PALLADIAN TRUST, 497, 1996-12-02

PALLADIAN TRUST
497, 1996-12-02

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<PAGE>

PROSPECTUS
for
The Value Portfolio
The Growth Portfolio
The International Growth Portfolio
The Global Strategic Income Portfolio, and
The Global Interactive/Telecomm Portfolio
of
THE PALLADIAN TRUST
4225 Executive Square, Suite 270
La Jolla, California 92037
(619) 677-5917

This prospectus offers shares of five portfolios (each individually a
"Portfolio" or collectively the "Portfolios") of The Palladian Trust (the
"Trust"), which is an open-end, management investment company. Each Portfolio
has its own investment objective or objectives and investment policies. Shares
of the Portfolios may be sold only to: (1) life insurance company separate
accounts (the "Separate Accounts") to serve as the underlying investment medium
for variable annuity contracts; (2) qualified retirement plans, as permitted by
Treasury Regulations; and (3) life insurance companies and advisers to the
Portfolios and their affiliates. In the future, the Trust intends to sell its
shares to Separate Accounts to serve as the underlying investment medium for
variable life insurance contracts. Shares will not be offered directly to the
public.

Palladian Advisors, Inc. ("PAI") serves as overall manager of the
Portfolios. PAI has retained Tremont Partners, Inc. ("Portfolio Adviser") to
assist it in evaluating, recommending, and monitoring an investment adviser for
each Portfolio which will provide day-to-day management (a "Portfolio Manager").
The five Portfolios and their respective Portfolio Managers are as follows:

Portfolio Portfolio Manager
- -------------------------------------------------------------------------------
The Value Portfolio GAMCO Investors, Inc.
The Growth Portfolio Stonehill Capital Management, Inc.
The International Growth Portfolio Bee & Associates Incorporated
The Global Strategic Income Portfolio Fischer Francis Trees & Watts, Inc.
The Global Interactive/Telecomm Portfolio GAMCO Investors, Inc.

Information about the investment objectives and policies of each Portfolio,
along with a detailed description of the types of securities and other assets in
which each Portfolio may invest, are set forth in this prospectus. There can be
no assurance that the investment objective for any Portfolio will be achieved.
The Global Strategic Income Portfolio may invest up to 50% of its assets in
bonds rated below investment grade (commonly referred to as "junk bonds" or
"high yield/high risk bonds"). High yield/high risk bonds involve significant
risks. See page 14.

This prospectus sets forth concisely the information a prospective
purchaser of a variable contract or a participant in a qualified retirement
plan should know before directing that contributions or amounts credited to
him or her be invested in the Portfolios. A Statement of Additional
Information (the "SAI") dated May 1, 1996 containing additional and more
detailed information about the Portfolios has been filed with the Securities
and Exchange Commission and is hereby incorporated by reference into this
prospectus. It is available without charge and can be obtained by writing or
calling the Trust at the address and telephone number printed above.

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

PROSPECTIVE PURCHASERS OF A VARIABLE CONTRACT SHOULD READ THIS PROSPECTUS IN
CONJUNCTION WITH THE PROSPECTUS FOR THE SEPARATE ACCOUNT. BOTH PROSPECTUSES
SHOULD BE READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE 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 May 1, 1996.

<PAGE>

TABLE OF CONTENTS

PAGE
----

SUMMARY OF EXPENSES 5

GENERAL INFORMATION 6
The Palladian Trust 6
The Manager and Portfolio Managers 6
Investment Objectives 6

MANAGEMENT OF THE TRUST 7
Manager 7
Portfolio Advisor 7
Portfolio Managers 8
The Value Portfolio 8
The Growth Portfolio 8
The International Growth Portfolio 8
The Global Strategic Income Portfolio 8
The Global Interactive/Telecomm Portfolio 8
Management and Portfolio Management Investment Advisory Fees 9
Custodian and Transfer Agent 11

INVESTMENT OBJECTIVES AND POLICIES 11
The Value Portfolio 11
The Growth Portfolio 12
The International Growth Portfolio 13
The Global Strategic Income Portfolio 13
The Global Interactive/Telecomm Portfolio 14

DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES 15
U.S. Government Securities 15
Debt Securities 16
Mortgage-Backed Securities 16
Other Asset-Backed Securities 17
Variable and Floating Rate Securities 17
Banking Industry and Savings Industry Obligations 17
Commercial Paper 18
Repurchase Agreements 18
Reverse Repurchase Agreements 18
Lending Portfolio Securities 18
Illiquid Securities 18
Warrants 19
Other Investment Companies 19
Short Sales 19
Short Sales Against the Box 20
Foreign Securities 20
Investment in Gold and Other Precious Metals 21
Futures Contracts 21
Options 22
Foreign Currency Transactions 23

<PAGE>

PAGE
----

Leverage 24
Indexed Securities 24

INVESTMENT IN THE TRUST 24
Principal Underwriter 24
Determination of Net Asset Value 24
Purchase of Shares 25
Redemption of Shares 26

DIVIDENDS, DISTRIBUTIONS, AND TAXES 26

OTHER INFORMATION 27
Capitalization 27
Voting Rights 27
Portfolio Brokerage 27
Performance Information 27

APPENDIX A 33
APPENDIX B 34

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFERING CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS BEING AUTHORIZED BY
THE TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE TRUST TO SELL
SHARES IN ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE TRUST TO MAKE
SUCH AN OFFER IN SUCH STATE.

<PAGE>

SUMMARY OF EXPENSES

The following table shows the expenses that will incurred by each
Portfolio, expressed as a percentage of average net assets during the year. If
you have been given this prospectus because you are considering the purchase of
a variable annuity contract, you should refer instead to the corresponding table
in the variable annuity contract prospectus.

Shareholder Transactions Expenses (for each Portfolio)
Sales Load on Purchases None
Sales Load on Reinvested Dividends None
Deferred Sales Load Imposed on Redemption None
Exchange Fees None

Annual Fund Operating Expenses
(as a percentage of average net assets)

<TABLE>
<CAPTION>
Management 12b-1 Other Operating
Portfolio Fees(1) Fees Expenses(2) Expenses
<S> <C> <C> <C>
The Value Portfolio 0.80% None 0.85% 1.65%
The Growth Portfolio 0.80% None 1.10% 1.90%
The International Growth Portfolio 0.80% None 1.23% 2.03%
The Global Strategic Income Portfolio 0.80% None 1.23% 2.03%
The Global Interactive/Telecomm Portfolio 0.80% None 0.96% 1.76%
</TABLE>
The purpose of the following example is to assist investors in
understanding the various costs and expenses that an investor in the Portfolios
will bear directly or indirectly. It shows the total expenses that would be
payable if you redeemed your shares after having held them for one and three
year periods respectively. The amounts shown are based upon the estimates.
Actual expenses may be greater or less than those shown. The example assumes a
5% annual rate of return pursuant to requirements of the Securities and Exchange
Commission. This hypothetical rate of return is not intended to be
representative of past or future performance.

EXAMPLE
A shareholder would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time
period:

1 year 3 years
The Value Portfolio $16.50 $51.18
The Growth Portfolio $19.00 $58.79
The International Growth Portfolio $20.30 $62.73
The Global Strategic Income Portfolio $20.30 $62.73
The Global Interactive/Telecomm Portfolio $17.60 $54.53

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

(1) As explained in "Management and Portfolio Management Advisory Fees," page
9, the total advisory fee for PAI, the Portfolio Adviser, and the Portfolio
Managers for the first 12 months of operations is, for each Portfolio, 0.80% of
average daily net assets. After that time, there will be an incentive fee
arrangement. The base fee will be 2.00%, but it may vary from between 0.00% to
4.00% depending on the Portfolio's performance.

(2) Based on estimates for the current fiscal year.

<PAGE>

GENERAL INFORMATION

THE PALLADIAN TRUST
This Prospectus offers shares of five Portfolios (the "Portfolios") of The
Palladian Trust (the "Trust"), each with its own investment objective and
investment policies. The Trust was established as a Massachusetts business
trust and is registered under the Investment Company Act of 1940 (the "1940
Act") as an open-end management investment company.

THE MANAGER AND PORTFOLIO MANAGERS
Palladian Advisors, Inc. ("PAI") serves as overall manager of the
Portfolios. PAI has retained Tremont Partners, Inc. ("Portfolio Adviser") to
assist it in evaluating, recommending, and monitoring an investment adviser for
each Portfolio who will provide day-to-day management (a "Portfolio Manager").
The five Portfolios and their respective Portfolio Managers are as follows:

After the first year of operations each Portfolio Manager will be paid on
an incentive fee basis, which could result in either higher than average
advisory fees or possibly no advisory fee at all, depending on how well each
Portfolio Manager performs for you.

Each Portfolio Manager has contractually agreed that it or an affiliate
(either directly or through a qualified plan) will invest at least a total
of $1 million in the Portfolio or Portfolios it manages. The Portfolio
Manager for the Global Strategic Income Portfolio made the investment shortly
after the Portfolio commenced operations. The Portfolio Managers for the
International Growth Portfolio (Bee & Associates Incorporated) and the Growth
Portfolio (Stonehill Capital Management, Inc.) have each agreed that it or
its principals will make the investment (directly or through qualified plans)
when the Portfolio reaches $10 million in total assets. Since GAMCO
Investors, Inc. manages both the Value Portfolio and the Global
Interactive/Telecomm Portfolio, it agreed to invest $500,000 in each
Portfolio. GAMCO Investors, Inc. made those investments shortly after the
Portfolios commenced operations. Although a Portfolio Manager is permitted
by law to sell its shares at any time, each Portfolio Manager currently
intends to maintain that investment as long as it manages the Portfolio.
Once a Portfolio Manager makes that investment, and for as long as it
maintains the investment, the Portfolio Manager will be managing a portion of
their own money along with your money.

There can be no assurance that any particular Portfolio investment
objective will be attained. The Board of Trustees may establish additional
Portfolios at any time and may discontinue offering a Portfolio at any time.

INVESTMENT OBJECTIVES
The Trust is currently offering shares of five separate Portfolios.
Each Portfolio has a different investment objective which it pursues through
different investment policies as described below. Since the Portfolios have
different investment objectives, each can be expected to have different
investment results and incur different market and financial risks. There can be
no assurance that any of these objectives will be met.

The investment objectives of the Portfolios are fundamental, which
means they may not be changed without shareholder approval as required by the
1940 Act.

THE VALUE PORTFOLIO seeks to make money for investors by investing
primarily in companies that the Portfolio Manager believes are undervalued and
that by virtue of anticipated developments may, in the Portfolio Manager's
judgment, achieve significant capital appreciation.

THE GROWTH PORTFOLIO seeks to make money for investors by investing
primarily in securities selected for their long-term growth prospects.

<PAGE>

THE INTERNATIONAL GROWTH PORTFOLIO seeks to make money for investors by
investing internationally for long-term capital appreciation, primarily in
equity securities.

THE GLOBAL STRATEGIC INCOME PORTFOLIO seeks to make money for investors by
investing for high current income and capital appreciation in a variety of
domestic and foreign fixed-income securities.

THE GLOBAL INTERACTIVE/TELECOMM PORTFOLIO seeks to make money for investors
primarily by investing globally in equity securities of companies engaged in the
development, manufacture or sale of interactive and/or telecommunications
services and products.

MANAGEMENT OF THE TRUST

The business and affairs of the Trust are managed under the direction of
the Board of Trustees. Additional information about the trustees and officers
of the Trust may be found in the Statement of Additional Information under the
heading "Management of the Trust."

The Trust is responsible for the payment of certain fees and expenses
including, among others, the following: (1) fees of the Manager and the
Portfolio Managers; (2) custodial, accounting, auditing, legal and transfer
agency fees; (3) fees of independent trustees; (4) brokerage fees and
commissions in connection with the purchase and sale of Portfolio securities;
(5) taxes; (6) the reimbursement of organizational expenses; and (7) expenses of
printing and mailing prospectuses, proxy statements and shareholder
communications.

MANAGER
Palladian Advisors, Inc. ("PAI" or the "Manager") serves as overall Manager
of the Trust and is responsible for general investment supervisory services to
the Portfolios. PAI, located at 4225 Executive Square, Suite 270, La Jolla,
California 92037, is registered with the Securities and Exchange Commission as
an investment adviser. Prior to PAI's registration on May 21, 1993 and the
subsequent development and offering of the Trust, the Manager had no direct
previous experience in providing management services for investment companies;
however, its officers have extensive experience in the development and
distribution of investment products, specifically, variable life insurance
policies, variable annuity contracts, and management investment companies that
serve as investment mediums for such policies and contracts. PAI evaluates and
recommends to the Trust registered investment advisers to be retained by the
Trust on behalf of each of the Portfolios as Portfolio Managers and monitors and
assesses their performance and makes periodic reports to the Trust. In
performing these responsibilities, the Manager will rely on the services of
Tremont Partners, Inc., which has been retained as Portfolio Advisor. PAI, not
the Trust, pays the fee of the Portfolio Advisor.

