
for each calendar day and the sum of the daily fee ac cruals shall be paid
monthly to the Subadviser. The daily fee accruals will be computed by
multiplying the fraction of one over the number of calendar days in the year
by the applicable annual rate described in the preceding paragraph, and
multiplying this product by the net assets of the Portfolio as determined in
ac cordance with the Trust's prospectus and statement of additional
information as of the close of business on the previous business day on which
the Trust was open for business.

If this Agreement becomes effective or terminates before the end of
any month, the fee (if any) for the period from the effec tive date to the end
of such month or from the beginning of such month to the date of termination,
as the case may be, shall be prorated according to the proportion which such
period bears to the full month in which such effectiveness or termination
occurs.

<PAGE> 1

EXHIBIT (5)(h)

<PAGE> 2

NORTH AMERICAN FUNDS
SUBADVISORY AGREEMENT

AGREEMENT made this_______day of_____________, 199__, between NASL
Financial Services, Inc., a Massachusetts corporation ("NASL Financial" or
the "Adviser"), and Founders Asset Management, Inc., a ________ Corporation
(the "Subadviser"). In consideration of the mutual covenants contained
herein, the parties agree as follows:

1. APPOINTMENT OF SUBADVISER

The Subadviser undertakes to act as investment subadviser to, and,
subject to the supervision of the Trustees of North American Funds (the
"Trust") and the terms of this Agreement, to manage the investment and
reinvestment of the assets of the Portfolios specified in Appendix A to this
Agreement as it shall be amended by the Adviser and the Subadviser from time
to time (the "Portfolios"). The Subadviser will be an independent contractor
and will have no authority to act for or represent the Trust or Adviser in any
way except as expressly authorized in this Agreement or another writing by the
Trust and Adviser.

2. SERVICES TO BE RENDERED BY THE SUBADVISER TO THE TRUST

a. Subject always to the direction and control of the Trustees
of the Trust, the Subadviser will manage the investments and
determine the composition of the assets of the Portfolios in
accordance with the Portfolios' registration statement, as
amended. In fulfilling its obligations to manage the
investments and reinvestments of the assets of the Portfolios,
the Subadviser will:

i. obtain and evaluate pertinent economic, statistical,
financial and other information affecting the individual
companies or industries the securities of which are included
in the Portfolios or are under consideration for inclusion in
the Portfolios;

ii. formulate and implement a continuous investment program for
each Portfolio consistent with the investment objectives and
related investment policies for each such Portfolio as
described in the Trust's registration statement, as amended;

iii. take whatever steps are necessary to implement these
investment programs by the purchase and sale of
securities including the placing of orders for such
purchases and sales;

iv. regularly report to the Trustees of the Trust with
respect to the implementation of these investment
programs; and

v. provide recommendations, in accordance with procedures and
methods established by the Trustees of the Trust, of the fair
value of securities held by the Portfolios for which market
quotations are not readily available for purposes of enabling
the Trust's Custodian to calculate net asset value.

b. The Subadviser, at its expense, will furnish (i) all necessary
investment and management facilities, including salaries of personnel
required for it to execute its duties faithfully, and (ii)
administrative facilities, including bookkeeping, clerical personnel
and equipment necessary for the efficient conduct of the investment
affairs of the Portfolios (excluding determination of net asset value
and shareholder accounting services).

c. The Subadviser will select brokers and dealers to effect all
transactions subject to the following conditions: The Subadviser will
place all orders with brokers, dealers, or issuers, and will negotiate
brokerage commissions if applicable. The Subadviser is directed at all
times to seek to execute brokerage transactions for the Portfolios in
accordance with such policies or practices as may be established by the
Trustees and described in the Trust's registration statement as
amended. The Subadviser may pay a broker-dealer which provides
research and brokerage services a higher spread or commission for a
particular transaction than otherwise might have been charged by
another broker-dealer, if the Subadviser determines that the higher
spread or commission is