PORTFOLIO ADVISOR
Tremont Partners, Inc. ("Tremont" or the "Portfolio Advisor"), located at
One Corporate Center at Rye, 555 Theodore Fremd Avenue, Rye, New York 10580, has
been engaged in the business of rendering portfolio manager evaluation selection
and supervisory services to consulting clients since 1984. Tremont is wholly
owned by Tremont Advisors, Inc. (formerly Lynch Asset Management Corporation),
a public corporation. As of March 22, 1996, Mario J. Gabelli (Chairman of
Lynch Corporation and Chief Investment Officer of GAMCO Investors, Inc.,
Portfolio Manager for the Value and Global Interactive/Telecomm Portfolios)
together with certain affiliated entities, controls 24.40% of the voting stock
of Tremont Advisors, Inc. (as defined by Rule l3d-3 under the Securities
Exchange Act of l934). The principals and staff of Tremont are experienced in
acting as investment consultants and in developing, implementing and managing
multiple portfolio manager programs. Tremont provides asset management
consulting services to various institutions and individual clients and provides
PAI with investment consulting services with respect to the development,
implementation and management of the Trust's multiple portfolio managers
program. Tremont is paid by PAI (not the Trust). As Portfolio Advisor, Tremont
provides research concerning registered investment advisers to be retained by
the Trust as Portfolio Managers, monitors and assists PAI with the periodic
reevaluation of existing Portfolio Managers and makes periodic reports to PAI
and the Trust.

PORTFOLIO MANAGERS
Each Portfolio Manager makes specific investments on behalf of a Portfolio
in accordance with the particular Portfolio's objective and the Portfolio
Manager's investment approach and strategies. The Portfolio Managers designated
for each Portfolio are listed and described below.

<PAGE>

Selection and retention criteria for Portfolio Managers include: (1)
their historical performance records relative to their respective markets and
peer groups; (2) consistent performance in the context of the markets and
preservation of capital in declining markets; (3) organizational stability and
reputation; (4) the quality and depth of investment personnel; (5) the ability
of the Portfolio Manager to apply its approach consistently; (6) a willingness
to work on an incentive fee basis; and (7) a willingness to invest $1 million in
their Portfolio(s). Each Portfolio Manager will not necessarily exhibit all of
the criteria to the same degree. It should be noted, however, that there can be
no certainty that any Portfolio Manager will obtain superior results at any
given time.

Tremont recommends Portfolios Managers to PAI based upon its
continuing quantitative and qualitative evaluation of the Portfolio Managers
skills in managing assets pursuant to specific investment approaches and
strategies. Short-term investment performance, by itself, is not a significant
factor in selecting or terminating a Portfolio Manager, and PAI and Tremont do
not expect to recommend frequent changes of Portfolio Managers.

The Portfolio Managers activities are subject to general oversight by
the Trustees, PAI and Tremont. Although the Trustees, PAI and Tremont do not
evaluate the investment merits of the Portfolio Managers' specific securities
selections, they do review the performance of each Portfolio Manager relative to
the selection criteria.

The Portfolio Managers for the Portfolios are as follows:

THE VALUE PORTFOLIO. GAMCO Investors, Inc. ("GAMCO"), One Corporate
Center, Rye, New York 10580-1434, acts as investment adviser for individuals,
pension trusts, profit-sharing trusts and endowments. GAMCO is a majority-owned
subsidiary of Gabelli Funds, Inc. Mario J. Gabelli may be deemed a "controlling
person" of GAMCO on the basis of his ownership of stock of Gabelli Funds, Inc.
Mario J. Gabelli is primarily responsible for the day-to-day investment
management of the Portfolio. Mr. Gabelli has been the Chief Investment Officer
of GAMCO since its organization in 1980.

THE GROWTH PORTFOLIO. Stonehill Capital Management, Inc. ("Stonehill
Capital"), 277 Park Avenue, New York, New York 10172, is owned by its founder
Robert L. Emerson. Stonehill Capital is registered with the SEC as an
investment adviser and manages assets in excess of $100 million. Mr. Emerson
is primarily responsible for the day-to-day investment management of the
Portfolio, and has been President of Stonehill Capital for the past five years.

THE INTERNATIONAL GROWTH PORTFOLIO. Bee & Associates Incorporated ("BAI"),
370 17th Street, Suite 5150, Denver, Colorado 80202, was formed in 1989 to
provide global equity management expertise to individuals, retirement plan
sponsors, foundations, endowments and other entities. The firm, which is
registered with the SEC as an investment adviser, currently manages assets of
approximately $170 million. Bruce B. Bee is primarily responsible for the day-
to-day investment management of the Portfolio. Since BAI's organization in
1989, Mr. Bee has been the firm's controlling person and principal portfolio
manager.

THE GLOBAL STRATEGIC INCOME PORTFOLIO. Fischer Francis Trees & Watts, Inc.
("Fisher Francis"), 200 Park Avenue, 46th Floor, New York, New York 10166, was
formed in 1972 to provide global fixed income management expertise to
individuals, central banks, government institutions, commercial banks and
private corporations. The firm, which is registered with the SEC as an
investment adviser, currently manages assets of approximately $18 billion.
Liaquat Ahamed is primarily responsible for the day-to-day investment management
of the Portfolio. Since 1988, Mr. Ahamed has served as the firm's Chief
Investment Officer for global strategy and head of the firm's London office.
Prior to 1988, he worked for nine years at the World Bank and was in charge of
the Bank's non-dollar government bond investments.

THE GLOBAL INTERACTIVE/TELECOMM PORTFOLIO. GAMCO manages this Portfolio,
as well as the Value Portfolio. Mario J. Gabelli is primarily responsible for
the day-to-day investment management of the Global Interactive/Telecomm
Portfolio. Mr. Gabelli has been Chief Investment Officer of GAMCO since its
organization in 1980.

MANAGEMENT AND PORTFOLIO MANAGEMENT INVESTMENT ADVISORY FEES
As explained in more detail above, PAI serves as the overall manager of the
Portfolios, Tremont serves as a consultant to PAI, and the Portfolio Managers
handle the day-to-day investment management of the Portfolios. For these
services, each Portfolio pays an overall management fee, computed and accrued
daily and paid monthly, based on its average daily net assets. After the first
year of operations, the overall fee will vary based on the performance of that
Portfolio (after expenses) compared to that of an appropriate benchmark. The
overall advisory fee will be split among the various advisers in the following
manner. The Portfolio Manager will receive 80% of the fee, and PAI will receive
the remaining 20%. PAI is responsible for paying the fee of Tremont, which
equals 32.5% of the fee received by PAI.

<PAGE>

FIXED ADVISORY FEE FOR THE FIRST YEAR. For the period beginning with the
day on which the Portfolio commences investment operations (February 1, 1996)
and ending with the last day of the twelfth full calendar month thereafter, each
Portfolio will pay at the end of each month, a monthly advisory fee calculated
at an annual rate of 0.80% of the Portfolio's average daily net assets.

PERFORMANCE-BASED FEE AFTER THE FIRST YEAR. Beginning with the thirteenth
month (February 1997) each Portfolio will pay at the end of each month, a
monthly advisory fee equal to a Basic Fee plus or minus an Incentive Fee. (As
explained below, the fee might be reduced if absolute performance is negative.)
The monthly Basic Fee will equal one-twelfth of the annual Basic Fee rate of
2.0% multiplied by average daily net assets over the previous 12 months. The
Incentive Fee rate ranges from -2.0% to +2.0% on an annual basis, depending on a
comparison of the Portfolio's performance (reflecting a deduction of Portfolio
expenses) and the performance of a selected benchmark index over the past 12
months. The monthly Incentive Fee, like the monthly Basic Fee, is calculated by
multiplying one-twelfth of the Incentive Fee rate on an annual basis by the
average daily net assets over the previous 12 months. Accordingly, the Total
Fee could range from 0.0% to an annual rate of 4.0%, depending on performance.

As noted above, performance of both the Portfolio and the selected
benchmark index will be calculated on a rolling 12-month period (i.e., the
previous 12 months, including the month for which the fee is being calculated).
The performance of a Portfolio will be calculated by first determining the
change in the Portfolio's net asset value per share during the period, assuming
the reinvestment of distributions during that period, and then expressing this
amount as a percentage of the net asset value per share at the beginning of the
period. Net asset value per share is calculated by dividing the value of the
securities held by the Portfolio plus any cash or other assets minus all
liabilities including accrued advisory fees and the other expenses, by the total
number of shares outstanding at the time. The performance of the selected
benchmark index is calculated as the sum of the change in the level of the index
during the period, plus the value of any dividends or distributions made by the
companies whose securities comprise the index accumulated to the end of the
period, and then expressing that amount as a percentage of the index at the
beginning of the period.

No Incentive Fee will be paid if the Portfolio's performance equals the
targeted performance -- selected benchmark index plus 2.25 percentage points.
The maximum fee will be paid if performance is 5.25 percentage points higher
than the target (i.e., 7.5 percentage points higher than the selected benchmark
index). No fee will be paid if performance is 5.25 percentage points lower than
the target (i.e., more than 3 percentage points below the selected benchmark
index). The chart below further explains the Incentive Fee at various
performance levels.

PERCENTAGE POINT DIFFERENCE BETWEEN PERFORMANCE OF THE PORTFOLIO
(NET OF EXPENSES INCLUDING BASIC FEE AND INCENTIVE FEE) TOTAL
AND CHANGE IN SELECTED BENCHMARK INDEX BASIC FEE (%) INCENTIVE FEE (%) ADVISORY FEE
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
+7.5 or greater 2.0 2.0 4.0
+6.0 or greater, but less than +7.5 2.0 1.5 3.5
+4.5 or greater, but less than +6.0 2.0 1.0 3.0
+3.0 or greater, but less than +4.5 2.0 0.5 2.5
+1.5 or greater, but less than +3.0 2.0 0.0 2.0
0.0 or greater, but less than +1.5 2.0 -0.5 1.5
- -1.5 or greater, but less than 0.0 2.0 -1.0 1.0
- -3.0 or greater, but less than -1.5 2.0 -1.5 0.5
Less than -3.0 2.0 -2.0 0.0
- -----------------------------------------------------------------------------------------------------------------------------------

</TABLE>

MAXIMUM FEE IF PERFORMANCE IS NEGATIVE. Notwithstanding the above
schedule, if the absolute performance of a Portfolio (after payment of all
expenses, including the Basic Fee and any Incentive Fee) is negative, the
monthly advisory fee will be the lesser of the fee calculated pursuant to the
above schedule or the alternative monthly advisory fee described below, which
under certain circumstances results in the Portfolios paying either no advisory
fee or a lower monthly advisory fee than under the performance fee schedule
above. If a Portfolio's performance (after payment of all expenses including
advisory fees) is negative and does not exceed the selected benchmark by six
percentage points (on an annual basis), no monthly advisory fee will be paid.
If the Portfolio's performance (after payment of all expenses including advisory
fees) is negative and does not exceed the selected benchmark by twelve
percentage points but does exceed the selected benchmark by six percentage
points (on an annual basis), the alternate monthly advisory fee will be based on
an annual rate of 1.0% of average daily net assets over the previous 12 months.
If, on the other hand, the performance of a Portfolio (after payment of all
expenses including advisory

<PAGE>

fees) is negative but exceeds the selected benchmark by twelve percentage points
or more (on an annual basis), the alternative monthly advisory fee will be based
on an annual rate of 2.0% of average daily net assets over the previous 12
months.

SIZE OF FEE. The Basic Fee payable by the Portfolios is at a rate higher
than the investment advisory fees paid by most other investment companies. If a
Portfolio outperforms the selected benchmark by 3.0 percentage points or more,
the advisory fee payable by a Portfolio may further exceed those paid by other
investment companies. On the other hand, if a Portfolio underperforms the
selected benchmark, the advisory fee paid by the Portfolio may be less than
those paid by other investment companies. If, during the applicable performance
period, a Portfolio underperforms the selected benchmark by three or more
percentage points, the Portfolio will not pay any advisory fee, although the
Manager, Portfolio Advisor and Portfolio Managers will remain obligated to
provide the Portfolio with the services contemplated herein as long as they are
in effect.

FACTORS CONSIDERED BY TRUST. In April 1972, the SEC issued Release No.
7113 under the 1940 Act to focus attention of mutual fund directors and
investment advisers on certain factors which must be considered in connection
with investment company performance fee arrangements. One of these factors is to
"avoid basing significant fee adjustments upon random or insignificant
differences" between the investment performance of a Portfolio and that of a
particular index which is being compared. The Release concludes that the
directors of a Portfolio "should satisfy themselves that the maximum performance
adjustment will be made only for performance differences that can reasonably be
considered significant." In approving the advisory fee structure, the Trust
considered that the performance fee was structured so that only the Basic Fee
would be paid in the event of small changes in performance and that any
significant incentive payments or penalties would be attributable to the
Portfolio Manager's skill or lack of skill rather than random fluctuations in
performance.

PERFORMANCE BENCHMARKS. As described above, total advisory fees paid to
each Portfolio Manager for advising the Portfolios are based on the performance
of the Portfolio they manage relative to an appropriately selected market
benchmark. In selecting the performance benchmark for each Portfolio, the
Trust, with the assistance of PAI and Tremont, attempted to select a benchmark
with characteristics and attributes most analogous to each Portfolio. The
performance benchmarks selected for the Portfolios are listed below and
described in more detail in Appendix A.

Portfolio Performance Benchmark
- -------------------------------------------------------------------------------

The Value Portfolio S&P 500
The Growth Portfolio S&P 500
The International Growth Portfolio MSCI - Europe, Australia, Far East
(EAFE) Index
The Global Strategic Income Portfolio JP Morgan Global Government Bond
Index, Unhedged
The Global Interactive/Telecomm
Portfolio S&P 500

CUSTODIAN AND TRANSFER AGENT
The custodian and transfer agent for the Trust is Investors Bank & Trust
Company, 89 South Street, Boston, MA 02111.

INVESTMENT OBJECTIVES AND POLICIES

Each of the Portfolios has a different investment objective, described
below. Each Portfolio is managed by its own Portfolio Manager. There can be no
assurance that any of the Portfolios will achieve their investment objective.
Each Portfolio is subject to the risk of changing economic, business, and
financial conditions, as well as the risk the Portfolio Manager will not
accurately anticipate those changes. As with any security, a risk of loss is
inherent in an investment in a Portfolio's shares.

The different types of securities and investment techniques used by the
individual Portfolio Managers all have attendant risks of varying degrees. For
example, with respect to equity securities, there can be no assurance of capital
appreciation and there is a substantial risk of decline. With respect to debt
securities, there exists the risk that the issuer of a security may not be able
to meet its obligations on interest or principal payments at the time called for
by the instrument. In addition, the value of debt instruments generally rises
and falls inversely with interest rates.

Certain types of investments and investment techniques common to one or
more Portfolios are described in greater detail, including the risks of each,
under "Description of Securities and Investment Techniques" in this Prospectus
and in the Statement of Additional Information.

<PAGE>

The investment objectives of the Portfolios are fundamental, which means
that they may be changed only with shareholder approval in accordance with the
1940 Act. Unless otherwise indicated, each Portfolio's practices, policies, and
programs for achieving its objectives are not fundamental and thus may be
changed by the Board of Trustees without shareholder approval. The Statement of
Additional Information sets forth certain investment restrictions which are
fundamental, and, like the investment objectives, may be changed only with
shareholder approval.

THE VALUE PORTFOLIO
The Value Portfolio seeks to make money for investors by investing
primarily in companies that the Portfolio Manager believes are undervalued and
that by virtue of anticipated developments may, in the Portfolio Manager's
judgment, achieve significant capital appreciation.

In identifying such companies, the Portfolio Manager seeks to invest in
companies that, in the public market, are selling at a significant discount to
their private market value, the value the Portfolio Manager believes informed
industrialists would be willing to pay to acquire companies with similar
characteristics. If investor attention is focused on the underlying asset values
of these companies through an emerging or anticipated development or other
catalyst, an investment opportunity to realize this private market value may
exist. Undervaluation of a company can result from a variety of factors, such as
a lack of investor recognition of (1) the underlying value of a company's fixed
assets, (2) the value of a consumer or commercial franchise, (3) changes in the
economic or financial environment particularly affecting a company, (4) new,
improved or unique products or services, (5) new or rapidly expanding markets,
(6) technological developments or advancements affecting a company or its
products, or (7) changes in government regulations, political climate or
competitive conditions. The actual developments or catalysts particularly
applicable to a given company that may, in the Portfolio Manager's judgment,
lead to significant appreciation of that company's securities include: a change
in management or management policies; the acquisition of a significant equity
position by an investor or group of investors acting in concert; a merger,
reorganization, sale of a division, or a third-party or issuer tender offer, the
spin-off to shareholders of a subsidiary, division or other substantial assets;
or a recapitalization, an internal reorganization or the retirement or death of
a senior officer or substantial shareholder. In addition to the foregoing
factors, developments and catalysts, the Portfolio Manager, in selecting
investments, also considers the market price of the issuer's securities, its
balance sheet characteristics and the perceived strength of its management.

The Portfolio seeks to achieve its objective by investing primarily in a
portfolio of common stocks, preferred stocks and other securities convertible
into, or exchangeable for, common stocks. The Portfolio may invest up to 5% of
its assets in high yield/high risk debt securities. See "Debt Securities," page
16. When the Portfolio Manager believes that a defensive investment posture is
warranted or when opportunities for capital appreciation do not appear
attractive, the Portfolio may temporarily invest all or a portion of its assets
in short-term money market instruments, such as obligations of the U.S.
Government and its agencies and instrumentalities, high-quality commercial paper
and bank certificates of deposit and time deposits and repurchase agreements
with respect to such instruments.

THE GROWTH PORTFOLIO
The Growth Portfolio seeks to make money for investors by investing
primarily in securities selected for their long-term growth prospects.

In considering securities for the Portfolio, the Portfolio Manager reviews
on a weekly basis the projected annual earnings, sales growth, quarterly profit
outlook and valuations of a universe of approximately 200 companies. These
companies are, for the most part, involved in the retail, food service,
healthcare, technology and financial services industries and typically have high
returns on equity, strong brand names, rapid unit volume sales growth and, with
the exception of financial companies, balance sheets with little or no debt.
The Portfolio Manager usually seeks to select companies that enjoy market
dominance, which, in turn, confers pricing power within a growing market niche.
Such pricing control normally produces high returns on investment which allows
companies to fund superior growth without the need for dilutive financing.

The Portfolio Manger's 200 stock universe is constantly being modified and
updated with an active and ongoing effort to find more attractive stocks.
Additions to the list are made when the Portfolio Manager finds a company with
financial characteristics superior to the least attractive stocks in the current
universe. Deletions are made when a company's fundamental prospects
deteriorate.

From the Portfolio Manager's 200 stock universe, investments are made in
those stocks which meet all of the following criteria: (1) accelerating near-
term profit growth; (2) valuation in the lower half of the stock's historic
range; and (3) price momentum superior to that of the overall market. Normally,
60 to 80 stocks from the Portfolio Manager's universe meet these tests.

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Stocks will typically be sold whenever any of the following occurs: (1) a
reduction in quarterly or annual earnings estimates; (2) a company's long-term
competitive position is called into question; (3) the stock's valuation on the
next 12 months' earnings moves into the upper 10% of its historic range; or (4)
the stock price experiences a unexpected decline.

The Portfolio's policy stresses flexibility and adaptability in arranging
its Portfolio to seek the desired results. Common stocks will generally
constitute all or most of the Portfolio, but the Portfolio may invest in
preferred stocks, debt securities and cash instruments when, in the judgment of
the Portfolio Manager, a more conservative investment position seems appropriate
in light of anticipated market conditions. The Portfolio may invest up to 5% of
its assets in high yield/high risk debt securities. See "Debt Securities," page
16. The Portfolio will not invest for purposes of exercising management or
control.

The Portfolio will be subject to the risks of investment in equity
securities, i.e., there is no assurance of capital appreciation and there is a
substantial risk of decline. Investment in the securities of new companies may
in some instances involve a higher degree of risk than investments in securities
of companies with longer operating histories. The Portfolio does not intend to
invest in securities of companies with no operating history. Any current income
from dividends received from such securities will be entirely incidental.

THE INTERNATIONAL GROWTH PORTFOLIO
The International Growth Portfolio seeks to make money for investors by
investing internationally for long-term capital appreciation, primarily in
equity securities.

Foreign securities are defined as securities of issuers whose principal
activities are outside of the United States. In determining whether an issuer's
principal activities and interests are outside the United States, the Portfolio
Manager will look at such factors as the location of its assets, personnel,
sales and earnings.

Normally, at least 65% of the Portfolio's total assets will be invested in
securities of issuers from at least three different countries outside of North
America. Although the Portfolio may invest up to 35% in securities of issuers
from Canada, Mexico and the United States, the Portfolio Manager currently does
not expect to invest in a significant part of this amount in securities of U.S.
issuers. No more than 20% of the Portfolio's net assets may be invested in the
securities of any one foreign country, except that the Portfolio may invest up
to 35% of net assets in securities of issuers located in any one of the
following countries: Australia, Canada, France, Japan, the United Kingdom or
Germany.

In considering securities for the Portfolio, the Portfolio Manager will
concentrate on companies with market capitalization of under $1 billion. When
allocating the Portfolio's investments among geographic regions and individual
countries, the Portfolio Manager considers various criteria, such as prospects
for relative economic growth among countries, expected levels of inflation,
government policies influencing business conditions, and the outlook for
currency relationships. The Portfolio Manager expects to invest most of the
Portfolio's assets in securities of issuers located in developed countries in
these general geographic areas: the Americas (other than the United States),
the Far East and Pacific Basin, Australia, Scandinavia and Western Europe.

The Portfolio Manager may invest the Portfolio's assets in all types of
securities, most of which are denominated in foreign currencies. The Portfolio
Manager expects that opportunities for long term growth of capital will come
primarily from common stock, securities such as warrants or rights that are
convertible into common stock, preferred stock, and depository receipts for
those securities. The Portfolio may invest up to 5% of its assets in high
yield/high risk debt securities. See "Debt Securities," page 16. The
Portfolio does not place any emphasis on dividends or interest income except
when the Portfolio Manager believes this income will have a favorable influence
on the market value of the security. The Portfolio may invest in indexed
securities whose value depends on the price of foreign currencies, commodities,
securities indices, or other financial indicators. In the normal course of
managing the Portfolio, the Portfolio Manager may invest a portion of the
Portfolio's assets in U.S. and foreign government obligations and money market
securities (including repurchase agreements) when the Portfolio has monies not
yet invested, it has sold one security and is waiting to buy another one, so
that it will be prepared to meet redemption requests, or to earn a return on
available cash balances. When market conditions warrant, the Portfolio Manager
can make substantial temporary defensive investments in U.S. government
obligations or investment-grade obligations of companies incorporated in and
having principal business activities in the United States.

THE GLOBAL STRATEGIC INCOME PORTFOLIO
The Global Strategic Income Portfolio seeks to make money for investors by
investing for high current income and capital appreciation in a variety of
domestic and foreign fixed-income securities.

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The Global Strategic Income Portfolio allocates its assets among debt
securities of issuers in three separate areas: (1) the United States, (2)
developed foreign countries, and (3) emerging markets. The Portfolio will select
particular debt securities in each sector based on their relative investment
merits. Within each area, the Portfolio selects debt securities from those
issued by governments and their agencies and instrumentalities; central banks;
and commercial banks and other corporate entities.

The Portfolio Manager will actively manage both the allocation of assets
among the major markets and the currencies underlying the fixed income
securities purchased for the Portfolio. In doing so, the Portfolio Manager will
rely on its proprietary technical and fundamental global fixed income and multi-
currency systems which allow the Portfolio Manager to identify market changes.
The Portfolio Manager does not use its system to forecast market changes or for
market timing purposes.

Debt securities in which the Global Strategic Income Portfolio may invest
include bonds, notes, debentures, and other similar instruments. The Portfolio
normally invests at least 50% of its total assets in U.S. and foreign debt and
other fixed income securities that, at the time of purchase, are rated at least
investment grade, or, if unrated, are determined by the Portfolio Manager to be
of comparable quality. No more than 50% of the Portfolio's assets may be
invested in securities of below investment grade quality (also called high
yield/high risk bonds), which involve a high degree of risk and are
predominantly speculative. See "Debt Securities", page 16. Consistent with the
foregoing percentage limitations, the Portfolio may invest in securities that
are in default in payment of principal and/or interest.

For purposes of the Portfolio's operations, "emerging markets" consist of
all countries determined by Portfolio Manager to have developing or emerging
economies and markets. These countries generally are expected to include every
country in the world except the United States, and the developed foreign
countries of Canada, Japan, Australia, New Zealand and most countries in Western
Europe. The Global Strategic Income Portfolio considers investment in the
following emerging markets: Algeria, Argentina, Bolivia, Botswana, Brazil,
Chile, China, Colombia, Costa Rica, Czechoslovakia, Ecuador, Egypt, Finland,
Greece, Hong Kong, Hungary, India, Indonesia, Israel, Ivory Coast, Jamaica,
Jordan, Kenya, Malaysia, Mexico, Morocco, Nicaragua, Nigeria, Pakistan, Panama,
Peru, Philippines, Poland, Portugal, Russia, Singapore, South Korea, Sri Lanka,
Taiwan, Thailand, Turkey, Uruguay, Venezuela, Zimbabwe.

The Global Strategic Income Portfolio's investments in emerging market
securities will consist substantially of debt securities issued by emerging
market governments that are traded in the markets of developed countries or
groups of developed countries. The Portfolio Manager may invest in debt
securities of emerging market issuers that it determines to be suitable
investments for the Portfolio without regard to ratings. Currently,
substantially all emerging market debt securities are of below investment grade
quality. Because the Global Strategic Income Portfolio's investment in debt
securities rated below investment grade (i.e., high yield/high risk bonds) is
limited to 50% of its total assets, its investment in emerging market debt
securities is therefore effectively limited to 50% of its assets as well.
Emerging market securities are subject to greater risks than securities from
developed nations. See "Foreign Securities," page 20.