1
<PAGE> 3

reasonable in relation to the value of the brokerage and
research services that such broker-dealer provides, viewed in terms
of either the particular transaction or the Subadviser's overall
responsibilities with respect to accounts managed by the
Subadviser. The Subadviser may use for the benefit of the
Subadviser's other clients, or make available to companies affiliated
with the Subadviser or to its directors for the benefit of its
clients, any such brokerage and research services that the Subadviser
obtains from brokers or dealers.

d. The Subadviser will maintain all accounts, books and records with
respect to the Portfolios as are required of an investment adviser of
a registered investment company pursuant to the Investment Company Act
of 1940 (the "Investment Company Act") and Investment Advisers Act of
1940 (the "Investment Advisers Act") and the rules thereunder.

3. COMPENSATION OF SUBADVISER

The Adviser will pay the Subadviser with respect to each Portfolio
the compensation specified in Appendix A to this Agreement.

4. LIABILITY OF SUBADVISER

5. SUPPLEMENTAL AND OTHER ARRANGEMENTS

The services of the Subadviser to the Trust are not to be deemed to
be exclusive, the Subadviser and any person controlled by or under common
control with the Subadviser being free to render investment advisory and
other services to any other person or entity.

6. CONFLICTS OF INTEREST

It is understood that trustees, officers, agents and shareholders of
the Trust are or may be interested in the Subadviser as trustees, officers,
partners or otherwise; that directors, officers, agents and partners of the
Subadviser are or may be interested in the Trust as trustees, officers,
shareholders or otherwise; that the Subadviser may be interested in the Trust;
and that the existence of any such dual interest shall not affect the validity
hereof or of any transactions hereunder except as otherwise provided in the
Agreement and Declaration of Trust of the Trust and the Certificate of
Incorporation of the Subadviser, respectively, or by specific provision of
applicable law.

7. REGULATION

The Subadviser shall submit to all regulatory and administrative bodies
having jurisdiction over the services provided pursuant to this Agreement
any information, reports or other material which any such body by reason of
this Agreement may request or require pursuant to applicable laws and
regulations.

2
<PAGE> 4

8. DURATION AND TERMINATION OF AGREEMENT

This Agreement shall become effective with respect to each Portfolio
on the later of its execution, the effective date of the registration statement
of the Portfolio and the date of the meeting of the shareholders of the
Portfolio, at which meeting this Agreement is approved by the vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Portfolio. The Agreement will continue in effect for a
period more than two years from the date of its execution only so long as such
continuance is specifically approved at least annually either by the Trustees
of the Trust or by a majority of the outstanding voting securities of each of
the Portfolios, provided that in either event such continuance shall also be
approved by the vote of a majority of the Trustees of the Trust who are not
interested persons (as defined in the Investment Company Act) of any party to
this Agreement cast in person at a meeting called for the purpose of voting on
such approval. The required shareholder approval of the Agreement or of any
continuance of the Agreement shall be effective with respect to any Portfolio
if a majority of the outstanding voting securities of the series (as defined in
Rule 18f-2(h) under the Investment Company Act) of shares of that Portfolio
votes to approve the Agreement or its continuance, notwithstanding that the
Agreement or its continuance may not have been approved by a majority of the
outstanding voting securities of (a) any other Portfolio affected by the
Agreement or (b) all the portfolios of the Trust.

If the shareholders of any Portfolio fail to approve the Agreement or
any continuance of the Agreement, the Subadviser will continue to act as
investment subadviser with respect to such Portfolio pending the required
approval of the Agreement or its continuance or of any contract with the
Subadviser or a different adviser or subadviser or other definitive action;
provided, that the compensation received by the Subadviser in respect of such
Portfolio during such period is in compliance with Rule 15a-4 under the
Investment Company Act.