The Global Strategic Income Portfolio also may consider making carefully
selected investments in below investment grade debt securities of corporate
issuers in the United States and in developed foreign markets, subject to the
overall 50% limitation on high yield/high risk bonds. The Global Strategic
Income Portfolio also may invest up to 5% of its assets in loan participations
and assignments. More information is included in the Statement of Additional
Information.

THE GLOBAL INTERACTIVE/TELECOMM PORTFOLIO
The Global Interactive/Telecomm Portfolio seeks to make money for investors
primarily by investing globally in equity securities of companies engaged in the
development, manufacture or sale of interactive and/or telecommunications
services and products.

Under normal circumstances, at least 65% of the Portfolio's total assets
will be invested in common and preferred stocks of (1) companies participating
in emerging technological advances in interactive services and products that are
accessible to individuals in their homes or offices through consumer electronics
devices; (2) telecommunications companies; and (3) companies outside of the
telecommunications industry which, in the opinion of the Portfolio Manager,
stand to benefit from development in the telecommunications industry. The
Portfolio may invest up to 5% of its assets in high yield/high risk debt
securities. See "Debt Securities," page 16. When the Portfolio Manager
believes that a defensive investment posture is warranted or when opportunities
for capital appreciation do not appear attractive, the Portfolio may temporarily
invest all or a portion of its assets in short-term money market instruments,
such as obligations of the U.S. Government and its agencies and
instrumentalities, high-quality commercial paper and bank certificates of
deposit and time deposits and repurchase agreements with respect to such
instruments.

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For example, the Portfolio may invest in companies involved in the
following products and services: emerging technologies combining television,
telephone and computer systems; regular telephone service; wireless
communications services and equipment, including cellular telephone data and
voice transmission; electronic components and communications equipment; video
conferencing; electronic mail; local and wide area networking; linkage of data
and word processing systems; publishing and information systems; broadcasting,
including television and radio; cable television systems and networks; wireless
cable television and other emerging distribution technologies; the creation,
packaging, distribution, and ownership of entertainment programming; computer
hardware and software and other equipment used in the creation and distribution
of entertainment programming; interactive and multimedia programming including
home shopping and multiplayer games; and advertising agencies and niche
advertising mediums such as in-store or direct mail.

In analyzing companies for investment, the Portfolio Manager ordinarily
looks for several of the following characteristics: above-average per share
earnings growth; high return on invested capital; a healthy balance sheet; sound
financial and accounting policies and overall financial strength; strong
competitive advantages; and effective research and product development and
marketing.

The Portfolio Manager will allocate the Portfolio's assets among securities
of countries and in currency denominations and industry sectors where
opportunities for meeting the Portfolio's investment objective are expected to
be the most attractive. The Portfolio may invest substantially in securities
denominated in one or more foreign currencies. Under normal conditions, the
Portfolio will invest in at least three different countries, including the
United States; issuers in any one country, other than the U.S., will represent
no more than 40% of the Portfolio's assets.

The governments of some foreign countries have been engaged in programs of
selling part or all of their stakes in government owned or controlled
enterprises ("privatizations"). The Portfolio Manager believes that
privatizations in the telecommunications industry may offer opportunities for
significant capital appreciation and intends to invest assets of the Portfolio
in privatizations in appropriate circumstances. In certain foreign countries,
the ability of foreign entities such as the Portfolio to participate in
privatizations may be limited by local law and/or the terms on which the
Portfolio may be permitted to participate may be less advantageous than those
afforded local investors. There can be no assurance that foreign governments
will continue to sell companies currently owned or controlled by them or that
privatization programs will be successful.

DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES

The following discussion describes in greater detail different types of
securities and investment techniques used by the individual Portfolios, as
described in "Investment Objectives and Policies" as well as the risks
associated with such securities and techniques.

U.S. GOVERNMENT SECURITIES
All of the Portfolios may invest in U.S. Government securities. U.S.
Government securities are obligations of, or are guaranteed by, the U.S.
Government, its agencies or instrumentalities. Treasury bills, notes, and bonds
are direct obligations of the U.S. Treasury. Securities guaranteed by the U.S.
Government include federal agency obligations guaranteed as to principal and
interest by the U.S. Treasury (such as Government National Mortgage Association
("GNMA") certificates, described in the section on "Mortgage-Backed Securities,"
and Federal Housing Administration debentures). In guaranteed securities, the
payment of principal and interest is unconditionally guaranteed by the U.S.
Government, and thus they are of the highest credit quality. Such direct
obligations or guaranteed securities are subject to variations in market value
due to fluctuations in interest rates, but, if held to maturity, the U.S.
Government is obligated to or guarantees to pay them in full.

Securities issued by U.S. Government instrumentalities and certain federal
agencies are neither direct obligations of nor guaranteed by the Treasury.
However, they involve federal sponsorship in one way or another: some are backed
by specific types of collateral; some are supported by the issuer's right to
borrow from the Treasury; some are supported by the discretionary authority of
the Treasury to purchase certain obligations of the issuer; others are supported
only by the credit of the issuing government agency or instrumentality. These
agencies and instrumentalities include, but are not limited to, Federal Land
Banks, Farmers Home Administration, Federal National Mortgage Association
("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), Student Loan
Mortgage Association, Central Bank for Cooperatives, Federal Intermediate Credit
Banks, and Federal Home Loan Banks.

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DEBT SECURITIES
All Portfolios may invest in debt securities of domestic or foreign issuers
(both U.S. dollar denominated and non-U.S. dollar denominated). All Portfolios
may also invest in obligations of international organizations such as the
International Bank for Reconstruction and Development (the World Bank). Each
Portfolio may only invest in (1) debt securities which meet the minimum ratings
criteria set forth for that particular Portfolio and (2) unrated debt securities
that are, in the Portfolio Manager's determination, comparable in quality to the
rated debt securities in which the Portfolio may invest.

The investment return on a corporate debt security reflects interest
earnings and changes in the market value of the security. The market value of
corporate debt obligations may be expected to rise and fall inversely with
interest rates generally. There also exists the risk that the issuers of the
securities may not be able to meet their obligations on interest or principal
payments at the time called for by an instrument. Bonds rated BBB or Baa, which
are considered medium-grade category bonds, do not have economic characteristics
that provide the high degree of security with respect to payment of principal
and interest associated with higher rated bonds, and generally have some
speculative characteristics. A bond will be placed in this rating category where
interest payments and principal security appear adequate for the present, but
economic characteristics that provide longer term protection may be lacking. Any
bond, and particularly those rated BBB or Baa, may be susceptible to changing
conditions, particularly to economic downturns, which could lead to a weakened
capacity to pay interest and principal.

The Global Strategic Income Portfolio may invest up to 50% of its assets in
debt securities that are below investment grade (i.e., rated BB or lower by
Standards & Poor's, rated Ba or lower by Moody's, or unrated but determined by
the Portfolio Manager to be of similar quality). These securities are commonly
referred to as "junk bonds" or "high yield/high risk debt securities." The
Value, Growth, International Growth and Global Interactive/Telecomm Portfolios
may each invest up to 5% of assets in high yield/high risk debt securities.

High yield/high risk debt securities involve significant risks. They are
considered predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the obligation.
The market value of the securities also tend to be more sensitive than higher
rated securities to news about the issuer and changes in overall economic
conditions. In addition, markets for lower-rated securities may be more limited
than for higher-rated securities.

New issues of certain debt securities are often offered on a when-issued or
firm-commitment basis; that is, the payment obligation and the interest rate are
fixed at the time the buyer enters into the commitment, but delivery and payment
for the securities normally take place after the customary settlement time. The
value of when-issued securities or securities purchased on a firm-commitment
basis may vary prior to and after delivery depending on market conditions and
changes in interest rate levels. However, the Portfolios will not accrue any
income on these securities prior to delivery. The Portfolios will maintain in a
segregated account with its custodian an amount of cash or high quality debt
securities equal (on a daily marked-to-market basis) to the amount of its
commitment to purchase the when-issued securities or securities purchased on a
firm-commitment basis.

Many securities of foreign issuers are not rated by Moody's or Standard and
Poor's; therefore, the selection of such issuers depends, to a large extent, on
the credit analysis performed or used by the Portfolio Manager.

MORTGAGE-BACKED SECURITIES
All Portfolios may invest in mortgage-backed securities issued by the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA"), and the Federal Home Loan Mortgage Corporation ("FHLMC").
These securities represent an interest in a pool of mortgages, such as 30-year
and 15-year fixed mortgages and adjustable rate mortgages. For GNMA securities,
the payment of principal and interest on the underlying mortgages is guaranteed
by the full faith and credit of the U.S.; for FNMA and FHLMC securities the
payment of principal and interest is guaranteed by the issuing agency but not
the U.S. The guarantees, however, do not extend to the securities' value or
yield, which are likely to fluctuate inversely with fluctuations in interest
rates. Because the prepayment characteristics of the underlying mortgages vary,
it is not possible to predict accurately the average life of a particular issue
of mortgage-backed securities.

The Portfolios may invest in mortgage-backed securities issued by private
entities, such as commercial or mortgage banks, savings and loan associations,
or broker-dealers, that meet the quality standards discussed above for debt
securities.

The Portfolios may invest in collateralized mortgage obligations ("CMOs").
A CMO is a security issued by a corporation or a U.S. government instrumentality
that is backed by a portfolio of mortgages or mortgage-backed securities. The
issuer's obligation to make interest and principal payments is secured by the
underlying portfolio of mortgages or

<PAGE>

mortgage-backed securities. CMOs are partitioned into several classes with a
ranked priority by which classes of obligations are redeemed.

OTHER ASSET-BACKED SECURITIES
All Portfolios may invest in asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, such as automobile or credit card receivables.
Asset-backed securities present certain risks, including the risk that the
underlying obligor on the asset, such as the automobile purchaser or the credit
card holder, may default on his or her obligation. In addition, asset-backed
securities often do not provide a security interest in the related collateral.
For example, credit card receivables are generally unsecured, and the pool of
automobile receivables may not include the security interests in those
automobiles. In general, however, these type of loans have a shorter average
life than mortgage loans and are less likely to have substantial prepayments.

VARIABLE AND FLOATING RATE SECURITIES
All Portfolios may invest in variable and floating rate securities.

Variable rate securities provide for automatic establishment of a new
interest rate at fixed intervals (e.g., daily, monthly, semi-annually, etc.).
Floating rate securities provide for automatic adjustment of the interest rate
whenever some specified interest rate index changes. The interest rate on
variable or floating rate securities is ordinarily determined by reference to or
is a percentage of a bank's prime rate, the 90-day U.S. Treasury bill rate, the
rate of return on commercial paper or bank certificates of deposit, an index of
short-term interest rates, or some other objective measure.

Variable or floating rate securities frequently include a demand feature
entitling the holder to sell the securities to the issuer at par value. In many
cases, the demand feature can be exercised at any time on 7 days' notice; in
other cases, the demand feature is exercisable at any time on 30 days' notice or
on similar notice at intervals of not more than one year. Some securities which
do not have variable or floating interest rates may be accompanied by puts
producing similar results and price characteristics.

BANKING INDUSTRY AND SAVINGS INDUSTRY OBLIGATIONS
All Portfolios may invest in certificates of deposit, time deposits,
bankers' acceptances, and other short-term debt obligations issued by commercial
banks and in certificates of deposit, time deposits, and other short-term
obligations issued by savings and loan associations ("S&Ls"). Certificates of
deposit are receipts from a bank or an S&L for funds deposited for a specified
period of time at a specified rate of return. Time deposits in banks or S&Ls are
generally similar to certificates of deposit, but are uncertificated. Bankers'
acceptances are time drafts drawn on commercial banks by borrowers, usually in
connection with international commercial transactions. Each Portfolio may also
invest in obligations of foreign branches of commercial banks and foreign banks
so long as the securities are U.S. dollar-denominated. See "Foreign Securities"
on page 20 and "Banking Industry and Savings Industry Obligations" in the
Statement of Additional Information regarding risks attending investment in
foreign instruments generally and foreign bank instruments in particular.

The Portfolios will not invest in obligations issued by a commercial bank
or S&L unless:

(i) the bank or S&L has total assets of at least $1 billion, or the
equivalent in other currencies, and the institution has outstanding securities
rated A or better by Moody's or Standard and Poor's, or, if the institution has
no outstanding securities rated by Moody's or Standard & Poor's, it has, in the
determination of the Portfolio Manager, similar creditworthiness to institutions
having outstanding securities so rated;

(ii) in the case of a U.S. bank or S&L, its deposits are insured by the
Federal Deposit Insurance Corporation or the Savings Association Insurance Fund,
as the case may be; and

(iii) in the case of a foreign bank, the security is, in the determination
of the Portfolios' Portfolio Manager, of an investment quality comparable with
other debt securities which may be purchased by the Portfolios. These
limitations do not prohibit investments in securities issued by foreign branches
of U.S. banks, provided such U.S. banks meet the foregoing requirements.

COMMERCIAL PAPER
All Portfolios may invest in commercial paper, which includes short-term
unsecured promissory notes, variable rate demand notes, and variable note master
demand notes issued by domestic and foreign bank holding companies,
corporations, and financial institutions, as well as similar taxable instruments
issued by government agencies and instrumentalities. All

<PAGE>

commercial paper purchased by the Portfolios must be, the time of investment,
(i) rated "P-l" by Moody's or "A-l" by S&P, (ii) issued or guaranteed as to
principal and interest by issuers having an existing debt security rating of
"Aa" or better by Moody's or "AA" by S&P, or (iii) securities which, if not
rated, are in the opinion of the Portfolio Manager of an investment quality
comparable to rated commercial paper in which the Portfolio may invest. See
Appendix B for description of these ratings.

REPURCHASE AGREEMENTS
All Portfolios may enter into repurchase agreements with banks and
broker-dealers under which they acquire securities subject to an agreement with
the seller to repurchase the securities at an agreed-upon time and price. If
the seller should default on its obligation to repurchase the securities, the
Portfolio may experience delays or difficulties in exercising its right to
realize a gain upon the securities held as collateral and might incur a loss if
the value of the securities should decline.

REVERSE REPURCHASE AGREEMENTS
All Portfolios may enter into reverse repurchase agreements with banks and
broker-dealers. Those agreements have the characteristics of borrowing and
involve the sale of securities held by a Portfolio with an agreement to
repurchase the securities at an agreed-upon price and date, which reflect a rate
of interest paid for the use of funds for the period. Generally, the effect of
such a transaction is that a Portfolio can recover all or most of the cash
invested in the securities involved during the term of the reverse repurchase
agreement, while in many cases it will be able to keep some of the interest
income associated with those securities. Such transactions are only
advantageous if the Portfolio has an opportunity to earn a greater rate of
interest on the cash derived from the transaction than the interest cost of
obtaining that cash. A Portfolio may be unable to realize a return from the use
of the proceeds equal to or greater than the interest required to be paid.

LENDING PORTFOLIO SECURITIES
For the purpose of realizing additional income, each Portfolio may lend
securities with a value of up to 33% of its total assets to unaffiliated
broker-dealers or institutional investors. Any such loan will be continuously
secured by collateral at least equal to the value of the security loaned.
Although the risk of lending portfolio securities are believed to be slight, as
with other extensions of secured credit, such lending could result in delays in
receiving additional collateral or in the recovery of the securities or possible
loss of rights in the collateral should the borrower fail financially. Loans
will only be made to firms deemed to be of good standing and will not be made
unless the consideration to be earned from such loans would justify the risk.

ILLIQUID SECURITIES
Each Portfolio may invest up to 15% of its net assets in securities for
which there is no readily available market ("illiquid securities"), which would
include repurchase agreements having more than 7 days to maturity. A
considerable period of time may elapse between a Portfolio's decision to dispose
of such securities and the time when the Portfolio is able to dispose of them,
during which time the value of the securities could decline. The SEC has
adopted Rule 144A which permits resale among certain institutional investors of
certain unregistered securities. As a result, a significant institutional
trading market has developed in many unregistered securities relying on this
rule. In determining whether such securities should be considered liquid, the
Portfolios will consider the following factors, among others: (1) the frequency
of the trades and the quotes for the security; (2) the number of dealers willing
to purchase or sell the security and the number of potential purchasers; (3)
dealer undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades (for example, the time needed
to dispose of the security, the method of soliciting offers, and the mechanics
of the transfer).

WARRANTS
Each Portfolio may invest up to 5% of its net assets in warrants (not
including those that have been acquired in units or attached to other
securities), measured at the time of acquisition. No Portfolio may acquire a
warrant not listed on the New York or American Stock Exchanges if, after the
purchase, more than 2% of the Portfolio's assets would be invested in such
warrants.

The holder of a warrant has the right to purchase a given number of shares
of a particular issuer at a specified price until expiration of the warrant.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. Prices of warrants do not
necessarily move in tandem with the prices of the underlying securities, and are
speculative investments. They pay no dividends and confer no rights other than a
purchase option. If a warrant is not exercised by the date of its expiration,
the Portfolio will lose its entire investment in such warrant.

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OTHER INVESTMENT COMPANIES
All Portfolios may invest in shares issued by other investment companies. A
Portfolio is limited in the degree to which it may invest in shares of another
investment company in that it may not, at the time of the purchase, (1) acquire
more than 3% of the outstanding voting shares of the investment company, (2)
invest more than 5% of the Portfolios' total assets in the investment company,
or (3) invest more than 10% of the Portfolios' total assets in all investment
company holdings. As a shareholder in any investment company, a Portfolio will
bear its ratable share of the investment company's expenses, including
management fees in the case of a management investment company.

SHORT SALES
All Portfolios may make short sales of securities. A short sale is a
transaction in which the Portfolio sells a security it does not own (but has
borrowed) in anticipation of a decline in the market price of the security. A
Portfolio may make short sales to offset a potential decline in a long position
or a group of long positions, or if the Portfolio Manager believes that a
decline in the price of a particular security or group of securities is likely.

When a Portfolio makes a short sale, the proceeds it receives are retained
by the broker until the Portfolio replaces the borrowed security. In order to
deliver the security to the buyer, the Portfolio must arrange through a broker
to borrow the security and, in so doing, the Portfolio becomes obligated to
replace the security borrowed at its market price at the time of replacement,
whatever that price may be. The Portfolio may have to pay a premium to borrow
the security. The Portfolio must also pay any dividends or interest payable on
the security until the Portfolio replaces the security.

The Portfolios' obligation to replace the security borrowed in connection
with the short sale will be secured by collateral deposited with the broker,
consisting of cash or U.S. Government securities or other securities acceptable
to the broker. In addition, with respect to any short sale, other than short
sales against the box, as discussed below, the Portfolios will be required to
deposit collateral consisting of cash, cash items, or U.S. Government securities
in a segregated account with its custodian in an amount such that the value of
the sum of both collateral deposits is at all times equal to at least 100% of
the current market value of the securities sold short. The deposits do not
necessarily limit the Portfolios' potential loss on a short sale, which may
exceed the entire amount of the collateral.

If the price of the security sold short increases between the time of the
short sale and the time the Portfolios replaces the borrowed security, the
Portfolio will incur a loss, and if the price declines during this period, the
Portfolio will realize a capital gain. Any realized gain will be decreased, and
any incurred loss increased, by the amount of transactional costs and any
premium, dividend, or interest which the Portfolios may have to pay in
connection with such short sale.

A Portfolio may make a short sale only if, at the time the short sale is
made and after giving effect thereto, the market value of all securities sold
short is 25% or less of the value of its net assets and the market value of
securities sold short which are not listed on a national securities exchange
does not exceed 10% of the Portfolio's net assets. In addition, a Portfolio will
not make short sales of the securities of any one issuer to the extent of more
than 2% of the Portfolio's net assets, nor will a Portfolio make short sales of
more than 2% of the outstanding securities of one class of any issuer. The
Portfolios are not required to liquidate an existing short sale position solely
because a change in market values has caused one or more of these percentage
limitations to be exceeded.

SHORT SALES AGAINST THE BOX
All Portfolios may make short sales "against the box." A short sale
"against the box" is a short sale where, at the time of the short sale, a
Portfolio owns or has the immediate and unconditional right, at no added cost,
to obtain the identical security. The Portfolios would enter into such a
transaction to defer a gain or loss for Federal income tax purposes on the
security owned by the Portfolio or to receive a portion of the interest earned
by the executing broker from the proceeds of the sale. Short sales against the
box are not subject to the percentage limitations on short sales described
above.

FOREIGN SECURITIES
All Portfolios, except the Global Strategic Income Portfolio, may invest in
equity securities of foreign issuers. Each of the Portfolios may invest in
American Depository Receipts ("ADRs"), which are described below. All
Portfolios may invest in foreign government securities that are denominated in
U.S. dollars, and none of these Portfolios except for the International Growth
and Global Interactive/Telecomm Portfolios, will purchase foreign government
securities if, as a result, more than 10% of the value of its total assets would
be invested in such securities. The Portfolios may invest in foreign branches
of commercial banks and foreign banks. See the "Banking Industry and Savings
Industry Obligations" discussion in this section for further description of
these securities.

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Each Portfolio is subject to the following guidelines for diversification
of foreign security investments. If a Portfolio has less than 20% of its assets
in foreign issuers, then all of such investment may be in issuers domiciled or
primarily traded in one country. If a Portfolio has at least 20% but less than
40% of its assets in foreign issuers, then such investment must be allocated to
issuers domiciled or primarily traded in at least two different countries.
Similarly, if a Portfolio has at least 40% but less than 60% of its assets in
foreign issuers, such investment must be allocated in at least three different
countries. Foreign investments must be allocated to at least four different
countries if at least 60% of a Portfolios' assets is in foreign issuers, and to
at least five different countries if at least 80% is in foreign issuers.

A Portfolio may have no more than 20% of its net asset value invested in
securities of issuers domiciled or primarily traded in any one foreign country,
except that a Portfolio may have up to 35% of its net asset value invested in
securities of issuers domiciled or primarily traded in any one of the following
countries: Australia, Canada, France, Japan, The United Kingdom, or West
Germany.

Investments in foreign securities offer potential benefits not available
solely in securities of domestic issuers by offering the opportunity to invest
in foreign issuers that appear to offer growth potential, or in foreign
countries with economic policies or business cycles different from those of the
United States, or to reduce fluctuations in portfolio value by taking advantage
of foreign stock markets that may not move in a manner parallel to U.S. markets.
Investments in securities of foreign issuers involve certain risks not
ordinarily associated with investments in securities of domestic issuers. Such
risks include fluctuations in foreign exchange rates, future political and
economic developments, and the possible imposition of exchange controls or other
foreign governmental laws or restrictions. Since each of these Portfolios may
invest in securities denominated or quoted in currencies other than the U.S.
dollar, changes in foreign currency exchange rates will affect the value of
securities in the portfolio and the unrealized appreciation or depreciation of
investments so far as U.S. investors are concerned. In addition, with respect to
certain countries, there is the possibility of expropriation of assets,
confiscatory taxation, other foreign taxation, political or social instability,
or diplomatic developments that could adversely affect investments in those
countries.

There may be less publicly available information about a foreign company
than about a U.S. company, and foreign companies may not be subject to
accounting, auditing, and financial reporting standards and requirements
comparable to or as uniform as those of U.S. companies. Foreign securities
markets, while growing in volume, have, for the most part, substantially less
volume than U.S. markets. Securities of many foreign companies are less liquid
and their prices more volatile than securities of comparable U.S. companies.
Transactional costs in non-U.S. securities markets are generally higher than in
U.S. securities markets. There is generally less government supervision and
regulation of exchanges, brokers, and issuers than there is in the U.S. A
Portfolio might have greater difficulty taking appropriate legal action with
respect to foreign investments in non-U.S. courts than with respect to domestic
issuers in U.S. courts. In addition, transactions in foreign securities may
involve greater time from the trade date until settlement than domestic
securities transactions and involve the risk of possible losses through the
holding of securities by custodians and securities depositories in foreign
countries.

Dividend and interest income from foreign securities may generally be
subject to withholding taxes by the country in which the issuer is located and
may not be recoverable by a Portfolio or its investors.

ADRs are certificates issued by a U.S. bank or trust company representing
the right to receive securities of a foreign issuer deposited in a foreign
subsidiary or branch or a correspondent of that bank. Generally, ADRs, in
registered form, are designed for use in U.S. securities markets and may offer
U.S. investors more liquidity than the underlying securities.

Investment in emerging markets countries presents risks in a greater degree
than, and in addition to, those presented by investment in foreign issuers in
general. A number of emerging market countries restrict, to varying degrees,
foreign investment in securities. Repatriation of investment income, capital,
and proceeds of sales by foreign investors may require governmental registration
and/or approval in some emerging market countries. A number of the currencies
of developing countries have experienced significant declines against the U.S.
dollar in recent years, and devaluation may occur subsequent to investments in
those currencies by the Portfolio. Inflation and rapid fluctuations in
inflation rates have had and may continue to have negative effects on the
economies and securities markets of certain emerging market countries.

Many of the emerging securities markets are relatively small, have low
trading volumes, suffer periods of relative illiquidity, and are characterized
by significant price volatility. There is a risk in emerging market countries
that a future economic or political crisis could lead to price controls, forced
mergers of companies, expropriation or confiscatory taxation, seizure,
nationalization, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country) or creation of government
monopolies, any of which may have a detrimental effect on a Portfolio's
investment.