This Agreement may be terminated at any time, without the payment of
any penalty, by the Trustees of the Trust, by the vote of a majority of the
outstanding voting securities of the Trust, or with respect to any Portfolio by
the vote of a majority of the outstanding voting securities of such Portfolio,
on sixty days' written notice to the Adviser and the Subadviser, or by the
Adviser or Subadviser on sixty days' written notice to the Trust and the other
party. This agreement will automatically terminate, without the payment of any
penalty, in the event of its assignment (as defined in the Investment Company
Act) or in the event the Advisory Agreement between the Adviser and the Trust
terminates for any reason.

9. PROVISION OF CERTAIN INFORMATION BY SUBADVISER

The Subadviser will promptly notify the Adviser in writing of the
occurrence of any of the following events:

a. the Subadviser fails to be registered as an investment adviser under
the Investment Advisers Act or under the laws of any jurisdiction in
which the Subadviser is required to be registered as an investment
adviser in order to perform its obligations under this Agreement;

b. the Subadviser is served or otherwise receives notice of any action,
suit, proceeding, inquiry or investigation, at law or in equity,
before or by any court, public board or body, involving the affairs of
the Trust; and

c. the managing general partner or controlling partner of the Subadviser
or the portfolio manager of any Portfolio changes.

10. AMENDMENTS TO THE AGREEMENT

This Agreement may be amended by the parties only if such amendment
is specifically approved by the vote of a majority of the outstanding voting
securities of each of the Portfolios affected by the amendment and by the vote
of a majority of the Trustees of the Trust who are not interested persons of
any party to this Agreement cast in person at a meeting called for the purpose
of voting on such approval. The required shareholder approval shall be
effective with respect to any Portfolio if a majority of the outstanding
voting securities of that Portfolio vote to approve the amendment,
notwithstanding that the amendment may not have been approved by a majority of
the outstanding voting securities of (a) any other Portfolio affected by the
amendment or (b) all the portfolios of the Trust.

3
<PAGE> 5

11. ENTIRE AGREEMENT

This Agreement contains the entire understanding and agreement of the
parties.

12. HEADINGS

The headings in the sections of this Agreement are inserted for
convenience of reference only and shall not constitute a part hereof.

13. NOTICES

All notices required to be given pursuant to this Agreement shall be
delivered or mailed to the last known business address of the Trust or
applicable party in person or by registered mail or a private mail or delivery
service providing the sender with notice of receipt. Notice shall be deemed
given on the date delivered or mailed in accordance with this paragraph.

14. SEVERABILITY

Should any portion of this Agreement for any reason be held to be void
in law or in equity, the Agreement shall be construed, insofar as is possible,
as if such portion had never been contained herein.

15. GOVERNING LAW

The provisions of this Agreement shall be construed and in terpreted in
accordance with the laws of The Commonwealth of Massachusetts, or any of the
applicable provisions of the Investment Company Act. To the extent that the
laws of The Commonwealth of Massachusetts, or any of the provisions in this
Agreement, conflict with applicable provisions of the Investment Company Act,
the latter shall control.

16. LIMITATION OF LIABILITY

The Amended and Restated Agreement and Declaration of Trust dated
February 18, 1994, a copy of which, together with all amendments thereto (the
"Declaration"), is on file in the office of the Secretary of The Commonwealth
of Massachusetts, provides that the name "North American Funds" refers to the
Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust shall be held to any personal liability, nor shall resort
be had to their private property, for the satisfaction of any obligation or
claim, in connection with the affairs of the Trust or any portfolio thereof,
but only the assets belonging to the Trust, or to the particular portfolio with
which the obligee or claimant dealt, shall be liable.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed under seal by their duly authorized officers as of the date first
mentioned above.