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INVESTMENT IN GOLD AND OTHER PRECIOUS METALS
All Portfolios may invest up to 10% of its total assets, in gold bullion
and coins and other precious metals (silver or platinum) bullion and in futures
contracts with respect to such metals. Each Portfolio may also engage in gold
futures contracts. (See "Futures Contracts" for further explanation of this
investment technique.) The Portfolios will further restrict the level of their
metal investments if necessary in order to comply with applicable regulatory
requirements. In order to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), each
Portfolio intends to manage its metal investments and/or futures contracts on
metals so that less than 10% of its gross income for tax purposes during any
fiscal year (the current limit on so-called non-qualifying income) is derived
from these and other sources that produce such non-qualifying income.

Metals will not be purchased in any form that is not readily marketable,
and gold coins will be purchased for their intrinsic value only, i.e., coins
will not be purchased for their numismatic value. Any metals purchased by the
Portfolios will be delivered to and stored with a qualified custodian bank.
Metal investments do not generate interest or dividend income and will subject
the Portfolios to higher custody and transactional costs than are normally
associated with the ownership of securities or futures contracts on precious
metals.

Metal investments are considered speculative and are affected by various
worldwide economic, financial, and political factors. Prices may fluctuate
sharply over short time periods due to changes in inflation expectations in
various countries, metal sales by central banks of governments or international
agencies, speculation, changes in industrial and commercial demand, and
governmental prohibitions or restriction on the private ownership of certain
precious metals or minerals. At the present time, there are four major
producers of gold bullion: the Republic of South Africa, the United States,
Canada, and Australia. Political and economic conditions in these countries will
have a direct effect on the mining and distribution of gold and, consequently,
on its price.

FUTURES CONTRACTS
All Portfolios may purchase and sell (i) interest rate futures contracts,
(ii) stock index futures contracts, (iii) foreign currency futures contracts,
(iv) futures contracts on gold and other precious metals, and (v) options on
these futures contracts. A futures contract provides for the future sale by one
party and purchase by the other party of a specified amount of a particular
financial instrument or commodity for a specified price at a designated date,
time, and place.

The Portfolios will use futures contracts solely for the purpose of hedging
positions with respect to securities, interest rates, foreign currencies, and
gold and other precious metals.

An option on a futures contract gives the purchaser or holder the right,
but not the obligation, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified price at any time during the option exercise period. The Portfolios
will utilize options on futures contracts for the same purposes that they use
the underlying futures contracts.

There are several risks associated with the use of futures and futures
options for hedging purposes. While a Portfolio's hedging transactions may
protect it against adverse movements in the general level of interest rates or
other economic conditions, such transactions could also preclude a Portfolio
from the opportunity to benefit from favorable movements in the level of
interest rates or other economic conditions. There can be no guarantee that
there will be correlation between price movements in the hedging vehicle and in
the securities or other assets being hedged. An incorrect correlation could
result in a loss on both the hedged assets and the hedging vehicle so that the
Portfolio's return might have been better if hedging had not been attempted. The
degree of imperfection of correlation depends on circumstances such as
variations in speculative market demand for futures and futures options,
including technical influences in futures trading and futures options, and
differences between the financial instruments being hedged and the instruments
underlying the standard contracts available for trading in such respects as
interest rate levels, maturities, and creditworthiness of issuers. A decision as
to whether, when, and how to hedge involves the exercise of skill and judgment
and even a well-conceived hedge may be unsuccessful to some degree because of
market behavior or unexpected market trends.

There can be no assurance that a liquid market will exist at a time when a
Portfolio seeks to close out a futures contract or a futures option position.
Most futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single day; once the daily limit
has been reached on a particular contract, no trades may be made that day at a
price beyond that limit. In addition, certain of these instruments are
relatively new and without a significant trading history. As a result, there is
no assurance that an active secondary market will develop or continue to exist.
The daily limit

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governs only price movements during a particular trading day and therefore does
not limit potential losses because the limit may work to prevent the liquidation
of unfavorable positions. For example, futures prices have occasionally moved to
the daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of positions and subjecting some holders
of futures contracts to substantial losses. Lack of a liquid market for any
reason may prevent the Portfolios from liquidating an unfavorable position and
the Portfolios would remain obligated to meet margin requirements and continue
to incur losses until the position is closed.

A Portfolio will only enter into futures contracts or futures options which
are standardized and traded on a U.S. exchange or board of trade, or, in the
case of futures options, for which an established over-the-counter market
exists.

OPTIONS
The Portfolios may purchase and sell (i.e., write) put and call options on
equity securities, debt securities, securities indices, and foreign currencies.
An option gives the owner the right to buy or sell securities at a predetermined
exercise price for a given period of time.

Although options will be primarily used to minimize principal fluctuations
or to generate additional premium income, they do involve certain risks. The
Portfolio Manager may not correctly anticipate movements in the relevant
markets, thus causing losses on the Portfolio's options positions.

A position in an exchange-traded option may be closed out only on an
exchange, board of trade or other trading facility which provides a secondary
market for an option of the same series. Although the Portfolios will generally
purchase or write only those exchange-traded options for which there appears to
be an active secondary market, there is no assurance that a liquid secondary
market on an exchange will exist for any particular option, or at any particular
time, and for some options no secondary market on an exchange or otherwise may
exist. In such event it might not be possible to effect closing transactions in
particular options, with the result that the Portfolio would have to exercise
its options in order to realize any profit and would incur brokerage commissions
upon the exercise of such options and upon the subsequent disposition of
underlying securities acquired through the exercise of call options or upon the
purchase of underlying securities for the exercise of put options. If a
Portfolio as a covered call option writer is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise.

Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the facilities of an exchange or
a clearing corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic or other
reasons, decide to be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that exchange (or in the class or series of options) would
cease to exist, although outstanding options on that exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. There is no
assurance that higher than anticipated trading activity or other unforeseen
events might not, at times, render certain of the facilities of any of the
clearing corporations inadequate, and thereby result in the institution by an
exchange of special procedures which may interfere with the timely execution of
customers' orders.

The purchase and sale of over-the-counter ("OTC") options will also be
subject to certain risks. Unlike exchange-traded options, OTC options generally
do not have a continuous liquid market. Consequently, a Portfolio will
generally be able to realize the value of an OTC option it has purchased only by
exercising it or reselling it to the dealer who issued it. Similarly, when a
Portfolio writes an OTC option, it generally will be able to close out the OTC
option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which the Portfolio originally wrote the OTC
option. There can be no assurance that a Portfolio will be unable to liquidate
an OTC option at a favorable price at any time prior to expiration. In the
event of insolvency of the other party, the Portfolio may be unable to liquidate
an OTC option.

The distinctive characteristics of options on stock indices create certain
risks that are not present with stock options. Index prices may be distorted if
trading of certain stocks included in the index is interrupted. Trading in the
index options also may be interrupted in certain circumstances, such as if
trading were halted in a substantial number of stocks included in the index. If
this occurred, a Portfolio would not be able to close out options which it had
purchased or written and, if restrictions on exercise were imposed, may be
unable to exercise an option it holds, which could result in substantial losses

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to the Portfolio. Price movements in a Portfolio's equity security holdings
probably will not correlate precisely with movements in the level of the index
and, therefore, in writing a call on a stock index a Portfolio bears the risk
that the price of the securities held by the Portfolio may not increase as much
as the index. In such event, the Portfolio would bear a loss on the call which
is not completely offset by movement in the price of the Portfolio's equity
securities. It is also possible that the index may rise when the Portfolio's
securities do not rise in value. If this occurred, the Portfolio would
experience a loss on the call which is not offset by an increase in the value of
its securities holdings and might also experience a loss in its securities
holdings.

A Portfolio's successful use of options on foreign currencies depends upon
the manager's ability to predict the direction of the currency exchange markets
and political conditions, which requires different skills and techniques than
predicting changes in the securities markets generally.

FOREIGN CURRENCY TRANSACTIONS
All Portfolios may enter into forward currency contracts and enter into
currency exchange transactions on a spot (i.e., cash) basis. A forward currency
contract is an obligation to purchase or sell a currency against another
currency at a future date and price as agreed by the parties. A Portfolio may
either accept or make delivery of the currency at the maturity of the forward
contract or, prior to maturity, enter into a closing transaction involving the
purchase or sale of an offsetting contract. A Portfolio will engage in forward
currency transactions in anticipation of or to protect itself against
fluctuations in currency exchange rates, as further described in the Statement
of Additional Information.

LEVERAGE
Each Portfolio may leverage its investments by purchasing securities with
borrowed money. In leveraging its investments, each Portfolio may borrow up to
33 1/3% of the value of its total assets (minus liabilities other than the
borrowing). Leveraging by means of borrowing will exaggerate the effect of any
increase or decrease in the value of portfolio securities on a Portfolios' net
asset value; money borrowed will be subject to interest and other costs (which
may include commitment fees and/or the cost of maintaining minimum average
balances), which may or may not exceed the income received from the securities
purchased with borrowed funds. The use of borrowing tends to result in a faster
than average movement, up or down, in the net asset value of the Portfolio's
shares. A Portfolio also may be required to maintain minimum average balances in
connection with such borrowing or to pay a commitment or other fee to maintain a
line of credit; either of these requirements would increase the cost of
borrowing over the stated interest rate.

Reverse repurchase agreements, short sales of securities, and short sales
of securities against the box will be included as borrowing subject to the
borrowing limitations described above. Securities purchased on a when-issued or
delayed delivery basis will not be subject to the Portfolio's borrowing
limitations to the extent that a Portfolio establishes and maintains liquid
assets in a segregated account with the Trust's custodian equal to the
Portfolio's obligations under the when-issued or delayed delivery arrangement.

A Portfolio may, in connection with permissible borrowings, transfer as
collateral securities it owns.

INDEXED SECURITIES
Each Portfolio may invest up to 5% of its assets in indexed securities.
Indexed securities values are linked to currencies, interest rates, commodities,
indices, or other financial indicators. Most indexed securities are short to
intermediate term fixed-income securities whose values at maturity or interest
rates rise or fall according to the change in one or more specified underlying
instruments. Indexed securities may be positively or negatively indexed (i.e.,
their value may increase or decrease if the underlying instrument appreciates),
and may have return characteristics similar to direct investments in the
underlying instrument or to one or more options on the underlying instrument.
Indexed securities may be more volatile than the underlying instrument itself.

INVESTMENT IN THE TRUST

PRINCIPAL UNDERWRITER
Western Capital Financial Group, Inc., 4225 Executive Square, Suite 325, La
Jolla, California 92037, serves as the principal underwriter of the shares of
the Portfolios. H. Michael Schwartz, a trustee and officer of the Trust, is
also the President of the principal underwriter. For more information about the
principal underwriter of a particular variable contract, see the prospectus for
the contract.

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DETERMINATION OF NET ASSET VALUE
The net asset values per share of the Portfolios are calculated as of 4:00
p.m. (New York City time), Monday through Friday, on each day that the New York
Stock Exchange is open for trading, exclusive of federal holidays. Net asset
value per share is calculated by dividing the aggregate value of each
Portfolio's assets less all liabilities by the number of each Portfolio's
outstanding shares.

The Board of Trustees has established procedures to value each Portfolio's
assets to determine net asset value. In general, these valuations are based on
actual or estimated market value, with special provisions for assets not having
readily available market quotations and short-term debt securities. The net
asset values per share of each Portfolio will fluctuate in response to changes
in market conditions and other factors.

Portfolio securities for which market quotations are readily available are
stated at market value. Market value is determined on the basis of last reported
sales price, or, if no sales are reported, the mean between representative bid
and asked quotations obtained from a quotation reporting system or from
established market makers. In other cases, securities are valued at their fair
value as determined in good faith by the Board of Trustees, although the actual
calculations will be made by persons acting under the direction of the Board and
subject to the Board's review. Money market instruments are valued at market
value, except that instruments maturing in sixty days or less may be valued
using the amortized cost method valuation. The value of a foreign security is
determined in its national currency based upon the price on the foreign exchange
as of its close of business immediately preceding the time of valuation.
Securities traded in over-the-counter markets outside the United States are
valued at the last available price in the over-the-counter market prior to the
time of valuation.

Debt securities, including those to be purchased under firm commitment
agreements (other than obligations having a maturity sixty days or less at their
date of acquisition valued under the amortized cost method), are normally valued
on the basis of quotes obtained from brokers and dealers or pricing services,
which take into account appropriate factors such as institutional-size trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data. Debt obligations having a
maturity of sixty days or less may be valued at amortized cost unless the
Portfolio Manager believes that amortized cost does not approximate market
value.

When a Portfolio writes a put or call option, the amount of the premium is
included in the Portfolios' assets and an equal amount is included in its
liabilities. The liability thereafter is adjusted to the current market value of
the option. The premium paid for an option purchased by the Portfolio is
recorded as an asset and subsequently adjusted to market value. Futures and
options thereon which are traded on commodities exchanges or boards of trade
will be valued at their closing settlement price on such exchange or board of
trade. Foreign securities quoted in foreign currencies generally are valued at
appropriately translated foreign market closing prices.

Trading in securities on exchanges and over-the-counter markets in European
and Pacific Basin countries is normally completed well before 4:00 p.m., New
York City time. Trading on these exchanges may not take place on all New York
business days and in addition, trading takes place in various foreign markets on
days which are not business days in New York and on which the Trust's net asset
value is not calculated. As a result, the calculation of the net asset value of
a Portfolio investing in foreign securities may not take place contemporaneously
with the determination of the prices of the securities included in the
calculation. Events that may affect the value of these securities that occur
between the time their prices are determined and the time the Portfolios' net
asset value is determined may not be reflected in the calculation of net asset
value of the Portfolio unless the Portfolio Manager, acting under authority
delegated by the Board of Trustees, deems that the particular event would
materially affect net asset value. In this event, the securities would be valued
at fair market value as determined in good faith by the Board of Trustees of the
Trust, although the actual calculations will be made by the Portfolio Manager
acting under the direction of the Board and subject to the Board's review.

PURCHASE OF SHARES
Shares of the Portfolios may be sold to: (1) life insurance company
separate accounts to serve as the underlying investment medium for variable
annuity contracts; (2) qualified retirement plans, as permitted by Treasury
Regulations; and (3) life insurance companies and advisers to the Portfolios and
their affiliates. In the future, the Trust intends to sell its shares to
separate accounts to serve as the underlying investment medium for variable life
contracts. The Trust currently does not foresee any disadvantages to variable
contract owners or retirement plan participants arising from offering the
Trust's shares to contract owners, participants, insurers and advisers, to
separate accounts of unaffiliated insurers, or to separate accounts funding both
life insurance policies and annuity contracts. In some circumstances, however,
it is theoretically possible that the interests of the various beneficial owners
of Trust shares might at some time be in conflict. If and when shares are sold
to variable life separate accounts, the Board of Trustees will monitor events in
order to identify the existence of any material

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irreconcilable conflicts and to determine what action, if any, should be taken
in response. The Trust and insurers and retirement plans that purchase its
shares will be responsible for remedying any material conflict in accordance
with SEC exemptive rules or orders. One potential remedy is withdrawal of a
separate account's investment in the Trust.

Shares of the Portfolios are sold at their respective net asset values
(without a sales charge) next computed after receipt of a purchase order. The
Portfolios reserve the right to cease offering its shares at any time.

REDEMPTION OF SHARES
Shares of the Portfolios may be redeemed on any business day. Redemptions
are effected at the net asset value per share next determined after receipt of
the redemption request. Redemption proceeds normally will be paid within seven
days following receipt of instructions in proper form, or sooner if required by
law.

The right of redemption may be suspended by the Trust or the payment date
postponed beyond seven days when the New York Stock Exchange is closed (other
than customary weekend and holiday closings) or for any period during which
trading thereon is restricted because an emergency exists, as determined by the
Securities and Exchange Commission, making disposal of portfolio securities or
valuation of net assets not reasonably practicable, and whenever the Securities
and Exchange Commission has by order permitted such suspension or postponement
for the protection of shareholders.

If the Board of Trustees should determine that it would be detrimental to
the best interests of the remaining shareholders of the Portfolios to make
payment wholly or partly in cash, the Portfolios may pay the redemption price in
whole or in part by a distribution in kind of securities from the portfolios of
the Portfolios, in lieu of cash, in conformity with applicable rules of the
Securities and Exchange Commission. If shares are redeemed in kind, the
redeeming shareholder might incur brokerage costs in converting the assets into
cash.

DIVIDENDS, DISTRIBUTIONS, AND TAXES

The Trust intends that the Portfolios will qualify and elect to be treated
as regulated investment companies under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). In any year in which the Portfolios
qualify as regulated investment companies and distribute substantially all of
their net investment income and their net capital gains, the Portfolios
generally will not be subject to federal income tax to the extent they
distributes to shareholders such income and capital gains in the manner required
under the Code.

Tax consequences to the Variable Contract owners are described in the
prospectus for the pertinent Variable Contract.

The provisions of the Code and the Treasury Regulations that apply to
qualified retirement plans are complex and vary according to the type of plan
and its terms and conditions. Accordingly, this prospectus provides only
general tax information, and participants in qualified retirement plans that
invest directly in the Portfolios should consult a qualified tax adviser before
purchasing or redeeming any Portfolio shares. In general, assuming that a plan
adheres to the applicable limitations of the Code and Treasury Regulations,
payments for the purchase of Portfolio shares (other than after-tax employee
payments) will be deductible (or not includable in income) up to certain amounts
each year. Federal income tax currently is not imposed upon the investment
income and realized gains until redemption. When Portfolio shares are redeemed
for the purpose of making payments to plan participants, all or a portion of the
payment is normally taxable as ordinary income. Some redemptions may also be
subject to penalty tax. For more information contact a qualified tax adviser.

The Portfolios intend to declare as a dividend and to distribute net
investment income quarterly. The Portfolios will distribute any net realized
capital gains at least once annually. All dividends and distributions will be
reinvested automatically at net asset value in additional shares of the
Portfolios. Dividends declared in October, November, or December to
shareholders of record in such month and paid during the following January will
be treated as having been distributed and received by shareholders on December
31.

Regulations under Section 817(h) of the Code contain certain
diversification requirements. Generally, under those regulations, the Portfolios
will be required to diversify its investments so that, on the last day of each
quarter of a calendar year, no more than 55% of the value of its assets will be
represented by any one investment, no more than 70% will be represented by any
two investments, no more than 80% will be represented by any three investments,
and no more than 90% will be represented by any four investments. For this
purpose, all securities of a given issuer are treated as a single investment,
but, each U.S. Government agency and instrumentality is treated as a separate
issuer. In addition, any security issued, guaranteed,

<PAGE>

or insured (to the extent so guaranteed or insured) by the United States or an
instrumentality of the U.S. will be treated as a security issued by the U.S.
Government or its instrumentality, whichever is applicable.

OTHER INFORMATION

CAPITALIZATION
The Trust was organized as a Massachusetts business trust on September 8,
1993. The Trust currently intends initially to issue shares of the five
portfolios described in this prospectus. The Agreement and Declaration of Trust
established three other portfolios, and the Board of Trustees may establish
additional portfolios in the future. The capitalization of the Trust consists
solely of an unlimited number of shares of beneficial interest with a par value
of $0.001 each. When issued in accordance with the Trust's Agreement and
Declaration of Trust, shares of the Portfolios are fully paid, redeemable,
freely transferable, and non-assessable by the Trust.

Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims liability of the shareholders, Trustees or
officers of the Trust for acts or obligations of the Trust, which are binding
only on the assets and property of the Trust, and requires that notice of the
disclaimer be given in each contract or obligation entered into or executed by
the Trust or the Trustees. The Declaration of Trust provides for indemnification
out of Trust property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. The risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its obligations,
and should be considered remote.

VOTING RIGHTS
Shareholders of the Trust are given certain voting rights. Each share of
the Portfolios will be given one vote, unless otherwise required by law.

Massachusetts business trust law does not require the Trust to hold annual
shareholder meetings, although special meetings may be called for the Portfolio,
or for the Trust as a whole, for purposes such as electing or removing Trustees,
changing fundamental policies, or approving a contract for investment advisory
services. In accordance with current laws, it is anticipated that an insurance
company issuing a Variable Contract that participates in the Trust will request
voting instructions from Variable Contract owners and will vote shares or other
voting interests in the Separate Account in proportion to the voting
instructions received.

As of January 15, 1996 all of the outstanding shares of the Portfolios
were held by either PAI or Security Life of Denver Insurance Company, a stock
life insurance company organized under the laws of Colorado and a wholly owned
indirect subsidiary of Internationale Nederladen Group. The shares were
purchased to provide the initial capital for the Trust. Until Variable Contract
owners have the right to instruct insurance companies how to vote the shares,
PAI and Security Life of Denver Insurance Company will control the Portfolios.

As explained in "The Managers and Portfolio Managers," page , each
Portfolio Manager (or affiliate) has agreed to invest at least $1 million in the
Portfolio or Portfolios it manages. Each Portfolio Manager has agreed to vote
its shares in the same proportion as all Contract owners having voting rights
with respect to the Portfolio or in such other manner as may be required by the
SEC or its staff.

PORTFOLIO BROKERAGE
A Portfolio Manager may employ an affiliated broker to execute brokerage
transactions on behalf of the Portfolio as long as the commissions are
reasonable and fair compared to the commissions received by other brokers in
connection with comparable transactions involving similar securities being
purchased or sold on a securities exchange during a comparable period of time.
The Portfolios may not engage in any transactions in which a Portfolio Manager
or its affiliates acts as principal, including over-the-counter purchases and
negotiated trades in which such party acts as a principal.

PERFORMANCE INFORMATION
The Trust may, from time to time, include quotations of each Portfolio's
total return in advertisements or reports to shareholders or prospective
investors. Performance information for the Portfolios will not be advertised or
included in sales literature for Variable Contracts unless accompanied by
comparable performance information for a separate account to which the
Portfolios offer their shares. Quotations of total return will be expressed in
terms of the average annual compounded rate of return of a hypothetical
investment in the Portfolios over periods of 1, 5 and 10 years (up to the life
of the Portfolios). All

<PAGE>

total return figures will reflect the deduction of a proportional share of each
Portfolio's expenses on an annual basis, and will assume that all dividends and
distributions are reinvested when paid. Quotations of total return reflect only
the performance of a hypothetical investment in the Portfolios during the
particular time period on which the calculations are based. Total return for the
Portfolios will vary based on changes in market conditions and the level of each
Portfolio's expenses, and no reported performance figure should be considered an
indication of performance which may be expected in the future.

Quotations of total return for the Portfolios will not take into account
charges or deductions against any Separate Account to which the Portfolio shares
are sold or charges and deductions against the pertinent Variable Contract,
although comparable performance information for the Separate Account will take
such charges into account. A person considering the purchase of a Variable
Contract should not compare a Portfolio's total return with the total returns of
mutual funds that sell their shares directly to the public since the Portfolio's
figures do not reflect charges against the separate accounts or the Variable
Contracts.

Reports and promotional literature may also contain other information,
including the effect of tax deferred compounding on each Portfolio's investment
returns, or returns in general, which may be illustrated by graphs, charts, or
otherwise, and which may include a comparison, at various points in time, of the
return from an investment in the Portfolio (or returns in general) on a tax-
deferred basis (assuming one or more tax rates) with the return on a taxable
basis. For a more detailed description of the methods used to calculate each
Portfolio's total return, see the SAI.

<PAGE>

APPENDIX A

DESCRIPTION OF INDICES

The following information as to each index has been supplied by the
respective preparer of the index or has been obtained from other
publicly-available information.

S&P 500 COMPOSITE
STOCK PRICE INDEX

The purpose of the S&P 500 Composite Stock Price Index is to portray the
pattern of common stock price movement. Construction of the index proceeds from
industry groups to the whole. Currently there are four groups: 400 Industrials,
40 Utilities, 20 Transportation and 40 Financial. Since some industries are
characterized by companies of relatively small stock capitalization, the index
does not comprise the 500 largest companies listed on the New York Stock
Exchange.

Component stocks are chosen solely with the aim of achieving a distribution
by broad industry groupings that approximates the distribution of these
groupings in the New York Stock Exchange common stock population, taken as the
assumed model for the composition of the total market. Each stock added to the
index must represent a viable enterprise and must be representative of the
industry group to which it is assigned. Its market price movements must in
general be responsive to changes in industry affairs.

The formula adopted by S&P is generally defined as a "base-weighted
aggregative" expressed in relatives with the average value for the base period
(1941-1943) equal to 10. Each component stock is weighted so that it will
influence the index in proportion to its respective market importance. The most
suitable weighting factor for this purpose is the number of shares outstanding.
The price of any stock multiplied by number of shares outstanding gives the
current market value for that particular issue. This market value determines the
relative importance of the security.

Market values for individual stocks are added together to obtain their
particular group market value. These group values are expressed as a relative,
or index number, to the base period (1941-1943) market value. As the base period
market value is relatively constant, the index number reflects only fluctuations
in current market values.

MORGAN STANLEY CAPITAL INTERNATIONAL
EUROPE, AUSTRALIA, AND THE FAR EAST INDEX

The Morgan Stanley EAFE index measures the performance in Europe,
Australia, and the Far East (EAFE). EAFE contains 20 countries, excluding the
U.S. and the emerging markets of Latin America. Japan represents approximately
46% of the Index value. EAFE is divided into 8 economic sectors and 38 industry
groups. Banking, utilities, and health care are the largest groups.

JP MORGAN GLOBAL GOVERNMENT BOND INDEX, UNHEDGED

The J.P. Morgan Global Government Bond Index, Unhedged, measures the global
government bond market of 13 countries. This index is weighted by market
capitalization ($3,053 billion-US) and is comprised of 424 bonds with maturities
greater than one year. In the unhedged index, foreign currencies are converted
into dollars at spot rates. This gives the index exposure to both bond and
currency markets. As of February 1995, the index was comprised of the following
countries and country weights: Australia (1.2%), Belgium (3.2%), Canada (2.7%),
Denmark (1.7%), France (7.0%), Germany (9.3%), Italy (4.5%), Japan (13.5%), the
Netherlands (3.5%), Spain (2.6%), Sweden (1.5%), United Kingdom (6.2%) and the
United States (43.1%).