[SEAL] NASL Financial Services, Inc.

by: _______________________
William J. Atherton
President

[SEAL] Founders Asset Management, Inc.

by: ________________________

4
<PAGE> 6

APPENDIX A

The Subadviser shall serve as investment subadviser for the following
portfolio of the Trust. The Adviser will pay the Subadviser, as full
compensation for all services provided under this Agreement, the fee computed
separately for each such Portfolio at an annual rate as follows (the
"Subadviser Percentage Fee"):

International Small Cap Fund: ___% of the first
$50,000,000, .___% between $50,000,000 and $200,000,000,
.___% between $200,000,000 and $500,000,000 and .___% on the
excess over $500,000,000 of the average daily value of the
net assets of the Portfolio;

Growth Equity Fund: .___% of the first $50,000,000, .___%
between $50,000,000 and $200,000,000, .___% between
$200,000,000 and $500,000,000 and .___% on the excess over
$500,000,000 of the average daily value of the net assets of
the Portfolio;

The Subadviser Percentage Fee for each Portfolio shall be accrued for
each calendar day this Agreement is in force and the sum of the daily fee
accruals shall be paid monthly to the Subadviser. The daily fee accruals will
be computed by multiplying the fraction of one over the number of calendar days
in the year by the applicable annual rate described in the preceding
paragraph, and multiplying this product by the net assets of the Portfolio as
determined in accordance with the Trust's prospectus and statement of
additional information as of the close of business on the previous business day
on which the Trust was open for business.

If this Agreement becomes effective or terminates before the end of any
month, the fee (if any) for the period from the effective date to the end of
such month or from the beginning of such month to the date of termination, as
the case may be, shall be prorated according to the proportion which such
period bears to the full month in which such effectiveness or termination
occurs.

<PAGE> 1

EXHIBIT (10)(h)

<PAGE> 2
North American Security Life Insurance Company
116 Huntington Avenue
Boston, Massachusetts 02116
(616) 266-6008

December 14, 1995

To Whom It May Concern:

This opinion is written in reference to the Class A, Class B and Class C
shares of beneficial interest, $.001 par value (the "Shares") of the Small/Mid
Cap, International Small Cap and Growth Equity Funds of North American Funds,
a Massachusetts business trust (the "Fund"), to be offered and sold pursuant to
a Registration Statement on Form N-1A (No. 33-27958) (the "Registration
Statement") filed by the Fund pursuant to the Securities Act of 1933.

I have examined such records and documents and reviewed such questions of law
as I deemed necessary for purposes of this opinion.

1. The Fund has been duly recorded under the laws of the Commonwealth of
Massachusetts and is a validly existing Massachuseets business trust.

2. The Shares have been duly authorized and, when sold, issued and paid for
in the manner contemplated by the Registration Statement, will be legally
issued, fully paid and non-assessable.

I consent to the filing of this opinion with the Securities and Exchange
Commission as an exhibit to the Registration Statement.

Very truly yours,

/s/ Betsy Anne Seel

Betsy Anne Seel, Esq.
1

<PAGE> 1
EXHIBIT (15)(j)

<PAGE> 2
NORTH AMERICAN FUNDS
DISTRIBUTION PLAN
CLASS A SHARES

AMENDMENT made this 15th day of December, 1995 to the Class
A Share Distribution Plan (the "Plan"), adopted in acordance
with Rule 12b-1 under the Investment Company Act of 1940 by
the North American Funds, a Massachusetts business trust
(the "Fund") with respect to the Class A shares of
beneficial interest (the "Class A Shares") of the Fund's
investment portfolios. In accordance with Section 6 of the
Plan, the Plan shall be extended to the following additional
investment portfolio established by the Fund:

Small/Mid Cap Fund
International Small Cap Fund
Growth Equity Fund

The Amendment shall become effective with respect to the new
portfolio in accordance with Section 6 of the Plan.