<PAGE>

APPENDIX B

DESCRIPTION OF RATINGS

CERTAIN RATINGS OF CORPORATE DEBT SECURITIES

MOODY'S INVESTORS SERVICE INC.

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

Aa -- Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.

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

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

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

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

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

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

STANDARD & POOR'S CORPORATION

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

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

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

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

<PAGE>

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

RATINGS OF COMMERCIAL PAPER

MOODY'S INVESTORS SERVICE, INC.

Prime-l is the highest commercial paper rating assigned by Moody's. Issuers
rated Prime-l (or supporting institutions) are considered to have a superior
capacity for repayment of short-term promissory obligations. Issuers rated
Prime-2 (or supporting institutions) are considered to have a strong capacity
for repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics of issuers rated Prime-l 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.

STANDARD & POOR'S CORPORATION

Commercial paper rated A-l by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Capacity for
timely payment on commercial paper on commercial paper rated A-2 is strong, but
the relative degree of safety is not as high as for issues designated A-1.

28
<PAGE>

APPENDIX C
to the
PROSPECTUS
dated May 1, 1996
for
The Value Portfolio
The Growth Portfolio
The International Growth Portfolio
The Global Strategic Income Portfolio, and
The Global Interactive/Telecomm Portfolio
of
THE PALLADIAN TRUST
4225 Executive Square, Suite 270
La Jolla, California 92037
(619) 677-5917

THIS APPENDIX IS NOT A PROSPECTUS. IT MAY BE DISTRIBUTED ONLY WITH A COPY
OF THE PALLADIAN TRUST'S PROSPECTUS DATED MAY 1, 1996. IT SHOULD BE READ IN
CONJUNCTION WITH THAT PROSPECTUS AND THE PROSPECTUS FOR THE APPLICABLE VARIABLE
CONTRACT.

This appendix includes data relating to past performance by the Portfolio
Managers in managing certain accounts, portfolios and investment companies other
than The Palladian Trust (the "Trust"). Under the current requirements of the
staff of the Securities and Exchange Commission, this data may be included in
the prospectus only during the Trust's first year of operations. The Trust
commenced operations February 1, 1996. ACCORDINGLY, THIS APPENDIX MAY NOT BE
DISTRIBUTED AFTER FEBRUARY 1, 1997.

PERFORMANCE DATA FOR THE PORTFOLIO MANAGERS
The following tables include historical performance data relating to each
Portfolio Manager. The data is provided to illustrate past performance in
managing accounts, portfolios, and/or investment companies with investment
objectives and techniques similar to the Portfolio of the Trust that the
Portfolio Manager will manage.

The performance figures have been adjusted to reflect a deduction of the
investment management fee for the first year of the Portfolio's operation (0.80%
of average daily net assets) and an estimate of other operating expenses of the
Portfolio for the Portfolio's first fiscal year of operations. (The advisory
fee and the estimated expenses are the same as those indicated in the "Summary
of Expenses," page 4.)

All returns quoted are dollar weighted rates of return which include the
impact of capital appreciation as well as the reinvestment of interest and
dividends.

The performance figures rely on data supplied by the Portfolio Managers or
from statistical services, reports or other sources believed by PAI to be
reliable. However, the data has not been verified and the performance figures
are unaudited. The performance figures for each Portfolio Manager do not
reflect all of the assets under its management and may not accurately reflect
the performance of all accounts it has managed.

As noted above, the performance figures are calculated using the advisory
fee that will be applicable only for the first 12 months of operations, 0.80% of
average daily net assets. After that time, there will be an incentive fee
arrangement. The base fee will be 2.00%, but it may vary from between 0.00% to
4.00% depending on the Portfolio's performance. See "Management and Portfolio
Management Advisory Fees," page 9. In some instances, performance figures
calculated using the incentive fee arrangement would show lower rates of return
(because the fee would be higher). In other instances, performance figures
calculated using the incentive fee arrangement would show higher rates of return
(because the fee would be lower or zero).

INVESTORS SHOULD NOT CONSIDER THIS PERFORMANCE DATA AS AN INDICATION OF THE
FUTURE PERFORMANCE OF ANY OF THE PORTFOLIOS.

<PAGE>

GAMCO INVESTORS, INC.
THE VALUE PORTFOLIO MANAGER

ANNUALIZED PERFORMANCE (AFTER ADJUSTMENT FOR PORTFOLIO FEES):

Time Period Gabelli(1) S&P 500(2)
- -------------------------------------------------------------------------------
10 Years: 1985-1995................ -------- --------

5 Years: 1991-1995................ 17.15% 16.51%

3 Years: 1993-1995................ 19.42% 15.23%

1 Years: 1995..................... 22.45% 37.50%

Inception: September 29, 1989 - 1995 12.77% 12.80%
- -------------------------------------------------------------------------------
(1) GAMCO Investors, Inc. ("GAMCO") results are based on The Gabelli Value
Fund, Inc. (the "Fund"), a publicly available mutual fund whose management
experience, investment objectives and techniques are similar to that of the
Value Portfolio. The Fund is managed by GAMCO's parent company, Gabelli
Funds, Inc., and had assets of $486 million as of December 31, 1995. Mario
Gabelli is primarily responsible for day-to-day investment management of
the Value Portfolio and the Fund. As of December 31, 1995, GAMCO
Investors, Inc. had in excess of $5.1 billion under management. These
figures were calculated by: (1) taking the total return of the Fund; (2)
increasing that return by the advisory fees and operating expenses of the
Fund to create an estimate of the gross return of the Fund; and (3)
reducing that return by the investment management fee for the first 12
months of the Portfolio's operations (0.80% of average daily net assets)
and the estimated expenses for the Portfolio's first fiscal year of
operations. For more information, see the introduction to these tables.

(2) Standard & Poors 500 is a capital-weighted index representing the aggregate
market value of the common equity of 500 stock primarily traded on the
NYSE. These 500 stocks are composed of 400 industrial, 40 utility, 40
financial and 20 transportation companies. The weight of each stock in the
index is proportional to its price time the number of shares outstanding.
The Standard & Poors 500 is an unmanaged index and includes the
reinvestment of all dividends.

THESE RESULTS ARE UNAUDITED. OF COURSE, PAST PERFORMANCE SHOULD NOT BE
INTERPRETED AS INDICATIVE OF FUTURE PERFORMANCE.

<PAGE>

BEE & ASSOCIATES INCORPORATED
THE INTERNATIONAL GROWTH PORTFOLIO MANAGER

ANNUALIZED PERFORMANCE (AFTER ADJUSTMENT FOR PORTFOLIO FEES):

Time Period BAI(1) MSCI -- EAFE(2)
- -------------------------------------------------------------------------------

10 Years: 1985-1995................ -------- --------

5 Years: 1991-1995................ 21.79% 9.37%

3 Years: 1993-1995................ 21.08% 16.69%

1 Years: 1995..................... 20.87% 11.20%

Inception: April 1989 - 1995 16.97% 4.24%

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

(1) Bee & Associates Incorporated results are based on a dollar weighted
composite of all fully discretionary managed accounts (with at least 3
months of experience) whose investment objectives and techniques are
similar to that of the International Growth Portfolio (the "Investment
Strategy"). These figures were calculated by: (1) taking the gross
performance figures for the subject managed accounts (i.e., without
deduction of advisory fees and other expenses) calculated by the Portfolio
Manager according to the formula recommended by the Association for
Investment Management and Research Standards (dated 1993); (2) deducting
the investment management fee for the first 12 months of the Portfolio's
operations (0.80% of average daily net assets); and (3) deducting the
estimated expenses for the Portfolio's first fiscal year of operations.
For more information, see the introduction to these tables. As of December
31, 1995, Bee & Associates Incorporated had approximately $170 million
under management, all of which used the Investment Strategy. The composite
results reflected above consist of 85% of the managed accounts and 85% of
the assets under management which used the Investment Strategy. The only
accounts using the Investment Strategy which are not included in the
composite either have been managed for less than 3 months or are not fully
discretionary (for example, do not permit certain types of investments in
the account).
(2) The Morgan Stanley Capital International -- Europe, Australia, Far East
Index (EAFE) is a widely recognized unmanaged index of non-U.S. companies
which assumes the reinvestment of dividends. These non-U.S. companies are
listed on one of 20 countries and is divided into 8 economic sectors and 38
industry groups.

THESE RESULTS ARE UNAUDITED. OF COURSE, PAST PERFORMANCE SHOULD NOT BE
INTERPRETED AS INDICATIVE OF FUTURE PERFORMANCE.

<PAGE>

FISHER FRANCIS TREES & WATTS, INC.
THE GLOBAL STRATEGIC INCOME PORTFOLIO MANAGER

ANNUALIZED PERFORMANCE (AFTER ADJUSTMENT FOR PORTFOLIO FEES):
J.P. MORGAN GLOBAL
BOND INDEX,
TIME PERIOD FFTW(1) UNHEDGED(2)
- -------------------------------------------------------------------------------

10 Years: 1985-1995................ -------- --------

5 Years: 1991-1995................ 10.62% 10.36%

3 Years: 1993-1995................ 10.48% 10.69%

1 Years: 1995..................... 17.77% 19.31%

Inception: December 1989 - 1995 11.92% 10.65%

- -------------------------------------------------------------------------------
(1) Fischer Francis Trees & Watts results are based on a dollar weighted
composite of its fully discretionary portfolios (with at least 3 months of
experience) whose investment objectives and techniques are similar to that
of the Global Strategic Income Portfolio (the "Investment Strategy").
These figures were calculated by: (1) taking the gross performance figures
for the subject portfolios (i.e., without deduction of advisory fees and
other expenses) calculated by the Portfolio Manager according to the
formula recommended by the Association for Investment Management and
Research Standards (dated 1993); (2) deducting the investment management
fee for the first 12 months of the Portfolio's operations (0.80% of average
daily net assets); and (3) deducting the estimated expenses for the
Portfolio's first fiscal year of operations. For more information, see the
introduction to these tables. As of December 31, 1995, Fischer Francis
Trees & Watts had $21 billion under management, $4.8 billion of which
were global fixed income portfolios. Of that $4.8 billion, approximately
$392 million were managed using the Investment Strategy. The composite
results reflected above consist of 100% of the managed accounts and 100% of
the assets under management which used the Investment Strategy.

(2) The JP Morgan Global Government Bond Index, Unhedged is a widely recognized
index that measures the global government bond market of 13 countries.
This index is weighted by market capitalization ($3,053 billion-US) and is
comprised of 424 bonds with maturities greater than one year. In the
unhedged index, foreign currencies are converted into dollars at spot
rates. This gives the index exposure to both bond and currency markets.

THESE RESULTS ARE UNAUDITED. OF COURSE, PAST PERFORMANCE SHOULD NOT BE
INTERPRETED AS INDICATIVE OF FUTURE PERFORMANCE.

<PAGE>

GAMCO INVESTORS, INC.
THE GLOBAL INTERACTIVE / TELECOMM PORTFOLIO MANAGER

ANNUALIZED PERFORMANCE (AFTER ADJUSTMENT FOR PORTFOLIO FEES):
<TABLE>
<CAPTION>

Gabelli Gabelli
Time Period Interactive(1) S&P 500(2) Telecomm(1) S&P 500(2)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
10 Years: 1985-1995................ -------- -------- -------- --------

5 Years: 1991-1995................ -------- -------- --------- --------

3 Years: 1993-1995................ -------- -------- -------- --------

1 Years: 1995......................... 18.61% 37.50 16.24% 37.50%

Inception: 11.19% 17.06 6.96% 16.51%

- ---------------------------------------------------------------------------------------------------------
</TABLE>

(1) GAMCO Investors, Inc. results are based upon two publicly available mutual
funds, The Gabelli Global Interactive Couch Potato-Registered Trademark-
Fund (the "Interactive Fund") and The Gabelli Global Telecommunications
Fund (the "Telecomm Fund"). The Portfolio will be managed combining the
investment objectives and techniques of these two Funds. The Funds are
managed by GAMCO's parent company, Gabelli Funds, Inc. Mario Gabelli is
primarily responsible for the day-to-day investment management of the Funds
and the Global Interactive/Telecomm Portfolio. As of December 31, 1995,
GAMCO Investors, Inc. had in excess of $5.1 billion under management. As
of that date, the Interactive Fund (which commenced operations on February
7, 1994) had assets of $31.4 million, and the Telecomm Fund (which
commenced operations on November 1, 1993) had assets of $122.8 million.
For each Fund, these figures were calculated by: (1) taking the total
return of the Fund; (2) increasing that return by the advisory fees and
operating expenses of the Fund to create an estimate of the gross return of
the Fund; and (3) reducing that return by the investment management fee for
the first 12 months of the Portfolio's operations (0.80% of average daily
net assets) and the estimated expenses for the Portfolio's first fiscal
year of operations.

THESE RESULTS ARE UNAUDITED. OF COURSE, PAST PERFORMANCE SHOULD NOT BE
INTERPRETED AS INDICATIVE OF FUTURE PERFORMANCE.