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NORTH AMERICAN FUNDS
DISTRIBUTION PLAN
CLASS B SHARES

AMENDMENT made this 15th day of December, 1995 to the Class
B Share Distribution Plan (the "Plan"), adopted in acordance
with Rule 12b-1 under the Investment Company Act of 1940 by
the North American Funds, a Massachusetts business trust
(the "Fund") with respect to the Class B shares of
beneficial interest (the "Class B Shares") of the Fund's
investment portfolios. In accordance with Section 6 of the
Plan, the Plan shall be extended to the following additional
investment portfolio established by the Fund:

Small/Mid Cap Fund
International Small Cap Fund
Growth Equity Fund

The Amendment shall become effective with respect to the new
portfolio in accordance with Section 6 of the Plan.

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NORTH AMERICAN FUNDS
DISTRIBUTION PLAN
CLASS C SHARES

AMENDMENT made this 15th day of December, 1995 to the Class
C Share Distribution Plan (the "Plan"), adopted in acordance
with Rule 12b-1 under the Investment Company Act of 1940 by
the North American Funds, a Massachusetts business trust
(the "Fund") with respect to the Class C shares of
beneficial interest (the "Class C Shares") of the Fund's
investment portfolios. In accordance with Section 6 of the
Plan, the Plan shall be extended to the following additional
investment portfolio established by the Fund:

Small/Mid Cap Fund
International Small Cap Fund
Growth Equity Fund

The Amendment shall become effective with respect to the new
portfolio in accordance with Section 6 of the Plan.

<PAGE> 1

EXHIBIT (18)

<PAGE> 2

NORTH AMERICAN FUNDS
MULTICLASS PLAN PURSUANT TO RULE 18F-3
UNDER THE INVESTMENT COMPANY ACT OF 1940

June 28, 1995*

I. Background
----------

This plan (the "Plan") pertains to the issuance by the North American
Funds (the "Trust") on behalf of the investment portfolios listed on Schedule A
hereto (each a "Fund") of multiple classes of shares of beneficial interest and
is being adopted by the Trust pursuant to Rule 18f-3 under the Investment
Company Act of 1940, as amended (the "1940 Act"). The Plan does not effect any
changes to the Trust's existing multiple class structure, including its
distribution/service arrangements and expense allocations. These
distribution/service arrangements and expense allocations were previously
approved by the Trust's Board of Trustees in accordance with an exemptive order
(the "Order") granted by the Securities and Exchange Commission to the Trust on
February 28, 1994 and, along with other features of the Trust's multiple class
structure, are set forth below. REFERENCE SHOULD BE MADE TO THE TRUST'S
PROSPECTUS FOR FURTHER INFORMATION ABOUT THE TRUST'S MULTIPLE CLASS STRUCTURE.

II. Creation of Classes
-------------------

The Trust's Declaration of Trust authorizes the Trust to issue multiple
classes of shares. Pursuant to action taken by the Board of Trustees of the
Trust at its March 17-18, 1994 meeting and in accordance with the terms of the
Order, the Trust on April 1, 1994 established three classes of shares for each
of the Funds, designated "Class A" shares, "Class B" shares and "Class C"
shares. The shares of the Strategic Income, Investment Quality Bond, U.S.
Government Securities, National Municipal Bond and Money Market Funds
outstanding on April 1, 1994 were reclassified as "Class A" shares and the
shares of the Global Growth, Growth, Growth and Income and Asset Allocation
Funds outstanding on April 1, 1994 were reclassified as "Class C" shares.

III. Sales Charges
-------------

Class A shares are offered for sale at net asset value per share plus a
front end sales charge (with the exception of Class A shares of the Money
Market Fund, which are offered without a sales charge). Certain purchases of
Class A shares qualify for a waived or reduced front end sales charge. In
addition, purchases of Class A shares above a certain dollar amount are offered
for sale at net asset value subject to a CDSC (currently 1% of the dollar
amount subject thereto during the first year after purchase).

Class B shares are sold at net asset value per share without a front
end sales charge but are subject to a CDSC (currently 5% of the dollar amount
subject thereto during the first and second year after purchase, and declining
by 1% each year thereafter to 0% after the sixth year (with the

* Amended December 15, 1995 to add new portfolios to Schedule A.

1
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exception of Class B shares of the Money Market Fund, which are not subject to
any CDSC upon redemption)).

Class C shares are sold at net asset value without a front end sales
charge but for Class C shares purchased after May 1, 1995 subject to a CDSC
(currently 1% of the dollar amount subject thereto on redemptions made within
one year of purchase (with the exception of Class C shares of the Money Market
Fund, which are not subject to any CDSC upon redemption)).

The CDSC for each class of shares is assessed in compliance with Rule
6c-10 under the 1940 Act.

IV. Distribution and Service Fees
-----------------------------

According to a plan adopted pursuant to Rule 12b-1 under the 1940 Act
("Rule 12b-1"), Class A shares are subject to a service fee and a distribution
fee (with the exception of Class A shares of the Money Market Fund, which bear
no such fees).

According to a plan adopted pursuant to Rule 12b-1, Class B shares are
subject to a service fee and a distribution fee which is higher than the Class
A service and distribution fee (with the exception of Class B shares of the
Money Market Fund, which bear no such fees).

According to a plan adopted pursuant to Rule 12b-1, Class C shares are
subject to a service fee and a distribution fee which is higher than the Class
A service and distribution fee (with the exception of Class C shares of the
Money Market Fund, which bear no such fees).

V. Exchange and Conversion Features
--------------------------------

Shares of a particular class of a Fund are exchangeable only for shares
of the same class of another Fund as set forth in the Trust's prospectus.

Class B shares (except for shares of the Money Market Fund) will
automatically convert, based upon relative net asset value, to Class A shares
of the same Fund six years after purchase. Upon conversion, these shares will
no longer be subject to the higher 12b-1 service and distribution fee of Class
B shares.

Class C shares (except for shares of the Money Market Fund) will
automatically convert, based upon relative net asset value, to Class A shares
of the same Fund ten years after purchase. Upon conversion, these shares will
no longer be subject to the higher 12b-1 service and distribution fee of Class
C shares.

There are no automatic conversion features for Class A shares.

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<PAGE> 4
VI. Allocation of Expenses
----------------------

Expenses of each Fund are borne by the various classes of the Fund on
the basis of relative net assets. The fees identified as "class expenses" (see
below) are to be allocated to each class based on actual expenses incurred, to
the extent that such expenses can properly be so allocated. To the extent that
such expenses cannot be properly allocated, such expenses are to be borne by
all classes on the basis of relative net assets.

The following are "class expenses":

(i) transfer and shareholder servicing agent fees and
shareholder servicing costs;

(ii) printing and postage expenses related to preparing and
distributing to the shareholders of a specific class materials such as
shareholder reports, prospectuses and proxies;

(iii) Blue Sky and SEC registration fees incurred by a class;

(iv) professional fees relating solely to such class;

(v) Trustees' fees, including independent counsel fees, relating to one
class; and

(vi) shareholder meeting expenses for meetings of a particular class.

VI. Voting Rights
-------------

All shares of each Fund have equal voting rights and will be voted in
the aggregate, and not by class, except where voting by class is required by
law or where the matter involved affects only one class.

VII. Amendments
----------

No material amendment to this Plan may be made unless it is first
approved by a majority of both (a) the full Board of Trustees of the Trust and
(b) those Trustees who are not interested persons of the Trust, as that term is
defined in the 1940 Act.

3
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SCHEDULE A

INVESTMENT PORTFOLIOS

Global Growth Fund

Value Equity Fund (formerly, the Growth Fund)

Growth and Income Fund

International Growth and Income Fund

Asset Allocation Fund

Strategic Income Fund

Investment Quality Bond Fund

U.S. Government Securities Fund

National Municipal Bond Fund

Money Market Fund

Small/Mid Cap Fund

International Small Cap Fund

Growth Equity Fund